SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-K/A
(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, 1999
|_| 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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<S> <C>
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.
The aggregate market value of the $.01 par value Common Stock held by
non-affiliates of the registrant on March 15, 2000, based upon the closing sale
price on that date as reported in The Wall Street Journal was approximately
$344,829,571.
Registrant had 26,941,420 shares of $.01 par value Common Stock outstanding
as of March 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be dated on or before April 29, 2000,
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.
Percentage of Sales
1999 1998 1997
Absorbent polymers 45.8% 42.4% 41.1%
Minerals 28.3% 31.5% 34.1%
Environmental 19.6% 20.0% 18.5%
Transportation 6.3% 6.1% 6.3%
100.0% 100.0% 100.0%
Net revenues, operating profit, assets, depreciation, depletion and
amortization, capital expenditures and research and development 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.
The Company has agreed to sell its absorbent polymers business to BASF
Aktiengesellschaft ("BASF") pursuant to the terms of an Asset and Stock Purchase
Agreement dated November 22, 1999 (the "Purchase Agreement"). The sale is
subject to approval by the Company's shareholders, as well as certain U.S. and
European governmental regulatory reviews. The Purchase Agreement provides for
the transfer to BASF of the following: (i) all of the shares of capital stock of
the Company's indirect subsidiaries: Chemdal Corporation and Chemdal Asia Ltd.;
and (ii) all other assets of the Company and its designated subsidiaries related
primarily to the absorbent polymers business. Subject to certain post-closing
adjustments, the total consideration to be paid to the Company by BASF consists
of (i) $628 million, less any outstanding intercompany indebtedness of the
absorbent polymers business, as the purchase price under the Purchase Agreement,
and (ii) $28.5 million, as consideration for entering into an Acrylic Acid
Supply Agreement. The sale does not include the Company's Poly-Pore business
which was included in the absorbent polymers segment for management purposes.
Poly-Pore includes the business of researching, manufacturing and selling of
microporous oil and/or water sorbent polymers capable of entrapping solids and
liquids, and has had minimal sales to date.
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The Company currently intends to adopt a plan of partial liquidation in
connection with the closing of the sale of the absorbent polymers business
pursuant to which the Company will distribute pro rata to its shareholders a
significant portion of the net proceeds from the sale. On a pro forma basis, the
Company expects to distribute between $14.00 and $14.50 per share. THE AMOUNT OF
THE EXPECTED DISTRIBUTION TO SHAREHOLDERS IS BASED UPON THE EXPECTED GROSS
PROCEEDS OF THE SALE AND ESTIMATED TRANSACTION RELATED COSTS. THE ACTUAL AMOUNT
OF THE DISTRIBUTION WILL BE DETERMINED SHORTLY AFTER THE CLOSING OF THE
TRANSACTION. ACCORDINGLY, THE ACTUAL AMOUNT TO BE DISTRIBUTED TO SHAREHOLDERS
MAY BE SUBSTANTIALLY DIFFERENT FROM THE AMOUNT INDICATED ABOVE.
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. The Company has completed construction of a 20,000 metric ton plant in
Thailand that is scheduled to begin production in the latter part of March 2000.
The Company also has a supply agreement through June 2000 for supply of up to
1,000 metric tons per month of SAP from a former producer of SAP.
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
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.
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 1999, the top two customers accounted for approximately 50%
of the Company's polymer sales, and the top five customers accounted for
approximately 68% of such sales. Procter and Gamble and Drypers Corporation are
the two largest customers, with Procter and Gamble representing approximately
39% of the sales for this segment.
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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
hygienics. There is technology crossover for SAP into new areas, such as
ion-exchange polymers for several markets, as well as a strong commitment to
new-platform technology development. An example of this is 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 externally, such as academia and other corporations, and
internally with the technical functions and resources of AMCOL's other business
segments.
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.
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Competition
The Company believes that there are at least five 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. Three 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 one producer has 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 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., Ltd. 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. The Company also has a 20%
equity interest in Ashapura Minechem Ltd., a publicly traded Indian bentonite
producer.
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 United States. Calcium bentonite is generally
referred to as southern bentonite in the United States and as fuller's earth
outside the United States. Calcium bentonites mined outside the United States
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 United States, is used as
"traditional" cat litter. In April 1998, the Company sold its fuller's earth
reserves 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
fuller's earth cat litter for sale to the pet trade sector of the domestic cat
litter market.
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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.
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. The Company markets a 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 cat litter has grown to 54% of the U.S. grocery market for cat
litter in 1999 from 0.4% in 1989, and to 64% 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 1999, the top four customers were located in North America and accounted
for approximately 28% of the Company's mineral sales worldwide.
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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 products at strategic locations.
Most 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.
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
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
Australia Pty. Ltd., CETCO Environmental Technologies Pte. Ltd. (Singapore),
CETCO Poland Sp. z o.o. 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.
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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.
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'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.
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 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 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 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 1999, 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.
CETCO employs technically oriented marketing personnel to support its network of
distributors and representatives. Offshore customers are primarily major oil
companies sold on a direct basis.
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.
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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, has access
to bentonite deposits in China, Egypt, India and Mexico. At 1999 consumption
rates and product mix, the Company estimates its proven reserves of commercially
usable sodium bentonite at more than 30 years. The Company estimates its proven
reserves of calcium bentonite at 10 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.
The Company oversees all of its mining operations, including its
exploration activity and securing the necessary state and federal mining
permits.
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The following table shows a summary of minerals sold by the Company from
active mining areas for the last three years in short tons, as well as mineral
reserves by major mineral category:
<TABLE>
<CAPTION>
All numbers are in thousands of tons Tons Sold Wet Tons Assigned Unassigned Conversion Mining Claims
of Reserves Reserves Reserves Factor
1999 1998 1997 Owned Unpatented Leased
**
Sodium Bentonite
Assigned
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Belle/Colony, SD 920 857 875 24,927 24,927 77.16% 4,736 5,733 14,458
Upton, WY 247 346 392 4,209 4,209 77.16% 379 842 2,988
Lovell, WY 286 329 350 27,588 27,588 77.16% 19,312 6,621 1,655
TOTAL ASSIGNED 1,453 1,532 1,617 56,724 56,724 - 24,427 13,196 19,101
Other / Unassigned (SD, WY, MT) - - - 60,154 60,154 77.16% 54,646 3,468 2,040
TOTAL OTHER / UNASSIGNED - - - 60,154 - 60,154 54,646 3,468 2,040
TOTAL SODIUM BENTONITE 1,453 1,532 1,617 116,878 56,724 60,154 79,073 16,664 21,141
48.5% 51.5% 67.7% 14.3% 18.1%
Calcium Bentonite
Sandy Ridge, AL 205 195 193 2,831 2,831 72.70% - - 2,831
Rock Springs, NV (1),(2) 1 2
TOTAL CALCIUM BENTONITE 205 196 195 2,831 2,831 - - - 2,831
100.0% 0.0% 0.0% 0.0% 100.0%
Leonardite
Gascoyne, ND 22 24 30 740 740 65.29% - - 740
TOTAL LEONARDITE 22 24 30 740 740 - - - 740
100.0% 0.0% 0.0% 0.0% 100.0%
TOTALS 1,680 1,752 1,842 120,449 60,295 60,154 79,073 16,664 24,712
50.1% 49.9% 65.6% 13.8% 20.5%
Fuller's Earth
Mounds, IL (3) - 60 192
Paris, TN (1) - 7 22
TOTAL FULLER'S EARTH - 67 214
GRAND TOTALS 1,680 1,819 2,056 120,449 60,295 60,154 - 79,073 16,664 24,712
50.1% 49.9% 65.6% 13.8% 20.5%
<FN>
** Quantity of reserves that would be owned if patent was granted.
(1) Mineral reserves sold in 1998 to Oil-Dri
(2) Plant sold in January 1999 to Nolind Enterprises LLC.
(3) Plant and mineral reserves sold in 1998 to Oil-Dri
</FN>
</TABLE>
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Assigned reserves means reserves which could be reasonably expected to be
processed in existing plants. Unassigned reserves means reserves which will
require additional expenditures for processing facilities. Conversion factor
means the percentage of reserves that will be available for sale after
processing.
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 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, 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.
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.
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 31 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.
<PAGE>
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 finished products throughout the continental
United States. Through its transportation operation, the Company is better able
to control costs, maintain delivery schedules and assure equipment availability
for delivery of its products. 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 1999, approximately 54% 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 established 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 current mineral reserves. For some applications,
bentonites will be purchased from third party suppliers. 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 of nanometer size (one-billionth of a meter) 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 regions, both on a direct basis and through distributors.
<PAGE>
Poly-Pore Development
The Company has been involved in the research and development of
microporous oil and/or water absorbent polymers capable of entrapping solids and
liquids. These products are intended for use in the cosmetics industry. The
costs of the research have been included in the absorbent polymers segment. The
Company will retain the rights to its proprietary technology after the pending
sale of the absorbent polymers segment is completed.
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 46% of the Company's 1999 net sales were to customers in
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, India, 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, where it is sold by the Japanese
joint venture. The Company also maintains a worldwide network of independent
dealers, distributors and representatives.
The Company manufactures geosynthetic clay liners in the United Kingdom and
Poland for the European market. In addition, the Company has sales offices in
Norway, Korea and 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
Thailand superabsorbent polymer plant will come on stream in 2000.
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.
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.
EMPLOYEES
As of December 31, 1999, the Company employed 1,609 persons, 629 of whom
were employed outside of the United States. At December 31, 1999, there were
approximately 441, 721, 354 and 28 persons employed in the Company's absorbent
polymers, minerals, environmental and transportation segments, respectively,
along with 65 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 79 of the Company's employees in the United States and
approximately 25 of the Company's employees in the United Kingdom are
represented by five 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 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.
Rayong, Thailand ......................... Manufacture absorbent polymers
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)(3)....... 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
Fairmount, GA............................. Manufacture Bentomat and Claymax geosynthetic clay liners
Birkenhead, Merseyside, U.K. (2)(3)....... Manufacture Bentomat geosynthetic clay liner; research laboratory; headquarters for
CETCO Europe Ltd.
Szczytno, Poland ......................... Manufacture Bentomat and Claymax geosynthetic clay liners
Copenhagen, Denmark (1)................... Sales and distribution for CETCO (Europe) Ltd.
Geelong, Victoria, Australia (1)(3)....... Sales and distribution for CETCO Australia Pty. Ltd.
Toronto, Ontario, Canada (3).............. Sales and distribution for CETCO Canada Ltd.
Tanager, Norway (1)....................... Sales and distribution for CETCO (Europe) Ltd.
Singapore (1)............................. Sales and distribution for CETCO Environmental Technologies Pte Ltd.
Seoul, South Korea (1).................... Sales and distribution for CETCO Korea Ltd.
Paris, France (1) ........................ Sales and distribution for CETCO (Europe) Ltd.
TRANSPORTATION
Scottsbluff, NE........................... Transportation headquarters and terminal
CORPORATE
Arlington Heights, IL (1)................. Corporate headquarters; Chemdal International headquarters; CETCO headquarters; American
Colloid Company 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
In 1998, the following claims were filed in Chester, England against
certain of the Company's subsidiaries: Adams et al. v. AMCOL (Holdings) Limited
and Volclay Limited, (AKA Marie Geraldine O'Laughlin et al.), High Court of
Justice, QB Division, Chester District 1998 A. No. 206; and Anziani, et al. v.
AMCOL (Holdings) Limited and Volclay Limited, High Court of Justice, QB
Division, Chester District 1998 A. No. 365. The claims are for property damage,
nuisance and personal injury based on the alleged release of dust from Volclay
Limited's facility in Wallasey, England . It is the Company's understanding that
the claims are being made on behalf of up to 1,600 persons who at some point
during the period from 1965 to the present have resided in the vicinity of the
Wallasey, England facility. The Company has notified its insurance carriers and
is currently engaged in the discovery process. The Company intends to defend
these cases vigorously. Based on information received to date, the Company
currently anticipates that its liability with respect to these claims will not
have a material adverse affect on the Company.
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 or the cost of compliance,
if any, to be significant.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<TABLE>
<CAPTION>
Executive Officers of Registrant
Name Age Principal Occupation for Last Five Years
<S> <C> <C>
Mark A. Anderson 40 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 38 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 57 Chairman of the Board of Directors since May 1998; Chief Executive Officer of the
Company since 1985; a Director since 1984. Mr. Hughes will retire as Chief Executive
Officer effective at the Company's annual shareholders' meeting.
Lloyd. F. Love 53 Vice President and Chief Information Officer of the Company since July 1999; prior
thereto, Chief Information Officer of Baxter Credit Union since 1997; prior thereto,
Vice President, Information Services of Caremark International since 1992 (acquired
by MedPartners in mid-1996).
Peter L. Maul 50 Vice President of the Company since 1993 and President of Nanocor, Inc. since 1995.
Ryan F. McKendrick 48 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.
Gary Morrison 44 Vice President of the Company and President of American Colloid Company since
February 2000; prior thereto, Vice President of American Colloid Company since 1994.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Executive Officers of Registrant (continued)
Name Age Principal Occupation for Last Five Years
<S> <C> <C>
Clarence O. Redman 57 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 50 Senior Vice President and Chief Financial Officer of the Company and President of
AMCOL International's transportation units since 1994; a Director since 1988.
Anthony S. Tomlin 38 Vice President of the Company since February, 2000;prior thereto, Vice President of
Chemdal International Corporation since 1992.
Lawrence E. Washow 47 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. Mr.
Washow has been appointed to succeed Mr. Hughes as the Company'sChief Executive
Officer effective at the Company's annual shareholders' meeting.
Frank B. Wright, Jr. 51 Vice President of the Company and President of Volclay International Corporation;
also President of American Colloid Company from August, 1996 to February, 2000; prior
thereto, Manager of International Business Development for American Colloid Company
since 1995.
</TABLE>
All executive officers of the Company are elected annually by the Board of
Directors for a term expiring at the annual meeting of directors following their
election, or when their respective successors are elected and shall have
qualified. 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.
<TABLE>
<CAPTION>
Stock Price Cash Dividends
High Low Declared Per Share
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1999: 1st Quarter........ $11.375 $8.250 $.0600
2nd Quarter........ 14.750 8.875 .0700
3rd Quarter........ 15.125 13.250 .0700
4th Quarter........ 17.750 12.000 .0700
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
</TABLE>
As of February 21, 2000, there were 3,462 holders of record of the common
stock, excluding shares held in street name.
<PAGE>
The Company has paid cash dividends every year for over 62 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.
Item 6. Selected Financial Data
The following is selected financial data for the Company and its
subsidiaries for the five years ended December 31, 1999. 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.
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
PER SHARE 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Stockholders' equity (1) $ 6.94 $ 6.44 $ 6.18 $ 5.87 $ 5.42
Basic earnings (2) .83 .79 .74 .53 .62
Diluted earnings (3) .82 .78 .72 .52 .60
Dividends .27 .23 .21 .19 .17
Shares outstanding (3) 27,199,263 28,385,860 29,125,168 29,294,489 29,519,220
INCOME DATA
Sales $ 552,052 $ 521,530 $ 477,060 $ 405,347 $ 347,688
Gross profit 137,796 111,171 100,741 84,311 76,562
Operating profit 43,433 42,220 41,469 32,337 32,397
Net interest expense (6,396) (7,933) (8,628) (8,450) (6,727)
Net other income (expense) (1,338) 140 (398) (670) 1,217
Pretax income 35,699 34,427 32,443 23,217 26,887
Income taxes 13,913 12,350 11,399 7,979 9,082
Net income 22,234 22,085 21,044 15,225 17,771
BALANCE SHEET
Current assets $ 164,770 $ 164,076 $ 150,270 $ 147,773 $ 126,337
Net property, plant and equipment 172,408 171,478 175,324 180,876 175,211
Total assets 349,007 357,864 351,009 350,708 322,366
Current liabilities 59,715 74,083 67,241 51,870 35,882
Long-term debt 93,914 96,268 94,425 118,855 117,016
Shareholders' equity 186,440 172,914 175,943 167,404 155,494
RATIO ANALYSIS
Operating margin 7.87% 8.10% 8.69% 7.98% 9.32%
Pretax margin 6.47 6.60 6.80 5.73 7.73
Effective tax rate 38.97 35.87 35.14 34.37 33.78
Net margin 4.03 4.23 4.41 3.76 5.11
Return on ending assets 6.37 6.17 6.00 4.34 5.51
Return on ending equity 11.93 12.77 11.96 9.09 11.43
<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, 1999, the Company had outstanding debt of $94.4 million
(including both long- and short-term debt) and cash and cash equivalents of $3.8
million, compared with $113.4 million in debt and $2.8 million in cash and cash
equivalents at December 31, 1998. Long-term debt represented 33.5% of total
capitalization at December 31, 1999, compared with 35.8% at December 31, 1998.
The Company had a current ratio of 2.76-to-1 at December 31, 1999, with
approximately $105.1 million in working capital, compared with 2.21-to-1 and
$90.0 million, respectively, at December 31, 1998.
The Company's revolving credit facility of $125 million matures in October
2003. The Company had $60.2 million in unused, committed credit lines at
December 31, 1999. The Company is renegotiating its debt covenants in
anticipation of the sale of the absorbent polymers segment. It is anticipated
that the $125 million revolver will remain in place after the pending
transaction closes.
During 1999, the Company had $40.2 million in capital expenditures and $4.6
million in additional investments in joint ventures. The Company acquired $.6
million in treasury stock (net of stock option exercises), paid $7.2 million in
dividends and repaid $19.0 million of debt. This activity was funded from cash
from operations generated in 1999, principally consisting of net income of $22.2
million and depreciation and amortization totaling $36.7 million.
The Company has entered into a definitive agreement to sell its
superabsorbent polymer business to BASF AG. Completion of the transaction is
subject to the mechanical completion of the polymer plant in Thailand, approval
by regulatory authorities in the United States, United Kingdom and Germany and
approval by the Company's shareholders. German regulatory approval has been
obtained. The Company and BASF are responding to questions raised by the U.S.
Federal Trade Commission in response to their respective Hart Scott Rodino
filings. The Company currently intends to seek shareholder approval in the
second quarter. If all approvals are obtained, the Company currently intends to
distribute substantially all of the net proceeds to its shareholders.
Management believes that the Company has adequate resources to fund the
capital expenditures discussed above, dividend payments and anticipated working
capital requirements through its existing committed credit lines and cash
balances, and future operating cash flow.
Results of Operations for the Three Years Ended December 31, 1999
Net sales increased by $30.5 million, or 5.9%, from 1998 to 1999, and by
$44.5 million, or 9.3%, from 1997 to 1998. Approximately 60% of the 1998 sales
increase was related to acquisitions made during 1998. Gross profit increased by
$26.6 million, or 23.9%, from 1998 to 1999, compared to an increase of $10.4
million, or 10.4%, from 1997 to 1998. Operating profit improved by $1.2 million,
or 2.9%, from 1998 to 1999 compared to $.8 million, or 1.8%, from 1997 to 1998.
The operating profit for 1999 was reduced by $14.6 million as a result of write
downs of the carrying value of certain intangible and long-term assets in the
minerals and environmental segments. A $4.8 million operating loss at the
Company's U.K. minerals unit adversely impacted operating profit for 1998. Net
income increased by less than 1% from 1998 to 1999, compared to $1.0 million, or
4.9%, from 1997 to 1998. During 1999, the write down accounted for $10.1 million
after taxes, or approximately $.37 per share. Diluted earnings per share were
$.82, $.78 and $.72 in 1999, 1998 and 1997, respectively. The weighted average
shares outstanding, including the dilutive impact of stock options, were 4.2%
lower in 1999 than in 1998 and 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,
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $252,908 100.0% $ 221,093 100.0% $ 195,944 100.0% $31,815 14.4% $25,149 12.8%
Cost of sales......... 184,006 72.8% 174,635 79.0% 154,983 79.1%
Gross profit........ 68,902 27.2% 46,458 21.0% 40,961 20.9% 22,444 48.3% 5,497 13.4%
General, selling and
administrative
expenses.............. 17,052 6.7% 13,207 6.0% 12,098 6.2% 3,845 29.1% 1,109 9.2%
Operating profit.... 51,850 20.5% 33,251 15.0% 28,863 14.7% 18,599 55.9% 4,388 15.2%
</TABLE>
Sales of absorbent polymers in 1999 increased by 14.4% over 1998 compared
with a 12.8% sales increase from 1997 to 1998. Approximately 65% of the sales
increase in 1998 was acquisition-related. In both 1998 and 1999, unit sales
volume increased at a faster rate than the sales dollars.
Gross profit margins increased by 29.5% from 1998 to 1999 compared to a
slight improvement from 1997 to 1998. Margin improvement both in 1998 and 1999
was primarily the result of lower costs for acrylic acid, the main raw material
for the production of SAP. In each case, the lower costs more than offset lower
unit selling prices.
General, selling and administrative expenses increased by $3.8 million, or
29.1%, from 1998 to 1999. Higher research and development spending of
approximately $1.0 million, the staffing of the Thai plant of $.9 million,
higher incentive compensation of approximately $.9 million and higher occupancy
costs of approximately $.4 million accounted for much of the change. In 1998,
the increase in general, selling and administrative expenses related primarily
to a higher bad debt provision as a result of two customer bankruptcies.
Otherwise, the rate of increase from 1997 to 1998 was less than the rate of
increase in sales.
The Company has aggressively expanded its capacity to produce
superabsorbent polymers. Its current global capacity of 160,000 metric tons
(excluding the acquisition related 12,000 metric ton U.K. toll processing
arrangement) is among the largest in the world. The Company is currently
completing construction of a 20,000 metric ton plant in Thailand. This plant is
expected to be operational by the end of March 2000.
<TABLE>
<CAPTION>
Minerals Year Ended December 31,
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $156,537 100.0% $ 164,049 100.0% $ 162,895 100.0% ($7,512) -4.6% $ 1,154 .7%
Cost of sales......... 121,864 77.8% 135,650 82.7% 135,610 83.2%
Gross profit........ 34,673 22.2% 28,399 17.3% 27,285 16.8% 6,274 22.1% 1,114 4.1%
General, selling and
administrative 17,432 11.1% 18,268 11.1% 15,651 9.6% (836) -4.6% 2,617 16.7%
expenses..............
Write down of
intangible 2,954 1.9% - - - - 2,954 NM - -
assets..............
Operating profit.... 14,287 9.2% 10,131 6.2% 11,634 7.2% 4,156 41.0% (1,503) -12.9%
</TABLE>
Sales decreased by $7.5 million from 1998 to 1999. Results for 1998
included approximately $3.8 million of fullers' earth sales, a business sold in
April 1998. Sales of the U.K. minerals operation were $6.5 million lower in 1999
than in 1998. The Company reduced its commitment to the U.S. iron ore
pelletizing market resulting in a sales decrease of $2.1 million, but this was
more than offset by a sales increase to the domestic metalcasting and cat litter
markets. Sales increased by $1.2 million in 1998 compared to 1997. This was the
net result of the additional sales from the 1997 U.K. cat litter acquisition and
the divestiture of the fullers' earth business. Domestic metalcasting sales
increased in 1998, offsetting sales declines to domestic well drilling and
export customers.
<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 problems in management, customer service and production,
along with construction delays in integrating the acquisition into the existing
plant and organization. Steps have been taken to address the problems in the
United Kingdom in 1999, and the operating loss was reduced to $2.9 million.
Efforts to improve results more quickly were hampered by a strong U.K. currency,
limiting the operation's ability to market cat litter products on the European
continent.
Gross profit margins increased by 28.3% and by 3.0% from 1998 to 1999 and
from 1997 to 1998, respectively. Domestic gross profits improved by
approximately $4.0 million, U.K. gross profit improved by approximately $.9
million and other overseas units' gross profit improved by $1.3 million from
1998 to 1999. Domestic gross margins improved by 25.3% from 1997 to 1998. The
1998 domestic improvement was largely offset by the problems at the U.K.
operation.
General, selling and administrative expenses were $.8 million lower in 1999
than in 1998. Lower domestic personnel costs accounted for the majority of the
change. General, selling and administrative expenses increased by $2.6 million
from 1997 to 1998. The increase in costs in 1998 was related to the U.K.
acquisition, as well as to international marketing costs.
The Company wrote down goodwill of approximately $3.0 million related to
its U.K. and Canadian operations. Its evaluation of the carrying value of the
assets was based upon anticipated performance and a review of projected future
cash flows.
<TABLE>
<CAPTION>
Environmental Year Ended December 31,
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $107,975 100.0% $104,501 100.0% $ 88,421 100.0% $ 3,474 3.3% $16,080 18.2%
Cost of sales......... 77,515 71.8% 71,859 68.8% 59,625 67.4%
Gross profit........ 30,460 28.2% 32,642 31.2% 28,796 32.6% (2,182) -6.7% 3,846 13.4%
General, selling and
administrative 26,551 24.6% 23,448 22.4% 18,528 21.0% 3,103 13.2% 4,920 26.6%
expenses..............
Write down of intangible
and other long-term 11,575 10.7% -- -- -- -- 11,575 NM -- --
assets
Operating profit (7,666) -7.1% 9,194 8.8% 10,268 11.6% (16,860) -183.4% (1,074) -10.5%
(loss)................
</TABLE>
Sales increased by $3.5 million from 1998 to 1999. The sales increase from
1998 to 1999 was largely related to businesses acquired during 1998.
Approximately 65% of the sales increase from 1997 to 1998 was attributable to
these acquisitions.
Gross profit margins decreased by 9.6% and 4.3% from 1998 to 1999 and from
1997 to 1998, respectively. Lower gross profits from businesses that were
divested during the year, coupled with lower profits from the domestic sales of
environmental liner products, accounted for the reduced margins in 1999. 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.
International expansion accounted for much of the increase in general,
selling and administrative expenses of 13.2% and 26.6% from 1998 to 1999, and
from 1997 to 1998, respectively. Approximately 58% of the 1999 increase and 59%
of the 1998 increase in general, selling and administrative expenses in 1998 was
attributable to acquisitions made in 1998. During 1999, the Company also
incurred a bad debt of approximately $.4 million related to unsuccessful
litigation.
<PAGE>
During 1999, the Company sold or closed operations that incurred more than
$5.5 million in operating losses. These actions are expected to result in
improved profitability during 2000. In the process of evaluating its ongoing
business operations, the Company wrote down the carrying value of certain
intangible and fixed assets by approximately $11.6 million. This charge included
$2.1 million related to the January 2000 sale of its Norwegian business. The
remainder of the write down was largely related to goodwill not expected to be
recovered by future cash flows.
<TABLE>
<CAPTION>
Transportation Year Ended December 31,
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 34,632 100.0% $ 31,887 100.0% $ 29,800 100.0% $ 2,745 8.6% $ 2,087 7.0%
Cost of sales......... 30,871 89.1% 28,215 88.5% 26,101 87.6%
Gross profit........ 3,761 10.9% 3,672 11.5% 3,699 12.4% 89 2.4%$ (26) -.7%
General, selling and
administrative 2,130 6.2% 2,037 6.4% 2,057 6.9% 93 4.6% (20) -1.0%
expenses..............
Operating profit.... 1,631 4.7% 1,635 5.1% 1,642 5.5% (4) -0.2% (7) -.4%
</TABLE>
The majority of the sales increase in both 1998 and 1999 came from
customers unrelated to AMCOL's other business units. Gross profit margins were
5.2% lower in 1999 than in 1998, and 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. Higher fuel costs in the latter part of 1999 also put
pressure on gross profit margins. The increase in general, selling and
administrative expenses in 1999 reflected increased staffing levels to handle
increased volume.
<TABLE>
<CAPTION>
Corporate Year Ended December 31,
1999 1998 1997 1999 vs. 1998 1998 vs. 1997
(Dollars in Thousands)
General, selling and
<S> <C> <C> <C> <C> <C> <C> <C>
administrative $16,669 $11,991 $10,938 $ 4,678 39.0% $ 1,053 9.6%
expenses..............
Operating loss...... (16,669) (11,991) (10,938) (4,678) 39.0% (1,053) 9.6%
</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, 1999, Nanocor has been issued 14 patents; 6 more patents have been
allowed; and 12 patent applications were pending. All costs associated with
Nanocor will continue to be included in corporate expenses for 2000, and until
meaningful product revenues occur.
Corporate costs increased by $4.7 million, or 39.0%, from 1998 to 1999.
Approximately $1.3 million of professional fees incurred in connection with the
pending transaction with BASF AG were included in the 1999 expenses. The
remainder of the increase from 1998 to 1999 was largely accounted for by higher
incentive compensation ($1.0 million), higher costs associated with developing
the nanocomposite technology ($.9 million) and increased occupancy costs ($.6
million). The addition of two corporate executives and higher occupancy costs
accounted for much of the increase in corporate costs from 1997 to 1998.
<PAGE>
Net Interest Expense
Net interest expense decreased by $1.5 million from 1998 to 1999, compared
with a $.7 million decrease from 1997 to 1998. Approximately $.5 million of
interest related to the Thai polymer plant construction was capitalized in 1999.
The remainder of the 1999 reduction was due to lower average debt levels, which
also accounted for the lower interest costs in 1998.
Other Income (Expense)
Other expenses for 1999 included $1.1 million in foreign exchange losses.
Foreign currency exchange losses accounted for approximately $.4 million, or
100%, of other expense in 1997.
Income Taxes
The income tax rate for 1999 was 39.0% compared with 35.9% and 35.1% in
1998 and 1997, respectively. Income tax expense for 1999 and 1998 included a
valuation allowance of $1.7 million and $.8 million, respectively, related to
the U.K. minerals unit net operating loss carryforward. The effective income tax
rate for 1999 was also higher because $2.7 million of the write down of
intangible assets was not tax deductible. The effective tax rate for 2000 is
currently estimated at 36%.
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
27.2 million in 1999 compared with approximately 28.4 million and 29.1 million
in 1998 and 1997, respectively. The significant drop in the number of shares
outstanding from 1997 to 1999 reflected the high level of share repurchase
activity in 1998. Shares outstanding at December 31, 1999, excluding common
stock equivalents, totaled 26.9 million shares. The impact of the write down of
intangible and other long-term assets amounted to $.37 per diluted share.
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
<PAGE>
new products. Such forward-looking statements are not guarantees 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:
Pending Transaction Risk
The Company has entered into a definitive agreement to sell its
superabsorbent polymer business to BASF AG. Completion of the transaction is
subject to the mechanical completion of the polymer plant in Thailand, approval
by regulatory authorities in the United States, United Kingdom and Germany, and
approval by the Company's shareholders.
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 50%
of our absorbent polymer sales in 1999 and our five largest absorbent polymer
customers accounted for approximately 68% 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 five 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 customers may elect to use the SAP of one of our
competitors. 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
U.S. operations compete with approximately four manufacturers and at least three
importers. Our U.K. 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
<PAGE>
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 U.S. 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.
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 48% of our minerals segment's sales and 31% of our
environmental segment's sales in 1999 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 by the metalcasting and construction
markets may decline and our business or future financial results may be
adversely affected in the minerals and environmental segments, respectively.
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 that 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 the United States represents approximately 46%
of our consolidated sales. The approximate breakdown of the sales outside of the
United States for 1999 was as follows: Europe 52%; Latin America (including
Mexico) 23%; Asia 9%; Africa along with the Middle East 15%; and other 1%. 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
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, 1999, approximately 60% 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 39%; Latin
America (including Mexico) 38%; Asia 12%; and Africa and the Middle East 11%.
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.
Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivatives and for hedging activities. As issued, SFAS
No. 133 was effective for all quarters of all years beginning after June 15,
1999. In June 1999, SFAS No. 137 was issued, effectively deferring the date of
required adoption of SFAS No. 133 to quarters of all years beginning after June
15, 2000. The Company is studying the statement to determine its effect on the
consolidated financial position or results of operations, if any. The Company
will adopt SFAS No. 133, as required, in fiscal year 2001.
<PAGE>
Year 2000
Since the change in the calendar from 1999 to 2000, we have not experienced
any malfunctions or failures of our information technology systems, or of our
equipment with embedded technology. To date, we are not aware of any party with
whom we conduct a significant amount of business that has experienced a material
year 2000 readiness issue affecting their ability to operate their business or
raise adequate revenues to meet their contractual obligations to us. Although we
are prepared to commit the necessary resources to enforce our contractual rights
in the event any third parties with whom we conduct business encounter year 2000
issues, we do not expect to incur any additional amounts to continue to monitor
and prevent year 2000 malfunctions and failures because we do not expect to
encounter any material year 2000 issues. However, we will continue to monitor
any potential year 2000 issues that develop, and will adopt contingency plans
accordingly to mitigate any impact on the operation of our business.
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.
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 Euro, the British pound, the Canadian dollar, the
Australian dollar, the Mexican peso, the Thai baht and the Korean won. The
Company also has significant exposure to changes in exchange rates between the
British pound and the Euro.
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, 1999, the Company had outstanding foreign
currency contracts to sell the equivalent of $2.75 million of British pounds to
hedge raw material purchases. The fair value of these agreements results in an
immaterial unrecognized loss at December 31, 1999.
Interest Rate Sensitivity
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for debt obligations. Weighted average variable rates are based
on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are denominated in both
U.S. dollars (US), British pounds (BP), Norwegian kroner (NOK), Korean won (WON)
and Thai baht (THB) as indicated in parentheses.
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
(US$ equivalent in millions)
Long-term debt:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate (US).......... $ - $ 5,000 $ 5,000 $ - $ - $ 15,000 $ 25,000 $25,511
Average interest rate.... - 7.8% 7.8% - - 8.1% - -
Variable rate (US)....... 42,000 - - - - - 42,000 42,000
Average interest rate.... 6.4% - - - - - - -
Variable rate (BP)....... 22,776 - - - - - 22,776 22,776
Average interest rate.... 6.0% - - - - - - -
Variable rate (NOK)...... 509 469 - - - - 978 978
Average interest rate.... 8.3% 7.6% - - - - - -
Variable rate (WON)...... 881 - - - - - 881 881
Average interest rate 9.9% - - - - - - -
Variable rate (THB)...... 2,788 - - - - - 2,788 2,788
Average interest rate.... 6.6% - - - - - - -
68,954 5,469 5,000 - - 15,000 94,423 94,934
Debt to be refinanced.... (68,445) 3,669 - 64,776 - - - -
Total......................... $ 509 $ 9,138 $ 5,000 $ 64,776 $ - $ 15,000 $ 94,423 $94,934
</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, 1999, the Company had one interest rate swap outstanding, which
expires in September 2002, in a notional amount of $15 million. The fair value
of this agreement results in an unrecognized loss at December 31, 1999, of $166.
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 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, 59 (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, 61 (1, 2)
Retired Dean and Professor of Law, University of South Dakota. Director since
1985.
John Hughes, 57 (3)
Chairman of the Board of Directors since May 1998; Chief Executive Officer of
the Company since 1985; a Director since 1984. Mr. Hughes will retire as Chief
Executive Officer effective at the Company's annual shareholders' meeting.
James A. McClung, 62 (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. Mr. McClung is retiring as a director of
the Company effective at the annual shareholders' meeting.
Jay D. Proops, 58 (2, 3, 4, 5)
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, 67 (1, 2, 3, 4, 5)
Retired Executive Vice President - Finance of Signode Industries, Inc. a
manufacturer of industrial strapping products. Director since 1981.
Clarence O. Redman, 57 (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. Previously, 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 U.S. 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, 50 (3)
Senior Vice President and Chief Financial Officer of AMCOL International
Corporation. Director since 1988.
Dale E. Stahl, 52 (2, 3, 4, 5)
President and Chief Operating Officer of Gaylord Container Corporation, a
manufacturer and distributor of brown paper and packaging products. Director
since 1995.
<PAGE>
Lawrence E. Washow, 47 (3)
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. Mr. Washow has been appointed to succeed Mr. Hughes as the
Company'sChief Executive Officer effective at the Company's annual shareholders'
meeting.
Audrey L. Weaver, 45 (2)
Private investor. Director since February 1997.
Paul C. Weaver, 37 (3, 4, 5)
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
(5) Member of Succession Planning 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 before April 29, 2000, 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 before
April 29, 2000, 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 before April 29, 2000, 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 before April 29, 2000,
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, 1999 and 1998 F-3
Consolidated Statements of Operations,
Years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Comprehensive Income,
Years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows,
Years ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts F-25
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, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, 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
March 2, 2000
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS December 31,
1999 1998
Current assets:
<S> <C> <C>
Cash and cash equivalents......................................................... $ 3,815 $ 2,758
Accounts receivable:
Trade, less allowance for doubtful accounts of $4,415 and $2,999.............. 98,943 96,446
Other......................................................................... 7,873 3,628
Inventories....................................................................... 40,680 52,093
Prepaid expenses.................................................................. 6,571 5,444
Current deferred tax asset........................................................ 6,888 3,707
Total current assets.......................................................... 164,770 164,076
Investment in and advances to joint ventures........................................... 9,111 4,556
Property, plant, equipment, and mineral rights and reserves:
Land and mineral rights and reserves.............................................. 12,369 13,421
Depreciable assets................................................................ 339,006 312,260
351,375 325,681
Less accumulated depreciation..................................................... 178,967 154,203
172,408 171,478
Other assets:
Goodwill and other intangible assets, less accumulated amortization of $580 and 452 16,308
$16,672
Long-term prepayments and other assets............................................ 1,534 1,446
Deferred tax asset................................................................ 732 -
2,718 17,754
$349,007 $357,864
LIABILITIES AND STOCKHOLDERS' EQUITY December 31,
1999 1998
Current liabilities:
Current maturities of long-term obligations....................................... 509 $ 17,117
Accounts payable.................................................................. 20,656 21,969
Accrued income taxes.............................................................. 7,564 3,478
Accrued liabilities............................................................... 30,986 31,519
Total current liabilities..................................................... 59,715 74,083
Long-term obligations:
Long-term debt.................................................................... 93,914 96,268
Deferred income tax liabilities........................................................ - 7,505
Other liabilities...................................................................... 8,938 7,094
8,938 14,599
Stockholders' equity:
Common stock, par value $.01 per share. Authorized 100,000,000 shares, issued
32,015,796 shares............................................................. 320 320
shares
Additional paid-in capital........................................................ 76,440 76,238
Retained earnings................................................................. 142,270 127,262
Cumulative other comprehensive income (expense) .................................. (2,607) (1,756)
216,423 202,064
Less:
Treasury stock (5,163,715 shares in 1999 and 5,146,399 shares in 1998)............ (29,983) (29,150)
186,440 172,914
$349,007 $357,864
</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,
1999 1998 1997
<S> <C> <C> <C>
Net sales....................................................................... $ 552,052 $ 521,530 $ 477,060
Cost of sales................................................................... 414,256 410,359 376,319
Gross profit............................................................... 137,796 111,171 100,741
General, selling and administrative expenses.................................... 79,834 68,951 59,272
Write down of intangible and long-term assets................................... 14,529 -- --
Operating profit........................................................... 43,433 42,220 41,469
Other income (expense):
Interest expense, net...................................................... (6,396) (7,933) (8,628)
Other, net................................................................. (1,338) 140 (398)
(7,734) (7,793) (9,026)
Income before income taxes and equity in income of joint ventures.......... 35,699 34,427 32,443
Income taxes.................................................................... 13,913 12,350 11,399
Income before equity in income of joint ventures........................... 21,786 22,077 21,044
Equity in income of joint ventures ............................................. 448 8 -
Net income................................................................. $ 22,234 $ 22,085 $ 21,044
Earnings per share
Basic...................................................................... $ .83 $ .79 $ .74
Diluted.................................................................... $ .82 $ .78 $ .72
</TABLE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Net income...................................................................... $ 22,234 $ 22,085 $ 21,044
Other comprehensive income:
Foreign currency translation adjustment......................................... (851) (7) (4,617)
Comprehensive income............................................................ $ 21,383 $ 22,078 $ 16,427
</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 Cumulative
Other
Additional Comprehensive
Paid-in Retained Income Treasury
Capital Earnings (Expense) Stock Total
Number
of
Shares (1) Amount
Balance at December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1996.................... 32,015,796 $ 213 $ 75,576 $ 96,579 $ 2,868 ($7,832) $ 167,404
Net income................... - - - 21,044 - - 21,044
Cash dividends ($.21 per
share).................. - - - (5,928) - - (5,928)
Cumulative translation
adjustment.............. - - - - (4,617) - (4,617)
Three-for-two stock split.... 107 (107) -
Purchase of 254,132
treasury shares......... - - - - - (2,921) (2,921)
Sales of 230,808 treasury
shares pursuant
to options.............. - - 363 - - 598 961
Balance at December 31,
1997.................... 32,015,796 320 75,939 111,588 (1,749) (10,155) 175,943
Net income................... - - - 22,085 - - 22,085
Cash dividends ($.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 pursuant
to options.............. - - 299 - - 903 1,202
Balance at December 31,
1998.................... 32,015,796 $ 320 $76,238 $ 127,262 ($ 1,756) ($ 29,150) $ 172,914
Net income................... - - - 22,234 - - 22,234
Cash dividends ($.27 per
share).................. - - - (7,226) - - (7,226)
Cumulative translation
adjustment.............. - - - - (851) - (851)
Purchase of 226,600
treasury shares......... - - - - - ( 2,040) (2,040)
Sales of 209,284 treasury
shares pursuant
to options.............. - - 202 - - 1,207 1,409
Balance at December 31,
1999.................... 32,015,796 $ 320 $ 76,440 $142,270 ($ 2,607) ($ 29,983) $ 186,440
<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,
1999 1998 1997
Cash flow from operating activities:
<S> <C> <C> <C>
Net income............................................................. $ 22,234 $ 22,085 $21,044
Adjustments to reconcile net income to net cash provided by operating
Activities:
Depreciation, depletion, and amortization.......................... 37,208 33,122 31,912
Increase (decrease) in allowance for doubtful accounts............. 1,416 452 (116)
Increase (decrease) in deferred income taxes....................... (8,237) 815 177
Increase in other noncurrent liabilities........................... 1,229 311 777
(Gain) loss on sale of depreciable assets.......................... 252 (72) 111
Write down of intangible assets.................................... 13,238 - -
(Increase) decrease in current assets:
Accounts receivable........................................... (8,158) (10,915) (8,678)
Inventories................................................... 11,413 (2,704) 6,925
Prepaid expenses.............................................. (1,127) (335) (607)
Current deferred tax asset.................................... (3,181) (623) 2
Increase (decrease) in current liabilities:
Accounts payable.............................................. (1,313) (2,933) 513
Accrued income taxes.......................................... 4,086 1,801 1,412
Accrued liabilities........................................... (533) 5,881 7,391
Net cash provided by operating activities................ 68,527 46,885 60,863
Cash flow from investing activities:
Proceeds from sale of depreciable assets............................... 2,419 556 787
Sale of product line and mineral reserves.............................. - 13,176 -
Acquisition of land, mineral reserves, and depreciable assets.......... (40,160) (37,678) (32,652)
Advances to joint ventures............................................. (4,555) (1,521) (1,233)
Decrease in other assets............................................... 637 369 343
Net cash used in investing activities..................... (41,659) (25,098) (32,755)
Cash flow from financing activities:
Proceeds from issuance of debt......................................... 465 16,697 2,443
Principal payments of debt............................................. (19,427) (12,761) (20,818)
Proceeds from sales of treasury stock.................................. 1,409 1,202 961
Purchases of treasury stock............................................ (2,040) (19,898) (2,921)
Dividends paid......................................................... (7,226) (6,411) (5,928)
Net cash used in financing activities..................... (26,819) (21,171) (26,263)
Rate change on cash......................................................... 1,008 (935) (1,822)
Net increase (decrease) in cash and cash equivalents........................ 1,057 (319) 23
Cash and cash equivalents at beginning of year.............................. 2,758 3,077 3,054
Cash and cash equivalents at end of year.................................... $ 3,815 $ 2,758 $ 3,077
Supplemental disclosures of cash flow information:
Cash paid for:
Interest............................................................... $ 6,986 $ 7,615 $ 8,908
Income taxes .......................................................... $ 19,959 $ 10,301 $ 9,479
</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 1999, the Company's revenues are derived 46%
from absorbent polymers, 28% from minerals, 20% from environmental and 6% from
transportation operations. The Company's sales were approximately 54% domestic
and 46% 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 greater than 50%
owned by the Company are consolidated.All subsidiaries are wholly owned, except
India (50% and 20%), Mexico (49%), China (49%), Egypt (25%) and Japan (19%).The
Mexican, Chinese and Egyptian joint ventures were accounted for using the equity
method in 1999 and 1998.The Indian investments were made in 1999, and were
recorded using the equity method.Prior to 1998, the Chinese and Mexican ventures
were recorded at cost.The difference between the results based on the cost
method and the equity method was immaterial.The Japanese investment is recorded
at cost.All material intercompany balances and transactions between wholly owned
subsidiaries, 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.
Revenue Recognition
Product revenue is recognized when products are shipped to customers.
Allowances for discounts, rebates, and estimated returns are recorded at the
time of sale.
Research and Development
Research and development costs, included in general, selling and
administrative expenses, were approximately $8,140, $6,839 and $6,273 for the
years ended December 31, 1999, 1998 and 1997.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted
average number 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>
1999 1998 1997
<S> <C> <C> <C>
Weighted average of common shares outstanding for the year.............. 26,772,569 27,918,391 28,488,527
Dilutive impact of stock options........................................ 426,694 467,469 636,641
Weighted average of common and common equivalent shares for the year.... 27,199,263 28,385,860 29,125,168
Common shares outstanding at December 31................................ 26,852,081 26,869,397 28,474,198
</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 undiscounted 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 as estimated by discounted cash
flows.
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 1998 and 1997 consolidated financial statements have
been reclassified to comply with the consolidated financial statement
presentation for 1999.
(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. 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 include cash and cash equivalents, corporate
leasehold improvements, nanocomposite plant investment and other 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 $70,704,
$70,442 and $54,863 for the years ended December 31, 1999, 1998 and 1997.
Procter & Gamble, a customer of the absorbent polymer segment, accounted for
approximately 18% of consolidated sales in 1999.
The following summaries set forth certain financial information by business
segment and geographic area for the years ended December 31, 1999, 1998 and
1997.
<TABLE>
<CAPTION>
1999 1998 1997
Business Segment:
Revenues:
<S> <C> <C> <C>
Absorbent polymers............................................ $ 252,908 $ 221,093 $ 195,944
Minerals...................................................... 156,537 164,049 162,895
Environmental................................................. 107,975 104,501 88,421
Transportation................................................ 34,632 31,887 29,800
Total..................................................... $ 552,052 $521,530 $477,060
Operating profit:
Absorbent polymers............................................ $ 51,850 $ 33,251 $ 28,863
Minerals...................................................... 14,287 10,131 11,634
Environmental................................................. (7,666) 9,194 10,268
Transportation................................................ 1,631 1,635 1,642
Corporate..................................................... (16,669) (11,991) (10,938)
Total..................................................... $ 43,433 $ 42,220 $ 41,469
Assets:
Absorbent polymers............................................ $ 145,249 $ 131,914 $ 135,076
Minerals...................................................... 119,247 121,085 129,484
Environmental................................................. 62,409 83,674 68,268
Transportation................................................ 1,439 932 1,209
Corporate..................................................... 20,663 20,259 16,972
Total..................................................... $ 349,007 $ 357,864 $ 351,009
Depreciation, depletion and amortization:
Absorbent polymers............................................ $ 16,953 $ 14,763 $ 14,032
Minerals...................................................... 12,030 10,306 11,110
Environmental................................................. 5,766 6,249 5,126
Transportation................................................ 64 70 66
Corporate..................................................... 2,395 1,734 1,578
Total..................................................... $ 37,208 $ 33,122 $ 31,912
Capital expenditures:
Absorbent polymers............................................ $ 22,016 $ 9,640 $ 4,802
Minerals...................................................... 8,874 12,396 14,494
Environmental................................................. 6,571 11,175 6,598
Transportation................................................ 49 30 112
Corporate..................................................... 2,650 4,437 6,646
Total..................................................... $ 40,160 $ 37,678 $ 32,652
Research and development expenses:
Absorbent polymers............................................ $ 4,407 $ 3,326 $ 2,693
Minerals...................................................... 1,051 497 594
Environmental................................................. 1,147 1,035 787
Transportation................................................ - - -
Corporate..................................................... 1,535 1,981 2,199
Total..................................................... $ 8,140 $ 6,839 $ 6,273
</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>
1999 1998 1997
Geographic area:
Sales to unaffiliated customers from:
<S> <C> <C> <C>
North America...................................................... $ 374,638 $ 349,815 $ 343,114
Europe............................................................. 164,683 163,540 131,102
Asia 9,980 5,812 -
Australia.......................................................... 2,751 2,363 2,844
Total......................................................... $ 552,052 $ 521,530 $ 477,060
Sales or transfers between geographic areas:
North America...................................................... $ 7,531 $ 5,384 $ 3,575
Europe............................................................. 24 27 -
Total......................................................... $ 7,555 $ 5,411 $ 3,575
Operating profit from:
North America...................................................... $ 33,124 $ 32,519 $ 26,156
Europe............................................................. 13,026 9,491 15,003
Australia.......................................................... 401 162 305
Asia (3,118) 48 -
Adjustments and eliminations....................................... - - 5
Total......................................................... $ 43,433 $ 42,220 $ 41,469
Identifiable assets in:
North America...................................................... $ 211,306 $ 225,044 $ 244,581
Europe............................................................. 97,302 114,573 100,671
Australia.......................................................... 2,576 1,940 2,102
Asia 37,823 16,307 3,780
Adjustments and eliminations....................................... - - (125)
Total......................................................... $ 349,007 $ 357,864 $ 351,009
</TABLE>
(3) Inventories
<TABLE>
<CAPTION>
Inventories consisted of: 1999 1998
<S> <C> <C>
Advance mining....................................................................... $ 1,450 $ 2,412
Crude stockpile inventories.......................................................... 9,822 15,174
In-process inventories............................................................... 13,726 19,113
Other raw material, container, and supplies inventories.............................. 15,682 15,394
$ 40,680 $ 52,093
</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>
Depreciation/
December 31, Amortization
1999 1998 Annual Rates
<S> <C> <C>
Mineral rights and reserves..................................... $ 6,006 $ 6,622
Other land...................................................... 6,363 6,799
Buildings and improvements...................................... 77,322 57,305 4.9% to 25.0%
Machinery and equipment......................................... 261,684 254,955 10.0% to 50.0%
$351,375 $325,681
</TABLE>
Depreciation and depletion were charged to income as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Depreciation expense........................................................ $33,852 $29,617 $28,922
Depletion expense........................................................... 863 367 368
$34,715 $29,984 $29,290
</TABLE>
(5) Income Taxes
The components of the provision for domestic and foreign income tax expense
for the years ended December 31, 1999, 1998 and 1997 consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
Income before income taxes and minority interest:
<S> <C> <C> <C>
Domestic............................................................... $ 25,341 $ 30,469 $ 26,023
Foreign................................................................ 10,358 3,958 6,420
$ 35,699 $ 34,427 $ 32,443
Provision for income taxes:
Domestic Federal
Current............................................................. $ 13,854 $ 10,650 $ 8,818
Deferred............................................................ (8,162) (2,562) (1,027)
Domestic State
Current............................................................. 2,029 1,318 1,471
Deferred............................................................ (816) (256) (118)
Foreign
Current............................................................. 8,439 190 931
Deferred............................................................ (1,431) 3,010 1,324
$ 13,913 $ 12,350 $ 11,399
</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, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
Deferred tax assets:
<S> <C> <C>
Accounts receivable, due to allowance for doubtful accounts........................ $ 1,383 $ 1,061
Inventories ....................................................................... 737 686
Net foreign operating loss carryforward............................................ 2,517 1,417
Minimum pension liability.......................................................... 2,314 2,003
Capital losses carried forward..................................................... 2,431 -
Book amortization in excess of tax allowance....................................... 4,284 -
Other.............................................................................. 4,110 2,765
Total deferred tax assets....................................................... 17,776 7,932
Valuation allowance................................................................ (2,517) (800)
Net deferred tax assets......................................................... 15,259 7,132
Deferred tax liabilities:
Plant and equipment, due to differences in depreciation............................ (5,517) (8,873)
Land and mineral reserves, due to differences in depletion......................... (1,843) (1,969)
Inventories, due to change in accounting method from LIFO to FIFO.................. (152) (366)
Other.............................................................................. (127) 278
Total deferred tax liabilities.................................................. (7,639) (10,930)
Net deferred tax asset (liability).............................................. $ 7,620 $ (3,798)
</TABLE>
The Company recorded a valuation allowance in 1999 and 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 not known whether 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>
1999 1998 1997
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
Domestic and foreign taxes on income at
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory rate...................... $ 12,495 35.0% $ 12,049 35.0% $ 11,355 35.0%
Increase (decrease) in taxes resulting from:
Percentage depletion.................. (875) (2.5) (1,017) (3.0) (595) (1.8)
State taxes........................... 1,319 3.7 857 2.5 956 2.9
FSC commission........................ (518) (1.5) (853) (2.5) (724) (2.2)
Valuation allowance................... 1,717 4.8 800 2.3 - -
Nondeductible goodwill write down..... 935 2.7 - - - -
Other................................. (1,160) (3.2) 514 1.6 407 1.2
$ 13,913 39.0% $ 12,350 35.9% $ 11,399 35.1%
</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,
1999 1998
<S> <C> <C>
Short-term debt supported by revolving credit agreement................................. $ 64,776 $ 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).......................................................... 10,000 10,000
Term note, at 8.10% (Series C).......................................................... 15,000 15,000
Other notes payable..................................................................... 4,647 6,635
94,423 113,385
Less current portion.................................................................... 509 17,117
$ 93,914 $ 96,268
</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, 1999, there was $60,224 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, 1999, were as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
Short-term debt supported by
<S> <C> <C> <C> <C> <C> <C>
revolving credit agreement...... $ - $ - $ - $64,776 $ - $ -
Term note, at 7.83% (Series B)...... - 5,000 5,000 - - -
Term note, at 8.10% (Series C)...... - - - - - 15,000
Other notes payable................. 509 4,138 - - - -
$ 509 $ 9,138 $ 5,000 $64,776 $ - $15,000
</TABLE>
The estimated fair value of the term notes above at December 31, 1999, was
$25,511 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.
The Company is renegotiating its debt covenants in anticipation of the sale
of the absorbent polymers segment. It is anticipated that the $125 million
revolver will remain in place after the pending transaction closes. It is
possible that the repayment of the term notes will be accelerated as a result of
the transaction.
<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 Euro, the British pound, the Canadian dollar, the
Australian dollar, the Mexican peso, the Thai baht and the Korean won. The
Company also has significant exposure to changes in exchange rates between the
British pound and the Euro.
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, 1999, the Company had outstanding foreign
currency contracts to sell the equivalent of $2.75 million of British pounds to
hedge raw material purchases. The fair value of these agreements results in an
immaterial unrecognized loss at December 31, 1999.
Interest Rate Sensitivity
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for debt obligations. Weighted average variable rates are based
on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instrument's actual cash flows are denominated in both
U.S. dollars (US), British pounds (BP), Norwegian kroner (NOK), Korean won (WON)
and Thai baht (THB) as indicated in parentheses.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(7) Market Risks and Financial Instruments (Continued)
<TABLE>
<CAPTION>
Expected Maturity Date
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
(US$ equivalent in millions)
Long-term debt:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate (US).......... $ - $ 5,000 $ 5,000 $ - $ - $15,000 $ 25,000 $25,511
Average interest rate.... - 7.8% 7.8% - - 8.1% - -
Variable rate (US)....... 42,000 - - - - - 42,000 42,000
Average interest rate.... 6.4% - - - - - - -
Variable rate (BP)....... 22,776 - - - - - 22,776 22,776
Average interest rate.... 6.0% - - - - - - -
Variable rate (NOK)...... 509 469 - - - - 978 978
Average interest rate.... 8.3% 7.6% - - - - - -
Variable rate (WON)...... 881 - - - - - 881 881
Average interest rate 9.9% - - - - - - -
Variable rate (THB)...... 2,788 - - - - - 2,788 2,788
Average interest rate.... 6.6% - - - - - - -
68,954 5,469 5,000 - - 15,000 94,423 94,934
Debt to be refinanced.... (68,445) 3,669 - 64,776 - - - -
Total......................... $ 509 $ 9,138 $ 5,000 $ 64,776 $ - $15,000 $ 94,423 $94,934
</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, 1999, the Company had one interest rate swap outstanding, which
expires in September 2002, in a notional amount of $15 million. The fair value
of this agreement results in an unrecognized loss at December 31, 1999, of $166.
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 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 $3,770, $3,535 and $3,560 in 1999,
1998 and 1997, respectively.
The following is a schedule of future minimum lease payments for operating
leases (with initial terms in excess of one year) as of December 31, 1999:
<TABLE>
<CAPTION>
Operating Leases
Domestic Foreign Total
Year ending December 31:
<S> <C> <C> <C> <C>
2000.................................................. $ 2,904 $ 260 $ 3,164
2001.................................................. 2,395 151 2,546
2002.................................................. 1,982 48 2,030
2003.................................................. 1,440 36 1,476
2004.................................................. 1,315 22 1,337
Thereafter............................................ 4,974 - 4,974
Total minimum lease payments................................ $ 15,010 $ 517 $ 15,527
</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, 1999 and 1998:
<TABLE>
<CAPTION>
Pension Benefits
1999 1998
Change in benefit obligations:
<S> <C> <C>
Beginning benefit obligation........................................................ $ 24,782 $ 21,583
Service cost........................................................................ 1,708 1,510
Interest cost....................................................................... 1,581 1,481
Plan amendment...................................................................... - -
Actuarial (gain) loss............................................................... (2,463) 1,258
Benefits paid....................................................................... (991) (1,050)
Ending benefit obligation........................................................... $ 24,617 $ 24,782
Change in plan assets:
Beginning fair value................................................................ $ 18,426 $ 19,685
Actual return....................................................................... 3,216 (209)
Company contribution................................................................ 1,122 -
Benefits paid....................................................................... (991) (1,050)
Endingfair value.................................................................... $21,773 $18,426
Funded status of the plan........................................................... ($ 2,844) ($ 6,356)
Unrecognized actuarial and investment (gains) losses, net........................... (1,997) 2,035
Prior service cost.................................................................. 625 661
Transition asset.................................................................... (772) (908)
Accrued pension cost liability...................................................... ($ 4,988) ($ 4,568)
</TABLE>
<TABLE>
<CAPTION>
Pension cost was comprised of: 1999 1998 1997
<S> <C> <C> <C>
Service cost - benefits earned during the year.............................. $ 1,708 $ 1,510 $ 1,284
Interest cost on accumulated benefit obligation............................. 1,581 1,481 1,327
Expected return on plan assets.............................................. (1,647) (1,733) (1,455)
Net amortization and deferral............................................... (101) (101) (115)
Net periodic pension cost................................................... $ 1,541 $ 1,157 $ 1,041
</TABLE>
The Company's pension benefit plan was valued as of October 1, 1999 and
1998, 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 1999 and 1998, respectively, were as follows:
the weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% and 6.5%; the rate of
increase in future compensation levels was 5.75% and 5.00%; 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
$1,024 at September 30, 1999.
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 $1,361 in 1999, $1,280 in 1998 and $1,233 in 1997. 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>
1999 1998 1997
<S> <C> <C> <C>
Net income:.................... As reported........ $ 22,234 $ 22,085 $ 21,044
Pro forma.......... $ 21,188 $ 20,966 $ 20,115
Basic earnings per share:...... As reported........ $ 0.83 $ 0.79 $ 0.74
Pro forma.......... $ 0.79 $ 0.75 $ 0.71
Diluted earnings per share:.... As reported........ $ 0.82 $ 0.78 $ 0.72
Pro forma.......... $ 0.78 $ 0.74 $ 0.69
</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 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Risk-free interest rate................... 4.9% 5.6% 6.2%
Expected life of option................... 6 yrs 6 yrs 6 yrs
Expected dividend yield of stock.......... 2.6% 1.7% 1.6%
Expected volatility of stock.............. 45% 40% 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, 1999, 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 1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1........... 476,348 $ 5.27 611,184 $ 4.88 771,584 $ 4.53
Granted.................................... - - - - - -
Exercised.................................. (110,116) 3.66 (130,966) 3.35 (157,115) 3.18
Cancelled.................................. - - (3,870) 7.83 (3,285) 4.84
Options outstanding at December 31......... 366,232 5.76 476,348 5.27 611,184 4.88
Options exercisable at December 31......... 366,232 476,348 552,818
Shares available for future grant at
December 31............................. - - -
</TABLE>
<TABLE>
<CAPTION>
1993 Stock Plan 1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1.......... 1,139,019 $ 11.49 929,830 $ 10.92 664,673 $ 10.48
Granted................................... - - 285,065 13.13 287,772 11.83
Exercised................................. (45,362) 10.19 (17,374) 8.90 (11,286) 8.99
Cancelled................................. (61,625) 11.71 (58,502) 11.15 (11,329) 10.69
Options outstanding at December 31........ 1,032,032 11.53 1,139,019 11.49 929,830 10.92
Options exercisable at December 31........ 547,808 400,190 147,285
Shares available for future grant at
December 31............................ - - 318,884
</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 1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1........... 106,938 $ 6.79 182,838 $ 5.07 229,284 $ 3.68
Granted.................................... - - - - 21,000 12.00
Exercised.................................. (26,946) 3.04 (75,900) 2.64 (62,400) 1.94
Cancelled.................................. - - - - (5,046) 9.51
Options outstanding at December 31......... 79,992 8.06 106,938 6.79 182,838 5.07
Options exercisable at December 31......... 60,792 73,601 141,183
Shares available for future grant at December 31 - - 179,862
</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 Long-Term Incentive Plan 1999 1998
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Options outstanding at January 1....................... 20,000 $14.06 - $ -
Granted................................................ 306,000 9.33 20,000 14.06
Exercised.............................................. - - - -
Cancelled.............................................. (13,155) 9.00 - -
Options outstanding at December 31..................... 312,845 9.64 20,000 14.06
Options exercisable at December 31..................... 5,600 -
Shares available for future grant at December 31....... 1,587,155 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, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
of Contractual Exercise Of Exercise
Range of exercise prices Shares Life (Yrs.) Price Shares Price
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.945 - $ 8.250 518,345 3.10 $ 6.196 491,092 $ 6.085
8.500 - 10.250 475,233 7.87 9.312 128,927 9.697
10.500 - 13.125 645,298 7.02 12.315 232,188 11.756
13.625 - 14.060 152,225 4.50 13.717 128,225 13.673
Total 1,791,101 5.89 9.866 980,432 8.896
</TABLE>
<TABLE>
<CAPTION>
(11) Accrued Liabilities
1999 1998
<S> <C> <C>
Estimated accrued severance taxes....................................................... $ 1,385 $ 2,393
Accrued employee benefits............................................................... 4,987 4,572
Accrued vacation pay.................................................................... 2,235 1,944
Accrued dividends....................................................................... -- 1,615
Accrued bonus........................................................................... 3,616 2,915
Accrued commissions..................................................................... 4,314 4,987
Other................................................................................... 14,449 13,093
$ 30,986 $ 31,519
</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 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 Quarter
First Second Third Fourth
<S> <C> <C> <C> <C>
Absorbent polymers.......................................... $ 58,324 $ 64,607 $ 63,372 $ 66,605
Minerals.................................................... 39,609 38,081 39,319 39,528
Environmental............................................... 23,182 30,697 30,866 23,230
Transportation............................................. 7,844 8,485 9,761 8,542
Net sales............................................. $ 128,959 $ 141,870 $ 143,318 $ 137,905
Absorbent polymers.......................................... $ 13,715 $ 16,003 $ 18,207 $ 20,977
Minerals.................................................... 8,656 8,055 8,939 9,023
Environmental............................................... 7,104 8,035 8,348 6,973
Transportation.............................................. 878 949 1,055 879
Gross profit.......................................... $ 30,353 $ 33,042 $ 36,549 $ 37,852
Absorbent polymers.......................................... $ 9,527 $ 11,973 $ 14,087 $ 16,263
Minerals.................................................... 4,012 3,674 4,742 1,859
Environmental............................................... 722 1,393 2,080 (11,861)
Transportation.............................................. 348 427 500 356
Corporate................................................... (3,867) (3,547) (4,699) (4,556)
Operating profit (loss)............................... $ 10,742 $ 13,920 $ 16,710 $ 2,061
Net income (loss)........................................... $ 5,739 $ 7,749 $ 9,375 $ (629)
Basic earnings (loss) per share:............................ $ 0.21 $ 0.29 $ 0.35 $ (0.02)
Diluted earnings (loss) per share:.......................... $ 0.21 $ 0.29 $ 0.34 $ (0.02)
</TABLE>
<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>
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share amounts)
(13) Impairment of Assets
As a result of the poor operating performance of some of the Company's
subsidiaries, recoverability of their long lived assets was assessed. That
assessment indicated certain intangibles and fixed assets would not be recovered
through undiscounted cash flows. As a result, an asset impairment was recorded,
in the amount of $3.0 million for the minerals segment and $11.6 million for the
environmental segment. The assets were written down to fair value as estimated
by discounting cash flows using an incremental borrowing rate.
(14) Pending Transaction
The Company has entered into a definitive agreement to sell its
superabsorbent polymer business to BASF AG. Completion of the transaction is
subject to the mechanical completion of the polymer plant in Thailand, approval
by regulatory authorities in the United States, United Kingdom and Germany, and
approval by the Company's shareholders. German regulatory approval has been
obtained. The Company and BASF are responding to questions raised by the U.S.
Federal Trade Commission in response to their respective Hart Scott Rodino
filings. The Company currently intends to seek shareholder approval concurrent
with the proxy filing for its annual meeting. If all approvals are obtained, the
Company currently intends to distribute substantially all of the net proceeds to
its shareholders.
<PAGE>
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
(Dollars in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Charged at end
beginning costs and to other Other charges of
Year Description of year expenses account s add (deduct) (1) year
<S> <C> <C> <C> <C> <C>
1999 Allowance for doubtful accounts $ 2,999 $ 3,072 $ - ($1,656) $4,415
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
<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 amendment to its annual report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 26, 2000
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 April 26, 2000
John Hughes
Chairman of the Board and Chief Executive Officer
and Director
/s/ Lawrence E. Washow April 26, 2000
Lawrence E. Washow
President and Chief Operating Officer
and Director
/s/ Paul G. Shelton April 26, 2000
Paul G. Shelton
Senior Vice President and Chief Financial Officer;
Treasurer; Chief Accounting Officer and Director
/s/ C. Eugene Ray April 26, 2000
C. Eugene Ray
Director
/s/ Jay D. Proops April 26, 2000
Jay D. Proops
Director
James A. McClung
Director
/s/ Robert E. Driscoll, III April 26, 2000
Robert E. Driscoll, III
Director
<PAGE>
/s/ Clarence O. Redman April 26, 2000
Clarence O. Redman
Director
/s/ Arthur Brown April 26, 2000
Arthur Brown
Director
/s/ Dale E. Stahl April 26, 2000
Dale E. Stahl
Director
/s/ Audrey L. Weaver April 26, 2000
Audrey L. Weaver
Director
/s/ Paul C. Weaver April 26, 2000
Paul C. Weaver
Director
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
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)
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)
10.4 AMCOL International Corporation 1987 Non-Qualified Stock Option Plan (2);
as amended (6)*
10.7 Change in Control Agreement dated February 16, 1998, by and between
Registrant and Lawrence E. Washow (14)*
10.8 Change in Control Agreement dated April 1, 1997, by and between Registrant
and Peter L. Maul (12)*
10.9 AMCOL International Corporation Dividend Reinvestment and Stock Purchase
Plan (4); as amended (6)
10.10AMCOL International Corporation 1993 Stock Plan, as amended and restated
(10)*
10.11Credit 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 (18).
10.12Note 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 (18).
10.14Change in Control Agreement dated February 17, 1998 by and between
Registrant and Gary L. Castagna (14)*
10.15 AMCOL International Corporation 1998 Long-Term Incentive Plan (15)*
10.16Change in Control Agreement dated February 4, 1999 by and between
Registrant and Ryan F. McKendrick (17)*
10.17Asset and Stock Purchase Agreement dated November 22, 1999 by and between
the Company and BASF Aktiengesellschaft (19)
10.18Change in Control Agreement dated March 31, 2000 by and between Registrant
and Frank B. Wright, Jr. (20)*
10.19Change in Control Agreement dated April 1, 2000, by and between Registrant
and Paul G. Shelton (20)*
27 Financial Data Schedule
(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.
(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.
<PAGE>
(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.
(17) 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,
1998.
(18) 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, 1999.
(19) 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,
1999.
(20) 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,
2000.
* 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.
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
Ashapura Minechem Ltd. India 20
Ashapura Volclay Private Ltd. India 50
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 Holdings B.V. Netherlands 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 Holdings B.V. Netherlands 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
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
Volclay de Mexico, S.A. de C.V. Mexico 49
Volclay Holdings B.V. Netherlands 100
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 Corporation:
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 of our report dated March 2, 2000, relating to the consolidated
balance sheets of AMCOL International Corporation and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, comprehensive income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999, and related
schedule which report appears in the December 31, 1999, annual report on Form
10-K of AMCOL International Corporation.
/s/ KPMG LLP
Chicago, Illinois
April 28, 2000
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 3,815
<SECURITIES> 0
<RECEIVABLES> 111,231
<ALLOWANCES> 4,415
<INVENTORY> 40,680
<CURRENT-ASSETS> 164,770
<PP&E> 351,375
<DEPRECIATION> 178,967
<TOTAL-ASSETS> 349,007
<CURRENT-LIABILITIES> 59,715
<BONDS> 0
0
0
<COMMON> 320
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 349,007
<SALES> 552,052
<TOTAL-REVENUES> 552,052
<CGS> 414,256
<TOTAL-COSTS> 508,619
<OTHER-EXPENSES> 1,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,396
<INCOME-PRETAX> 35,699
<INCOME-TAX> 13,913
<INCOME-CONTINUING> 22,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,234
<EPS-BASIC> 0.83
<EPS-DILUTED> 0.82
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