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EX-32 - CERTIFICATION - AMCOL INTERNATIONAL CORPdex32.htm
EX-31.1 - CERTIFICATION - AMCOL INTERNATIONAL CORPdex311.htm
EX-31.2 - CERTIFICATION - AMCOL INTERNATIONAL CORPdex312.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)     
( x )   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended

  March 31, 2011      
  or                

 

(      )

  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

  1-14447         

 

AMCOL INTERNATIONAL CORPORATION

 
(Exact name of registrant as specified in its charter)  

 

Delaware     36-0724340    
(State or other jurisdiction of incorporation or organization)     (IRS Employer Identification No.)    

 

2870 Forbs Avenue, Hoffman Estates, IL    60192  
(Address of principal executive offices)            (Zip Code)  

 

(847) 851-1500

 
(Registrant’s telephone number, including area code)  

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                Yes  ¨            No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  ¨                Accelerated filer  x                                 Non-accelerated filer  ¨

Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2 of the Exchange Act).      Yes  ¨                No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class      Outstanding at April 27, 2011        
(Common stock, $.01 par value)      31,479,379 Shares        

 

1


AMCOL INTERNATIONAL CORPORATION

INDEX

 

          Page No.  
Part I - Financial Information   
Item 1:   

Financial Statements

Condensed Consolidated Balance Sheets –

March 31, 2011 and December 31, 2010

     3   
  

Condensed Consolidated Statements of Operations –

three months ended March 31, 2011 and 2010

     5   
  

Condensed Consolidated Statements of Comprehensive Income –

three months ended March 31, 2011 and 2010

     6   
  

Condensed Consolidated Statements of Changes in Equity –

three months ended March 31, 2011 and 2010

     7   
  

Condensed Consolidated Statements of Cash Flows –

three months ended March 31, 2011 and 2010

     8   
   Notes to Condensed Consolidated Financial Statements      9   
Item 2:   

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

     18   
Item 3:    Quantitative and Qualitative Disclosures About Market Risk      28   
Item 4:    Controls and Procedures      29   
Part II - Other Information   
Item 5:    Other Information      29   
Item 6:    Exhibits      31   

 

2


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

Item 1:   Financial Statements

 

ASSETS   March 31,
2011
(unaudited)
   

December 31,
2010

*

 

Current assets:

       

Cash and cash equivalents

    $             21,180        $             27,262   

Accounts receivable, net

    206,565        193,968   

Inventories

    110,159        107,515   

Prepaid expenses

    16,332        12,581   

Deferred income taxes

    5,634        5,553   

Income tax receivable

    7,258        8,474   

Other

    868        6,211   
                 

Total current assets

    367,996        361,564   
                 
     

Noncurrent assets:

       

Property, plant, equipment, and mineral rights and reserves:

       

Land and mineral rights

    61,285        63,026   

Depreciable assets

    463,518        454,351   
                 
      524,803        517,377   

Less: accumulated depreciation and depletion

    265,764        256,889   
                 
      259,039        260,488   
                 

Goodwill

    71,706        70,909   

Intangible assets, net

    40,475        42,590   

Investment in and advances to affiliates and joint ventures

    22,402        19,056   

Available-for-sale securities

    10,253        14,168   

Deferred income taxes

    5,194        7,570   

Other assets

    23,499        22,748   
                 

Total noncurrent assets

    432,568        437,529   
                 

Total Assets

    $ 800,564        $ 799,093   
                 
                 

Continued…

 

3


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY  

March 31,

2011
(unaudited)

   

December 31,
2010

*

 

Current liabilities:

       

Accounts payable

    $             56,805        $         53,167   

Accrued liabilities

    59,753        59,308   
                 

Total current liabilities

    116,558        112,475   
                 
     

Noncurrent liabilities:

       

Long-term debt

    232,386        236,171   

Pension liabilities

    21,288        21,338   

Deferred compensation

    9,822        8,686   

Other long-term liabilities

    16,980        19,987   
                 

Total noncurrent liabilities

    280,476        286,182   
                 
     

Shareholders’ Equity:

       

Common stock

    320        320   

Additional paid in capital

    91,283        95,074   

Retained earnings

    289,766        283,189   

Accumulated other comprehensive income

    28,471        28,936   
                 
      409,840        407,519   

Treasury stock

    (6,414     (8,945
                 

Total AMCOL shareholders’ equity

    403,426        398,574   
                 

Noncontrolling interest

    104        1,862   
                 

Total equity

    403,530        400,436   
                 

Total Liabilities and Shareholders’ Equity

    $ 800,564        $ 799,093   
                 
                 

*Condensed from audited financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

     Three Months Ended
March  31,
 
  2011     2010  

Net sales

    $             222,415        $             174,951   

Cost of sales

    164,295        130,404   
                 

Gross profit

    58,120        44,547   

General, selling and administrative expenses

    39,550        33,787   
                 

Operating profit

    18,570        10,760   
                 

Other income (expense):

     

Interest expense, net

    (2,682     (2,216

Other, net

    (376     (447
                 
      (3,058     (2,663
                 

Income before income taxes and income (loss) from
affiliates and joint ventures

    15,512        8,097   

Income tax expense

    4,365        2,182   
                 

Income before income (loss) from affiliates and
joint ventures

    11,147        5,915   

Income (loss) from affiliates and joint ventures

    1,089        (91
                 

Net income (loss)

    12,236        5,824   
                 
     

Net income (loss) attributable to noncontrolling interests

    1        (304
                 

Net income (loss) attributable to AMCOL shareholders

    $ 12,235        $ 6,128   
                 
     

Weighted average common shares outstanding

    31,515        31,041   
     

Weighted average common and common equivalent shares outstanding

    31,992        31,419   
     

Basic earnings per share attributable to AMCOL shareholders

    $ 0.39        $ 0.20   
     

Diluted earnings per share attributable to AMCOL shareholders

    $ 0.38        $ 0.20   
     

Dividends declared per share

    $ 0.18        $ 0.18   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

     Total    

AMCOL

Shareholders

   

Noncontrolling

Interest

 
     Three Months Ended
March 31,
    Three Months Ended
March 31,
    Three Months Ended
March 31,
 
     2011     2010     2011     2010     2011     2010  

Net income (loss)

    $     12,236        $         5,824        $       12,235        $         6,128        $               1        $         (304

Other comprehensive income (loss):

             

Foreign currency translation adjustment

    1,913        (1,338     1,945        (1,330     (32     (8

Unrealized gain (loss) on available-for-sale securities, net of tax

    (2,892     (1,986     (2,892     (1,986     -        -   

Unrealized gain (loss) on interest rate swap agreements, net of tax

    457        (586     457        (586     -        -   

Pension adjustment, net of tax

    25        30        25        30        -        -   
                                                 

Comprehensive income (loss)

    $ 11,739        $ 1,944        $ 11,770        $ 2,256        $ (31     $ (312
                                                 
                                                 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(In thousands)

 

    

Total

Equity

    AMCOL Shareholders     Noncontrolling
Interest
 
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Common
Stock
    Treasury
Stock
    Paid-in
Capital
   

Balance at December 31, 2009

    $         379,772        $         275,200        $         32,174        $             320        $         (14,377     $         84,830        $         1,625   

Net income (loss)

    5,824        6,128                    (304

Cash dividends

    (5,566     (5,566                

Issuance of treasury shares pursuant to employee stock compensation plans

    2,419                1,922        497       

Tax benefit from employee stock compensation plans

    25                    25       

Vesting of common stock in connection with employee stock compensation plans

    781                    781       

Other comprehensive income (loss)

    (3,880       (3,872             (8
                                                         

Balance at March 31, 2010

    379,375        275,762        28,302        320        (12,455     86,133        1,313   
                                                         
         

Balance at December 31, 2010

    $ 400,436        $ 283,189        $ 28,936        $ 320        $ (8,945     $ 95,074        $ 1,862   

Net income (loss)

    12,236        12,235                    1   

Cash dividends

    (5,658     (5,658                

Issuance of treasury shares pursuant to employee stock compensation plans

    2,711                2,531        180       

Tax benefit from employee stock compensation plans

    181                    181       

Vesting of common stock in connection with employee stock compensation plans

    1,040                    1,040       

Purchase of noncontrolling interest

    (5,666                 (5,192     (474

Deconsolidation of variable interest entity

    (1,253                   (1,253

Other comprehensive income (loss)

    (497       (465             (32
                                                         

Balance at March 31, 2011

    403,530        289,766        28,471        320        (6,414     91,283        104   
                                                         

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

     Three Months Ended
March  31,
 
     2011     2010  

Cash flow from operating activities:

     

Net income

    $             12,236        $             5,824   

Adjustments to reconcile from net income (loss) to net cash provided by (used in) operating activities:

     

Depreciation, depletion, and amortization

    9,406        8,552   

Other non-cash charges

    1,910        2,008   

Changes in assets and liabilities, net of effects of acquisitions:

     

Decrease (increase) in current assets

    (18,326     (4,185

Decrease (increase) in noncurrent assets

    (728     (1,193

Increase (decrease) in current liabilities

    5,195        (1,674

Increase (decrease) in noncurrent liabilities

    595        (771
                 

Net cash provided by (used in) operating activities

    10,288        8,561   
                 

Cash flow from investing activities:

     

Capital expenditures

    (10,418     (16,077

Other

    145        159   
                 

Net cash (used in) investing activities

    (10,273     (15,918
                 

Cash flow from financing activities:

     

Net change in outstanding debt

    (3,563     6,882   

Proceeds from sales of treasury stock

    2,747        1,995   

Dividends

    (5,658     (5,566

Excess tax benefits from stock-based compensation

    201        22   
                 

Net cash provided by (used in) financing activities

    (6,273     3,333   
                 

Effect of foreign currency rate changes on cash

    176        (258
                 

Net increase (decrease) in cash and cash equivalents

    (6,082     (4,282
                 

Cash and cash equivalents at beginning of period

    27,262        27,669   
                 

Cash and cash equivalents at end of period

    $ 21,180        $ 23,387   
                 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company Operations

We, AMCOL International Corporation (the “Company”), are a global company focused on long term profitability growth through the development and application of minerals and technology products and services to various industrial and consumer markets. We operate in five segments: minerals and materials, environmental, oilfield services, transportation and corporate. Our minerals and materials segment mines, processes and distributes minerals and products with similar applications for use in various industrial and consumer markets, including metalcasting, pet care, laundry care, and drilling industries. Aditionally, this segment develops and manufactures synthetic materials principally for personal care applications. Our environmental segment manufactures and distributes products and provides related services for use as moisture and vapor barriers in commercial construction, landfills and a variety of other industrial and commercial applications. Our oilfield services segment provides both onshore and offshore water treatment filtration, well testing, pipeline separation, nitrogen, coil tubing and other services to the oil and natural gas industry. Our transportation segment includes both a long-haul trucking business and a freight brokerage business for our domestic subsidiaries as well as third parties. Our corporate segment includes the elimination of intersegment sales as well as certain expenses associated with research and development, management, employee benefits and information technology activities for our Company. Approximately 82% and 100% of the revenue elimination in the three months ended March 31, 2011 and 2010, respectively represents elimination of shipping revenues between our transportation segment and its domestic sister companies. The composition of our revenues by segment is as follows:

 

      Three Months Ended
March  31,
 
       2011              2010      

Minerals and materials

     53%         56%   

Environmental

     25%         22%   

Oilfield services

     20%         17%   

Transportation

     6%         7%   

Intersegment sales

     -4%         -2%   
                   
       100%         100%   
                   
                   

Further discussion of segment information is included in Note 4, “Business Segment Information.”

Basis of Presentation

The financial information included herein has been prepared by management, and other than the condensed consolidated balance sheet as of December 31, 2010, is unaudited. The condensed consolidated balance sheet as of December 31, 2010 has been derived from, but does not include all of the disclosures contained in, the audited consolidated financial statements for the year ended December 31, 2010. The information furnished herein includes all adjustments that are, in our opinion, necessary for a fair presentation of our results of operations and cash flows for the interim periods ended March 31,

 

9


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

2011 and 2010, and our financial position as of March 31, 2011, and all such adjustments are of a normal recurring nature. The accompanying condensed consolidated financial information should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Certain items in the prior year’s condensed consolidated financial statements contained herein and notes thereto have been reclassified to conform to the condensed consolidated financial statement presentation for the three months ended March 31, 2011. These reclassifications did not have a material impact on our financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year for a variety of reasons, including the seasonality of both our environmental segment, which varies due to the seasonal nature of the construction industry, and our oilfield services segment, which varies due to seasonal weather patterns in its various markets.

 

Note 2: EARNINGS PER SHARE

The table below provides further share information used in computing our earnings per share for the periods presented herein. Basic earnings per share was computed by dividing net income attributable to AMCOL shareholders by the weighted average number of common shares outstanding during each period. Diluted earnings per share was computed by dividing net income attributable to AMCOL shareholders by the weighted average common shares outstanding after consideration of the dilutive effect of stock based compensation outstanding during each period.

 

      Three Months Ended
March 31,
 
      2011      2010  

Weighted average number of common shares outstanding

         31,515,395             31,041,398   

Dilutive impact of stock based compensation

     476,464         377,284   
                   

Weighted average number of common and common equivalent shares outstanding for the period

     31,991,859         31,418,682   
                   

Number of common shares outstanding at the end of the period

     31,466,023         30,939,931   
                   

Weighted average number of anti-dilutive shares excluded from the computation of diluted earnings per share

     122,822         497,764   
                   

 

10


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

 

Note 3: ADDITIONAL BALANCE SHEET INFORMATION

Our inventories at March 31, 2011 and December 31, 2010 are comprised of the following components:

 

      March 31,
2011
    December 31,
2010
 

Crude stockpile inventories

     $             37,971        $             35,308   

In-process and finished goods inventories

     49,437        47,510   

Other raw material, container, and supplies inventories

     22,751        24,697   
                  
       $ 110,159        $ 107,515   
                  

We mine various minerals using a surface mining process that requires the removal of overburden. In certain areas and under various governmental regulations, we are obligated to restore the land comprising each mining site to its original condition at the completion of the mining activity. We include an estimate of this reclamation liability in our Condensed Consolidated Balance Sheets; it is adjusted to reflect the passage of time and changes in estimated future cash outflows. A reconciliation of the activity within our reclamation liability is as follows:

 

      Three Months Ended
March  31,
 
      2011     2010  

Balance at beginning of period

     $             7,529        $             6,584   

Settlement of obligations

     (489     (303

Liabilities incurred and accretion expense

     963        407   

Foreign currency

     (30     -   
                  

Balance at end of period

     $ 7,973        $ 6,688   
                  

We own shares of Ashapura Minechem Limited (“Ashapura”), a public company traded on the Bombay Stock Exchange Limited. We include this investment at its fair value within our Condensed Consolidated Balance Sheets with the unrealized gains or losses, resulting from fluctuations in its fair value, as a component of accumulated other comprehensive income within equity. The following table sets forth the gains recorded in accumulated comprehensive income (loss) within equity in Condensed Consolidated Balance Sheet:

 

      March 31,
2011
    December 31,
2010
 

Unrealized gain on avaliable-for-sale securities

     $             8,955        $             12,869   

Tax expense

     -        1,022   
                  

Unrealized gain on avaliable-for-sale securities, net of tax expense

     $ 8,955        $ 11,847   
                  

 

11


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

 

Note 4: BUSINESS SEGMENT INFORMATION

As previously mentioned, we operate in five segments. Our segments are fairly diverse with respect to the products and services they offer as well as the customers they serve. Accordingly, we organize our segments based on the products provided and industries they serve. We measure segment performance based on operating profit, which is defined as net sales less cost of sales and general, selling and administrative expenses related to a segment’s operations. The costs deducted to arrive at operating profit do not include several items, such as net interest expense or income taxes. Segment assets are those assets used in the operations of that segment. Corporate assets include cash and cash equivalents, corporate leasehold improvements, assets associated with certain employee benefit plans, and other miscellaneous equipment.

The following summaries set forth certain financial information by segment:

 

     

Three Months Ended

March 31,

 
      2011     2010  

Net sales:

        

Minerals and materials

     $             116,880        $             97,688   

Environmental

     55,333        38,175   

Oilfield services

     44,744        30,204   

Transportation

     12,674        12,120   

Intersegment sales

     (7,216     (3,236
                  

Total

     $ 222,415        $ 174,951   
                  
     

Operating profit (loss):

        

Minerals and materials

     $ 16,171        $ 14,306   

Environmental

     2,283        (217

Oilfield services

     4,872        1,228   

Transportation

     465        511   

Corporate

     (5,221     (5,068
                  

Total

     $ 18,570        $ 10,760   
                  
     
      As of Mar. 31, 2011     As of Dec. 31, 2010  

Assets:

        

Minerals and materials

     $ 396,039        $ 402,640   

Environmental

     162,943        160,053   

Oilfield services

     180,599        173,239   

Transportation

     4,655        4,071   

Corporate

     56,328        59,090   
                  

Total

     $ 800,564        $ 799,093   
                  
                  

 

 

12


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

 

      Three Months Ended
March  31,
 
      2011      2010  

Depreciation, depletion and amortization:

         

Minerals and materials

     $             4,543         $             3,796   

Environmental

     1,285         1,384   

Oilfield services

     3,002         2,924   

Transportation

     15         8   

Corporate

     561         440   
                   

Total

     $             9,406         $             8,552   
                   
     

Capital expenditures:

         

Minerals and materials

     $             2,784         $             13,001   

Environmental

     715         453   

Oilfield services

     6,432         2,502   

Transportation

     -         37   

Corporate

     487         84   
                   

Total

     $             10,418         $             16,077   
                   
     

Research and development (income) expense:

         

Minerals and materials

     $             1,612         $             1,323   

Environmental

     488         646   

Oilfield services

     59         159   

Corporate

     (186      81   
                   

Total

     $             1,973         $             2,209   
                   
                   

 

Note 5: EMPLOYEE BENEFIT PLANS

Our net periodic benefit cost for our defined benefit pension plan was as follows:

 

      Three Months Ended
March  31,
 
      2011     2010  

Service cost

     $             379        $             350   

Interest cost

     652        623   

Expected return on plan assets

     (714     (654

Amortization of prior service cost

     16        16   
                  

Net periodic benefit cost

     $ 333        $ 335   
                  

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010, we expect to contribute up to $1,500 to our pension plan in 2011, of which $500 was contributed in the three months ended March 31, 2011.

 

13


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

 

Note 6: INCOME TAXES

Our effective tax rate for the three months ended March 31, 2011 and 2010 was 28.1% and 26.9%, respectively. For both periods, the rate differs from the U.S. federal statutory rate of 35.0% largely due to depletion deductions, changes in tax reserves, and differences in local tax rates on the income from our foreign subsidiaries.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2004. In general, the United States Internal Revenue Service (“IRS”) has examined our federal income tax returns for all years through 2007.

 

Note 7: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As a multinational corporation with operations throughout the world, we are subject to certain market risks. We use a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. We use derivative financial instruments only for risk management and not for trading or speculative purposes.

The following table sets forth the fair values of our derivative instruments and where they are recorded within our Condensed Consolidated Balance Sheet:

 

Liability Derivatives   

Balance Sheet Location

     Fair Value as of  
      March 31, 2011     December 31, 2010  

Derivatives designated as hedging instruments:

           

Interest rate swaps

     Other long-term liabilities           $          (5,945)      $          (6,666) 

Cash flow hedges

 

Derivatives in Cash Flow Hedging Relationships   

Amount of Gain or (Loss) Recognized
in Other Comprehensive Income on

Derivatives

(Effective Portion)

 
   Three Months Ended March 31,  
   2011      2010  

Interest rate swaps, net of tax

     $         457         $          (586) 

 

14


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

We use interest rate swaps to manage floating interest rate risk on debt securities. Interest rate differentials are paid or received on these arrangements over the life of the agreements. As of March 31, 2011 and 2010, we had an interest rate swap outstanding which effectively hedges the variable interest rate on $30,000 of our senior notes to a fixed rate of 5.6% per annum. We also had other interest rate swaps outstanding which effectively hedge the variable interest rate on $33,000 of our borrowings as of March 31, 2011, and $23,000 of our borrowings as of March 31, 2010, under our revolving credit agreement, to a fixed rate of 3.15% per annum and 3.36% per annum, respectively, plus credit spread.

Other

We are exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. Our primary U.S. dollar exposures are to fluctuations in the Euro, British Pound, Polish Zloty and South African Rand. We also have significant exposure to fluctuations in exchange rates between the British Pound and the Euro as well as between the Polish Zloty and the Euro. We enter into foreign exchange derivative contracts to mitigate the risk of currency fluctuations on these exposures.

We have not designated these contracts for hedge accounting treatment and therefore, changes in fair value of these contracts are recorded in earnings as follows:

 

Derivatives Not Designated as Hedging Instruments   

Location of Gain

or (Loss)

Recognized in

Income on

Derivatives

    

Amount of Gain or

(Loss) Recognized in

Income on Derivatives

 
         Three Months Ended
March 31,
 
         2011     2010  

Foreign currency exchange contracts

     Other, net         $          (1,109)      $         1   

We did not have any significant foreign exchange derivative instruments outstanding as of March 31, 2011 or December 31, 2010.

 

Note 8: FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our calculation of the fair value of derivative instruments includes several assumptions. The fair value hierarchy prioritizes these input assumptions in the following three broad levels:

Level 1 – Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities we have the ability to access at the measurement date.

 

15


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

Level 2 – Valuation is based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and model based valuations for which all significant inputs are observable in the market.

Level 3 – Valuation is based on model based techniques that use unobservable inputs for the asset or liability. These inputs reflect our own assumption about the assumption market participants would use in pricing the asset or liability.

The following tables categorize our fair value instruments, measured on a recurring basis, according to the assumptions used to calculate those values:

 

              Fair Value Measurements Using  

Description

 

   Asset /
(Liability)
Balance at
3/31/2011
    

Quoted Prices in
Active Markets
for Identical

Assets

(Level 1)

    

Significant

Other

Observable

Inputs

(Level 2)

    

Significant

Unobservable

Inputs

(Level 3)

 
       

Interest rate swaps

     $             (5,945)         $             -             $         (5,945)         $         -       
       

Available-for-sale securities

     10,253          10,253         -             -       
       

Deferred compensation plan assets

     8,868          -             8,868          -       
       

Supplementary pension plan assets

     7,985          -             7,985          -       

 

              Fair Value Measurements Using  

Description

 

   Asset /
(Liability)
Balance at
12/31/2010
    

Quoted Prices in
Active Markets

for Identical

Assets

(Level 1)

    

Significant

Other

Observable

Inputs

(Level 2)

    

Significant

Unobservable

Inputs

(Level 3)

 
       

Interest rate swaps

     $             (6,666)         $ -             $             (6,666)         $ -       
       

Available-for-sale securities

     14,168         14,168         -             -       
       

Deferred compensation plan assets

     8,358         -             8,358         -       
       

Supplementary pension plan assets

     7,676         -             7,676         -       

Interest rate swaps are valued using discounted cash flows. The key input used is the LIBOR swap rate, which is observable at commonly quoted intervals for the full term of the swap. Available-for-sale securities are valued using quoted market prices. Deferred compensation and supplementary pension plan assets are valued using quoted prices for similar assets in active markets.

 

16


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands)

 

 

Note 9: NONCONTROLLING INTEREST

In January 2011, we acquired the remaining noncontrolling interest of our chromite operations in South Africa in exchange for forgiveness of certain loan balances and a stipulation to exchange certain materials. The following table sets forth the effects of this transaction on equity attributable to AMCOL’s shareholders.

 

      Three Months Ended
March  31,
2011
 

Net income attributable to AMCOL shareholders

     $                     12,235   

Transfers from noncontrolling interest:

    

Decrease in additional paid-in capital for the purchase of the remaining noncontrolling interest in our South African operations

     (5,192
          

Change from net income attributable to AMCOL shareholders and transfers from noncontrolling interest

     $ 7,043   
          
          

 

Note 10: CONTINGENCIES

We are party to a number of lawsuits arising in the normal course of business. We do not believe that any pending litigation will have a material adverse effect on our consolidated financial statements.

 

17


Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

From time to time, certain statements we make, including statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section, constitute “forward-looking statements” made in reliance upon the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to our Company or our operations that are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions, and statements relating to anticipated growth and levels of capital expenditures. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements as a result of various factors, including without limitation the following: actual performance in our various markets; conditions in the metalcasting and construction markets; oil and gas prices and conditions in those industries; operating costs; seasonality of our environmental and oilfield services segments; competition and regulation; currency exchange rates and devaluations; delays in development, production and marketing of new products; integration of acquired businesses; conducting and expanding operations in international markets; and other factors set forth from time to time in our reports filed with the Securities and Exchange Commission (SEC). We undertake no duty to update any forward looking statements to actual results or changes in our expectations.

Overview

We are a global company focused on long term profitability growth through the development and application of minerals and technology products and services to various industrial and consumer markets. The majority of our revenue growth has been achieved by sustaining our products’ technological advantages, developing new products and applying them in innovative ways, and bringing additional products and services to markets we already serve. We focus our research and development activities in areas where we can either leverage our current customer relationships and mineral reserves or enhance existing or related products and services.

The principal mineral that we utilize to generate revenue is bentonite. We own or lease bentonite reserves in the U.S., Australia, China and Turkey. Additionally, through our affiliates and joint ventures, we have access to bentonite reserves in Egypt, India, Russia, Azerbaijan and Mexico. We also market and develop applications for other minerals, including chromite ore from our mine in South Africa.

Bentonite is surface mined when it is commercially feasible to have it shipped to a plant for further processing, including crushing, drying, milling, and packaging. Bentonite deposits have varying physical properties which require us to identify which markets our reserves can serve. Nicknamed the mineral of a thousand uses, bentonite has several unique characteristics including its ability to bind, swell, adsorb, control rheology, soften fabrics, and have its surface modified through chemical and physical reactions. Our research and development activities, including our understanding of bentonite properties, mining methods, processing and application to markets are core components of our longevity and future prospects.

 

18


We operate in five segments: minerals and materials, environmental, oilfield services, transportation and corporate. Both our minerals and materials and environmental segments operate manufacturing facilities in North America, Europe, and the Asia-Pacific region. Our minerals and materials segment also owns and operates a chromite mine in South Africa. Our oilfield services segment principally operates in North America’s Gulf of Mexico and surrounding states and also has a growing presence in South America, Africa and Asia. Additionally, we have a transportation segment that performs trucking services for our domestic minerals and materials and environmental businesses as well as third parties.

Our customers are engaged in various end-markets and geographic regions. Customers in the minerals and materials segment range from foundries that produce castings for automotive, industrial, and transportation equipment, including heavy-duty trucks and railroad cars, to producers of consumer goods, including cat litter, cosmetics and laundry care. Customers in our environmental segment include construction contractors, engineering contractors and government agencies. The oilfield services segment’s customer base is primarily comprised of oil and natural gas service or exploration companies. A significant portion of our products have been used in the same applications for decades and have experienced minimal technological obsolescence. A majority of our sales are made pursuant to short-term agreements; therefore, terms of sale, such as pricing and volume, can change within our fiscal year.

A majority of our revenues are generated in the Americas, principally North America. Consequently, the state of the U.S. economy, and especially the metalcasting and industrial construction industries, impacts our revenues. Our fastest growing markets are in the Asia-Pacific and European regions.

Sustainable, long-term profit growth is our primary objective. We employ a number of strategic initiatives to achieve this goal:

 

   

Organic growth: The central component of our growth strategy is expansion of our product lines and market presence. We have a history of commitment to research and development activities directed at bringing innovative products to market. We believe this approach to growth offers the best probability of achieving our long-term goals at the lowest risk.

 

   

Globalization: As we have done for decades, we continue to expand our manufacturing and marketing organizations into emerging geographic markets. We see significant opportunities in the Asia-Pacific and Eastern European regions for expanding our revenues and earnings over the long-term as a number of markets we serve, such as metalcasting and lining technologies, are expected to grow in these areas. We expect to take advantage of these growth areas, either through our wholly-owned subsidiaries or investments in affiliates and joint ventures.

 

19


   

Mineral development: Bentonite is a component in a majority of the products we supply. Since it is a natural material, we must continually expand our reserve base to maintain a long-term business. Our goal is to add new reserves to replace the bentonite mined each year. Furthermore, we need to assure that new reserves meet the physical property requirements for our diverse product lines and are economical to mine. Our organization is committed to developing its global reserve base to meet these requirements.

 

   

Acquisitions: We continually seek to acquire complementary businesses, as appropriate, when we believe those businesses are fairly valued and fit into our growth strategy.

A number of risks will challenge us in meeting these long-term objectives, and there can be no assurance that we will achieve success in implementing any one or more of them. We describe certain risks throughout this report as well as under “Item 1A. Risk Factors” and “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” within our Annual Report on Form 10-K for the year ended December 31, 2010. In general, the significance of these risks has not materially changed since our Annual Report on Form 10-K for the period ended December 31, 2010.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of our Financial Condition and Results of Operations describes relevant aspects of our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. We evaluate the accounting policies and estimates used to prepare the financial statements on an ongoing basis. We consider the accounting policies used in preparing our financial statements to be critical accounting policies when they are both important to the portrayal of our financial condition and results of operations, and require us to make estimates, complex judgments, and assumptions, including with respect to events which are inherently uncertain. As a result, actual results could differ from these estimates. For more information on our critical accounting policies, please read our Annual Report on Form 10-K for the year ended December 31, 2010.

Analysis of Results of Operations

Following is a discussion and analysis that describes certain factors that have affected, and may continue to affect, our financial position and operating results. This discussion should be read with the accompanying condensed consolidated financial statements.

The following consolidated income statement review and segment analysis discuss the results for the three months period ended March 31, 2011 and the comparable results in the prior year. In each section, a discussion of our consolidated results is presented first, followed by more detailed discussion of performance within our segments.

 

20


Three months ended March 31, 2011 vs. March 31, 2010

Consolidated Income Statement Review

The table below compares our operating results for the quarters ended March 31, 2011 and 2010.

 

000000000 000000000 000000000
Consolidated    Three Months Ended March 31,  
  

 

2011

 

   

 

2010

 

   

 

2011 vs. 2010

 

 
      (Dollars in Thousands, Except Per Share Amounts)  

Net sales

     $             222,415        $             174,951        27.1%   

Cost of sales

     164,295        130,404       
                      

Gross profit

     58,120        44,547        30.5%   

margin %

     26.1%        25.5%       

General, selling and administrative expenses

     39,550        33,787        17.1%   
                      

Operating profit

     18,570        10,760        72.6%   

margin %

     8.3%        6.2%       

Other income (expense):

          

Interest expense, net

     (2,682     (2,216     21.0%   

Other, net

     (376     (447     -15.9%   
                      
       (3,058     (2,663    
                      
       

Income before income taxes and income (loss) from affiliates and joint ventures

     15,512        8,097       

Income tax expense

     4,365        2,182        100.0%   

effective tax rate

     28.1%        26.9%       
                      
       

Income before income (loss) from affiliates and joint ventures

     11,147        5,915       

Income (loss) from affiliates and joint ventures

     1,089        (91     -1296.7%   
                      
       

Net income (loss)

     12,236        5,824       
       

Net income (loss) attributable to noncontrolling interests

     1        (304     -100.3%   
                      

Net income (loss) attributable to AMCOL shareholders

     $ 12,235        $ 6,128        99.7%   
                      
       

Basic earnings per share attributable to AMCOL shareholders

     $ 0.39        $ 0.20        95.0%   
       

Diluted earnings per share attributable to AMCOL shareholders

     $ 0.38        $ 0.20        90.0%   

 

21


We measure sales fluctuations by the relevant components: organic, acquisitions, and foreign currency translation. Fluctuation due to foreign currency translation is measured as the change in revenues resulting from differences in currency exchange rates between periods. Fluctuation due to acquisitions is measured as the changes in revenues resulting from acquired businesses within the first year (twelve consecutive months) we own them. Any remaining fluctuation is due to organic components. The following table details the consolidated sales fluctuations by components over the prior year’s comparable period:

 

0000000000 0000000000 0000000000 0000000000
      Organic      Acquisitions      Currency
Translation
     Total  

Minerals and materials

     10.2%         0.0%         0.8%         11.0%   

Environmental

     8.9%         0.5%         0.4%         9.8%   

Oilfield services

     8.1%         0.0%         0.2%         8.3%   

Transportation & intersegment shipping

     -2.0%         0.0%         0.0%         -2.0%   
                                     

Total

     25.2%         0.5%         1.4%         27.1%   
                                     

% of change

     93.2%         1.7%         5.1%         100.0%   

The following table shows the distribution of sales across our three principal geographic regions (Americas; Europe, Middle East, and Africa (EMEA); and Asia Pacific) and the comparable total from the prior year’s period:

 

0000000000 0000000000 0000000000 0000000000
      Americas      EMEA      Asia
Pacific
     Total  

Minerals and materials

     29.9%         11.7%         10.8%         52.4%   

Environmental

     12.4%         10.7%         1.4%         24.5%   

Oilfield services

     18.4%         0.6%         1.0%         20.0%   

Transportation & intersegment shipping

     3.1%         0.0%         0.0%         3.1%   
                                     

Total - current year’s period

     63.8%         23.0%         13.2%         100.0%   
                                     

Total from prior year’s comparable period

     65.2%         19.6%         15.2%         100.0%   

Net sales:

Net sales increased largely due to organic growth as acquisitions and foreign currency translation had minimal impacts. We experienced significant growth in our EMEA revenues due to our South African operations, which began late in the second quarter of 2010, and growth in our European environmental business, which was significantly impacted by the recession that existed during the first quarter of 2010. On an absolute dollar basis, sales in the Asia Pacific region increased as our Asian minerals and materials businesses, especially those serving the metalcasting markets, continue to benefit from economic growth in that region.

Gross profit:

Overall gross profit increased due to the increase in sales mentioned above, and gross margins increased due to increased profitability in our oilfield services segment as discussed later herein.

 

22


General, selling & administrative expenses (GS&A):

GS&A expenses increased overall due to increases in employee compensation and benefit costs, investments in information technology, and expenses associated with realigning the cost structure within our environmental segment aimed at reducing expenses in this segment in the future.

Operating profit:

Operating profit increased due to the increase in gross profit mentioned earlier, partially offset by the increase in GS&A expenses. Our overall operating margin increased significantly due to the recovery in our environmental segment and the increased performance of our oilfield services segment, as discussed later herein.

Income from affiliates and joint ventures:

Our affiliates and joint ventures generated $1.1 million of income in the 2011 first quarter as compared to a loss of $0.1 million in the prior year’s quarter. In the first quarter of 2010, our Russian and Belgian joint-ventures generated significant losses which were accompanied by less than expected results from our other joint-ventures given the global recession occurring during that time period. In the first quarter of 2011, we did not record losses from our Russian or Belgian joint-ventures as these investments are now held at a nil costs basis in our balance sheet. In addition, our 50% owned Japanese and Indian joint-ventures reported strong earnings in the 2011 quarter due to recovery in the economies in which they operate.

Diluted earnings per share:

Diluted EPS increased commensurate with the increase in net income. The change in weighted average shares outstanding did not have a material effect on diluted earnings per share.

Quarterly Review of Each Segment’s Results

Following is a review of operating results for each of our five reporting segments:

Minerals and Materials Segment

 

00000000 00000000 00000000 00000000 00000000 00000000
Minerals and Materials    Three Months Ended March 31,  
   2011      2010      2011 vs. 2010  
      (Dollars in Thousands)  

Net sales

     $ 116,880         100.0%         $ 97,688         100.0%         $ 19,192         19.6%   

Cost of sales

     88,419         75.6%         73,478         75.2%           
                                             

Gross profit

     28,461         24.4%         24,210         24.8%         4,251         17.6%   

General, selling and
administrative expenses

     12,290         10.5%         9,904         10.1%         2,386         24.1%   
                                                   

Operating profit

     16,171         13.9%         14,306         14.7%         1,865         13.0%   

 

23


00000000 00000000 00000000
Minerals and Materials Product Line Sales    Three Months Ended March  31,  
   2011      2010      % change  
      (Dollars in Thousands)  

Metalcasting

     $         60,152         $         44,340         35.7%   

Specialty materials

     26,021         25,808         0.8%   

Pet products

     15,071         16,438         -8.3%   

Basic minerals

     11,542         9,346         23.5%   

Other product lines

     4,094         1,756         133.1%   
                        

Total

     116,880         97,688         19.6%   
                        
                            

Increased volumes in our domestic and Asian operations accounted for 59% of the increase in revenues over the prior year quarter. Growth in our chromite operations, which began late in the second quarter of 2010, accounted for another 42% of the increase. Metalcasting sales increased domestically and in the Asia Pacific region in response to increased demand for castings for automobiles and heavy equipment.

Our gross margins decreased in the current period due to the start up of our operations in South Africa, which negatively affected our gross margins by approximately 150 basis points. Excluding these operations, our gross margins would have increased due to our domestic operations, which benefitted from increased selling prices and increased volumes, including those in our personal care business.

GS&A expenses increased for numerous but individually insignificant reasons, most notably due to increased employee compensation and related benefits expenses and increased information technology expenses. They also increased as a result of our ramping up our South African operations as compared to the amount of expenses that existed in 2010. Operating profits increased due to the significant increase in gross profits mentioned previously.

Environmental Segment

 

00000000 00000000 00000000 00000000 00000000 00000000
Environmental    Three Months Ended March 31,  
   2011      2010      2011 vs. 2010  
      (Dollars in Thousands)  

Net sales

     $         55,333         100.0%         $         38,175        100.0%         $         17,158         44.9%   

Cost of sales

     39,277         71.0%         27,179        71.2%           
                                            

Gross profit

     16,056         29.0%         10,996        28.8%         5,060         46.0%   

General, selling and
administrative expenses

     13,773         24.9%         11,213        29.4%         2,560         22.8%   
                                                  

Operating profit (loss)

     2,283         4.1%         (217     -0.6%         2,500         *           

* Not meaningful

                                                    

 

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00000000 00000000 00000000
Environmental Product Line Sales    Three Months Ended March  31,  
   2011      2010      % change  
      (Dollars in Thousands)  

Lining technologies

     $         21,104         $         16,565         27.4%   

Building materials

     17,056         12,501         36.4%   

Contracting services

     11,230         4,214         166.5%   

Drilling products

     5,943         4,895         21.4%   
                        

Total

     55,333         38,175         44.9%   
                        
                            

Organic demand for our environmental products increased over the prior year, when the recession was more pronounced in the commercial construction market, especially in our lining technologies and contracting services businesses. Our European contracting services business continues to grow in 2011 and experienced significant growth this quarter. These increased sales also led to the increase in gross profits; however, the margins did not improve as much as expected given some raw material cost challenges in our Asian market. Overall operating profits followed the trends in gross profits, and operating margins benefitted from increased leverage even considering our GS&A costs increased due partly to realigning our operations to reduce expenses in the future.

Oilfield Services Segment

 

00000000 00000000 00000000 00000000 00000000 00000000
Oilfield Services    Three Months Ended March 31,  
   2011      2010      2011 vs. 2010  
      (Dollars in Thousands)  

Net sales

     $         44,744         100.0%         $         30,204         100.0%         $         14,540         48.1%   

Cost of sales

     32,080         71.7%         22,190         73.5%           
                                             

Gross profit

     12,664         28.3%         8,014         26.5%         4,650         58.0%   

General, selling and
administrative expenses

     7,792         17.4%         6,786         22.5%         1,006         14.8%   
                                                   

Operating profit

     4,872         10.9%         1,228         4.0%         3,644         296.7%   

The majority of the revenue increase over the first quarter of 2010 was due to greater demand for our domestic well testing and coiled tubing services due to several large offshore jobs and growth in our onshore services in oil and gas bearing shale formations. These two businesses comprised 87% of the increase.

Gross profits increased due to the aforementioned increases in sales. Our coil tubing and well testing operations are also two of our lower variable cost structured businesses, allowing their increased revenues to also increase overall gross margins.

GS&A expenses increased due to increased compensation and personnel costs as well as costs in our international operations as we continue to develop those markets. The changes in operating profits and related margin followed from the changes in gross profits and gross profit margin.

 

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Transportation Segment

 

00000000 00000000 00000000 00000000 00000000 00000000
Transportation    Three Months Ended March 31,  
   2011      2010      2011 vs. 2010  
      (Dollars in Thousands)  

Net sales

     $         12,674         100.0%         $         12,120         100.0%         $         554        4.6%   

Cost of sales

     11,271         88.9%         10,793         89.1%          
                                            

Gross profit

     1,403         11.1%         1,327         10.9%         76        5.7%   

General, selling and
administrative expenses

     938         7.4%         816         6.7%         122        15.0%   
                                                  

Operating profit

     465         3.7%         511         4.2%         (46     -9.0%   

Fuel surcharges comprised the increase in revenues. However, cost pressures within our logistics services, as opposed to our brokerage services, have increased, leading to a decrease in operating profit.

Corporate Segment

 

Corporate    Three Months Ended March  31,  
   2011      2010      2011 vs. 2010  
      (Dollars in Thousands)  

Intersegment sales

     $ (7,216)         $ (3,236)         (3,980)        

Intersegment cost of sales

     (6,752)         (3,236)           
                           

Gross profit (loss)

     (464)         -         (464)        

General, selling
and administrative expenses

             4,757                 5,068         (311)         -6.1%   
                           

Operating loss

     (5,221)         (5,068)         (153)         3.0%   

Intersegment sales transactions are eliminated in our corporate segment. These are most notably sales between our transportation segment and our minerals and materials and environmental segments as well as sales between our minerals and materials segment to our environmental and oilfield services segments.

Corporate GS&A expenses decreased due to decreased employee benefit expenses and reduced information technology expenses at our corporate office.

Balance Sheet Review

In the first three months of 2011, we have increased our overall investments in working capital, especially accounts receivable, in response to the growth in sales and overall activity that we have experienced. We have also increased our investments in property, plant and equipment, most notably for a new chromite ore processing facility in South Africa. We have funded these investments mostly through increased cash utilization. Our other current assets decreased as a $5.0 million loan receivable from our South African partner was exchanged as part of the consideration for our purchase of the noncontrolling interest in our South African operations.

 

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Liquidity and Capital Resources

Cash flows from operations, an ability to issue new debt instruments, an ability to lease equipment, and borrowings from our revolving credit facility have historically been our sources of funds to provide working capital, make capital expenditures, acquire businesses, repurchase common stock, and pay dividends to shareholders. We believe cash flows from operations and borrowings from our unused and committed credit facility will be adequate to support our current business needs for the foreseeable future. Should the need arise or should we choose to, we may issue additional equity or debt instruments on a publicly traded securities exchange via a shelf registration which became effective with the SEC in January 2010.

We may need additional debt or equity facilities in order to pursue acquisitions, when and if these opportunities become available, and we may or may not be able to obtain such facilities on terms substantially similar to our current facilities as discussed in Item 1A – Risk Factors of our Annual Report on Form 10-K filed for 2010. Terms of any new facilities, especially interest rates or covenants, may be significantly different from those we currently have.

Following is a discussion and analysis of our cash flow activities as presented in the Condensed Consolidated Statement of Cash Flows presented within Part 1, Item 1 of this report.

 

Cash Flows
($ in millions)
   Three Months Ended
March  31,
 
   2011     2010  

Net cash provided by operating activities

   $                 10.3      $             8.6   

Net cash used in investing activities

   $ (10.3   $ (15.9

Net cash provided by (used in) financing activities

   $ (6.3   $ 3.3   

Cash flows from operating activities increased in the current quarter due to the increase in net income offset by the increase in working capital required to support our increased business levels. Historically, working capital levels increase in the early and middle parts of the year and then decrease later in the year in conjunction with the seasonality of our business; we do not see a reason why this trend would not continue.

Excluding capital expenditures related to our chromite plant in South Africa, our capital expenditures increased from $5.0 million in the first quarter of 2010 to $9.7 million in the first quarter of 2011. In 2011, our capital expenditures largely occurred in our oilfield services segment to fund anticipated revenue growth of our coil tubing and well testing services, especially those provided in the oil and gas bearing shale regions. We would expect our capital expenditure levels in 2011 to exceed the levels experienced in recent years, which, if this were to occur, would imply increased spending in the remaining quarters of 2011 as compared to both the prior year periods as well as the amount spent in the three months ended March 31, 2011.

Given the differences in the changes in working capital levels from December 31, 2009 to March 31, 2010, we required additional debt to fund our operations in 2010 as opposed to paying down debt as we did in 2011. Greater utilization of our cash also aided our ability to pay down debt. Year-to-date dividends were $0.18 per share in both periods.

 

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Financial Position
($ in millions)
   As at  
   March 31,
2011
     December 31,
2010
 

Working capital

   $                 251.4       $             249.1   

Goodwill & intangible assets

   $ 112.2       $ 113.5   

Total assets

   $ 800.6       $ 799.1   
     

Long-term debt

   $ 232.4       $ 236.2   

Other long-term obligations

   $ 48.1       $ 50.0   

Total equity

   $ 403.5       $ 400.4   

Working capital at March 31, 2011 increased minimally over the amount at December 31, 2010. Given the seasonality of our environmental and oilfield services segments as well as the project nature of some of our services provided in the oilfield services segment, working capital needs are typically greater in the second and third quarters of the year.

Long-term debt decreased as we better utilized our cash on hand at December 31, 2010. This, combined with better working capital management, allowed us to not only fund our capital expenditures but also pay down debt levels in the first quarter of 2011. Long-term debt relative to total capitalization did not change significantly as shown in the chart above. We have approximately $131.8 million of borrowing capacity available from our revolving credit facility at March 31, 2011. We are in compliance with the financial covenants related to the revolving credit facility as of the period covered by this report.

Since the mid 1980’s, we have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content within our bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of our former and current customers. To date, we have not incurred significant costs in defending these matters. We believe we have adequate insurance coverage and do not believe the litigation will have a material adverse impact on our financial position, liquidity or results of operations.

Contractual Obligations and Off-Balance Sheet Arrangements

Item 7 of our Annual Report on Form 10-K, for the year ended December 31, 2010 discloses our contractual obligations and off-balance sheet arrangements. There were no material changes in our contractual obligations and off-balance sheet arrangements.

 

Item 3: Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in our market risk from the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2010 other than those discussed in Part 1, Item 2 of this report.

 

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Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, they concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing, and reporting, on a timely basis, information we are required to disclose in the reports we file or submit under the Exchange Act.

Changes in Internal Control Over Financial Reporting

In the first quarter, we implemented new software to consolidate our financial statements and improve that consolidation process. While there may be risks in implementing any new system, we believe we are maintaining and monitoring appropriate internal controls over our use of this software. There have been no other changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

 

Item 5: Other Information

Dodd-Frank Act Disclosure of Mine Safety and Health Administration Safety Data

We have in place health and safety programs that include extensive employee training, accident prevention, workplace inspection, emergency response, accident investigation, regulatory compliance and program auditing. The objectives of our health and safety programs are to eliminate workplace incidents, comply with all mining-related regulations and improve mine safety.

The operation of our domestic mines is subject to regulation by the federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. We present information below regarding certain mining safety and health citations which MSHA has issued with respect to our mining operations.

For the three-month period ended March 31, 2011, none of our mining operations received written notice from MSHA of (i) an order issued under section 104(b) of the Mine Act; (ii) a citation or order for unwarrantable failure to comply with mandatory health or safety standards under section 104 (d) of the Mine Act; (iii) a flagrant violation under section 110(b)(2) of the Mine Act; (iv) an imminent danger order under section 107(a) of the Mine Act; (v) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of our mine health or safety hazards under section 104(e) of the Mine Act; or (vi) the potential to have such a pattern. For the three-month period ended March 31, 2011, we did not have a fatality.

 

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The table below sets forth by mining complex the total number of citations and/or orders issued during the three-month period ended March 31, 2011 by MSHA to AMCOL and its subsidiaries under the indicated provisions of the Mine Act, together with the total dollar value of proposed MSHA assessments (dollar amounts are actual, not thousands).

 

Mine          Section
104 (1)
        Proposed MSHA
Assessments (2)
    

Gascoyne Mine & Mill

        1        $334    

Belle Fourche Mill

        4        -    

Lovell Mill

        1        -    

Colony West Mill

        11        -    

Colony East Mill

        12        105,787    

Yellowtail Mine

        -        -    

Belle/Colony Mine

        3        937    

Sandy Ridge Mill

        -        200    

 

  1. Total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under section 104 of the Mine Act for which AMCOL and its subsidiaries received a citation from MSHA

 

  2. Total dollar amount of proposed assessments received from MSHA on or before March 31, 2011, for citations and orders occurring during the three-month period ended March 31, 2011.

As of March 31, 2011, we have a total of 10 matters pending before the Federal Mine Safety and Health Review Commission. This includes legal actions that were initiated prior to the three-month period ended March 31, 2011 and which do not necessarily relate to the citations, orders or proposed assessments issued by MSHA during such three month period.

In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed.

 

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Item 6: Exhibits

 

Exhibit

Number

   
10.1   Performance Based Restricted Stock Form Award Agreement
10.2   Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Gary L. Castagna
10.3   Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Michael R. Johnson
10.4   Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Ryan F. McKendrick
10.5   Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Donald W. Pearson
10.6   Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Robert J. Trauger
10.7   AMCOL International Corporation Executive Severance Plan
31.1   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2   Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
32   Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350

 

31


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMCOL INTERNATIONAL CORPORATION

 

Date:

    May 06, 2011             /s/ Ryan F. McKendrick
            Ryan F. McKendrick
            President and Chief Executive Officer

Date:

    May 06, 2011             /s/ Donald W. Pearson
            Donald W. Pearson
            Vice President and Chief Financial Officer

 

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INDEX TO EXHIBITS

 

10.1    Performance Based Restricted Stock Form Award Agreement (1)
10.2    Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Gary L. Castagna (2)
10.3    Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Michael R. Johnson (2)
10.4    Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Ryan F. McKendrick (2)
10.5    Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Donald W. Pearson (2)
10.6    Change of Control Agreement dated March 11, 2011 by and between AMCOL International Corporation and Robert J. Trauger (2)
10.7    AMCOL International Corporation Executive Severance Plan (2)
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
32    Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350

(1) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 14, 2011.

(2) Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 16, 2011.

 

33