SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-K
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File Number: 0-15661
AMCOL INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 36-0724340
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One North Arlington, 1500 West Shure Drive, Suite 500
Arlington Heights, Illinois 60004-7803
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (847) 394-8730
Securities registered pursuant to Section 12(b) of the Act: None
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. |X|
The aggregate market value of the $.01 par value Common Stock held by
non-affiliates of the registrant on March 19, 1999, based upon the closing sale
price on that date as reported in The Wall Street Journal was approximately
$236,864,467.
Registrant had 26,751,877 shares of $.01 par value Common Stock outstanding
as of March 19, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be dated on or about March 29, 1999, are
incorporated by reference into Part III hereof.
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PART I
Item 1. Business
INTRODUCTION
AMCOL International Corporation was originally incorporated in South Dakota
in 1924 as the Bentonite Mining & Manufacturing Company. Its name was changed to
American Colloid Company in 1927, and in 1959, the Company was reincorporated in
Delaware. In 1995, its name was changed to AMCOL International Corporation.
Except as otherwise noted, or indicated by context, the term "Company" refers to
AMCOL International Corporation and its subsidiaries.
The Company operates in three major industry segments: absorbent polymers,
minerals and environmental. The Company also operates a transportation business.
The absorbent polymers segment produces and distributes superabsorbent polymers
primarily for use in consumer markets. The minerals segment mines, processes and
distributes clays and products with similar applications to various industrial
and 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.
The following table sets forth the percentage contributions to net sales of
the Company attributable to its absorbent polymers, minerals, environmental and
transportation segments for the last three calendar years.
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Percentage of Sales
1998 1997 1996
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Absorbent polymers......................................................... 42.4% 41.1% 38.0%
Minerals................................................................... 31.5% 34.1% 35.9%
Environmental.............................................................. 20.0% 18.5% 20.1%
Transportation............................................................. 6.1% 6.3% 6.0%
100.0% 100.0% 100.0%
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Net revenues, operating profit, assets, depreciation, depletion and
amortization and capital expenditures 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.
ABSORBENT POLYMERS
In the early 1970s, the Company utilized a technique called modified bulk
polymerization ("MBP") to manufacture water-soluble polymers for the oil well
drilling industry. This technique was modified to produce superabsorbent
polymers ("SAP"), a category of polymers known for its extremely high water
absorbency. Chemdal Corporation was formed in 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. and U.K. facilities, having a combined annual capacity of 160,000 metric
tons.
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Global demand for SAP 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, and has been partially replacing fluff pulp in disposable diapers.
The use of SAP in diapers allows for a thinner diaper that occupies less shelf
space in stores and less landfill space. SAP also helps to hold moisture inside
the diaper, thereby causing less irritation to the wearer's skin and reducing
leakage. Based upon the Company's expectations regarding consumer and retail
preferences, the Company believes that SAP will continue to be 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 increasing amounts of SAP will gain
more acceptance as per capita incomes in those countries rise.
Principal Products and Markets
The Company's SAP is primarily marketed under the trade names ARIDALL and
ASAP. The Company's customers primarily include private label, national and
multinational brand diaper manufacturers.
Sales and Distribution
The Company sells SAP to the personal care market in the United States on a
direct basis. In other countries, the Company markets its products both directly
and through agents and 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 1998, the top two customers accounted for approximately 48%
of the Company's polymer sales, and the top five customers accounted for
approximately 66% of such sales.
Research and Development
The Company divides its research efforts into SAPs for the disposable
hygienics markets and polymers for other markets (non-hygienics).
Research and development for SAP focuses on applications and technology
development that differentiate the Company's products and enhance its market
position. Activity includes extension of its current technology with enhanced
attributes that allow products to command higher prices, and also the creation
of new platform technologies with the objective of being the leading edge
company in disposable hygienic markets.
Research and development works with all functional areas in the Company,
from idea generation to product introduction. A substantive part of the overall
research and development expenditures is dedicated to new business and
technology development activities for markets distinct from disposable hygienic.
There is technology crossover for SAP into new areas such as ion-exchange
polymers for several market areas, but there is also a strong commitment to
new-platform technology development, an example being adsorbent polymers for
cosmetics and industrial markets.
The Company benefits from the recruitment and retention of high-caliber
research staff. It places importance on leveraging its research investment with
collaborative bodies, such as academia and other corporations, and internally
with the technical functions and resources of AMCOL's other business segments.
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The Company owns several patents relating to its original manufacturing
process developed in the 1970s, and to modifications of its process developed in
the 1980s and 1990s relating to its current manufacturing process. Patents on
the original process have begun to expire. The Company believes that the loss of
the patent protection will not have a material impact on the business. The
patents relating to the current modifications 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.
Raw Materials
The process used by the Company to produce SAP primarily uses acrylic acid
and, to a lesser extent, potassium and sodium alkalis and catalysts.
The Company knows of four acrylic acid suppliers in the United States,
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. Global merchant supply of acrylic acid is adequate to meet the
Company's production requirements. As long as acrylic acid supply exceeds
demand, the Company does not consider itself to be at a significant competitive
disadvantage against the vertically integrated producers of SAP.
Potassium and sodium alkalis 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 at least four major polymer
manufacturers and at least three importers that compete with its U.S. operation,
several of which have substantially greater financial resources than the
Company. Two of these competitors are vertically integrated producers of acrylic
acid, the primary cost component of SAP. The Company's U.K. operation competes
with numerous producers. Only two producers have substantially more production
capacity and several producers have greater financial resources than the
Company. Further, at least three of these competitors are vertically integrated
producers of acrylic acid. 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 vigorous. The Company believes that its polymer
manufacturing process has enabled it to add polymer production capacity at a
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 that 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
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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.
MINERALS
The Company's minerals business is principally conducted through its wholly
owned subsidiaries, American Colloid Company in the United States and Canada,
Volclay Ltd. in the United Kingdom, Volclay Siam Ltd. in Thailand, Volclay Korea
Ltd. in South Korea, Volclay Pty. Limited in Australia, and through its joint
venture companies, Redhill Volclay Company Ltd. in China, Volclay de Mexico in
Mexico, Ashapura Volclay Ltd. in India, Egypt Mining & Drilling Chemicals Co. in
Egypt, and Nissho Iwai Bentonite Company in Japan.
Commercially produced bentonite is a type of montmorillonite clay found in
beds ranging in thickness from two to 50 feet under overburden of up to 60 feet.
There are two basic types of bentonite, each having different chemical and
physical properties. These are commonly known as sodium bentonite and calcium
bentonite. Sodium bentonite is generally referred to as western bentonite
because it predominately occurs in the Western United States. Sodium bentonites
of lesser purity occur outside the U.S. Calcium bentonite is generally referred
to as southern bentonite in the U.S. and as Fuller's Earth outside the U.S.
Calcium bentonites mined outside the U.S. are commonly activated with sodium
carbonate to produce properties similar to natural sodium bentonite. A third
type of clay mineral, a less pure variety of calcium montmorillonite called
Fuller's Earth in the U.S., is used as "traditional" cat litter. In April 1998,
the Company sold its reserves of Fuller's Earth and associated business to
Oil-Dri Corporation of America (Oil-Dri). As part of the sale agreement, Oil-Dri
supplies the Company's brands of "traditional" cat litter for sale to the pet
trade sector of the domestic cat litter market.
The Company's principal bentonite products are marketed under various
internationally registered trade names, including VOLCLAY, PANTHER CREEK,
PREMIUM GEL and ADDITROL. The Company's cat litter is sold under various trade
names and private labels. Trade names include NATURAL SELECT, CAREFREE KITTY,
PREMIUM CHOICE, CAT TAILS, CATS PAW and PAMPER CAT.
Principal Products and Markets
Durable Goods
Metalcasting. In the formation of sand molds for metal castings, sand is
bonded with bentonite and various other additives to yield desired casting form
and surface finish. The Company produces blended mineral binders containing
sodium and calcium bentonite, sold under the trade name ADDITROL. In addition,
several high-performance specialty products are sold to foundries and companies
that service foundries.
Iron Ore Pelletizing. The Company supplies sodium bentonite for use as a
pelletizing aid in the production of taconite pellets in North America.
<PAGE>
Well Drilling. Sodium bentonite and leonardite, a form of oxidized lignite
mined and processed by the Company in North Dakota, are components of drilling
fluids used in oil and gas well drilling. Bentonite imparts thickening and
suspension properties, which facilitate the transport of rock cuttings to the
surface during the drilling process. Drilling fluids lubricate the drilling bit
and coat the underground formations to prevent hole collapse and drill bit
seizing. The Company's primary trademark for this application is PREMIUM GEL.
Other Industrial. The Company 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 and markets a sodium bentonite-based,
scoopable (clumping) cat litter. Through its supply agreement with Oil-Dri, the
Company markets a Fuller's Earth or "traditional" cat litter to complement its
line of scoopable cat litter products to the pet trade sector of the market. The
Company's scoopable products' clump-forming capability traps urine, allowing for
easy removal of the odor-producing elements from the litter box. Scoopable
litter has grown to 51% of the U.S. grocery market for cat litter in 1998 from
0.4% in 1989, and to 56% of the mass merchandise market for cat litter from no
representation in 1989. The scoopable cat litter products are sold primarily to
private label grocery and mass merchandisers, though the Company also sells its
own brands to the grocery, pet store and mass markets. The Company's products
are marketed under various trade names.
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 swelling property
aids in tablet disintegration. Bentonite also acts as a thickening and
suspension agent in lotions. Other specialized uses include flow control
additives and beverage clarification.
Agricultural. Sodium bentonite and calcium bentonites are sold as
pelletizing aids in livestock feed and as anticaking agents for livestock feed
in storage or during transit.
Sales and Distribution
In 1998, the top four customers were located in North America and accounted
for approximately 23% of the Company's mineral sales worldwide.
The Company has established industry-specialized sales groups staffed with
technically oriented salespersons serving each of the Company's major markets.
Certain groups have networks of distributors and representatives, including
companies that warehouse at strategic locations.
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 and gas well drilling industry are primarily made directly
to oil and gas well drilling fluid service companies, both under the Company's
trade name and under private label. Because bentonite is a major component of
drilling fluids, two service companies have captive bentonite operations. The
Company's potential market, therefore, generally is limited to those service
organizations that are not vertically integrated, or do not have long-term
supply arrangements with other bentonite producers.
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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 globally. There are at least four other major North American producers
of sodium bentonite and at least one other major domestic producer of calcium
bentonite. Two of the North American producers are companies primarily in other
lines of business with substantially greater financial resources than the
Company. There is also substantial global competition. The Company's bentonite
operations outside North America compete with at least 12 other bentonite
producers. Competition, in both the Company's domestic and international
markets, is essentially a matter of product quality, price, logistics, service
and technical support. With greater attention to market growth opportunities in
emerging economic regions, competition among the significant bentonite producers
has become quite vigorous.
Seasonality
Although business activities in certain of the industries in which the
Company's mineral products are sold, e.g. oil and gas well drilling and
construction, are subject to factors such as weather, the Company does not
consider its mineral business, as a whole, to be seasonal.
ENVIRONMENTAL
Principal Products and Markets
Through its wholly owned subsidiaries, Colloid Environmental Technologies
Company (CETCO) in the United States and Canada, CETCO Korea Ltd., CETCO AS in
Norway, CETCO Asia Sdn. Bhd. in Malaysia, CETCO Australia Pty. Ltd., CETCO
Environmental Technologies Pte Ltd and CETCO (Europe) Ltd. in the United
Kingdom, the Company sells sodium bentonite, products containing sodium
bentonite, and other products, services, and equipment for use in environmental
and construction applications.
CETCO sells bentonite and its geosynthetic clay liner products under the
BENTOMAT and CLAYMAX trade names for lining and capping landfills and for
containment in tank farms, leach pads, waste stabilization lagoons, slurry walls
and wetlands reclamation applications.
The Company's VOLCLAY Waterproofing System is sold to the non-residential
construction industry. This line includes VOLTEX, a waterproofing composite
comprised of two polypropylene geotextiles filled with sodium bentonite. VOLTEX
is installed to prevent leakage through underground foundation walls and slabs.
The following products round out the principal components of the product line:
VOLCLAY PANELS, also used for below-grade waterproofing of walls and slabs;
WATERSTOP-RX, a joint sealant product; and VOLCLAY SWELLTITE, a waterproofing
membrane for concrete split slabs and plaza areas.
CETCO manufactures elastomeric reinforced urethane coatings sold under the
ADURON trade name for use in commercial roofing applications. The Company
believes that these products offer significant cost savings, especially in
retrofit/re-roofing applications, while being among the more environmentally
friendly roofing products available to the industry.
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Bentonite-based flocculants and customized equipment are used to remove
emulsified oils and heavy metals from wastewater. Bentonite-based products are
formulated to solidify liquid waste for proper disposal in landfills. These
products are sold primarily under the SYSTEM-AC, RM-10 and SORBOND trade names.
CETCO also specializes in providing absorption 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 markets such as
remediation of petroleum-contaminated groundwater. The Company is also actively
involved in providing wastewater treatment solutions to the cruise line industry
to enable cruise line operators to meet wastewater discharge requirements.
CETCO's environmental offshore services group employs CRUDESORB filtration
technology, used primarily on offshore oil production platforms. CETCO employs
several technologies to allow platform operators to maintain compliance with
regulatory requirements governing discharge of waste generated during oil
production. CETCO's filtration technology is marketed with all necessary
equipment, proprietary filter media and trained professional service personnel.
CETCO's drilling products are used in environmental and geotechnical
drilling applications, horizontal directional drilling and mineral exploration.
The products are used to install monitoring wells and water wells, rehabilitate
existing water wells and seal abandoned exploration drill holes. VOLCLAY GROUT,
BENTOGROUT and VOLCLAY TABLETS are among the trade names for products used in
these applications. Horizontal and directional drilling applications utilizing
HYDRAUL-EZ represent a significant new market area for CETCO drilling products.
Competition
CETCO has four principal competitors in the geosynthetic clay liner market.
The construction and wastewater treatment product lines are specialized
businesses that compete primarily with alternative technologies. The service
center remediation business has three major competitors, one of which is
substantially larger and with greater financial resources. The groundwater
monitoring, well drilling and sealants products compete with the Company's
traditional rivals in the sodium bentonite business. The environmental offshore
services group competes with several larger oil services companies using
different technology. Competition is based on product quality, service, price,
technical support and availability of product. Historically, the competition has
been vigorous.
Sales and Distribution
In 1998, 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 with consulting engineers
engaged by the customers. Offshore customers are primarily major oil companies
sold on a direct basis.
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.
<PAGE>
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.
Research and Development
All Company business segments share research and laboratory facilities
adjacent to the corporate headquarters. Technological developments are shared
between the companies, subject to license agreements where appropriate.
MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS
Mineral Reserves
The Company has reserves of sodium and calcium bentonite at various
locations throughout North America including Wyoming, South Dakota, Montana and
Alabama. The Company, indirectly through its joint venture companies, either
owns or has mining rights to bentonite deposits in China, Egypt and Mexico. At
1998 consumption rates and product mix, the Company estimates its proven
reserves of commercially usable sodium bentonite at 30 years. The Company
estimates its proven reserves of calcium bentonite at 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 Company's total bentonite reserves in North America, less than 34%
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
that 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 and members of the executive branch of the federal
government have proposed amendments to existing federal mining laws. The various
amendments would have had a prospective effect on mining operations on federal
lands and include, among other things, the imposition of royalty fees on the
mining of unpatented claims, the elimination or restructuring of the patent
system and an increase in fees for the maintenance of unpatented claims. To the
extent that future proposals may result in the imposition of royalty fees on
unpatented lands, the mining of 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 maintains a continuous program of worldwide 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.
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The Company oversees all of its mining operations, including its
exploration activity and securing the necessary state and federal mining
permits.
The following table shows a summary of minerals sold by the Company from
active mining areas for the last five years in short tons:
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Tons of Minerals Sold (1)
1998 1997 1996 1995 1994
Sodium Bentonite: (In Thousands)
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Belle Fourche, SD (2)....................... 43 45 4 133 203
Upton, WY................................... 346 392 418 434 424
Colony, WY.................................. 814 830 921 809 791
Lovell, WY.................................. 329 350 301 268 299
Calcium Bentonite:
Sandy Ridge, AL............................. 195 193 183 170 174
Rock Springs, NV (3)(4)..................... 1 2 3 - -
Fuller's Earth:
Mounds, IL (5).............................. 60 192 201 203 242
Paris, TN (3)............................... 7 22 12 54 52
Leonardite:
Gascoyne, ND................................ 24 30 23 19 17
<FN>
(1) May include minerals of a different type not mined at this location.
(2) In late 1995 and 1996, bentonite sold from Belle Fourche, SD, was processed in Colony, WY.
(3) Mineral reserves sold in 1998 to Oil-Dri.
(4) Plant sold in January 1999 to Nolind Enterprises LLC.
(5) Plant and minerals sold in 1998 to Oil-Dri.
</FN>
</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 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 bentonite
processing plants generally maintains stockpiles of unprocessed clay equaling
approximately four to eight 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 bulk shipment.
Virtually all production is shipped as processed, rather than stored for
inventory.
Product Development and Patents
The Company works actively with customers in each of its major markets to
develop commercial applications of specialized grades of bentonite. It maintains
a bentonite research center and laboratory testing facility adjacent to its
corporate headquarters, as well as one in the United Kingdom. When a need for a
product that will accomplish a particular goal is perceived, the Company works
to develop the product,
<PAGE>
research its marketability and study the feasibility of its production. The
Company also co-develops products with customers, or others, as 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 businesses as a whole.
Regulation and Environmental
The Company believes it is in material compliance with applicable
regulations now in effect for surface mining. Since reclamation of exhausted
mining sites has been a regular part of the Company's surface mining operations
for the past 30 years, maintaining compliance with current regulations has not
had a material effect on mining costs. Reclamation costs are reflected in the
prices of the bentonite sold.
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 (including Title V of the Clean Air
Act). All of the Company's plants are equipped with dust collection systems. The
Company has not had, and does not presently anticipate, any significant
regulatory problems in connection with its dust emission, though it expects
ongoing expenditures for the maintenance of its dust collection systems and
required annual fees.
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 noncompliance. 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, enforcement
policies, 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 form throughout
the continental United States. Through its transportation operation, the Company
is better able to control costs, maintain delivery schedules and assure
equipment availability. The long-haul trucking 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 1998, approximately 65% of the revenues of this segment involved
the Company's products.
CORPORATE DEVELOPMENT ACTIVITIES
Nanocomposite Product Development
The Company is always seeking to develop broader-based technologies which
may use bentonite for new, value-added applications. One such technology is
nanocomposites for the plastics industry. In 1995, the Company created its
Nanocor subsidiary to develop surface-modified bentonites suitable for the
emerging nanocomposite market. The primary raw material is bentonite,
principally using the Company's
<PAGE>
current mineral reserves. For some applications, bentonites will be purchased
under supply agreements. Surface treatment chemicals, added in the production
process, are readily available on the merchant market.
The Company is focusing its development on the use of bentonite as a
functional additive for plastics. The technology consists of dispersing highly
purified bentonite to nanometer size (one-billionth of an inch) in plastic
resins. The mineral's extremely small size creates a molecular blend with the
plastic resin, giving rise to a number of beneficial properties. For example,
nanocomposite plastics become stronger and lighter than traditional composite
plastics, a combination attractive to the transportation industry. Nanocomposite
plastics also hold their strength at high temperatures, an appealing property
for electronics applications, among others. In plastic beverage containers, the
benefits include longer shelf life and fresher taste, attractive qualities for
consumer goods.
The Company has a number of joint development agreements with potential
customers. The arrangements are generally non-exclusive and contain provisions
for joint ownership of intellectual property. Some applications of the
technology under development are independent of partner participation and will
be solely owned by the Company.
The Company's Nanocor subsidiary is developing bentonite products suitable
for use in automotive parts, electronic components and consumer packaging. The
products will be marketed under the tradename Nanomer. Nanomers will be marketed
to the plastics industry in North America on a direct basis, and in other
countries, both on a direct basis and through distributors. The Company's
Nanocor subsidiary will offer its products for sale beginning in 1999.
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 47 percent of the Company's 1998 net sales were to customers
in approximately 67 countries other than the United States. To enhance its
overseas market penetration, the Company maintains mineral processing plants in
the United Kingdom, Australia, Korea and Thailand, as well as a blending plant
in Canada. Through joint ventures, the Company also has the capability to
process minerals in Egypt, Mexico and China. Chartered vessels deliver large
quantities of the Company's bulk, dried sodium bentonite to the plants in the
United Kingdom, Australia and Thailand, where it is processed and mixed with
other clays and distributed throughout Europe, Australia and Southeast Asia. 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 manufactures geosynthetic clay liners in the U.K. for the
European market. In addition, the Company has sales offices in Norway, Korea,
Malaysia, Singapore, as well as various offices in Europe.
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 fluctuations and devaluation,
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. This Note is incorporated by reference for sales
attributed to foreign operations and export sales from the United States.
<PAGE>
EMPLOYEES
As of December 31, 1998, the Company employed 1,625 persons, 554 of whom
were employed outside of the United States. At December 31, 1998, there were
approximately 354, 695, 494 and 27 persons employed in the Company's absorbent
polymers, minerals, environmental and transportation segments, respectively,
along with 55 corporate employees. The corporate employees include personnel
engaged in the nanocomposite research and development effort. Operating plants
are adequately staffed, and no significant labor shortages are presently
foreseen. Approximately 87 of the Company's employees in the United States and
approximately 68 of the Company's employees in the United Kingdom are
represented by seven labor unions, which have entered into separate collective
bargaining agreements with the Company. Employee relations are considered good.
<PAGE>
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
ABSORBENT POLYMERS
<S> <C>
Aberdeen, MS ............................. Manufacture absorbent polymers
Birkenhead, Merseyside, U.K............... Manufacture absorbent polymers; research laboratory and
headquarters for Chemdal Ltd.
Palatine, IL (1) ......................... Chemdal Corp. headquarters; research laboratory
MINERALS
Belle Fourche, SD (3)..................... Mine and process sodium bentonite
Colony, WY (two plants)................... Mine and process sodium bentonite
Lovell, WY (3)............................ Mine and process sodium bentonite
Upton, WY................................. Mine and process sodium bentonite
Paris, TN................................. Package cat litter
Gascoyne, ND.............................. Mine and process leonardite
Letohatchee, AL........................... Package and load calcium bentonite
Sandy Ridge, AL........................... Mine and process calcium bentonite; blend ADDITROL
Columbus, OH (1).......................... Blend ADDITROL; process chromite sand
Granite City, IL (1)...................... Package cat litter; process chromite sand
Waterloo, IA.............................. Blend ADDITROL
Albion, MI (1)............................ Blend ADDITROL
York, PA.................................. Blend ADDITROL; package cat litter
Chattanooga, TN........................... Blend ADDITROL
Lufkin, TX................................ Blend ADDITROL
Neenah, WI................................ Blend ADDITROL
Troy, IN.................................. Blend ADDITROL
Toronto, Ontario, Canada (3).............. Blend ADDITROL
Geelong, Victoria, Australia (1)(3)....... Process bentonite; blend ADDITROL
Birkenhead, Merseyside, U.K. (2).......... Process bentonite and chromite sand; blend ADDITROL;
package cat litter; research laboratory; headquarters for Volclay Ltd.
Rayong, Thailand.......................... Process bentonite
Kyung-Buk, South Korea.................... Mine and process bentonite
ENVIRONMENTAL
Belle Fourche, SD (3)..................... Manufacture construction products
Lovell, WY (3)............................ Manufacture Bentomat and Claymax geosynthetic clay liners
Villa Rica, GA............................ Manufacture components for geosynthetic clay liners
Sulphur, LA............................... Manufacture environmental equipment
Fairmount, GA............................. Manufacture Bentomat and Claymax geosynthetic clay liners
Birkenhead, Merseyside, U.K. (2).......... Manufacture Bentomat geosynthetic clay liner; research laboratory;
headquarters for CETCO Europe Ltd.
Copenhagen, Denmark (1)................... Sales and distribution for CETCO Europe Ltd.
Geelong, Victoria, Australia (1)(3)....... Sales and distribution for CETCO Pty. Ltd.
Toronto, Ontario, Canada (3).............. Sales and distribution for CETCO Canada Ltd.
Kuala Lumpur, Malaysia (1)................ Sales and distribution for CETCO Asia Sdn. Bhd.
Oslo, Norway (1).......................... Sales and distribution for CETCO AS
Singapore (1)............................. Sales and distribution for CETCO Environmental Technologies Pte Ltd.
Seoul, South Korea (1).................... Sales and distribution for CETCO Korea Ltd.
TRANSPORTATION
Scottsbluff, NE........................... Transportation headquarters and terminal
CORPORATE
Arlington Heights, IL (1)................. Corporate headquarters; CETCO headquarters; American Colloid Co.
headquarters; Nanocor, Inc. headquarters; research laboratory
Aberdeen, MS.............................. Process purified bentonite (Nanocor, Inc.)
<FN>
(1) Leased
(2) Certain offices and facilities are leased.
(3) Shared facilities between minerals and environmental segment.
</FN>
</TABLE>
<PAGE>
Item 3. Legal Proceedings
The Company is party to a number of 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>
Mark A. Anderson 39 Vice President of Corporate Development of the Company since 1997; prior
thereto, Vice President of Absorbent Technologies for Chemdal Corporation
since 1992.
Gary L. Castagna 37 Vice President of the Company and President of Chemdal International
Corporation since 1997; prior thereto, Vice President of Finance of Chemdal
Corporation since 1992 and Managing Director of Chemdal Ltd. since 1994.
John Hughes 56 Chairman of the Board of Directors since May 1998; Chief Executive Officer
of the Company since 1985; a Director since 1984.
Peter L. Maul 49 Vice President of the Company since 1993 and President of Nanocor, Inc.
since 1995; prior thereto, Vice President of Marketing at Chemstar, Inc.
1986-1992.
Ryan F. McKendrick 47 Vice President of the Company and President of Colloid Environmental
Technologies Company since November 1998; prior thereto, Vice President of
Colloid Environmental Technologies Company since 1994; prior thereto,
Manager of the Environmental Products Division for Colloid Environmental
Technologies Company; Vice President/General Manager for Waste Management of
North America 1993-1994.
Clarence O. Redman 56 Secretary of the Company since 1982. Clarence O. Redman is of counsel to the
law firm of Lord, Bissell & Brook, the law firm that serves as Corporate
Counsel to the Company, since October 1997; prior thereto, an individual and
corporate partner and Chief Executive Officer of the law firm of Keck, Mahin
& Cate; a Director since 1989.
Paul G. Shelton 49 Senior Vice President and Chief Financial Officer of the Company and
President of AMCOL International's transportation units since 1994; prior
thereto, Vice President and Chief Financial Officer since 1984; a Director
since 1988.
</TABLE>
<PAGE>
Executive Officers of Registrant (continued)
<TABLE>
<CAPTION>
Name Age Principal Occupation for Last Five Years
<S> <C> <C>
Lawrence E. Washow 46 President of the Company since May 1998; Chief Operating Officer of the
Company since 1997; prior thereto, Senior Vice President of the Company
since 1994 and President of Chemdal International Corporation since 1992; a
Director since February, 1998.
Frank B. Wright, Jr. 50 Vice President of the Company and President of American Colloid Company
since 1996; prior thereto, Manager of International Business Development for
American Colloid Company since 1995; prior thereto, Managing Director of
TRIMEX Minerals International since 1993.
</TABLE>
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 three-year term, or until their
respective successors are elected and shall have qualified.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on The New York Stock Exchange under the
symbol ACO. Prior to September 22, 1998, the Company's common stock traded on
the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol
ACOL. The following table sets forth, for the periods indicated, the high and
low closing sale prices of the common stock, as reported by the relevant
organizations, and cash dividends declared per share. Prices and cash dividends
have been adjusted to reflect a three-for-two stock split in December 1997,
effected in the nature of a stock dividend.
<TABLE>
<CAPTION>
Stock Price Cash Dividends
High Low Declared Per Share
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1998: 1st Quarter.......... $16.375 $12.125 $.0550
2nd Quarter.......... 16.375 11.500 .0550
3rd Quarter.......... 14.250 9.375 .0600
4th Quarter.......... 11.375 8.000 .0600
Fiscal Year Ended December 31, 1997: 1st Quarter.......... $13.333 $10.167 $.0467
2nd Quarter.......... 12.833 11.000 .0533
3rd Quarter.......... 14.083 10.917 .0533
4th Quarter.......... 17.250 13.000 .0550
</TABLE>
As of February 22, 1999, there were 3,515 holders of record of the common
stock, excluding shares held in street name.
The Company has paid cash dividends every year for over 61 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.
<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, 1998. Per share amounts have
been adjusted to reflect a three-for-two stock split in December 1997, effected
in the nature of a stock dividend.
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
<TABLE>
<CAPTION>
PER SHARE 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity (1) $ 6.44 $ 6.18 $ 5.87 $ 5.42 $ 5.02
Basic earnings (2) .79 .74 .53 .62 .54
Diluted earnings (3) .78 .72 .52 .60 .52
Dividends .23 .21 .19 .17 .16
Shares outstanding (3) 28,385,860 29,125,168 29,294,489 29,519,220 29,229,780
INCOME DATA
Sales $ 521,530 $ 477,060 $ 405,347 $ 347,688 $ 265,443
Gross profit 111,171 100,741 84,311 76,562 59,487
Operating profit 42,220 41,469 32,337 32,397 23,991
Net interest expense (7,933) (8,628) (8,450) (6,727) (2,332)
Net other income (expense) 140 (398) (670) 1,217 544
Pretax income 34,427 32,443 23,217 26,887 22,203
Income taxes 12,350 11,399 7,979 9,082 6,828
Net income 22,085 21,044 15,225 17,771 15,283
BALANCE SHEET
Current assets $ 164,076 $ 150,270 $ 147,773 $ 126,337 $ 108,691
Net property, plant
and equipment 171,478 175,324 180,876 175,211 141,420
Total assets 357,864 351,009 350,708 322,366 263,899
Current liabilities 74,083 67,241 51,870 35,882 36,617
Long-term debt 96,268 94,425 118,855 117,016 71,458
Shareholders' equity 172,914 175,943 167,404 155,494 143,073
RATIO ANALYSIS
Operating margin 8.10% 8.69% 7.98% 9.32% 9.04%
Pretax margin 6.60 6.80 5.73 7.73 8.36
Effective tax rate 35.87 35.14 34.37 33.78 30.75
Net margin 4.23 4.41 3.76 5.11 5.76
Return on ending assets 6.17 6.00 4.34 5.51 5.79
Return on ending equity 12.77 11.96 9.09 11.43 10.68
<FN>
(1) Based on the number of common shares outstanding at the end of the year.
(2) Based on the weighted average common shares outstanding for the year.
(3) Based on the weighted average common shares outstanding, including common stock equivalents, for the year.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Financial Condition
At December 31, 1998, the Company had outstanding debt of $113.3 million
(including both long- and short-term debt) and cash and cash equivalents of $2.8
million, compared with $109.4 million in debt and $3.1 million in cash and cash
equivalents at December 31, 1997. Long-term debt represented 35.8% of total
capitalization at December 31, 1998, compared with 34.9% at December 31, 1997.
The Company had a current ratio of 2.21-to-1 at December 31, 1998, with
approximately $90.0 million in working capital, compared with 2.23-to-1 and
$83.0 million, respectively, at December 31, 1997.
The Company's revolving credit facility of $125 million matures in October
2003. The Company had $58.2 million in unused, committed credit lines at
December 31, 1998.
During 1998, the Company had $37.7 million in capital expenditures and $1.5
million in investments in joint ventures. The Company acquired $19.9 million in
treasury stock and paid $6.4 million in dividends. This activity was funded from
the net income generated in 1998 of $22.1 million, depreciation and amortization
totaling $33.1 million, proceeds from the sale of the Fuller's Earth business
amounting to $13.2 million and additional borrowings of $3.9 million.
The Company currently anticipates capital expenditures of approximately $45
million for 1999. The current indicated annual dividend rate is $.24 per share.
If the rate remains constant and the Board of Directors continues to declare
dividends, the dividend payments will be approximately $6.5 million in 1999.
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, committed credit
lines, cash balances and operating cash flow.
Results of Operations for the Three Years Ended December 31, 1998
Net sales increased by $44.5 million, or 9.3%, from 1997 to 1998, and by
$71.7 million, or 17.7%, from 1996 to 1997. Approximately 60% of the 1998 sales
increase was related to acquisitions made during 1998. Gross profit increased by
$10.4 million, or 10.4%, from 1997 to 1998, compared to an increase of $16.4
million, or 19.5%, from 1996 to 1997. Operating profit improved by $.8 million,
or 1.8%, from 1997 to 1998 compared to $9.1 million, or 28.2%, from 1996 to
1997. Operating profit for 1998 was adversely impacted by a $4.8 million
operating loss at the Company's U.K. minerals unit. Net income increased $1.0
million, or 4.9%, from 1997 to 1998, compared to $5.8 million, or 38.2%, from
1996 to 1997. Diluted earnings per share were $.78, $.72 and $.52 in 1998, 1997
and 1996, respectively. The weighted average shares outstanding, including the
dilutive impact of stock options, were 2.5% lower in 1998 than in 1997.
<PAGE>
A review of sales, gross profit, general, selling and administrative
expenses, and operating profit by segment follows:
<TABLE>
<CAPTION>
Absorbent Polymers Year Ended December 31,
1998 1997 1996 1998 vs. 1997 1997 vs. 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 221,093 100.0% $ 195,944 100.0% $ 153,866 100.0% $25,149 12.8% $42,078 27.3%
Cost of sales......... 174,635 79.0% 154,983 79.1% 123,448 80.2%
Gross profit........ 46,458 21.0% 40,961 20.9% 30,418 19.8% 5,497 13.4% 10,543 34.7%
General, selling and
administrative 13,207 6.0% 12,098 6.2% 10,791 7.0% 1,109 9.2% 1,307 12.1%
expenses..............
Operating profit.... 33,251 15.0% 28,863 14.7% 19,627 12.8% 4,388 15.2% 9,236 47.1%
</TABLE>
Sales of absorbent polymers in 1998 increased by 12.8% over 1997 compared
with a 27.3% sales increase from 1996 to 1997. Approximately 65% of the sales
increase in 1998 was acquisition-related. In both 1997 and 1998, unit sales
volume increased at a faster rate than the sales dollars.
Gross profit margins improved slightly from 1997 to 1998, and increased
5.6% from 1996 to 1997. Margins improved in 1998 primarily as a result of lower
costs for acrylic acid, while the 1997 over 1996 improvement was primarily a
result of higher capacity utilization. In each case, the lower costs more than
offset lower unit selling prices. The 1996 gross profit margin also reflected
the additional costs of shipping products from the United States to the United
Kingdom to meet customer demand in excess of the U.K. plant capacity in the
first half of 1996.
While general, selling and administrative expenses have increased from 1996
to 1997 and from 1997 to 1998, the rate of increase is less than the rate of
increase in sales. In 1998, the increase related primarily to a higher bad debt
provision. Much of the 1997 increased cost was directed to research and
development of new products unrelated to the current markets served.
The Company has aggressively expanded its capacity to produce
superabsorbent polymers. Its current global capacity of 160,000 tons (including
the acquisition related 12,000 metric ton U.K. toll processing arrangement) is
among the largest in the world. The Company is currently constructing a 20,000
metric ton plant in Thailand. This plant is expected to be operational in the
fourth quarter of 1999.
<TABLE>
<CAPTION>
Minerals Year Ended December 31,
1998 1997 1996 1998 vs. 1997 1997 vs. 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 164,049 100.0% $ 162,895 100.0% $ 145,623 100.0% $ 1,154 .7% $17,272 11.9%
Cost of sales......... 135,650 82.7% 135,610 83.2% 122,404 84.1%
Gross profit........ 28,399 17.3% 27,285 16.8% 23,219 15.9% 1,114 4.1% 4,066 17.5%
General, selling and
administrative 18,268 11.1% 15,651 9.6% 15,221 10.4% 2,617 16.7% 430 2.8%
expenses..............
Operating profit.... 10,131 6.2% 11,634 7.2% 7,998 5.5% (1,503) -12.9% 3,636 45.5%
</TABLE>
The $1.2 million increase in sales for 1998 was the net result of the
divestiture of the fullers' earth business in April 1998 and the additional
sales from a late 1997 U.K. cat litter acquisition. Domestic metalcasting sales
increased in 1998, offsetting sales declines to the domestic well drilling and
export markets. Sales increased in virtually all sectors of the minerals
segment, except for iron ore pelletizing, from 1996 to 1997. Metalcasting and
cat litter sales led the 1997 increase.
<PAGE>
As a result of the cat litter acquisition made in late 1997, the U.K.
mineral operation produced an operating loss of approximately $4.8 million. The
Company experienced management problems, customer service problems, production
problems and construction delays in integrating the acquisition into the
existing plant and organization. The problems have been identified and
corrective action is under way. It is management's current estimate that the
U.K. mineral operation will not reach an operating profit break-even until the
fourth quarter of 1999.
Gross profit margins increased by 3.0% and by 5.7% from 1997 to 1998 and
from 1996 to 1997, respectively. The domestic gross profit margin improvement
from 1997 to 1998 of 25.3% was largely offset by the problems at the U.K.
operation.
General, selling and administrative expenses increased by $2.6 million and
$.4 million from 1997 to 1998 and 1996 to 1997, respectively. The increase in
costs in 1998 was related to the U.K. acquisition, as well as international
marketing costs, which accounted for the 1997 increase.
<TABLE>
<CAPTION>
Environmental Year Ended December 31,
1998 1997 1996 1998 vs. 1997 1997 vs. 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $104,501 100.0% $ 88,421 100.0% $ 81,480 100.0% $16,080 18.2% $ 6,941 8.5%
Cost of sales......... 71,859 68.8% 59,625 67.4% 53,912 66.2%
Gross profit........ 32,642 31.2% 28,796 32.6% 27,568 33.8% 3,846 13.4% 1,228 4.5%
General, selling and
administrative 23,448 22.4% 18,528 21.0% 15,478 19.0% 4,920 26.6% 3,050 19.7%
expenses..............
Operating profit.... 9,194 8.8% 10,268 11.6% 12,090 14.8% (1,074) -10.5% (1,822) -15.1%
</TABLE>
Approximately 65% of the sales increase from 1997 to 1998 was attributable
to acquisitions made in 1998. Sales increases in overseas markets, coupled with
growth in most domestic sectors, offset softness in the environmental liner
market from 1996 to 1997
Gross profit margins decreased by 4.3% and 3.6% from 1997 to 1998 and from
1996 to 1997, respectively. Lower than average margins from the newly acquired
Norwegian business, coupled with lower margins from exports to Asia and sales to
Europe, accounted for the margin reduction in 1998. Depressed prices in the
environmental liner market were the primary reason for the decline in gross
profit margins in 1997.
Expansion of the global marketing presence for all sectors accounted for
much of the increase in general, selling and administrative expenses of 26.6%
and 19.7% from 1997 to 1998, and from 1996 to 1997, respectively. Approximately
59% of the increase in general, selling and administrative expenses in 1998 was
attributable to acquisitions.
<TABLE>
<CAPTION>
Transportation Year Ended December 31,
1998 1997 1996 1998 vs. 1997 1997 vs. 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 31,887 100.0% $ 29,800 100.0% $ 24,378 100.0% $ 2,087 7.0% $ 5,422 22.2%
Cost of sales......... 28,215 88.5% 26,101 87.6% 21,272 87.3%
Gross profit........ 3,672 11.5% 3,699 12.4% 3,106 12.7% (26) -.7% 593 19.1%
General, selling and
administrative 2,037 6.4% 2,057 6.9% 1,870 7.7% (20) -1.0% 187 10.0%
expenses..............
Operating profit.... 1,635 5.1% 1,642 5.5% 1,236 5.0% (7) -.4% 406 32.8%
</TABLE>
<PAGE>
The majority of the sales increase from 1997 to 1998 came from customers
unrelated to AMCOL's business. Increased brokerage of cat litter and
environmental shipments accounted for the growth in transportation revenues from
1996 to 1997. Gross profit margins were 7.3% lower in 1998 than in 1997,
primarily as a result of lower margins from brokered shipments. The gross profit
margins vary based largely upon truck availability and sales mix between the
trucking and brokerage operations. The increase in general, selling and
administrative expenses in 1997 reflected increased staffing levels to handle
increased volume.
<TABLE>
<CAPTION>
Corporate Year Ended December 31,
1998 1997 1996 1998 vs. 1997 1997 vs. 1996
(Dollars in Thousands)
General, selling and
<S> <C> <C> <C> <C> <C> <C> <C>
administrative $11,991 $10,938 $8,614 $ 1,053 9.6% $ 2,324 27.0%
expenses..............
Operating loss...... (11,991) (10,938) (8,614) (1,053) 9.6% (2,324) 27.0%
</TABLE>
Corporate costs include management information systems, human resources,
investor relations and corporate communications, finance, purchasing, research
related to developing the nanocomposite technology and corporate governance.
The Company is actively engaged in research and development efforts to
create new applications for its bentonite reserves. The Company's wholly owned
subsidiary, Nanocor, Inc. is devoted to research and development of
bentonite-based nanocomposites. When incorporated into plastics, bentonite-based
nanocomposites can produce materials with significantly improved properties that
encompass a variety of commercial applications. Nanocor's technologies are still
in the developmental stage, but management feels that these products have the
potential to become a significant part of the Company's future growth. As of
December 31, 1998, Nanocor has been issued 11 patents; five more patents were
allowed; and 16 patent applications were pending. All costs associated with
Nanocor will continue to be included in corporate for 1999.
The addition of two corporate executives and higher occupancy costs
accounted for much of the increase in corporate costs in 1998. Virtually all of
the increased corporate costs from 1996 to 1997 were attributable to Nanocor.
Net Interest Expense
Net interest expense decreased by $.7 million from 1997 to 1998, compared
with a $.2 million increase from 1996 to 1997. Lower average debt levels
accounted for the lower interest costs in 1998.
Other Income (Expense)
Foreign currency exchange losses accounted for approximately $.4 million,
or 100%, and $.6 million, or 87%, of other expense in 1997 and 1996,
respectively.
Income Taxes
The income tax rate for 1998 was 35.9% compared with 35.1% and 34.4% in
1997 and 1996, respectively. Income tax expense for 1998 includes a valuation
allowance of $800 related to the U.K. minerals unit net operating loss
carryforward. The effective tax rate for 1999 is currently estimated at 36%.
<PAGE>
Earnings Per Share
Diluted earnings per share were calculated using the weighted average
number of shares of common stock, including common share equivalents,
outstanding during the year. Stock options issued to key employees and directors
were considered common share equivalents. The weighted average number of shares
of common stock and common stock equivalent shares outstanding was approximately
28.4 million in 1998 compared with approximately 29.1 million and 29.3 million
in 1997 and 1996, respectively. The significant drop in the number of shares
outstanding from 1997 to 1998 reflected the high level of share repurchase
activity in 1998. Shares outstanding at December 31, 1998, excluding common
stock equivalents, totaled 26.9 million shares.
Impact of New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133 is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not yet completed its evaluation of this statement, but does not
anticipate a material impact on its consolidated financial statements from the
adoption of this accounting standard.
Year 2000 Issues
In mid-1997, the Company started a Year 2000 date conversion project to
address all necessary code changes, testing and implementation for all of its
computer systems. Concurrently, the Company sent inquiries to its suppliers and
other key third parties to assess their ability to become Year 2000 compliant in
a timely manner. The internal evaluation stage is completed except for a number
of personal computers, and the Company is still awaiting responses from some
third parties. The implementation phase is in progress.
Many of the Company's computer systems rely on purchased software for which
the Company pays a maintenance fee. The maintenance fee covers the cost of
system upgrades, including the update for Year 2000 issues. The Company's
financial reporting system is expected to be Year 2000 compliant by the end of
the first quarter of 1999 through the use of software upgrades performed as part
of the periodic upgrade process. The Company is relying on its vendor to bring
the Company's network system and servers into Year 2000 compliance by April 30,
1999. Evaluation of the Company's personal computer equipment should be
completed by April 30, 1999, with remediation to be completed by June 30, 1999.
The Company also replaced its headquarters telecommunications system as a
result of office infrastructure changes. The new system is Year 2000 compliant.
With respect to the Company's non-information technology systems, the
Company is still in the process of evaluating the presence of imbedded date
chips in some of its plant machinery and equipment, and expects that its review
will be completed by April 30, 1999. Any remediation will be completed by June
30, 1999.
Costs and expenses incurred to date in addressing the Year 2000 issue have
not been material, and based upon the Company's assessment and remediation
efforts to date, future costs of conversion or upgrades are not expected to be
material.
<PAGE>
The Company does not believe that there is a material risk to its business
or financial condition related to its own systems from Year 2000 issues, but the
Company has no control over the ability of its key suppliers and other key third
parties to achieve Year 2000 compliance in a timely manner. For example, an
interruption in the supply of power to its plants and the inability to ship the
Company's products by rail are both issues that could have severe adverse
consequences to the Company's ability to carry on its business at current profit
levels. Should rail service become temporarily unavailable, the Company would
likely ship product by truck, but at a higher cost. A prolonged interruption in
the power supply to its major plants, in particular its absorbent polymer plants
in Aberdeen, Mississippi, and in the United Kingdom, however, is a risk that is
difficult to minimize.
While the Company continues to focus on solutions for the Year 2000 issues,
and expects to be Year 2000 compliant in a timely manner, a contingency plan is
being developed. Such plan is intended to address the Company's response should
it, or materially significant third parties, fail to achieve Year 2000
compliance in a timely manner. The contingency plan is expected to be finalized
by September 30, 1999.
The Company's expectations about future costs necessary to achieve Year
2000 compliance, the impact on its operations and its ability to bring each of
its systems into Year 2000 compliance are forward looking statements subject to
a number of uncertainties that could cause actual results to differ materially.
Such factors include the following: (i) the Company has no control over the
ability of its key suppliers and other third parties to achieve Year 2000
compliance; (ii) the nature and number of systems that require remediation may
exceed the Company's expectations in terms of complexity and scope; (iii) the
Company may not be able to complete all remediation and testing necessary in a
timely manner; and (iv) the Company may not be successful in properly
identifying all systems and programs that contain two-digit year codes. The
Company's systems disaster recovery planning is a comprehensive, ongoing
process, which is updated as products are developed, tested and modified.
Disaster recovery for financial and other strategic systems is provided at
alternative locations serviced by third parties, or at Company-maintained
facilities.
Conversion to Euro
On January 1, 1999, 11 European Union member states adopted the euro as
their common national currency. From that date until January 1, 2002 (the
transition period) either the euro or a participating country's currency will be
accepted as legal tender. Beginning on January 1, 2002, euro-denominated bills
and coins will be issued, and by July 1, 2002, only euro currency will be used.
Management continues to address the strategic, financial, legal and systems
issues related to the various phases of transition. While the Company does not
believe the ultimate costs of conversion will be material to its earnings, cash
flow or financial position, every effort is being made to address customer and
business needs on a timely basis and anticipate and prevent any complications
during the transition period.
Forward Looking Statements
Certain statements made from time to time by the Company, including
statements in the Management's Discussion and Analysis section above, constitute
"forward-looking statements" made in reliance upon the safe harbor contained in
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements relating to the Company or its
operations that are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions, and statements relating to
anticipated growth, levels of capital expenditures, future dividends, expansion
into global markets and the development of new products. Such forward-looking
statements are not guarantees
<PAGE>
of future performance and involve risks and uncertainties. The Company's actual
results, performance or achievements could differ materially from the results,
performance or achievements expressed in, or implied by, these forward-looking
statements as a result of various factors, including without limitation, the
following:
Growth Rate of Absorbent Polymer Operations
A significant part of our growth in sales and profit during the last five
years has come from sales of superabsorbent polymers ("SAP"). Our sales of SAP
have increased in part because newer diaper designs use larger amounts of SAP
and because of growth in our sales to international markets. Our ability to
continue this growth depends on several factors, including the following:
our ability to retain key clients;
the continued use of larger amounts of SAP in new diaper designs;
the continued growth in sales to international markets;
growth in sales to manufacturers of brand name products; and
acceptance of new applications for SAP which we have developed.
There can be no assurance that our sales of SAP will continue to grow in
the future or remain at current levels.
Dependence on Large Absorbent Polymer Customers
Our two largest absorbent polymer customers accounted for approximately 48%
of our absorbent polymer sales in 1998 and our four largest absorbent polymer
customers accounted for approximately 66% of such sales. We do not usually enter
into long-term contracts with our absorbent polymer customers. These customers
generally have the right to terminate their relationship with us with little or
no notice. We cannot assure that we will be able to maintain our current level
of sales to our four largest absorbent polymer customers or any other customer
in the future.
Many diaper manufacturers, including some of our customers, frequently
change their diaper designs. During this process, many diaper manufacturers
review the types of SAP available to determine the type of SAP best suited for
their new diaper design. Some of our customers may elect to use the SAP of one
of our competitors in their new diaper designs. The termination of our
relationship with any of our significant absorbent polymer customers or a
material reduction in the SAP sold to such customers could adversely affect our
business and future financial results.
Competition
Absorbent Polymers. The absorbent polymers market is very competitive. Our
United States operations compete with approximately four manufacturers and at
least three importers. Our United Kingdom operations compete with numerous
manufacturers. Two of our competitors have more production capability and
several producers have greater resources. In addition, several of our
competitors also produce acrylic acid, which is the primary cost component of
SAP. The cost of acrylic acid to these competitors may be significantly less
than the price we pay for acrylic acid. We believe competition in our absorbent
polymers segment is primarily a matter of product quality and price. If we fail
to compete successfully based on these or other factors, we may lose customers
or fail to attract new customers and our business and future financial results
could be materially and adversely affected. Minerals. The minerals market is
very competitive. We believe competition is essentially a matter of product
quality, price, delivery, service and technical support. Several of our
competitors in the United States market are larger and have substantially
greater financial resources. If we fail to compete successfully based on these
or other factors, we may lose customers or fail to recruit new customers and our
business and future financial results could be materially and adversely
affected.
<PAGE>
Technology
We believe our success and ability to compete in the absorbent polymers
segment depends, to a large extent, on our proprietary production process. We
rely on a combination of trade secret, trademark, and other intellectual
property laws to protect this proprietary technology. However, we may have
difficulty monitoring the unauthorized use of our proprietary technology and the
steps we have taken to protect it may not be adequate. Any misappropriation of
our proprietary technology could have a material adverse effect on our business
or future financial results. In addition, if any of our competitors become able
to produce a more effective or cheaper SAP, demand for our SAP products may
decrease or be eliminated.
Reliance on Metalcasting and Construction Industries
Approximately 49% of our minerals segment's sales and 64% of our
environmental segment's sales in 1998 were to the metalcasting and construction
markets, respectively. The metalcasting and construction markets depend heavily
upon the strength of the domestic and international economies. If these
economies weaken, demand for products from our minerals segment by the
metalcasting market and from our environmental segment for the construction
markets may decline and our business or future financial results may be
adversely affected.
Regulatory and Legal Matters
Our operations are subject to various federal, state, local and foreign
laws and regulations relating to the environment and to health and safety
matters. Substantial penalties may be imposed if we violate certain of these
laws and regulations. If these laws or regulations are changed or interpreted
differently in the future, it may become difficult or expensive for us to
comply. In addition, investigations or evaluations of our products by government
agencies may require us to adopt additional safety measures or precautions. If
our costs to comply with such laws and regulations in the future materially
increase, our business and future financial results could be materially and
adversely affected. The Company may be subject to adverse litigation results, as
well as, future changes in laws and regulations which may negatively impact its
operations and profits.
Availability of Raw Materials
Acrylic acid is our primary cost component in manufacturing SAP. Acrylic
acid is only available from a limited number of suppliers. If we become unable
to obtain a sufficient supply of SAP at a reasonable price, our business and
future financial results could be materially and adversely affected.
<PAGE>
Risks of International Expansion
An important part of our business strategy is to expand internationally. We
intend to seek acquisitions, joint ventures and strategic alliances globally.
Currently, our business outside of the United States represents approximately
47% of our consolidated sales. The approximate breakdown of the sales outside of
the United States for 1998 was as follows: Europe 64%; Latin America (including
Mexico) 22%; Asia 8%; Africa and the Middle East 4%; and other 2%. As we expand
internationally, we will be subject to increased risks, which may include the
following:
currency exchange or price control laws;
currency translation adjustments;
political and economic instability;
unexpected changes in regulatory requirements;
tariffs and other trade barriers;
longer accounts receivable collection cycles; and
potentially adverse tax consequences.
The above listed events could result in sudden, and potentially prolonged,
changes in demand for the Company's products. Also, we may have difficulty
enforcing agreements and collecting accounts receivable through a foreign
country's legal system. At December 31, 1998, approximately 63% of the gross
accounts receivable were due from customers outside of the United States and
Canada. The breakdown of the overseas balance was as follows: Europe 51%; Latin
America (including Mexico) 33%; Asia 10%; and Africa and the Middle East 6%.
Volatility of Stock Price
The stock market has been extremely volatile in recent years. These broad
market fluctuations may adversely affect the market price of our common stock.
In addition, factors such as the following may have a significant effect on the
market price of our common stock:
fluctuations in our financial results;
our introduction of new services or products;
announcements of acquisitions, strategic alliances or joint ventures by us,
our customers or our competitors;
changes in analysts' recommendations regarding our common stock; and
general economic conditions.
There can be no assurance that the price of our common stock will increase
in the future or be maintained at its recent levels.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a multinational corporation that manufactures and markets products in
countries throughout the world, the Company is subject to certain market risks,
including foreign currency, interest rates and government actions. The Company
uses a variety of practices to manage these market risks, including, when
considered appropriate, derivative financial instruments. The Company uses
derivative financial instruments only for risk management and does not use them
for trading or speculative purposes.
<PAGE>
Exchange Rate Sensitivity
The Company is exposed to potential gains or losses from foreign currency
fluctuations affecting net investments and earnings denominated in foreign
currencies. The Company's primary exposures are to changes in exchange rates for
the U.S. dollar versus the German mark, the British pound, the Canadian dollar,
the Australian dollar, the Mexican peso, the Thai baht and the Korean won.
The Company's various currency exposures often offset each other, providing
a natural hedge against currency risk. Periodically, specific foreign currency
transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with
forward contracts to reduce the foreign currency risk. Gains and losses on these
foreign currency hedges are included in the basis of the underlying hedged
transactions. As of December 31, 1998, the Company had outstanding foreign
currency contracts to sell the equivalent of $3.0 million of British pounds to
hedge raw material purchases. The fair value of these agreements results in an
immaterial unrecognized loss at December 31, 1998.
Interest Rate Sensitivity
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for debt obligations. Weighted average variable rates are based
on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are primarily denominated
in both U.S. dollars (US), German marks (DM), British pounds (BP), Norwegian
kroner (NOK), Singapore dollar (SDG), Korean won (WON) and Thai baht (THB) as
indicated in parentheses.
<TABLE>
<CAPTION>
Expected Maturity Date
1999 2000 2001 2002 2003 Thereafter Total Fair
Value
(US$ Equivalent in millions)
Long-term debt:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate (US).......... $ 14,340 - $ 5,000 $ 5,000 - $ 15,000 $ 39,340 42,271
Average interest rate.... 7.8% - 7.8% 7.8% - 8.1% - -
Variable rate (US)....... 27,233 117 - - - - 27,350 27,350
Average interest rate.... 5.8% 5.3% - - - - - -
Variable rate (BP)....... 26,009 - - - - - 26,009 26,009
Average interest rate.... 6.8% - - - - - - -
Variable rate (DM)....... 16,181 - - - - - 16,181 16,181
Average interest rate.... 3.6% - - - - - - -
Variable rate (NOK)...... 646 518 - - - - 1,164 1,164
Average interest rate.... 10.2% 9.9% - - - - - -
Variable rate (SDG)...... 7 5 - - - - 12 12
Average interest rate.... 5.4% 5.4% - - - - - -
Variable rate (WON)...... 416 - - - - - 416 416
Average interest rate 9.2% - - - - - - -
Variable rate (THB)...... 2,802 - - - - - 2,802 2,802
Average interest rate.... 9.9% - - - - - - -
87,634 640 5,000 5,000 - 15,000 113,274 116,205
Debt to be refinanced.... (70,628) 3,218 - - 67,410 - - -
Total......................... $ 17,006 $ 3,858 $ 5,000 $ 5,000 $67,410 $ 15,000 $113,274 $116,205
</TABLE>
<PAGE>
The Company periodically uses interest rate swaps to manage interest rate
risk on debt securities. These instruments allow the Company to exchange
variable rate debt into fixed rate or fixed rate debt into variable rate.
Interest rate differentials paid or received on these arrangements are
recognized as adjustments to interest expense over the life of the agreements.
At December 31, 1998, the Company had one interest rate swap outstanding, which
expires in September 2002, in a notional amount of $15.0 million. The fair value
of this agreement results in an unrecognized loss at December 31, 1998, of $738.
The Company is exposed to credit risk on certain assets, primarily cash
equivalents, short-term investments and accounts receivable. The credit risk
associated with cash equivalents and short-term investments is mitigated by the
Company's policy of investing in securities with high credit ratings and
investing through major financial institutions with high credit ratings.
The Company provides credit to customers in the ordinary course of business
and performs ongoing credit evaluations. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base. The Company currently believes its
allowance for doubtful accounts is sufficient to cover customer credit risks.
The Company's accounts receivable financial instruments, other than those
discussed above, are carried at amounts that approximate fair value.
Commodity Price Sensitivity
Acrylic acid is the most significant cost component in the production of
SAP. The Company purchases a significant amount of acrylic acid under long-term
contracts. The terms of these contracts include a linkage to the cost of
propylene. The Company has not hedged against fluctuations in the cost of
propylene.
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.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The table below lists the names and ages of all Directors and all positions
each person holds with the Company or other organizations.
Board of Directors of the Registrant
Arthur Brown, 58 (1, 2)
Chairman, President and Chief Executive Officer of Hecla Mining Company, a miner
and processor of silver, gold and industrial minerals. Director since 1990.
Robert E. Driscoll, III, 60 (1, 2)
Retired Dean and Professor of Law, University of South Dakota. Director since
1985.
Raymond A. Foos, 70 (1, 2)
Retired Chairman of the Board, President and Chief Executive Officer of Brush
Wellman, Inc. a manufacturer of beryllium and specialty materials. Director
since 1981.
John Hughes, 56 (3)
Chairman and Chief Executive Officer of AMCOL International Corporation.
Director since 1984.
James A. McClung, 61 (1, 3)
Vice President and Executive Officer of FMC Corporation, a diversified producer
of chemicals, machinery and other products for industry, government and
agriculture. Director since May 1997.
Jay D. Proops, 57 (2, 3, 4)
Private investor and former Vice Chairman and co-founder of The Vigoro
Corporation. Also a Director of Great Lakes Chemical Corporation. Director since
1995.
C. Eugene Ray, 66 (1, 2, 3, 4)
Retired Executive Vice President - Finance of Signode Industries, Inc. a
manufacturer of industrial strapping products. Director since 1981.
Clarence O. Redman, 56 (2, 3)
Secretary of AMCOL International Corporation. Of counsel to the law firm of
Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the
Company. Prior thereto, Mr. Redman was an individual and corporate partner of
the law firm of Keck, Mahin & Cate as the sole shareholder and President of
Clarence Owen Redman Ltd. Mr. Redman and his professional corporation also
served as Chief Executive Officer of Keck, Mahin & Cate until September 1997. In
December 1997, Keck, Mahin & Cate filed a voluntary petition in bankruptcy under
Chapter 11 of the United States Bankruptcy Code. Also a director of U.S. Forest
Industries, Inc., a forest products company engaged in the production of wood
products used in residential, commercial and industrial applications. Director
since 1989.
Paul G. Shelton, 49 (3)
Senior Vice President and Chief Financial Officer of AMCOL International
Corporation. Director since 1988.
<PAGE>
Dale E. Stahl, 51 (2, 3, 4)
President and Chief Operating Officer of Gaylord Container Corporation, a
manufacturer and distributor of brown paper and packaging products. Director
since 1995.
Lawrence E. Washow, 46 (3)
President and Chief Operating Officer of AMCOL International Corporation.
Director since February 1998.
Audrey L. Weaver, 44 (2)
Private investor. Director since February 1997.
Paul C. Weaver, 36 (3, 4)
Managing partner of Consumer Aptitudes, Inc., a marketing research firm.
Director since 1995. .........
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
(4) Member of Nominating Committee
Additional information regarding the directors of the Company is included
under the caption "Nominees for Director," "Information About Members of the
Board" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's proxy statement to be dated on or about March 29, 1999, 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
of Named Officers" in the Company's proxy statement to be dated on or about
March 29, 1999, 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 "Beneficial
Owners of More than 5% of AMCOL Stock" in the Company's proxy statement to be
dated on or about March 29, 1999, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding the above is included under the captions "Nominees
for the Board of Directors" and "Information About Continuing Members of the
Board" in the Company's proxy statement to be dated on or about March 29, 1999,
and is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. See Index to Financial Statements.
2. See 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.
<PAGE>
Item 14(a) Index to Financial Statements and Financial Statement Schedules
Page
(1) Financial Statements:
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets, December 31, 1998 and 1997..... F-3
Consolidated Statements of Operations,
Years ended December 31, 1998, 1997 and 1996................ F-4
Consolidated Statements of Comprehensive Income,
Years ended December 31, 1998, 1997 and 1996................ F-4
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1998, 1997 and 1996............ ... F-5
Consolidated Statements of Cash Flows,
Years ended December 31, 1998, 1997 and 1996................ F-6
Notes to Consolidated Financial Statements.................. F-7
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts............. F-24
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.
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
AMCOL International Corporation:
We have audited the consolidated financial statements of AMCOL
International Corporation 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 AMCOL
International Corporation and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, 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 LLP
Chicago, Illinois
February 26, 1999
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS December 31,
1998 1997
Current assets:
<S> <C> <C>
Cash and cash equivalents......................................................... $ 2,758 $ 3,077
Accounts receivable:
Trade, less allowance for doubtful accounts of $2,999 and $2,547.............. 96,446 89,054
Other......................................................................... 3,628 557
Inventories....................................................................... 52,093 49,389
Prepaid expenses.................................................................. 5,444 5,109
Current deferred tax asset........................................................ 3,707 3,084
Total current assets.......................................................... 164,076 150,270
Investment in and advances to joint ventures........................................... 4,556 3,035
Property, plant, equipment, and mineral rights and reserves:
Land and mineral rights and reserves.............................................. 13,421 11,865
Depreciable assets................................................................ 312,260 306,610
325,681 318,475
Less accumulated depreciation..................................................... 154,203 143,151
171,478 175,324
Other assets:
Goodwill, less accumulated amortization of $5,382 and $3,599...................... 15,432 17,175
Other intangible assets, less accumulated amortization of $11,290 and $9,806...... 2,322 5,205
17,754 22,380
$357,864 $351,009
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY December 31,
1998 1997
Current liabilities:
<S> <C> <C>
Current maturities of long-term obligations....................................... $ 17,006 $ 14,856
Current capital lease obligations................................................. 111 168
Accounts payable.................................................................. 21,969 24,902
Accrued income taxes.............................................................. 3,478 1,677
Accrued liabilities............................................................... 31,519 25,638
Total current liabilities..................................................... 74,083 67,241
Long-term obligations:
Long-term debt.................................................................... 96,268 94,314
Long-term capital lease obligations............................................... - 111
96,268 94,425
Deferred income tax liabilities........................................................ 7,505 6,690
Other liabilities...................................................................... 7,094 6,710
14,599 13,400
Stockholders' equity:
Common stock, par value $.01 per share. Authorized 50,000,000 shares, issued
32,015,796 shares............................................................. 320 320
shares
Additional paid-in capital........................................................ 76,238 75,939
Retained earnings................................................................. 127,262 111,588
Cumulative translation adjustments................................................ (1,756) (1,749)
202,064 186,098
Less:
Treasury stock (5,146,399 shares in 1998 and 3,541,598 shares in 1997)............ (29,150) (10,155)
172,914 175,943
$357,864 $351,009
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net sales....................................................................... $ 521,530 $ 477,060 $ 405,347
Cost of sales................................................................... 410,359 376,319 321,036
Gross profit............................................................... 111,171 100,741 84,311
General, selling and administrative expenses.................................... 68,951 59,272 51,974
Operating profit........................................................... 42,220 41,469 32,337
Other income (expense):
Interest expense, net...................................................... (7,933) (8,628) (8,450)
Other, net................................................................. 140 (398) (670)
(7,793) (9,026) (9,120)
Income before income taxes and minority interest........................... 34,427 32,443 23,217
Income taxes.................................................................... 12,350 11,399 7,979
Income before minority interest............................................ 22,077 21,044 15,238
Minority interest............................................................... 8 - (13)
Net income................................................................. $ 22,085 $ 21,044 $ 15,225
Earnings per share
Basic...................................................................... $ .79 $ .74 $ .53
Diluted.................................................................... $ .78 $ .72 $ .52
</TABLE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net income...................................................................... $ 22,085 $ 21,044 $ 15,225
Other comprehensive income:
Foreign currency translation adjustment....................................... (7) (4,617) 5,219
Comprehensive income............................................................ $ 22,078 $ 16,427 $ 20,444
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Common Stock
Number Amount Additional Retained Cumulative Treasury Total
of Paid-in Earnings Translation Stock
Shares (1) Capital Adjustment
Balance at December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995................... 32,015,796 $213 $74,967 $86,703 ($2,351) ($4,038) $155,494
Net income.................. - - - 15,225 - - 15,225
Cash dividends ($.19 per
share)................. - - - (5,349) - - (5,349)
Cumulative translation
adjustment............. - - - - 5,219 - 5,219
Purchase of 465,126
treasury shares........ - - - - - (4,186) (4,186)
Sales of 261,331 treasury
shares................. - - 609 - - 392 1,001
Balance at December 31,
1996................... 32,015,796 213 75,576 96,579 2,868 (7,832) 167,404
Net income.................. - - - 21,044 - - 21,044
Cash dividends ($.21 per
share)................. - - - (5,928) - - (5,928)
Cumulative translation
adjustment............. - - - - (4,617) - (4,617)
Three-for-two stock split... 107 (107) -
Purchase of 254,132
treasury shares........ - - - - - (2,921) (2,921)
Sales of 230,808 treasury
shares................. - - 363 - - 598 961
Balance at December 31,
1997................... 32,015,796 320 75,939 111,588 (1,749) (10,155) 175,943
Net income.................. - - - 22,085 - - 22,085
Cash dividends ($.23 per
share)................. - - - (6,411) - - (6,411)
Cumulative translation
adjustment............. - - - - (7) - (7)
Purchase of 1,829,041
treasury shares........ - - - - - (19,898) (19,898)
Sales of 224,240 treasury
shares................. - - 299 - - 903 1,202
Balance at December 31,
1998................... 32,015,796 $ 320 $76,238 $127,262 ($1,756) ($29,150) $ 172,914
<FN>
(1) Reflects three-for-two stock split in December 1997, effected in the nature of a stock dividend.
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
Cash flow from operating activities:
<S> <C> <C> <C>
Net income............................................................. $22,085 $21,044 $ 15,225
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion, and amortization.......................... 33,122 31,912 27,907
Increase (decrease) in allowance for doubtful accounts............. 452 (116) 1,062
Increase (decrease) in deferred income taxes....................... 815 177 (306)
Increase (decrease) in other noncurrent liabilities................ 311 777 (589)
(Gain) loss on sale of depreciable assets.......................... (72) 111 63
(Increase) decrease in current assets:
Accounts receivable........................................... (10,915) (8,678) (15,450)
Inventories................................................... (2,704) 6,925 (6,431)
Prepaid expenses.............................................. (335) (607) 853
Current deferred tax asset.................................... (623) 2 (304)
Increase (decrease) in current liabilities:
Accounts payable.............................................. (2,933) 513 5,613
Accrued income taxes.......................................... 1,801 1,412 265
Accrued liabilities........................................... 5,881 7,391 5,211
Net cash provided by operating activities................ 46,885 60,863 33,119
Cash flow from investing activities:
Proceeds from sale of depreciable assets............................... 556 787 889
Sale of product line and mineral reserves.............................. 13,176 - 5,888
Acquisition of land, mineral reserves, and depreciable assets.......... (37,678) (32,652) (34,339)
Advances to joint ventures............................................. (1,521) (1,233) (1,495)
(Increase) decrease in other assets.................................... 369 343 (1,008)
Net cash used in investing activities..................... (25,098) (32,755) (30,065)
Cash flow from financing activities:
Proceeds from issuance of debt......................................... 16,697 2,443 10,345
Principal payments of debt and capital lease obligations............... (12,761) (20,818) (3,606)
Proceeds from sale of treasury stock................................... 1,202 961 1,001
Purchase of treasury stock............................................. (19,898) (2,921) (4,186)
Dividends paid......................................................... (6,411) (5,928) (5,349)
Other.................................................................. - - 105
Net cash used in financing activities..................... (21,171) (26,263) (1,690)
Rate change on cash......................................................... (935) (1,822) (198)
Net increase (decrease) in cash and cash equivalents........................ (319) 23 1,166
Cash and cash equivalents at beginning of year.............................. 3,077 3,054 1,888
Cash and cash equivalents at end of year.................................... $ 2,758 $ 3,077 $ 3,054
Supplemental disclosures of cash flows information:
Cash paid for:
Interest............................................................... $ 7,615 $ 8,908 $ 9,029
Income taxes .......................................................... $ 10,301 $ 9,479 $ 6,759
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies
Company Operations
AMCOL International Corporation (the Company) may be divided into three
principal categories of operations: absorbent polymers, minerals and
environmental. The Company also operates a transportation business primarily for
delivery of its own products. In 1998, the Company's revenues are derived 42%
from absorbent polymers, 32% from minerals, 20% from environmental and 6% from
transportation operations. The Company's sales were approximately 53% domestic
and 47% outside of the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its foreign and domestic subsidiaries. All subsidiaries more than 50% owned
by the Company are consolidated. All subsidiaries are wholly owned, except India
(50%), Mexico (49%), China (49%), Egypt (25%) and Japan (19%). The Mexican,
Chinese and Egyptian joint ventures were accounted for using the equity method
in 1998. Prior thereto, the Chinese and Mexican venture were recorded at cost.
The difference between the results based on the cost method and the equity
method is immaterial. The Japanese investment is recorded at cost. All material
intercompany balances and transactions, including profits on inventories, have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Translation of Foreign Currencies
The assets and liabilities of subsidiaries located outside of the United
States are translated into U.S. dollars 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. Cost is determined
by the first-in, first-out (FIFO) or moving average methods. 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.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
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 five to 40 years. Other intangibles, including trademarks and
noncompete agreements, are amortized on the straight-line method over periods of
up to 10 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.
Research and Development
Research and development costs, included in general, selling and
administrative expenses, were approximately $6,839, $6,273 and $4,962 for the
years ended December 31, 1998, 1997 and 1996.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted
average of common shares outstanding. Diluted earnings per share is computed by
dividing net income by the weighted average common shares outstanding after
consideration of the dilutive effect of stock options. Earnings per share
calculations reflect a three-for-two stock split in December 1997, effected in
the nature of a stock dividend. A reconciliation between the number of shares
used to compute basic and diluted earnings per share follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted average of common shares outstanding for the year.............. 27,918,391 28,488,527 28,697,736
Dilutive impact of stock options........................................ 467,469 636,641 596,753
Weighted average of common and common equivalent shares for the year.... 28,385,860 29,125,168 29,294,489
Common shares outstanding at December 31................................ 26,869,397 28,474,198 28,497,522
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
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.
Impairment of Long-Lived Assets
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Stock Option Plans
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No.123, "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans.
Reclassifications
Certain items in the 1997 and 1996 consolidated financial statements have
been reclassified to comply with the consolidated financial statement
presentation for 1998.
(2) Business Segment and Geographic Area Information
The Company operates in three major industry segments: absorbent polymers,
minerals and environmental. The Company also operates a transportation business.
The absorbent polymers segment produces and distributes superabsorbent polymers
primarily for use in consumer markets. The minerals segment mines, processes and
distributes clays and products with similar applications to various industrial
and 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.
The Company identifies segments based on management responsibility and the
nature of the business activities of each component of the Company. Intersegment
sales are insignificant. The Company measures segment profit as operating
profit. Operating profit is defined as sales less cost of sales and general,
selling and administrative expenses related to a segment's operations, but costs
do not include interest or income taxes.
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.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(2) Business Segment and Geographic Area Information (Continued)
Export sales included in the United States were approximately $70,442,
$54,863 and $39,610 for the years ended December 31, 1998, 1997 and 1996.
Procter & Gamble, a customer of the absorbent polymer segment, accounted for
approximately 15% of consolidated sales in 1998.
The following summaries set forth certain financial information by business
segment and geographic area for the years ended December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
1998 1997 1996
Business Segment:
Revenues:
<S> <C> <C> <C>
Absorbent polymers............................................ $ 221,093 $ 195,944 $ 153,866
Minerals...................................................... 164,049 162,895 145,623
Environmental................................................. 104,501 88,421 81,480
Transportation................................................ 31,887 29,800 24,378
Total..................................................... $521,530 $477,060 $ 405,347
Operating profit:
Absorbent polymers............................................ $ 33,251 $ 28,863 $ 19,627
Minerals...................................................... 10,131 11,634 7,998
Environmental................................................. 9,194 10,268 12,090
Transportation................................................ 1,635 1,642 1,236
Corporate..................................................... (11,991) (10,938) (8,614)
Total..................................................... $ 42,220 $ 41,469 $ 32,337
Assets:
Absorbent polymers............................................ $ 131,914 $ 135,076 $ 148,405
Minerals...................................................... 121,085 129,484 123,591
Environmental................................................. 83,674 68,268 65,360
Transportation................................................ 932 1,209 1,167
Corporate..................................................... 20,259 16,972 12,185
Total..................................................... $ 357,864 $ 351,009 $ 350,708
Depreciation, depletion and amortization:
Absorbent polymers............................................ $ 14,763 $ 14,032 $ 11,179
Minerals...................................................... 10,306 11,110 11,520
Environmental................................................. 6,249 5,126 3,908
Transportation................................................ 70 66 43
Corporate..................................................... 1,734 1,578 1,257
Total..................................................... $ 33,122 $ 31,912 $ 27,907
Capital expenditures:
Absorbent polymers............................................ $ 9,640 $ 4,802 $ 17,358
Minerals...................................................... 12,396 14,494 10,397
Environmental................................................. 11,175 6,598 5,414
Transportation................................................ 30 112 26
Corporate..................................................... 4,437 6,646 1,144
Total..................................................... $ 37,678 $ 32,652 $ 34,339
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION 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>
1998 1997 1996
Geographic area:
Sales to unaffiliated customers from:
<S> <C> <C> <C>
North America...................................................... $ 349,815 $ 343,114 $ 281,678
Europe............................................................. 163,540 131,102 121,450
Asia 5,812 - -
Australia.......................................................... 2,363 2,844 2,219
Total......................................................... $ 521,530 $ 477,060 $ 405,347
Sales or transfers between geographic areas:
North America...................................................... $ 5,384 $ 3,575 $ 15,858
Europe............................................................. 27 - -
Total......................................................... $ 5,411 $ 3,575 $ 15,858
Operating profit from:
North America...................................................... $ 32,519 $ 26,156 $ 23,757
Europe............................................................. 9,491 15,003 8,667
Australia.......................................................... 162 305 202
Asia 48 - -
Adjustments and eliminations....................................... - 5 (289)
Total......................................................... $ 42,220 $ 41,469 $ 32,337
Identifiable assets in:
North America...................................................... $ 225,044 $ 244,581 $ 243,390
Europe............................................................. 114,573 100,671 105,909
Australia.......................................................... 1,940 2,102 2,069
Asia 16,307 3,780 -
Adjustments and eliminations....................................... - (125) (660)
Total......................................................... $ 357,864 $ 351,009 $ 350,708
</TABLE>
(3) Inventories
<TABLE>
<CAPTION>
Inventories consisted of: 1998 1997
<S> <C> <C>
Advance mining....................................................................... $ 2,412 $ 2,199
Crude stockpile inventories.......................................................... 15,174 15,564
In-process inventories............................................................... 19,113 16,912
Other raw material, container, and supplies inventories.............................. 15,394 14,714
$ 52,093 $ 49,389
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION 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
1998 1997 Annual Rates
<S> <C> <C> <C>
Mineral rights and reserves..................................... $ 6,622 $ 5,931
Other land...................................................... 6,799 5,934
Buildings and improvements...................................... 57,305 57,929 4.9% to 25.0%
Machinery and equipment......................................... 254,955 248,681 10.0% to 50.0%
$325,681 $318,475
</TABLE>
Depreciation and depletion were charged to income as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Depreciation expense........................................................ $29,617 $28,922 $25,249
Depletion expense........................................................... 367 368 593
$29,984 $29,290 $25,842
</TABLE>
(5) Income Taxes
The components of the provision for domestic and foreign income tax expense
for the years ended December 31, 1998, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
Income before income taxes and minority interest:
<S> <C> <C> <C>
Domestic............................................................... $ 30,469 $ 26,023 $ 21,910
Foreign................................................................ 3,958 6,420 1,307
$ 34,427 $ 32,443 $ 23,217
Provision for income taxes:
Domestic Federal
Current............................................................. $ 10,650 $ 8,818 $ 6,285
Deferred............................................................ (2,562) (1,027) (313)
Domestic State
Current............................................................. 1,318 1,471 837
Deferred............................................................ (256) (118) (26)
Foreign
Current............................................................. 190 931 1,467
Deferred............................................................ 3,010 1,324 (271)
$ 12,350 $ 11,399 $ 7,979
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION 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, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
Deferred tax assets:
<S> <C> <C>
Accounts receivable, due to allowance for doubtful accounts........................ $ 1,061 $ 767
Inventories, due to additional costs inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 and reserve for obsolete inventories....................... 686 899
Net operating loss carryforward, principally foreign............................... 1,158 3,915
Minimum pension liability.......................................................... 1,759 1,313
Other.............................................................................. 4,068 2,890
Total deferred tax assets....................................................... 7,932 9,784
Valuation allowance................................................................ (800) -
Net deferred tax assets......................................................... 7,132 9,784
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation............................ (8,873) (10,969)
Land and mineral reserves, due to differences in depletion......................... (1,969) (2,033)
Inventories, due to change in accounting method from LIFO to FIFO.................. (366) (549)
Other.............................................................................. 278 161
Total deferred tax liabilities.................................................. (10,930) (13,390)
Net deferred tax liability...................................................... $ (3,798) ($ 3,606)
</TABLE>
The Company recorded a valuation allowance in 1998 for the tax effect of
the net operating loss of its U.K. minerals unit that resulted in a net
operating loss carryforward. It is more likely than not that future operations
will generate sufficient taxable income to realize the net deferred tax assets.
The following analysis reconciles the statutory Federal income tax rate to
the effective tax rates:
<TABLE>
<CAPTION>
1998 1997 1996
Amount Percent Amount Percent Amount Percent
of Pretax of Pretax of Pretax
Income Income Income
Domestic and foreign taxes on income at
<S> <C> <C> <C> <C> <C> <C>
United States statutory rate............. $ 12,049 35.0% $ 11,355 35.0% $ 8,126 35.0%
Increase (decrease) in taxes resulting from:
Percentage depletion.................. (1,017) (3.0) (595) (1.8) (263) (1.1)
State taxes........................... 1,318 3.8 1,471 4.5 847 3.7
FSC commission........................ (1,353) (3.9) (1,158) (3.6) (1,106) (4.8)
Valuation allowance................... 800 2.3 - - - -
Other................................. 553 1.7 326 1.0 375 1.6
$ 12,350 35.9% $ 11,399 35.1% $ 7,979 34.4%
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(6) Long-term Debt
<TABLE>
<CAPTION>
Long-term debt consisted of the following: December 31,
1998 1997
<S> <C> <C>
Short-term debt supported by revolving credit agreement................................. $ 67,410 $ 52,817
Term note, at 9.68% (Series D).......................................................... 2,840 5,700
Term note, at 7.36% (Series A).......................................................... 11,500 21,000
Term note, at 7.83% (Series B).......................................................... 10,000 10,000
Term note, at 8.10% (Series C).......................................................... 15,000 15,000
Other notes payable..................................................................... 6,524 4,653
113,274 109,170
Less current portion.................................................................... 17,006 14,856
$ 96,268 $ 94,314
</TABLE>
The Company has a committed $125,000 revolving credit agreement, which
matures October 31, 2003, with an option to extend for three one-year periods.
As of December 31, 1998, there was $58,173 available in unused lines of credit.
The revolving credit note is a multi-currency agreement, which allows the
Company to borrow at an adjusted LIBOR rate plus .25% to .75%, depending upon
debt to capitalization ratios and the amount of the credit line used.
Maturities of long-term debt at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter
Short-term debt supported by
<S> <C> <C> <C> <C> <C> <C>
revolving credit agreement...... $ - $ - $ - $ - $67,410 $ -
Term note, at 9.68% (Series D)...... 2,840 - - - - -
Term note, at 7.36% (Series A)...... 11,500 - - - - -
Term note, at 7.83% (Series B)...... - - 5,000 5,000 - -
Term note, at 8.10% (Series C)...... - - - - - 15,000
Other notes payable................. 2,666 3,858 - - - -
$17,006 $ 3,858 $ 5,000 $ 5,000 $67,410 $15,000
</TABLE>
The estimated fair value of the term notes above at December 31, 1998, was
$42,271 based on discounting future cash payments at current market interest
rates for loans with similar terms and maturities.
All loan agreements include covenants that 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.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(7) Market Risks and Financial Instruments
As a multinational corporation that manufactures and markets products in
countries throughout the world, the Company is subject to certain market risks,
including foreign currency, interest rates and government actions. The Company
uses a variety of practices to manage these market risks, including, when
considered appropriate, derivative financial instruments. The Company uses
derivative financial instruments only for risk management and does not use them
for trading or speculative purposes.
Exchange Rate Sensitivity
The Company is exposed to potential gains or losses from foreign currency
fluctuations affecting net investments and earnings denominated in foreign
currencies. The Company's primary exposures are to changes in exchange rates for
the U.S. dollar versus the German mark, the British pound, the Canadian dollar,
the Australian dollar, the Mexican peso, the Thai baht and the Korean won.
The Company's various currency exposures often offset each other, providing
a natural hedge against currency risk. Periodically, specific foreign currency
transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with
forward contracts to reduce the foreign currency risk. Gains and losses on these
foreign currency hedges are included in the basis of the underlying hedged
transactions. As of December 31, 1998, the Company had outstanding foreign
currency contracts to sell the equivalent of $3.0 million of British pounds to
hedge raw material purchases. The fair value of these agreements results in an
immaterial unrecognized loss at December 31, 1998.
Interest Rate Sensitivity
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for debt obligations. Weighted average variable rates are based
on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are denominated in both
U.S. dollars (US), German marks (DM), British pounds (BP), Norwegian kroner
(NOK), Singapore dollar (SDG), Korean won (WON) and Thai baht (THB) as indicated
in parentheses.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(7) Market Risks and Financial Instruments (Continued)
<TABLE>
<CAPTION>
Expected Maturity Date
1999 2000 2001 2002 2003 Thereafter Total Fair
Value
(US$ Equivalent in millions)
Long-term debt:
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate (US).......... $ 14,340 - $ 5,000 $ 5,000 - $ 15,000 $ 39,340 42,271
Average interest rate.... 7.8% - 7.8% 7.8% - 8.1% - -
Variable rate (US)....... 27,233 117 - - - - 27,350 27,350
Average interest rate.... 5.8% 5.3% - - - - - -
Variable rate (BP)....... 26,009 - - - - - 26,009 26,009
Average interest rate.... 6.8% - - - - - - -
Variable rate (DM)....... 16,181 - - - - - 16,181 16,181
Average interest rate.... 3.6% - - - - - - -
Variable rate (NOK)...... 646 518 - - - - 1,164 1,164
Average interest rate.... 10.2% 9.9% - - - - - -
Variable rate (SDG)...... 7 5 - - - - 12 12
Average interest rate.... 5.4% 5.4% - - - - - -
Variable rate (WON)...... 416 - - - - - 416 416
Average interest rate 9.2% - - - - - - -
Variable rate (THB)...... 2,802 - - - - - 2,802 2,802
Average interest rate.... 9.9% - - - - - - -
87,634 640 5,000 5,000 - 15,000 113,274 116,205
Debt to be refinanced.... (70,628) 3,218 - - 67,410 - - -
Total......................... $ 17,006 $ 3,858 $ 5,000 $ 5,000 $67,410 $ 15,000 $113,274 $116,205
</TABLE>
The Company periodically uses interest rate swaps to manage interest rate
risk on debt securities. These instruments allow the Company to exchange
variable rate debt into fixed rate or fixed rate debt into variable rate.
Interest rate differentials paid or received on these arrangements are
recognized as adjustments to interest expense over the life of the agreements.
At December 31, 1998, the Company had one interest rate swap outstanding, which
expires in September 2002, in a notional amount of $15.0 million. The fair value
of this agreement results in an unrecognized loss at December 31, 1998, of $738.
The Company is exposed to credit risk on certain assets, primarily cash
equivalents, short-term investments and accounts receivable. The credit risk
associated with cash equivalents and short-term investments is mitigated by the
Company's policy of investing in securities with high credit ratings and
investing through major financial institutions with high credit ratings.
The Company provides credit to customers in the ordinary course of business
and performs ongoing credit evaluations. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base. The Company currently believes its
allowance for doubtful accounts is sufficient to cover customer credit risks.
The Company's accounts receivable financial instruments, other than those
discussed above, are carried at amounts that approximate fair value.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(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 $3,535, $3,560 and $4,299 in 1998,
1997 and 1996, respectively.
Railroad cars and computer software under capital leases are included in
machinery and equipment as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Railroad cars and computer software................................................ $ 1,768 $ 1,768
Less accumulated amortization................................................ 1,712 1,603
$ 56 $ 165
</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, 1998:
<TABLE>
<CAPTION>
Operating Leases
Capital Domestic Foreign Total
Leases
Year ending December 31:
<S> <C> <C> <C> <C> <C>
1999.................................................. 114 3,409 393 3,802
2000.................................................. - 2,116 230 2,346
2001.................................................. - 1,640 130 1,770
2002.................................................. - 1,441 13 1,454
2003.................................................. - 1,395 - 1,395
Thereafter............................................ - 6,265 - 6,265
Total minimum lease payments................................ 114 $16,266 $ 766 $17,032
Less amount representing interest........................... 3
Present value of net minimum lease payments................. $ 111
</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 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.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(9) Employee Benefit Plans (continued)
The following tables set forth pension obligations included in the
Company's balance sheet at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Pension Benefits
1998 1997
Change in benefit obligations:
<S> <C> <C>
Beginning benefit obligation........................................................ $ 21,583 $ 18,107
Service cost........................................................................ 1,510 1,284
Interest cost....................................................................... 1,481 1,327
Plan amendment...................................................................... - 270
Actuarial loss...................................................................... 1,258 1,490
Benefits paid....................................................................... (1,050) (895)
Ending benefit obligation........................................................... $ 24,782 $ 21,583
Change in plan assets:
Beginning fair value................................................................ $ 19,685 $ 16,586
Actual return....................................................................... (209) 3,994
Company contribution................................................................ - -
Benefits paid....................................................................... (1,050) (895)
Ending fair value.................................................................. $18,426 $ 19,685
Funded status of the plan........................................................... ($ 6,356) ($ 1,898)
Unrecognized actuarial and investment (gains) losses, net........................... 2,035 (1,166)
Prior service cost.................................................................. 661 697
Transition asset.................................................................... (908) (1,045)
Accrued pension cost liability...................................................... ($ 4,568) ($ 3,412)
</TABLE>
<TABLE>
<CAPTION>
Pension cost in 1998, 1997 and 1996 was comprised of: 1998 1997 1996
<S> <C> <C> <C>
Service cost - benefits earned during the year.............................. $ 1,510 $ 1,284 $ 1,108
Interest cost on accumulated benefit obligation............................. 1,481 1,327 1,171
Expected return on plan assets.............................................. (1,733) (1,455) (1,471)
Net amortization and deferral............................................... (101) (115) (134)
Net periodic pension cost................................................... $ 1,157 $ 1,041 $ 674
</TABLE>
The Company's pension benefit plan was valued as of October 1, 1998 and
1997, respectively. The plan assets are invested in common stocks, corporate
bonds and notes, and guaranteed income contracts purchased from insurance
companies.
The actuarial assumptions for 1998 and 1997, respectively, were as follows:
the weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 6.5% and 7.0%; the rate of
increase in future compensation levels was 5.00% and 5.25%; and the expected
long-term rate of return on plan assets was 9.0% for both years.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(9) Employee Benefit Plans (continued)
In addition to the ERISA qualified plan outlined above, the Company has a
supplementary pension plan that replaces those benefits that are lost as a
result of ERISA limitations. The unfunded, accrued liability for this plan was
$636 at September 30, 1998.
The Company also has a savings plan for its U.S. 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 $1,280 in 1998, $1,233 in 1997 and $1,130 in 1996. The Company also has a
deferred compensation plan and a 401(k) restoration plan for its executives.
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) Stock Option Plans
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No.123 (FAS 123), "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the Company's stock option plans. Had
compensation cost for its stock option plans been determined consistent with FAS
123, the Company's net income would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income:........................ As reported............................. $ 22,085 $ 21,044 $ 15,225
Pro forma............................... $ 20,966 $ 20,115 $ 14,775
Basic earnings per share:.......... As reported............................. $ 0.79 $ 0.74 $ 0.53
Pro forma............................... $ 0.75 $ 0.71 $ 0.51
Diluted earnings per share:........ As reported............................. $ 0.78 $ 0.72 $ 0.52
Pro forma............................... $ 0.74 $ 0.69 $ 0.51
</TABLE>
Under the stock option plans, the exercise price of each option equals the
market price of the Company's stock on the date of the grant. For purposes of
calculating the compensation cost consistent with FAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Risk-free interest rate...................................................... 5.6% 6.2% 5.3%
Expected life of option...................................................... 6 yrs 6 yrs 6 yrs
Expected dividend yield of stock............................................. 1.7% 1.6% 1.8%
Expected volatility of stock................................................. 40% 42% 42%
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(10) Stock Option Plans (Continued)
The Company reserved 2,700,000, 1,260,000, and 510,000 shares of its common
stock for issuance of incentive and nonqualified stock options to its directors,
officers and key employees in its 1983 Incentive Stock Option Plan, 1993 Stock
Plan and 1987 Nonqualified Stock Option Plan, respectively. Options awarded
under these plans, 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
Compensation Committee of the Board of Directors on the date of grant. Options
are exercisable as they vest and expire 10 years after the date of grant, except
in the event of termination, retirement or death of the optionee, or a change in
control of the Company.
These plans are expired as of December 31, 1998, though options that were
granted prior to expiration of the plans continue to be valid until the
individual option grants expire.
<TABLE>
<CAPTION>
1983 Incentive Stock Option Plan 1998 1997 1996
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 611,184 $ 4.88 771,584 $ 4.53 1,047,641 $ 4.12
Granted...................................... - - - - - -
Exercised.................................... (130,966) 3.35 (157,115) 3.18 (253,833) 2.67
Cancelled.................................... (10,170) 6.91 (3,285) 4.84 (22,224) 6.53
Options outstanding at December 31........... 470,048 5.26 611,184 4.88 771,584 4.53
Options exercisable at December 31........... 470,048 552,368 621,665
Shares available for future grant at December 31 - - -
</TABLE>
<TABLE>
<CAPTION>
1993 Stock Plan 1998 1997 1996
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 930,205 $ 10.92 665,048 $ 10.48 477,250 $ 10.85
Granted...................................... 285,065 13.13 287,772 11.83 284,366 9.68
Exercised.................................... (17,374) 8.90 (11,286) 8.99 - -
Cancelled.................................... (85,813) 10.86 (11,329) 10.69 (96,568) 9.92
Options outstanding at December 31........... 1,112,083 11.52 930,205 10.92 665,048 10.48
Options exercisable at December 31........... 378,363 125,229 51,684
Shares available for future grant at December 31 - 318,509 594,952
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(10) Stock Option Plans (Continued)
<TABLE>
<CAPTION>
1987 Nonqualified Stock Option Plan 1998 1997 1996
Shares Weighted Shares Weighted Shares Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1............. 182,838 $ 5.07 229,284 $ 3.68 226,284 $ 3.43
Granted...................................... - - 21,000 12.00 10,500 7.75
Exercised.................................... (75,900) 2.64 (62,400) 1.94 (7,500) 1.95
Cancelled.................................... - - (5,046) 9.51 - -
Options outstanding at December 31........... 106,938 6.79 182,838 5.07 229,284 3.68
Options exercisable at December 31........... 70,432 136,705 189,336
Shares available for future grant at December 31 - 179,862 195,816
</TABLE>
1998 Long-Term Incentive Plan
The Company reserved 1,900,000 shares of its common stock for issuance to
its officers, directors and key employees. This plan provides for the award 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 nonqualified 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 Compensation Committee of the Board of Directors
on the date of grant. Options are exercisable as they vest and expire 10 years
after the date of grant, except in the event of termination, retirement or death
of the optionee or a change in control of the Company.
<TABLE>
<CAPTION>
1998
Shares Weighted
Average
Exercise
Price
<S> <C> <C>
Options outstanding at January 1................... - $ -
Granted............................................ 20,000 14.06
Exercised.......................................... - -
Cancelled.......................................... - -
Options outstanding at December 31................. 20,000 14.06
Options exercisable at December 31................. -
Shares available for future grant at December 31... 1,880,000
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(10) Stock Option Plans (Continued)
All Stock Option Plans
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of exercise prices Number of Weighted Weighted Number of Weighted
Shares Average Average Shares Average
Remaining Exercise Exercise
Contractual Price Price
Life (Yrs.)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.945 - $ 7.833 525,848 2.95 $ 5.007 520,448 $ 4.978
8.250 - 11.833 750,871 7.00 10.545 272,170 10.056
12.000 - 13.667 412,350 7.70 13.234 126,225 13.667
14.060 - 14.060 20,000 9.36 14.060 - -
Total 1,709,069 5.95 $ 9.531 918,843 7.676
</TABLE>
(11) Accrued Liabilities
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Estimated accrued severance taxes....................................................... $ 2,393 $ 2,169
Accrued employee benefits............................................................... 4,572 3,501
Accrued vacation pay.................................................................... 1,944 1,835
Accrued dividends....................................................................... 1,615 1,565
Accrued bonus........................................................................... 2,915 2,011
Accrued commissions..................................................................... 4,987 3,630
Other................................................................................... 13,093 10,927
$ 31,519 $ 25,638
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(12) Quarterly Results (Unaudited)
Unaudited summarized results for each quarter in 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 Quarter
First Second Third Fourth
<S> <C> <C> <C> <C>
Absorbent polymers.......................................... $ 54,656 $ 52,047 $ 53,922 $ 60,468
Minerals.................................................... 44,388 39,495 39,077 41,089
Environmental............................................... 15,695 26,546 35,179 27,081
Transportation............................................. 6,818 7,547 9,226 8,296
Net sales............................................. $ 121,557 $ 125,635 $ 137,404 $ 136,934
Absorbent polymers.......................................... $ 10,624 $ 10,631 $ 11,607 $ 13,596
Minerals.................................................... 7,319 6,924 6,810 7,346
Environmental............................................... 4,761 8,635 10,655 8,591
Transportation.............................................. 831 895 1,030 916
Gross profit.......................................... $ 23,535 $ 27,085 $ 30,102 $ 30,449
Absorbent polymers.......................................... $ 7,534 $ 7,560 $ 8,394 $ 9,763
Minerals.................................................... 2,986 2,755 1,767 2,623
Environmental............................................... 54 2,822 4,325 1,993
Transportation.............................................. 346 380 508 401
Corporate................................................... (3,075) (2,526) (3,081) (3,309)
Operating profit...................................... $ 7,845 $ 10,991 $ 11,913 $ 11,471
Net income.................................................. $ 3,458 $ 5,758 $ 6,673 $ 6,196
Basic earnings per share.................................... $ 0.12 $ 0.20 $ 0.24 $ 0.23
Diluted earnings per share:................................. $ 0.12 $ 0.20 $ 0.24 $ 0.23
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter
First Second Third Fourth
<S> <C> <C> <C> <C>
Absorbent polymers.......................................... $ 45,161 $ 45,041 $ 51,466 $ 54,276
Minerals.................................................... 39,258 38,563 39,826 45,248
Environmental............................................... 16,565 22,778 27,181 21,897
Transportation............................................. 6,934 7,108 7,657 8,101
Net sales............................................. $ 107,918 $ 113,490 $ 126,130 $ 129,522
Absorbent polymers.......................................... $ 9,593 $ 8,830 $ 11,248 $ 11,290
Minerals.................................................... 6,105 6,400 7,212 7,568
Environmental............................................... 5,238 7,567 8,937 7,054
Transportation.............................................. 875 906 944 974
Gross profit.......................................... $ 21,811 $ 23,703 $ 28,341 $ 26,886
Absorbent polymers.......................................... $ 6,578 $ 6,225 $ 7,916 $ 8,144
Minerals.................................................... 2,230 2,479 3,287 3,638
Environmental............................................... 929 3,002 4,319 2,018
Transportation.............................................. 371 395 444 432
Corporate................................................... (2,804) (2,635) (2,711) (2,788)
Operating profit...................................... $ 7,304 $ 9,466 $ 13,255 $ 11,444
Net income.................................................. $ 3,173 $ 4,282 $ 6,970 $ 6,619
Basic earnings per share:................................... $ 0.11 $ 0.15 $ 0.25 $ 0.23
Diluted earnings per share:................................. $ 0.11 $ 0.15 $ 0.24 $ 0.23
</TABLE>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Year Description Balance at Charged to Charged Other charges Balance
beginning costs and to other add (deduct) (1) at end
of year expenses account s of
year
<S> <C> <C> <C> <C> <C>
1998 Allowance for doubtful accounts $ 2,547 $ 3,469 $ - ($3,017) $2,999
1997 Allowance for doubtful accounts $ 2,663 $ 1,644 $ - ($1,760) $2,547
1996 Allowance for doubtful accounts $ 1,601 $ 2,013 $ - ($ 951) $2,663
<FN>
(1) Bad debts written off.
</FN>
</TABLE>
<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 19, 1999
AMCOL INTERNATIONAL CORPORATION
By: /s/ John Hughes
John Hughes
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John Hughes March 19, 1999
John Hughes
Chairman of the Board and Chief Executive Officer
and Director
/s/ Lawrence E. Washow March 19, 1999
Lawrence E. Washow
President and Chief Operating
Officer and Director
/s/ Paul G. Shelton March 19, 1999
Paul G. Shelton
Senior Vice President and Chief Financial
Officer; Treasurer and Director
/s/ C. Eugene Ray March 19, 1999
C. Eugene Ray
Director
/s/ Jay D. Proops March 19, 1999
Jay D. Proops
Director
/s/ James A. McClung March 19, 1999
James A. McClung
Director
/s/ Robert E. Driscoll, III March 19, 1999
Robert E. Driscoll, III
Director
<PAGE>
/s/ Raymond A. Foos March 19, 1999
Raymond A. Foos
Director
/s/ Clarence O. Redman March 19, 1999
Clarence O. Redman
Director
/s/ Arthur Brown March 19, 1999
Arthur Brown
Director
/s/ Dale E. Stahl March 19, 1999
Dale E. Stahl
Director
/s/ Audrey L. Weaver March 19, 1999
Audrey L. Weaver
Director
/s/ Paul C. Weaver March 19, 1999
Paul C. Weaver
Director
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (5), as amended (10), as amended (16)
3.2 Bylaws of the Company (10)
4 Article Four of the Company's Restated Certificate of Incorporation (5), as amended (16)
o 10.1 AMCOL International Corporation 1983 Incentive Stock Option Plan (1); as amended (3)
10.3 Lease Agreement for office space dated September 29, 1986, between the Company and American National Bank
and Trust Company of Chicago; (1) First Amendment dated June 2, 1994 (8); Second Amendment dated June 2,
1997 (13)
o 10.4 AMCOL International Corporation 1987 Non-Qualified Stock Option Plan (2); as amended (6)
o 10.5 Change in Control Agreement dated April 1, 1997, by and between Registrant and John Hughes (12)
o 10.6 Change in Control Agreement dated April 1, 1997, by and between Registrant and Paul G. Shelton (12)
o 10.7 Change in Control Agreement dated February 16, 1998, by and between Registrant and Lawrence E. Washow (14)
o 10.8 Change in Control Agreement dated February 7, 1996, by and between Registrant and Roger P. Palmer (10)
o 10.9 Change in Control Agreement dated April 1, 1997, by and between Registrant and Peter L. Maul (12)
10.10 AMCOL International Corporation Dividend Reinvestment and Stock Purchase Plan (4); as amended (6)
o 10.11 AMCOL International Corporation 1993 Stock Plan, as amended and restated (10)
10.12 Credit Agreement by and among AMCOL International Corporation 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); as amended, First Amendment to Credit Agreement dated September 25, 1995 (9), as amended,
Second Amendment to Credit Agreement dated March 28, 1996, Third Amendment to Credit Agreement dated
September 12, 1996 (11) and Fourth Amendment to Credit Agreement dated December 15, 1998.
10.13 Note Agreement dated October 1, 1994, between AMCOL International Corporation and Principal Mutual Life
Insurance Company, (7); as amended, First Amendment of Note Agreement dated September 30, 1996 (11);
Second Amendment of Note Agreement dated December 15, 1998.
o 10.14 Change in Control Agreement dated August 21, 1996 by and between Registrant and Frank B. Wright, Jr. (11)
o 10.15 Change in Control Agreement dated February 17, 1998 by and between Registrant and Gary L. Castagna (14)
o 10.16 AMCOL International Corporation 1998 Long-Term Incentive Plan (15)
o 10.17 Change in Control Agreement dated February 4, 1999 by and between Registrant and Ryan F. McKendrick
21 Subsidiaries of the Company
23 Consent of KPMG LLP
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 for the year ended December 31, 1988.
(3) 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.
(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.
<PAGE>
(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.
(8) 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, 1994.
(9) 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, 1995.
(10) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1995.
(11) 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, 1996.
(12) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange
Commission for the quarter ended March 31, 1997.
(13) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange
Commission for the quarter ended June 30, 1997.
(14) 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, 1997.
(15) Exhibit is incorporated by reference to the Registrant's Form S-8 (File 333-56017) filed with the
Securities and Exchange Commission on June 4, 1998.
(16) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange
Commission for the quarter ended June 30, 1998.
o 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.
</FN>
</TABLE>
EXHIBIT 10.17
AGREEMENT
WHEREAS, AMCOL International Corporation (the "Company") considers it
essential and in the best interests of the Company and its shareholders to
foster the continued employment of its key management personnel;
WHEREAS, Ryan F. McKendrick ("Employee") is considered a key management
employee, currently serving as Vice President of the Company; and
WHEREAS, the Company desires to assure the future continuity of Employee's
services in the event of any actual or threatened "Change in Control" (as
defined in Section 6 below) of the Company.
IT IS THEREFORE AGREED AS FOLLOWS:
1. Effect of Agreement.
This Agreement shall be effective and binding immediately upon its
execution. However, except as specifically provided herein, this Agreement shall
not alter materially Employee's duties and obligations to the Company and the
remuneration and benefits which Employee may reasonably expect to receive from
the Company in the absence of a Change in Control.
2. Employment On and After Change in Control.
Provided that the employee is an employee of the Company immediately prior
to a Change in Control, the Company shall employ Employee, and Employee shall
accept such employment, effective upon such Change in Control for a period of
twenty-four (24) months after said Change in Control subject to the terms and
conditions stated herein.
3. Duties After Change in Control.
Employee agrees that during the term of his employment with the Company
after a Change in Control, he shall perform the duties described in Section 12
below and such other duties for the Company and its subsidiaries consistent with
his experience and training as the Board of Directors of the Company (the
"Board") or the Board's representatives shall determine from time to time, which
duties shall be at least substantially equal in status, dignity and character to
his duties at the date hereof. He shall also have the title of Vice-President.
Employee further agrees to devote his entire working time and attention to the
business of the Company and its subsidiaries and use his best efforts to promote
such business.
<PAGE>
4. Compensation Prior to a Change in Control.
Prior to a Change in Control the Company agrees to pay Employee
compensation for his services in an amount, and to provide him with life
insurance, disability, health and other benefits, at least equal to that which
he presently receives, only with such changes as shall be agreed upon between
Employee and the Company. For the purpose of this Section, compensation does not
include any bonus or other incentive compensation plan or stock purchase plan,
which may vary from year to year at the discretion of the Company.
5. Termination of Employment Prior to a Change of Control.
Employee shall be entitled to terminate his employment prior to a Change in
Control at any time upon sixty (60) days' prior written notice. The Company,
shall be able to terminate Employee's employment at any time prior to a Change
in Control with or without cause upon sixty (60) days' prior written notice (or
the payment of salary in lieu thereof). This Section shall not be construed to
reduce any accrued benefits payable in connection with any termination of
Employee's employment prior to a Change in Control.
Nothing expressed or implied in this Agreement shall create any right or
duty on the part of the Company or Employee to have Employee remain in the
employment of the Company prior to a Change in Control.
6. Termination of Employment On or After Change in Control.
(a) For purposes of this Agreement the term "Change in Control" means the
change in the legal or beneficial ownership of fifty-one percent (51%) of the
shares of the Company's common stock within a six-month period other than by
death or operation of law, or the sale of ninety percent (90%) or more of the
Company's assets within a six-month period.
(b) Employee's employment on and after a Change in Control may be
terminated with just cause by the Company at any time upon not less than ten
(10) days' prior written notice. Prior to termination for just cause on and
after a Change in Control, the Board of Directors shall by majority vote have
declared that Employee's termination is for just cause specifically stating the
basis for such determination. In the event such a termination occurs, the
provisions of Sections 9(a) and 12 below shall apply.
Employee's employment may be terminated on or after a Change in Control
without just cause pursuant to the constructive termination procedures described
in the next paragraph or by the Company giving Employee not less than thirty
(30) days' prior written notice. In the event Employee's employment is
terminated pursuant to the preceding sentence:
(i) the provisions of Section 9(b) below shall apply; and
<PAGE>
(ii) although Employee's employment term shall be deemed terminated at the
end of such notice period (or, in the case of a constructive
termination described in the next paragraph, as of the date Employee
notifies the Company of such termination), such termination shall in
no way affect the term of this Agreement or Employee's duties and
obligations under Section 12 below.
For purposes of this Section 6(b), Employee shall be considered as having
been terminated by the Company on or after a Change in Control for other than
just cause provided that he has notified the Company of any of the following
within ten (10) days of the occurrence thereof:
(i) the assignment to Employee of any duties of lesser status, dignity and
character than his duties immediately prior to the effective date of
the Change in Control or a substantial reduction in the nature or
status of his responsibilities from those in effect immediately prior
to the effective date of the Change in Control;
(ii) a post-Change in Control reduction by the Company in Employee's annual
base salary or bonus or incentive plan (as in effect immediately prior
to the effective date of the Change in Control);
(iii)relocation of Employee's office to a location which is more than 35
miles from the location in which Employee principally works for the
Company immediately prior to the effective date of the Change in
Control; the relocation of the appropriate principal executive office
of the Company or the Company's operating division or subsidiary for
which Employee performed the majority of his services for the Company
during the year prior to the effective date of the Change in Control
to a location which is more than 35 miles from the location of such
office immediately prior to such date; or his being required by the
Company in order to perform duties of substantially equal status,
dignity and character to those duties he performed immediately prior
to the effective date of the Change in Control to travel on the
Company's business to a substantially greater extent than is
consistent with his business travel obligations as of such date; or
(iv) the failure of the Company to continue to provide Employee with
benefits substantially equivalent to those enjoyed by him under any of
the Company's life insurance, medical, health and accident or
disability plans in which he was participating immediately prior to
the effective date of the Change in Control, the taking of any action
by the Company which would directly or indirectly
<PAGE>
materially reduce any of such benefits or deprive him of any material
fringe benefit enjoyed by him immediately prior to effective date of
the Change in Control, or the failure of the Company to provide him
with at least the number of paid vacation days to which he is entitled
on the basis of years of service under the Company's normal vacation
policy in effect immediately prior to the effective date of the Change
in Control.
(c) In the event Employee's employment is terminated on or after a Change
in Control in any manner not described in Section 6(b) above:
(i) the provisions of Section 9(b) shall not apply and Employee shall
instead receive the sums and benefits described in Section 9(a); and
(ii) such termination shall in no way affect the term of this Agreement or
Employee's duties or obligations under Section 12 below.
(d) Any termination of employment of Employee following the commencement of
any discussions by a shareholder or group of shareholders owning legally or
beneficially more than 20% of the common stock or an officially designated
representative of the Board of Directors with a third party that results within
180 days in a Change in Control shall (unless such termination is for cause or
wholly unrelated to such discussions) be deemed to be a termination of Employee
on and after a Change in Control for purposes of this Agreement.
7. Notice of Termination.
Any termination by the Company or assertion of termination by Employee
shall be communicated by written notice of termination to the other party at the
following address:
AMCOL International Corporation Ryan F. McKendrick
One North Arlington Vice-President
1500 West Shure Drive AMCOL International Corporation
Arlington Heights, IL 60004 One North Arlington
ATTN: Chairman of the Board 1500 West Shure Drive
Arlington Heights, IL 60004
8. Disability.
If as a result of Employee's incapacity due to physical or mental illness,
he shall have been absent from his duties with the Company for one hundred
eighty (180) days within any twelve (12) consecutive-month period and within
thirty (30) days after written notice of the Company's intention to terminate
his employment is given, Employee shall not have returned
<PAGE>
to the performance of his duties with the Company substantially on a full-time
basis, the Company may terminate his employment for disability. This shall not
constitute a termination for the purposes of obtaining benefits pursuant to
Section 9.
9. Benefits Upon Termination And Leave Of Employment On or After Change in
the Control.
(a) If Employee is terminated for just cause on or after a Change in
Control, he shall only receive the accrued sums and benefits payable to him
through the date he is terminated; the provisions of Section 9(b) below shall
not be applicable in such case and Employee shall not receive (or shall cease
receiving) the payments and benefits described in Section 9(b).
(b) Subject to Employee's compliance with the provisions of Section 12(a)
below, if Employee is terminated during the twenty-four (24) month period
beginning on and continuing after a Change in Control other than for just cause
(either at the discretion of the Company's management or constructively by the
operation of Section 6), he shall receive the following payments and benefits in
lieu of any other sums or benefits otherwise payable to him by the Company:
(i) all then accrued pay, benefits, executive compensation and fringe
benefits, including (but not limited to) pro rata bonus and incentive
plan earnings;
(ii) medical, health and disability benefits which are substantially
similar to the benefits the Company is providing him as of the date of
his employment is terminated for a period of twenty-four (24) months
there-after; and
(iii) one dollar less than two times his base period compensation.
The foregoing payments and benefits shall be deemed compensation payable
for the duties to be performed by Employee pursuant to Section 12 below. For
purposes of this Agreement, (A) Employee's "base period compensation" is the
average annual "compensation" (as defined below) which was includable in his
gross income for his base period (i.e., his most recent five taxable years
ending before the date of the Change in Control); and (B) if Employee's base
period includes a short taxable year or less than all of a taxable year,
compensation for such short or incomplete taxable year shall be annualized
before determining his average annual compensation for the base period. (In
annualizing compensation, the frequency with which payments are expected to be
made over an annual period shall be taken into account. Thus, any amount of
compensation for such a short or incomplete taxable year that represents a
payment that would not be made more than once per year shall not be annualized).
The sum payable to Employee pursuant to Section 9(b)(iii) shall in any and all
cases be reduced by any compensation which Employee receives from the Company
from the date of the Change in Control until the termination date, excluding any
non-qualified deferred compensation, stock option compensation or other stock
incentive bonus
<PAGE>
plan compensation so received. For purposes of Section 9(iii) and the
definitions pertaining to said Section, Employee's "compensation" is the
compensation which was payable to him by the Company or a related entity
determined without regard to the following Sections of the Internal Revenue Code
of 1986, as amended (the "Code"): 125 (cafeteria plans), 402(a)(8) (cash or
deferred arrangements), 402(h)(1)(B) (elective contributions to simplified
employee pensions), and, in the case of employer contributions made pursuant to
a salary reduction agreement, 403(b) (tax sheltered annuities).
Except for the benefits described in Section 9(b)(ii) above, the sums due
pursuant to this Section 9(b) shall be paid in up to three (3) annual
installments commencing thirty (30) days after the sums become due. If on or
after the date any payment becomes due hereunder the Company at any time has a
funded debt-to-total capitalization ratio which equals or exceeds 1:1, upon
Employee's written request, the Company shall secure its payment of the
remaining annual installments with a letter of credit or other security
instrument as shall be reasonably acceptable to Employee. Such letter of credit
or other security instrument shall provide Employee with the ability to receive
the remaining installment(s) only if his payment is delinquent. All sums due
hereunder shall be subject to appropriate withholding and statutory
requirements. Employee shall not be required to mitigate the amount of any
payment provided for in this Section 9(b) by seeking other employment or
otherwise. Notwithstanding anything stated in this Section 9(b) to the contrary,
however, the amount of any payment or benefit provided for in this Section 9(b)
shall be reduced by no more than 50% by any compensation earned by Employee as a
result of employment by another employer and the Company shall not be required
to provide medical, health and/or disability benefits to the extent such
benefits would duplicate benefits received by Employee in connection with his
employment with any new employer.
Notwithstanding anything stated in this Agreement to the contrary, if the
amounts which are payable and the benefits which are provided to Employee under
this Agreement, either alone or together with other payments which Employee has
a right to receive from the Company or any of its affiliates, would constitute a
"parachute payment" (as defined in Code Section 280G), such amounts and benefits
shall be reduced, as necessary, to the largest amount as will result in no
portion of said amounts and benefits being either not deductible as a result of
Code Section 280G or subject to the excise tax imposed by Code Section 4999. The
determination of any reduction in said amounts and benefits pursuant to the
foregoing proviso shall be made by the Company in good faith, and such
determination shall be conclusive and binding on Employee. The amounts provided
to Employee under this Agreement in connection with a Change in Control, if any,
shall be deemed allocated to such amounts and/or benefits to be paid and/or
provided as the Company's Board of Directors in its sole discretion shall
determine.
<PAGE>
10. Special Situations.
The parties recognize that under certain circumstances a Change in Control
may occur under conditions which make it inappropriate for Employee to receive
the termination benefits or protection set forth in this Agreement. Therefore,
in the event that a Change in Control occurs for any one of the following
reasons, the provisions of Sections 2, 6 and 9 shall not apply:
(a) the purchase of more than fifty percent (50%) of the stock of the
Company by an employee stock ownership plan or similar employee benefit plan of
which Employee is a participant; or
(b) the purchase of more than fifty percent (50%) of the stock or ninety
percent (90%) of the assets of the Company by a group of individuals or entities
including Employee as a member or participant, including but not limited to
those transactions commonly known as a leveraged or other forms of management
buyouts.
11. Disputes.
Any dispute arising under this Agreement (except Section 12) shall be
promptly submitted to arbitration under the Rules of the American Arbitration
Association. An arbitrator is to be mutually agreed upon by the parties or upon
failure of agreement, designated by the American Arbitration Association.
12. Non-Competition, Non-Solicitation, and Confidentiality.
(a) In consideration of this Agreement and other good and valuable
consideration, Employee agrees that for so long as he is employed by the Company
and for twenty-four (24) months thereafter he shall not own manage, operate,
control, be employed by or otherwise engage in any competitive business.
Employee's agreement pursuant to the preceding sentence shall be in addition to
any other agreement or legal obligation he may have with or to the Company. For
purposes of the preceding sentence, a "competitive business" is any business
engaged in the production, refinement or sale of bentonite or similar minerals,
absorbent polymers and/or any business conducted by the Company, its affiliates
or any subsidiaries thereof as of the date Employee's employment is terminated.
A business which is conducted by the Company, its affiliates or any subsidiaries
which is subsequently sold by the Company is not a competitive business as of
the date such business is sold. An "affiliate" of the Company is any company
which either controls, is controlled by or is under common control with the
Company. The phrase "any business conducted by the Company, its affiliates or
any subsidiaries thereof" includes not only current businesses but also any new
products, product lines or use of processes under development, consideration or
investigation on the date Employee's employment with the Company is terminated.
<PAGE>
Employee also agrees that during the twenty-four (24) month period
described in the first sentence of this Section 12(a) he will not directly or
indirectly, on behalf of himself or any other person or entity, make a
solicitation or conduct business, with any customer or potential customer of the
Company with which he had contact while employed by the Company, its affiliates
and/or any subsidiaries thereof, with respect to any products or services which
are competitive with any business conducted by the Company, its affiliates or
any subsidiaries thereof. For purposes of the preceding sentence, a "customer"
is any person or entity that has purchased goods or services from the Company,
its affiliates or any subsidiaries thereof within the twenty-four (24) month
period ending on the date Employee's employment is terminated. A "potential
customer" is any person or entity that the Company solicited for business within
twelve (12) months prior to the date Employee's employment with the Company is
terminated.
The Company and Employee recognize that his responsibilities have included
contacts with, and analysis of, customers and potential customers throughout the
United States and certain foreign countries, in addition to certain operational
matters. Employee's contacts on behalf of the Company represent a substantial
asset of the Company which are entitled to protection. In recognition of this
situation, the covenants set forth in this Section 12 shall apply to competition
and solicitation in the United States, United Kingdom, Germany, Japan, Canada,
Thailand, and those countries in which the Company, its affiliates and/or the
subsidiaries thereof has (have) conducted $200,000 or more of the business
during the 12-month period ending on the date Employee's employment with the
Company is terminated.
Before and forever after his termination or resignation, Employee shall
keep confidential and refrain from utilizing or disseminating any confidential,
proprietary or trade secret information of the Company for any purpose other
than furthering the business interests of the Company.
(b) During Employee's employment hereunder and during two (2) years
following his resignation or the termination of his employment hereunder for any
reason, Employee will not induce or attempt to influence any present or future
employee of the Company, its affiliates or any subsidiaries thereof to leave its
employ.
13. Other Agreements.
Except to the extent expressly set forth herein, this Agreement shall not
modify or lessen any benefit or compensation to which Employee is entitled under
any agreement between Employee and the Company or under any plan maintained by
the Company in which he participates or participated. Benefits or compensation
shall be payable thereunder, if at all, according to the terms of the applicable
plan(s) or agreement(s). The terms of this Agreement shall supersede any
existing agreement between Employee and the Company executed prior to the date
hereof to the extent any such Agreement is inconsistent with the terms hereof.
<PAGE>
14. Successors; Binding Agreement.
The Company will require any successor (whether direct or indirect by
purchase, merger, consolidation or otherwise, to all or substantially all of the
business and/or assets of the Company) to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place.
This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
15. Injunction.
The remedy at law for any breach of Section 12 will be inadequate and the
Company, its affiliates and any subsidiaries thereof would suffer continuing and
irreparable injury to their business as a direct result of any such breach.
Accordingly, notwithstanding anything stated herein, if Employee shall breach or
fail to perform any term, condition or duty contained in Section 12 hereof,
then, in such event, the Company shall be entitled to institute and prosecute
proceedings in any court of competent jurisdiction, either in law or in equity,
to obtain the specific performance thereof by Employee or to seek a temporary
restraining order or injunctive relief, without any requirement to show actual
damages or post bond, to restrict Employee from violating the provisions of
Section 12; however, nothing herein shall be construed to prevent the Company
seeking such other remedy in the courts, in case of any breach of this Agreement
by Employee, as the Company may elect or invoke. If court proceedings are
instituted by the Company to enforce Section 12 hereof, and the Company is the
prevailing party, the Company shall receive, in addition to any damages awarded,
reasonable attorneys' fees, court costs and ancillary expenses.
16. Miscellaneous.
This Agreement may not be modified or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Employee and
such officers of the Company as may be specifically designated by its Board for
that purpose. Except for any failure to give the ten (10) day notice described
in Section 6(b) above, the failure of either party to this Agreement to object
to any breach by the other party or the non-breaching party's conduct or conduct
forbearance shall not constitute a waiver of that party's rights to enforce this
Agreement. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of any
subsequent breach by such other party or any similar or dissimilar provisions or
conditions at the same or any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Illinois.
<PAGE>
17. Severability.
The parties hereto intend this Agreement to be enforced to the maximum
extent permitted by law. In the event any provision of this Agreement is deemed
to be invalid or unenforceable by any court of competent jurisdiction, such
provisions shall be deemed to be restricted in scope or otherwise modified to
the extent necessary to render the same valid and enforceable. In the event the
provisions of Section 12 cannot be modified or restricted so as to be valid and
enforceable, then the same as well as the Company's obligation to make any
payment or transfer any benefit to Employee in connection with any termination
of Employee's employment shall be deemed excised from this Agreement, and this
Agreement shall be construed and enforced as if such provisions had originally
been incorporated herein as so restricted or modified or as if such provisions
had not originally been contained herein, as the case may be. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement which shall
remain in full force and effect.
18. Survival.
The obligations of the parties under this Agreement shall survive the term
of this Agreement.
19. Term of Agreement.
The term of this Agreement shall commence on April 1, 1998 and end on March
31, 2001. Provided, however, that in the event Employee's employment is
terminated while this Agreement is in force, this Agreement shall terminate when
the Company has made all payments to Employee required by Section 9 hereof and
Employee has complied with the duties and obligations described in Section 12
hereof (all of which duties and obligations shall specifically survive the
termination of the Employee's employment). To the extent necessary for the
Company's enforcement of the provisions of Section 12 above (but only for such
purpose), Employee's employment term shall be deemed to continue through the end
of the Agreement term.
Date: February 4, 1999
Employee AMCOL International Corporation
By: /s/ Ryan F. McKendrick By: /s/ John Hughes
Name: Ryan F. McKendrick Name: John Hughes
Title: Chairman and CEO
EXHIBIT 21
AMCOL INTERNATIONAL CORPORATION
SUBSIDIARY LISTING
<TABLE>
<CAPTION>
Company Name Country State Ownership %
<S> <C> <C> <C>
ACP Export, Inc. U.S. Virgin Islands 100
AMCOL (Holdings) Ltd. England 100
AMCOL Holdings Canada Ltd. Canada Ontario 100
AMCOL International Corporation USA DE Parent
American Colloid Company USA DE 100
Ameri-Co Carriers, Inc. USA NE 100
CETCO (Europe) Limited England 100
CETCO AS Norway 100
CETCO Asia Sdn. Bhd. Malaysia 100
CETCO Australia Pty. Ltd. Australia 100
CETCO Environmental Technologies Pte Ltd Singapore 100
CETCO Korea Ltd. Korea 100
CETCO-POLAND Sp. z o. o Poland 100
Chemdal Asia Ltd. Thailand 100
Chemdal Corporation USA DE 100
Chemdal International Corporation USA DE 100
Chemdal Limited England 100
Chemdal Pty. Ltd. Australia 100
Chemdal Sp. z o.o. Poland 100
Colloid Abwassertechnik GmbH Germany 100
Colloid Environmental Technologies Company (CETCO) USA DE 100
Egypt Bentonite & Derivatives Company Egypt 25
Egypt Mining & Drilling Chemicals Company Egypt 25
Foundry Supplies Limited England 100
Montana Minerals Development Company USA MT 100
Nanocor, Inc. USA DE 100
Nanocor, Ltd. England 100
Nationwide Freight Service, Inc. USA NE 100
Nissho Iwai Bentonite Co., Ltd. Japan 19
Redhill Volclay Co. Ltd. China 49
Regeneration Technologies, Inc. USA DE 100
Superior Absorbents, Inc USA DE 100
Volclay de Mexico, S.A. de C.V. Mexico 49
Volclay International Corp. USA DE 100
Volclay Korea Ltd. Korea 100
Volclay Limited England 100
Volclay Pty., Ltd. Australia 100
Volclay Siam Ltd. Thailand 100
</TABLE>
EXHIBIT 23
Consent of KPMG LLP
The Board of Directors
AMCOL International
We consent to incorporation by reference in the registration statements Nos.
33-34109, 33-55540, 33-73350 and 333-56017 on Form S-8 of AMCOL International
Corporation and subsidiaries of our report dated February 26, 1999, relating to
the consolidated balance sheets of AMCOL International Corporation and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, retained earnings, and cash flows for each of the
years in the three-year period ended December 31, 1998, and related schedule
which report appears in the December 31, 1998, annual report on Form 10-K of
AMCOL International Corporation.
/s/ KPMG LLP
Chicago, Illinois
March 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000813621
<NAME> AMCOL INTERNATIONAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 2,758
<SECURITIES> 0
<RECEIVABLES> 103,073
<ALLOWANCES> 2,999
<INVENTORY> 52,093
<CURRENT-ASSETS> 164,076
<PP&E> 325,681
<DEPRECIATION> 154,203
<TOTAL-ASSETS> 357,864
<CURRENT-LIABILITIES> 74,083
<BONDS> 0
0
0
<COMMON> 320
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 357,864
<SALES> 521,530
<TOTAL-REVENUES> 521,530
<CGS> 410,359
<TOTAL-COSTS> 452,579
<OTHER-EXPENSES> 140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,933
<INCOME-PRETAX> 34,427
<INCOME-TAX> 12,350
<INCOME-CONTINUING> 21,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,085
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.78
</TABLE>
