<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<CAPTION>
(MARK ONE)
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER: 0-15661
AMERICAN COLLOID COMPANY
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 36-0724340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE NORTH ARLINGTON, 1500 WEST SHURE DRIVE
SUITE 500
ARLINGTON HEIGHTS, ILLINOIS 60004-7803
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (708) 392-4600
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH NAME OF EACH EXCHANGE
CLASS ON WHICH REGISTERED
----------------- ----------------------
<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes____ X ____No____ _ ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. / /
The aggregate market value of the $.01 par value Common Stock, held by
non-affiliates of the registrant on March 14, 1995, based upon the closing sale
price on that date as reported in The Wall Street Journal was approximately
$250,714,000.
Registrant had 19,108,060 shares of $.01 par value Common Stock, outstanding
as of March 14, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be dated on or about April 7, 1995 are
incorporated by reference into Part III hereof.
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<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
American Colloid Company was originally incorporated in South Dakota in 1924
as the Bentonite Mining & Manufacturing Co. Its name was changed to American
Colloid Company in 1927, and it was reincorporated in Delaware in 1959. Except
as otherwise noted, and unless the context indicates otherwise, the term
"Company" or "Colloid" refers to American Colloid Company and its subsidiaries.
The Company may be generally divided into three principal categories of
operations; minerals, absorbent polymers and environmental. The Company also
operates a transportation business primarily for delivery of its own products.
In general, the Company's products are used for their liquid-absorption
properties. The Company is a leading producer of bentonite products, which have
a variety of applications, including use as a bonding agent to form sand molds
for metal castings, in cat litter, as a moisture barrier in commercial
construction and landfill liners and in a variety of other industrial,
commercial and agricultural applications. The Company also manufactures
absorbent polymers, predominantly superabsorbent polymers, used in disposable
baby diapers and other personal care products, such as adult incontinence and
feminine hygiene products.
The following table sets forth the percentage contributions to net sales of
the Company attributable to its minerals, absorbent polymers, environmental and
transportation segments for the last five calendar years.
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Minerals (1).................................... 58.2% 59.3% 63.3% 66.4% 68.9%
Absorbent polymers.............................. 22.1 23.6 17.1 12.9 10.0
Environmental................................... 11.6 9.2 10.4 11.3 11.9
Transportation.................................. 8.1 7.9 9.2 9.4 9.2
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
<FN>
------------------------
(1) Includes allied products, e.g., chromite sand, leonardite and blended
products.
</TABLE>
Net revenues, operating income and identifiable assets attributable to each
of the Company's business segments are set forth in Note 2 of the Company's
Notes to Consolidated Financial Statements included elsewhere herein, which Note
is incorporated herein by reference.
MINERALS
Commercially produced bentonite is a type of montmorillonite clay found in
beds ranging in thickness from two to ten feet under overburden of up to 120
feet. There are two basic types of bentonite, each having different chemical and
physical properties. These are commonly known as sodium (western) bentonite and
calcium (southern) bentonite. A third type of clay, a less pure type of calcium
montmorillonite called fuller's earth, is used as a form of cat litter and for
other applications, including use as a carrier for agri-chemicals.
The Company's bentonite used in industrial applications is marketed under
various internationally registered trade names, including
VOLCLAY-Registered Trademark- and PANTHER CREEK-Registered Trademark-. The
Company's cat litter is sold under the trade names NATURAL
SELECT-Registered Trademark-, PREMIUM CHOICE-TM-, CARE FREE KITTY-TM- and
various private labels.
1
<PAGE>
PRINCIPAL MARKETS AND PRODUCTS
DURABLE GOODS
METALCASTING. In the formation of sand molds for metal castings, sand is
bonded with bentonite and various other additives to secure the desired surface
finish. The Company produces both standard and customized blended mineral
products, sold under the trade name ADDITROL-Registered Trademark-, as well as
sodium and calcium bentonite, used as additives to metalcasting molds. In
addition, several high-performance specialty products are sold to foundries and
companies that service foundries.
IRON ORE PELLETIZING. The Company is a major supplier of sodium bentonite
for use as a pelletizing aid in the production of taconite pellets in North
America.
WELL DRILLING. Sodium bentonite and leonardite are ingredients of drilling
mud, which allows rock cuttings to be suspended and brought to the surface in
oil and gas well drilling. Drilling mud lubricates the drilling bit and coats
the underground formations to prevent hole collapse and drill bit siezing. In
the late 1970's and early 1980's oil well drilling was the Company's largest
market for bentonite.
OTHER INDUSTRIAL PRODUCTS. The Company is a supplier of fuller's earth
products for use as an oil and grease absorbent in industrial applications. The
Company also produces 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.
CONSUMABLE GOODS
CAT LITTER. The Company produces two types of cat litter products, a
fuller's earth-based or traditional product and a sodium bentonite-based
scoopable (or clumping) product. The Company's scoopable products' clump-forming
capability traps urine, allowing for easy removal of the odor producing
elements. Scoopable cat litter has grown to 42% of the U.S. grocery market for
cat litter in 1994 from 0.4% in 1989. Both types of products are sold primarily
to private label grocery and mass merchants, though the Company also sells its
own brands to the grocery, pet store and mass markets. The Company's scoopable
product is marketed under the trade names NATURAL SELECT-Registered Trademark-,
PREMIUM CHOICE-TM- and CARE FREE KITTY-TM-.
FINE CHEMICALS. Purified grades of sodium bentonite are marketed to the
pharmaceutical and cosmetics industries. Small amounts of purified bentonite act
as a binding agent for pharmaceutical tablets, and bentonite's expansion quality
also aids in tablet disintegration. Bentonite also acts as a suspension agent
and thickener in lotions and has a variety of other specialized uses as a flow
control additive. Calcium bentonite is used as a catalyst or as a clarifying
agent for edible oils, fats, dimer acids and petroleum products.
AGRICULTURAL. Sodium bentonite, calcium bentonite and fuller's earth are
sold as pelletizing aids in livestock feed and as dusting agents to prevent
caking of feeds in storage or in transit. Fuller's earth and sodium bentonite
are used as carriers for agri-chemicals. Fuller's earth is also used as a drying
agent in blending liquid and dry fertilizers prior to application.
SALES AND DISTRIBUTION
In 1994, the top two customers accounted for approximately 11% of the
Company's mineral sales, and the top five customers accounted for approximately
20% of such sales. The Company's mineral products are sold domestically and
internationally to approximately 3,700 customers.
The Company has established industry-specialized sales groups staffed with
technically-oriented salespersons to serve each major market in which the
Company's products are utilized. Each group has a network of distributors and
representatives, including companies that warehouse at strategic locations.
2
<PAGE>
Most of its customers in the metalcasting industry are served on a direct
basis by teams of Company sales, technical and manufacturing personnel. The
Company also provides training courses and laboratory testing for customers who
use the Company's products in the metalcasting process.
Sales to the oil well drilling industry are primarily made directly to oil
well drilling mud service companies, both under the Company's name and under
private label. Bentonite used in oil well drilling is sold by oil well service
organizations, two of which are vertically integrated. The Company's potential
market is, therefore, generally limited to those oil well service organizations
which either do not have captive production or long-term supply arrangements.
Sales to the cat litter market are made on a direct basis and through
industry brokers. All sales to the iron ore pelletizing industry are made
directly to the end user. Sales to the Company's remaining markets are made
primarily through independent distributors and representatives.
COMPETITION
BENTONITE. The Company is one of the largest producers of bentonite
products in the U.S. There are at least four other major domestic producers of
sodium bentonite and at least one other major domestic producer of calcium
bentonite. Two of the domestic producers are companies primarily in other lines
of business and have substantially greater financial resources than the Company.
There also is substantial competition overseas. The Company's bentonite
processing plants in the U.K. and Australia compete with a total of six U.K. and
Australian processors. Competition in both the Company's domestic and
international markets is essentially a matter of product quality, price,
delivery, service and technical support, and it historically has been very
vigorous.
FULLER'S EARTH. There are approximately ten major competitors in the U.S.,
some of which are larger and have substantially greater financial resources than
the Company. Price, service, product quality and geographical proximity to the
market are the principal methods of competition in the Company's markets for
fuller's earth.
SEASONALITY
Although business activities in certain of the industries in which the
Company's mineral products are sold (such as well drilling) are subject to
factors such as weather conditions, the Company does not consider its mineral
business as a whole to be seasonal.
ENVIRONMENTAL
PRINCIPAL PRODUCTS AND MARKETS
Through its wholly owned subsidiary, Colloid Environmental Technologies
Company (CETCO), the Company sells sodium bentonite, products containing sodium
bentonite and various other products and equipment for use in environmental and
construction applications.
CETCO sells bentonite and its geosynthetic clay liner product,
BENTOMAT-Registered Trademark-, for lining and capping landfills, and for
containment in tank farms, leach pads, waste stabilization lagoons and
decorative ponds.
The Company's VOLCLAY-Registered Trademark- Waterproofing System is sold to
the non-residential construction industry. This line includes a product sold
under the registered trade name VOLCLAY PANELS-Registered Trademark- consisting
of biodegradable cardboard panels filled with sodium bentonite installed to
prevent leakage through underground foundation walls. A waterproofing liner
product with the trade name VOLTEX-Registered Trademark-, a joint sealant
product with the trade name WATERSTOP-RX-Registered Trademark- and a
waterproofing membrane for concrete slit slabs and plaza areas sold under the
trade name VOLCLAY SWELLTITE-Registered Trademark- round out the principal
components of the product line.
CETCO sells elastomeric urethane coatings designed for vehicular traffic
decks, roofs, balconies and pedestrian walkways. The products, sold under the
trade name ACCOGUARD-Registered Trademark-, are among the more environmentally
friendly primers and coatings available to the construction industry.
3
<PAGE>
CETCO's ground water products are used to drill environmental wells and
water wells, rehabilitate existing water wells and seal abandoned exploration
drill holes. VOLCLAY GROUT-Registered Trademark-,
BENTOGROUT-Registered Trademark- and VOLCLAY-Registered Trademark- Tablets are
among the trade names for products used in these applications.
Bentonite-based flocculents and customized equipment are used to remove
emulsified oils and heavy metals from waste water. Another bentonite based
product is formulated to solidify liquid waste for proper disposal in landfills.
These products are sold primarily under the System-AC RM10-Registered Trademark-
and SORBOND-Registered Trademark- trade names.
CETCO acquired the assets of Aquatec Engineering and Supply Company in July,
1994 and continues to operate the business as a division of the Company. This
division specializes in providing water equipment and services to the
environmental remediation industry and activated carbon purification systems for
the beverage and municipal water treatment industries. Its operations include a
fully equipped engineering and fabrication facility for producing pressure
vessels used in filtration applications. In addition, a network of regional
service centers provides services and distribution to support markets such as
remediation of petroleum-contaminated ground water. This fast growing sector is
expanding in the number of service centers and its geographic coverage.
Hydron, Inc., a division of CETCO acquired in June, 1994, designs water
treatment systems using dissolved air flotation technologies. As a part of the
transaction, CETCO acquired certain patent rights for using bentonite
flocculants in conjunction with dissolved air flotation systems.
COMPETITION
CETCO has three principal competitors in the geosynthetic clay liner market.
The construction and wastewater treatment product lines are niche businesses
which compete primarily with alternative technologies. The service center
remediation business has two major competitors, one of which is substantially
larger and with greater resources. The ground water monitoring and soil sealants
products compete with the Company's traditional rivals in the sodium bentonite
business. Competition is based on product quality, service, price, technical
support and availability of product. Historically, the competition has been very
vigorous.
SALES AND DISTRIBUTION
In 1994, no customer accounted for more than 5% of environmental sales.
CETCO products are sold domestically and internationally. CETCO sells most of
its products through independent distributors and commissioned representatives.
Contract remediation work is done on a direct basis working with consulting
engineers engaged by the customers. CETCO employs technically oriented marketing
personnel to support its network of distributors and representatives. In the
service center business, salespersons develop business in the regional markets
to supplement contract remediation work performed for national accounts.
SEASONALITY
Much of the business in the environmental sector is impacted by weather and
soil conditions. Many of the products cannot be applied in harsh weather
conditions and, as such, sales and profits tend to be stronger April through
October. As a result, the Company considers this segment to be seasonal.
MINERAL RESERVES
Both the mineral and environmental segments have sodium bentonite reserves
and processing plants. The discussion of mineral reserves which follows applies
to both units.
RESEARCH AND DEVELOPMENT
The minerals and environmental segments share research and laboratory
facilities. Both CETCO and the U.K. minerals operation have intentions of
developing independent research capabilities. Plans are underway to accomplish
their objectives. Technological developments are shared between the companies,
subject to license agreements where appropriate.
4
<PAGE>
MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS
MINERAL RESERVES
The Company has reserves of sodium and calcium bentonite at various
locations in Wyoming, South Dakota, Montana, Nevada, Mississippi and Alabama,
and reserves of fuller's earth in Tennessee and Illinois. At 1994 consumption
rates, based on internal estimates, the Company believes that its proven
reserves of commercially usable sodium and calcium bentonite will be adequate
for approximately 30 years (although reserves for certain specialty uses differ
significantly from this 30-year period) and that its proven reserves of fuller's
earth will be adequate for approximately 20 years. While the Company, based upon
its experience, believes that its reserve estimates are reasonable and its title
and mining rights to its reserves are valid, the Company has not obtained any
independent verification of such reserve estimates or such title or mining
rights. The Company owns or controls the properties on which its reserves are
located through long-term leases, royalty agreements and patented and unpatented
mining claims. A majority of the Company's bentonite reserves are owned. All of
the properties on which the Company's 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.
Of the total reserves, approximately 20% are located on unpatented mining
claims owned or leased by the Company, on which the Company has the right to
undertake regular mining activity. To retain possessory rights, a fee of $100
per year for each unpatented mining claim is required. The validity of title to
unpatented mining claims is dependent upon numerous factual matters. The Company
believes that the unpatented mining claims which it owns have been located in
compliance with all applicable federal, state and local mining laws, rules and
regulations. The Company is not aware of any material conflicts with other
parties concerning its claims. From time to time, members of Congress as well as
members of the executive branch of the federal government have proposed
amendments to existing federal mining laws. As currently proposed, the various
amendments would have 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
these proposals may result in the imposition of royalty fees on unpatented
lands, the mining of the Company's unpatented claims may become uneconomic, and
royalty rates for privately leased lands may be affected. The Company cannot
predict the form that any amendments might ultimately take or whether or when
any such amendments might be adopted.
The Company's fuller's earth reserves are both owned and leased. The loss of
any of the leased reserves could materially decrease the Company's reserves of
fuller's earth, but it is believed that alternative economical reserves could be
developed.
The Company maintains a continuous program of exploration for additional
reserves and attempts to acquire reserves sufficient to replenish its
consumption each year, but it cannot assure that additional reserves will
continue to become available.
The Company oversees all of its mining operations, including its exploration
activity and the obtaining of necessary state and federal mining permits.
The following table shows a summary of minerals sold by the Company for the
last five years in short tons:
<TABLE>
<CAPTION>
TONS OF MINERALS SOLD
--------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sodium Bentonite:
Belle Fourche, SD.................................................. 203 147 124 96 90
Upton, WY.......................................................... 424 351 334 344 388
Colony, WY......................................................... 791 701 776 695 461
Lovell, WY......................................................... 299 273 103 85 87
</TABLE>
5
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<TABLE>
<CAPTION>
TONS OF MINERALS SOLD
--------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(IN THOUSANDS)
Calcium Bentonite:
<S> <C> <C> <C> <C> <C>
Aberdeen, MS....................................................... 70 61 62 43 61
Sandy Ridge, AL.................................................... 174 167 155 142 143
Fuller's Earth:
Mounds, IL......................................................... 242 239 225 211 184
Paris, TN (1)...................................................... 52 17 -- -- --
Leonardite:
Gascoyne, ND....................................................... 17 15 13 20 19
<FN>
------------------------
(1) Acquired in 1992 and commenced operations in 1993.
</TABLE>
The Company estimates that available supplies of other materials utilized in
its mineral business are sufficient to meet its production requirements for the
foreseeable future.
MINING AND PROCESSING
BENTONITE. Bentonite is surface mined, generally with large earthmoving
scrapers, and then loaded into trucks and off-highway haul wagons for movement
to the processing plants. The mining and hauling of the Company's clay is done
both by the Company and by independent contractors. Each of the Company's
processing plants generally maintain stock piles of unprocessed clay of
approximately 4 to 8 months' production requirements.
At the processing plants, bentonite is dried, crushed and sent through
grinding mills, where it is sized into shipping form, then chemically modified
where needed and transferred to silos for automatic bagging or shipment in bulk.
Virtually all production is shipped as processed, rather than stored for
inventory.
FULLER'S EARTH. Fuller's earth is also surface mined using a combination of
scrapers, dozers and loaders. Crude clay is then loaded into dump trucks and
hauled to the processing plant where it is dried or calcined, crushed and
screened. Inventories of unprocessed clay generally are no more than two week's
supply. Mining is thus performed on a year round basis.
PRODUCT DEVELOPMENT AND PATENTS
The Company works actively with customers in each of its major markets in
order to develop commercial applications of specialized grades of bentonite, and
it maintains a bentonite research center and laboratory testing facility
adjacent to its corporate headquarters as well as one in the U.K. When a need
for a product which will accomplish a particular goal is perceived, the Company
will work to develop the product, research its marketability and study the
feasibility of its production. The Company will also continue its practice of
co-developing products with customers or others as new needs arise. The
Company's development efforts emphasize markets with which it is familiar and
products for which it believes there is a viable market.
The Company holds a number of U.S. and international patents covering the
use of bentonite and products containing bentonite. The Company follows the
practice of obtaining patents on new developments whenever feasible. The
Company, however, does not consider that any one or more of such patents is
material to its Minerals and Environmental business as a whole.
REGULATION AND ENVIRONMENTAL
The Company believes it is in material compliance with applicable
regulations now in effect with respect to surface mining. Since reclamation of
exhausted mining sites has been a regular part of the Company's surface mining
operations for the past 26 years, maintaining compliance with current
regulations has not had a material effect on its mining costs. The costs of
reclamation are reflected in the prices of the bentonite sold.
6
<PAGE>
The grinding and handling of dried clay is part of the production process,
and, because it generates dust, the Company's mineral processing plants are
subject to applicable clean air standards, and all of the Company's plants are
equipped with dust collection systems. The Company has not had and does not
presently anticipate any significant problems in connection with its dust
emission, nor does it presently expect ongoing expenditures for the maintenance
of its dust collection systems to be material.
The Company's mineral 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 non-compliance. While the costs of
compliance with, and penalties imposed under, these laws and regulations have
not had a material adverse effect on the Company, future events, such as changes
in, or modified interpretations of, existing laws and regulations or 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 the Company. See "Legal Proceedings."
ABSORBENT POLYMERS
Since the early 1970s, the Company has utilized a technique called modified
bulk polymerization ("MBP") to manufacture water soluble polymers for the oil
well drilling fluid industry. This technique has been modified to produce
superabsorbent polymers ("SAP"), a category of polymers known for their
extremely high water absorbency. Chemdal Corporation was formed in March 1986 to
manufacture and market absorbent polymers, with primary emphasis on SAP. To
date, the Company's sales of SAP have been almost exclusively for use as an
absorbent in personal care products, primarily disposable baby diapers. The
Company produces SAP at its U.S. facility with an annual capacity of 40,000 tons
and at its U.K facility, through Chemdal Limited, with an annual capacity of
40,000 tons.
Demand for the Company's SAP in the U.S. has grown significantly in recent
years as the amount of SAP used in new diaper designs has increased. SAP is more
absorbent than the fluff pulp used in traditional disposable diapers. The
increased use of SAP in diapers allows for a thinner diaper that occupies less
shelf space in stores and less landfill space. The use of SAP also helps to keep
the moisture inside the diaper, thereby causing less irritation to the wearer's
skin and reducing leakage. The Company expects that the trend in Europe will
follow that in the U.S. and anticipates an increase in demand for its SAP in
Europe. However, there can be no assurance that consumer preferences and other
factors in the European market will result in increased demand for the Company's
products. Based upon the Company's expectations regarding consumer and retail
preferences, the Company also believes that the trend in the diaper industry
will continue to be toward increasing amounts of SAP being used in new diaper
designs. While no assurance can be given that markets in developing countries
will follow the trends of developed countries, the Company also believes that
disposable diapers containing SAP will gain more acceptance in developing
countries as per capita incomes in those countries rise.
The Company expanded its U.S. capacity from 20,000 to 40,000 tons annually
in March 1994, and it expects to complete an additional expansion of 30,000 tons
by mid 1995, which will bring the total production capacity of its U.S. facility
to 70,000 tons annually. In addition, the Company increased its U.K. capacity
from 10,000 to 40,000 tons annually in October 1994.
PRINCIPAL MARKETS AND PRODUCT
The Company's SAP is primarily marketed under the trade names
ARIDALL-Registered Trademark- and ASAP-Registered Trademark-. To date, the
Company's customers have been primarily private label and national brand diaper
manufacturers. The Company believes that this segment of the diaper market has
grown faster than the brand name segment, which currently accounts for the
majority of that market. The Company has recently begun sales to manufacturers
of brand name personal care products and is seeking to increase its sales to
that segment of the market.
7
<PAGE>
SALES AND DISTRIBUTION
The Company sells SAP to the personal care market in the U.S. on a direct
basis and, in other countries, both on a direct basis and through distributors.
The Company expects to rely increasingly on a direct sales approach in the
personal care market. The Company's direct sales efforts employ a team approach
that includes both technical and marketing representatives. In 1994, the top two
customers accounted for approximately 32% of the Company's polymer sales, and
the top five customers accounted for approximately 48% of such sales.
The Company sells SAP for use in agricultural market applications through an
exclusive worldwide distributor. Sales to date in this market have been
insignificant.
PRODUCT DEVELOPMENT AND PATENTS
The Company continually seeks to improve the performance of its absorbent
polymers. It also intends to pursue additional applications for its absorbent
polymers in other markets either directly, or indirectly through marketing or
distribution arrangements. For example, the Company has entered into a contract
for the marketing and distribution of polymers in agricultural markets.
Agricultural applications of polymers include use as a soil treatment to hold
moisture to aid in hydration of plants and as a seed coating to hold moisture
around seeds that tend to be delicate and difficult to germinate. Polymers also
have applications in water treatment and in cosmetics, and acrylic-based
polymers can be used in the newer, more concentrated detergents which use
smaller packaging.
The Company owns several patents relating to its MBP process developed in
the 1970s, and to modifications of its MBP process developed in the 1980s which
relate to its SAP manufacturing process. The patents on the MBP process have
begun to expire. The patents relating to the SAP modifications thereto expire at
various times commencing in 2002.
The Company follows the practice of obtaining patents on new developments
whenever reasonably practicable. The Company also relies on unpatented know-how,
trade secrets and improvements in connection with its SAP manufacturing process.
There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques, or otherwise
gain access to or disclose the Company's trade secrets, or that the Company can
meaningfully protect its rights to its unpatented trade secrets.
RAW MATERIALS
The process used by the Company to produce SAP primarily uses acrylic acid
and, to a lesser extent, potassium and sodium alkalies and catalysts. The
Company's polymer operations are supplied by three major producers of acrylic
acid. The Company has been able to obtain adequate supplies of acrylic acid to
meet its production requirements to date.
The Company knows of four acrylic acid suppliers in the U.S., three in
Europe and four in the Far East. The Company is aware that at least five of
these suppliers manufacture SAP and, therefore, compete with the Company in this
market.
Potassium and sodium alkalies are available on a commercial basis worldwide
with no meaningful limitations on availability. Catalysts are available from a
small number of high-technology chemical manufacturers; however, the Company
does not anticipate any difficulties in obtaining catalysts.
COMPETITION
The Company believes that there are approximately five polymer manufacturers
and several importers that compete with its U.S. operation, three of which have
more production capacity and several of which have substantially greater
resources than the Company. The Company's U.K. operation competes with a total
of approximately seven producers and several importers. Only one producer has
substantially more production capacity and several producers have greater
resources than the Company. Further, several of these competitors are vertically
integrated and produce acrylic acid, the primary cost component of SAP. The
competition in both the Company's domestic and international markets is
primarily a matter of product quality and price, and it historically has been
very vigorous.
8
<PAGE>
The Company believes that its polymer manufacturing process has enabled it to
add polymer production capacity at a significantly lower capital investment cost
than that required by other processes currently in widespread commercial use.
REGULATION AND ENVIRONMENTAL
The Company's production process for SAP consumes virtually all chemicals
and other raw materials used in the process. Virtually all materials which are
not consumed by the end product are recycled through the process. The Company's
polymer plants, therefore, generate a minimal amount of chemical waste.
The handling of dried polymer is part of the production process, and,
because this generates dust, the Company's polymer plants must meet clean air
standards. The Company's polymer plants are equipped with dust collection
systems, and the Company believes that it is in material compliance with
applicable state and federal clean air regulations.
The Company's absorbent polymer business is 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 non-compliance. While the costs of
compliance with, and penalties imposed under, these laws and regulations have
not had a material adverse effect on the Company, future events, such as changes
in, or modified interpretations of, existing laws and regulations or 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 the Company.
TRANSPORTATION
The Company operates a long-haul trucking business and a freight brokerage
business primarily for delivery of its own products in package and bulk form
throughout the continental U.S. Through its transportation subsidiary, the
Company is better able to control costs, maintain delivery schedules and assure
equipment availability. This subsidiary performs transportation services on
outbound movements from the Company's production plants and attempts to haul
third parties' products on return trips whenever possible. In 1994,
approximately 74% of the carrier business involved the Company's products.
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 22% of the Company's 1994 net sales were to customers in
approximately 60 countries other than the U.S. To enhance its overseas market
penetration, the Company maintains a mineral processing plant in the U.K. A
processing plant, 60% owned by the Company, operates in Australia, and a
blending plant in Canada. Through a joint venture, the Company also has the
capability to process minerals in Mexico. Chartered vessels deliver large
quantities of the Company's bulk, dried sodium bentonite to the plants in the
U.K. and Australia, where it is processed and mixed with other clays and
distributed throughout Europe and Australia. The Company's U.S. bentonite is
also shipped in bulk to Japan. The Company also maintains a worldwide network of
independent dealers, distributors and representatives.
The Company produces absorbent polymers at its U.S. and U.K plants and
serves markets in Western Europe, South America, Asia and the Middle East.
The Company's international operations are subject to the usual risks of
doing business abroad, such as currency devaluations, restrictions on the
transfer of funds and import and export duties. The Company to date has not been
materially affected by any of these risks.
See Note 2 of the Company's Notes to Consolidated Financial Statements
included elsewhere herein, which Note is incorporated by reference for sales
attributed to foreign operations and export sales from the United States.
9
<PAGE>
EMPLOYEES
As of December 31, 1994, the Company employed 1,328 persons, 217 of whom
were employed overseas. At December 31, 1994, there were approximately 764, 281,
204 and 23 persons employed in the Company's minerals, absorbent polymers,
environmental and transportation segments respectively, along with 56 corporate
employees. Operating plants are adequately staffed, and no significant labor
shortages are presently foreseen. Approximately 220 of the Company's employees
in the U.S. and approximately 30 of the Company's employees in the U.K are
represented by six labor unions, which have entered into separate collective
bargaining agreements with the Company. Employee relations are considered good.
ITEM 2. PROPERTIES
The Company and its subsidiaries operate the following principal plants,
mines and other facilities, all of which are owned, except as noted:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL FUNCTION
---------------------------------- -----------------------------------------------------------------
<S> <C>
Belle Fourche, SD................. Mine and process sodium bentonite
Colony, WY (two plants)........... Mine and process sodium bentonite
Upton, WY (two plants)............ Mine and process sodium bentonite
Mounds, IL........................ Mine and process fuller's earth
Paris, TN......................... Mine and process fuller's earth
Gascoyne, ND...................... Mine and process leonardite
Aberdeen, MS...................... Mine and process calcium bentonite
Letohatchee, AL................... Package and load calcium bentonite
Sandy Ridge, AL................... Mine and process calcium bentonite; blend
ADDITROL-Registered Trademark-
Columbus, OH (1).................. Blend ADDITROL-Registered Trademark-; process chromite sand
Granite City, IL (1).............. Package cat litter; process chromite sand
Waterloo, IA...................... Blend ADDITROL-Registered Trademark-
Albion, MI (1).................... Blend ADDITROL-Registered Trademark-
York, PA.......................... Blend ADDITROL-Registered Trademark-
Chattanooga, TN................... Blend ADDITROL-Registered Trademark-
Neenah, WI........................ Blend ADDITROL-Registered Trademark-
Toronto, Ontario, Canada.......... Blend ADDITROL-Registered Trademark-
Geelong, Victoria, Australia (1).. Process bentonite; blend ADDITROL-Registered Trademark-
Wallasey, Merseyside, U.K. (2).... Process bentonite and chromite sand; blend
ADDITROL-Registered Trademark-; research laboratory
Lovell, WY........................ Mine and process sodium bentonite
Villa Ricca, GA................... Manufacture Bentomat-Registered Trademark- environmental liner
Sulphur, LA....................... Manufacture environmental equipment
Aberdeen, MS...................... Manufacture absorbent polymers
Wallasey, Merseyside, U.K......... Manufacture absorbent polymers; research laboratory for Chemdal
Limited
Palatine, IL (1).................. Chemdal Corporation headquarters; research
laboratory
Scottsbluff, NE................... Transportation headquarters and terminal
Arlington Heights, IL (1)......... Corporate headquarters; Cetco headquarters; research laboratory
<FN>
------------------------
(1) Leased.
(2) Certain office & facilities are leased.
</TABLE>
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In November 1992, Sorb-All Co. ("Sorb-All") filed suit in the U.S. District
Court for the Southern District of Texas against the Company. Sorb-All seeks a
declaratory judgment that the Company's patent covering clumping cat litter
products is invalid and that Sorb-All's product does not infringe on the
Company's patent. Sorb-All also asserts that the Company's patent is invalid or
unenforceable due to misuse and inequitable conduct before the U.S. Patent and
Trademark Office, that the Company has engaged in false advertising in
connection with its patent in violation of federal and state law, that the
Company has engaged in violations of the federal antitrust laws and that the
Company wrongfully interfered with Sorb-All's contractual relationships. The
parties have reached a tentative settlement of this matter.
The Company is party to a number of other lawsuits arising in the normal
course of its business. The Company does not believe that any pending litigation
will have a material adverse effect on its consolidated financial position.
The Company's processing operations require permits from various
governmental authorities. From time to time, the Company has been contacted by
government agencies with respect to required permits or compliance with existing
permits, while the Company has been notified of certain situations of
non-compliance, management does not expect the fines, if any, to be significant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF REGISTRANT
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION FOR LAST FIVE YEARS
--------------------- --- ----------------------------------------------------------------------------
<S> <C> <C>
John Hughes.......... 52 President and Chief Executive Officer since 1985; a Director since 1984.
Peter L. Maul........ 45 Vice President since 1993; prior thereto Vice President of Marketing at
Chemstar, Inc. 1986-1992; prior thereto, Vice President at American Colloid
Company.
Roger P. Palmer...... 58 Senior Vice President since 1994 and President of Colloid Environmental
Technologies Company since August 1994; prior thereto, Vice President since
1990 and Vice President and General Manager of Colloid Environmental
Technologies Company since 1991; prior thereto, Group sales manager of the
Building Materials Group.
Clarence O. Redman... 52 Secretary of the Company since 1982; a Director since 1989 and Partner and
Chief Executive Officer, Keck, Mahin & Cate (law firm).*
Paul G. Shelton...... 45 Senior Vice President -- Chief Financial Officer since 1994 and President of
American Colloid's transportation units since May, 1994; prior thereto,
Vice President -- Chief Financial Officer since 1984; a Director since
1988.
Robert C. Steele..... 42 Senior Vice President since 1994 and President of American Colloid's
Minerals Group since May, 1994; prior thereto, Vice President since 1986.
Lawrence E. Washow... 42 Senior Vice President since 1994 and President of Chemdal Corporation since
September 1992; prior thereto, Vice President of the Company and Vice
President and General Manager of Chemdal Corporation since 1986.
<FN>
------------------------
* Keck, Mahin & Cate has been retained as counsel to the Company.
</TABLE>
11
<PAGE>
All 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. All
directors are elected by the stockholders for a term expiring when their
respective successors are elected and shall have qualified.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the Nasdaq Stock Market under the symbol ACOL.
The following table sets forth, for the periods indicated, the high and low sale
prices of the Common Stock, as reported by the Nasdaq Stock Market, and cash
dividends declared per share. Prices and cash dividends have been adjusted to
reflect three-for-two and two-for-one stock dividends in January 1993 and June
1993, respectively.
<TABLE>
<CAPTION>
CASH
STOCK PRICE DIVIDENDS
-------------- DECLARED
HIGH LOW PER SHARE
------ ------ ---------
<S> <C> <C> <C>
Fiscal Year Ended December 31, 1994:
1st Quarter..................................... $25.25 $13.50 $.0600
2nd Quarter..................................... 16.25 10.50 .0600
3rd Quarter..................................... 16.00 12.00 .0600
4th Quarter..................................... 17.75 13.75 .0600
Fiscal Year Ended December 31, 1993:
1st Quarter..................................... 12.75 9.13 .0500
2nd Quarter..................................... 15.63 11.25 .0500
3rd Quarter..................................... 28.50 13.25 .0500
4th Quarter..................................... 33.00 19.25 .0500
Fiscal Year Ended December 31, 1992:
1st Quarter..................................... 4.42 3.92 .0367
2nd Quarter..................................... 5.00 4.25 .0417
3rd Quarter..................................... 5.58 4.75 .0417
4th Quarter..................................... 9.42 5.33 .0417
<FN>
------------------------
As of February 21, 1995, there were 2,344 holders of record of the Common Stock,
excluding shares held in street name.
</TABLE>
The Company has paid cash dividends every year for over 57 years. The
Company intends to continue to pay cash dividends on its Common Stock, but the
payment of dividends and the amount and timing of such dividends will depend on
the Company's earnings, capital requirements, financial condition and other
factors deemed relevant by the Company's Board of Directors.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following is selected financial data for the Company and its
subsidiaries for the five years ended December 31, 1994. Per share amounts have
been adjusted to reflect a two-for-one stock split and a three-for-two stock
split effected in the nature of stock dividends in June 1993 and January 1993
respectively. All per share calculations are fully diluted, based on weighted
average number of common and common equivalent shares outstanding during the
year.
SUMMARY OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PER SHARE 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Shareholders' Equity........................................ $ 7.25 $ 7.28 $ 3.37 $ 3.31 $ 3.26
Net Income.................................................. .78 .76 .52 .26 .16
Dividends................................................... .24 .20 .16 .15 .15
Shares Outstanding.......................................... 19,486,520 17,223,854 16,480,644 15,898,944 15,588,882
INCOME DATA
Sales....................................................... $ 265,443 $ 219,151 $ 182,669 $ 148,790 $ 131,665
Gross Profit................................................ 59,487 49,843 42,454 32,409 28,132
Operating Profit............................................ 23,991 21,312 16,510 9,531 8,169
Net Interest Expense........................................ (2,332) (3,036) (3,484) (4,363) (4,852)
Net Other Income (Expense).................................. 544 474 (325) 246 (80)
Pretax Income............................................... 22,203 18,750 12,701 5,414 3,237
Income Taxes................................................ 6,828 5,567 4,105 1,207 673
Net Income.................................................. 15,283 13,120 8,506 4,152 2,513
BALANCE SHEET
Current Assets.............................................. $ 105,839 $ 93,018 $ 60,220 $ 61,808 $ 55,334
Net Property, Plant & Equipment............................. 141,420 83,233 61,231 62,245 63,948
Total Assets................................................ 261,047 181,177 126,794 129,589 126,228
Current Liabilities......................................... 36,617 27,401 21,092 21,534 14,976
Long-term Debt.............................................. 71,458 16,689 38,312 43,792 47,784
Shareholders' Equity........................................ 141,319 125,379 55,585 52,563 50,782
RATIO ANALYSIS
Pretax Margin............................................... 8.36% 8.56% 6.95% 3.64% 2.46%
Effective Tax Rate.......................................... 30.75 29.69 32.32 22.29 20.79
Net Margin.................................................. 5.76 5.99 4.66 2.79 1.91
Return On Ending Assets..................................... 5.85 7.24 6.71 3.20 1.99
Return On Ending Equity..................................... 10.81 10.46 15.30 7.90 4.95
OPERATING DATA
Operating Margins (1):
Minerals.................................................. 12.72% 9.47% 12.12%
Absorbent Polymers........................................ 13.58 19.97 11.77
Environmental............................................. 5.79 13.85 13.96
Transportation............................................ 4.74 4.02 3.96
Total Operating Margin.................................... 9.04 9.72 9.04
<FN>
------------------------
(1) The Company did not restate the segment information prior to 1992.
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND FINANCIAL CONDITION
At December 31, 1994, the Company had outstanding debt of $75.0 million
(including both long and short term debt) and cash and cash equivalents of $10.4
million compared with $20.0 million in debt and $20.5 million in cash and cash
equivalents at December 31, 1993. The long-term debt to total capitalization at
December 31, 1994 was 33.6% compared with 11.7% at December 31, 1993.
The Company had a current ratio of 2.89 to 1 on December 31, 1994, with
approximately $69.2 million in working capital compared with 3.39 to 1 and $65.6
million, respectively at December 31, 1993. The $3.6 million net increase in
working capital included increases in accounts receivable of $11.8 million
(30.1%) and inventories of $11.0 million (38.1%), a $10.1 million reduction in
cash and cash equivalents, and a $9.0 million increase in accounts payable and
accrued liabilities. Accounts receivable increased in the polymer segment as a
greater percentage of the balance related to sales to export customers with
longer payment terms. Environmental segment receivables also reflected longer
average terms for liner products, and additional receivables associated with the
Aquatec acquisition. Inventories (including advanced mining) increased in both
the minerals and polymer segments ($6.8 million and $3.5 million, respectively).
The minerals' segment increase occurred as a result of larger domestic clay
inventories, higher cat litter inventories due to expanded packaging operations
and a build up of Bentomat inventory in the U.K. Polymer inventories were built
in anticipation of the start of shipments to a major customer in the U.K. The
decrease in cash was expected as the temporary surplus from the October, 1993
stock offering was spent on capital expenditures.
The Company made capital expenditures of approximately $81 million, of
which, 55% was spent in the polymer area, 30% in minerals and 13% in the
environmental segment. The capital investment in the polymer segment was
directed toward the completion of the 20,000 ton capacity expansion in the U.S.
and the 30,000 ton expansion in the U.K. Worldwide production capacity at
December 31, 1994 stood at 80,000 tons, with a further 30,000 ton expansion
underway in the U.S. Capital expenditures in the domestic minerals sector were
directed primarily to expanded capabilities and improved economics in the cat
litter manufacturing arena. Overseas mineral investment activities were
primarily devoted to infrastructure improvements to allow for future growth. The
expenditures in the environmental segment were largely comprised of the
property, equipment and intangibles related to the acquisitions of the Bentomat
manufacturing facility, the operations of Aquatec Engineering and Supply Company
and Hydron, Inc.
On October 4, 1994, the Company entered into two new loan agreements. A $50
million long-term loan, with a seven-year average life and essentially the same
terms as the previous long-term note, was negotiated with the incumbent lender.
The $40 million revolving credit agreement with Harris Bank was replaced by a
$50 million facility with a four bank group at terms generally more favorable
than the previous agreement.
The Company had $42.0 million in unused, committed credit lines at December
31, 1994. In addition to the committed credit lines, the Company has demand
facilities in the United States and the United Kingdom which allow for
short-term borrowings of approximately $8.1 million and letters of credit of
$8.3 million at favorable rates.
The Company anticipates 1995 capital expenditures of approximately $40
million. Capital expenditures in the polymer segment are estimated at $16
million, minerals at $17 million, and environmental at $4 million. The major
project in the polymer segment is the completion of the 30,000 ton capacity
expansion in the U.S. Capital expenditures in the mineral segment will be
directed toward replacing mining equipment and enhancing cat litter
manufacturing capabilities domestically, and expanding manufacturing capability
in the U.K. The environmental capital expenditures will be dedicated to
expanding Bentomat manufacturing capacity and expanding the network of service
centers for its Aquatec division. The remaining capital will be devoted to
enhancing corporate research and development capabilities.
14
<PAGE>
The current indicated annual dividend rate is $.24 per share. If the rate
remains constant, dividend payments will be approximately $4.6 million for 1995,
compared with $4.5 million in 1994.
Management believes that the Company has adequate resources to fund the
capital expenditures discussed above, the dividend payments, and anticipated
increases in working capital requirements through its existing credit lines,
cash balances and operating cash flow. In addition to the capital expenditures
which have been authorized by the Board of Directors, management continues to
explore other growth prospects in the environmental and minerals segments, as
well as further capacity expansion in the polymer segment.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Net sales increased by $46.3 million, or 21.1%, from 1993 to 1994 and by
$36.5 million, or 20.0%, from 1992 to 1993. Operating profits increased by $2.7
million, or 12.6%, from 1993 to 1994 and by $4.8 million, or 29.1% form 1992 to
1993. A review of sales, gross profit, general, selling and administrative
expenses and operating profit by segment follows:
MINERALS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1994 1993 1992
---------------- ---------------- ----------------
1994 VS. 1993 1993 VS. 1992
------------- ---------------
% %
$ $
------ ----- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................... $154,490 100.0% $129,879 100.0% $115,666 100.0% 24,611 18.9% $14,213 12.3%
Cost of sales................................ 121,213 78.5% 104,921 80.8% 88,474 76.5%
-------- ------ -------- ------ -------- ------
Gross profit............................... 33,277 21.5% 24,958 19.2% 27,192 23.5% 8,319 33.3% (2,234) -8.2%
General, selling and
administrative expenses..................... 13,632 8.8% 12,653 9.7% 13,170 11.4% 979 7.7% (517) -3.9%
-------- ------ -------- ------ -------- ------
Operating profit............................. 19,645 12.7% 12,305 9.5% 14,022 12.1% 7,340 59.7% (1,717) -12.2%
</TABLE>
Sales in the minerals segment increased in both the durable goods sector and
the consumables sector from 1992 to 1994, and in the U.K. from 1993 to 1994
largely due to increased volume. Sales to the domestic durable goods markets
increased with the aid of an improved economy and a rebound in the automotive
industry. The Company also expanded its production capability and market
presence through plant acquisitions at Chattanooga, Tennessee in July, 1992 and
Toronto, Canada in June, 1993. Continued market penetration of scoopable cat
litters led to the increase in the Company's consumable goods sector. Scoopable
litter volume increased in each of the years, though patent royalty income was
inconsistent. Royalties declined by approximately $1 million from 1992 to 1993,
and increased approximately $2.3 million from 1993 to 1994. Royalties are
expected to decline in the future as most agreements have been converted to
fully paid licenses. Growth in the agricultural market has come from sales of
clay granules to the agricultural chemical industry. The acquisition of the
Paris, Tennessee plant, which began operation in July, 1993, provided the
capacity for the Company's increase in market share. Use of granular clay is
dependent on its performance with specific chemical additives in fertilizer and
herbicide applications. Reformulations and new product instructions can
radically impact the demand for this type of product. The U.K. minerals
operation produced a 32.3% sales increase from 1993 to 1994 after a flat
performance in the previous year. The increase came from the construction and
environmental markets, as well as the cat litter sector. Sales of environmental
products continue to be sold through this unit since most of the current product
line is mineral based.
Gross profit margins declined by approximately 430 basis points, or 18.3%,
from 1992 to 1993 as royalties declined and wet weather conditions adversely
affected the Company's western mining operations. The combination accounted for
the entire shortfall in gross profit from 1992 to 1993. Gross profit margins
improved by approximately 230 basis points, or 12.0%, from 1993 to 1994 as a
result of higher royalties and price increases initiated over the course of the
past year.
15
<PAGE>
General, selling and administrative expenses dropped by $.5 million, or
3.9%, from 1992 to 1993, primarily due to lower promotion costs for the
Company's branded litter products. The $1.0 million increase in expenses from
1993 to 1994 was driven primarily by increased selling expenses in both the U.S.
and U.K.
Lower royalties will have an adverse impact on operating profit margins in
the future, but volume is expected to grow as a result of more favorable unit
costs for the licensees.
ABSORBENT POLYMERS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
1994 VS. 1993 1993 VS. 1992
-------------- ---------------
% %
$ $
------ ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................... $58,591 100.0% $51,820 100.0% $31,253 100.0% 6,771 13.1% $20,567 65.8%
Cost of sales................................ 43,325 73.9% 36,127 69.7% 24,194 77.4%
------- ------ ------- ------ ------- ------
Gross profit............................... 15,266 26.1% 15,693 30.3% 7,059 22.6% (427) -2.7% 8,634 122.3%
General, selling and
administrative expenses..................... 7,307 12.5% 5,347 10.3% 3,381 10.8% 1,960 36.7% 1,966 58.1%
------- ------ ------- ------ ------- ------
Operating profit............................. 7,959 13.6% 10,346 20.0% 3,678 11.8% (2,387) -23.1% 6,668 181.3%
</TABLE>
Growth in private label and national branded diaper sales, as well as
increasing amounts of polymer being used in new diaper designs, fueled the sales
growth experienced by the U.S. polymer operations from 1992 to 1994. Higher unit
demand during 1992 prompted management to add 10,000 tons of capacity, which was
operational in April, 1993. In 1993, continuing strong demand and impending
capacity constraints caused management to add 20,000 tons of capacity at
Aberdeen, Mississippi, bringing total capacity to 40,000 tons annually. Late in
the year, however, competitors also brought on more capacity and began
aggressively marketing their polymer products. A significant customer shifted
its business to a competitor effective December, 1993. In addition, the return
to a more normal balance of supply and demand resulted in decreased business
with certain customers who used the Company as a secondary source. This combined
loss of business represented 21% of the 1993 unit sales volume. During 1994, the
lost volume was replaced and, in fact, unit sales volume grew approximately 15%.
This was achieved in spite of the fact that the movement toward thinner diapers
did not penetrate the sectors of the diaper market served by the Company as
quickly as had been originally anticipated. Further penetration of export
markets, primarily Latin America, accounted for much of the growth. Unit pricing
showed signs of softness during 1994, and continuing pressure on prices is
expected for 1995.
Unit sales volume of the U.K. polymer operation increased by approximately
50% from 1992 to 1993 and by approximately 19% from 1993 to 1994. Sales for 1993
were adversely impacted by less favorable translation rates and by foreign
exchange fluctuations, while 1994 sales suffered from increased competition and
expanded available capacity. During 1993, the U.K. operation significantly
expanded its direct selling effort in the European market by phasing out the
distributor who previously handled the continental European customers. This
shift, while expected to be a positive for the long-term, exposed the Company to
the risks of selling in local currency which the distributor had previously
handled. In late 1993, the Company formulated a new product to expand its market
presence. This product, produced from a 30,000 ton plant expansion, became
available in October, 1994. A commitment was secured from a major diaper
manufacturer for 10,000 tons of product annually. Sales under this agreement
began in January, 1995.
Gross margins at the U.S. plant and the U.K. plant were positively impacted
by increased production from 1992 to 1993 as combined unit volume increased 70%.
Lower margins were experienced during 1994 as capacity increased from 30,000
tons to 80,000 tons over the course of the year while unit sales volume
increased 16%. Additional staff were hired and trained to operate the new
capacity, resulting in additional costs without the incremental sales volume to
support such costs. Management expects raw material costs to increase in 1995
with the rise in acrylic acid prices.
16
<PAGE>
General, selling and administrative expenses increased from 1992 to 1993 as
a result of increased staffing levels in marketing and research, higher benefit
costs associated with the larger staff and higher incentive compensation
expenses. The 1993 to 1994 increase was mainly in the marketing and
administrative areas to provide the infrastructure for further growth.
The U.K. plant incurred an operating loss in 1992. The unit produced an
operating profit for the full year of 1993, but experienced a setback in the
fourth quarter when it produced an operating loss. In 1994, the U.K operation
produced an operating loss. The new product formulation and expanded plant
capability are expected to significantly improve the Company's profit outlook
for 1995.
The Company has expanded aggressively in the absorbent polymer market over
the three year period ending in 1994. Its worldwide production capacity has
grown from 20,000 tons annually at the beginning of 1992 to an annual capacity
of 80,000 tons at the end of 1994. A further 30,000 ton expansion is underway in
the U.S. With the completion of this plant scheduled in mid-1995, the Company's
capability will challenge the market leaders. The Company has expanded at this
pace to jump ahead of the demand curve and be able to position itself for the
increase in market demand as it occurs. The most recent U.S. expansion, and the
U.K. addition, manufacture a product specifically designed for the requirements
of thinner diapers. Depreciation for these facilities will be calculated on a
units-of-production basis for the first year, and on a straight-line basis
thereafter.
ENVIRONMENTAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
1994 VS. 1993 1993 VS. 1992
-------------- -------------
% %
$ $
------ ------ ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................... $30,726 100.0% $20,108 100.0% $19,005 100.0% 10,618 52.8% $1,103 5.8%
Cost of sales................................ 22,397 72.9% 12,937 64.3% 12,735 67.0%
------- ------ ------- ------ ------- ------
Gross profit............................... 8,329 27.1% 7,171 35.7% 6,270 33.0% 1,158 16.1% 901 14.4%
General, selling and
administrative expenses..................... 6,549 21.3% 4,387 21.8% 3,616 19.0% 2,162 49.3% 771 21.3%
------- ------ ------- ------ ------- ------
Operating profit............................. 1,780 5.8% 2,784 13.9% 2,654 14.0% (1,004) -36.1% 130 4.9%
</TABLE>
Approximately 85% of the sales growth from 1993 to 1994 came from the
combination of acquisitions and the increased sales of Bentomat environmental
liner products. Sales in 1993 grew only 6% from the 1992 level as wet weather
conditions prevailed in many areas of the U.S., preventing installation of liner
products.
Gross profit margins were higher in 1993 than 1992 because of a more
profitable sales mix. Margins in 1994 declined as a result of a greater sales of
lower margin products. The Bentomat liner product has experienced price erosion
over the past three years, however the Company has seen its share of the market
increase over that same time frame. In addition to the less favorable sales mix
in 1994, the Company recorded approximately $1 million in provisions for
inventory obsolescence, rework and disposal related to one of its product lines.
The Company has engaged a third party to manufacture this product line. The
Company also realigned a significant distribution arrangement, resulting in a
return of materials and a sales allowance of approximately $.2 million.
General, selling and administrative expenses increased 49% from 1993 to
1994. Over half of the increase was related to the newly acquired operations of
Aquatec and Hydron. The balance of the increase was primarily related to
increased staffing and costs in the marketing area, including the establishment
of an international marketing department. The 21% increase in expenses from 1992
to 1993 was primarily directed to increased administrative costs.
17
<PAGE>
TRANSPORTATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1994 1993 1992
--------------- --------------- --------------- 1994 VS. 1993 VS.
1993 1992
------------ -----------
% %
$ $
----- ----- ----- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................................... $21,636 100.0% $17,344 100.0% $16,745 100.0% 4,292 24.7% $599 3.6%
Cost of sales................................ 19,021 87.9% 15,323 88.3% 14,812 88.5%
------- ------ ------- ------ ------- ------
Gross profit............................... 2,615 12.1% 2,021 11.7% 1,933 11.5% 594 29.4% 88 4.6%
General, selling and
administrative expenses..................... 1,590 7.3% 1,324 7.6% 1,270 7.6% 266 20.1% 54 4.3%
------- ------ ------- ------ ------- ------
Operating profit............................. 1,025 4.8% 697 4.1% 663 3.9% 328 47.1% 34 5.1%
</TABLE>
The continuing momentum from increased brokerage of cat litter and
environmental shipments, which began in 1992, has fueled the growth in
transportation revenues over the three year period. Gross profits and gross
margins have both benefited from the increased volume. The increase in general,
selling and administrative expenses included higher compensation costs in both
1993 and 1994. Telephone and computer software costs also increased in 1994.
CORPORATE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1994 1993 1992
--------------- --------------- --------------- 1994 VS. 1993 VS.
1993 1992
------------ ----------
% %
$ $
----- ----- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General, selling and
administrative expenses..................... $ 6,418 $ 4,820 $ 4,507 1,598 33.2% 313 6.9%
------- ------- -------
Operating profit............................. (6,418) (4,820) (4,507)
</TABLE>
General, selling and administrative expenses increased 33% in 1994 as a
result of increased expenditures for management information systems and research
and development. A new software system was installed in 1994 to accommodate the
growth of the Company. The higher level of expenditures in this area are
anticipated to continue. Research and development expenditures are expected to
rise as the Company continues to explore growth opportunities outside of its
traditional markets.
NET INTEREST EXPENSE
Net interest expense decreased by $448,000 from 1992 to 1993 and by $704,000
from 1993 to 1994. Lower average borrowing levels and interest rates accounted
for the decline from 1992 to 1993, while capitalized interest accounted for the
reduction from 1993 to 1994.
OTHER INCOME (EXPENSE)
Other expense for 1992 includes the settlement of certain litigation, while
other income in 1993 included $455,000 related to the recovery of defense costs
incurred in prior years. Other income in 1994 included $463,000 of investment
grants related to the U.K. polymer plant expansion.
INCOME TAXES
The income tax rate for 1992 was 32.3%, compared with 29.7% in 1993 and
30.8% in 1994. The estimated tax rate for 1995 is 35%.
EARNINGS PER SHARE
Earnings per share were calculated using the weighted average number of
shares, including common stock equivalents, outstanding during the period. Stock
options issued to key employees and directors are considered common stock
equivalents. Higher stock prices, which the Company experienced over much of the
three-year period, increased the number of shares outstanding. In addition, the
equity offering completed in the fourth quarter of 1993 also had a dilutive
impact on earnings per
18
<PAGE>
share when comparing 1992 to 1993. The weighted average number of common and
common equivalent shares was approximately 19.5 million for 1994, compared with
approximately 17.2 million for 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements and Financial Statement Schedules on
page F-1. Such Financial Statements and Schedules are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The table below lists the names and ages of all directors and nominees of
the Company, and all positions each person holds with the Company.
BOARD OF DIRECTORS OF THE REGISTRANT
ARTHUR BROWN, 54, (2)
Chairman, President and Chief Executive Officer of Hecla Mining Company.
Director since 1990.
ROBERT E. DRISCOLL, III, 56, (2,3)
Former Dean and Professor of Law, University of South Dakota. Director since
1985.
RAYMOND A. FOOS, 66, (2,3)
Former Chairman of the Board, President and Chief Executive Officer of Brush
Wellman, Inc. (manufacturer of beryllium and specialty materials). Director
since 1981.
ROY H. HARRIS, 69, (1)
Former Chief Executive Officer, President and Executive Vice President of
American Colloid Company. Officer of the Board and consultant to the Company
since 1985. Director since 1971.
JOHN HUGHES, 52, (1)
President and Chief Executive Officer, American Colloid Company. Director since
1984.
ROBERT C. HUMPHREY, 76, (1,3,4)
Director and retired Chairman of the Board, NBD Bank Evanston, N.A. Director
since 1977, except for a three-month period in 1989.
C. EUGENE RAY, 62, (1,2,3,4)
Chairman of the Board since 1988. Former Executive Vice President-Finance of
Signode Industries, Inc. (manufacturer of industrial strapping products).
Director since 1981.
CLARENCE O. REDMAN, 52, (1,5)
Partner and Chief Executive Officer of the law firm of Keck, Mahin & Cate.
Secretary of the Company since 1982. Director since 1989.
PAUL G. SHELTON, 45, (1)
Senior Vice President - Chief Financial Officer, American Colloid Company.
Director since 1988.
EVERETT P. WEAVER, 77, (1,3,4,5)
Former Chairman of the Board and Chief Executive Officer of American Colloid
Company, from 1966 until 1978. Director since 1949, except for the period
between May 1988 and February 1991.
19
<PAGE>
WILLIAM D. WEAVER, 74, (1,4,5)
Former Chairman of the Board, American Colloid Company, from 1978 until November
1988. Prior thereto, Chief Executive Officer, Vice Chairman and Vice President.
Director since 1949.
PAUL C. WEAVER, 32
Corporate Account Manager for Nielsen North America. Nominee for Director.
------------------------
(1) Member of Executive Committee of the Board of Directors
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Nominating Committee
(5) Member of Option Committee
Additional information regarding the directors of the Company is included
under the caption "Election of Directors" in the Company's proxy statement to be
dated on or about April 7, 1995, and is incorporated herein by reference.
Information regarding executive officers of the Company is included under a
separate caption in Part I hereof, and is incorporated herein by reference, in
accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item
401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the above is included under the caption "Compensation
and Other Transactions with Management" in the Company's proxy statement to be
dated on or about April 7, 1995, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the above is included under the caption "Security
Ownership" in the Company's proxy statement to be dated on or about April 7,
1995, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding the above is included under the caption "Compensation
and Other Transactions with Management" in the Company's proxy statement to be
dated on or about April 7, 1995, and is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. See Index to Financial Statements and
2. Financial Statement Schedules on page F-1. Such Financial Statements and
Schedules are incorporated herein by reference.
3. See Index to Exhibits immediately following the signature page.
(b) None.
(c) See Index to Exhibits immediately following the signature page.
(d) See Index to Financial Statements and Financial Statement Schedules on page
F-1.
20
<PAGE>
ITEM 14(A) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
(1) Financial Statements:
Independent Auditors' Report........................................................................ F-2
Consolidated Balance Sheets, December 31, 1994 and 1993............................................. F-3
Consolidated Statements of Operations,
Years ended December 31, 1994, 1993, and 1992...................................................... F-4
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1994, 1993, and 1992...................................................... F-5
Consolidated Statements of Cash Flows,
Years ended December 31, 1994, 1993, and 1992...................................................... F-6
Notes to Consolidated Financial Statements.......................................................... F-7
(2) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts.................................................... F-20
</TABLE>
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 or is included in the financial statements or notes
thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
American Colloid Company:
We have audited the consolidated financial statements of American Colloid
Company and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of American
Colloid Company and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 10, 1995
F-2
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................. $ 10,389 $ 20,502
Accounts receivable:
Trade, less allowance for doubtful accounts of $1,336 and $1,836........................ 49,144 37,513
Other................................................................................... 1,764 1,606
Inventories............................................................................... 37,450 26,788
Advance mining............................................................................ 2,363 2,038
Prepaid expenses.......................................................................... 2,213 2,451
Current deferred tax asset................................................................ 2,516 2,120
--------- ---------
Total current assets.................................................................... 105,839 93,018
--------- ---------
Property, plant, equipment, and mineral rights and reserves:
Land and mineral rights and reserves...................................................... 12,438 12,631
Depreciable assets........................................................................ 213,094 145,207
--------- ---------
225,532 157,838
Less accumulated depreciation............................................................. 84,112 74,605
--------- ---------
141,420 83,233
--------- ---------
Other assets:
Goodwill, less accumulated amortization of $1,424 and $1,124.............................. 7,895 4,447
Other intangible assets, less accumulated amortization of $5,351 and $4,727............... 5,893 479
--------- ---------
13,788 4,926
--------- ---------
$ 261,047 $ 181,177
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............................................... $ 3,334 $ 3,121
Current capital lease obligations......................................................... 173 165
Accounts payable.......................................................................... 19,373 11,028
Accrued income taxes...................................................................... 807 2,289
Accrued liabilities....................................................................... 12,930 10,798
--------- ---------
Total current liabilities............................................................... 36,617 27,401
--------- ---------
Long-term obligations:
Long-term debt............................................................................ 70,756 15,798
Long-term capital lease obligations....................................................... 702 891
--------- ---------
71,458 16,689
--------- ---------
Deferred income tax liabilities............................................................. 4,376 5,027
Estimated accrued reclamation............................................................... 4,839 4,832
Other liabilities........................................................................... 2,041 1,490
--------- ---------
11,256 11,349
--------- ---------
Minority interest in subsidiary............................................................. 397 359
--------- ---------
Stockholders' equity:
Common stock, par value $.01 per share. Authorized 50,000,000 shares, issued 21,343,864
shares................................................................................... 213 213
Additional paid-in capital................................................................ 74,279 70,674
Retained earnings......................................................................... 72,157 61,395
Cumulative translation adjustments........................................................ (1,865) (3,319)
--------- ---------
144,784 128,963
Less:
Treasury stock (2,329,522 shares in 1994 and 2,715,708 shares in 1993).................... (3,465) (3,584)
--------- ---------
141,319 125,379
--------- ---------
$ 261,047 $ 181,177
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 265,443 $ 219,151 $ 182,669
Cost of sales.............................................................. 205,956 169,308 140,215
----------- ----------- -----------
Gross profit........................................................... 59,487 49,843 42,454
General, selling and administrative expenses............................... 35,496 28,531 25,944
----------- ----------- -----------
Operating profit....................................................... 23,991 21,312 16,510
----------- ----------- -----------
Other income (expense):
Interest expense, net.................................................... (2,332) (3,036) (3,484)
Other, net............................................................... 544 474 (325)
----------- ----------- -----------
(1,788) (2,562) (3,809)
----------- ----------- -----------
Income before income taxes and minority interest in net income of
subsidiary............................................................ 22,203 18,750 12,701
Income taxes............................................................... 6,828 5,567 4,105
----------- ----------- -----------
Income before minority interest in net income of subsidiary............ 15,375 13,183 8,596
Minority interest in net income of subsidiary.............................. (92) (63) (90)
----------- ----------- -----------
Net income............................................................. $ 15,283 $ 13,120 $ 8,506
----------- ----------- -----------
----------- ----------- -----------
Earnings per share......................................................... $ .78 $ .76 $ .52
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL CUMULATIVE
NUMBER OF PAID-IN RETAINED TRANSLATION TREASURY LOAN TO
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT STOCK OFFICER
---------- --------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991............ 18,843,864 $ 6,281 $ 1,033 $ 48,800 $ 905 $ (4,312) $ (144)
Net income.............................. -- -- -- 8,506 -- -- --
Cash dividends ($.16 per share)......... -- -- -- (2,473) -- -- --
Cumulative foreign exchange translation
adjustment............................. -- -- -- -- (3,687) -- --
Three-for-two stock split............... -- 3,141 -- (3,141) -- -- --
Purchase of 1,200 treasury shares....... -- -- -- -- -- (5) --
Sale of 172,444 treasury shares......... -- -- 454 -- -- 227 --
---------- --------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1992............ 18,843,864 9,422 1,487 51,692 (2,782) (4,090) (144)
Net income.............................. -- -- -- 13,120 -- -- --
Cash dividends ($.20 per share)......... -- -- -- (3,323) -- -- --
Repayment of loan to officer............ -- -- -- -- -- -- 144
Cumulative foreign exchange translation
adjustment............................. -- -- -- -- (537) -- --
Amended par value of common shares from
$1.00 per share to $0.01 per share..... -- (9,328) 9,328 -- -- -- --
Two-for-one stock split................. -- 94 -- (94) -- -- --
Purchase of 380 treasury shares......... -- -- -- -- -- (3) --
Sale of 385,438 treasury shares......... -- -- 1,051 -- -- 509 --
Sale of 2,500,000 common shares......... 2,500,000 25 58,808 -- -- -- --
---------- --------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1993............ 21,343,864 213 70,674 61,395 (3,319) (3,584) --
Net income.............................. -- -- -- 15,283 -- -- --
Cash dividends ($.24 per share)......... -- -- -- (4,521) -- -- --
Cumulative foreign exchange translation
adjustment............................. -- -- -- -- 1,454 -- --
Purchase of 33,956 treasury shares...... -- -- -- -- -- (443) --
Sale of 420,142 treasury shares......... -- -- 3,605 -- -- 562 --
---------- --------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994............ 21,343,864 $ 213 $ 74,279 $ 72,157 $ (1,865) $ (3,465) $ --
---------- --------- ----------- ----------- ----------- ----------- -----------
---------- --------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
TOTAL
---------
<S> <C>
Balance at December 31, 1991............ $ 52,563
Net income.............................. 8,506
Cash dividends ($.16 per share)......... (2,473)
Cumulative foreign exchange translation
adjustment............................. (3,687)
Three-for-two stock split............... --
Purchase of 1,200 treasury shares....... (5)
Sale of 172,444 treasury shares......... 681
---------
Balance at December 31, 1992............ 55,585
Net income.............................. 13,120
Cash dividends ($.20 per share)......... (3,323)
Repayment of loan to officer............ 144
Cumulative foreign exchange translation
adjustment............................. (537)
Amended par value of common shares from
$1.00 per share to $0.01 per share..... --
Two-for-one stock split................. --
Purchase of 380 treasury shares......... (3)
Sale of 385,438 treasury shares......... 1,560
Sale of 2,500,000 common shares......... 58,833
---------
Balance at December 31, 1993............ 125,379
Net income.............................. 15,283
Cash dividends ($.24 per share)......... (4,521)
Cumulative foreign exchange translation
adjustment............................. 1,454
Purchase of 33,956 treasury shares...... (443)
Sale of 420,142 treasury shares......... 4,167
---------
Balance at December 31, 1994............ $ 141,319
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income................................................................ $ 15,283 $ 13,120 $ 8,506
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion, and amortization............................... 14,442 10,584 10,586
Increase (decrease) in allowance for doubtful accounts.................. (500) 574 596
Increase (decrease) in deferred income taxes............................ (1,047) (243) 211
Increase (decrease) in estimated accrued reclamation.................... 7 129 45
Increase (decrease) in other noncurrent liabilities..................... 623 (52) (100)
(Gain) loss on sale of depreciable assets............................... (356) (89) 26
Minority interest in net income of subsidiary........................... 93 63 90
(Increase) decrease in current assets:
Accounts receivable................................................... (11,289) (7,581) (1,858)
Inventories........................................................... (10,662) (8,618) 4,721
Advance mining........................................................ (325) (60) (393)
Prepaid expenses...................................................... 238 142 (677)
Increase (decrease) in current liabilities:
Accounts payable...................................................... 8,345 3,216 690
Accrued income taxes.................................................. (1,482) 307 921
Accrued liabilities................................................... 2,133 2,999 (470)
---------- ---------- ----------
Net cash provided by operating activities........................... 15,503 14,491 22,894
---------- ---------- ----------
Cash flow from investing activities:
Proceeds from sale of depreciable assets.................................. 690 170 66
Acquisition of land, mineral reserves, and depreciable assets............. (80,958) (33,320) (11,307)
(Increase) decrease in other assets....................................... 29 831 (789)
---------- ---------- ----------
Net cash used in investing activities............................... (80,239) (32,319) (12,030)
---------- ---------- ----------
Cash flow from financing activities:
Proceeds from issuance of debt............................................ 77,715 30 1,592
Principal payments of debt and capital lease obligation................... (22,725) (21,866) (8,655)
Proceeds from common stock issuance....................................... -- 58,833 --
Proceeds from sale of treasury stock...................................... 4,167 1,560 681
Dividends paid............................................................ (4,521) (3,323) (2,473)
Other..................................................................... (499) (71) (44)
---------- ---------- ----------
Net cash provided by (used in) financing activities................. 54,137 35,163 (8,899)
---------- ---------- ----------
Cumulative translation adjustment........................................... 486 (285) (1,414)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........................ (10,113) 17,050 551
Cash and cash equivalents at beginning of year.............................. 20,502 3,452 2,901
---------- ---------- ----------
Cash and cash equivalents at end of year.................................... $ 10,389 $ 20,502 $ 3,452
---------- ---------- ----------
---------- ---------- ----------
Supplemental Disclosures of Cash Flows Information:
Actual cash paid for:
Interest.................................................................. $ 3,636 $ 3,399 $ 3,584
---------- ---------- ----------
---------- ---------- ----------
Income taxes.............................................................. $ 9,143 $ 4,246 $ 2,813
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of American
Colloid Company (the Company) and its foreign and domestic subsidiaries. All
subsidiaries are wholly-owned except for one of the Australian subsidiaries,
which is 60% owned by the Company, and a 49% interest in a Mexican subsidiary,
which is accounted for at cost. All material intercompany balances and
transactions, including profits on inventories, have been eliminated in
consolidation.
TRANSLATION OF FOREIGN CURRENCIES
The accounts and transactions of subsidiaries located outside of the United
States are translated into U.S. dollars at rates of exchange in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation." The assets and liabilities of these subsidiaries are translated at
the rate of exchange at the balance sheet date. The statements of operations are
translated at the weighted average monthly rate. Foreign exchange translation
adjustments are accumulated as a separate component of stockholders' equity
while realized exchange gains or losses are included in income.
INVENTORIES
Inventories are valued at the lower of cost or market. For domestic crude
bentonite, chromite sand, and leonardite stockpiles, which represent
approximately 16% and 15% of total inventories in 1994 and 1993, respectively,
cost is determined by the last-in, first-out method (LIFO). The excess of
current cost over LIFO cost approximated $2,852 in 1994 and $2,785 in 1993. For
all other inventories, cost is determined by the first-in, first-out (FIFO) or
moving average methods.
PROPERTY, PLANT, EQUIPMENT, AND MINERAL RIGHTS AND RESERVES
Property, plant, equipment, and mineral rights and reserves are carried at
cost. Depreciation is computed using the straight-line method for substantially
all of the assets. Certain other assets, primarily field equipment are
depreciated on the units-of-production method. Mineral rights and reserves are
depleted using the units-of-production method.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired. Goodwill is being amortized on the straight-line method
over periods of 25 to 40 years. Other intangibles, including trademarks and
noncompete agreements, are amortized on the straight-line method over periods of
two to ten years.
INCOME TAXES
The Company and its U.S. subsidiaries file a consolidated tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect for the year in which those temporary differences are
expected to be recovered or settled.
EXPLORATION COSTS AND ADVANCE MINING
Exploration costs are expensed as incurred. Costs incurred in removing
overburden and mining bentonite are capitalized as advance mining costs until
the bentonite from such mining area is transported to the plant site, at which
point the costs are included in crude bentonite stockpile inventory.
F-7
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEPVELOPMENT
Research and development costs, included in general, selling and
administrative expenses, were approximately $2,353, $1,764, and $874 for the
years ended December 31, 1994, 1993, and 1992.
INTEREST INCOME
Interest income, included in interest expense, net, was $718, $566 and $339
for the years ended December 31, 1994, 1993, and 1992.
EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average of common shares outstanding after consideration of the dilutive effect
of stock options outstanding at the end of each period. The weighted average
number of common and common equivalent shares outstanding was 19,486,520 for
1994, 17,223,854 for 1993, and 16,480,644 for 1992.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with original maturities of three months or less as
cash equivalents.
RECLASSIFICATION
Certain items in the 1993 and 1992 consolidated financial statements have
been reclassified to comply with the consolidated financial statements
presentation for 1994.
(2) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in four major industry segments minerals, absorbent
polymers, environmental and transportation. The minerals segment mines,
processes, and distributes clays and products with similar applications to
various industrial and consumer markets. The absorbent polymer segment produces
and distributes superabsorbent polymers primarily for use in consumer markets.
The environmental segment processes and distributes clays and products with
similar applications for use as a moisture barrier in commercial construction,
landfill liners and in a variety of other industrial and commercial
applications. The transportation segment includes a long haul trucking business
and a freight brokerage business which provide services to both the Company's
plants and outside customers.
Intersegment sales are insignificant. Operating profit is defined as sales
and other income directly related to a segment's operations, less operating
expenses, which do not include interest costs.
Identifiable assets by segments are those assets used in the Company's
operations in that segment. Corporate assets are primarily cash and cash
equivalents, corporate leasehold improvements, and miscellaneous equipment.
Export sales included in the United States were approximately $17,430,
$12,206, and $10,538 for the years ended December 31, 1994, 1993, and 1992.
F-8
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(2) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
The following summaries set forth certain financial information by business
segment and geographic area for the years ended December 31, 1994, 1993, and
1992.
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Business Segment:
Revenues:
Minerals..................................................... $ 154,490 $ 129,879 $ 115,666
Absorbent polymer............................................ 58,591 51,820 31,253
Environmental................................................ 30,726 20,108 19,005
Transportation............................................... 21,636 17,344 16,745
----------- ----------- -----------
Total...................................................... $ 265,443 $ 219,151 $ 182,669
----------- ----------- -----------
----------- ----------- -----------
Operating profit:
Minerals..................................................... $ 19,645 $ 12,305 $ 14,022
Absorbent polymer............................................ 7,959 10,346 3,678
Environmental................................................ 1,780 2,784 2,654
Transportation............................................... 1,025 697 663
Corporate.................................................... (6,418) (4,820) (4,507)
----------- ----------- -----------
Total...................................................... $ 23,991 $ 21,312 $ 16,510
----------- ----------- -----------
----------- ----------- -----------
Identifiable assets:
Minerals..................................................... $ 125,936 $ 102,709 $ 91,399
Absorbent polymer............................................ 95,121 44,021 22,228
Environmental................................................ 28,570 11,937 8,882
Transportation............................................... 1,242 1,311 1,670
Corporate.................................................... 10,178 21,199 2,615
----------- ----------- -----------
Total...................................................... $ 261,047 $ 181,177 $ 126,794
----------- ----------- -----------
----------- ----------- -----------
Depreciation, depletion, and amortization:
Minerals..................................................... $ 9,506 $ 8,236 $ 8,407
Absorbent polymer............................................ 3,476 1,940 1,761
Environmental................................................ 906 229 210
Transportation............................................... 30 25 24
Corporate.................................................... 524 154 184
----------- ----------- -----------
Total...................................................... $ 14,442 $ 10,584 $ 10,586
----------- ----------- -----------
----------- ----------- -----------
Capital expenditures:
Minerals..................................................... $ 23,979 $ 14,808 $ 7,468
Absorbent polymer............................................ 44,606 15,465 2,518
Environmental................................................ 10,373 1,074 485
Transportation............................................... 66 18 16
Corporate.................................................... 1,934 1,955 820
----------- ----------- -----------
Total...................................................... $ 80,958 $ 33,320 $ 11,307
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-9
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(2) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
Geographic area:
<S> <C> <C> <C>
Sales to unaffiliated customers from:
North America................................................ $ 226,483 $ 188,598 $ 155,529
Europe....................................................... 37,154 28,974 25,358
Australia.................................................... 1,806 1,579 1,782
----------- ----------- -----------
Total...................................................... $ 265,443 $ 219,151 $ 182,669
----------- ----------- -----------
----------- ----------- -----------
Sales or transfers between geographic areas:
North America................................................ $ 4,086 $ 1,962 $ 2,469
Europe....................................................... 103 -- --
Australia.................................................... -- -- --
----------- ----------- -----------
Total...................................................... $ 4,189 $ 1,962 $ 2,469
----------- ----------- -----------
----------- ----------- -----------
Operating profit from:
North America................................................ $ 22,639 $ 19,059 $ 14,098
Europe....................................................... 972 2,055 1,996
Australia.................................................... 360 261 316
Adjustments and eliminations................................. 20 (63) 100
----------- ----------- -----------
Total...................................................... $ 23,991 $ 21,312 $ 16,510
----------- ----------- -----------
----------- ----------- -----------
Identifiable assets in:
North America................................................ $ 196,323 $ 151,324 $ 105,867
Europe....................................................... 65,886 30,412 21,035
Australia.................................................... 1,582 1,276 1,365
Adjustments and eliminations................................. (2,744) (1,835) (1,473)
----------- ----------- -----------
Total...................................................... $ 261,047 $ 181,177 $ 126,794
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(3) INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Crude stockpile inventories................................................... $ 6,536 $ 3,628
In-process inventories........................................................ 15,386 11,657
Other raw material, container, and supplies inventories....................... 15,528 11,503
--------- ---------
$ 37,450 $ 26,788
--------- ---------
--------- ---------
</TABLE>
During 1994, 1993, and 1992 quantities in certain LIFO pools were reduced,
resulting in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years. The effect on net income and earnings per share was
insignificant in 1994 and 1993. The liquidation of certain LIFO inventory
quantities in 1992 increased net income by approximately $123. The effect on
earnings per share was an increase of $.01 in 1992.
F-10
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) PROPERTY, PLANT, EQUIPMENT, AND MINERAL RIGHTS AND RESERVES
Property, plant, equipment, and mineral rights and reserves consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31 DEPRECIATION/
------------------------ AMORTIZATION --
1994 1993 ANNUAL RATES
----------- ----------- ------------------
<S> <C> <C> <C>
Mineral rights and reserves........................................ $ 10,358 $ 10,563
Other land......................................................... 2,080 2,068
Buildings and improvements......................................... 40,773 28,537 2.2% to 20.0%
Machinery and equipment............................................ 172,321 116,670 5.0% to 33.3%
----------- -----------
$ 225,532 $ 157,838
----------- -----------
----------- -----------
</TABLE>
Depreciation and depletion were charged to income as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Depreciation expense.............................................................. $ 13,045 $ 9,086 $ 8,765
Depletion expense................................................................. 588 515 814
--------- --------- ---------
$ 13,633 $ 9,601 $ 9,579
--------- --------- ---------
--------- --------- ---------
</TABLE>
(5) INCOME TAXES
The components of the provision for domestic and foreign income tax expense
for the years ended December 31, 1994, 1993 and 1992 consist of:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes and minority interest in net income of subsidiary:
Domestic..................................................................... $ 21,810 $ 17,051 $ 10,574
Foreign...................................................................... 393 1,699 2,127
--------- --------- ---------
$ 22,203 $ 18,750 $ 12,701
--------- --------- ---------
--------- --------- ---------
Provision for income taxes:
Domestic Federal
Current.................................................................... $ 5,416 $ 4,037 $ 2,170
Deferred................................................................... (370) (34) 483
Domestic State
Current.................................................................... 1,548 788 610
Deferred................................................................... (38) (62) (67)
Foreign
Current.................................................................... 911 985 1,007
Deferred................................................................... (639) (147) (98)
--------- --------- ---------
$ 6,828 $ 5,567 $ 4,105
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-11
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(5) INCOME TAXES (CONTINUED)
The components of the deferred tax assets and liabilities as of December 31,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts............................ $ 434 $ 656
Inventories, due to additional costs inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 and reserve for obsolete inventories............................... 1,044 820
Other.................................................................................. 6,018 2,704
--------- ---------
Total deferred tax assets.............................................................. 7,496 4,180
--------- ---------
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation................................ (6,942) (4,619)
Land and mineral reserves, due to differences in depletion............................. (2,389) (2,454)
Other.................................................................................. (25) (14)
--------- ---------
Total deferred tax liabilities....................................................... (9,356) (7,087)
--------- ---------
Net deferred tax liability........................................................... $ (1,860) $ (2,907)
--------- ---------
--------- ---------
</TABLE>
The following analysis reconciles the statutory Federal income tax rate to
the effective tax rates:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Domestic and foreign taxes on
income at United States statutory
rate.............................. $ 7,771 35.0% $ 6,563 35.0% $ 4,318 34.0%
Increase (decrease) in taxes
resulting from:
Percentage depletion............. (781) (3.5) (690) (3.7) (786) (6.2)
State taxes...................... 1,510 6.8 726 3.9 543 4.3
Other............................ (1,672) (7.5) (1,032) (5.5) 30 0.2
--------- ----- --------- ----- --------- -----
$ 6,828 30.8% $ 5,567 29.7% $ 4,105 32.3%
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
F-12
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(6) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Short-term debt supported by revolving credit agreement....................... $ 7,982 $ --
Term note, at 9.68% (Series D)................................................ 14,280 17,140
Term note, at 7.36% (Series A)................................................ 25,000 --
Term note, at 7.83% (Series B)................................................ 10,000 --
Term note, at 8.10% (Series C)................................................ 15,000 --
Industrial Revenue Bond, at 68% of prime...................................... 1,283 1,517
Other notes payable, at 0% to 10%............................................. 545 262
--------- ---------
74,090 18,919
Less current portion.......................................................... 3,334 3,121
--------- ---------
$ 70,756 $ 15,798
--------- ---------
--------- ---------
</TABLE>
The Company has a committed $50,000 revolving credit agreement which matures
October 4, 1997, with an option to extend for three one-year periods. As of
December 31, 1994, there was $42,018 available in unused lines of credit. The
revolving credit note is a multi-currency agreement which allows the Company to
borrow at various interest rates including, but not limited to, prime and an
adjusted LIBOR rate plus .375% to .75% depending upon debt to capitalization
ratios and the amount of the credit line used.
The Industrial Revenue Bond outstanding at December 31, 1994 is payable in
equal semi-annual installments of $117 until the year 2000. The Aberdeen,
Mississippi bentonite operations of the Company are pledged as collateral. The
carrying value of the pledged assets at December 31, 1994 was $2,376.
Maturities of long-term debt at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 THEREAFTER
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Short-term debt supported by revolving credit
agreement.................................... $ -- $ -- $ 7,982 $ -- $ -- $ --
Term note, at 9.68% (Series D)................ 2,860 2,860 2,860 2,860 2,840 --
Term note, at 7.36% (Series A)................ -- -- 4,000 9,500 11,500 --
Term note, at 7.83% (Series B)................ -- -- -- -- -- 10,000
Term note, at 8.10% (Series C)................ -- -- -- -- -- 15,000
Industrial Revenue Bond, at 68% of prime...... 234 233 233 233 233 117
Other notes payable, at 0% to 10%............. 240 83 86 40 45 51
--------- --------- --------- --------- --------- -----------
$ 3,334 $ 3,176 $ 15,161 $ 12,633 $ 14,618 $ 25,168
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>
The estimated fair value of the term notes at December 31, 1994 was $62,000
based on discounting future cash payments at current market interest rates for
loans with similar terms and maturities while the carrying value for these term
notes was $64,280.
All loan agreements include covenants which require the maintenance of
specific minimum amounts of working capital, tangible net worth and financial
ratios and limit additional borrowings and guarantees. The Company is not
required to maintain a compensating balance.
F-13
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(7) FINANCIAL INSTRUMENTS
The Company has approved the use of derivative instruments, principally
interest rate swaps, forward contracts and options, in its management of foreign
currency and interest rate exposures. These contracts hedge transactions and
balances for periods consistent with its committed exposures.
Realized and unrealized foreign exchange gains and losses are recognized and
offset against foreign exchange gains or losses on the underlying exposures. The
interest differential paid or received on swap agreements is recognized as an
adjustment to interest expense.
At December 31, 1994, the Company had a swap agreement that effectively
converted the interest on $25,000 of its Term Note borrowings from fixed to
floating interest rates. This swap agreement, entered in October 1994, resulted
in a $35 interest expense reduction in 1994. The Company also has $2,000 of
forward exchange contacts outstanding as of December 31, 1994.
(8) LEASES
The Company leases certain railroad cars, trailers, computer software,
office equipment, and office and plant facilities. Total rent expense under
operating lease agreements was approximately $1,920, $1,721, and $1,324 in 1994,
1993, and 1992, respectively. Rent expense on railroad cars is offset by mileage
earnings paid by the railroads of approximately $124, $137, and $142 in 1994,
1993, and 1992, respectively.
Railroad cars and computer software under capital leases are included in
property, plant and equipment as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Railroad cars and computer software............................................. $ 1,768 $ 1,347
Less accumulated amortization................................................. 1,139 954
--------- ---------
$ 629 $ 393
--------- ---------
--------- ---------
</TABLE>
The following is a schedule of future minimum lease payments for the capital
leases and for operating leases (with initial terms in excess of one year) as of
December 31, 1994:
<TABLE>
<CAPTION>
OPERATING LEASES
CAPITAL ---------------------------------
LEASES DOMESTIC FOREIGN TOTAL
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Year ending December 31:
1995........................................................ $ 226 $ 3,116 $ 104 $ 3,220
1996........................................................ 237 2,347 83 2,430
1997........................................................ 237 1,318 56 1,374
1998........................................................ 170 1,001 41 1,042
1999........................................................ 114 983 28 1,011
Thereafter.................................................. -- 1,701 52 1,753
----- --------- ----- ---------
Total minimum lease payments.................................. $ 984 $ 10,466 $ 364 $ 10,830
--------- ----- ---------
--------- ----- ---------
Less amount representing interest............................. 109
-----
Present value of net minimum lease payments................... $ 875
-----
-----
</TABLE>
(9) EMPLOYEE BENEFIT PLANS
The Company has noncontributory pension plans covering substantially all of
its domestic employees. The Company's funding policy is to contribute annually
the maximum amount calculated
F-14
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) EMPLOYEE BENEFIT PLANS (CONTINUED)
using the actuarially determined entry age normal method that can be deducted
for Federal income tax purposes. 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. The Plan is fully funded for tax purposes.
Pension cost in 1994, 1993, and 1992 was comprised of:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................ $ 996 $ 746 $ 573
Interest cost........................................................... 964 834 748
Actual return on plan assets............................................ 1,354 (995) (1,283)
Net amortization and deferral........................................... (2,863) (134) 214
--------- --------- ---------
Net periodic pension cost............................................... $ 451 $ 451 $ 252
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table summarizes the funded status and amounts recognized in
the Company's balance sheet at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations-accumulated benefit obligation, including
vested benefits of $8,835 in 1994 and $8,893 in 1993.................................... $ 9,522 $ 9,584
---------- ----------
---------- ----------
Projected benefit obligation............................................................. $ (13,942) $ (14,033)
Plan assets at fair value................................................................ 15,321 17,133
---------- ----------
Projected benefit obligation less than plan assets....................................... 1,379 3,100
Unrecognized net (gain) loss............................................................. (1,049) (2,183)
Unrecognized net obligation at January 1, 1986, being amortized over a period from 19-21
years................................................................................... (1,457) (1,593)
---------- ----------
Pension liability included in accrued liabilities........................................ $ (1,127) $ (676)
---------- ----------
---------- ----------
</TABLE>
The Company's pension benefit plan was valued as of October 1, 1994 and
1993, respectively. Approximately 89% of the plan assets are invested in common
stocks, corporate bonds and notes, and guaranteed income contracts purchased
from insurance companies. The remainder of the plan assets are invested in cash
and a real estate trust.
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.0% in 1994 and 7.0% in 1993,
while the rate of increase in future compensation levels was 6.0% in 1994 and
1993. The expected long-term rate of return on plan assets was 9.0% in 1994 and
8.0% in 1993.
The Company also has a savings plan for its domestic personnel. The Company
has contributed an amount equal to an employee's contribution up to a maximum of
4% of the employee's annual earnings. Company contributions are made using
Company stock purchased on the open market. Company contributions under the
savings plan were $963 in 1994, $854 in 1993, and $676 in 1992.
The foreign pension plans, not subject to ERISA, are funded using individual
annuity contracts and therefore, are not included in the information noted
above.
(10) STOCKHOLDERS' EQUITY
On August 23, 1993, the Board of Directors authorized up to 2,500,000 shares
of common stock, $.01 par value per share, to be offered and sold pursuant to a
public offering. The public offering was
F-15
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(10) STOCKHOLDERS' EQUITY (CONTINUED)
completed on October 27, 1993. The par value for these additional shares was
increased by $25 and additional paid-in capital was increased by $58,808, the
total of which represents the net proceeds from the sale of 2,500,000 shares of
common stock.
On May 10, 1993, the stockholders of American Colloid Company approved an
amendment to the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of common stock of the Company from 12 million to 50
million. The stockholders also approved an amendment to change the par value of
the common stock from $1.00 per share to $0.01 per share. Additional paid-in
capital was increased and common stock reduced by $9,328 for the change in the
par value of the common stock.
On May 10, 1993, the Board of Directors declared a two-for-one stock split
effected in the nature of a stock dividend to stockholders of record on June 8,
1993, which was paid June 23, 1993. The par value of these additional shares was
capitalized by a transfer of $94 from retained earnings to common stock.
On November 12, 1992, the Board of Directors declared a three-for-two stock
split effected in the nature of a stock dividend to stockholders of record on
December 5, 1992, which was paid January 4, 1993. The par value of these
additional shares was capitalized by a transfer of $3,141 from retained earnings
to common stock.
All current and prior year common share and per share disclosures have been
restated to reflect the stock dividends.
(11) STOCK OPTION PLANS
1983 INCENTIVE STOCK OPTION PLAN
The Company reserved 1,800,000 shares of its common stock for issuance of
incentive stock options to its officers and key employees. Options awarded under
this plan, which entitle the optionee to one share of common stock, may be
exercised at a price equal to the fair market value at the time of grant.
Options awarded under the plan 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.
Options are exercisable as they vest and expire ten 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.
This plan expired during 1993, though options which were granted prior to
its expiration continue to be valid until the individual option grants expire.
<TABLE>
<CAPTION>
OPTION PRICE PER
1994 1993 1992 SHARE
---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Options outstanding at January 1..................... 990,667 1,123,076 1,148,344 $ 2.00 to $11.75
Granted.............................................. 0 254,540 159,990 $ 3.92 to $11.75
Exercised............................................ (113,756) (363,840) (154,444) $ 2.00 to $11.75
Cancelled............................................ (2,940) (23,109) (30,814) $ 2.92 to $11.75
---------- ----------- -----------
Options outstanding at December 31................... 873,971 990,667 1,123,076 $ 2.00 to $11.75
---------- ----------- -----------
---------- ----------- -----------
Shares exercisable at December 31.................... 471,225 374,876 563,662
---------- ----------- -----------
---------- ----------- -----------
Shares available for future grant at December 31..... 0 0 290,914
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
F-16
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(11) STOCK OPTION PLANS (CONTINUED)
1993 STOCK PLAN
The Company reserved 840,000 shares of its common stock for issuance to its
officers and key employees in the form of incentive stock options, nonqualified
stock options, restricted stock, stock appreciation rights and phantom stock.
Different terms and conditions apply to each form of award made under the plan.
To date, only incentive stock options have been awarded. Options awarded under
this plan, which entitle the optionee to one share of common stock, may be
exercised at a price equal to the fair market value at the time of grant.
Options awarded under the plan 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, unless a different vesting schedule is established by the Option
Committee of the Board of Directors on the date of grant. Options are
exercisable as they vest and expire ten 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.
<TABLE>
<CAPTION>
OPTION PRICE PER
1994 1993 SHARE
--------- --------- --------------------
<S> <C> <C> <C>
Options outstanding at January 1..................................... 84,150 0 $20.50
Granted.............................................................. 117,045 84,150 $ 17.75 to $20.50
Exercised............................................................ 0 0 $ 0.00
Cancelled............................................................ (2,220) 0 $17.75
--------- ---------
Options outstanding at December 31................................... 198,975 84,150 $ 17.75 to $20.50
--------- ---------
--------- ---------
Shares exercisable at December 31.................................... 0 0
--------- ---------
--------- ---------
Shares available for future grant at December 31..................... 641,025 755,850
--------- ---------
--------- ---------
</TABLE>
1987 NONQUALIFIED STOCK OPTION PLAN
The Company reserved 340,000 shares of its common stock for issuance of
nonqualified stock options to outside officers and directors, as well as key
employees. The stock options are exercisable at a price per share which may be
no less than the fair market value at the time of grant according to the vesting
provisions of the plan. Options awarded under the plan generally vest 40% after
two years and continue to vest at the rate of 20% per year for each year
thereafter, until fully vested. Options are exercisable as they vest and expire
ten 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.
<TABLE>
<CAPTION>
OPTION PRICE PER
1994 1993 1992 SHARE
--------- --------- --------- --------------------
<S> <C> <C> <C> <C>
Options outstanding at January 1......................... 144,400 162,000 180,000 $ 2.92 to $13.25
Granted.................................................. 2,256 4,000 0 $ 13.25 to $17.75
Exercised................................................ (6,000) (21,600) (18,000) $ 2.92
Cancelled................................................ 0 0 0 $ 0.00
--------- --------- ---------
Options outstanding at December 31....................... 140,656 144,400 162,000 $ 2.92 to $17.75
--------- --------- ---------
--------- --------- ---------
Shares exercisable at December 31........................ 123,284 116,240 109,200
--------- --------- ---------
--------- --------- ---------
Shares available for future grant at December 31......... 153,744 156,000 0
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Estimated accrued severance taxes.......................................... $ 1,410 $ 1,188
Accrued employee benefits.................................................. 1,246 904
Accrued vacation pay....................................................... 1,172 1,045
Accrued dividends.......................................................... 1,140 931
Accrued bonus.............................................................. 575 1,287
Accrued commissions........................................................ 1,125 607
Other...................................................................... 6,262 4,836
------- -------
$12,930 $10,798
------- -------
------- -------
</TABLE>
(13) QUARTERLY RESULTS (UNAUDITED)
Unaudited summarized results for each quarter in 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1994 QUARTER
----------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Minerals................................................................... $37,020 $37,756 $39,217 $40,497
Absorbent Polymers......................................................... 12,205 14,137 16,084 16,165
Environmental.............................................................. 3,942 6,997 11,016 8,771
Transportation............................................................. 4,679 5,122 5,658 6,177
------- ------- ------- -------
Net Sales.................................................................. $57,846 $64,012 $71,975 $71,610
------- ------- ------- -------
------- ------- ------- -------
Minerals................................................................... $ 6,882 $ 7,549 $ 7,854 $10,992
Absorbent Polymers......................................................... 3,160 3,444 4,502 4,160
Environmental.............................................................. 1,288 1,584 3,441 2,016
Transportation............................................................. 587 665 698 665
------- ------- ------- -------
Gross Profit............................................................... $11,917 $13,242 $16,495 $17,833
------- ------- ------- -------
------- ------- ------- -------
Minerals................................................................... $ 3,593 $ 3,962 $ 4,335 $ 7,755
Absorbent Polymers......................................................... 1,507 1,697 2,469 2,286
Environmental.............................................................. 159 205 1,570 (154)
Transportation............................................................. 222 268 304 231
Corporate.................................................................. (1,428) (1,444) (1,766) (1,780)
------- ------- ------- -------
Operating Profit........................................................... $ 4,053 $ 4,688 $ 6,912 $ 8,338
------- ------- ------- -------
------- ------- ------- -------
Net Income................................................................. $ 2,490 $ 3,353 $ 4,238 $ 5,202
------- ------- ------- -------
------- ------- ------- -------
Earnings per common and common equivalent share:........................... $ 0.13 $ 0.17 $ 0.22 $ 0.26
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
F-18
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(13) QUARTERLY RESULTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1993 QUARTER
----------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Minerals................................................................... $30,667 $32,470 $31,777 $34,965
Absorbent Polymers......................................................... 11,299 13,188 14,149 13,184
Environmental.............................................................. 3,136 5,369 6,245 5,358
Transportation............................................................. 3,844 4,221 4,796 4,483
------- ------- ------- -------
Net Sales.................................................................. $48,946 $55,248 $56,967 $57,990
------- ------- ------- -------
------- ------- ------- -------
Minerals................................................................... $ 5,918 $ 6,256 $ 6,539 $ 6,245
Absorbent Polymers......................................................... 2,940 3,718 4,501 4,534
Environmental.............................................................. 1,250 1,954 1,980 1,987
Transportation............................................................. 457 507 552 505
------- ------- ------- -------
Gross Profit............................................................... $10,565 $12,435 $13,572 $13,271
------- ------- ------- -------
------- ------- ------- -------
Minerals................................................................... $ 2,933 $ 2,935 $ 3,417 $ 3,020
Absorbent Polymers......................................................... 1,900 2,415 3,084 2,947
Environmental.............................................................. 151 824 891 918
Transportation............................................................. 149 196 212 140
Corporate.................................................................. (1,201) (1,351) (1,285) (983)
------- ------- ------- -------
Operating Profit........................................................... $ 3,932 $ 5,019 $ 6,319 $ 6,042
------- ------- ------- -------
------- ------- ------- -------
Net Income................................................................. $ 2,160 $ 2,870 $ 3,859 $ 4,231
------- ------- ------- -------
------- ------- ------- -------
Earnings per common and common equivalent share:........................... $ 0.13 $ 0.17 $ 0.23 $ 0.23
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
F-19
<PAGE>
AMERICAN COLLOID COMPANY AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER OTHER CHARGES
BEGINNING COSTS AND ACCOUNT ADD(DEDUCT) BALANCE AT
YEAR DESCRIPTION OF YEAR EXPENSES DESCRIBE DESCRIBE END OF YEAR
--------- ----------------------------------------------- ----------- ------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994..... Allowance for doubtful accounts $ 1,836 $ 978 $ -- $ (1,478)(1)(2) $ 1,336
----------- ----- ----- ------- -----------
----------- ----- ----- ------- -----------
1993..... Allowance for doubtful accounts $ 1,262 $ 703 $ -- $ (129)(1) $ 1,836
----------- ----- ----- ------- -----------
----------- ----- ----- ------- -----------
1992..... Allowance for doubtful accounts $ 666 $ 876 $ -- $ (280)(1) $ 1,262
----------- ----- ----- ------- -----------
----------- ----- ----- ------- -----------
<FN>
------------------------
(1) Bad debts written off.
(2) During 1994 the Company acquired Aquatec and Hydron which included
allowance for doubtful accounts of $60 and $15 respectively.
</TABLE>
F-20
<PAGE>
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: March 24, 1995
AMERICAN COLLOID COMPANY
By: _________/s/__JOHN HUGHES_________
John Hughes
President; 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.
<TABLE>
<S> <C>
/s/JOHN HUGHES March 24, 1995
John Hughes
President; Chief Executive Officer and
Director
/s/PAUL G. SHELTON March 24, 1995
Paul G. Shelton
Senior Vice President -- Chief Financial
Officer; Treasurer and Director
/s/MICHAEL C. LAPINSKI March 24, 1995
Michael C. Lapinski
Controller -- Principal Accounting Officer
/s/C. EUGENE RAY March 24, 1995
C. Eugene Ray
Director; Chairman of the Board
/s/WILLIAM D. WEAVER March 24, 1995
William D. Weaver
Director; Officer of the Board
/s/ROY H. HARRIS March 24, 1995
Roy H. Harris
Director; Officer of the Board
/s/ROBERT C. HUMPHREY March 24, 1995
Robert C. Humphrey
Director
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/s/ROBERT E. DRISCOLL, III March 24, 1995
Robert E. Driscoll, III
Director
/s/RAYMOND A. FOOS March 24, 1995
Raymond A. Foos
Director
/s/CLARENCE O. REDMAN March 24, 1995
Clarence O. Redman
Director
/s/ARTHUR BROWN March 24, 1995
Arthur Brown
Director
/s/EVERETT P. WEAVER March 24, 1995
Everett P. Weaver
Director; Officer of the Board
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company (5)
3.2 Bylaws of the Company (1)
4 Article Fourth of the Company's Restated Certificate of Incorporation
(5)
10.1 American Colloid Company 1983 Incentive Stock Option Plan (1); as
amended (3)*
10.2 American Colloid Company Pension Plan (3)*
10.3 American Colloid Company Salaried Employees' Savings Plan and Trust
(1); as amended (4)*
10.4 Executive Medical Reimbursement Plan (1)*
10.5 Lease Agreement for office space dated September 29, 1986 between the
Company and American National Bank and Trust Company of Chicago (1)
Amendment filed herewith
10.6 American Colloid Company 1987 Non-Qualified Stock Option Plan (2); as
amended (6)*
10.7 Change in Control Agreement dated April 1, 1994 by and between
Registrant and John Hughes (6)*
10.8 Change in Control Agreement dated April 1, 1994 by and between
Registrant and Paul G. Shelton (6)*
10.9 Change in Control Agreement dated December 15, 1992 by and between
Registrant and Robert C. Steele (4)*
10.10 Change in Control Agreement dated December 21, 1992 by and between
Lawrence E. Washow (4)*
10.11 Change in Control Agreement dated December 15, 1992 by and between
Registrant and Roger P. Palmer (4)*
10.12 Change in Control Agreement dated January 24, 1994 by and between
Registrant and Peter L. Maul (6)*
10.13 American Colloid Company Dividend Reinvestment and Stock Purchase Plan
(4); as amended (6)*
10.14 American Colloid Company 1993 Stock Plan (6)*
10.15 Credit Agreement by and among American Colloid Company and Harris Trust
and Savings Bank, individually and as agent, NBD Bank, LaSalle
National Bank and the Northern Trust Company dated October 4, 1994 (7)
10.16 Note Agreement dated October 1, 1994 between American Colloid Company
and Principal Mutual Life Insurance Company (7)
21 Subsidiaries of the Company
23 Consent of Independent Public Accountants
27 Financial Data Schedule
<FN>
------------------------
(1) Exhibit is Incorporated by reference to the Registrant's Form 10 filed with
the Securities and Exchange Commission on July 27, 1987.
(2) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission on December 31, 1988.
(3) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission on December 31, 1989.
(4) 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,
1992.
(5) Exhibit is incorporated by reference to the Registrant's Form S-3 filed
with the Securities and Exchange Commission on September 15, 1993.
(6) 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,
1993.
(7) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended September
30, 1994.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on form 10-K pursuant to Item
14(c) of Form 10-K.
</TABLE>
<PAGE>
FIRST ADDENDUM TO LEASE
This Addendum to Lease is entered into on this 2nd day of June, 1994, between
Landlord, ESKO PROPERTIES, INC., as successor in interest as Landlord to
American National Bank And Trust Company Of Chicago As Trustee Under Trust
Agreement Dated July 1, 1984 And Known As Trust NO. 62164, and Tenant, AMERICAN
COLLOID COMPANY, A Delaware Corporation.
This Addendum is intended to modify the Lease dated September 29, 1986, between
American National Bank And Trust Company Of Chicago As Trustee Under Trust
Agreement Dated July 1, 1984 And Known As Trust NO. 62164 as LANDLORD, and
TENANT referenced above ("the Lease"). If there is a conflict between the
provisions in this Addendum and the provisions in the Lease, this Addendum shall
be given precedence, to the extent of the conflict.
Tenant and Landlord have agreed that the Lease term is to be extended, the rent
payable reduced, and other terms of the Lease modified or deleted. Therefore,
LANDLORD and TENANT agree that COMMENCING JULY 1, 1994, the following changes to
the Lease will be in full force and effect:
1. EXTEND THE TERM OF THE LEASE
The language in LINES 4 - 6 OF THE FIRST PARAGRAPH OF PARAGRAPH 1 OF THE
LEASE shall be amended to reflect that the term of the lease shall be
extended for an additional term of Three (3) Years and Four (4) Months,
and therefore, the term of the Lease shall end on October 31, 2001.
For purposes of clarification, The parties acknowledge that the Lease term
commenced on January 1, 1987.
2. DELETE OPTIONS TO EXTEND THE TERM OF THE LEASE
The Landlord and Tenant have agreed that Tenant shall not have any options
to extend the term of the Lease beyond the termination date of October 31,
2001. Therefore, Lease PARAGRAPHS 1(a) AND 1(b) shall be deleted in their
entirety and be of no further force or effect.
<PAGE>
3. AMEND THE BASE RENT AND RENTAL INCREASE PROVISIONS
Landlord and Tenant have agreed that effective July 1, 1994 the Base Rent
will be reduced to $13.50 per square foot and the Rental Increase
provisions will be increased to 3% per annum. Therefore, LINES 1 THROUGH
THE END OF THE FIRST SENTENCE ON LINE 13 OF THE FINAL PARAGRAPH OF LEASE
PARAGRAPH 2 shall be deleted and replaced with the following language:
"Effective July 1, 1994, and subject to rent adjustments, Tenant shall pay
to Landlord an annual base rent of Three Hundred Forty-Three Thousand Nine
Hundred Sixty-Six and 50/100 Dollars ($343,966.50), in twelve (12) monthly
installments of Twenty-Eight Thousand Six Hundred Sixty-Three and 88/100
Dollars ($28,663,88). The Base Rent shall be increased in the amount of
Three Percent (3%) on July 1, 1995 and each and every July 1 of each
calendar year thereafter (said amount due pursuant to this increase shall
be referred to herein as the Base Rent) during the term of this Lease."
4. AMEND EXPENSE RECOVERY PROVISIONS
Effective July 1, 1998, PAGE 5A of the Lease will be deleted in its
entirety and be of no further force or effect.
For the purposes of determining operating expense reimbursements due from
Tenant for the 1998 calendar year, the limitations of Page 5A of the lease
will be pro rated for one-half of the year, by application of the following
formula:
Landlord will calculate the amount of the operating expense reimbursement
which would have been due (1) as if the provisions of Page 5A of the lease
were in effect for the entire 1998 calendar year ("result #1), and (2) as
if the provisions of Page 5A of the lease were NOT in effect for the entire
1998 calendar year ("result #2). Tenant's actual operating expense
reimbursement due Landlord for the 1998 calendar year will be the amount
determined under result #2, less one-half of the difference, if any,
determined by subtracting the amount calculated in result #1 from the
amount calculated in result #2.
2
<PAGE>
and the amount calculated as result #2 was $120,000, then Tenant's actual
operating expense liability for the 1998 calendar year would be $110,000,
calculated as follows: [$120,000 - (1/2 x ($120,000 - $100,000))], =
$120,000 - $10,000, = $110,000.
5. DELETE EXPANSION RIGHTS OF TENANT
In consideration for Landlord's agreement to enter into this Lease Addendum
the Tenant has agreed to eliminate its right of expansion from The Lease.
Therefore, PARAGRAPH 10 of the Lease will be deleted from the Lease in its
entirety and be of no further force or effect.
6. DELETE TENANT'S RIGHT TO PROFIT UPON ASSIGNMENT OR SUBLEASE
In consideration for Landlord's agreement to enter into this Lease Addendum
the Tenant has agreed to eliminate from the Lease Tenant's entitlement to
excess rent or other consideration upon an Assignment or Sublease of the
premises. Therefore, EACH OF THE LAST PARAGRAPHS OF PARAGRAPH 37(e) AND
PARAGRAPH 37(f) will be deleted from the Lease in their entirety and be of
no further force or effect.
Notwithstanding the above, Tenant shall be entitled to retain excess rent
to the extent necessary to reimburse Tenant for actual costs, if any, paid
to third parties for leasing commissions and tenant improvements related to
the sublease or assignment of its premises.
Nothing herein is intended to prohibit Tenant from exercising rights
provided under the terms of the Lease to sublet or assign to a wholly owned
subsidiary.
7. DELETE TENANT'S RIGHT TO TERMINATE LEASE
In consideration for Landlord's agreement to enter into this Lease Addendum
the Tenant has agreed to eliminate its right to Terminate the Lease.
Therefore, PARAGRAPH 38 of the Lease will be deleted from the Lease in its
entirety and be of no further force or effect.
3
<PAGE>
8. TENANT IMPROVEMENT ALLOWANCE
Provided that the Lease is in good standing and not in default, then no
earlier than July 1, 1998, but no later than December 31, 1998, the
Landlord will provide Tenant an Improvement Allowance, in an amount not to
exceed One Hundred Twenty-Seven Thousand Three Hundred Ninety-Five Dollars
($127,395.00), to reimburse Tenant for (1) its actual costs incurred to
carpet and repaint its premises, and (2) and other costs of Tenant
reasonably associated therewith, including but not limited to the costs of
moving or storing furniture ("Improvements"). The Improvement Allowance
shall be payable to Tenant upon presentation to Landlord of paid receipts
and final lien waivers from all Contractors and Sub-Contractors who have
performed the Tenant Improvement work.
Prior to commencement of Improvements, Tenant shall furnish Landlord with
Certificates of Insurance from all Contractors performing or furnishing
work or material insuring Landlord against any and all liability which may
arise out of or be connected in any way with said Improvements.
Tenant will use its best efforts to minimize inconvenience to other tenants
in the building during construction of its Improvements and will coordinate
the timing and manner of all construction with building management.
Landlord may impose such conditions with respect thereto as Landlord deems
appropriate.
9. BROKERAGE
Tenant and Landlord warrant to each other that they have had no dealings
with any broker or agent in connection with this lease other than Grubb &
Ellis Company, Rosemont, Illinois, and each covenants to pay, hold harmless
and indemnify the other from and against any and all cost (including
reasonable attorney's fees), expenses or liability for any compensation,
commission and charges claimed by any other broker or agent with respect to
this Addendum to Lease.
4
<PAGE>
10. RETURN OF SECURITY DEPOSIT
Paragraph 36 of the Lease will be deleted in its entirety. The Letter of
Credit referred to in Paragraph 36 of the Lease will be returned to Tenant
and be of no further force or effect.
11. AUTHORITY
If Tenant is a corporation, each individual executing this Lease on behalf
of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation, in accordance
with the By-Laws of said corporation and that this Lease is binding upon
said corporation.
All other terms and conditions of the Lease will remain in full force and effect
except as modified by this Addendum.
IN WITNESS WHEREOF, this Agreement is hereby executed on this 2nd day of JUNE,
1994.
Witness: LANDLORD: ESKO PROPERTIES, INC.
/s/ MELISSA S. LOESCHEN /s/ KEVIN COFFEY
----------------------------------- -------------------------------------
By: Kevin Coffey, Its Vice President
/s/ LESLIE A. MOSS
-----------------------------------
Witness: TENANT: AMERICAN COLLOID COMPANY,
A DELAWARE CORPORATION
/s/ MIA FALEN /s/ PAUL G. SHELTON
----------------------------------- -------------------------------------
By: Paul G. Shelton
ITS: Senior Vice President
-----------------------------------
5
<PAGE>
EXHIBIT 21
AMERICAN COLLOID COMPANY
COMPANY NAME COUNTRY STATE OWNERSHIP%
------------ ------- ----- ----------
American Colloid Company USA DE Parent
American Colloid Mineral Company USA DE 100
Ameri-co Carriers, Inc. USA NE 100
Nationwide Freight Svcs., Inc. USA NE 100
Chemdal Corporation USA DE 100*
Superior Absorbents, Inc. USA DE 100
(formerly Colloid-Piepho, Inc.)
Montana Minerals Development USA MT 100
Colloid Australia Pty., Ltd Australia 100
Volclay Limited U.K. 100
Chemdal International Corp. USA DE 100
Chemdal Pty., Ltd. Australia 100
ACC-Chem Limited Cyprus 100
ACC-Colloid Technology Ltd. Cyprus 100
Amcol International Corp. USA DE 100
Volclay Standard Pty. Ltd. Australia 60
Volclay de Mexico Mexico 49
ACP Export, Inc. U.S. Virgin Islands 100
Chemdal Limited England 100*
Foundry Supplies Limited England 100
<PAGE>
EXHIBIT 21
AMERICAN COLLOID COMPANY
COMPANY NAME COUNTRY STATE OWNERSHIP%
------------ ------- ----- ----------
Colloid Abwassertechnik GmbH Germany 100**
Colloid Environmental Technologies Company USA DE 100
American Colliod Company Ltd. Canada Ontario 100
* Owned by Chemdal International
** Owned by Volclay Limited
<PAGE>
[KPMG PEAT MARWICK LLP LETERHEAD]
CONSENT OF KPMG PEAT MARWICK LLP
--------------------------------
The Board of Directors
American Colloid Company:
We consent to incorporation by reference in the registration statements No.33-
34109, No. 33-55540, and No. 33-73350 on Form S-8 of American Colloid Company of
our report dated March 10, 1995, relating to the consolidated balance sheets of
American Colloid Company and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of earnings, retained earnings, and cash
flows and related schedule for each of the years in the three-year period ended
December 31, 1994, which report appears in the December 31, 1994 annual report
on Form 10-K of American Colloid Company.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 24, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 10,389
<SECURITIES> 0
<RECEIVABLES> 50,480
<ALLOWANCES> 1,336
<INVENTORY> 37,450
<CURRENT-ASSETS> 105,839
<PP&E> 225,532
<DEPRECIATION> 84,112
<TOTAL-ASSETS> 261,047
<CURRENT-LIABILITIES> 36,617
<BONDS> 71,458
<COMMON> 213
0
0
<OTHER-SE> 141,106
<TOTAL-LIABILITY-AND-EQUITY> 261,047
<SALES> 265,443
<TOTAL-REVENUES> 265,443
<CGS> 205,956
<TOTAL-COSTS> 241,452
<OTHER-EXPENSES> 544
<LOSS-PROVISION> 978
<INTEREST-EXPENSE> (3,050)
<INCOME-PRETAX> 22,203
<INCOME-TAX> 6,828
<INCOME-CONTINUING> 15,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,283
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
