-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HM3/rUU4hF0CYxa6dwP1Js/ZVpGdghSnF63hnWhzD8EIuyR+EEJ8eXRIPv9KMw7O DTm3PD5psTxIIfRhKYkp7Q== 0000813621-99-000002.txt : 19990325 0000813621-99-000002.hdr.sgml : 19990325 ACCESSION NUMBER: 0000813621-99-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMCOL INTERNATIONAL CORP CENTRAL INDEX KEY: 0000813621 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 360724340 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14447 FILM NUMBER: 99570687 BUSINESS ADDRESS: STREET 1: 1500 W SHURE DR STREET 2: ONE NORTH ARLINGTON CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60004-7803 BUSINESS PHONE: 8473948730 MAIL ADDRESS: STREET 1: 1500 W SHURE DR STREET 2: 1500 W SHURE DR SUITE 500 CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60004-7803 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN COLLOID CO DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________ FORM 10-K (Mark one) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _________ Commission File Number: 0-15661 AMCOL INTERNATIONAL CORPORATION (Exact Name of Registrant as Specified in its Charter)
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)
Registrant's telephone number, including area code: (847) 394-8730 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $.01 par value Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. |X| The aggregate market value of the $.01 par value Common Stock held by non-affiliates of the registrant on March 19, 1999, based upon the closing sale price on that date as reported in The Wall Street Journal was approximately $236,864,467. Registrant had 26,751,877 shares of $.01 par value Common Stock outstanding as of March 19, 1999. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be dated on or about March 29, 1999, are incorporated by reference into Part III hereof. 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 1998 1997 1996 Absorbent polymers......................................................... 42.4% 41.1% 38.0% Minerals................................................................... 31.5% 34.1% 35.9% Environmental.............................................................. 20.0% 18.5% 20.1% Transportation............................................................. 6.1% 6.3% 6.0% 100.0% 100.0% 100.0%
Net revenues, operating profit, assets, depreciation, depletion and amortization and capital expenditures attributable to each of the Company's business segments are set forth in Note 2 of the Company's Notes to Consolidated Financial Statements included elsewhere herein, which Note is incorporated herein by reference. ABSORBENT POLYMERS In the early 1970s, the Company utilized a technique called modified bulk polymerization ("MBP") to manufacture water-soluble polymers for the oil well drilling industry. This technique was modified to produce superabsorbent polymers ("SAP"), a category of polymers known for its extremely high water absorbency. Chemdal Corporation was formed in 1986 to manufacture and market absorbent polymers, with primary emphasis on SAP. To date, the Company's sales of SAP have been almost exclusively for use as an absorbent in personal care products, primarily disposable baby diapers. The Company produces SAP at its U.S. and U.K. facilities, having a combined annual capacity of 160,000 metric tons. Global demand for SAP has grown significantly in recent years as the amount of SAP used in new diaper designs has increased. SAP is more absorbent than the fluff pulp, and has been partially replacing fluff pulp in disposable diapers. The use of SAP in diapers allows for a thinner diaper that occupies less shelf space in stores and less landfill space. SAP also helps to hold moisture inside the diaper, thereby causing less irritation to the wearer's skin and reducing leakage. Based upon the Company's expectations regarding consumer and retail preferences, the Company believes that SAP will continue to be used in new diaper designs. While no assurance can be given that markets in developing countries will follow the trends of developed countries, the Company also believes that disposable diapers containing increasing amounts of SAP will gain more acceptance as per capita incomes in those countries rise. Principal Products and Markets The Company's SAP is primarily marketed under the trade names ARIDALL and ASAP. The Company's customers primarily include private label, national and multinational brand diaper manufacturers. Sales and Distribution The Company sells SAP to the personal care market in the United States on a direct basis. In other countries, the Company markets its products both directly and through agents and distributors. The Company expects to rely increasingly on a direct sales approach in the personal care market. The Company's direct sales efforts employ a team approach that includes both technical and marketing representatives. In 1998, the top two customers accounted for approximately 48% of the Company's polymer sales, and the top five customers accounted for approximately 66% of such sales. Research and Development The Company divides its research efforts into SAPs for the disposable hygienics markets and polymers for other markets (non-hygienics). Research and development for SAP focuses on applications and technology development that differentiate the Company's products and enhance its market position. Activity includes extension of its current technology with enhanced attributes that allow products to command higher prices, and also the creation of new platform technologies with the objective of being the leading edge company in disposable hygienic markets. Research and development works with all functional areas in the Company, from idea generation to product introduction. A substantive part of the overall research and development expenditures is dedicated to new business and technology development activities for markets distinct from disposable hygienic. There is technology crossover for SAP into new areas such as ion-exchange polymers for several market areas, but there is also a strong commitment to new-platform technology development, an example being adsorbent polymers for cosmetics and industrial markets. The Company benefits from the recruitment and retention of high-caliber research staff. It places importance on leveraging its research investment with collaborative bodies, such as academia and other corporations, and internally with the technical functions and resources of AMCOL's other business segments. The Company owns several patents relating to its original manufacturing process developed in the 1970s, and to modifications of its process developed in the 1980s and 1990s relating to its current manufacturing process. Patents on the original process have begun to expire. The Company believes that the loss of the patent protection will not have a material impact on the business. The patents relating to the current modifications expire at various times commencing in 2002. The Company follows the practice of obtaining patents on new developments whenever reasonably practicable. The Company also relies on unpatented know-how, trade secrets and improvements in connection with its SAP manufacturing process. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to or disclose the Company's trade secrets. Raw Materials The process used by the Company to produce SAP primarily uses acrylic acid and, to a lesser extent, potassium and sodium alkalis and catalysts. The Company knows of four acrylic acid suppliers in the United States, three in Europe and four in the Far East. The Company is aware that at least five of these suppliers manufacture SAP and, therefore, compete with the Company in this market. Global merchant supply of acrylic acid is adequate to meet the Company's production requirements. As long as acrylic acid supply exceeds demand, the Company does not consider itself to be at a significant competitive disadvantage against the vertically integrated producers of SAP. Potassium and sodium alkalis are available on a commercial basis worldwide with no meaningful limitations on availability. Catalysts are available from a small number of high-technology chemical manufacturers; however, the Company does not anticipate any difficulties in obtaining catalysts. Competition The Company believes that there are at least four major polymer manufacturers and at least three importers that compete with its U.S. operation, several of which have substantially greater financial resources than the Company. Two of these competitors are vertically integrated producers of acrylic acid, the primary cost component of SAP. The Company's U.K. operation competes with numerous producers. Only two producers have substantially more production capacity and several producers have greater financial resources than the Company. Further, at least three of these competitors are vertically integrated producers of acrylic acid. The competition in both the Company's domestic and international markets is primarily a matter of product quality and price, and it historically has been vigorous. The Company believes that its polymer manufacturing process has enabled it to add polymer production capacity at a lower capital investment cost than that required by other processes currently in widespread commercial use. Regulation and Environmental The Company's production process for SAP consumes virtually all chemicals and other raw materials used in the process. Virtually all materials that are not consumed by the end product are recycled through the process. The Company's polymer plants, therefore, generate a minimal amount of chemical waste. The handling of dried polymer is part of the production process, and, because this generates dust, the Company's polymer plants must meet clean air standards. The Company's polymer plants are equipped with dust collection systems, and the Company believes that it is in material compliance with applicable state and federal clean air regulations. The Company's absorbent polymer business is subject to other federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Certain of these laws and regulations provide for the imposition of substantial penalties for non-compliance. While the costs of compliance with, and penalties imposed under, these laws and regulations have not had a material adverse effect on the Company, future events (such as changes in or modified interpretations of existing laws and regulations or enforcement policies or further investigation or evaluation of potential health hazards of certain products) may give rise to additional compliance and other costs that could have a material adverse effect on the Company. MINERALS The Company's minerals business is principally conducted through its wholly owned subsidiaries, American Colloid Company in the United States and Canada, Volclay Ltd. in the United Kingdom, Volclay Siam Ltd. in Thailand, Volclay Korea Ltd. in South Korea, Volclay Pty. Limited in Australia, and through its joint venture companies, Redhill Volclay Company Ltd. in China, Volclay de Mexico in Mexico, Ashapura Volclay Ltd. in India, Egypt Mining & Drilling Chemicals Co. in Egypt, and Nissho Iwai Bentonite Company in Japan. Commercially produced bentonite is a type of montmorillonite clay found in beds ranging in thickness from two to 50 feet under overburden of up to 60 feet. There are two basic types of bentonite, each having different chemical and physical properties. These are commonly known as sodium bentonite and calcium bentonite. Sodium bentonite is generally referred to as western bentonite because it predominately occurs in the Western United States. Sodium bentonites of lesser purity occur outside the U.S. Calcium bentonite is generally referred to as southern bentonite in the U.S. and as Fuller's Earth outside the U.S. Calcium bentonites mined outside the U.S. are commonly activated with sodium carbonate to produce properties similar to natural sodium bentonite. A third type of clay mineral, a less pure variety of calcium montmorillonite called Fuller's Earth in the U.S., is used as "traditional" cat litter. In April 1998, the Company sold its reserves of Fuller's Earth and associated business to Oil-Dri Corporation of America (Oil-Dri). As part of the sale agreement, Oil-Dri supplies the Company's brands of "traditional" cat litter for sale to the pet trade sector of the domestic cat litter market. The Company's principal bentonite products are marketed under various internationally registered trade names, including VOLCLAY, PANTHER CREEK, PREMIUM GEL and ADDITROL. The Company's cat litter is sold under various trade names and private labels. Trade names include NATURAL SELECT, CAREFREE KITTY, PREMIUM CHOICE, CAT TAILS, CATS PAW and PAMPER CAT. Principal Products and Markets Durable Goods Metalcasting. In the formation of sand molds for metal castings, sand is bonded with bentonite and various other additives to yield desired casting form and surface finish. The Company produces blended mineral binders containing sodium and calcium bentonite, sold under the trade name ADDITROL. In addition, several high-performance specialty products are sold to foundries and companies that service foundries. Iron Ore Pelletizing. The Company supplies sodium bentonite for use as a pelletizing aid in the production of taconite pellets in North America. Well Drilling. Sodium bentonite and leonardite, a form of oxidized lignite mined and processed by the Company in North Dakota, are components of drilling fluids used in oil and gas well drilling. Bentonite imparts thickening and suspension properties, which facilitate the transport of rock cuttings to the surface during the drilling process. Drilling fluids lubricate the drilling bit and coat the underground formations to prevent hole collapse and drill bit seizing. The Company's primary trademark for this application is PREMIUM GEL. Other Industrial. The Company produces bentonite and bentonite blends for the construction industry, which are used as a plasticizing agent in cement, plaster and bricks, and as an emulsifier in asphalt. Consumable Goods Cat Litter. The Company produces and markets a sodium bentonite-based, scoopable (clumping) cat litter. Through its supply agreement with Oil-Dri, the Company markets a Fuller's Earth or "traditional" cat litter to complement its line of scoopable cat litter products to the pet trade sector of the market. The Company's scoopable products' clump-forming capability traps urine, allowing for easy removal of the odor-producing elements from the litter box. Scoopable litter has grown to 51% of the U.S. grocery market for cat litter in 1998 from 0.4% in 1989, and to 56% of the mass merchandise market for cat litter from no representation in 1989. The scoopable cat litter products are sold primarily to private label grocery and mass merchandisers, though the Company also sells its own brands to the grocery, pet store and mass markets. The Company's products are marketed under various trade names. Fine Chemicals. Purified grades of sodium bentonite are marketed to the pharmaceutical and cosmetics industries. Small amounts of purified bentonite act as a binding agent for pharmaceutical tablets, and bentonite's swelling property aids in tablet disintegration. Bentonite also acts as a thickening and suspension agent in lotions. Other specialized uses include flow control additives and beverage clarification. Agricultural. Sodium bentonite and calcium bentonites are sold as pelletizing aids in livestock feed and as anticaking agents for livestock feed in storage or during transit. Sales and Distribution In 1998, the top four customers were located in North America and accounted for approximately 23% of the Company's mineral sales worldwide. The Company has established industry-specialized sales groups staffed with technically oriented salespersons serving each of the Company's major markets. Certain groups have networks of distributors and representatives, including companies that warehouse at strategic locations. Most of its customers in the metalcasting industry are served on a direct basis by teams of Company sales, technical and manufacturing personnel. The Company also provides training courses and laboratory testing for customers who use the Company's products in the metalcasting process. Sales to the oil and gas well drilling industry are primarily made directly to oil and gas well drilling fluid service companies, both under the Company's trade name and under private label. Because bentonite is a major component of drilling fluids, two service companies have captive bentonite operations. The Company's potential market, therefore, generally is limited to those service organizations that are not vertically integrated, or do not have long-term supply arrangements with other bentonite producers. Sales to the cat litter market are made on a direct basis and through industry brokers. All sales to the iron ore pelletizing industry are made directly to the end user. Sales to the Company's remaining markets are made primarily through independent distributors and representatives. Competition Bentonite. The Company is one of the largest producers of bentonite products globally. There are at least four other major North American producers of sodium bentonite and at least one other major domestic producer of calcium bentonite. Two of the North American producers are companies primarily in other lines of business with substantially greater financial resources than the Company. There is also substantial global competition. The Company's bentonite operations outside North America compete with at least 12 other bentonite producers. Competition, in both the Company's domestic and international markets, is essentially a matter of product quality, price, logistics, service and technical support. With greater attention to market growth opportunities in emerging economic regions, competition among the significant bentonite producers has become quite vigorous. Seasonality Although business activities in certain of the industries in which the Company's mineral products are sold, e.g. oil and gas well drilling and construction, are subject to factors such as weather, the Company does not consider its mineral business, as a whole, to be seasonal. ENVIRONMENTAL Principal Products and Markets Through its wholly owned subsidiaries, Colloid Environmental Technologies Company (CETCO) in the United States and Canada, CETCO Korea Ltd., CETCO AS in Norway, CETCO Asia Sdn. Bhd. in Malaysia, CETCO Australia Pty. Ltd., CETCO Environmental Technologies Pte Ltd and CETCO (Europe) Ltd. in the United Kingdom, the Company sells sodium bentonite, products containing sodium bentonite, and other products, services, and equipment for use in environmental and construction applications. CETCO sells bentonite and its geosynthetic clay liner products under the BENTOMAT and CLAYMAX trade names for lining and capping landfills and for containment in tank farms, leach pads, waste stabilization lagoons, slurry walls and wetlands reclamation applications. The Company's VOLCLAY Waterproofing System is sold to the non-residential construction industry. This line includes VOLTEX, a waterproofing composite comprised of two polypropylene geotextiles filled with sodium bentonite. VOLTEX is installed to prevent leakage through underground foundation walls and slabs. The following products round out the principal components of the product line: VOLCLAY PANELS, also used for below-grade waterproofing of walls and slabs; WATERSTOP-RX, a joint sealant product; and VOLCLAY SWELLTITE, a waterproofing membrane for concrete split slabs and plaza areas. CETCO manufactures elastomeric reinforced urethane coatings sold under the ADURON trade name for use in commercial roofing applications. The Company believes that these products offer significant cost savings, especially in retrofit/re-roofing applications, while being among the more environmentally friendly roofing products available to the industry. Bentonite-based flocculants and customized equipment are used to remove emulsified oils and heavy metals from wastewater. Bentonite-based products are formulated to solidify liquid waste for proper disposal in landfills. These products are sold primarily under the SYSTEM-AC, RM-10 and SORBOND trade names. CETCO also specializes in providing absorption equipment and services to the environmental remediation industry and activated carbon purification systems for the beverage and municipal water treatment industries. Its operations include a fully equipped engineering and fabrication facility for producing pressure vessels used in filtration applications. In addition, a network of regional service centers provides services and distribution to markets such as remediation of petroleum-contaminated groundwater. The Company is also actively involved in providing wastewater treatment solutions to the cruise line industry to enable cruise line operators to meet wastewater discharge requirements. CETCO's environmental offshore services group employs CRUDESORB filtration technology, used primarily on offshore oil production platforms. CETCO employs several technologies to allow platform operators to maintain compliance with regulatory requirements governing discharge of waste generated during oil production. CETCO's filtration technology is marketed with all necessary equipment, proprietary filter media and trained professional service personnel. CETCO's drilling products are used in environmental and geotechnical drilling applications, horizontal directional drilling and mineral exploration. The products are used to install monitoring wells and water wells, rehabilitate existing water wells and seal abandoned exploration drill holes. VOLCLAY GROUT, BENTOGROUT and VOLCLAY TABLETS are among the trade names for products used in these applications. Horizontal and directional drilling applications utilizing HYDRAUL-EZ represent a significant new market area for CETCO drilling products. Competition CETCO has four principal competitors in the geosynthetic clay liner market. The construction and wastewater treatment product lines are specialized businesses that compete primarily with alternative technologies. The service center remediation business has three major competitors, one of which is substantially larger and with greater financial resources. The groundwater monitoring, well drilling and sealants products compete with the Company's traditional rivals in the sodium bentonite business. The environmental offshore services group competes with several larger oil services companies using different technology. Competition is based on product quality, service, price, technical support and availability of product. Historically, the competition has been vigorous. Sales and Distribution In 1998, no customer accounted for more than 5% of environmental sales. CETCO products are sold domestically and internationally. CETCO sells most of its products through independent distributors and commissioned representatives. Contract remediation work is done on a direct basis with consulting engineers engaged by the customers. Offshore customers are primarily major oil companies sold on a direct basis. CETCO employs technically oriented marketing personnel to support its network of distributors and representatives. In the service center business, salespersons develop business in the regional markets to supplement contract remediation work performed for national accounts. Seasonality Much of the business in the environmental sector is impacted by weather and soil conditions. Many of the products cannot be applied in harsh weather conditions and, as such, sales and profits tend to be stronger April through October. As a result, the Company considers this segment to be seasonal. Research and Development All Company business segments share research and laboratory facilities adjacent to the corporate headquarters. Technological developments are shared between the companies, subject to license agreements where appropriate. MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS Mineral Reserves The Company has reserves of sodium and calcium bentonite at various locations throughout North America including Wyoming, South Dakota, Montana and Alabama. The Company, indirectly through its joint venture companies, either owns or has mining rights to bentonite deposits in China, Egypt and Mexico. At 1998 consumption rates and product mix, the Company estimates its proven reserves of commercially usable sodium bentonite at 30 years. The Company estimates its proven reserves of calcium bentonite at 20 years. While the Company, based upon its experience, believes that its reserve estimates are reasonable and its title and mining rights to its reserves are valid, the Company has not obtained any independent verification of such reserve estimates or such title or mining rights. The Company owns or controls the properties on which its reserves are located through long-term leases, royalty agreements and patented and unpatented mining claims. A majority of the Company's bentonite reserves are owned. All of the properties on which the Company's reserves are located are either physically accessible for the purposes of mining and hauling, or the cost of obtaining physical access would not be material. Of the Company's total bentonite reserves in North America, less than 34% are located on unpatented mining claims owned or leased by the Company, on which the Company has the right to undertake regular mining activity. To retain possessory rights, a fee of $100 per year for each unpatented mining claim is required. The validity of title to unpatented mining claims is dependent upon numerous factual matters. The Company believes that the unpatented mining claims that it owns have been located in compliance with all applicable federal, state and local mining laws, rules and regulations. The Company is not aware of any material conflicts with other parties concerning its claims. From time to time, members of Congress and members of the executive branch of the federal government have proposed amendments to existing federal mining laws. The various amendments would have had a prospective effect on mining operations on federal lands and include, among other things, the imposition of royalty fees on the mining of unpatented claims, the elimination or restructuring of the patent system and an increase in fees for the maintenance of unpatented claims. To the extent that future proposals may result in the imposition of royalty fees on unpatented lands, the mining of the Company's unpatented claims may become uneconomic, and royalty rates for privately leased lands may be affected. The Company cannot predict the form that any amendments might ultimately take or whether or when any such amendments might be adopted. The Company maintains a continuous program of worldwide exploration for additional reserves and attempts to acquire reserves sufficient to replenish its consumption each year, but it cannot assure that additional reserves will continue to become available. The Company oversees all of its mining operations, including its exploration activity and securing the necessary state and federal mining permits. The following table shows a summary of minerals sold by the Company from active mining areas for the last five years in short tons:
Tons of Minerals Sold (1) 1998 1997 1996 1995 1994 Sodium Bentonite: (In Thousands) Belle Fourche, SD (2)....................... 43 45 4 133 203 Upton, WY................................... 346 392 418 434 424 Colony, WY.................................. 814 830 921 809 791 Lovell, WY.................................. 329 350 301 268 299 Calcium Bentonite: Sandy Ridge, AL............................. 195 193 183 170 174 Rock Springs, NV (3)(4)..................... 1 2 3 - - Fuller's Earth: Mounds, IL (5).............................. 60 192 201 203 242 Paris, TN (3)............................... 7 22 12 54 52 Leonardite: Gascoyne, ND................................ 24 30 23 19 17 (1) May include minerals of a different type not mined at this location. (2) In late 1995 and 1996, bentonite sold from Belle Fourche, SD, was processed in Colony, WY. (3) Mineral reserves sold in 1998 to Oil-Dri. (4) Plant sold in January 1999 to Nolind Enterprises LLC. (5) Plant and minerals sold in 1998 to Oil-Dri.
The Company estimates that available supplies of other materials utilized in its mineral business are sufficient to meet its production requirements for the foreseeable future. Mining and Processing Bentonite. Bentonite is surface-mined, generally with large earthmoving scrapers, and then loaded into trucks and off-highway haul wagons for movement to processing plants. The mining and hauling of the Company's clay is done both by the Company and by independent contractors. Each of the Company's bentonite processing plants generally maintains stockpiles of unprocessed clay equaling approximately four to eight months' production requirements. At the processing plants, bentonite is dried, crushed and sent through grinding mills, where it is sized into shipping form, then chemically modified where needed and transferred to silos for automatic bagging or bulk shipment. Virtually all production is shipped as processed, rather than stored for inventory. Product Development and Patents The Company works actively with customers in each of its major markets to develop commercial applications of specialized grades of bentonite. It maintains a bentonite research center and laboratory testing facility adjacent to its corporate headquarters, as well as one in the United Kingdom. When a need for a product that will accomplish a particular goal is perceived, the Company works to develop the product, research its marketability and study the feasibility of its production. The Company also co-develops products with customers, or others, as needs arise. The Company's development efforts emphasize markets with which it is familiar and products for which it believes there is a viable market. The Company holds a number of U.S. and international patents covering the use of bentonite and products containing bentonite. The Company follows the practice of obtaining patents on new developments whenever feasible. The Company, however, does not consider that any one or more of such patents is material to its minerals and environmental businesses as a whole. Regulation and Environmental The Company believes it is in material compliance with applicable regulations now in effect for surface mining. Since reclamation of exhausted mining sites has been a regular part of the Company's surface mining operations for the past 30 years, maintaining compliance with current regulations has not had a material effect on mining costs. Reclamation costs are reflected in the prices of the bentonite sold. The grinding and handling of dried clay is part of the production process and, because it generates dust, the Company's mineral processing plants are subject to applicable clean air standards (including Title V of the Clean Air Act). All of the Company's plants are equipped with dust collection systems. The Company has not had, and does not presently anticipate, any significant regulatory problems in connection with its dust emission, though it expects ongoing expenditures for the maintenance of its dust collection systems and required annual fees. The Company's mineral operations are also subject to other federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Certain of these laws and regulations provide for the imposition of substantial penalties for noncompliance. While the costs of compliance with, and penalties imposed under, these laws and regulations have not had a material adverse effect on the Company, future events, such as changes in, or modified interpretations of, existing laws and regulations, enforcement policies, further investigation or evaluation of potential health hazards of certain products, may give rise to additional compliance and other costs that could have a material adverse effect on the Company. TRANSPORTATION The Company operates a long-haul trucking business and a freight brokerage business primarily for delivery of its own products in package form throughout the continental United States. Through its transportation operation, the Company is better able to control costs, maintain delivery schedules and assure equipment availability. The long-haul trucking subsidiary performs transportation services on outbound movements from the Company's production plants and attempts to haul third parties' products on return trips whenever possible. In 1998, approximately 65% of the revenues of this segment involved the Company's products. CORPORATE DEVELOPMENT ACTIVITIES Nanocomposite Product Development The Company is always seeking to develop broader-based technologies which may use bentonite for new, value-added applications. One such technology is nanocomposites for the plastics industry. In 1995, the Company created its Nanocor subsidiary to develop surface-modified bentonites suitable for the emerging nanocomposite market. The primary raw material is bentonite, principally using the Company's current mineral reserves. For some applications, bentonites will be purchased under supply agreements. Surface treatment chemicals, added in the production process, are readily available on the merchant market. The Company is focusing its development on the use of bentonite as a functional additive for plastics. The technology consists of dispersing highly purified bentonite to nanometer size (one-billionth of an inch) in plastic resins. The mineral's extremely small size creates a molecular blend with the plastic resin, giving rise to a number of beneficial properties. For example, nanocomposite plastics become stronger and lighter than traditional composite plastics, a combination attractive to the transportation industry. Nanocomposite plastics also hold their strength at high temperatures, an appealing property for electronics applications, among others. In plastic beverage containers, the benefits include longer shelf life and fresher taste, attractive qualities for consumer goods. The Company has a number of joint development agreements with potential customers. The arrangements are generally non-exclusive and contain provisions for joint ownership of intellectual property. Some applications of the technology under development are independent of partner participation and will be solely owned by the Company. The Company's Nanocor subsidiary is developing bentonite products suitable for use in automotive parts, electronic components and consumer packaging. The products will be marketed under the tradename Nanomer. Nanomers will be marketed to the plastics industry in North America on a direct basis, and in other countries, both on a direct basis and through distributors. The Company's Nanocor subsidiary will offer its products for sale beginning in 1999. FOREIGN OPERATIONS AND EXPORT SALES Approximately 47 percent of the Company's 1998 net sales were to customers in approximately 67 countries other than the United States. To enhance its overseas market penetration, the Company maintains mineral processing plants in the United Kingdom, Australia, Korea and Thailand, as well as a blending plant in Canada. Through joint ventures, the Company also has the capability to process minerals in Egypt, Mexico and China. Chartered vessels deliver large quantities of the Company's bulk, dried sodium bentonite to the plants in the United Kingdom, Australia and Thailand, where it is processed and mixed with other clays and distributed throughout Europe, Australia and Southeast Asia. The Company's U.S. bentonite is also shipped in bulk to Japan. The Company also maintains a worldwide network of independent dealers, distributors and representatives. The Company manufactures geosynthetic clay liners in the U.K. for the European market. In addition, the Company has sales offices in Norway, Korea, Malaysia, Singapore, as well as various offices in Europe. The Company produces absorbent polymers at its U.S. and U.K. plants, and serves markets in Western Europe, South America, Asia and the Middle East. The Company's international operations are subject to the usual risks of doing business abroad, such as currency fluctuations and devaluation, restrictions on the transfer of funds and import and export duties. The Company, to date, has not been materially affected by any of these risks. See Note 2 of the Company's Notes to Consolidated Financial Statements included elsewhere herein. This Note is incorporated by reference for sales attributed to foreign operations and export sales from the United States. EMPLOYEES As of December 31, 1998, the Company employed 1,625 persons, 554 of whom were employed outside of the United States. At December 31, 1998, there were approximately 354, 695, 494 and 27 persons employed in the Company's absorbent polymers, minerals, environmental and transportation segments, respectively, along with 55 corporate employees. The corporate employees include personnel engaged in the nanocomposite research and development effort. Operating plants are adequately staffed, and no significant labor shortages are presently foreseen. Approximately 87 of the Company's employees in the United States and approximately 68 of the Company's employees in the United Kingdom are represented by seven labor unions, which have entered into separate collective bargaining agreements with the Company. Employee relations are considered good. Item 2. Properties The Company and its subsidiaries operate the following principal plants, mines and other facilities, all of which are owned, except as noted:
Location Principal Function ABSORBENT POLYMERS Aberdeen, MS ............................. Manufacture absorbent polymers Birkenhead, Merseyside, U.K............... Manufacture absorbent polymers; research laboratory and headquarters for Chemdal Ltd. Palatine, IL (1) ......................... Chemdal Corp. headquarters; research laboratory MINERALS Belle Fourche, SD (3)..................... Mine and process sodium bentonite Colony, WY (two plants)................... Mine and process sodium bentonite Lovell, WY (3)............................ Mine and process sodium bentonite Upton, WY................................. Mine and process sodium bentonite Paris, TN................................. Package cat litter Gascoyne, ND.............................. Mine and process leonardite Letohatchee, AL........................... Package and load calcium bentonite Sandy Ridge, AL........................... Mine and process calcium bentonite; blend ADDITROL Columbus, OH (1).......................... Blend ADDITROL; process chromite sand Granite City, IL (1)...................... Package cat litter; process chromite sand Waterloo, IA.............................. Blend ADDITROL Albion, MI (1)............................ Blend ADDITROL York, PA.................................. Blend ADDITROL; package cat litter Chattanooga, TN........................... Blend ADDITROL Lufkin, TX................................ Blend ADDITROL Neenah, WI................................ Blend ADDITROL Troy, IN.................................. Blend ADDITROL Toronto, Ontario, Canada (3).............. Blend ADDITROL Geelong, Victoria, Australia (1)(3)....... Process bentonite; blend ADDITROL Birkenhead, Merseyside, U.K. (2).......... Process bentonite and chromite sand; blend ADDITROL; package cat litter; research laboratory; headquarters for Volclay Ltd. Rayong, Thailand.......................... Process bentonite Kyung-Buk, South Korea.................... Mine and process bentonite ENVIRONMENTAL Belle Fourche, SD (3)..................... Manufacture construction products Lovell, WY (3)............................ Manufacture Bentomat and Claymax geosynthetic clay liners Villa Rica, GA............................ Manufacture components for geosynthetic clay liners Sulphur, LA............................... Manufacture environmental equipment Fairmount, GA............................. Manufacture Bentomat and Claymax geosynthetic clay liners Birkenhead, Merseyside, U.K. (2).......... Manufacture Bentomat geosynthetic clay liner; research laboratory; headquarters for CETCO Europe Ltd. Copenhagen, Denmark (1)................... Sales and distribution for CETCO Europe Ltd. Geelong, Victoria, Australia (1)(3)....... Sales and distribution for CETCO Pty. Ltd. Toronto, Ontario, Canada (3).............. Sales and distribution for CETCO Canada Ltd. Kuala Lumpur, Malaysia (1)................ Sales and distribution for CETCO Asia Sdn. Bhd. Oslo, Norway (1).......................... Sales and distribution for CETCO AS Singapore (1)............................. Sales and distribution for CETCO Environmental Technologies Pte Ltd. Seoul, South Korea (1).................... Sales and distribution for CETCO Korea Ltd. TRANSPORTATION Scottsbluff, NE........................... Transportation headquarters and terminal CORPORATE Arlington Heights, IL (1)................. Corporate headquarters; CETCO headquarters; American Colloid Co. headquarters; Nanocor, Inc. headquarters; research laboratory Aberdeen, MS.............................. Process purified bentonite (Nanocor, Inc.) (1) Leased (2) Certain offices and facilities are leased. (3) Shared facilities between minerals and environmental segment.
Item 3. Legal Proceedings The Company is party to a number of lawsuits arising in the normal course of its business. The Company does not believe that any pending litigation will have a material adverse effect on its consolidated financial position. The Company's processing operations require permits from various governmental authorities. From time to time, the Company has been contacted by government agencies with respect to required permits or compliance with existing permits. While the Company has been notified of certain situations of non-compliance, management does not expect the fines, if any, to be significant. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of Registrant
Name Age Principal Occupation for Last Five Years Mark A. Anderson 39 Vice President of Corporate Development of the Company since 1997; prior thereto, Vice President of Absorbent Technologies for Chemdal Corporation since 1992. Gary L. Castagna 37 Vice President of the Company and President of Chemdal International Corporation since 1997; prior thereto, Vice President of Finance of Chemdal Corporation since 1992 and Managing Director of Chemdal Ltd. since 1994. John Hughes 56 Chairman of the Board of Directors since May 1998; Chief Executive Officer of the Company since 1985; a Director since 1984. Peter L. Maul 49 Vice President of the Company since 1993 and President of Nanocor, Inc. since 1995; prior thereto, Vice President of Marketing at Chemstar, Inc. 1986-1992. Ryan F. McKendrick 47 Vice President of the Company and President of Colloid Environmental Technologies Company since November 1998; prior thereto, Vice President of Colloid Environmental Technologies Company since 1994; prior thereto, Manager of the Environmental Products Division for Colloid Environmental Technologies Company; Vice President/General Manager for Waste Management of North America 1993-1994. Clarence O. Redman 56 Secretary of the Company since 1982. Clarence O. Redman is of counsel to the law firm of Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the Company, since October 1997; prior thereto, an individual and corporate partner and Chief Executive Officer of the law firm of Keck, Mahin & Cate; a Director since 1989. Paul G. Shelton 49 Senior Vice President and Chief Financial Officer of the Company and President of AMCOL International's transportation units since 1994; prior thereto, Vice President and Chief Financial Officer since 1984; a Director since 1988.
Executive Officers of Registrant (continued)
Name Age Principal Occupation for Last Five Years Lawrence E. Washow 46 President of the Company since May 1998; Chief Operating Officer of the Company since 1997; prior thereto, Senior Vice President of the Company since 1994 and President of Chemdal International Corporation since 1992; a Director since February, 1998. Frank B. Wright, Jr. 50 Vice President of the Company and President of American Colloid Company since 1996; prior thereto, Manager of International Business Development for American Colloid Company since 1995; prior thereto, Managing Director of TRIMEX Minerals International since 1993.
All officers of the Company are elected annually by the Board of Directors for a term expiring at the annual meeting of directors following their election, or when their respective successors are elected and shall have qualified. All directors are elected by the stockholders for a three-year term, or until their respective successors are elected and shall have qualified. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's common stock trades on The New York Stock Exchange under the symbol ACO. Prior to September 22, 1998, the Company's common stock traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol ACOL. The following table sets forth, for the periods indicated, the high and low closing sale prices of the common stock, as reported by the relevant organizations, and cash dividends declared per share. Prices and cash dividends have been adjusted to reflect a three-for-two stock split in December 1997, effected in the nature of a stock dividend.
Stock Price Cash Dividends High Low Declared Per Share Fiscal Year Ended December 31, 1998: 1st Quarter.......... $16.375 $12.125 $.0550 2nd Quarter.......... 16.375 11.500 .0550 3rd Quarter.......... 14.250 9.375 .0600 4th Quarter.......... 11.375 8.000 .0600 Fiscal Year Ended December 31, 1997: 1st Quarter.......... $13.333 $10.167 $.0467 2nd Quarter.......... 12.833 11.000 .0533 3rd Quarter.......... 14.083 10.917 .0533 4th Quarter.......... 17.250 13.000 .0550
As of February 22, 1999, there were 3,515 holders of record of the common stock, excluding shares held in street name. The Company has paid cash dividends every year for over 61 years. The Company intends to continue to pay cash dividends on its common stock, but the payment of dividends and the amount and timing of such dividends will depend on the Company's earnings, capital requirements, financial condition and other factors deemed relevant by the Company's Board of Directors. Item 6. Selected Financial Data The following is selected financial data for the Company and its subsidiaries for the five years ended December 31, 1998. Per share amounts have been adjusted to reflect a three-for-two stock split in December 1997, effected in the nature of a stock dividend. SUMMARY OF OPERATIONS (In thousands, except ratios and share and per share amounts)
PER SHARE 1998 1997 1996 1995 1994 Stockholders' equity (1) $ 6.44 $ 6.18 $ 5.87 $ 5.42 $ 5.02 Basic earnings (2) .79 .74 .53 .62 .54 Diluted earnings (3) .78 .72 .52 .60 .52 Dividends .23 .21 .19 .17 .16 Shares outstanding (3) 28,385,860 29,125,168 29,294,489 29,519,220 29,229,780 INCOME DATA Sales $ 521,530 $ 477,060 $ 405,347 $ 347,688 $ 265,443 Gross profit 111,171 100,741 84,311 76,562 59,487 Operating profit 42,220 41,469 32,337 32,397 23,991 Net interest expense (7,933) (8,628) (8,450) (6,727) (2,332) Net other income (expense) 140 (398) (670) 1,217 544 Pretax income 34,427 32,443 23,217 26,887 22,203 Income taxes 12,350 11,399 7,979 9,082 6,828 Net income 22,085 21,044 15,225 17,771 15,283 BALANCE SHEET Current assets $ 164,076 $ 150,270 $ 147,773 $ 126,337 $ 108,691 Net property, plant and equipment 171,478 175,324 180,876 175,211 141,420 Total assets 357,864 351,009 350,708 322,366 263,899 Current liabilities 74,083 67,241 51,870 35,882 36,617 Long-term debt 96,268 94,425 118,855 117,016 71,458 Shareholders' equity 172,914 175,943 167,404 155,494 143,073 RATIO ANALYSIS Operating margin 8.10% 8.69% 7.98% 9.32% 9.04% Pretax margin 6.60 6.80 5.73 7.73 8.36 Effective tax rate 35.87 35.14 34.37 33.78 30.75 Net margin 4.23 4.41 3.76 5.11 5.76 Return on ending assets 6.17 6.00 4.34 5.51 5.79 Return on ending equity 12.77 11.96 9.09 11.43 10.68 (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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Financial Condition At December 31, 1998, the Company had outstanding debt of $113.3 million (including both long- and short-term debt) and cash and cash equivalents of $2.8 million, compared with $109.4 million in debt and $3.1 million in cash and cash equivalents at December 31, 1997. Long-term debt represented 35.8% of total capitalization at December 31, 1998, compared with 34.9% at December 31, 1997. The Company had a current ratio of 2.21-to-1 at December 31, 1998, with approximately $90.0 million in working capital, compared with 2.23-to-1 and $83.0 million, respectively, at December 31, 1997. The Company's revolving credit facility of $125 million matures in October 2003. The Company had $58.2 million in unused, committed credit lines at December 31, 1998. During 1998, the Company had $37.7 million in capital expenditures and $1.5 million in investments in joint ventures. The Company acquired $19.9 million in treasury stock and paid $6.4 million in dividends. This activity was funded from the net income generated in 1998 of $22.1 million, depreciation and amortization totaling $33.1 million, proceeds from the sale of the Fuller's Earth business amounting to $13.2 million and additional borrowings of $3.9 million. The Company currently anticipates capital expenditures of approximately $45 million for 1999. The current indicated annual dividend rate is $.24 per share. If the rate remains constant and the Board of Directors continues to declare dividends, the dividend payments will be approximately $6.5 million in 1999. Management believes that the Company has adequate resources to fund the capital expenditures discussed above, the dividend payments and anticipated increases in working capital requirements through its existing, committed credit lines, cash balances and operating cash flow. Results of Operations for the Three Years Ended December 31, 1998 Net sales increased by $44.5 million, or 9.3%, from 1997 to 1998, and by $71.7 million, or 17.7%, from 1996 to 1997. Approximately 60% of the 1998 sales increase was related to acquisitions made during 1998. Gross profit increased by $10.4 million, or 10.4%, from 1997 to 1998, compared to an increase of $16.4 million, or 19.5%, from 1996 to 1997. Operating profit improved by $.8 million, or 1.8%, from 1997 to 1998 compared to $9.1 million, or 28.2%, from 1996 to 1997. Operating profit for 1998 was adversely impacted by a $4.8 million operating loss at the Company's U.K. minerals unit. Net income increased $1.0 million, or 4.9%, from 1997 to 1998, compared to $5.8 million, or 38.2%, from 1996 to 1997. Diluted earnings per share were $.78, $.72 and $.52 in 1998, 1997 and 1996, respectively. The weighted average shares outstanding, including the dilutive impact of stock options, were 2.5% lower in 1998 than in 1997. A review of sales, gross profit, general, selling and administrative expenses, and operating profit by segment follows:
Absorbent Polymers Year Ended December 31, 1998 1997 1996 1998 vs. 1997 1997 vs. 1996 (Dollars in Thousands) Net sales............. $ 221,093 100.0% $ 195,944 100.0% $ 153,866 100.0% $25,149 12.8% $42,078 27.3% Cost of sales......... 174,635 79.0% 154,983 79.1% 123,448 80.2% Gross profit........ 46,458 21.0% 40,961 20.9% 30,418 19.8% 5,497 13.4% 10,543 34.7% General, selling and administrative 13,207 6.0% 12,098 6.2% 10,791 7.0% 1,109 9.2% 1,307 12.1% expenses.............. Operating profit.... 33,251 15.0% 28,863 14.7% 19,627 12.8% 4,388 15.2% 9,236 47.1%
Sales of absorbent polymers in 1998 increased by 12.8% over 1997 compared with a 27.3% sales increase from 1996 to 1997. Approximately 65% of the sales increase in 1998 was acquisition-related. In both 1997 and 1998, unit sales volume increased at a faster rate than the sales dollars. Gross profit margins improved slightly from 1997 to 1998, and increased 5.6% from 1996 to 1997. Margins improved in 1998 primarily as a result of lower costs for acrylic acid, while the 1997 over 1996 improvement was primarily a result of higher capacity utilization. In each case, the lower costs more than offset lower unit selling prices. The 1996 gross profit margin also reflected the additional costs of shipping products from the United States to the United Kingdom to meet customer demand in excess of the U.K. plant capacity in the first half of 1996. While general, selling and administrative expenses have increased from 1996 to 1997 and from 1997 to 1998, the rate of increase is less than the rate of increase in sales. In 1998, the increase related primarily to a higher bad debt provision. Much of the 1997 increased cost was directed to research and development of new products unrelated to the current markets served. The Company has aggressively expanded its capacity to produce superabsorbent polymers. Its current global capacity of 160,000 tons (including the acquisition related 12,000 metric ton U.K. toll processing arrangement) is among the largest in the world. The Company is currently constructing a 20,000 metric ton plant in Thailand. This plant is expected to be operational in the fourth quarter of 1999.
Minerals Year Ended December 31, 1998 1997 1996 1998 vs. 1997 1997 vs. 1996 (Dollars in Thousands) Net sales............. $ 164,049 100.0% $ 162,895 100.0% $ 145,623 100.0% $ 1,154 .7% $17,272 11.9% Cost of sales......... 135,650 82.7% 135,610 83.2% 122,404 84.1% Gross profit........ 28,399 17.3% 27,285 16.8% 23,219 15.9% 1,114 4.1% 4,066 17.5% General, selling and administrative 18,268 11.1% 15,651 9.6% 15,221 10.4% 2,617 16.7% 430 2.8% expenses.............. Operating profit.... 10,131 6.2% 11,634 7.2% 7,998 5.5% (1,503) -12.9% 3,636 45.5%
The $1.2 million increase in sales for 1998 was the net result of the divestiture of the fullers' earth business in April 1998 and the additional sales from a late 1997 U.K. cat litter acquisition. Domestic metalcasting sales increased in 1998, offsetting sales declines to the domestic well drilling and export markets. Sales increased in virtually all sectors of the minerals segment, except for iron ore pelletizing, from 1996 to 1997. Metalcasting and cat litter sales led the 1997 increase. As a result of the cat litter acquisition made in late 1997, the U.K. mineral operation produced an operating loss of approximately $4.8 million. The Company experienced management problems, customer service problems, production problems and construction delays in integrating the acquisition into the existing plant and organization. The problems have been identified and corrective action is under way. It is management's current estimate that the U.K. mineral operation will not reach an operating profit break-even until the fourth quarter of 1999. Gross profit margins increased by 3.0% and by 5.7% from 1997 to 1998 and from 1996 to 1997, respectively. The domestic gross profit margin improvement from 1997 to 1998 of 25.3% was largely offset by the problems at the U.K. operation. General, selling and administrative expenses increased by $2.6 million and $.4 million from 1997 to 1998 and 1996 to 1997, respectively. The increase in costs in 1998 was related to the U.K. acquisition, as well as international marketing costs, which accounted for the 1997 increase.
Environmental Year Ended December 31, 1998 1997 1996 1998 vs. 1997 1997 vs. 1996 (Dollars in Thousands) Net sales............. $104,501 100.0% $ 88,421 100.0% $ 81,480 100.0% $16,080 18.2% $ 6,941 8.5% Cost of sales......... 71,859 68.8% 59,625 67.4% 53,912 66.2% Gross profit........ 32,642 31.2% 28,796 32.6% 27,568 33.8% 3,846 13.4% 1,228 4.5% General, selling and administrative 23,448 22.4% 18,528 21.0% 15,478 19.0% 4,920 26.6% 3,050 19.7% expenses.............. Operating profit.... 9,194 8.8% 10,268 11.6% 12,090 14.8% (1,074) -10.5% (1,822) -15.1%
Approximately 65% of the sales increase from 1997 to 1998 was attributable to acquisitions made in 1998. Sales increases in overseas markets, coupled with growth in most domestic sectors, offset softness in the environmental liner market from 1996 to 1997 Gross profit margins decreased by 4.3% and 3.6% from 1997 to 1998 and from 1996 to 1997, respectively. Lower than average margins from the newly acquired Norwegian business, coupled with lower margins from exports to Asia and sales to Europe, accounted for the margin reduction in 1998. Depressed prices in the environmental liner market were the primary reason for the decline in gross profit margins in 1997. Expansion of the global marketing presence for all sectors accounted for much of the increase in general, selling and administrative expenses of 26.6% and 19.7% from 1997 to 1998, and from 1996 to 1997, respectively. Approximately 59% of the increase in general, selling and administrative expenses in 1998 was attributable to acquisitions.
Transportation Year Ended December 31, 1998 1997 1996 1998 vs. 1997 1997 vs. 1996 (Dollars in Thousands) Net sales............. $ 31,887 100.0% $ 29,800 100.0% $ 24,378 100.0% $ 2,087 7.0% $ 5,422 22.2% Cost of sales......... 28,215 88.5% 26,101 87.6% 21,272 87.3% Gross profit........ 3,672 11.5% 3,699 12.4% 3,106 12.7% (26) -.7% 593 19.1% General, selling and administrative 2,037 6.4% 2,057 6.9% 1,870 7.7% (20) -1.0% 187 10.0% expenses.............. Operating profit.... 1,635 5.1% 1,642 5.5% 1,236 5.0% (7) -.4% 406 32.8%
The majority of the sales increase from 1997 to 1998 came from customers unrelated to AMCOL's business. Increased brokerage of cat litter and environmental shipments accounted for the growth in transportation revenues from 1996 to 1997. Gross profit margins were 7.3% lower in 1998 than in 1997, primarily as a result of lower margins from brokered shipments. The gross profit margins vary based largely upon truck availability and sales mix between the trucking and brokerage operations. The increase in general, selling and administrative expenses in 1997 reflected increased staffing levels to handle increased volume.
Corporate Year Ended December 31, 1998 1997 1996 1998 vs. 1997 1997 vs. 1996 (Dollars in Thousands) General, selling and administrative $11,991 $10,938 $8,614 $ 1,053 9.6% $ 2,324 27.0% expenses.............. Operating loss...... (11,991) (10,938) (8,614) (1,053) 9.6% (2,324) 27.0%
Corporate costs include management information systems, human resources, investor relations and corporate communications, finance, purchasing, research related to developing the nanocomposite technology and corporate governance. The Company is actively engaged in research and development efforts to create new applications for its bentonite reserves. The Company's wholly owned subsidiary, Nanocor, Inc. is devoted to research and development of bentonite-based nanocomposites. When incorporated into plastics, bentonite-based nanocomposites can produce materials with significantly improved properties that encompass a variety of commercial applications. Nanocor's technologies are still in the developmental stage, but management feels that these products have the potential to become a significant part of the Company's future growth. As of December 31, 1998, Nanocor has been issued 11 patents; five more patents were allowed; and 16 patent applications were pending. All costs associated with Nanocor will continue to be included in corporate for 1999. The addition of two corporate executives and higher occupancy costs accounted for much of the increase in corporate costs in 1998. Virtually all of the increased corporate costs from 1996 to 1997 were attributable to Nanocor. Net Interest Expense Net interest expense decreased by $.7 million from 1997 to 1998, compared with a $.2 million increase from 1996 to 1997. Lower average debt levels accounted for the lower interest costs in 1998. Other Income (Expense) Foreign currency exchange losses accounted for approximately $.4 million, or 100%, and $.6 million, or 87%, of other expense in 1997 and 1996, respectively. Income Taxes The income tax rate for 1998 was 35.9% compared with 35.1% and 34.4% in 1997 and 1996, respectively. Income tax expense for 1998 includes a valuation allowance of $800 related to the U.K. minerals unit net operating loss carryforward. The effective tax rate for 1999 is currently estimated at 36%. Earnings Per Share Diluted earnings per share were calculated using the weighted average number of shares of common stock, including common share equivalents, outstanding during the year. Stock options issued to key employees and directors were considered common share equivalents. The weighted average number of shares of common stock and common stock equivalent shares outstanding was approximately 28.4 million in 1998 compared with approximately 29.1 million and 29.3 million in 1997 and 1996, respectively. The significant drop in the number of shares outstanding from 1997 to 1998 reflected the high level of share repurchase activity in 1998. Shares outstanding at December 31, 1998, excluding common stock equivalents, totaled 26.9 million shares. Impact of New Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for fiscal quarters of fiscal years beginning after June 15, 1999. The Company has not yet completed its evaluation of this statement, but does not anticipate a material impact on its consolidated financial statements from the adoption of this accounting standard. Year 2000 Issues In mid-1997, the Company started a Year 2000 date conversion project to address all necessary code changes, testing and implementation for all of its computer systems. Concurrently, the Company sent inquiries to its suppliers and other key third parties to assess their ability to become Year 2000 compliant in a timely manner. The internal evaluation stage is completed except for a number of personal computers, and the Company is still awaiting responses from some third parties. The implementation phase is in progress. Many of the Company's computer systems rely on purchased software for which the Company pays a maintenance fee. The maintenance fee covers the cost of system upgrades, including the update for Year 2000 issues. The Company's financial reporting system is expected to be Year 2000 compliant by the end of the first quarter of 1999 through the use of software upgrades performed as part of the periodic upgrade process. The Company is relying on its vendor to bring the Company's network system and servers into Year 2000 compliance by April 30, 1999. Evaluation of the Company's personal computer equipment should be completed by April 30, 1999, with remediation to be completed by June 30, 1999. The Company also replaced its headquarters telecommunications system as a result of office infrastructure changes. The new system is Year 2000 compliant. With respect to the Company's non-information technology systems, the Company is still in the process of evaluating the presence of imbedded date chips in some of its plant machinery and equipment, and expects that its review will be completed by April 30, 1999. Any remediation will be completed by June 30, 1999. Costs and expenses incurred to date in addressing the Year 2000 issue have not been material, and based upon the Company's assessment and remediation efforts to date, future costs of conversion or upgrades are not expected to be material. The Company does not believe that there is a material risk to its business or financial condition related to its own systems from Year 2000 issues, but the Company has no control over the ability of its key suppliers and other key third parties to achieve Year 2000 compliance in a timely manner. For example, an interruption in the supply of power to its plants and the inability to ship the Company's products by rail are both issues that could have severe adverse consequences to the Company's ability to carry on its business at current profit levels. Should rail service become temporarily unavailable, the Company would likely ship product by truck, but at a higher cost. A prolonged interruption in the power supply to its major plants, in particular its absorbent polymer plants in Aberdeen, Mississippi, and in the United Kingdom, however, is a risk that is difficult to minimize. While the Company continues to focus on solutions for the Year 2000 issues, and expects to be Year 2000 compliant in a timely manner, a contingency plan is being developed. Such plan is intended to address the Company's response should it, or materially significant third parties, fail to achieve Year 2000 compliance in a timely manner. The contingency plan is expected to be finalized by September 30, 1999. The Company's expectations about future costs necessary to achieve Year 2000 compliance, the impact on its operations and its ability to bring each of its systems into Year 2000 compliance are forward looking statements subject to a number of uncertainties that could cause actual results to differ materially. Such factors include the following: (i) the Company has no control over the ability of its key suppliers and other third parties to achieve Year 2000 compliance; (ii) the nature and number of systems that require remediation may exceed the Company's expectations in terms of complexity and scope; (iii) the Company may not be able to complete all remediation and testing necessary in a timely manner; and (iv) the Company may not be successful in properly identifying all systems and programs that contain two-digit year codes. The Company's systems disaster recovery planning is a comprehensive, ongoing process, which is updated as products are developed, tested and modified. Disaster recovery for financial and other strategic systems is provided at alternative locations serviced by third parties, or at Company-maintained facilities. Conversion to Euro On January 1, 1999, 11 European Union member states adopted the euro as their common national currency. From that date until January 1, 2002 (the transition period) either the euro or a participating country's currency will be accepted as legal tender. Beginning on January 1, 2002, euro-denominated bills and coins will be issued, and by July 1, 2002, only euro currency will be used. Management continues to address the strategic, financial, legal and systems issues related to the various phases of transition. While the Company does not believe the ultimate costs of conversion will be material to its earnings, cash flow or financial position, every effort is being made to address customer and business needs on a timely basis and anticipate and prevent any complications during the transition period. Forward Looking Statements Certain statements made from time to time by the Company, including statements in the Management's Discussion and Analysis section above, constitute "forward-looking statements" made in reliance upon the safe harbor contained in Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to the Company or its operations that are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions, and statements relating to anticipated growth, levels of capital expenditures, future dividends, expansion into global markets and the development of new products. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The Company's actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements as a result of various factors, including without limitation, the following: Growth Rate of Absorbent Polymer Operations A significant part of our growth in sales and profit during the last five years has come from sales of superabsorbent polymers ("SAP"). Our sales of SAP have increased in part because newer diaper designs use larger amounts of SAP and because of growth in our sales to international markets. Our ability to continue this growth depends on several factors, including the following: our ability to retain key clients; the continued use of larger amounts of SAP in new diaper designs; the continued growth in sales to international markets; growth in sales to manufacturers of brand name products; and acceptance of new applications for SAP which we have developed. There can be no assurance that our sales of SAP will continue to grow in the future or remain at current levels. Dependence on Large Absorbent Polymer Customers Our two largest absorbent polymer customers accounted for approximately 48% of our absorbent polymer sales in 1998 and our four largest absorbent polymer customers accounted for approximately 66% of such sales. We do not usually enter into long-term contracts with our absorbent polymer customers. These customers generally have the right to terminate their relationship with us with little or no notice. We cannot assure that we will be able to maintain our current level of sales to our four largest absorbent polymer customers or any other customer in the future. Many diaper manufacturers, including some of our customers, frequently change their diaper designs. During this process, many diaper manufacturers review the types of SAP available to determine the type of SAP best suited for their new diaper design. Some of our customers may elect to use the SAP of one of our competitors in their new diaper designs. The termination of our relationship with any of our significant absorbent polymer customers or a material reduction in the SAP sold to such customers could adversely affect our business and future financial results. Competition Absorbent Polymers. The absorbent polymers market is very competitive. Our United States operations compete with approximately four manufacturers and at least three importers. Our United Kingdom operations compete with numerous manufacturers. Two of our competitors have more production capability and several producers have greater resources. In addition, several of our competitors also produce acrylic acid, which is the primary cost component of SAP. The cost of acrylic acid to these competitors may be significantly less than the price we pay for acrylic acid. We believe competition in our absorbent polymers segment is primarily a matter of product quality and price. If we fail to compete successfully based on these or other factors, we may lose customers or fail to attract new customers and our business and future financial results could be materially and adversely affected. Minerals. The minerals market is very competitive. We believe competition is essentially a matter of product quality, price, delivery, service and technical support. Several of our competitors in the United States market are larger and have substantially greater financial resources. If we fail to compete successfully based on these or other factors, we may lose customers or fail to recruit new customers and our business and future financial results could be materially and adversely affected. Technology We believe our success and ability to compete in the absorbent polymers segment depends, to a large extent, on our proprietary production process. We rely on a combination of trade secret, trademark, and other intellectual property laws to protect this proprietary technology. However, we may have difficulty monitoring the unauthorized use of our proprietary technology and the steps we have taken to protect it may not be adequate. Any misappropriation of our proprietary technology could have a material adverse effect on our business or future financial results. In addition, if any of our competitors become able to produce a more effective or cheaper SAP, demand for our SAP products may decrease or be eliminated. Reliance on Metalcasting and Construction Industries Approximately 49% of our minerals segment's sales and 64% of our environmental segment's sales in 1998 were to the metalcasting and construction markets, respectively. The metalcasting and construction markets depend heavily upon the strength of the domestic and international economies. If these economies weaken, demand for products from our minerals segment by the metalcasting market and from our environmental segment for the construction markets may decline and our business or future financial results may be adversely affected. Regulatory and Legal Matters Our operations are subject to various federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Substantial penalties may be imposed if we violate certain of these laws and regulations. If these laws or regulations are changed or interpreted differently in the future, it may become difficult or expensive for us to comply. In addition, investigations or evaluations of our products by government agencies may require us to adopt additional safety measures or precautions. If our costs to comply with such laws and regulations in the future materially increase, our business and future financial results could be materially and adversely affected. The Company may be subject to adverse litigation results, as well as, future changes in laws and regulations which may negatively impact its operations and profits. Availability of Raw Materials Acrylic acid is our primary cost component in manufacturing SAP. Acrylic acid is only available from a limited number of suppliers. If we become unable to obtain a sufficient supply of SAP at a reasonable price, our business and future financial results could be materially and adversely affected. Risks of International Expansion An important part of our business strategy is to expand internationally. We intend to seek acquisitions, joint ventures and strategic alliances globally. Currently, our business outside of the United States represents approximately 47% of our consolidated sales. The approximate breakdown of the sales outside of the United States for 1998 was as follows: Europe 64%; Latin America (including Mexico) 22%; Asia 8%; Africa and the Middle East 4%; and other 2%. As we expand internationally, we will be subject to increased risks, which may include the following: currency exchange or price control laws; currency translation adjustments; political and economic instability; unexpected changes in regulatory requirements; tariffs and other trade barriers; longer accounts receivable collection cycles; and potentially adverse tax consequences. The above listed events could result in sudden, and potentially prolonged, changes in demand for the Company's products. Also, we may have difficulty enforcing agreements and collecting accounts receivable through a foreign country's legal system. At December 31, 1998, approximately 63% of the gross accounts receivable were due from customers outside of the United States and Canada. The breakdown of the overseas balance was as follows: Europe 51%; Latin America (including Mexico) 33%; Asia 10%; and Africa and the Middle East 6%. Volatility of Stock Price The stock market has been extremely volatile in recent years. These broad market fluctuations may adversely affect the market price of our common stock. In addition, factors such as the following may have a significant effect on the market price of our common stock: fluctuations in our financial results; our introduction of new services or products; announcements of acquisitions, strategic alliances or joint ventures by us, our customers or our competitors; changes in analysts' recommendations regarding our common stock; and general economic conditions. There can be no assurance that the price of our common stock will increase in the future or be maintained at its recent levels. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a multinational corporation that manufactures and markets products in countries throughout the world, the Company is subject to certain market risks, including foreign currency, interest rates and government actions. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. Exchange Rate Sensitivity The Company is exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The Company's primary exposures are to changes in exchange rates for the U.S. dollar versus the German mark, the British pound, the Canadian dollar, the Australian dollar, the Mexican peso, the Thai baht and the Korean won. The Company's various currency exposures often offset each other, providing a natural hedge against currency risk. Periodically, specific foreign currency transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with forward contracts to reduce the foreign currency risk. Gains and losses on these foreign currency hedges are included in the basis of the underlying hedged transactions. As of December 31, 1998, the Company had outstanding foreign currency contracts to sell the equivalent of $3.0 million of British pounds to hedge raw material purchases. The fair value of these agreements results in an immaterial unrecognized loss at December 31, 1998. Interest Rate Sensitivity The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instrument's actual cash flows are primarily denominated in both U.S. dollars (US), German marks (DM), British pounds (BP), Norwegian kroner (NOK), Singapore dollar (SDG), Korean won (WON) and Thai baht (THB) as indicated in parentheses.
Expected Maturity Date 1999 2000 2001 2002 2003 Thereafter Total Fair Value (US$ Equivalent in millions) Long-term debt: Fixed rate (US).......... $ 14,340 - $ 5,000 $ 5,000 - $ 15,000 $ 39,340 42,271 Average interest rate.... 7.8% - 7.8% 7.8% - 8.1% - - Variable rate (US)....... 27,233 117 - - - - 27,350 27,350 Average interest rate.... 5.8% 5.3% - - - - - - Variable rate (BP)....... 26,009 - - - - - 26,009 26,009 Average interest rate.... 6.8% - - - - - - - Variable rate (DM)....... 16,181 - - - - - 16,181 16,181 Average interest rate.... 3.6% - - - - - - - Variable rate (NOK)...... 646 518 - - - - 1,164 1,164 Average interest rate.... 10.2% 9.9% - - - - - - Variable rate (SDG)...... 7 5 - - - - 12 12 Average interest rate.... 5.4% 5.4% - - - - - - Variable rate (WON)...... 416 - - - - - 416 416 Average interest rate 9.2% - - - - - - - Variable rate (THB)...... 2,802 - - - - - 2,802 2,802 Average interest rate.... 9.9% - - - - - - - 87,634 640 5,000 5,000 - 15,000 113,274 116,205 Debt to be refinanced.... (70,628) 3,218 - - 67,410 - - - Total......................... $ 17,006 $ 3,858 $ 5,000 $ 5,000 $67,410 $ 15,000 $113,274 $116,205
The Company periodically uses interest rate swaps to manage interest rate risk on debt securities. These instruments allow the Company to exchange variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials paid or received on these arrangements are recognized as adjustments to interest expense over the life of the agreements. At December 31, 1998, the Company had one interest rate swap outstanding, which expires in September 2002, in a notional amount of $15.0 million. The fair value of this agreement results in an unrecognized loss at December 31, 1998, of $738. The Company is exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. The credit risk associated with cash equivalents and short-term investments is mitigated by the Company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks. The Company's accounts receivable financial instruments, other than those discussed above, are carried at amounts that approximate fair value. Commodity Price Sensitivity Acrylic acid is the most significant cost component in the production of SAP. The Company purchases a significant amount of acrylic acid under long-term contracts. The terms of these contracts include a linkage to the cost of propylene. The Company has not hedged against fluctuations in the cost of propylene. Item 8. Financial Statements and Supplementary Data See the Index to Financial Statements and Financial Statement Schedules on Page F-1. Such Financial Statements and Schedules are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The table below lists the names and ages of all Directors and all positions each person holds with the Company or other organizations. Board of Directors of the Registrant Arthur Brown, 58 (1, 2) Chairman, President and Chief Executive Officer of Hecla Mining Company, a miner and processor of silver, gold and industrial minerals. Director since 1990. Robert E. Driscoll, III, 60 (1, 2) Retired Dean and Professor of Law, University of South Dakota. Director since 1985. Raymond A. Foos, 70 (1, 2) Retired Chairman of the Board, President and Chief Executive Officer of Brush Wellman, Inc. a manufacturer of beryllium and specialty materials. Director since 1981. John Hughes, 56 (3) Chairman and Chief Executive Officer of AMCOL International Corporation. Director since 1984. James A. McClung, 61 (1, 3) Vice President and Executive Officer of FMC Corporation, a diversified producer of chemicals, machinery and other products for industry, government and agriculture. Director since May 1997. Jay D. Proops, 57 (2, 3, 4) Private investor and former Vice Chairman and co-founder of The Vigoro Corporation. Also a Director of Great Lakes Chemical Corporation. Director since 1995. C. Eugene Ray, 66 (1, 2, 3, 4) Retired Executive Vice President - Finance of Signode Industries, Inc. a manufacturer of industrial strapping products. Director since 1981. Clarence O. Redman, 56 (2, 3) Secretary of AMCOL International Corporation. Of counsel to the law firm of Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the Company. Prior thereto, Mr. Redman was an individual and corporate partner of the law firm of Keck, Mahin & Cate as the sole shareholder and President of Clarence Owen Redman Ltd. Mr. Redman and his professional corporation also served as Chief Executive Officer of Keck, Mahin & Cate until September 1997. In December 1997, Keck, Mahin & Cate filed a voluntary petition in bankruptcy under Chapter 11 of the United States Bankruptcy Code. Also a director of U.S. Forest Industries, Inc., a forest products company engaged in the production of wood products used in residential, commercial and industrial applications. Director since 1989. Paul G. Shelton, 49 (3) Senior Vice President and Chief Financial Officer of AMCOL International Corporation. Director since 1988. Dale E. Stahl, 51 (2, 3, 4) President and Chief Operating Officer of Gaylord Container Corporation, a manufacturer and distributor of brown paper and packaging products. Director since 1995. Lawrence E. Washow, 46 (3) President and Chief Operating Officer of AMCOL International Corporation. Director since February 1998. Audrey L. Weaver, 44 (2) Private investor. Director since February 1997. Paul C. Weaver, 36 (3, 4) Managing partner of Consumer Aptitudes, Inc., a marketing research firm. Director since 1995. ......... (1) Member of Audit Committee (2) Member of Compensation Committee (3) Member of Executive Committee (4) Member of Nominating Committee Additional information regarding the directors of the Company is included under the caption "Nominees for Director," "Information About Members of the Board" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement to be dated on or about March 29, 1999, and is incorporated herein by reference. Information regarding executive officers of the Company is included under a separate caption in Part I hereof, and is incorporated herein by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Item 11. Executive Compensation Information regarding the above is included under the caption "Compensation of Named Officers" in the Company's proxy statement to be dated on or about March 29, 1999, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding the above is included under the caption "Beneficial Owners of More than 5% of AMCOL Stock" in the Company's proxy statement to be dated on or about March 29, 1999, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding the above is included under the captions "Nominees for the Board of Directors" and "Information About Continuing Members of the Board" in the Company's proxy statement to be dated on or about March 29, 1999, and is incorporated herein by reference. 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. Item 14(a) Index to Financial Statements and Financial Statement Schedules Page (1) Financial Statements: Independent Auditors' Report................................ F-2 Consolidated Balance Sheets, December 31, 1998 and 1997..... F-3 Consolidated Statements of Operations, Years ended December 31, 1998, 1997 and 1996................ F-4 Consolidated Statements of Comprehensive Income, Years ended December 31, 1998, 1997 and 1996................ F-4 Consolidated Statements of Stockholders' Equity, Years ended December 31, 1998, 1997 and 1996............ ... F-5 Consolidated Statements of Cash Flows, Years ended December 31, 1998, 1997 and 1996................ F-6 Notes to Consolidated Financial Statements.................. F-7 (2) Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts............. F-24 All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is not material. Independent Auditors' Report The Board of Directors and Stockholders AMCOL International Corporation: We have audited the consolidated financial statements of AMCOL International Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMCOL International Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Chicago, Illinois February 26, 1999 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except share and per share amounts)
ASSETS December 31, 1998 1997 Current assets: Cash and cash equivalents......................................................... $ 2,758 $ 3,077 Accounts receivable: Trade, less allowance for doubtful accounts of $2,999 and $2,547.............. 96,446 89,054 Other......................................................................... 3,628 557 Inventories....................................................................... 52,093 49,389 Prepaid expenses.................................................................. 5,444 5,109 Current deferred tax asset........................................................ 3,707 3,084 Total current assets.......................................................... 164,076 150,270 Investment in and advances to joint ventures........................................... 4,556 3,035 Property, plant, equipment, and mineral rights and reserves: Land and mineral rights and reserves.............................................. 13,421 11,865 Depreciable assets................................................................ 312,260 306,610 325,681 318,475 Less accumulated depreciation..................................................... 154,203 143,151 171,478 175,324 Other assets: Goodwill, less accumulated amortization of $5,382 and $3,599...................... 15,432 17,175 Other intangible assets, less accumulated amortization of $11,290 and $9,806...... 2,322 5,205 17,754 22,380 $357,864 $351,009
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 1998 1997 Current liabilities: Current maturities of long-term obligations....................................... $ 17,006 $ 14,856 Current capital lease obligations................................................. 111 168 Accounts payable.................................................................. 21,969 24,902 Accrued income taxes.............................................................. 3,478 1,677 Accrued liabilities............................................................... 31,519 25,638 Total current liabilities..................................................... 74,083 67,241 Long-term obligations: Long-term debt.................................................................... 96,268 94,314 Long-term capital lease obligations............................................... - 111 96,268 94,425 Deferred income tax liabilities........................................................ 7,505 6,690 Other liabilities...................................................................... 7,094 6,710 14,599 13,400 Stockholders' equity: Common stock, par value $.01 per share. Authorized 50,000,000 shares, issued 32,015,796 shares............................................................. 320 320 shares Additional paid-in capital........................................................ 76,238 75,939 Retained earnings................................................................. 127,262 111,588 Cumulative translation adjustments................................................ (1,756) (1,749) 202,064 186,098 Less: Treasury stock (5,146,399 shares in 1998 and 3,541,598 shares in 1997)............ (29,150) (10,155) 172,914 175,943 $357,864 $351,009
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Dollars in thousands, except per share amounts)
Year Ended December 31, 1998 1997 1996 Net sales....................................................................... $ 521,530 $ 477,060 $ 405,347 Cost of sales................................................................... 410,359 376,319 321,036 Gross profit............................................................... 111,171 100,741 84,311 General, selling and administrative expenses.................................... 68,951 59,272 51,974 Operating profit........................................................... 42,220 41,469 32,337 Other income (expense): Interest expense, net...................................................... (7,933) (8,628) (8,450) Other, net................................................................. 140 (398) (670) (7,793) (9,026) (9,120) Income before income taxes and minority interest........................... 34,427 32,443 23,217 Income taxes.................................................................... 12,350 11,399 7,979 Income before minority interest............................................ 22,077 21,044 15,238 Minority interest............................................................... 8 - (13) Net income................................................................. $ 22,085 $ 21,044 $ 15,225 Earnings per share Basic...................................................................... $ .79 $ .74 $ .53 Diluted.................................................................... $ .78 $ .72 $ .52
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Dollars in thousands)
Year Ended December 31, 1998 1997 1996 Net income...................................................................... $ 22,085 $ 21,044 $ 15,225 Other comprehensive income: Foreign currency translation adjustment....................................... (7) (4,617) 5,219 Comprehensive income............................................................ $ 22,078 $ 16,427 $ 20,444
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Dollars in thousands, except share and per share amounts)
Common Stock Number Amount Additional Retained Cumulative Treasury Total of Paid-in Earnings Translation Stock Shares (1) Capital Adjustment Balance at December 31, 1995................... 32,015,796 $213 $74,967 $86,703 ($2,351) ($4,038) $155,494 Net income.................. - - - 15,225 - - 15,225 Cash dividends ($.19 per share)................. - - - (5,349) - - (5,349) Cumulative translation adjustment............. - - - - 5,219 - 5,219 Purchase of 465,126 treasury shares........ - - - - - (4,186) (4,186) Sales of 261,331 treasury shares................. - - 609 - - 392 1,001 Balance at December 31, 1996................... 32,015,796 213 75,576 96,579 2,868 (7,832) 167,404 Net income.................. - - - 21,044 - - 21,044 Cash dividends ($.21 per share)................. - - - (5,928) - - (5,928) Cumulative translation adjustment............. - - - - (4,617) - (4,617) Three-for-two stock split... 107 (107) - Purchase of 254,132 treasury shares........ - - - - - (2,921) (2,921) Sales of 230,808 treasury shares................. - - 363 - - 598 961 Balance at December 31, 1997................... 32,015,796 320 75,939 111,588 (1,749) (10,155) 175,943 Net income.................. - - - 22,085 - - 22,085 Cash dividends ($.23 per share)................. - - - (6,411) - - (6,411) Cumulative translation adjustment............. - - - - (7) - (7) Purchase of 1,829,041 treasury shares........ - - - - - (19,898) (19,898) Sales of 224,240 treasury shares................. - - 299 - - 903 1,202 Balance at December 31, 1998................... 32,015,796 $ 320 $76,238 $127,262 ($1,756) ($29,150) $ 172,914 (1) Reflects three-for-two stock split in December 1997, effected in the nature of a stock dividend.
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in thousands)
Year Ended December 31, 1998 1997 1996 Cash flow from operating activities: Net income............................................................. $22,085 $21,044 $ 15,225 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization.......................... 33,122 31,912 27,907 Increase (decrease) in allowance for doubtful accounts............. 452 (116) 1,062 Increase (decrease) in deferred income taxes....................... 815 177 (306) Increase (decrease) in other noncurrent liabilities................ 311 777 (589) (Gain) loss on sale of depreciable assets.......................... (72) 111 63 (Increase) decrease in current assets: Accounts receivable........................................... (10,915) (8,678) (15,450) Inventories................................................... (2,704) 6,925 (6,431) Prepaid expenses.............................................. (335) (607) 853 Current deferred tax asset.................................... (623) 2 (304) Increase (decrease) in current liabilities: Accounts payable.............................................. (2,933) 513 5,613 Accrued income taxes.......................................... 1,801 1,412 265 Accrued liabilities........................................... 5,881 7,391 5,211 Net cash provided by operating activities................ 46,885 60,863 33,119 Cash flow from investing activities: Proceeds from sale of depreciable assets............................... 556 787 889 Sale of product line and mineral reserves.............................. 13,176 - 5,888 Acquisition of land, mineral reserves, and depreciable assets.......... (37,678) (32,652) (34,339) Advances to joint ventures............................................. (1,521) (1,233) (1,495) (Increase) decrease in other assets.................................... 369 343 (1,008) Net cash used in investing activities..................... (25,098) (32,755) (30,065) Cash flow from financing activities: Proceeds from issuance of debt......................................... 16,697 2,443 10,345 Principal payments of debt and capital lease obligations............... (12,761) (20,818) (3,606) Proceeds from sale of treasury stock................................... 1,202 961 1,001 Purchase of treasury stock............................................. (19,898) (2,921) (4,186) Dividends paid......................................................... (6,411) (5,928) (5,349) Other.................................................................. - - 105 Net cash used in financing activities..................... (21,171) (26,263) (1,690) Rate change on cash......................................................... (935) (1,822) (198) Net increase (decrease) in cash and cash equivalents........................ (319) 23 1,166 Cash and cash equivalents at beginning of year.............................. 3,077 3,054 1,888 Cash and cash equivalents at end of year.................................... $ 2,758 $ 3,077 $ 3,054 Supplemental disclosures of cash flows information: Cash paid for: Interest............................................................... $ 7,615 $ 8,908 $ 9,029 Income taxes .......................................................... $ 10,301 $ 9,479 $ 6,759
See accompanying notes to consolidated financial statements. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except share and per share amounts) (1) Summary of Significant Accounting Policies Company Operations AMCOL International Corporation (the Company) may be divided into three principal categories of operations: absorbent polymers, minerals and environmental. The Company also operates a transportation business primarily for delivery of its own products. In 1998, the Company's revenues are derived 42% from absorbent polymers, 32% from minerals, 20% from environmental and 6% from transportation operations. The Company's sales were approximately 53% domestic and 47% outside of the United States. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. All subsidiaries more than 50% owned by the Company are consolidated. All subsidiaries are wholly owned, except India (50%), Mexico (49%), China (49%), Egypt (25%) and Japan (19%). The Mexican, Chinese and Egyptian joint ventures were accounted for using the equity method in 1998. Prior thereto, the Chinese and Mexican venture were recorded at cost. The difference between the results based on the cost method and the equity method is immaterial. The Japanese investment is recorded at cost. All material intercompany balances and transactions, including profits on inventories, have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Translation of Foreign Currencies The assets and liabilities of subsidiaries located outside of the United States are translated into U.S. dollars at the rate of exchange at the balance sheet date. The statements of operations are translated at the weighted average monthly rate. Foreign exchange translation adjustments are accumulated as a separate component of stockholders' equity, while realized exchange gains or losses are included in income. Inventories Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) or moving average methods. Exploration costs are expensed as incurred. Costs incurred in removing overburden and mining bentonite are capitalized as advance mining costs until the bentonite from such mining area is transported to the plant site, at which point the costs are included in crude bentonite stockpile inventory. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except share and per share amounts) (1) Summary of Significant Accounting Policies (Continued) Property, Plant, Equipment, and Mineral Rights and Reserves Property, plant, equipment, and mineral rights and reserves are carried at cost. Depreciation is computed using the straight-line method for substantially all of the assets. Certain other assets, primarily field equipment, are depreciated on the units-of-production method. Mineral rights and reserves are depleted using the units-of-production method. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill is being amortized on the straight-line method over periods of five to 40 years. Other intangibles, including trademarks and noncompete agreements, are amortized on the straight-line method over periods of up to 10 years. Income Taxes The Company and its U.S. subsidiaries file a consolidated tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect for the year in which those temporary differences are expected to be recovered or settled. Research and Development Research and development costs, included in general, selling and administrative expenses, were approximately $6,839, $6,273 and $4,962 for the years ended December 31, 1998, 1997 and 1996. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding after consideration of the dilutive effect of stock options. Earnings per share calculations reflect a three-for-two stock split in December 1997, effected in the nature of a stock dividend. A reconciliation between the number of shares used to compute basic and diluted earnings per share follows:
1998 1997 1996 Weighted average of common shares outstanding for the year.............. 27,918,391 28,488,527 28,697,736 Dilutive impact of stock options........................................ 467,469 636,641 596,753 Weighted average of common and common equivalent shares for the year.... 28,385,860 29,125,168 29,294,489 Common shares outstanding at December 31................................ 26,869,397 28,474,198 28,497,522
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (1) Summary of Significant Accounting Policies (Continued) Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less as cash equivalents. Impairment of Long-Lived Assets Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Stock Option Plans The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Reclassifications Certain items in the 1997 and 1996 consolidated financial statements have been reclassified to comply with the consolidated financial statement presentation for 1998. (2) Business Segment and Geographic Area Information The Company operates in three major industry segments: absorbent polymers, minerals and environmental. The Company also operates a transportation business. The absorbent polymers segment produces and distributes superabsorbent polymers primarily for use in consumer markets. The minerals segment mines, processes and distributes clays and products with similar applications to various industrial and consumer markets. The environmental segment processes and distributes clays and products with similar applications for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications. The transportation segment includes a long-haul trucking business and a freight brokerage business, which provide services to both the Company's plants and outside customers. The Company identifies segments based on management responsibility and the nature of the business activities of each component of the Company. Intersegment sales are insignificant. The Company measures segment profit as operating profit. Operating profit is defined as sales less cost of sales and general, selling and administrative expenses related to a segment's operations, but costs do not include interest or income taxes. Assets by segments are those assets used in the Company's operations in that segment. Corporate assets are primarily cash and cash equivalents, corporate leasehold improvements and miscellaneous equipment. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (2) Business Segment and Geographic Area Information (Continued) Export sales included in the United States were approximately $70,442, $54,863 and $39,610 for the years ended December 31, 1998, 1997 and 1996. Procter & Gamble, a customer of the absorbent polymer segment, accounted for approximately 15% of consolidated sales in 1998. The following summaries set forth certain financial information by business segment and geographic area for the years ended December 31, 1998, 1997 and 1996.
1998 1997 1996 Business Segment: Revenues: Absorbent polymers............................................ $ 221,093 $ 195,944 $ 153,866 Minerals...................................................... 164,049 162,895 145,623 Environmental................................................. 104,501 88,421 81,480 Transportation................................................ 31,887 29,800 24,378 Total..................................................... $521,530 $477,060 $ 405,347 Operating profit: Absorbent polymers............................................ $ 33,251 $ 28,863 $ 19,627 Minerals...................................................... 10,131 11,634 7,998 Environmental................................................. 9,194 10,268 12,090 Transportation................................................ 1,635 1,642 1,236 Corporate..................................................... (11,991) (10,938) (8,614) Total..................................................... $ 42,220 $ 41,469 $ 32,337 Assets: Absorbent polymers............................................ $ 131,914 $ 135,076 $ 148,405 Minerals...................................................... 121,085 129,484 123,591 Environmental................................................. 83,674 68,268 65,360 Transportation................................................ 932 1,209 1,167 Corporate..................................................... 20,259 16,972 12,185 Total..................................................... $ 357,864 $ 351,009 $ 350,708 Depreciation, depletion and amortization: Absorbent polymers............................................ $ 14,763 $ 14,032 $ 11,179 Minerals...................................................... 10,306 11,110 11,520 Environmental................................................. 6,249 5,126 3,908 Transportation................................................ 70 66 43 Corporate..................................................... 1,734 1,578 1,257 Total..................................................... $ 33,122 $ 31,912 $ 27,907 Capital expenditures: Absorbent polymers............................................ $ 9,640 $ 4,802 $ 17,358 Minerals...................................................... 12,396 14,494 10,397 Environmental................................................. 11,175 6,598 5,414 Transportation................................................ 30 112 26 Corporate..................................................... 4,437 6,646 1,144 Total..................................................... $ 37,678 $ 32,652 $ 34,339
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)
1998 1997 1996 Geographic area: Sales to unaffiliated customers from: North America...................................................... $ 349,815 $ 343,114 $ 281,678 Europe............................................................. 163,540 131,102 121,450 Asia 5,812 - - Australia.......................................................... 2,363 2,844 2,219 Total......................................................... $ 521,530 $ 477,060 $ 405,347 Sales or transfers between geographic areas: North America...................................................... $ 5,384 $ 3,575 $ 15,858 Europe............................................................. 27 - - Total......................................................... $ 5,411 $ 3,575 $ 15,858 Operating profit from: North America...................................................... $ 32,519 $ 26,156 $ 23,757 Europe............................................................. 9,491 15,003 8,667 Australia.......................................................... 162 305 202 Asia 48 - - Adjustments and eliminations....................................... - 5 (289) Total......................................................... $ 42,220 $ 41,469 $ 32,337 Identifiable assets in: North America...................................................... $ 225,044 $ 244,581 $ 243,390 Europe............................................................. 114,573 100,671 105,909 Australia.......................................................... 1,940 2,102 2,069 Asia 16,307 3,780 - Adjustments and eliminations....................................... - (125) (660) Total......................................................... $ 357,864 $ 351,009 $ 350,708
(3) Inventories
Inventories consisted of: 1998 1997 Advance mining....................................................................... $ 2,412 $ 2,199 Crude stockpile inventories.......................................................... 15,174 15,564 In-process inventories............................................................... 19,113 16,912 Other raw material, container, and supplies inventories.............................. 15,394 14,714 $ 52,093 $ 49,389
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:
December 31, Depreciation/ Amortization 1998 1997 Annual Rates Mineral rights and reserves..................................... $ 6,622 $ 5,931 Other land...................................................... 6,799 5,934 Buildings and improvements...................................... 57,305 57,929 4.9% to 25.0% Machinery and equipment......................................... 254,955 248,681 10.0% to 50.0% $325,681 $318,475
Depreciation and depletion were charged to income as follows:
1998 1997 1996 Depreciation expense........................................................ $29,617 $28,922 $25,249 Depletion expense........................................................... 367 368 593 $29,984 $29,290 $25,842
(5) Income Taxes The components of the provision for domestic and foreign income tax expense for the years ended December 31, 1998, 1997 and 1996 consisted of:
1998 1997 1996 Income before income taxes and minority interest: Domestic............................................................... $ 30,469 $ 26,023 $ 21,910 Foreign................................................................ 3,958 6,420 1,307 $ 34,427 $ 32,443 $ 23,217 Provision for income taxes: Domestic Federal Current............................................................. $ 10,650 $ 8,818 $ 6,285 Deferred............................................................ (2,562) (1,027) (313) Domestic State Current............................................................. 1,318 1,471 837 Deferred............................................................ (256) (118) (26) Foreign Current............................................................. 190 931 1,467 Deferred............................................................ 3,010 1,324 (271) $ 12,350 $ 11,399 $ 7,979
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (5) Income Taxes (Continued) The components of the deferred tax assets and liabilities as of December 31, 1998 and 1997 were as follows:
1998 1997 Deferred tax assets: Accounts receivable, due to allowance for doubtful accounts........................ $ 1,061 $ 767 Inventories, due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 and reserve for obsolete inventories....................... 686 899 Net operating loss carryforward, principally foreign............................... 1,158 3,915 Minimum pension liability.......................................................... 1,759 1,313 Other.............................................................................. 4,068 2,890 Total deferred tax assets....................................................... 7,932 9,784 Valuation allowance................................................................ (800) - Net deferred tax assets......................................................... 7,132 9,784 Deferred tax liabilities: Plant and equipment, due to differences in depreciation............................ (8,873) (10,969) Land and mineral reserves, due to differences in depletion......................... (1,969) (2,033) Inventories, due to change in accounting method from LIFO to FIFO.................. (366) (549) Other.............................................................................. 278 161 Total deferred tax liabilities.................................................. (10,930) (13,390) Net deferred tax liability...................................................... $ (3,798) ($ 3,606)
The Company recorded a valuation allowance in 1998 for the tax effect of the net operating loss of its U.K. minerals unit that resulted in a net operating loss carryforward. It is more likely than not that future operations will generate sufficient taxable income to realize the net deferred tax assets. The following analysis reconciles the statutory Federal income tax rate to the effective tax rates:
1998 1997 1996 Amount Percent Amount Percent Amount Percent of Pretax of Pretax of Pretax Income Income Income Domestic and foreign taxes on income at United States statutory rate............. $ 12,049 35.0% $ 11,355 35.0% $ 8,126 35.0% Increase (decrease) in taxes resulting from: Percentage depletion.................. (1,017) (3.0) (595) (1.8) (263) (1.1) State taxes........................... 1,318 3.8 1,471 4.5 847 3.7 FSC commission........................ (1,353) (3.9) (1,158) (3.6) (1,106) (4.8) Valuation allowance................... 800 2.3 - - - - Other................................. 553 1.7 326 1.0 375 1.6 $ 12,350 35.9% $ 11,399 35.1% $ 7,979 34.4%
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (6) Long-term Debt
Long-term debt consisted of the following: December 31, 1998 1997 Short-term debt supported by revolving credit agreement................................. $ 67,410 $ 52,817 Term note, at 9.68% (Series D).......................................................... 2,840 5,700 Term note, at 7.36% (Series A).......................................................... 11,500 21,000 Term note, at 7.83% (Series B).......................................................... 10,000 10,000 Term note, at 8.10% (Series C).......................................................... 15,000 15,000 Other notes payable..................................................................... 6,524 4,653 113,274 109,170 Less current portion.................................................................... 17,006 14,856 $ 96,268 $ 94,314
The Company has a committed $125,000 revolving credit agreement, which matures October 31, 2003, with an option to extend for three one-year periods. As of December 31, 1998, there was $58,173 available in unused lines of credit. The revolving credit note is a multi-currency agreement, which allows the Company to borrow at an adjusted LIBOR rate plus .25% to .75%, depending upon debt to capitalization ratios and the amount of the credit line used. Maturities of long-term debt at December 31, 1998, are as follows:
1999 2000 2001 2002 2003 Thereafter Short-term debt supported by revolving credit agreement...... $ - $ - $ - $ - $67,410 $ - Term note, at 9.68% (Series D)...... 2,840 - - - - - Term note, at 7.36% (Series A)...... 11,500 - - - - - Term note, at 7.83% (Series B)...... - - 5,000 5,000 - - Term note, at 8.10% (Series C)...... - - - - - 15,000 Other notes payable................. 2,666 3,858 - - - - $17,006 $ 3,858 $ 5,000 $ 5,000 $67,410 $15,000
The estimated fair value of the term notes above at December 31, 1998, was $42,271 based on discounting future cash payments at current market interest rates for loans with similar terms and maturities. All loan agreements include covenants that require the maintenance of specific minimum amounts of working capital, tangible net worth and financial ratios and limit additional borrowings and guarantees. The Company is not required to maintain a compensating balance. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (7) Market Risks and Financial Instruments As a multinational corporation that manufactures and markets products in countries throughout the world, the Company is subject to certain market risks, including foreign currency, interest rates and government actions. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. Exchange Rate Sensitivity The Company is exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The Company's primary exposures are to changes in exchange rates for the U.S. dollar versus the German mark, the British pound, the Canadian dollar, the Australian dollar, the Mexican peso, the Thai baht and the Korean won. The Company's various currency exposures often offset each other, providing a natural hedge against currency risk. Periodically, specific foreign currency transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with forward contracts to reduce the foreign currency risk. Gains and losses on these foreign currency hedges are included in the basis of the underlying hedged transactions. As of December 31, 1998, the Company had outstanding foreign currency contracts to sell the equivalent of $3.0 million of British pounds to hedge raw material purchases. The fair value of these agreements results in an immaterial unrecognized loss at December 31, 1998. Interest Rate Sensitivity The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instrument's actual cash flows are denominated in both U.S. dollars (US), German marks (DM), British pounds (BP), Norwegian kroner (NOK), Singapore dollar (SDG), Korean won (WON) and Thai baht (THB) as indicated in parentheses. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (7) Market Risks and Financial Instruments (Continued)
Expected Maturity Date 1999 2000 2001 2002 2003 Thereafter Total Fair Value (US$ Equivalent in millions) Long-term debt: Fixed rate (US).......... $ 14,340 - $ 5,000 $ 5,000 - $ 15,000 $ 39,340 42,271 Average interest rate.... 7.8% - 7.8% 7.8% - 8.1% - - Variable rate (US)....... 27,233 117 - - - - 27,350 27,350 Average interest rate.... 5.8% 5.3% - - - - - - Variable rate (BP)....... 26,009 - - - - - 26,009 26,009 Average interest rate.... 6.8% - - - - - - - Variable rate (DM)....... 16,181 - - - - - 16,181 16,181 Average interest rate.... 3.6% - - - - - - - Variable rate (NOK)...... 646 518 - - - - 1,164 1,164 Average interest rate.... 10.2% 9.9% - - - - - - Variable rate (SDG)...... 7 5 - - - - 12 12 Average interest rate.... 5.4% 5.4% - - - - - - Variable rate (WON)...... 416 - - - - - 416 416 Average interest rate 9.2% - - - - - - - Variable rate (THB)...... 2,802 - - - - - 2,802 2,802 Average interest rate.... 9.9% - - - - - - - 87,634 640 5,000 5,000 - 15,000 113,274 116,205 Debt to be refinanced.... (70,628) 3,218 - - 67,410 - - - Total......................... $ 17,006 $ 3,858 $ 5,000 $ 5,000 $67,410 $ 15,000 $113,274 $116,205
The Company periodically uses interest rate swaps to manage interest rate risk on debt securities. These instruments allow the Company to exchange variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials paid or received on these arrangements are recognized as adjustments to interest expense over the life of the agreements. At December 31, 1998, the Company had one interest rate swap outstanding, which expires in September 2002, in a notional amount of $15.0 million. The fair value of this agreement results in an unrecognized loss at December 31, 1998, of $738. The Company is exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. The credit risk associated with cash equivalents and short-term investments is mitigated by the Company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks. The Company's accounts receivable financial instruments, other than those discussed above, are carried at amounts that approximate fair value. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (8) Leases The Company leases certain railroad cars, trailers, computer software, office equipment, and office and plant facilities. Total rent expense under operating lease agreements was approximately $3,535, $3,560 and $4,299 in 1998, 1997 and 1996, respectively. Railroad cars and computer software under capital leases are included in machinery and equipment as follows:
December 31, 1998 1997 Railroad cars and computer software................................................ $ 1,768 $ 1,768 Less accumulated amortization................................................ 1,712 1,603 $ 56 $ 165
The following is a schedule of future minimum lease payments for the capital leases and for operating leases (with initial terms in excess of one year) as of December 31, 1998:
Operating Leases Capital Domestic Foreign Total Leases Year ending December 31: 1999.................................................. 114 3,409 393 3,802 2000.................................................. - 2,116 230 2,346 2001.................................................. - 1,640 130 1,770 2002.................................................. - 1,441 13 1,454 2003.................................................. - 1,395 - 1,395 Thereafter............................................ - 6,265 - 6,265 Total minimum lease payments................................ 114 $16,266 $ 766 $17,032 Less amount representing interest........................... 3 Present value of net minimum lease payments................. $ 111
(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. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (9) Employee Benefit Plans (continued) The following tables set forth pension obligations included in the Company's balance sheet at December 31, 1998 and 1997:
Pension Benefits 1998 1997 Change in benefit obligations: Beginning benefit obligation........................................................ $ 21,583 $ 18,107 Service cost........................................................................ 1,510 1,284 Interest cost....................................................................... 1,481 1,327 Plan amendment...................................................................... - 270 Actuarial loss...................................................................... 1,258 1,490 Benefits paid....................................................................... (1,050) (895) Ending benefit obligation........................................................... $ 24,782 $ 21,583 Change in plan assets: Beginning fair value................................................................ $ 19,685 $ 16,586 Actual return....................................................................... (209) 3,994 Company contribution................................................................ - - Benefits paid....................................................................... (1,050) (895) Ending fair value.................................................................. $18,426 $ 19,685 Funded status of the plan........................................................... ($ 6,356) ($ 1,898) Unrecognized actuarial and investment (gains) losses, net........................... 2,035 (1,166) Prior service cost.................................................................. 661 697 Transition asset.................................................................... (908) (1,045) Accrued pension cost liability...................................................... ($ 4,568) ($ 3,412)
Pension cost in 1998, 1997 and 1996 was comprised of: 1998 1997 1996 Service cost - benefits earned during the year.............................. $ 1,510 $ 1,284 $ 1,108 Interest cost on accumulated benefit obligation............................. 1,481 1,327 1,171 Expected return on plan assets.............................................. (1,733) (1,455) (1,471) Net amortization and deferral............................................... (101) (115) (134) Net periodic pension cost................................................... $ 1,157 $ 1,041 $ 674
The Company's pension benefit plan was valued as of October 1, 1998 and 1997, respectively. The plan assets are invested in common stocks, corporate bonds and notes, and guaranteed income contracts purchased from insurance companies. The actuarial assumptions for 1998 and 1997, respectively, were as follows: the weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 6.5% and 7.0%; the rate of increase in future compensation levels was 5.00% and 5.25%; and the expected long-term rate of return on plan assets was 9.0% for both years. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (9) Employee Benefit Plans (continued) In addition to the ERISA qualified plan outlined above, the Company has a supplementary pension plan that replaces those benefits that are lost as a result of ERISA limitations. The unfunded, accrued liability for this plan was $636 at September 30, 1998. The Company also has a savings plan for its U.S. personnel. The Company has contributed an amount equal to an employee's contribution up to a maximum of 4% of the employee's annual earnings. Company contributions are made using Company stock purchased on the open market. Company contributions under the savings plan were $1,280 in 1998, $1,233 in 1997 and $1,130 in 1996. The Company also has a deferred compensation plan and a 401(k) restoration plan for its executives. The foreign pension plans, not subject to ERISA, are funded using individual annuity contracts and, therefore, are not included in the information noted above. (10) Stock Option Plans The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No.123 (FAS 123), "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the Company's stock option plans. Had compensation cost for its stock option plans been determined consistent with FAS 123, the Company's net income would have been changed to the pro forma amounts indicated below:
1998 1997 1996 Net income:........................ As reported............................. $ 22,085 $ 21,044 $ 15,225 Pro forma............................... $ 20,966 $ 20,115 $ 14,775 Basic earnings per share:.......... As reported............................. $ 0.79 $ 0.74 $ 0.53 Pro forma............................... $ 0.75 $ 0.71 $ 0.51 Diluted earnings per share:........ As reported............................. $ 0.78 $ 0.72 $ 0.52 Pro forma............................... $ 0.74 $ 0.69 $ 0.51
Under the stock option plans, the exercise price of each option equals the market price of the Company's stock on the date of the grant. For purposes of calculating the compensation cost consistent with FAS 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1998, 1997 and 1996:
1998 1997 1996 Risk-free interest rate...................................................... 5.6% 6.2% 5.3% Expected life of option...................................................... 6 yrs 6 yrs 6 yrs Expected dividend yield of stock............................................. 1.7% 1.6% 1.8% Expected volatility of stock................................................. 40% 42% 42%
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (10) Stock Option Plans (Continued) The Company reserved 2,700,000, 1,260,000, and 510,000 shares of its common stock for issuance of incentive and nonqualified stock options to its directors, officers and key employees in its 1983 Incentive Stock Option Plan, 1993 Stock Plan and 1987 Nonqualified Stock Option Plan, respectively. Options awarded under these plans, which entitle the optionee to one share of common stock, may be exercised at a price equal to the fair market value at the time of grant. Options awarded under the plan generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until they are fully vested, unless a different vesting schedule is established by the Compensation Committee of the Board of Directors on the date of grant. Options are exercisable as they vest and expire 10 years after the date of grant, except in the event of termination, retirement or death of the optionee, or a change in control of the Company. These plans are expired as of December 31, 1998, though options that were granted prior to expiration of the plans continue to be valid until the individual option grants expire.
1983 Incentive Stock Option Plan 1998 1997 1996 Shares Weighted Shares Weighted Shares Weighted Average Average Average Exercise Exercise Exercise Price Price Price Options outstanding at January 1............. 611,184 $ 4.88 771,584 $ 4.53 1,047,641 $ 4.12 Granted...................................... - - - - - - Exercised.................................... (130,966) 3.35 (157,115) 3.18 (253,833) 2.67 Cancelled.................................... (10,170) 6.91 (3,285) 4.84 (22,224) 6.53 Options outstanding at December 31........... 470,048 5.26 611,184 4.88 771,584 4.53 Options exercisable at December 31........... 470,048 552,368 621,665 Shares available for future grant at December 31 - - -
1993 Stock Plan 1998 1997 1996 Shares Weighted Shares Weighted Shares Weighted Average Average Average Exercise Exercise Exercise Price Price Price Options outstanding at January 1............. 930,205 $ 10.92 665,048 $ 10.48 477,250 $ 10.85 Granted...................................... 285,065 13.13 287,772 11.83 284,366 9.68 Exercised.................................... (17,374) 8.90 (11,286) 8.99 - - Cancelled.................................... (85,813) 10.86 (11,329) 10.69 (96,568) 9.92 Options outstanding at December 31........... 1,112,083 11.52 930,205 10.92 665,048 10.48 Options exercisable at December 31........... 378,363 125,229 51,684 Shares available for future grant at December 31 - 318,509 594,952
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (10) Stock Option Plans (Continued)
1987 Nonqualified Stock Option Plan 1998 1997 1996 Shares Weighted Shares Weighted Shares Weighted Average Average Average Exercise Exercise Exercise Price Price Price Options outstanding at January 1............. 182,838 $ 5.07 229,284 $ 3.68 226,284 $ 3.43 Granted...................................... - - 21,000 12.00 10,500 7.75 Exercised.................................... (75,900) 2.64 (62,400) 1.94 (7,500) 1.95 Cancelled.................................... - - (5,046) 9.51 - - Options outstanding at December 31........... 106,938 6.79 182,838 5.07 229,284 3.68 Options exercisable at December 31........... 70,432 136,705 189,336 Shares available for future grant at December 31 - 179,862 195,816
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.
1998 Shares Weighted Average Exercise Price Options outstanding at January 1................... - $ - Granted............................................ 20,000 14.06 Exercised.......................................... - - Cancelled.......................................... - - Options outstanding at December 31................. 20,000 14.06 Options exercisable at December 31................. - Shares available for future grant at December 31... 1,880,000
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (10) Stock Option Plans (Continued) All Stock Option Plans The following table summarizes information about stock options outstanding and exercisable at December 31, 1998:
Options Outstanding Options Exercisable Range of exercise prices Number of Weighted Weighted Number of Weighted Shares Average Average Shares Average Remaining Exercise Exercise Contractual Price Price Life (Yrs.) $ 1.945 - $ 7.833 525,848 2.95 $ 5.007 520,448 $ 4.978 8.250 - 11.833 750,871 7.00 10.545 272,170 10.056 12.000 - 13.667 412,350 7.70 13.234 126,225 13.667 14.060 - 14.060 20,000 9.36 14.060 - - Total 1,709,069 5.95 $ 9.531 918,843 7.676
(11) Accrued Liabilities
1998 1997 Estimated accrued severance taxes....................................................... $ 2,393 $ 2,169 Accrued employee benefits............................................................... 4,572 3,501 Accrued vacation pay.................................................................... 1,944 1,835 Accrued dividends....................................................................... 1,615 1,565 Accrued bonus........................................................................... 2,915 2,011 Accrued commissions..................................................................... 4,987 3,630 Other................................................................................... 13,093 10,927 $ 31,519 $ 25,638
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts) (12) Quarterly Results (Unaudited) Unaudited summarized results for each quarter in 1998 and 1997 are as follows:
1998 Quarter First Second Third Fourth 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
1997 Quarter First Second Third Fourth Absorbent polymers.......................................... $ 45,161 $ 45,041 $ 51,466 $ 54,276 Minerals.................................................... 39,258 38,563 39,826 45,248 Environmental............................................... 16,565 22,778 27,181 21,897 Transportation............................................. 6,934 7,108 7,657 8,101 Net sales............................................. $ 107,918 $ 113,490 $ 126,130 $ 129,522 Absorbent polymers.......................................... $ 9,593 $ 8,830 $ 11,248 $ 11,290 Minerals.................................................... 6,105 6,400 7,212 7,568 Environmental............................................... 5,238 7,567 8,937 7,054 Transportation.............................................. 875 906 944 974 Gross profit.......................................... $ 21,811 $ 23,703 $ 28,341 $ 26,886 Absorbent polymers.......................................... $ 6,578 $ 6,225 $ 7,916 $ 8,144 Minerals.................................................... 2,230 2,479 3,287 3,638 Environmental............................................... 929 3,002 4,319 2,018 Transportation.............................................. 371 395 444 432 Corporate................................................... (2,804) (2,635) (2,711) (2,788) Operating profit...................................... $ 7,304 $ 9,466 $ 13,255 $ 11,444 Net income.................................................. $ 3,173 $ 4,282 $ 6,970 $ 6,619 Basic earnings per share:................................... $ 0.11 $ 0.15 $ 0.25 $ 0.23 Diluted earnings per share:................................. $ 0.11 $ 0.15 $ 0.24 $ 0.23
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (Dollars in thousands)
Additions Year Description Balance at Charged to Charged Other charges Balance beginning costs and to other add (deduct) (1) at end of year expenses account s of year 1998 Allowance for doubtful accounts $ 2,547 $ 3,469 $ - ($3,017) $2,999 1997 Allowance for doubtful accounts $ 2,663 $ 1,644 $ - ($1,760) $2,547 1996 Allowance for doubtful accounts $ 1,601 $ 2,013 $ - ($ 951) $2,663 (1) Bad debts written off.
SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 19, 1999 AMCOL INTERNATIONAL CORPORATION By: /s/ John Hughes John Hughes Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ John Hughes March 19, 1999 John Hughes Chairman of the Board and Chief Executive Officer and Director /s/ Lawrence E. Washow March 19, 1999 Lawrence E. Washow President and Chief Operating Officer and Director /s/ Paul G. Shelton March 19, 1999 Paul G. Shelton Senior Vice President and Chief Financial Officer; Treasurer and Director /s/ C. Eugene Ray March 19, 1999 C. Eugene Ray Director /s/ Jay D. Proops March 19, 1999 Jay D. Proops Director /s/ James A. McClung March 19, 1999 James A. McClung Director /s/ Robert E. Driscoll, III March 19, 1999 Robert E. Driscoll, III Director /s/ Raymond A. Foos March 19, 1999 Raymond A. Foos Director /s/ Clarence O. Redman March 19, 1999 Clarence O. Redman Director /s/ Arthur Brown March 19, 1999 Arthur Brown Director /s/ Dale E. Stahl March 19, 1999 Dale E. Stahl Director /s/ Audrey L. Weaver March 19, 1999 Audrey L. Weaver Director /s/ Paul C. Weaver March 19, 1999 Paul C. Weaver Director 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) o 10.1 AMCOL International Corporation 1983 Incentive Stock Option Plan (1); as amended (3) 10.3 Lease Agreement for office space dated September 29, 1986, between the Company and American National Bank and Trust Company of Chicago; (1) First Amendment dated June 2, 1994 (8); Second Amendment dated June 2, 1997 (13) o 10.4 AMCOL International Corporation 1987 Non-Qualified Stock Option Plan (2); as amended (6) o 10.5 Change in Control Agreement dated April 1, 1997, by and between Registrant and John Hughes (12) o 10.6 Change in Control Agreement dated April 1, 1997, by and between Registrant and Paul G. Shelton (12) o 10.7 Change in Control Agreement dated February 16, 1998, by and between Registrant and Lawrence E. Washow (14) o 10.8 Change in Control Agreement dated February 7, 1996, by and between Registrant and Roger P. Palmer (10) o 10.9 Change in Control Agreement dated April 1, 1997, by and between Registrant and Peter L. Maul (12) 10.10 AMCOL International Corporation Dividend Reinvestment and Stock Purchase Plan (4); as amended (6) o 10.11 AMCOL International Corporation 1993 Stock Plan, as amended and restated (10) 10.12 Credit Agreement by and among AMCOL International Corporation and Harris Trust and Savings Bank, individually and as agent, NBD Bank, LaSalle National Bank and the Northern Trust Company dated October 4, 1994, (7); as amended, First Amendment to Credit Agreement dated September 25, 1995 (9), as amended, Second Amendment to Credit Agreement dated March 28, 1996, Third Amendment to Credit Agreement dated September 12, 1996 (11) and Fourth Amendment to Credit Agreement dated December 15, 1998. 10.13 Note Agreement dated October 1, 1994, between AMCOL International Corporation and Principal Mutual Life Insurance Company, (7); as amended, First Amendment of Note Agreement dated September 30, 1996 (11); Second Amendment of Note Agreement dated December 15, 1998. o 10.14 Change in Control Agreement dated August 21, 1996 by and between Registrant and Frank B. Wright, Jr. (11) o 10.15 Change in Control Agreement dated February 17, 1998 by and between Registrant and Gary L. Castagna (14) o 10.16 AMCOL International Corporation 1998 Long-Term Incentive Plan (15) o 10.17 Change in Control Agreement dated February 4, 1999 by and between Registrant and Ryan F. McKendrick 21 Subsidiaries of the Company 23 Consent of KPMG LLP 27 Financial Data Schedule (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. (14) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1997. (15) Exhibit is incorporated by reference to the Registrant's Form S-8 (File 333-56017) filed with the Securities and Exchange Commission on June 4, 1998. (16) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1998. o Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K.
EX-10.17 2 MATERIAL CONTRACTS EXHIBIT 10.17 AGREEMENT WHEREAS, AMCOL International Corporation (the "Company") considers it essential and in the best interests of the Company and its shareholders to foster the continued employment of its key management personnel; WHEREAS, Ryan F. McKendrick ("Employee") is considered a key management employee, currently serving as Vice President of the Company; and WHEREAS, the Company desires to assure the future continuity of Employee's services in the event of any actual or threatened "Change in Control" (as defined in Section 6 below) of the Company. IT IS THEREFORE AGREED AS FOLLOWS: 1. Effect of Agreement. This Agreement shall be effective and binding immediately upon its execution. However, except as specifically provided herein, this Agreement shall not alter materially Employee's duties and obligations to the Company and the remuneration and benefits which Employee may reasonably expect to receive from the Company in the absence of a Change in Control. 2. Employment On and After Change in Control. Provided that the employee is an employee of the Company immediately prior to a Change in Control, the Company shall employ Employee, and Employee shall accept such employment, effective upon such Change in Control for a period of twenty-four (24) months after said Change in Control subject to the terms and conditions stated herein. 3. Duties After Change in Control. Employee agrees that during the term of his employment with the Company after a Change in Control, he shall perform the duties described in Section 12 below and such other duties for the Company and its subsidiaries consistent with his experience and training as the Board of Directors of the Company (the "Board") or the Board's representatives shall determine from time to time, which duties shall be at least substantially equal in status, dignity and character to his duties at the date hereof. He shall also have the title of Vice-President. Employee further agrees to devote his entire working time and attention to the business of the Company and its subsidiaries and use his best efforts to promote such business. 4. Compensation Prior to a Change in Control. Prior to a Change in Control the Company agrees to pay Employee compensation for his services in an amount, and to provide him with life insurance, disability, health and other benefits, at least equal to that which he presently receives, only with such changes as shall be agreed upon between Employee and the Company. For the purpose of this Section, compensation does not include any bonus or other incentive compensation plan or stock purchase plan, which may vary from year to year at the discretion of the Company. 5. Termination of Employment Prior to a Change of Control. Employee shall be entitled to terminate his employment prior to a Change in Control at any time upon sixty (60) days' prior written notice. The Company, shall be able to terminate Employee's employment at any time prior to a Change in Control with or without cause upon sixty (60) days' prior written notice (or the payment of salary in lieu thereof). This Section shall not be construed to reduce any accrued benefits payable in connection with any termination of Employee's employment prior to a Change in Control. Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or Employee to have Employee remain in the employment of the Company prior to a Change in Control. 6. Termination of Employment On or After Change in Control. (a) For purposes of this Agreement the term "Change in Control" means the change in the legal or beneficial ownership of fifty-one percent (51%) of the shares of the Company's common stock within a six-month period other than by death or operation of law, or the sale of ninety percent (90%) or more of the Company's assets within a six-month period. (b) Employee's employment on and after a Change in Control may be terminated with just cause by the Company at any time upon not less than ten (10) days' prior written notice. Prior to termination for just cause on and after a Change in Control, the Board of Directors shall by majority vote have declared that Employee's termination is for just cause specifically stating the basis for such determination. In the event such a termination occurs, the provisions of Sections 9(a) and 12 below shall apply. Employee's employment may be terminated on or after a Change in Control without just cause pursuant to the constructive termination procedures described in the next paragraph or by the Company giving Employee not less than thirty (30) days' prior written notice. In the event Employee's employment is terminated pursuant to the preceding sentence: (i) the provisions of Section 9(b) below shall apply; and (ii) although Employee's employment term shall be deemed terminated at the end of such notice period (or, in the case of a constructive termination described in the next paragraph, as of the date Employee notifies the Company of such termination), such termination shall in no way affect the term of this Agreement or Employee's duties and obligations under Section 12 below. For purposes of this Section 6(b), Employee shall be considered as having been terminated by the Company on or after a Change in Control for other than just cause provided that he has notified the Company of any of the following within ten (10) days of the occurrence thereof: (i) the assignment to Employee of any duties of lesser status, dignity and character than his duties immediately prior to the effective date of the Change in Control or a substantial reduction in the nature or status of his responsibilities from those in effect immediately prior to the effective date of the Change in Control; (ii) a post-Change in Control reduction by the Company in Employee's annual base salary or bonus or incentive plan (as in effect immediately prior to the effective date of the Change in Control); (iii)relocation of Employee's office to a location which is more than 35 miles from the location in which Employee principally works for the Company immediately prior to the effective date of the Change in Control; the relocation of the appropriate principal executive office of the Company or the Company's operating division or subsidiary for which Employee performed the majority of his services for the Company during the year prior to the effective date of the Change in Control to a location which is more than 35 miles from the location of such office immediately prior to such date; or his being required by the Company in order to perform duties of substantially equal status, dignity and character to those duties he performed immediately prior to the effective date of the Change in Control to travel on the Company's business to a substantially greater extent than is consistent with his business travel obligations as of such date; or (iv) the failure of the Company to continue to provide Employee with benefits substantially equivalent to those enjoyed by him under any of the Company's life insurance, medical, health and accident or disability plans in which he was participating immediately prior to the effective date of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive him of any material fringe benefit enjoyed by him immediately prior to effective date of the Change in Control, or the failure of the Company to provide him with at least the number of paid vacation days to which he is entitled on the basis of years of service under the Company's normal vacation policy in effect immediately prior to the effective date of the Change in Control. (c) In the event Employee's employment is terminated on or after a Change in Control in any manner not described in Section 6(b) above: (i) the provisions of Section 9(b) shall not apply and Employee shall instead receive the sums and benefits described in Section 9(a); and (ii) such termination shall in no way affect the term of this Agreement or Employee's duties or obligations under Section 12 below. (d) Any termination of employment of Employee following the commencement of any discussions by a shareholder or group of shareholders owning legally or beneficially more than 20% of the common stock or an officially designated representative of the Board of Directors with a third party that results within 180 days in a Change in Control shall (unless such termination is for cause or wholly unrelated to such discussions) be deemed to be a termination of Employee on and after a Change in Control for purposes of this Agreement. 7. Notice of Termination. Any termination by the Company or assertion of termination by Employee shall be communicated by written notice of termination to the other party at the following address: AMCOL International Corporation Ryan F. McKendrick One North Arlington Vice-President 1500 West Shure Drive AMCOL International Corporation Arlington Heights, IL 60004 One North Arlington ATTN: Chairman of the Board 1500 West Shure Drive Arlington Heights, IL 60004 8. Disability. If as a result of Employee's incapacity due to physical or mental illness, he shall have been absent from his duties with the Company for one hundred eighty (180) days within any twelve (12) consecutive-month period and within thirty (30) days after written notice of the Company's intention to terminate his employment is given, Employee shall not have returned to the performance of his duties with the Company substantially on a full-time basis, the Company may terminate his employment for disability. This shall not constitute a termination for the purposes of obtaining benefits pursuant to Section 9. 9. Benefits Upon Termination And Leave Of Employment On or After Change in the Control. (a) If Employee is terminated for just cause on or after a Change in Control, he shall only receive the accrued sums and benefits payable to him through the date he is terminated; the provisions of Section 9(b) below shall not be applicable in such case and Employee shall not receive (or shall cease receiving) the payments and benefits described in Section 9(b). (b) Subject to Employee's compliance with the provisions of Section 12(a) below, if Employee is terminated during the twenty-four (24) month period beginning on and continuing after a Change in Control other than for just cause (either at the discretion of the Company's management or constructively by the operation of Section 6), he shall receive the following payments and benefits in lieu of any other sums or benefits otherwise payable to him by the Company: (i) all then accrued pay, benefits, executive compensation and fringe benefits, including (but not limited to) pro rata bonus and incentive plan earnings; (ii) medical, health and disability benefits which are substantially similar to the benefits the Company is providing him as of the date of his employment is terminated for a period of twenty-four (24) months there-after; and (iii) one dollar less than two times his base period compensation. The foregoing payments and benefits shall be deemed compensation payable for the duties to be performed by Employee pursuant to Section 12 below. For purposes of this Agreement, (A) Employee's "base period compensation" is the average annual "compensation" (as defined below) which was includable in his gross income for his base period (i.e., his most recent five taxable years ending before the date of the Change in Control); and (B) if Employee's base period includes a short taxable year or less than all of a taxable year, compensation for such short or incomplete taxable year shall be annualized before determining his average annual compensation for the base period. (In annualizing compensation, the frequency with which payments are expected to be made over an annual period shall be taken into account. Thus, any amount of compensation for such a short or incomplete taxable year that represents a payment that would not be made more than once per year shall not be annualized). The sum payable to Employee pursuant to Section 9(b)(iii) shall in any and all cases be reduced by any compensation which Employee receives from the Company from the date of the Change in Control until the termination date, excluding any non-qualified deferred compensation, stock option compensation or other stock incentive bonus plan compensation so received. For purposes of Section 9(iii) and the definitions pertaining to said Section, Employee's "compensation" is the compensation which was payable to him by the Company or a related entity determined without regard to the following Sections of the Internal Revenue Code of 1986, as amended (the "Code"): 125 (cafeteria plans), 402(a)(8) (cash or deferred arrangements), 402(h)(1)(B) (elective contributions to simplified employee pensions), and, in the case of employer contributions made pursuant to a salary reduction agreement, 403(b) (tax sheltered annuities). Except for the benefits described in Section 9(b)(ii) above, the sums due pursuant to this Section 9(b) shall be paid in up to three (3) annual installments commencing thirty (30) days after the sums become due. If on or after the date any payment becomes due hereunder the Company at any time has a funded debt-to-total capitalization ratio which equals or exceeds 1:1, upon Employee's written request, the Company shall secure its payment of the remaining annual installments with a letter of credit or other security instrument as shall be reasonably acceptable to Employee. Such letter of credit or other security instrument shall provide Employee with the ability to receive the remaining installment(s) only if his payment is delinquent. All sums due hereunder shall be subject to appropriate withholding and statutory requirements. Employee shall not be required to mitigate the amount of any payment provided for in this Section 9(b) by seeking other employment or otherwise. Notwithstanding anything stated in this Section 9(b) to the contrary, however, the amount of any payment or benefit provided for in this Section 9(b) shall be reduced by no more than 50% by any compensation earned by Employee as a result of employment by another employer and the Company shall not be required to provide medical, health and/or disability benefits to the extent such benefits would duplicate benefits received by Employee in connection with his employment with any new employer. Notwithstanding anything stated in this Agreement to the contrary, if the amounts which are payable and the benefits which are provided to Employee under this Agreement, either alone or together with other payments which Employee has a right to receive from the Company or any of its affiliates, would constitute a "parachute payment" (as defined in Code Section 280G), such amounts and benefits shall be reduced, as necessary, to the largest amount as will result in no portion of said amounts and benefits being either not deductible as a result of Code Section 280G or subject to the excise tax imposed by Code Section 4999. The determination of any reduction in said amounts and benefits pursuant to the foregoing proviso shall be made by the Company in good faith, and such determination shall be conclusive and binding on Employee. The amounts provided to Employee under this Agreement in connection with a Change in Control, if any, shall be deemed allocated to such amounts and/or benefits to be paid and/or provided as the Company's Board of Directors in its sole discretion shall determine. 10. Special Situations. The parties recognize that under certain circumstances a Change in Control may occur under conditions which make it inappropriate for Employee to receive the termination benefits or protection set forth in this Agreement. Therefore, in the event that a Change in Control occurs for any one of the following reasons, the provisions of Sections 2, 6 and 9 shall not apply: (a) the purchase of more than fifty percent (50%) of the stock of the Company by an employee stock ownership plan or similar employee benefit plan of which Employee is a participant; or (b) the purchase of more than fifty percent (50%) of the stock or ninety percent (90%) of the assets of the Company by a group of individuals or entities including Employee as a member or participant, including but not limited to those transactions commonly known as a leveraged or other forms of management buyouts. 11. Disputes. Any dispute arising under this Agreement (except Section 12) shall be promptly submitted to arbitration under the Rules of the American Arbitration Association. An arbitrator is to be mutually agreed upon by the parties or upon failure of agreement, designated by the American Arbitration Association. 12. Non-Competition, Non-Solicitation, and Confidentiality. (a) In consideration of this Agreement and other good and valuable consideration, Employee agrees that for so long as he is employed by the Company and for twenty-four (24) months thereafter he shall not own manage, operate, control, be employed by or otherwise engage in any competitive business. Employee's agreement pursuant to the preceding sentence shall be in addition to any other agreement or legal obligation he may have with or to the Company. For purposes of the preceding sentence, a "competitive business" is any business engaged in the production, refinement or sale of bentonite or similar minerals, absorbent polymers and/or any business conducted by the Company, its affiliates or any subsidiaries thereof as of the date Employee's employment is terminated. A business which is conducted by the Company, its affiliates or any subsidiaries which is subsequently sold by the Company is not a competitive business as of the date such business is sold. An "affiliate" of the Company is any company which either controls, is controlled by or is under common control with the Company. The phrase "any business conducted by the Company, its affiliates or any subsidiaries thereof" includes not only current businesses but also any new products, product lines or use of processes under development, consideration or investigation on the date Employee's employment with the Company is terminated. Employee also agrees that during the twenty-four (24) month period described in the first sentence of this Section 12(a) he will not directly or indirectly, on behalf of himself or any other person or entity, make a solicitation or conduct business, with any customer or potential customer of the Company with which he had contact while employed by the Company, its affiliates and/or any subsidiaries thereof, with respect to any products or services which are competitive with any business conducted by the Company, its affiliates or any subsidiaries thereof. For purposes of the preceding sentence, a "customer" is any person or entity that has purchased goods or services from the Company, its affiliates or any subsidiaries thereof within the twenty-four (24) month period ending on the date Employee's employment is terminated. A "potential customer" is any person or entity that the Company solicited for business within twelve (12) months prior to the date Employee's employment with the Company is terminated. The Company and Employee recognize that his responsibilities have included contacts with, and analysis of, customers and potential customers throughout the United States and certain foreign countries, in addition to certain operational matters. Employee's contacts on behalf of the Company represent a substantial asset of the Company which are entitled to protection. In recognition of this situation, the covenants set forth in this Section 12 shall apply to competition and solicitation in the United States, United Kingdom, Germany, Japan, Canada, Thailand, and those countries in which the Company, its affiliates and/or the subsidiaries thereof has (have) conducted $200,000 or more of the business during the 12-month period ending on the date Employee's employment with the Company is terminated. Before and forever after his termination or resignation, Employee shall keep confidential and refrain from utilizing or disseminating any confidential, proprietary or trade secret information of the Company for any purpose other than furthering the business interests of the Company. (b) During Employee's employment hereunder and during two (2) years following his resignation or the termination of his employment hereunder for any reason, Employee will not induce or attempt to influence any present or future employee of the Company, its affiliates or any subsidiaries thereof to leave its employ. 13. Other Agreements. Except to the extent expressly set forth herein, this Agreement shall not modify or lessen any benefit or compensation to which Employee is entitled under any agreement between Employee and the Company or under any plan maintained by the Company in which he participates or participated. Benefits or compensation shall be payable thereunder, if at all, according to the terms of the applicable plan(s) or agreement(s). The terms of this Agreement shall supersede any existing agreement between Employee and the Company executed prior to the date hereof to the extent any such Agreement is inconsistent with the terms hereof. 14. Successors; Binding Agreement. The Company will require any successor (whether direct or indirect by purchase, merger, consolidation or otherwise, to all or substantially all of the business and/or assets of the Company) to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. This Agreement shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 15. Injunction. The remedy at law for any breach of Section 12 will be inadequate and the Company, its affiliates and any subsidiaries thereof would suffer continuing and irreparable injury to their business as a direct result of any such breach. Accordingly, notwithstanding anything stated herein, if Employee shall breach or fail to perform any term, condition or duty contained in Section 12 hereof, then, in such event, the Company shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain the specific performance thereof by Employee or to seek a temporary restraining order or injunctive relief, without any requirement to show actual damages or post bond, to restrict Employee from violating the provisions of Section 12; however, nothing herein shall be construed to prevent the Company seeking such other remedy in the courts, in case of any breach of this Agreement by Employee, as the Company may elect or invoke. If court proceedings are instituted by the Company to enforce Section 12 hereof, and the Company is the prevailing party, the Company shall receive, in addition to any damages awarded, reasonable attorneys' fees, court costs and ancillary expenses. 16. Miscellaneous. This Agreement may not be modified or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officers of the Company as may be specifically designated by its Board for that purpose. Except for any failure to give the ten (10) day notice described in Section 6(b) above, the failure of either party to this Agreement to object to any breach by the other party or the non-breaching party's conduct or conduct forbearance shall not constitute a waiver of that party's rights to enforce this Agreement. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any subsequent breach by such other party or any similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois. 17. Severability. The parties hereto intend this Agreement to be enforced to the maximum extent permitted by law. In the event any provision of this Agreement is deemed to be invalid or unenforceable by any court of competent jurisdiction, such provisions shall be deemed to be restricted in scope or otherwise modified to the extent necessary to render the same valid and enforceable. In the event the provisions of Section 12 cannot be modified or restricted so as to be valid and enforceable, then the same as well as the Company's obligation to make any payment or transfer any benefit to Employee in connection with any termination of Employee's employment shall be deemed excised from this Agreement, and this Agreement shall be construed and enforced as if such provisions had originally been incorporated herein as so restricted or modified or as if such provisions had not originally been contained herein, as the case may be. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 18. Survival. The obligations of the parties under this Agreement shall survive the term of this Agreement. 19. Term of Agreement. The term of this Agreement shall commence on April 1, 1998 and end on March 31, 2001. Provided, however, that in the event Employee's employment is terminated while this Agreement is in force, this Agreement shall terminate when the Company has made all payments to Employee required by Section 9 hereof and Employee has complied with the duties and obligations described in Section 12 hereof (all of which duties and obligations shall specifically survive the termination of the Employee's employment). To the extent necessary for the Company's enforcement of the provisions of Section 12 above (but only for such purpose), Employee's employment term shall be deemed to continue through the end of the Agreement term. Date: February 4, 1999 Employee AMCOL International Corporation By: /s/ Ryan F. McKendrick By: /s/ John Hughes Name: Ryan F. McKendrick Name: John Hughes Title: Chairman and CEO EX-21 3 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 AMCOL INTERNATIONAL CORPORATION SUBSIDIARY LISTING
Company Name Country State Ownership % ACP Export, Inc. U.S. Virgin Islands 100 AMCOL (Holdings) Ltd. England 100 AMCOL Holdings Canada Ltd. Canada Ontario 100 AMCOL International Corporation USA DE Parent American Colloid Company USA DE 100 Ameri-Co Carriers, Inc. USA NE 100 CETCO (Europe) Limited England 100 CETCO AS Norway 100 CETCO Asia Sdn. Bhd. Malaysia 100 CETCO Australia Pty. Ltd. Australia 100 CETCO Environmental Technologies Pte Ltd Singapore 100 CETCO Korea Ltd. Korea 100 CETCO-POLAND Sp. z o. o Poland 100 Chemdal Asia Ltd. Thailand 100 Chemdal Corporation USA DE 100 Chemdal International Corporation USA DE 100 Chemdal Limited England 100 Chemdal Pty. Ltd. Australia 100 Chemdal Sp. z o.o. Poland 100 Colloid Abwassertechnik GmbH Germany 100 Colloid Environmental Technologies Company (CETCO) USA DE 100 Egypt Bentonite & Derivatives Company Egypt 25 Egypt Mining & Drilling Chemicals Company Egypt 25 Foundry Supplies Limited England 100 Montana Minerals Development Company USA MT 100 Nanocor, Inc. USA DE 100 Nanocor, Ltd. England 100 Nationwide Freight Service, Inc. USA NE 100 Nissho Iwai Bentonite Co., Ltd. Japan 19 Redhill Volclay Co. Ltd. China 49 Regeneration Technologies, Inc. USA DE 100 Superior Absorbents, Inc USA DE 100 Volclay de Mexico, S.A. de C.V. Mexico 49 Volclay International Corp. USA DE 100 Volclay Korea Ltd. Korea 100 Volclay Limited England 100 Volclay Pty., Ltd. Australia 100 Volclay Siam Ltd. Thailand 100
EX-23 4 CONSENTS OF EXPERTS AND COUNSEL EXHIBIT 23 Consent of KPMG LLP The Board of Directors AMCOL International We consent to incorporation by reference in the registration statements Nos. 33-34109, 33-55540, 33-73350 and 333-56017 on Form S-8 of AMCOL International Corporation and subsidiaries of our report dated February 26, 1999, relating to the consolidated balance sheets of AMCOL International Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, retained earnings, and cash flows for each of the years in the three-year period ended December 31, 1998, and related schedule which report appears in the December 31, 1998, annual report on Form 10-K of AMCOL International Corporation. /s/ KPMG LLP Chicago, Illinois March 19, 1999 EX-27 5 FDS --
5 0000813621 AMCOL INTERNATIONAL CORPORATION 1,000 USD 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1.00 2,758 0 103,073 2,999 52,093 164,076 325,681 154,203 357,864 74,083 0 0 0 320 0 357,864 521,530 521,530 410,359 452,579 140 0 7,933 34,427 12,350 21,044 0 0 0 22,085 0.79 0.78
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