Item 1. Business
INTRODUCTION
AMCOL International Corporation was originally incorporated in South Dakota in 1924, reincorporated in Delaware in 1959, became publicly listed in 1987 on the NASDAQ, and moved to and remains listed on the New York Stock Exchange since 1998. Except as otherwise noted or indicated by context, the term “Company” refers to AMCOL International Corporation and its subsidiaries.
We are a global company focused on long term profitability growth through the development and application of minerals and technology products and services to various industrial and consumer markets. We focus our research and development activities in areas where we can either leverage our current customer relationships and mineral reserves or enhance existing or related products and services.
We operate in five segments: minerals and materials, environmental, oilfield services, transportation and corporate. Our minerals and materials segment mines, processes and distributes minerals and products for use in various industrial and consumer markets, including metalcasting, pet care, laundry care, and drilling industries. Additionally, this segment develops and manufactures synthetic materials principally for personal care applications. Our environmental segment manufactures and distributes products and related services for use as moisture and vapor barriers in commercial construction, landfills and a variety of other industrial and commercial applications. Our oilfield services segment provides both onshore and offshore water treatment filtration, well testing, pipeline separation, nitrogen, coil tubing and other services to the oil and natural gas industry. Our transportation segment includes both a long-haul trucking business and a freight brokerage business serving our domestic subsidiaries as well as third parties. Our corporate segment includes the elimination of intersegment revenues as well as certain expenses associated with research and development, management, employee benefits and information technology activities for our Company.
A significant portion of our minerals and materials and, to a lesser extent, our environmental segments utilize a mineral called bentonite in their products, and we have bentonite reserves located throughout the world. Nicknamed the mineral of a thousand uses, bentonite has several unique characteristics including its ability to bind, swell, adsorb, control rheology, soften fabrics, and have its surface modified through chemical and physical reactions. We also develop applications for other minerals, most significantly chromite; we began acquiring a chromite ore mine in South Africa in 2008 and purchased the remaining interests in this mine in 2011.
We earn revenues from the sales of finished products, provision of services, rental of equipment, and charges for shipping goods and materials to customers. Revenues derived from services are primarily generated in our environmental, oilfield services, and transportation segments, the latter being purely service based.
The following table sets forth the percentage of our revenues generated from each segment for each of our last three fiscal years:
Net revenues, operating profit, assets, depreciation, depletion and amortization, capital expenditures and research and development expenditures attributable to each of our segments are set forth in our Notes to Consolidated Financial Statements included later herein.
MINERALS AND MATERIALS SEGMENT
This segment conducts its business through wholly-owned subsidiaries and investments in affiliates and joint ventures throughout the world. Our principal products are marketed under various internationally registered trade names, including VOLCLAY®, PANTHER CREEK®, PREMIUM GEL®, ADDITROL®, and Hevi-Sand®.
Our principal mineral is bentonite. Commercially produced bentonite is a type of montmorillonite clay found in beds ranging in thickness from two to 50 feet beneath overburden of up to 60 feet. There are two basic types of bentonite, sodium bentonite and calcium bentonite, and each has different chemical and physical properties. Sodium bentonite is generally referred to as Western bentonite because it predominately exists in the Western United States, although sodium bentonites of lesser purity do exist outside the United States (“U.S.”). Calcium bentonite is sometimes referred to as Southern bentonite in the U.S. and as Fuller’s Earth outside the U.S. Calcium bentonites mined outside the U.S. are sometimes activated with sodium carbonate or similar compounds to produce properties similar to natural sodium bentonite.
In 2009, we purchased a chromite ore mine in South Africa. Chromite ore is located in seams within certain rock formations that can descend over 100 feet below ground. We are particularly interested in mining chromite ore that has physical properties suited for metalcasting applications.
Principal Products and Markets
Metalcasting. In the formation of sand molds for metalcastings, sand is bonded with minerals and various other additives to yield desired casting form and surface finish. Our products are sold in the foundry and casting industry to help customers reduce waste from metalcasting defects, improve the efficiency and recycling of sand blends in mold sand systems, and improve air quality by reducing volatile organic compound emissions. We employ a consultative sales process to sell custom-blended mineral and non-mineral products to strengthen sand molds for casting auto parts; farm and construction equipment; oil and gas production equipment; power generation turbine castings; and rail car components.
In the ferrous casting market, we specialize in blending bentonite of various grades by themselves or with mineral binders containing sodium bentonite, calcium bentonite, seacoal and other ingredients. We also have a line of formulated additives that introduce silicon and carbon in the melt phase of the casting process.
In the steel alloy casting market, we sell a chromite product with a particle size distribution specific to a customer’s needs. One of chromite’s better qualities is its ability to abstract heat. Thus, we market the product for use in making very large, high integrity, steel alloy castings where the chromite is better suited to withstand the high heat and pressure resulting from the significant amount of alloy poured in the casting. We market our chromite product under the trade name Hevi-Sand®.
Specialty Materials. Our specialty materials products are sold in markets with generally lower volume applications where our material acts as a performance additive. The following are the major markets for such mineral applications:
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Laundry. We supply high-grade, agglomerated bentonite and other mineral additives used in laundry care products. Bentonite performs as a softening agent in certain powdered-detergent formulations, and it can also act as a carrier for colorants and fragrances. Amongst other things, our laundry care products lower pollution by eliminating phosphates, reduce packaging requirements due to our agglomeration technology which results in a greater density particle, and can lower an end-user’s energy costs in cold wash applications.
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Personal Care. We manufacture adsorbent polymers and purified grades of bentonite ingredients for sale to manufacturers of personal skin care products. The adsorbent polymers are used to deliver high-value actives in skin-care products. Microsponge® and Poly-Pore® are the principal trade names under which these products are sold. Bentonite-based materials act as thickening, suspension and dispersion agent emollients.
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Paper Manufacturing. Bentonite is used to improve processing and waste control in manufacturing a broad range of printable paper surfaces.
Pet Products. We produce and market sodium bentonite-based scoopable (clumping), traditional and alternative cat litters as well as specialty pet products to grocery and drug stores, mass merchandisers, wholesale clubs and pet specialty stores throughout the U.S. Our scoopable products’ clump-forming capability traps urine, thereby reducing the waste of litter by allowing for easy removal of only the odor-producing elements from the litter box. Our products are marketed under various trade names.
Basic Minerals. We supply minerals in industrial applications where they are used as a component of the end product to the consumer. Our markets and applications include:
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Drilling Fluid Additives. Sodium bentonite and leonardite, a form of oxidized lignite which we mine and process in North Dakota, are components of drilling fluids used in oil and gas well drilling. Bentonite imparts thickening and suspension properties, which facilitate the transport of rock cuttings to the surface during the drilling process. Drilling fluids lubricate the drilling bit and coat the underground formations to prevent hole, collapse and drill-bit seizing. Our primary trademark for this application is the trade name PREMIUM GEL®.
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Other Industrial. We produce bentonite and bentonite blends for the construction industry, which are used as a plasticizing agent in cement, plaster and bricks, and as an emulsifier in asphalt. We also supply grades of bentonite used for pellitizing other materials for ease of use. Examples of this application are the pelletizing of iron ore and livestock feed.
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Ferro Alloys. A by-product of our chromite processing operations for foundry products includes a chromite ore which has physical properties suited for use in producing ferrochrome. The ore generally needs to have a chromite content in excess of 42% to meet metallurgical grade specifications. Manufacturers of stainless steel are the primary users of ferrochrome.
Sales and Distribution
In 2011, the top ten customers of the minerals and materials segment accounted for approximately 31% of this segment’s sales worldwide. Approximately 59% of our sales in this segment are generated in the Americas. Metalcasting is our largest product line in the Americas and all of our pet products sales are in this region as well. Our sales in EMEA (Europe, Middle East and Africa) represent approximately 19% of segment sales and are comprised of our laundry care, basic minerals, and chromite products. The Asia-Pacific region represents approximately 22% of segment sales with metalcasting being our largest product line.
This segment sells minerals and materials not only to third party customers but also to other segments, principally our environmental segment. Bentonite is a key material included within several products in our environmental segment, most notably the lining technology products.
A large majority of our sales and distribution is conducted by our own personnel. We have established industry-specialized sales groups staffed with technically oriented salespersons serving each of our major markets. Certain products have networks of distributors and representatives, including companies that warehouse products at strategic locations.
We believe our strong, global market position in the metalcasting industry is largely due to our technical service capabilities and our distribution network. We provide training courses and laboratory testing for customers who use our products and blends in the metalcasting process. Our technical sales personnel provide expertise not only to educate our customers on the bentonite blend properties but also to aid them in producing castings efficiently and productively.
In pet products, we are primarily a private-label producer of cat litter. These products are sold solely in the U.S. from three principal sites from which we package and distribute finished goods. Our transportation segment provides logistics services for the cat litter group, and is a key component of our capability in supplying customers on a national basis.
Serving certain specialty material markets requires considerable technical expertise. In laundry care, we not only supply cost-effective products and additives but also provide product development capabilities to adapt to our customers’ product requirements. We experience similar requirements for our personal care business, which makes use of several patents with various durations.
In drilling fluid additives, we market products, including bentonite, under our own and private-label trade names. At least two drilling fluid service competitors have captive bentonite operations while others are party to long-term bentonite supply agreements. The potential customers for our products, therefore, are generally limited to those service organizations that neither are vertically integrated nor have long-term supply arrangements with other bentonite producers.
Competition
We are one of the largest producers of bentonite products globally. There is substantial domestic and international competition, which is essentially a matter of product quality, price, logistics, service and technical support. There are several producers of sodium bentonite or sodium activated calcium bentonite throughout the world, some of which import into the U.S. market. There are also numerous major producers of calcium bentonite and various regional suppliers in the areas we serve. Some of our competitors, especially in the chromite market, are companies primarily in other lines of business with substantially greater financial resources than ours.
Seasonality
We do not consider our minerals and materials segment to be seasonal in nature.
ENVIRONMENTAL SEGMENT
Principal Products and Markets
The business is principally conducted through wholly-owned subsidiaries and joint ventures throughout the world. Many of these companies utilize our CETCO® brand name. Our five principal markets are as follows:
Lining Technologies. We sell a variety of lining and other products to landfill, mining, and other construction markets for a variety of applications, most of which are directed to preserving or remediating environmental issues.
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Lining Technologies. We help customers protect ground water and soil through the sale of geosynthetic clay liner products containing bentonite. We market these products under the BENTOMAT® and CLAYMAX® trade names principally for lining and capping landfills, mine waste disposal sites, water and wastewater lagoons, secondary containments in tank farms, and other contaminated sites. We also provide associated geosynthetic materials for these applications, including geotextiles and drainage geocomposites.
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Remediation Technologies. In remediation technologies, we provide engineered solutions for challenging environmental site-remediation projects, usually with the goal of redeveloping contaminated industrial sites.
Such projects often involve contaminated sediment and soil capping, waste solidification and stabilization, water treatment, sludge dewatering, hazardous waste clean-up and engineered remedial barriers. Products offered include Liquid Boot®, a liquid applied vapor barrier system; REACTIVE CORE-MAT™, an in-situ sediment capping material; ORGANOCLAY®, which absorbs organic containments; and QUIK-SOLID®, a super absorbent media.
Building Materials. We supply many roofing and waterproofing materials to the non-residential construction industry. This group’s products include VOLTEX®, a waterproofing composite comprised of two polypropylene geotextiles filled with sodium bentonite; ULTRASEAL®, an advanced membrane using a unique active polymer core; and COREFLEX®, featuring heat-welded seams for protection of critical infrastructure. In addition to these membrane materials, we also provide roofing products and a variety of sealants and other accessories required to create a functional waterproofing system.
Contracting Services. Our contracting services group provides geo-environmental solutions for a variety of construction projects but is focused on installation of our own products in construction sites. This group is largely domiciled in Europe as, in 2011, we sold our domestic operations. This group operates in the commercial and environmental construction industries utilizing our own and third-party products.
Drilling. Our drilling products are used in environmental and geotechnical drilling applications, horizontal directional drilling, mineral exploration and foundation construction. The products are used to install monitoring wells, facilitate horizontal and water well drilling, and seal abandoned exploration drill holes. VOLCLAY GROUT™, HYDRAUL-EZ®, BENTOGROUT® and VOLCLAY TABLETS™ are among the trade names for products used in these applications. Ground source heat loop systems utilizing GEOTHERMAL GROUT™ represent a developing area for drilling products. We also offer a range of drilling products used in the excavation of foundations for large buildings, bridges and dams; these products include SHORE PAC® and PREMIUM GEL®.
Sales and Distribution
On an individual customer basis, we generated less than $5 million of sales from each of the top five customers in the environmental segment. Approximately 45% of sales are in the Americas where the U.S. is our largest geographical market for all product lines. Approximately 49% of sales are in EMEA and the remaining 6% in the Asia-Pacific region.
Sales and distribution of the lining technologies products and our contracting services are primarily performed through our own personnel and facilities. Service revenues from our contracting services are primarily generated under medium to short-term contracts. For both groups, our staff includes sales professionals and technical support engineers who analyze the suitability of our products in relation to the customer’s specific application and the conditions that products will endure or the environment in which they will operate.
The building materials products are sold through our own sales professionals as well as through an integrated distributor and dealer network. The end-users of our products are generally building sub-contractors who are responsible for installing the products. These products have with a longer term warranty in instances where we can control or monitor the installation of the final product on the job site.
Our drilling product lines are generally sold through an extensive distribution network coordinated by our regional sales managers. The end customers for these products are typically small well drilling companies and general contractors.
Our remediation technologies products are primarily sold through approved contractors who are environmental project specialists. Our sales and technical staff typically assist project designers by providing technical data to engineers and architects who specify our products in the design of building structures or remediation sites.
Competition
Our lining technologies group competes with geosynthetic clay liner manufacturers worldwide, several suppliers of alternative lining technologies, and providers of soil and environmental remediation solutions and products. The building materials product lines compete in a highly fragmented market comprised of a wide variety of alternative technologies. Competitors in our contracting services primarily include other specialty and general contractors, some of which have substantially greater resources. A number of integrated bentonite companies compete against us in the drilling products market. Competition in all product lines is based on product quality, service, price, technical support and product availability.
Seasonality
Most of the products in the environmental segment are impacted by weather and soil conditions. Many of the products cannot be applied in wet or winter weather conditions and, as such, sales and profits tend to be larger during the period from April through October. As a result, we consider the business of this segment to be seasonal.
OILFIELD SERVICES SEGMENT
Principal Services and Markets
Our oilfield services segment provides both onshore and offshore water treatment, well testing, pipeline separation, nitrogen, coil tubing and other services to the oil and natural gas industry. We sell products and services through subsidiaries located in Australia, Brazil, Malaysia, Nigeria, the United Kingdom, and the U.S., principally in the Gulf of Mexico and surrounding on-shore area. The following are the principal services we provide:
Water Treatment. We help customers protect the environment, especially marine environments, and comply with regulatory requirements by providing equipment, technologies, personnel and filtration media to help them discharge waste water generated during oil production.
Well Testing. We provide equipment and personnel to help customers control well production as well as to clean up, unload, separate, measure component flow, and dispose of fluids from oil and gas wells.
Pipeline. Our personnel utilize engineered equipment that separates, filters, cleans and allows treatment of effluents arising from pipeline testing and maintenance activities.
Nitrogen Services. Liquid nitrogen is commonly used in the pipeline, refinery, and oil and natural gas business. By providing liquid nitrogen that is then changed into nitrogen gas with our personnel and mobile equipment, we help customers perform maintenance activities in a safe environment on their production platforms, pipeline operations, and refineries. Acquired in 2008, these services are provided in jetting wells that are loaded with fluid; stimulating wells, including fracturizing and acidizing; displacing completion fluids prior to perforating; airing up cans for offshore floating installations; and pressure testing and other maintenance activities.
Coil Tubing. Acquired in 2008, our coil tubing services utilize a long, continuous length of pipe which is wound on a spool or reel. We rent the coil tubing and provide operating personnel to pump fluids through the tubing into boreholes or to assist in certain well-drilling applications. Before being pushed into a well head, the pipe is straightened, then pumped with fluid. When finished, it is finally rewound or coiled back onto the reel housed on our transport units. Our coil tubing services are typically provided in areas of nitrogen displacement, acidizing, cleanouts, and other workovers and provide a benefit over traditional well intervention methods as fluids can be pumped at any time regardless of the position and direction of travel.
Competition
Our oilfield services group competes with other oil services companies. Several of these competitors have significantly more resources than we do and consequently may be better able to compete in periods of economic downturn, especially in terms of selling prices. However, we believe we offer several competitive advantages, especially in the area of water treatment services, due to superior and innovative technologies that we have developed internally and the combination of services that we can provide.
Sales and Distribution
The top ten customers in our oilfield services segment accounted for 47% of the segment sales worldwide. However, the composition of customers within this group varies from year to year and is significantly dependent on the type of activities each customer is undertaking within the year, regulations, and overall dynamics of the oil and gas industry. Approximately 88% of sales are in the Americas. Our largest geographical market is the U.S., and more specifically the Gulf of Mexico region. Approximately 8% of sales are in the Asia-Pacific region and 4% are in EMEA.
Employees in this segment primarily sell and distribute products and services on a direct basis. Our principal customers are oil and natural gas companies who maintain substantial offshore and onshore drilling and production platforms for both oil and gas.
Seasonality
Much of the business in the oilfield services segment is impacted by weather conditions. Our business is concentrated in the Gulf of Mexico and surrounding states where our customers’ oil and gas production facilities are subject to natural disasters, such as hurricanes. Given this, our sales could be lower in the June to November months. It can also experience periods of growth after a hurricane as customers require our services to start their operations back up.
TRANSPORTATION SEGMENT
We operate a long-haul trucking business and a freight brokerage business primarily for delivery of finished products throughout the continental U.S. These services are provided to our subsidiaries as well as third-party customers. Through our transportation business, we are better able to control costs, maintain delivery schedules and assure equipment availability in the delivery of our products. In 2011, approximately 48% of the revenues of this operation involved services provided to our domestic minerals and materials and environmental segments.
MINERAL RESERVES AND MINING
Mineral Reserves
We have reserves of sodium and calcium bentonite at various locations in the U.S., including Wyoming, South Dakota, Montana and Alabama, as well as in Australia, China, and Turkey. Through our investments in affiliates and joint ventures, we also have access to bentonite deposits in Egypt, India, and Mexico. At 2011 consumption rates and product mix, we have proven, assigned reserves of commercially usable sodium bentonite for the next 31 years. We have proven, assigned reserves of commercially usable calcium bentonite for the next 12 years. While we believe that our reserve estimates are reasonable and our title and mining rights to our reserves are valid, we have not obtained any independent verification of such reserve estimates or such title or mining rights.
We own or control the properties on which reserves are located through long-term leases, royalty agreements and patented and unpatented mining claims. A majority of our bentonite reserves are owned. No single or group of mining claims or leases is significant or material to the financial condition or operations of our Company or our segments. However, our mineral rights associated with our chrome business in South Africa are significant in that they comprise 86% of the total value of our mineral rights as recorded in our Consolidated Balance Sheet at December 31, 2011.
A majority of our current bentonite mining activities in the U.S. do not occur on reserves we own. Rather, the majority of our current bentonite mining in the U.S. occurs on reserves comprised of over eighty mining lease and royalty agreements (including easement and right of way agreements) and 2,000 mining claims. The majority of these are with private parties and located in Montana, South Dakota and Wyoming. The bentonite deposits underlying these claims and leases generally lie in parcels of land varying between 20 and 40 acres.
In general, our bentonite-reserves are immediately adjacent to, or within sixty miles of, one of seven related processing plants. All of the properties on which our reserves are located are either physically accessible for the purposes of mining and hauling or the cost of obtaining physical access would not be material. Access to processing facilities from the mining areas is generally by private road, public highways, or railroads. For each leased property and mining claim, there are multiple means of access.
To retain possessory rights in unpatented mining claims in North America, a fee of $140 per year for each unpatented mining claim is required. The validity of title to unpatented mining claims is dependent upon numerous factual matters. We believe that the unpatented mining claims that we own are in compliance with all applicable federal, state and local mining laws, rules and regulations. We are not aware of any material conflicts with other parties concerning our claims. From time to time, members of Congress and members of the executive branch of the federal government have proposed amendments to existing federal mining laws. The various amendments would have had a prospective effect on mining operations on federal lands and include, among other things, the imposition of royalty fees on the mining of unpatented claims, the elimination or restructuring of the patent system and an increase in fees for the maintenance of unpatented claims. To the extent that future proposals may result in the imposition of royalty fees on unpatented lands, the mining of our unpatented claims may become uneconomic and royalty rates for privately leased lands may be affected. We cannot predict the effect any potential amendments may have or whether or when any such amendments might be adopted.
We maintain a continuous program of worldwide exploration for additional reserves and attempt to acquire reserves sufficient to replenish our consumption each year, but we cannot assure that additional reserves will continue to become available.
We oversee all of our mining operations, including our exploration activity and securing the necessary permits from appropriate government agencies.
The following table shows a summary of our mineral sales from active mining areas for the last 3 years in short tons, as well as mineral reserves by major mineral category.
** Quantity of reserves that would be owned if patent was granted.
Assigned reserves are reserves which could be reasonably expected to be processed in existing plants. Unassigned reserves are reserves which will require additional expenditures for processing facilities. Conversion factor is the percentage of reserves that will be available for sale after processing. Our estimates of assigned and unassigned reserves in the above table require us to make certain key assumptions. These assumptions relate to consistency of clay beds in relation to drilling samples obtained with respect to both quantity and quality of reserves contained therein; the ratio of overburden to mineral deposits; any environmental or social impact of mining the minerals; and profitability of extracting those minerals, including haul distance to processing plants, applicability of minerals to various end markets and selling prices within those markets, and our past experiences in the mineral beds, several of which we have been operating in for over 80 years. We estimate that available supplies of other materials utilized in our minerals and materials business are sufficient to meet our production requirements for the foreseeable future.
Mining and Processing
Bentonite is surface mined, generally with large earthmoving scrapers, and then loaded into trucks and off-highway-haul wagons for movement to processing plants. The mining and hauling of our clay is done by us and by independent contractors.
At the processing plants, bentonite is dried, crushed and sent through grinding mills, where it is sized to customer requirements, then chemically modified where needed and transferred to silos for automatic bagging or bulk shipment. Most of the production is shipped as processed rather than stored for inventory.
Chromite is mined from open cast pits from our property in South Africa and transported to our nearby processing facility. In our facility, the ore is further crushed, milled, washed, and separated from impurities. We are operationalizing our production facility to give it the ability to manufacture a range of precisely specified materials, such as ones with specific particle sizes, that provide value to our customer’s operations and efficiency.
CROSS SEGMENT FUNCTIONS
Product Development and Patents
We work actively with customers in each of our major markets to develop and commercialize new products and applications of existing products to solve customer problems. We maintain research centers and laboratory testing facilities in Hoffman Estates, Illinois; Birkenhead, England; and Tianjin, China. When we perceive a need for a product that will accomplish a particular goal, we work to develop the product, research its marketability and study the feasibility of its production. We also co-develop products with customers, or others, as needs arise. Our development efforts emphasize markets with which we are familiar and products for which we believe there is a viable market.
We hold a number of U.S. and international patents. We follow the practice of obtaining patents on new developments whenever feasible. However, we do not consider that any one or any combination of such patents is material to our business as a whole.
Research and Development
Our business segments share research and laboratory facilities, and technological developments are shared among our subsidiaries, subject to license agreements where appropriate. Further information on research and development activities is included in our Notes to Consolidated Financial Statements contained in Item 8 of this report.
Regulation and Environmental
We believe we are in material compliance with current, applicable mining regulations. Since reclamation of exhausted mining sites has been a regular part of our surface mining operations since 1973, maintaining compliance with current regulations has not had a material effect on mining costs. Reclamation costs are reflected in the cost of the bentonite sold.
The grinding and handling of dried clay is part of the production process, and, because these processes generate dust, our mineral processing plants are subject to applicable clean air standards (including Title V of the Clean Air Act). All of our plants are equipped with dust collection systems. We have not had, and do not presently anticipate, any significant regulatory problems in connection with our dust emission, though we expect ongoing expenditures for the maintenance of our dust collection systems and required annual fees.
Our operations are also subject to other federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Certain of these laws and regulations provide for the imposition of substantial penalties for noncompliance. While the costs of compliance with, and penalties imposed under, these laws and regulations have historically not had a material adverse effect on us, future events, such as changes in or modified interpretations of existing laws and regulations, enforcement policies, or further investigation or evaluation of potential health hazards of certain products, may give rise to additional compliance and other costs that could have a material adverse effect on us.
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 38% of our 2011 net sales were generated in countries outside the Americas. Our foreign operations have typically comprised about a third of our income from continuing operations before income taxes, income from affiliates and joint-ventures, and non-controlling interest. However, in 2009, they comprised approximately 58% of that income as the economic recession more heavily affected our domestic operations than our foreign operations. Of our tons sold from our domestic mineral deposits in 2011, approximately 28% of these shipments were made to our sister companies and third party customers located outside the United States as compared to 21% and 17% in 2009 and 2010, respectively.
To enhance our overseas market presence, we maintain mineral processing plants in the United Kingdom, China, Australia, South Korea, Poland, Thailand, South Africa and Turkey. Chartered vessels deliver large quantities of our bulk, dried U.S. sodium bentonite to the plants outside the U.S. where it is processed and mixed with other clays and distributed throughout EMEA and the Asia-Pacific region. In addition, we maintain a worldwide network of independent dealers, distributors and representatives to support sales and distribution.
We manufacture geosynthetic clay liners in the United Kingdom, Spain, Poland, China, South Korea and India. These international operations provide a cost-effective means of supplying the EMEA and Asia-Pacific markets.
Our oilfield services segment maintains offices and operations centers in Australia, Brazil, Malaysia, Nigeria and Scotland to service customers in those local markets.
Our international operations are subject to the usual risks of doing business abroad and in developing countries, such as currency fluctuations and devaluation, restrictions on the transfer of funds, and import and export duties.
The Notes to Consolidated Financial Statements included in Item 8 of this report present further details on our sales by geographic region. These Notes are incorporated by reference for sales attributed to foreign operations and export sales from the U.S.
EMPLOYEES
As of December 31, 2011, we employed 2,563 people in our global organization, 1,283 of whom were employed outside of the United States. Operating plants are adequately staffed, and no significant labor shortages are presently foreseen. Labor relations have been satisfactory.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements and other information filed by the Company at the SEC’s Public Reference Room at 100 F. Street N.E., Washington, D.C., 20549. Please call (800) SEC-0330 for further information on the Public Reference Room. The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings are available to the public at this website, www.sec.gov.
Our principal Internet address is www.amcol.com. Our annual, quarterly and current reports, and amendments to those reports, are available free of charge on www.amcol.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Item 1A.
Item 1A. Risk Factors
Certain statements we make from time to time, including statements in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section hereafter, constitute “forward-looking statements” made in reliance upon the safe harbor contained in Section 21 E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to our Company or our operations that are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions, and statements relating to anticipated growth, acquisitions, levels of capital expenditures, future dividends, expansion into global markets and the development of new products. Such forward-looking statements speak only as of the date hereof and are not guarantees of future performance and involve risks and uncertainties. Our actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements as a result of various factors. We undertake no duty to update any forward-looking statements to conform the statements to actual results or changes in our expectations.
A number of risks will challenge us in meeting our long-term profit and strategic objectives, and there can be no assurance that we will achieve success in implementing any one or more of them. Specifically, the risks outlined below could affect the achievement of our expected results. In addition, political, economic, or credit crises occur from time to time in our geographic markets, and these crises could affect or heighten the risks outlined below, especially with regard to our reliance on key industries, the volatility of our stock price, and increased exchange rate sensitivity. The credit crisis may also affect our ability to obtain capital or finance acquisitions or other activities on terms substantially similar to our current debt facilities should that need arise in the future. Any of these factors or the risks outlined below could affect our business opportunities and results:
Reliance on Metalcasting & Construction Markets
Approximately 53% of our minerals and materials segment’s sales in 2011 were to the metalcasting market. Our environmental segment’s sales are predominantly derived from the commercial construction and infrastructure markets. All of these markets depend heavily upon the strength of the domestic and international economies. If these economies weaken, demand for our products sold to these markets may decline and our business or future financial results may be adversely affected.
Susceptibility to Oil and Natural Gas Markets
Revenues from our oilfield services segment in 2011 represent 21% of consolidated revenues and 23% of consolidated operating income. Oil and natural gas production activities are heavily influenced by the benchmark price of these commodities, which can be influenced by both economic and political events and, in turn, affect our customers’ demand for our products and services. Thus, the benchmark prices of oil and natural gas may ultimately affect the performance of this segment.
In addition, oil and natural gas exploration and production activities depend heavily on the location of these natural resources within the earth’s geology and geographic location as well as technologies available to profitably extract them. For example, the recent application of horizontal drilling technologies allow oil and natural gas production companies to extract significantly greater amounts of oil and natural gas in geological deposits located in areas where we currently do not have a significant presence. Thus, the performance of our oilfield services segment is affected by changes in technologies, locations of customers’ targeted reserves, and competition in various geographic markets.
Sensitivity to Energy and Petroleum Related Products
We purchase a significant amount of raw materials which are derived from petrochemical products. Our production processes also consume a significant amount of energy, primarily electricity, diesel fuel, natural gas and coal. We use diesel fuel to operate our mining and processing equipment and our freight costs are heavily dependent upon fuel prices and surcharges.
On a combined basis, these factors represent a large exposure to petrochemical and energy products which may be subject to significant price fluctuations. While we have been successful in attaining price increases in certain markets to offset some of these rising costs, there can be no assurance that we will be successful in continuing to achieve these price increases or protecting our margins.
Availability and Cost of Shipping
We rely on shipping bulk cargos of bentonite from the United States and China to customers, as well as our own subsidiaries, and we are sensitive to our ability to recover these shipping costs. In the last few years, bulk cargo shipping rates have been very volatile, and, to a lesser extent, the availability of bulk cargo containers has been suspect. If we can not secure our container requirements or offset additional shipping costs with price increases to customers, our profitability could be impacted.
Seasonality of Our Oilfield Services and Environmental Segments
Our oilfield services and environmental segments are affected by seasonal weather patterns. A majority of our oilfield services revenues are derived from the Gulf of Mexico and surrounding states, which are susceptible to hurricanes that typically occur in the Fall months. In addition, it is affected by customers’ demands for natural gas. Natural gas is affected by weather patterns as colder winters increase the demand for natural gas to heat homes and warmer summers increase the demand for natural gas to fuel generators providing electricity to run air conditioners. Actual or threatened hurricanes or changes in the demand for natural gas can result in volatile demand for services provided by our oilfield services segment.
Our environmental segment is affected by weather patterns which determine the feasibility of construction activities. Typically, less construction activity occurs in winter months and thus this segment’s revenues tend to be greatest in the second and third quarters when weather patterns in our geographic markets are more conducive to construction activities.
Cyclicality of Our Segments
All of our segments are affected by economic cycles. During periods of economic slowdown, our customers often reduce their capital expenditures and defer or cancel pending projects. Such developments occur even amongst customers that are not experiencing financial difficulties. These risks are more predominant in our environmental and minerals and materials segments.
In our environmental segment, the construction and infrastructure markets are heavily dependent upon the strength of domestic and international economies. In our minerals and materials segment, the metalcasting market is dependent upon the demand for castings for automobile components, farm and construction equipment, oil and gas production equipment, power generation turbine castings, and rail car components. Many of these types of equipment are sensitive to fluctuations in demand during periods of recession or tough economies, which ultimately may affect the demand for our environmental and minerals and materials segments’ products and services.
Moreover, in periods of lower economic productivity or recession, oil and natural gas prices tend to decrease, which in turn causes exploration companies to reduce their capital expenditures and production and exploration activities. This has the effect of decreasing the demand and increasing competition for the services that our oilfield services segment provides.
Risks of International Expansion & Operation
An important part of our business strategy is to expand internationally by establishing our own presence in new markets when possible or through acquisitions, joint ventures or other strategic alliances. Sales and earnings from our overseas operations have increased considerably in recent years and comprise a significant portion of our financial results, including our joint ventures. As we expand and operate internationally, we will be subject to a myriad of risks, especially in less developed countries whose economies increase at rates faster than more developed nations. These risks relate to currency exchange rates, political and economic environments, business and trade laws, and regulatory and compliance issues. These risks are beyond our control and can lead to sudden, and potentially prolonged, changes in demand for our products, difficulty in enforcing agreements, losses in the realizability of our assets, or fluctuations in our earnings due to the impact from our joint ventures.
Regulatory and Legal Matters
Our operations are subject to various federal, state, local and foreign laws and regulations relating to environmental and to health and safety matters. Substantial penalties may be imposed if we violate certain of these laws and regulations, even if the violation was inadvertent or unintentional. If these laws or regulations are changed or interpreted differently in the future, it may become more difficult or expensive for us to comply. In addition, investigations or evaluations of our products by government agencies may require us to adopt additional safety measures or precautions. If our costs to comply with such laws and regulations in the future materially increase, our business and future financial results could be materially and adversely affected. We may also be subject to adverse litigation results in addition to increased compliance costs arising from future changes in laws and regulations that may negatively impact our operations and profits. Last, certain of our customers are subject to various federal and foreign laws and regulations relating to environmental and health and safety matters, especially our oilfield customers who are subject to drilling permits, wastewater disposal and other regulations. To the extent that these laws and regulations affecting our customers change, demand for our products and services could also change and thereby affect our financial results.
Ability to Complete, Integrate & Finance Acquisitions
Our business strategy includes pursuing acquisitions of complementary businesses, through either our own wholly-owned subsidiaries or our investments in affiliates and joint ventures. The success of any future acquisitions or investments will be dependent upon our ability to locate attractive businesses at a reasonable attractive price and our ability to successfully integrate them into our existing operations.
In addition, we have typically financed our acquisitions and investments with debt available to us under our various credit facilities and our ability to issue new debt. However, we may decide to pay all or a portion of the purchase price of any future acquisition or investment with shares of our common stock. If we use our common stock in this way, the price of our stock may decrease.
Ability to Pay Dividends
We currently declare and pay regular cash dividends on our common stock. Any future payment of cash dividends will depend upon our financial condition, earnings, legal requirements, restrictions in our debt agreements and other factors deemed relevant by our board of directors. Our board of directors may decrease or discontinue payment of dividends at any time.
Impact of Competition
Our businesses have many competitors, some of whom are larger and have more resources than we do. We also face competition for some of our products from alternative products, and some of the competition we face comes from competitors in lower-cost production countries like China and India. Many factors could change the level of competition we face in our markets, which could result in decreased demand for our products and services and negatively affect our financial performance.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
We operate the following principal plants, mines and other facilities, all of which are owned, except as noted below. We also have numerous other facilities which blend ADDITROL ®, package cat litter and chromite sand, warehouse products and serve as sales offices.
(1) Shared facilities between minerals and materials and environmental segments.
(2) Certain offices and facilities are leased.
We consider our plants in the Western U.S. to be of strategic importance given their production capacity, products manufactured, and proximity to our mineral reserves. All of our pet products are manufactured either in our Lovell, WY plant or one of our Colony, WY plants given their granularization capabilities and the fact that their location provides freight cost savings to key customers. Our Sandy Ridge, AL facility supplies calcium bentonite to our U.S. blending plants as an ingredient for production of ADDITROL®. The blending plants have collective importance since they produce customized products for metalcasting customers.
Item 3.
Item 3. Legal Proceedings
We are party to a number of lawsuits arising in the normal course of our business. We do not believe that any pending litigation will have a material adverse effect on our consolidated financial position or results of operations.
Since the mid-1980’s, we and/or our subsidiaries have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content of our bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of our foundry customers.
To date, we have not incurred significant costs in defending these matters. We believe we have adequate insurance coverage and do not believe the litigations will have a material adverse impact on our financial condition, liquidity or results of our operations.
We have neither been nor expect to be assessed any tax shelter penalties by the United States Internal Revenue Service for tax shelter transactions that either the IRS deems abusive or have significant tax avoidance penalties.
Item 4.
Item 4. Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Form 10-K.
Executive Officers of Registrant
All executive officers of the Company are elected annually by the Board of Directors for a term expiring at the annual meeting of directors following their election or when their respective successors are elected and shall have qualified.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the New York Stock Exchange under the symbol “ACO.” The following table sets forth, for the periods indicated, the high and low sale prices of the common stock, as reported by the New York Stock Exchange, and cash dividends declared per share.
We have paid cash dividends every year since 1938. As of February 15, 2012, there were approximately 9,979 holders of record of the common stock, including shares held in street name.
Purchases of Equity Securities
We did not repurchase any of our outstanding common stock in 2011.
Equity Compensation Plan Information
The following table summarizes information about our equity compensation plans as of December 31, 2011. All outstanding awards relate to our common stock. Shares issued under all of the following plans may be from the Company’s treasury, newly issued or both.
(1) Includes stock options and stock settled appreciation rights issued and outstanding under the following AMCOL plans: 1998 Long-Term Incentive Plan; 2006 Long-Term Incentive Plan; and 2010 Long-Term Incentive Plan.
(2) Subject to issuance pursuant to our 2010 Long-Term Incentive Plan.
Performance Graph
The graph below sets forth a comparison of cumulative total shareholder returns for the past five years for: (i) our stock as traded on the NYSE, (ii) the S&P SmallCap600 Index, and (iii) a custom peer group of publicly traded companies selected in good faith by us (the “Peer Group”). The graph assumes that $100 was invested at the close of business on December 31, 2006. All returns were calculated assuming dividend reinvestment on a quarterly basis. The returns of each company in the Peer Group have been weighted according to market capitalization. We believe the Peer Group is representative of companies whose businesses, sales sizes, market capitalization and stock trading volumes are similar to
AMCOL. The Peer Group consists of the following companies: Compass Minerals International, Inc., Dycom Industries, Inc., Lufkin Industries, Inc., Martin Marietta Materials Inc., Minerals Technologies Inc., Oil-Dri Corporation, Rockwood Holdings Inc., RPM International Inc., and Superior Energy Services Inc.
Item 6.
Item 6. Selected Financial Data
The following is selected financial data for the Company for each of the below annual periods ending December 31st.
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
Continued
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a global company focused on long term profitability growth through the development and application of minerals and technology products and services to various industrial and consumer markets. The majority of our revenue growth has been achieved by sustaining our products’ technological advantages, developing new products and applying them in innovative ways, bringing additional products and services to markets we already serve, and overall growth in the industries we serve. We focus our research and development activities in areas where we can either leverage our current customer relationships and mineral reserves or enhance existing or related products and services.
The principal mineral that we utilize to generate revenues is bentonite. We own or lease bentonite reserves in the U.S., Australia, China and Turkey. Additionally, through our affiliates and joint ventures, we have access to bentonite reserves in Egypt, India, and Mexico. We also develop applications for other minerals, including chromite ore from our mine in South Africa.
Bentonite is surface mined when it is commercially feasible to have it shipped to a plant for further processing, including crushing, drying, milling and packaging. Bentonite deposits have varying physical properties which require us to identify which markets our reserves can serve. Nicknamed the mineral of a thousand uses, bentonite’s unique characteristics include its ability to bind, swell, adsorb, control rheology, soften fabrics, and have its surface modified through chemical and physical reactions. Our research and development activities, including our understanding of bentonite properties, mining methods, processing and application to markets are some of the core components of our longevity and future prospects.
We operate in five segments: minerals and materials, environmental, oilfield services, transportation and corporate. Both our minerals and materials and environmental segments operate manufacturing facilities in North America, Europe, and the Asia-Pacific region. Our minerals and materials segment also owns and operates a chrome mine in South Africa. Our oilfield services segment principally operates in the Gulf of Mexico and surrounding states and also has a growing presence in South America, Africa and Asia. Additionally, we have a transportation segment that provides trucking services for our domestic minerals and materials and environmental segments as well as third parties.
Our customers are engaged in various end-markets and geographic regions. Customers in the minerals and materials segment range from foundries that produce castings for automotive, industrial, and transportation equipment, including heavy-duty trucks and railroad cars, to producers of consumer goods, including cat litter, cosmetics and laundry care. Customers in our environmental segment include construction contractors, engineering contractors and government agencies. The oilfield services segment’s customer base is primarily comprised of oil and natural gas service or exploration companies.
A significant portion of our products have been used in the same applications for decades and have experienced minimal technological obsolescence. A majority of our sales are made pursuant to short-term agreements; therefore, terms of sale, such as pricing and volume, can change within our fiscal year.
A majority of our revenues are generated in the Americas, principally North America. Consequently, the state of the U.S. economy, and especially the metalcasting and commercial construction industries, impacts our revenues. Our fastest growing markets are in the Asia-Pacific and European regions, which have continued to outpace the U.S. in economic growth.
Sustainable, long-term profit growth is our primary objective. We employ a number of strategic initiatives to achieve this goal:
•
Organic growth: The central component of our growth strategy is expansion of our product lines and market presence. We have a history of commitment to research and development activities directed at bringing innovative products to market. We believe this approach to growth offers the best probability of achieving our long-term goals at the lowest risk.
•
Globalization: As we have done for decades, we continue to expand our manufacturing and marketing organizations into emerging geographic markets. We see significant opportunities in the Asia-Pacific and European regions for expanding our revenues and earnings over the long-term as a number of markets we serve, such as metalcasting and lining technologies, are expected to grow in these areas. We expect to take advantage of these growth areas, either through our wholly-owned subsidiaries or investments in affiliates and joint ventures.
•
Mineral development: Bentonite is a component in many of the products we supply. Since it is a natural material, we must continually expand our reserve base to maintain a long-term business. Our goal is to add new reserves to replace the bentonite mined each year. Furthermore, we need to assure that new reserves meet the physical property requirements for our diverse product lines and are economical to mine. Our organization is committed to developing its global reserve base to meet these requirements.
•
Acquisitions: We continually seek to acquire complementary businesses, as appropriate, when we believe those businesses are fairly valued and fit into our growth strategy.
There can be no assurance that we will achieve success in implementing any one or more of the strategic initiatives described above.
A number of risks will challenge us in meeting our long-term objectives. We describe certain of these risks, such as competition and our reliance on economically sensitive markets, under “Item 1A. Risk Factors” and “Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from fluctuations in foreign currency exchange rates, interest rates, credit risk, and market risks on certain publicly traded securities. We use a variety of practices to manage these market risks, including derivative financial instruments when appropriate. Our treasury and risk management policies prohibit us from using derivative instruments for trading or speculative purposes. We also do not use leveraged derivative instruments or derivatives with complex features.
Exchange Rate Sensitivity
As we operate in over 25 countries with many international subsidiaries, we are exposed to currency fluctuations related to manufacturing and selling our products and services. This foreign currency risk is diversified and involves assets, liabilities and cash flows denominated in currencies other than the USD. Our major foreign currency exposures involve our subsidiaries in Europe, Southeast Asia, and South Africa, although all foreign subsidiaries are subject to foreign currency exchange rate risk versus the USD. Exchange rates between these currencies and the USD have fluctuated significantly in recent years and may continue to do so in the future.
We manage our foreign currency exchange risk in part through operational means, including managing same currency revenues versus same currency costs as well as same currency assets versus same currency liabilities. We also have subsidiaries with the same currency exposures which may offset each other, providing a natural hedge against one another’s currency risk. From time to time, we also use derivative instruments to reduce these foreign currency exchange rate risks. At December 31, 2011, we did not have any foreign currency derivative contracts outstanding.
Assets and liabilities of our international subsidiaries are translated to their parent company’s reporting currency at current exchange rates during consolidation; gains and losses stemming from these translations are included as a component of Other Comprehensive Income and reported within Accumulated Comprehensive Income within our consolidated balance sheet. Income and expenses of our international subsidiaries are translated at average exchange rates for the period and, when included within retained earnings in the balance sheet at current exchange rates, the differences to those average exchange rates is included within Other Comprehensive Income and reported within Accumulated Comprehensive Income. When our subsidiaries transact business in currencies other than their functional currency, those transactions are revalued in their functional currency and differences resulting from such revaluations are included within Other income, net within our Consolidated Statement of Operations.
We can calculate the effect that changes in exchange rates would have on our total assets and net income. This calculation cannot be extrapolated to actual results that might occur because changes in the relationship of exchange rates may also impact other assumptions and calculations, such as the income tax expense, which may counteract the sensitivities. Notwithstanding and holding all other variables constant, a 10% increase in the year-end exchange rates and a 10% increase in our annual average exchange rates would result in a 5% and 1% increase in our total assets and net income to AMCOL shareholders, respectively. These changes are hypothetical scenarios used to calibrate potential risk and do not represent our view of future market changes.
Interest Rate Sensitivity
The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. The table below shows each instrument’s cash flows in U.S. dollars with a notation as to the actual currency the cash flow is denominated in.
We periodically use interest rate swaps to manage interest rate risk on debt securities. These instruments allow us to convert variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials are paid or received on these arrangements over the life of the agreements. The interest rates above for our Fixed rate - Senior notes and Fixed rate - Revolver include the effect of interest rate swaps as outlined in our Notes to Consolidated Financial Statements.
Credit Risk
We are exposed to credit risk on certain assets, primarily accounts receivable. We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. Concentrations of credit risk with respect to trade
receivables are limited due to the large number of customers comprising our customer base. We currently believe our allowance for doubtful accounts is sufficient to cover customer credit risks. Our accounts receivable financial instruments are carried at amounts that approximate fair value.
Securities Market Risk
We own shares of Ashapura Minechem Limited (“Ashapura”), a public company traded on the Bombay Stock Exchange Limited. We record the fair value of this investment on our Consolidated Balance Sheet using the closing price of Ashapura’s shares on the exchange as of the last day of the reporting period. The value of this investment, therefore, is subject to market forces underlying the closing price per share. We record the investment as an available-for-sale security and recognize changes in its fair value in the Consolidated Statement of Comprehensive Income.
Euro & Sovereign Debt Risk
Certain countries that have adopted the Euro as their currency have experienced financial difficulty in 2011 and are in the process of stabilizing their finances through various measures, which may include such drastic measures as defaulting on their debt or adopting a different currency as their national currency. While we do not believe we have significant financial risk resulting from any of these situations, we cannot predict the disruption that would occur to the European markets in which we compete if such drastic measures were taken.
We do not have any material credit risk with sovereign governments currently facing this situation as we do not sell our products to them. We do, however, sell to customers in these countries, but we believe our risk associated with these customers is not material. In addition, one bank that loans us money pursuant to our revolving credit facility is partially owned by a foreign government, but we believe we would be able to secure other sources of funding should this bank be unable to make loans to us under the credit facility.
Item 8.
Item 8. Financial Statements and Supplementary Data
See the Index to Financial Statements and Exhibits and Financial Statement Schedule in Part IV of this Form 10-K. Such financial statements and schedule are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, we conclude that our internal control over financial reporting was effective as of December 31, 2011.
Our independent registered public accounting firm has audited our internal control over financial reporting as of the end of the period covered by this report as stated in their report, which appears in Part IV of this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
Not applicable.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
Information regarding our directors is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Information regarding our executive officers is included under a separate caption in Part I hereof in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions, as well as other employees. The Code, our Corporate Governance Guidelines and the charters of our Audit Committee, Compensation Committee and Nominating and Governance Committee are publicly available on our website at www.amcol.com and are available in print, free of charge, to any shareholder upon request addressed to our Corporate Secretary at AMCOL International Corporation, 2870 Forbs Avenue, Hoffman Estates, Illinois 60192. If we make any substantive amendments to the Code or grant any waiver, including any implicit waiver, from a provision of the Code to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K in accordance with applicable rules and regulations.
Item 11.
Item 11. Executive Compensation
Information regarding the above is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding relationships and related transactions, and director independence is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Item 14.
Item 14. Principal Accountant Fees and Services
Information regarding principal accountant fees and services is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedule
Item 15(a) Index to Financial Statements and Financial Statement Schedule
All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is not material.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AMCOL International Corporation
We have audited the accompanying consolidated balance sheets of AMCOL International Corporation and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMCOL International Corporation and Subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AMCOL International Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 29, 2012
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AMCOL International Corporation
We have audited AMCOL International Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). AMCOL International Corporation and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, AMCOL International Corporation and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2011 consolidated financial statements of AMCOL International Corporation and Subsidiaries and our report dated February 29, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 29, 2012
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Continued
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements.
Continued
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
Consolidated Statements of Comprehensive Income
(In thousands)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies
Recently Adopted Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, codified in Accounting Standards Codification (“ASC”) Topic 350 - Intangibles - Goodwill and Other. ASU 2011-08 simplifies how entities test goodwill for impairment. It permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This assessment can then be used to determine whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. This ASU will not have a material impact on our financial statements when we adopted it on January 1, 2012.
In June 2011, the FASB issued ASU 2011-05, codified in ASC Topic 220 - Comprehensive Income to increase the prominence of items reported in other comprehensive income (“OCI”). This ASU requires presentation of items of net income, items of OCI and total comprehensive income either in one continuous statement or two separate but consecutive statements. This ASU does not change the items which must be reported in OCI, how such items are measured or when they must be reclassified to net income. The FASB subsequently deferred the effective date of certain provisions of this ASU pertaining to the reclassification of items out of accumulated other comprehensive income, pending the issuance of further guidance on that matter. The adoption of this ASU on January 1, 2012 will not have a material impact on our financial statements.
In May 2011, the FASB issued ASU 2011-04, codified in ASC Topic 820 - Fair Value Measurements. This ASU includes amendments that clarify the intent about the application of existing fair value measurement requirements. Specifically, it requires additional disclosures for fair value measurements that are based on significant inputs. The adoption of this ASU on January 1, 2012 will not have a material impact on our financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of our domestic and foreign subsidiaries as well as variable interest entities for which we have determined that we are the primary beneficiary. We consolidate all subsidiaries in which we own more than 50% of their equity. We use the equity method of accounting to incorporate the results of our investments in companies in which we have significant influence.
Our corporate segment includes the elimination of intersegment sales as well as certain expenses associated with research and development, management, employee benefits and information technology activities for our Company. Approximately 77% of the revenue elimination in the year ended December 31, 2011 and 100% of the revenue elimination in the years ending December 31, 2010 and 2009, represent the elimination of shipping revenues between our transportation segment and its domestic sister companies.
Segments
The composition of consolidated revenues by segment is as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Further descriptions of our products, principal markets and the relative significance of our segment operations are included in Note 2.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amount of assets, liabilities, revenues and expenses reported in our financial statements as well as certain disclosures contained therein. Actual results may differ from those estimates.
Revenue Recognition
We recognize revenue from sales of products when title passes to the customer, the customer assumes the risks and rewards of ownership, and collectibility is reasonably assured; generally, this occurs when we ship product to customers. We record allowances for discounts, rebates, and estimated returns at the time of sale and report these as reductions to revenue. We generate some sales through independent, third-party representatives. We record these sales as revenue and the commission compensation paid to the representative as an expense within selling, general and administrative expenses.
We recognize revenue for freight delivery services within our transportation segment when the service is provided. We accrue amounts payable for purchased transportation, commissions and insurance when the related revenue is recognized.
Service and rental revenues are primarily generated in our environmental and oilfield services segments. We recognize these revenues in the period such services are performed and collectibility is reasonably assured.
We record revenue from long-term construction contracts, typically generated in our environmental segment, using the percentage-of-completion method. Progress is generally based upon costs incurred to date as compared to the total estimated costs to complete the work under the contract. All known or anticipated losses on contracts are provided when they become evident. Cost adjustments that are in the process of being negotiated with customers for extra work or changes in scope of work are included in revenue when collection is reasonably assured.
Translation of Foreign Currencies
Foreign entities utilize their local currency as the functional currency. We record gains and losses resulting from foreign currency transactions in net income, and we reflect the adjustments resulting from the translation of financial statements into our reporting currency during consolidation as a component of accumulated other comprehensive income within equity. The assets and liabilities of subsidiaries located outside of the United States are translated into U.S. dollars at the rates of exchange at the balance sheet dates. The statements of operations are translated using average exchange rates throughout the period.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Cash Equivalents
We classify all short-term, highly liquid investments with original maturities of three months or less as cash and cash equivalents.
Inventories
Inventories are valued at the lower of cost or market value. Cost is determined by the first-in, first-out (FIFO) method. Mineral exploration costs are expensed as incurred.
Receivables and Allowance for Doubtful Accounts
We carry our receivables at their face amount less an allowance for bad debts. We establish the allowance for bad debts based on a review of several factors, including historical collection experience, current aging status of the customer accounts, and the financial condition of our customers.
Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment, and mineral rights and reserves are carried at cost less accumulated depreciation and depletion. Depreciation is computed using the straight-line method for substantially all of the assets. Certain other assets, primarily field and stockpile related equipment and mineral rights and reserves, are depreciated on the units-of-production method.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. We review the carrying value of goodwill in each reporting unit for impairment annually as of October 1st or more frequently if indications exist which may suggest the carrying value is not recoverable. This review is a two step process. The first step involves comparing the estimated fair value of each reporting unit to the carrying value of that reporting unit. If the fair value of the reporting unit exceeds the carrying value, the goodwill is not considered impaired and the second step is unnecessary. If the fair value is less than the carrying value, the second step of the test would be performed to measure the amount of impairment loss to be recorded, if any.
Other Intangible Assets
Other intangible assets with a finite useful life are amortized on the straight-line method over the expected periods to be benefited.
Impairment of Long-Lived Assets
We review the carrying values of long-lived assets, including property, plant and equipment and intangible assets with a finite useful life whenever facts and circumstances indicate that the assets may be impaired. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future net undiscounted cash flows we expect it to generate. If we consider an asset to be impaired, we record an impairment charge equal to the amount by which the carrying value of the asset exceeds the fair value. We report an asset to be disposed of at the lower of its carrying value or fair value, less costs of disposal.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
In the case of intangible assets with indefinite lives, we review them annually for impairment. This review involves comparing the fair value of the intangible asset with its carrying amount. If its carrying amount exceeds its fair value, we recognize an impairment loss equal to that excess.
Available-for-Sale Securities
We record available-for-sale securities at their fair value using quoted market prices. We report their unrealized gains and losses, net of applicable taxes, as a component of accumulated other comprehensive income within equity. We have one equity security that we have accounted for as an available-for-sale security as of December 31, 2011 and 2010.
Income Taxes
We recognize deferred tax assets and liabilities relating to the future tax consequences of differences between the financial statement carrying value of existing assets and liabilities and their respective tax values. We measure deferred tax assets and liabilities using tax rates in effect in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect that changes in tax rates have on deferred tax assets and liabilities in income in the period that the change is enacted. Valuation allowances are recorded to reduce deferred tax assets to amounts that are more likely than not to be realized. We classify interest and penalties associated with income taxes within the income tax line item of our Consolidated Statement of Operations.
Freight and Sales Taxes
We report amounts charged to customers for shipping and handling fees as revenues and we report amounts incurred for these costs within cost of sales in the consolidated statements of operations (i.e. gross presentation with revenues and cost of sales). Also, we report amounts charged to customers for sales taxes and the related costs incurred for sales tax remittances to governmental agencies within net sales in the Consolidated Statement of Operations (i.e. net presentation within revenues).
Product Liability & Warranty Expenses
We report expenses incurred for warranty and product liability costs in general, selling and administrative expenses in our Consolidated Statement of Operations. Our warranty accrual is based on known warranty issues as of the balance sheet date as well as a reserve for unidentified claims based on historical experience.
Legal Fees
We report expenses for fees, including legal costs associated with loss contingencies, when services are performed.
Land Reclamation
We mine land for various minerals using a surface-mining process that requires the removal of overburden. In many instances, we are obligated to restore the land upon completion of the mining activity. As we remove overburden, we recognize this liability for land reclamation based on the estimated fair value of the obligation. We adjust the obligation to reflect the passage of time and changes in estimated future cash outflows.
Research and Development
Research and development costs are expensed as incurred within selling, general and administrative expenses.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Earnings per Share
Basic earnings per share is computed by dividing net income attributable to AMCOL shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is similarly computed, except the denominator is increased to include the dilutive effects of stock compensation awards and other share equivalents. Stock compensation awards are antidilutive and therefore excluded from our diluted earnings per share calculation when their exercise would result in a net decrease in the weighted average number of common shares outstanding. A reconciliation between the shares used to compute basic and diluted earnings per share follows:
Stock-Based Compensation
We account for stock-based compensation using the grant date fair value, which is based on the Black-Scholes option-pricing model. We recognize compensation cost over the requisite service period, which is generally the vesting period of the award.
Derivative Instruments and Hedging Activities
From time to time, we use derivative financial instruments to manage exposures to changes in interest rates and foreign currency exchange rates. We do not use derivative instruments for trading or other speculative purposes. We recognize our derivative instruments as either assets or liabilities in the balance sheet at their fair value. Our recognition of changes in the fair value (i.e. gains and losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and the type of that relationship. Hedges designated as cash flow hedges result in the changes in fair value being recorded in accumulated other comprehensive income. Changes in the fair value of derivative financial instruments for which hedge accounting is not applied, are recorded within Other, net within our Consolidated Statement of Operations.
Reclassifications
Certain items in the prior years’ consolidated financial statements contained herein and notes thereto have been reclassified to conform with the consolidated financial statement presentation for 2011. These reclassifications did not have a material impact on our financial statements.
(2) Segment, Geographic, and Market Information
We determine our operating segments based on the discrete financial information that is regularly evaluated by our chief operating decision maker, our President and Chief Executive Officer, in deciding how to allocate resources and in assessing performance. Intersegment sales are not material and are eliminated in the corporate segment. Our reportable measure of profit or loss for each segment is operating profit, which is defined as net sales less cost of sales and selling, general and administrative expenses related to a segment’s operations. The costs deducted to arrive at operating profit do not include several items, such as net interest expense or income taxes.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Our five segments are as follows:
•
Minerals and materials - mines, processes and distributes minerals and products for use in various industrial and consumer markets, including metalcasting, pet care, laundry care, and drilling industries;
•
Environmental - provides services relating to and processes and distributes clay-based and other products for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications;
•
Oilfield services - provides a variety of services and equipment rentals for both onshore and offshore applications to customers in the oil and natural gas industry;
•
Transportation - includes a long-haul trucking business and a freight brokerage business that provides services domestically to our subsidiaries as well as third-party customers; and
•
Corporate - intersegment sales are eliminated in our corporate segment. These are most notably sales between our transportation segment and our minerals and materials and environmental segments as well as sales between our minerals and materials segment to our environmental and oilfield services segments. Corporate segment also includes expenses associated with certain research and development, management, benefits and information technology activities.
Segment assets are those assets used within each segment. Corporate assets include assets used in the operation of this segment as well as those used by or shared amongst our segments, including cash and cash equivalents, certain fixed assets, assets associated with certain employee benefit plans, and other miscellaneous assets.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table sets forth certain financial information as of and for the years ended December 31, 2011, 2010 and 2009:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table sets forth certain geographic financial information as of and for the three years ending December 31st. EMEA includes the European, Middle East and African geographic regions. Geographic sales and operating profit are determined based on origin of the sale as opposed to destination of the sale. Inter-regional sales and operating profit are eliminated in Americas.
Net sales by product line for each fiscal year are as follows:
We generate revenues based on sales of products, provision of services and rental equipment, and shipment of goods to customers. A breakdown of each of these revenue generating activities and their related cost of goods sold for each of the past three years ending December 31 is shown in the following table.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(3) Balance Sheet Related Information
We are exposed to credit risk on certain assets, primarily accounts receivable. We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base. We believe our allowance for doubtful accounts is sufficient to cover customer credit risks. The allowance for doubtful accounts as of and the activity for the years ended December 31 was as follows:
Inventories at December 31 consisted of:
Included within Other raw material, container, and supplies inventories in the table above is our reserve for slow moving and obsolete inventory. The balance of this reserve as of and the activity for the years ended December 31 was as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table presents our reclamation liability at the end of and changes during each of the years presented:
Accrued liabilities at December 31 consisted of:
Accumulated other comprehensive income (loss) at December 31 was comprised of the following components:
(4) Property, Plant, Equipment and Mineral Rights and Reserves
Property, plant, equipment and mineral rights and reserves consisted of the following:
The range of useful lives to depreciate plant and equipment is as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Depreciation and depletion were charged to income as follows:
(5) Goodwill and Intangible Assets
The balance of goodwill by segment and the activity occurring in the past two fiscal years is as follows:
Intangible assets were as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Intangible assets with finite lives are being amortized primarily on a straight-line basis over their estimated useful lives. The weighted average amortization period of our intangible assets with finite lives is 11 years. We did not recognize any material impairment charge in either of the years included above with respect to intangible assets. Amortization expense on intangible assets for each of the years ended December 31, 2011, 2010, and 2009 was $4,783, $5,056, and $6,669, respectively. We estimate amortization expense of intangible assets for the future years ending December 31 will approximate the following amounts:
(6) Equity Investees
Information about our investments in and advances to affiliates and joint ventures at December 31, 2011 is as follows:
We account for all of the above investments under the equity method. We record the majority of our equity in the earnings of our investments in affiliates and joint ventures on a one quarter lag. None of our equity investees are publicly traded, and the difference between our investment and the underlying net equity of the investee is immaterial.
In 2011, we recorded income of $5,566 from our joint venture and affiliated entities, of which $2,104 related to the sale of Ashapura AMCOL N.V., our Belgian joint-venture which we sold in the second quarter of 2011. The remaining income was primarily generated from Ashapura Volclay Limited, Volclay Japan Co. Ltd, and Volclay de Mexico, Sa. de C.V. In the third quarter of 2011, we sold our interest in Albagle Enterprise Limited, our Cypriot joint-venture whose operations were mainly in Russia, at an immaterial loss.
In 2010, we recorded losses of $11,261 from our joint venture and affiliated entities. Of these losses $7,196 is from Albagle Enterprise Limited and $6,875 is from Ashapura AMCOL N.V. We recorded an impairment on Albagle Enterprise Limited due to its continued poor financial performance which was not expected to recover. Ashapura AMCOL N.V. impaired its fixed assets due its inability to generate profits. Our investments in these ventures had been reduced to zero as of December 31, 2010.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
In 2009, we reduced our ownership percentage in Ashapura Minechem Limited (Ashapura), a publicly traded company on the Bombay Stock Exchange Limited, and began accounting for this investment as an available-for-sale security as of December 31, 2009.
(7) Income Taxes
Total income tax expense (benefit) for the years ended December 31 was comprised of the following:
Income from continuing operations before income taxes and income (loss) from affiliates and joint ventures was comprised of the following:
The components of the provision for income taxes attributable to income from continuing operations before income taxes and income (loss) from affiliates and joint ventures for the years ended December 31 consisted of:
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of December 31 were as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
We believe it is more likely than not that the net deferred tax assets above will be realized in the normal course of business.
The following analysis reconciles the U.S. statutory federal income tax rate to the effective tax rates related to income from continuing operations before income taxes and equity income (loss) of affiliates and joint ventures:
Percentage Depletion
Depletion deductions are federal income tax deductions that arise from extracting minerals from the ground. This
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
deduction is similar to depreciation in that it allows us to recover the cost of an asset over the resources’ productive life. It is different from depreciation, however, in that depletion deductions are a permanent book to tax difference, whereas depreciation deductions are temporary in nature. Hence, depletion deductions affect the effective tax rate whereas depreciation deductions do not. We calculate depletion under the percentage depletion method based upon revenues and costs from our mining activities in the U.S.
Tax on Reinvested Earnings
We have not provided for United States federal income tax and foreign income withholding taxes on approximately $117,454 and $109,502 of undistributed earnings from international subsidiaries as of December 31, 2011 and 2010, respectively, because such earnings are intended to be reinvested indefinitely outside of the U.S. If these earnings were distributed, foreign tax credits may become available under current law to reduce or eliminate the resulting income tax liability in the United States.
Tax Holidays
We have benefitted from tax holidays in both Poland and Thailand as a result of our locating and investing in special economic zones in each country. These tax holidays resulted in reductions to our income tax expense of $51, $469 and $1,608 in 2011, 2010 and 2009, respectively, representing benefits of $0.00, $0.01 and $0.05 to diluted earnings per share in 2011, 2010 and 2009, respectively.
Our agreement with the Polish tax authorities expired in 2010. This agreement made us eligible, based on certain terms and conditions, for a tax holiday exemption for all income tax activities through 2009. We continue to pursue other opportunities in an effort to minimize income tax within the country.
Our agreement with the Thai tax authorities provides for tax holidays on several investments. The most significant tax exemption is on all income from manufacturing operations (distributed goods are still subject to taxation) related to our initial investment. These initial manufacturing activities were taxable at 50% in years 2006 through 2010. An additional tax holiday was granted in 2007 for the expansion of our Thai facility. Income generated from this expansion is granted a 100% tax holiday from corporate income tax for eight (8) years beginning in 2007 and then taxable at 50% for five (5) years starting in 2015. We attempt to modify and obtain tax concessions when possible.
Exams
In the normal course of business, we are subject to examination by tax authorities throughout the world. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2004. The United States Internal Revenue Service (“IRS”) has examined our federal income tax returns for all open years through 2009.
NOLs and Credit Carryforwards
At December 31, 2011, we have $1,793 of various income tax credits, which we expect to utilize within the ten year carryforward period. We have foreign and state net operating loss carryovers that have resulted in a deferred tax asset of $4,023 at December 31, 2011, against which we have recorded a full valuation allowance as it is more likely than not that we will not be able to utilize the loss in the carryforward period.
Unrecognized Tax Benefits
The following table summarizes the activity related to our unrecognized tax benefits:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
We report penalties and interest relating to uncertain tax positions within the income tax expense line item within our consolidated statement of operations.
(8) Long-term Debt
Amounts of long-term debt were as follows:
As of December 2011, we had a revolving credit agreement that provided a committed $225,000 revolving line of credit through April 1, 2013, of which $103,888 remained available to us as at December 31, 2011. It was a multi-currency arrangement that allowed us to borrow certain foreign currencies at an adjusted LIBOR rate plus 1.00% to 2.00%, depending upon the ratio of our debt to EBITDA as defined therein. The revolving credit agreement required us to maintain certain financial covenants and ratios; we were in compliance with all of the covenants and ratios at December 31, 2011.
In January 2012, we entered into a new revolving credit agreement to replace the one mentioned above. The new credit agreement provides us with a $300,000 unsecured line of credit, which can be increased to $400,000 subject to certain customary conditions and approvals. It is a multi-currency arrangement that will allow us to borrow certain foreign currencies at an adjusted LIBOR rate plus 1.00% to 1.75%, depending upon the ratio of our debt to EBITDA as defined therein. The new credit agreement expires on January 20, 2017, and contains certain restrictive covenants, including covenants relating to the maintenance of net worth, leverage ratios and interest coverage ratios.
We had interest rate swaps outstanding which effectively hedge the variable interest rate on $33,000 of our borrowings as of December 31, 2011 and 2010, to a fixed rate of 3.3% per annum, plus credit spread. Including the effect of this interest rate swap agreement, our borrowings under the credit agreement as of December 31, 2011 carried an average interest rate of 2.95%.
A qualified institution holds $75,000 of our senior notes which mature on April 2, 2017, subject to certain acceleration features upon an event of default, should one occur. These senior notes are comprised of (a) $45,000 aggregate principal amount of Series 2007-A Adjustable Fixed Rate Guaranteed Senior Notes, Tranche 1, due April 2, 2017 (the “Tranche 1” notes) and (b) $30,000 aggregate principal amount of Series 2007-A Adjustable Floating Rate
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Guaranteed Senior Notes, Tranche 2 (the “Tranche 2” notes). Tranche 1 bears interest at 5.78%, payable semi-annually in arrears on April 2nd and October 2nd of each year. Tranche 2 bears interest at an annual rate of 0.55% plus LIBOR in effect from time to time, adjusted quarterly, and is payable quarterly in arrears.
As of December 31, 2011 and 2010, we had an interest rate swap outstanding which effectively hedges the variable interest rate of $30,000 of Tranche 2 senior notes to a fixed rate of 5.6% per annum.
On April 29, 2010, we issued and sold an additional $50,000 of senior notes to other qualified institutional buyers pursuant to a note purchase agreement (the “Note Purchase Agreement”). These senior notes bear interest at a fixed annual rate of 5.46%, payable semi-annually in arrears on April 29th and October 29th of each year, beginning on October 29, 2010. Our obligations under the Note Purchase Agreement mature on April 29, 2020.
Our obligations under our revolving credit agreement, the Tranche 1 and Tranche 2 notes, and the Note Purchase Agreement are guaranteed by certain of our subsidiaries.
We also have an uncommitted, short-term credit facility maturing on November 15, 2013 that allows for maximum borrowings of $15,000, of which $6,564 was outstanding as of December 31, 2011 at an interest rate of 2.13%.
Maturities of long-term debt outstanding at December 31, 2011 were as follows:
At December 31, 2011 and 2010, we had outstanding standby letters of credit of approximately $3,715 and $10,926, respectively, which are not included in our Consolidated Balance Sheets. These letters of credit typically serve to guarantee performance of our land reclamation and workers’ compensation obligations; we have recorded amounts owed under these obligations in our Consolidated Balance Sheets as of December 31, 2011 and 2010.
(9) Derivative Instruments and Hedging Activities
As a multinational corporation with operations throughout the world, we are subject to certain market risks. We use a variety of practices to manage these market risks, including, when appropriate, derivative financial instruments. We use derivative financial instruments only for risk management and not for trading or speculative purposes.
The following table sets forth the fair values of our derivative instruments and where they are recorded within our Consolidated Balance Sheet:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Cash Flow Hedges
We use interest rate swaps to manage variable interest rate risk on debt securities. Interest rate differentials are paid or received on these arrangements over the life of the swap. As of December 31, 2011 and 2010, we had an interest rate swap outstanding which effectively hedges the variable interest rate on $30,000 of our senior notes to a fixed rate of 5.6% per annum. We also had other interest rate swaps outstanding which effectively hedge the variable interest rate on $33,000 of our borrowings as of December 31, 2011 and 2010, under our revolving credit agreement, to a fixed rate of 3.3% per annum, plus credit spread.
Other
We are exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. We are particularly sensitive to currency exchange rate fluctuations between the following currency pairs: a) the Euro to the British pound (GBP) and the Polish zloty (PLN), b) the South African Rand (ZAR) to the USD and Australian dollar (AUD), c) the GBP to the Danish kroner (DKK) and the Swiss franc (SEK), and d) the USD to the Indian rupee (INR), the Thai baht (THB), and the Turkish lira (TRY). Occasionally, we enter into foreign exchange derivative contracts to mitigate the risk of currency fluctuations on these exposures.
We have not designated these contracts for hedge accounting treatment and therefore, changes in fair value of these contracts are recorded in earnings as follows:
We did not have any significant foreign exchange derivative instruments outstanding as of December 31, 2011 or 2010.
(10) Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our calculation of the fair value of derivative instruments includes several assumptions. The fair value hierarchy prioritizes these input assumptions in the following three broad levels:
Level 1 - Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the company has the ability to access at the measurement date.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Level 2 - Valuation is based on quoted prices for similar assets or liabilities in active market, quoted prices for identical or similar assets or liabilities in markets that are not active and model based valuations for which all significant inputs are observable in the market.
Level 3 - Valuation is based on model based techniques that use unobservable inputs for the asset or liability. These inputs reflect our own views about the assumption market participants would use in pricing the asset or liability.
The following table categorizes our fair value instruments according to the assumptions used to calculate those values at the end of each of the past two years:
Interest rate swaps are valued using discounted cash flows. The key input used is the LIBOR swap rate, which is observable at commonly quoted intervals for the full term of the swap. Available-for-sale securities are valued using quoted market prices. Deferred compensation and supplementary pension plan assets are valued using quoted prices for similar assets in active markets.
(11) Asset Impairment Charge
During the third quarter ended September 30, 2009, our minerals and materials segment recorded a non-cash impairment charge of $1,980 to write down certain fixed assets to their estimated fair values based on a third-party appraisal (Level 2 inputs). The impairment charge is related to the closing of a plant within our minerals and materials segment due to reduced demand. This impairment charge was recorded within cost of sales within our Consolidated
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Statement of Operations. In addition, we increased our inventory reserve by $293 (also recorded within the cost of sales) to record the excess of cost over net realizable value of the inventory located at this plant, bringing the total expense associated with this write-off to $2,273.
(12) Noncontrolling Interest
In January 2011, we acquired the remaining noncontrolling interest in Volclay South Africa (Proprietary) Limited (“VSA”), which operates our chromite business, for approximately $5,600.
In February 2011, we sold 26% of our interest in Batlhako Mining Limited (“Batlhako”) to Vengawave (Proprietary) Limited, which is a Black Economic Empowerment enterprise (a “BEE”) in the Republic of South Africa. Batlhako is VSA’s subsidiary dedicated strictly to mining chrome sand and selling it to one of our other subsidiaries for further processing and sale to the end customer. South African law requires that we have a BEE as a partner in the mining operations and this transaction was consummated to comply with those regulations.
The following table sets forth the effects of these transactions on equity attributable to AMCOL’s shareholders.
(13) Discontinued Operations
In September 2011, our environmental segment sold CETCO Contracting Services Company, which comprised our domestic contracting services business. The operations of this business for current and prior years, including the immaterial loss recorded on the sale, have been reclassified and are recorded net of income tax within Income (loss) on discontinued operations within our Consolidated Statement of Operations.
(14) Leases
In 2008, we entered into a sale-leaseback transaction involving the construction of a new corporate facility. Under terms of the operating lease, rental payments in fiscal 2011, 2010 and 2009 approximate $2,634 , $2,583, and $2,532, respectively, and increase 2% annually thereafter through December 2028.
We have several noncancelable leases for equipment, software, and plant facilities. Total rent expense under operating lease agreements was approximately $13,188, $12,485 and $10,714 in 2011, 2010 and 2009, respectively.
The following is a schedule of future minimum lease payments for operating leases (with initial terms in excess of one year) as of December 31, 2011:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(15) Employee Benefit Plans
We have a defined benefit pension plan covering substantially all of our domestic employees hired before January 1, 2004. The benefits are based upon years of service and qualifying compensation. Our funding is calculated using the actuarially determined unit credit cost method. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future.
In addition to the qualified plan, we sponsor a supplementary pension plan (SERP) that provides benefits in excess of qualified plan limitations for certain employees.
The following tables set forth our pension obligations and funded status at December 31:
The liabilities associated with our SERP plan and our defined benefit pension plan (net of the defined benefit plan assets) are included within Pension liabilities in our Consolidated Balance Sheet. Included within Other Noncurrent Assets within our Consolidated Balance Sheet are invested assets for the benefit of the employees covered by the supplemental pension plan.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Pension cost in each of the following years was comprised of:
The following table summarizes the assumptions used in determining our pension obligations at the end of each of our last two years:
The following table summarizes the assumptions used in determining our net periodic benefit cost in the years ended December 31:
We expect to contribute up to $1,693 to the defined benefit pension plan in 2012. The accumulated benefit obligation (ABO) for our defined benefit pension plan was $49,301 and $40,949 at December 31, 2011 and 2010, respectively. The ABO for our supplementary pension plan was $8,537 and $7,606 at December 31, 2011 and 2010, respectively.
The estimated future benefit payments contemplated under these plans, reflecting expected future service, as appropriate, are presented in the following table:
Note 3 shows the amounts included within accumulated other comprehensive income as of December 31, 2011 and 2010 that have not yet been recognized as components of net periodic benefit cost. Of these balances at December 31, 2011, the amounts expected to be amortized in the next fiscal year are $59 and $1,153 for the unrecognized prior service cost and unrecognized net actuarial loss, respectively. Excluding the effect of income taxes, the amounts recognized within other comprehensive income and the prior service cost for 2011 and 2010, are as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Defined Benefit Pension Plan
Fair values of our defined benefit pension plan assets at December 31, by asset category, are as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Assets classified as Level 1 are valued using quoted prices on the major stock exchange on which individual assets are traded. Our Level 2 assets are valued using net asset value. The net asset value is quoted on a private market that is not active; however, the unit price is based on underlying investments that are traded on an active market. Our Level 3 assets are estimated at fair value based on the most recent financial information available for the underlying securities, which are not traded on active market, and represents significant unobservable input.
The following is a reconciliation of changes in fair value measurements of plan assets using significant unobservable inputs (Level 3):
We employ a total return investment approach whereby we use a mix of equities and fixed income investments to maximize the long-term return of plan assets with a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and our corporate financial condition. The investment portfolio contains a diversified blend of equity, fixed-income investments and alternative investments. The investment objectives emphasize maximizing returns consistent with ensuring that sufficient assets are available to meet liabilities, and minimizing corporate cash contributions. Our defined benefit plan assets are managed so as to include investments that balance income and capital appreciation.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Our defined benefit plan has a target range for different types of investments: equity securities (between 41% and 69%), fixed income securities and bonds (between 18% and 31%), alternative investments (between 5% and 23%), and cash (between 0% and 10%). This allocation takes into account factors such as the average age of employees covered by the Plan (benefit obligations) as well as overall market conditions. Interim portfolio reviews result in investment allocations being evaluated at least twice a year by the Pension Committee and rebalancing takes place as needed. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalizations. Fixed income securities and bonds include both government and corporate investment vehicles. These include a series of laddered debt securities as well as bond funds.
Historical markets are studied and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term rate of return for plan assets is established via a building block approach with proper consideration of diversification and rebalancing.
Defined Contribution Plan
Employees hired on or after January 1, 2004 do not participate in our defined benefit pension plan or SERP. Instead, they participate in a defined contribution plan whereby we make a retirement contribution into the employee’s savings plan equal to 3% of their compensation. We made total contributions to this plan of $1,778, $1,248 and $1,021 in 2011, 2010 and 2009, respectively.
401(k) Savings Plan
We also have a savings plan for our U.S. personnel. In 2011, we made a contribution in an amount equal to an employee’s contributions up to a maximum of 4% of the employee’s annual earnings. We make contributions to this plan using either cash or our own common stock which we purchase in the open market. Our contributions under the savings plan were $3,422 in 2011, $2,842 in 2010 and $2,803 in 2009.
Other
We also have a deferred compensation plan and a 401(k) restoration plan for our executives.
(16) Stock Compensation Plans
We provide compensation to certain employees using stock based awards. For purposes of calculating compensation cost, we estimate the fair value of each award on the date of grant using the Black-Scholes option-pricing model. We used the following assumptions in calculating the fair value of awards granted in each of the following years:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
1998 Long-Term Incentive Plan
This plan provides for the award of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and phantom stock. We reserved 3,900,000 shares of our common stock for issuance to our officers, directors and key employees. Different terms and conditions apply to each form of award made under the plan. Awards granted since 2003 vest ratably over a three year period and expire six years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company. Options awarded under this plan prior to 2003 generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter until they are fully vested. These options are exercisable as they vest and expire 10 years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company.
Changes in options outstanding are summarized as follows:
2006 Long-Term Incentive Plan
Our AMCOL International Corporation 2006 Long-Term Incentive Plan permits a total of 1,500,000 shares of AMCOL common stock to be awarded to eligible directors and employees through the use of nonqualified stock options, incentive stock options, restricted stock or restricted stock units, and stock appreciation rights. Different terms and conditions apply to each form of award made under the plan. Awards granted prior to 2009 have a six year life from the date of grant and vest ratably over a three year period from the date of grant. Awards granted in 2009 have a ten year life from the date of grant and vest ratably over a three year period from the date of the grant. No awards could be made pursuant to this plan after May 2010 when the AMCOL International Corporation 2010 Long-Term Incentive Plan was adopted as discussed later herein.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
2010 Long-Term Incentive Plan
On May 6, 2010, our shareholders approved the AMCOL International Corporation 2010 Long-Term Incentive Plan. This plan permits a total of 2,000,000 shares of AMCOL common stock to be awarded to eligible directors and employees through the use of nonqualified stock options, incentive stock options, restricted stock or restricted stock units, and stock appreciation rights. Different terms and conditions apply to each form of award under the plan. Awards granted under this plan have a ten year life from the date of grant and vest ratably over a three year period from the date of the grant. At any time, the Board of Directors may amend the plan, which automatically expires on May 7, 2020.
All Stock Compensation Plans
The following table summarizes information about stock compensation awards outstanding and exercisable at December 31, 2011:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table summarizes information about our nonvested stock compensation awards outstanding:
Restricted Stock Awards
The tables above exclude the impact of all restricted stock awards.
Restricted stock awards are subject to performance conditions established by the Compensation Committee of the Board of Directors. The cost of these awards, determined to be the fair market value of the shares at the date of the grant, is expensed ratably over the performance period.
In February 2011, we granted 75,000 shares of performance based restricted stock to our executive officers pursuant to our 2010 Long-Term Incentive Plan. These restricted stock awards have a grant date fair value of $30.66 per share, and vest ratably over a three-year period from grant date, provided that the Company, or certain reporting segments, meet certain established performance targets. One-third of these shares vested in February 2012, as the performance targets were met.
In 2009, we granted 40,000 shares of performance based restricted stock to our executive officers pursuant to our 2006 Long-Term Incentive Plan. These restricted awards have a grant date fair value of $28.42 per share, and will vest 100% in December 2012, if certain established performance targets are met.
(17) Contingencies
We are party to a number of lawsuits arising in the normal course of business. Since the mid-1980s, we and/or our subsidiaries have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content of our bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of our foundry customers. Our oilfield operations are also party to two lawsuits alleging damages caused by our coiled tubing operations in Louisiana; one lawsuit alleges damages of $28 million and the other of $9 million. We do not believe that any pending litigation will have a material adverse effect on our consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(18) Quarterly Results (Unaudited)
Unaudited summarized results for each quarter of the last two years are as follows:
(A) Earnings per share (EPS) for each quarter is computed using the weighted-average number of shares outstanding during the quarter, while EPS for the year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the EPS for each of the four quarters may not equal the EPS for the year.
Our minerals and materials segment recorded following in the third quarter ended September 30, 2011
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Reduction to cost of sales of $1,464 resulting from the recovery of certain mining costs in our chromite operations.
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Income from affiliates and joint ventures of $2,104 resulting from the sale of our Belgian joint venture.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(A) Earnings per share (EPS) for each quarter is computed using the weighted-average number of shares outstanding during the quarter, while EPS for the year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the EPS for each of the four quarters may not equal the EPS for the year.
Our minerals and materials segment recorded expenses of $2,982 and $2,779 in the third quarter ending September 30, 2010 and fourth quarter ending December 31, 2010, respectively, resulting from operational issues in our domestic personal care products business within our minerals and materials segment.
We also recorded the following charges during our fourth quarter ended December 31, 2010:
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Non-cash losses from impairments associated with two of our joint ventures of $11,705, as disclosed more fully in Note 6;
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Expenses of $2,665 associated with the retirement of our retired CEO; and
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Tax expenses of $1,300 associated with the recognition of valuation allowances in foreign jurisdictions.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 29, 2012
AMCOL INTERNATIONAL CORPORATION
By:
/s/ Ryan F. McKendrick
Ryan F. McKendrick
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX TO EXHIBITS
(1) Exhibit is incorporated by reference to the Registrant’s Form S-3 filed with the Securities and Exchange Commission on September 15, 1993.
(2) Exhibit is incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1995.
(3) Exhibit is incorporated by reference to the Registrant’s Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1998.
(4) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed the Securities and Exchange Commission on February 13, 2009.
(5) Exhibit is incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008.
(6) Exhibit is incorporated by reference to the Registrant’s Form S-8 (File 333-56017) filed with the Securities and Exchange Commission on June 4, 1998.
(7) Exhibit is incorporated by reference to the Registrant’s Form S-8 (File 333-68664) filed with the Securities and Exchange Commission on August 30, 2001.
(8) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 12, 2006.
(9) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.
(10) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 15, 2005.
(11) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 19, 2006.
(12) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 13, 2007.
(13) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed the Securities and Exchange Commission on May 23, 2008.
(14) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on September 23, 2009.
(15) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 5, 2010.
(16) Exhibit is incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2009.
(17) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 30, 2010.
(18) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 7, 2010.
(19) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 22, 2010.
(20) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 14, 2011.
(21) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 16, 2011.
(22) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 17, 2011.
(23) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 23, 2012.
*Management compensatory plan or arrangement
** As provided in Rule 406T of Regulation S-T, this information is deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, and is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and is not otherwise subject to liability under these sections.