XNYS:ACO Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

Table of Contents

 

 

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, 2012

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  x    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   x    Accelerated filer   ¨
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 30, 2012
(Common stock, $.01 par value)    31,891,799 Shares

 

 

 


Table of Contents

AMCOL INTERNATIONAL CORPORATION

INDEX

 

         Page No.  
Part I - Financial Information   

Item 1:

  Financial Statements   
  Condensed Consolidated Balance Sheets – March 31, 2012 and December 31, 2011      3   
  Condensed Consolidated Statements of Operations – three months ended March 31, 2012 and 2011      5   
  Condensed Consolidated Statements of Comprehensive Income (Loss) – three months ended March 31, 2012 and 2011      6   
  Condensed Consolidated Statements of Changes in Equity – three months ended March 31, 2012 and 2011      7   
  Condensed Consolidated Statements of Cash Flows – three months ended March 31, 2012 and 2011      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 4:

  Mine Safety Disclosures      29   

Item 6:

  Exhibits      30   

 

 

2


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

Item 1: Financial Statements

 

ASSETS    March 31,
2012
(unaudited)
    

December 31,
2011

*

 

Current assets:

       

Cash and cash equivalents

   $ 16.9       $ 23.7   

Accounts receivable, net

     204.0         206.8   

Inventories

     150.6         146.6   

Prepaid expenses

     17.2         15.7   

Deferred income taxes

     6.2         5.9   

Income tax receivable

     5.7         6.9   

Other

     4.6         6.7   
    

 

 

    

 

 

 

Total current assets

     405.2         412.3   
    

 

 

    

 

 

 

Noncurrent assets:

       

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

       

Land

     14.3         13.9   

Mineral rights

     43.8         41.9   

Depreciable assets

     500.2         482.3   
    

 

 

    

 

 

 
       558.3         538.1   

Less: accumulated depreciation and depletion

     285.1         275.5   
    

 

 

    

 

 

 
       273.2         262.6   
    

 

 

    

 

 

 

Goodwill

     70.2         69.5   

Intangible assets, net

     36.9         36.6   

Investment in and advances to affiliates and joint ventures

     27.1         26.4   

Available-for-sale securities

     2.9         3.8   

Deferred income taxes

     8.6         7.8   

Other assets

     26.0         23.7   
    

 

 

    

 

 

 

Total noncurrent assets

     444.9         430.4   
    

 

 

    

 

 

 

Total Assets

   $ 850.1       $ 842.7   
    

 

 

    

 

 

 

Continued…

 

3


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY    March 31,
2012
(unaudited)
   

December 31,
2011

*

 

Current liabilities:

      

Accounts payable

   $ 47.7      $ 56.4   

Accrued income taxes

     6.8        2.7   

Accrued liabilities

     57.0        59.0   
    

 

 

   

 

 

 

Total current liabilities

     111.5        118.1   
    

 

 

   

 

 

 

Noncurrent liabilities:

      

Long-term debt

     250.7        260.7   

Pension liabilities

     34.6        34.8   

Deferred compensation

     9.5        8.9   

Other long-term liabilities

     21.0        20.0   
    

 

 

   

 

 

 

Total noncurrent liabilities

     315.8        324.4   
    

 

 

   

 

 

 

Shareholders’ Equity:

      

Common stock

     0.3        0.3   

Additional paid in capital

     97.8        94.5   

Retained earnings

     326.6        319.5   

Accumulated other comprehensive income (loss)

     (4.7     (14.9

Less: Treasury stock

     (1.7     (3.4
    

 

 

   

 

 

 

Total AMCOL shareholders’ equity

     418.3        396.0   
    

 

 

   

 

 

 

Noncontrolling interest

     4.5        4.2   
    

 

 

   

 

 

 

Total equity

     422.8        400.2   
    

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 850.1      $ 842.7   
    

 

 

   

 

 

 

*Condensed from audited financial statements.

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

 

4


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in millions, except per share amounts)

 

      Three Months
Ended
March 31,
 
   2012     2011  

Continuing Operations

                

Net sales

   $ 235.8      $ 217.8   

Cost of sales

     170.7        160.1   
    

 

 

   

 

 

 

Gross profit

     65.1        57.7   

Selling, general and administrative expenses

     43.6        39.1   
    

 

 

   

 

 

 

Operating profit

     21.5        18.6   
    

 

 

   

 

 

 

Other income (expense):

      

Interest expense, net

     (2.7     (2.7

Other, net

     (2.1     (0.4
    

 

 

   

 

 

 
       (4.8     (3.1
    

 

 

   

 

 

 

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

     16.7        15.5   

Income tax expense

     4.8        4.3   
    

 

 

   

 

 

 

Income before income (loss) from affiliates and joint ventures

     11.9        11.2   

Income (loss) from affiliates and joint ventures

     1.2        1.1   
    

 

 

   

 

 

 

Income (loss) from continuing operations

     13.1        12.3   
    

 

 

   

 

 

 

Discontinued Operations

      

Income (loss) on discontinued operations

     (0.2     (0.1
    

 

 

   

 

 

 

Net income (loss)

     12.9        12.2   
    

 

 

   

 

 

 

Net income (loss) attributable to noncontrolling interests

     0.1        -   
    

 

 

   

 

 

 

Net income (loss) attributable to AMCOL shareholders

   $ 12.8      $ 12.2   
    

 

 

   

 

 

 

Weighted average common shares outstanding

     32.0        31.5   

Weighted average common and common equivalent shares outstanding

     32.3        32.0   

Earnings per share attributable to AMCOL shareholders:

      

Basic earnings (loss) per share:

      

Continuing operations

   $ 0.41      $ 0.39   

Discontinued operations

     (0.01     -   
    

 

 

   

 

 

 

Net income

     0.40        0.39   
    

 

 

   

 

 

 

Diluted earnings (loss) per share:

      

Continuing operations

   $ 0.41      $ 0.38   

Discontinued operations

     (0.01     -   
    

 

 

   

 

 

 

Net income

     0.40        0.38   
    

 

 

   

 

 

 

Amounts attributable to AMCOL shareholders

      

Income from continuing operations, net of tax

   $ 13.0      $ 12.3   

Discontinued operations, net of tax

     (0.2     (0.1
    

 

 

   

 

 

 

Net income

     12.8        12.2   
    

 

 

   

 

 

 

Dividends declared per share

   $ 0.18      $ 0.18   

 

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

 

5


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in millions)

 

      Total     AMCOL
Shareholders
    Noncontrolling
Interest
 
   Three Months Ended
March 31,
    Three Months Ended
March 31,
    Three Months Ended
March 31,
 
   2012     2011     2012     2011     2012      2011  

Net income (loss)

   $ 12.9      $ 12.2      $ 12.8      $ 12.2      $ 0.1       $ -   

Other comprehensive income (loss):

               

Foreign currency translation adjustment

     10.9        1.9        10.7        1.9        0.2         -   

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

     (0.9     (2.9     (0.9     (2.9     -         -   

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

     0.2        0.5        0.2        0.5        -         -   

Pension adjustment, net of tax

     0.2        -        0.2        -        -         -   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss)

   $ 23.3      $ 11.7      $ 23.0      $ 11.7      $ 0.3       $ -   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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

 

6


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(Dollars in millions)

 

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

Balance at December 31, 2010

   $     400.5      $     283.2      $     29.0      $     0.3       $     (8.9)      $     95.0      $     1.9   

Net income (loss)

     12.2        12.2                 -   

Cash dividends

     (5.7     (5.7             

Issuance of treasury shares pursuant to employee stock compensation plans

     2.7               2.5        0.2       

Tax benefit from employee stock compensation plans

     0.2                 0.2       

Vesting of common stock in connection with employee stock compensation plans

     1.1                 1.1       

Purchase of noncontrolling interest

     (5.7              (5.2     (0.5

Sale of subsidiary shares to noncontrolling interest

     -          (1.4          (3.4     4.8   

Deconsolidation of variable interest entity

     (1.3                (1.3

Other comprehensive income (loss)

     (0.5       (0.5            -   
    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

     403.5        289.7        27.1        0.3         (6.4     87.9        4.9   
    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

   $ 400.2      $ 319.5      $ (14.9   $ 0.3       $ (3.4   $ 94.5      $ 4.2   

Net income (loss)

     12.9        12.8                 0.1   

Cash dividends

     (5.7     (5.7             

Issuance of treasury shares pursuant to employee stock compensation plans

     3.3               1.7        1.6       

Tax benefit from employee stock compensation plans

     (0.1              (0.1    

Vesting of common stock in connection with employee stock compensation plans

     1.8                 1.8       

Other comprehensive income (loss)

     10.4          10.2               0.2   
    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

     422.8        326.6        (4.7     0.3         (1.7     97.8        4.5   
    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

 

7


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)

 

      Three Months
Ended
March 31,
 
   2012      2011  

Cash flow from operating activities:

       

Net income

   $ 12.9       $ 12.2   

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

       

Depreciation, depletion, and amortization

     10.6         9.4   

Other non-cash charges

     4.0         1.9   

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

       

Decrease (increase) in current assets

     2.8         (18.3)   

Decrease (increase) in noncurrent assets

     (2.0)         (0.7)   

Increase (decrease) in current liabilities

     (8.8)         5.2   

Increase (decrease) in noncurrent liabilities

     1.1         0.6   
    

 

 

    

 

 

 

Net cash provided by (used in) operating activities

     20.6         10.3   
    

 

 

    

 

 

 

Cash flow from investing activities:

       

Capital expenditures

     (16.6)         (10.4)   

Proceeds from sale of interest in joint venture

     0.6         -   

Other

     0.7         0.1   
    

 

 

    

 

 

 

Net cash (used in) investing activities

     (15.3)         (10.3)   
    

 

 

    

 

 

 

Cash flow from financing activities:

       

Net change in outstanding debt

     (10.1)         (3.6)   

Proceeds from sales of treasury stock

     3.6         2.8   

Dividends

     (5.7)         (5.7)   

Excess tax benefits from stock-based compensation

     0.1         0.2   
    

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     (12.1)         (6.3)   
    

 

 

    

 

 

 

Effect of foreign currency rate changes on cash

     -         0.2   
    

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (6.8)         (6.1)   
    

 

 

    

 

 

 

Cash and cash equivalents at beginning of period

     23.7         27.3   
    

 

 

    

 

 

 

Cash and cash equivalents at end of period

   $ 16.9       $ 21.2   
    

 

 

    

 

 

 

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

 

8


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

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 for use in 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 for use in various industrial and consumer markets, including metalcasting, pet care, laundry care, and drilling industries. Additionally, this segment develops and manufactures synthetic materials principally for personal care applications.

Our environmental segment manufactures and distributes products for use as moisture and vapor barriers in commercial construction, landfills and a variety of other industrial and commercial applications and provides related services.

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 serving 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 71% and 82% of the revenue elimination in the three months ended March 31, 2012 and 2011, 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,
      2012    2011

Minerals and materials

   53%    53%

Environmental

   22%    24%

Oilfield services

   23%    21%

Transportation

   5%    6%

Intersegment sales

   -3%    -4%
    

 

  

 

     100%    100%
    

 

  

 

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

 

9


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

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, 2011, is unaudited. The condensed consolidated balance sheet as of December 31, 2011 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, 2011. 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, 2012 and 2011, and our financial position as of March 31, 2012, and all such adjustments are of a normal and 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, 2011.

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, 2012. 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 geographic markets.

Note 2:          EARNINGS PER SHARE

The following table 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 compensation awards outstanding during each period.

 

10


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

      Three Months Ended
March 31,
      2012    2011

Weighted average number of common shares outstanding

   31,979,894    31,515,395

Dilutive impact of stock based compensation

   311,864    476,464
    

 

  

 

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

   32,291,758    31,991,859
    

 

  

 

Number of common shares outstanding at the end of the period

   31,891,418    31,466,023
    

 

  

 

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

   591,028    122,822
    

 

  

 

Note 3:           ADDITIONAL BALANCE SHEET INFORMATION

Our inventories at March 31, 2012 and December 31, 2011 are comprised of the following components:

 

      March 31,
2012
     December 31,
2011
 

Crude stockpile inventories

   $ 58.4       $ 54.6   

In-process and finished goods inventories

     67.3         66.0   

Other raw material, container, and supplies inventories

     24.9         26.0   
    

 

 

    

 

 

 
     $ 150.6       $ 146.6   
    

 

 

    

 

 

 

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,
 
      2012     2011  

Balance at beginning of period

   $ 9.3      $ 7.5   
Settlement of obligations      (1.3     (0.5

Liabilities incurred and accretion expense

     1.8        1.0   

Foreign currency

     0.1        -   
    

 

 

   

 

 

 

Balance at end of period

   $ 9.9      $ 8.0   
    

 

 

   

 

 

 

Note 4:          BUSINESS SEGMENT INFORMATION

As previously mentioned, we operate in five segments. We determine our operating segments based on the discrete financial information that is regularly evaluated by our chief operating decision

 

11


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

maker, our President and Chief Executive Officer, in deciding how to allocate resources and in assessing performance. Intersegment sales are not material and are eliminated in the corporate segment. Our reportable measure of profit or loss for each segment is operating profit, which is defined as net sales less cost of sales and selling, general 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 assets used in the operation of this segment as well as those used by or shared amongst our segments, including certain cash and equivalent assets, certain fixed assets, assets associated with certain employee benefit plans, and other miscellaneous assets.

The following tables set forth certain financial information by segment:

 

      Three Months Ended March 31,  
      2012      2011  

Net sales:

         

Minerals and materials

   $ 125.5       $ 115.9   

Environmental

     51.1         51.7   

Oilfield services

     55.3         44.7   

Transportation

     11.1         12.7   

Intersegment sales

     (7.2)         (7.2)   
    

 

 

    

 

 

 

Total

   $ 235.8       $ 217.8   
    

 

 

    

 

 

 

Operating profit (loss):

         

Minerals and materials

   $ 21.6       $ 16.1   

Environmental

     0.9         2.4   

Oilfield services

     4.8         4.9   

Transportation

     0.2         0.5   

Corporate

     (6.0)         (5.3)   
    

 

 

    

 

 

 

Total

   $ 21.5       $ 18.6   
    

 

 

    

 

 

 
     
      As of Mar. 31, 2012      As of Dec. 31, 2011  

Assets:

         

Minerals and materials

   $ 425.2       $ 422.1   

Environmental

     166.6         161.4   

Oilfield services

     189.6         194.4   

Transportation

     3.9         3.9   

Corporate

     64.8         60.9   
    

 

 

    

 

 

 

Total

   $ 850.1       $ 842.7   
    

 

 

    

 

 

 

 

12


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

      Three Months Ended
March 31,
 
      2012      2011  

Depreciation, depletion and amortization:

         

Minerals and materials

   $ 4.6       $ 4.5   

Environmental

     1.4         1.3   

Oilfield services

     4.0         3.0   

Transportation

     -         -   

Corporate

     0.6         0.6   
    

 

 

    

 

 

 

Total

   $ 10.6       $ 9.4   
    

 

 

    

 

 

 

Capital expenditures:

         

Minerals and materials

   $ 6.5       $ 2.8   

Environmental

     2.6         0.7   

Oilfield services

     6.0         6.4   

Transportation

     -         -   

Corporate

     1.5         0.5   
    

 

 

    

 

 

 

Total

   $ 16.6       $ 10.4   
    

 

 

    

 

 

 

Research and development (income) expense:

         

Minerals and materials

   $ 1.7       $ 1.6   

Environmental

     0.6         0.5   

Oilfield services

     0.1         -   

Corporate

     0.1         (0.2
    

 

 

    

 

 

 

Total

   $ 2.5       $ 1.9   
    

 

 

    

 

 

 

Note 5:          EMPLOYEE BENEFIT PLANS

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

 

      Three Months Ended
March  31,
 
      2012     2011  

Service cost

   $ 0.4      $ 0.4   

Interest cost

     0.7        0.6   

Expected return on plan assets

     (0.6     (0.7

Amortization of acturial loss

     0.2          
    

 

 

   

 

 

 

Net periodic benefit cost

   $ 0.7      $ 0.3   
    

 

 

   

 

 

 

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, we expect to contribute $1.7 to our pension plan in 2012, of which $0.8 was contributed in the three months ended March 31, 2012.

 

13


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

Note 6:          INCOME TAXES

Our effective tax rate for the three months ended March 31, 2012 and 2011 was 28.7% and 27.7%, 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 in 2011, 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 2009.

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, 2012     December 31, 2011  

Derivatives designated as hedging instruments:

 

         

Interest rate swaps

   Other long-term liabilities    $ (8.7   $ (9.0

Cash flow hedges

 

Derivatives in Cash Flow Hedging Relationships   

Amount of Gain or (Loss)
Recognized in Other

(Effective Portion)

 
   Three Months Ended March 31,  
   2012      2011  
     

Interest rate swaps, net of tax

   $ 0.2       $ 0.5   

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 swap. As of March 31, 2012 and 2011, we had interest rate swaps outstanding which effectively hedge the variable interest rate on

 

14


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

$30.0 of our senior notes to a fixed rate of 5.6% per annum and $33.0 of our borrowings under our revolving credit agreement to a fixed rate of 3.3% per annum, 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. We are particularly sensitive to currency exchange rate fluctuations between the following currency pairs: a) the Euro to the British pound (GBP) and the Polish Zloty (PLN), b) the South African Rand (ZAR) to the USD and the Australian dollar (AUD), c) the GBP to the Danish kroner (DKK) and the Swiss franc (SEK), and d) the USD to the Indian rupee (INR), the Thai baht (THB), and the Turkish lira (TRY). When considered appropriate, we enter into foreign exchange derivative contracts to mitigate the risk of fluctuations on these exposures.

We have not designated our foreign currency derivative 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,  
      2012     2011  
                       
       

 

 

   

 

 

 

Foreign currency exchange contracts

   Other, net                    $ (0.4   $ (1.1
       

 

 

   

 

 

 
         

 

 

   

 

 

 

We did not have any significant foreign exchange derivative instruments outstanding as of March 31, 2012 or December 31, 2011.

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.

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.

 

15


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

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
3/31/2012
   

Quoted Prices in
Active Markets
for Identical
Assets

(Level 1)

     Significant
Other
Observable
Inputs
(Level 2)
   

Significant
Unobservable
Inputs

(Level 3)

      
           

Interest rate swaps

   $ (8.7   $ -           $ (8.7   $ -           
         

Available-for-sale securities

     2.9        2.9         -            -           
         

Deferred compensation plan assets

     9.0        -             9.0        -           
         

Supplementary pension plan assets

     8.1        -             8.1        -           
    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

             Fair Value Measurements Using
Description    Asset /
(Liability)
Balance at
12/31/2011
    Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
      
           

Interest rate swaps

   $ (9.0   $ -           $ (9.0   $ -           
         

Available-for-sale securities

     3.8        3.8         -            -           
         

Deferred compensation plan assets

     8.0        -             8.0        -           
         

Supplementary pension plan assets

     7.6        -             7.6        -           
    

 

 

   

 

 

    

 

 

   

 

 

   

 

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 supplemental pension plan assets are valued using quoted prices for similar assets in active markets.

 

16


Table of Contents

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in millions)

 

Note 9:          NONCONTROLLING INTEREST

In January 2011, we acquired the remaining noncontrolling interest in Volclay South Africa (Proprietary) Limited, a part of our chromite business, for approximately $5.6.

In February 2011, we sold 26% of our interest in Batlhako Mining Limited (“Batlhako”) to Vengawave (Proprietary) Limited, which is a Black Economic Empowerment enterprise (a “BEE”) in the Republic of South Africa. Batlhako is our subsidiary dedicated strictly to mining chromite ore and selling it to one of our other subsidiaries for further processing and sale to the end customer. South African law requires that we have a BEE as a partner in our mining operations and this transaction was consummated to comply with those regulations.

The following table sets forth the effects of these transactions on equity attributable to AMCOL’s shareholders:

 

      Three Months Ended
March  31,
 
      2012      2011  

Net income attributable to AMCOL shareholders

   $ 12.8       $ 12.2   

Transfers from noncontrolling interest:

         

Decrease in additional paid-in capital for purchase of the remaining noncontrolling interest in Volclay South Africa (Proprietary) Limited

     -             (5.2

Decrease in additional paid-in capital for transfer of 26% interest in Batlhako

     -             (3.4
    

 

 

    

 

 

 

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

   $ 12.8       $ 3.6   
    

 

 

    

 

 

 

Note 10:          CONTINGENCIES

We are party to a number of lawsuits arising in the normal course of business. Since the mid-1980s, we and/or our subsidiaries have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content of our bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of our foundry customers. Our oilfield services segment is also party to two lawsuits alleging damages caused by our coiled tubing operations in Louisiana; one lawsuit alleges damages of $28 and the other of $9. We do not believe that any pending litigation will have a material adverse effect on our consolidated financial statements.

 

 

17


Table of Contents
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 for use in 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, bringing additional products and services to markets we already serve, and overall growth in the industries we 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.

For our products that use minerals, the principal mineral that we utilize 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, 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’s unique characteristics include 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 some of the core components of our longevity and future prospects.

 

18


Table of Contents

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 the 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, industrial construction, and oil and gas exploration and production industries, impacts our revenues. Our fastest growing markets are in the Asia-Pacific and European regions.

Sustainable, long-term profitable 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.

 

   

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.

 

19


Table of Contents
   

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, 2011. 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, 2011.

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, 2011.

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 ended March 31, 2012 and the comparable results in the prior year. In each section, a discussion of our consolidated results is presented first, followed by a more detailed discussion of performance within our segments. We note that certain amounts reported in this Form 10-Q differ from those reported in our press release dated April 27, 2012 due to changes in our calculation of income tax expense in the quarter. Please see the discussion of income tax expense hereafter in this section of Analysis of Results of Operations for further details.

 

20


Table of Contents

Three months ended March 31, 2012 vs. March 31, 2011

Consolidated Income Statement Review

The table below compares our operating results for the quarters ended March 31, 2012 and 2011.

 

Consolidated    Three Months Ended March 31,  
   2012      2011      2012 vs. 2011  
      (In Millions, Except Per Share Amounts)  

Continuing operations

            

Net sales

   $ 235.8       $ 217.8         8.3%   

Cost of sales

     170.7         160.1        
    

 

 

    

 

 

      

Gross profit

     65.1         57.7         12.8%   

margin %

     27.6%         26.5%        

Selling, general and
administrative expenses

     43.6         39.1         11.5%   
    

 

 

    

 

 

      

Operating profit

     21.5         18.6         15.6%   

margin %

     9.1%         8.5%        

Other income (expense):

            

Interest expense, net

     (2.7)         (2.7)         0.0%   

Other, net

     (2.1)         (0.4)         *   
    

 

 

    

 

 

      
       (4.8)         (3.1)        
    

 

 

    

 

 

      

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

     16.7         15.5        

Income tax expense

     4.8         4.3         11.6%   

effective tax rate

     28.7%         27.7%        
    

 

 

    

 

 

      

Income before income (loss) from affiliates and joint ventures

     11.9         11.2        

Income (loss) from affiliates and joint ventures

     1.2         1.1         9.1%   
    

 

 

    

 

 

      

Income (loss) from continuing operations

     13.1         12.3        
     

Discontinued operations

            

Income (loss) on discontinued operations

     (0.2)         (0.1)         100.0%   
    

 

 

    

 

 

      

Net income (loss)

     12.9         12.2         5.7%   
     

Net income (loss) attributable to noncontrolling interests

     0.1         -         *   
    

 

 

    

 

 

      

Net income (loss) attributable to AMCOL shareholders

   $ 12.8       $ 12.2         4.9%   
    

 

 

    

 

 

      

Earnings per share attributable to AMCOL shareholders

            

Basic earnings (loss) per share:

            

Continuing operations

   $ 0.41       $ 0.39         5.1%   

Discontinued operations

     (0.01)         -         *   
    

 

 

    

 

 

      

Net income

     0.40         0.39         2.6%   
    

 

 

    

 

 

      

Diluted earnings (loss) per share

            

Continuing operations

   $ 0.41       $ 0.38         7.9%   

Discontinued operations

     (0.01)         -         *   
    

 

 

    

 

 

      

Net income

   $ 0.40       $ 0.38         5.3%   
    

 

 

    

 

 

          
* Not meaningful

 

21


Table of Contents

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. If applicable, fluctuation due to acquisitions is measured as the change 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:

 

      Organic        Acquisitions        Foreign  
Exchange  
     Total    

Minerals and materials

     4.7%         0.0%         -0.3%         4.4%   

Environmental

     0.3%         0.0%         -0.6%         -0.3%   

Oilfield services

     4.9%         0.0%         0.0%         4.9%   

Transportation & intersegment shipping

     -0.7%         0.0%         0.0%         -0.7%   
    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     9.2%         0.0%         -0.9%         8.3%   
    

 

 

    

 

 

    

 

 

    

 

 

 

% of growth

     111.0%         0.0%         -11.0%         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:

 

      Americas      EMEA      Asia Pacific      Total  

Minerals and materials

     32.8%         8.8%         11.0%         52.6%   

Environmental

     11.8%         7.9%         1.8%         21.5%   

Oilfield services

     20.2%         1.1%         2.1%         23.4%   

Transportation & intersegment shipping

     2.5%         0.0%         0.0%         2.5%   
    

 

 

    

 

 

    

 

 

    

 

 

 

Total - current year’s period

     67.3%         17.8%         14.9%         100.0%   
    

 

 

    

 

 

    

 

 

    

 

 

 

Total from prior year’s comparable period

     64.2%         22.5%         13.3%         100.0%   

Net sales:

Our net sales grew organically and were negatively affected by foreign currency translation. The majority of the increase occurred in our minerals and materials and oilfield services segments. Sales were less concentrated in our EMEA region due to decreased sales in our environmental segment, especially within Western Europe , partially due to our decision to exit the contracting services business in Ireland. Also affecting our EMEA sales was our chromite sales in South Africa, which decreased due to a temporary plant shut down as we commission new production equipment there.

Gross profit:

Overall gross profit increased due to the increase in sales mentioned above. Gross margin increased 110 basis points due to a 260 basis point increase in our minerals and materials segment’s gross margin.

 

22


Table of Contents

Selling, general and administrative expenses (SG&A):

SG&A expenses increased $4.5 million. This includes a $1.3 million bad debt expense within our oilfield services segment as well as $0.7 million of expenses incurred to write off certain information technology equipment in our corporate segment. The remaining increase relates to increased benefits and compensation expenses, such as commissions, which generally increase with sales.

Operating profit:

Operating profit increased due to the increase in gross profit mentioned earlier, partially offset by the increase in SG&A expenses. Overall, however, operating profits increased faster than sales, reflective of our increased operating leverage.

Other income (expense), net:

The increase in Other, net relates to a $1.8 million provision for estimated losses on certain non-operating assets.

Income tax expense:

Our effective tax rate for the current quarter was 28.7% versus 27.7% in the prior year’s quarter. Our income tax expense and effective tax rate fluctuated between the periods presented due to discrete items recorded and the distribution of income between taxing jurisdictions. The current year’s quarter does not include any discrete items whereas the prior year’s quarter includes $0.6 million of discrete tax expense. In addition, the current quarter’s income is more heavily concentrated in our domestic businesses which typically have a higher income tax rate than our foreign operations.

The income tax expense in our press release dated April 27, 2012 included discrete income tax benefits of $0.6 million which, subsequent to the press release, we determined were incorrectly calculated. As a result, we have eliminated these benefits and increased income tax expense by the same amount. This had the effect of increasing our effective tax rate by 360 basis points and decreasing our diluted earnings per share by $0.02 per share in this quarter.

Diluted earnings per share from continuing operations:

Diluted earnings per share from continuing operations increased in the quarter due to increased net income from continuing operations.

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

 

Minerals and Materials    Three Months Ended March 31,  
   2012     2011     2012 vs. 2011  
      (Dollars in millions)  

Net sales

   $ 125.5         100.0   $ 115.9         100.0   $ 9.6         8.3

Cost of sales

     91.9         73.2     87.8         75.8       
    

 

 

    

 

 

   

 

 

    

 

 

        

Gross profit

     33.6         26.8     28.1         24.2     5.5         19.6

Selling, general and
administrative expenses

     12.0         9.6     12.0         10.4     -           0.0
    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

      

Operating profit

     21.6         17.2     16.1         13.8     5.5         34.2

 

23


Table of Contents
Minerals and Materials Product Line Sales    Three Months Ended March 31,  
   2012      2011      % change  
      (Dollars in Millions)  

Metalcasting

   $ 62.9       $ 55.3         13.7

Specialty materials

     26.8         27.4         -2.2

Basic minerals

     19.5         16.4         18.9

Pet products

     14.4         15.1         -4.6

Other product lines

     1.9         1.7         11.8
    

 

 

    

 

 

      

Total

     125.5         115.9         8.3
    

 

 

    

 

 

          

Increased selling prices accounted for 75% of the increase in sales. We have been successful in increasing selling prices in our metalcasting product line and in our petroleum products (included within our basic minerals product line). Our metalcasting product line, which includes chromite sales to foundry customers, continues to experience an increase in demand due to growth in demand for automobile and heavy equipment castings. Our petroleum products are also in high demand given the increased drilling activity occurring in the United States.

The aforementioned selling price increases are the major contributor to the increase in both gross profits and gross margins. However, they were partially offset by overall increases in costs, especially with regards to certain raw materials. On a combined basis, the increased selling prices and costs account for 89% of the increase in gross profits.

The trends in operating profit follow those of gross profit. Operating margins, however, increased more than gross margins (340 basis points versus 260 basis points) due to the fact that the majority of the increase in sales (increased selling prices) were not accompanied by increased SG&A costs.

Environmental Segment

 

Environmental

   Three Months Ended March 31,  
   2012      2011      2012 vs. 2011  
      (Dollars in Millions)  

Net sales

   $ 51.1         100.0%       $ 51.7         100.0%       $ (0.6     -1.2%   

Cost of sales

     36.2         70.8%         35.7         69.1%          
    

 

 

    

 

 

    

 

 

    

 

 

        

Gross profit

     14.9         29.2%         16.0         30.9%         (1.1     -6.9%   

Selling, general and administrative expenses

     14.0         27.4%         13.6         26.3%         0.4        2.9%   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

Operating profit (loss)

     0.9         1.8%         2.4         4.6%         (1.5     -62.5%   

 

Environmental Product Line Sales    Three Months Ended March  31,  
   2012      2011      %
change
 
      (Dollars in Millions)  

Lining technologies

   $ 19.3       $ 21.6         -10.6

Building materials

     18.8         17.5         7.4

Drilling products

     8.6         6.0         43.3

Contracting services

     4.4         6.6         -33.3
    

 

 

    

 

 

      

Total

     51.1         51.7         -1.2
    

 

 

    

 

 

          

 

24


Table of Contents

Sales decreased slightly in the current quarter as decreases in our lining technologies and contracting services product lines overshadowed increases in our drilling and building materials product lines. Demand for lining technology product and systems has decreased in the US and Europe, and we are in the process of exiting some portions of the contracting services business in Europe. We have enjoyed continued success from new product launches within our building materials group, and demand for our drilling product lines remains strong.

Gross profit decreased as lower volumes caused per unit production costs to increase. In addition, we experienced low margins on some contracting services jobs in Europe. Sales were also slightly more concentrated in lower margin, accessory products.

SG&A expenses increased for a variety of reasons, none of which are individually significant. The increases relate to increased commissions on building materials product line sales, professional fees, investments being made in India (a new market for us), and expenses associated with restructuring this segment.

The trends in operating profit and operating profit margin follow those of gross profit and gross margin combined with the increased SG&A levels.

Oilfield Services Segment

 

Oilfield Services    Three Months Ended March 31,  
   2012      2011      2012 vs. 2011  
      (Dollars in Millions)  

Net sales

   $ 55.3         100.0%       $ 44.7         100.0%       $ 10.6        23.7%   

Cost of sales

     39.9         72.2%         32.0         71.6%          
    

 

 

    

 

 

    

 

 

    

 

 

        

Gross profit

     15.4         27.8%         12.7         28.4%         2.7        21.3%   

Selling, general and
administrative expenses

     10.6         19.2%         7.8         17.4%         2.8        35.9%   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

Operating profit

     4.8         8.6%         4.9         11.0%         (0.1     -2.0%   

The majority of the revenue increase (approximately 62%) occurred in our foreign operations, which primarily focus on water treatment technologies. In our foreign markets, we have been successful in gaining new contracts with customers, leading to the increase. Domestically, revenues increased mostly in our coil tubing and water treatment service lines due to increases in overall demand and increased service capacity after having purchased additional equipment in late 2011.

Gross profits increased with sales and gross margins remained relatively stable overall. However, gross profit margins on domestic operations decreased due to increased costs in our coil tubing services that resulted from the commissioning of new equipment and an increased concentration of land based jobs. Gross profit margins in our international operations benefitted from increased economies of scale given the growth in revenues.

Of the $2.8 million increase in SG&A expenses, approximately $1.3 million of which relates to one bad debt. The remainder of it relates to increased compensation and benefit expenses associated with improved performance and growth within the segment.

 

25


Table of Contents

Transportation Segment

 

Transportation    Three Months Ended March 31,  
      2012      2011      2012 vs. 2011  
      (Dollars in Millions)  

Net sales

   $ 11.1         100.0%       $ 12.7         100.0%       $ (1.6     -12.6%   

Cost of sales

     9.9         89.2%         11.3         89.0%          
    

 

 

    

 

 

    

 

 

    

 

 

        

Gross profit

     1.2         10.8%         1.4         11.0%         (0.2     -14.3%   

Selling, general and administrative expenses

     1.0         9.0%         0.9         7.1%         0.1        11.1%   
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

     

Operating profit

     0.2         1.8%         0.5         3.9%         (0.3     -60.0%   

This segment provides services to third parties as well as AMCOL companies within our other segments. Revenues decreased due to increased competition as well as availability of drivers, who are being recruited to oil and gas opportunities in the Bakken shale region. Operating profits decreased as a result of the decrease in revenues.

Corporate Segment

 

Corporate    Three Months Ended March 31,  
      2012     2011     2012 vs. 2011  
      (Dollars in Millions)  

Intersegment sales

   $ (7.2   $ (7.2     -       

Intersegment cost of sales

     (7.2     (6.7        
    

 

 

   

 

 

         

Gross profit (loss)

     -        (0.5     0.5       

Selling, general and administrative expenses

     6.0        4.8        1.2        25.0%   
    

 

 

   

 

 

         

Operating loss

     (6.0     (5.3     (0.7     13.2%   

Intersegment sales are eliminated in our corporate segment. These are mostly 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 SG&A expenses increased due to $0.7 of expenses incurred to write-off certain information technology investments and increased professional fees.

Balance Sheet Review

Our working capital level remained steady; it was $293.7 million at March 31, 2012 and $294.2 million at December 31, 2011. We were able to maintain a stable working capital level even though sales increased significantly due to improvements in collections of accounts receivable. We also increased our investments in property, plant and equipment, mostly in our oilfield services and minerals and materials segments, to help grow and maintain those businesses. Improved performance of working capital allowed us to not only fund these investments but also reduce our debt balance in the first three months of 2012.

 

26


Table of Contents

Our accumulated other comprehensive income increased $10.2 million, primarily due to the revaluation of the net assets of our foreign subsidiaries into our reporting currency, USD, during consolidation. Although all foreign subsidiaries are subject to translation adjustments during consolidation, the exchange rates between the USD and the PLN, the ZAR and the TRY have fluctuated significantly, causing the majority of the change in this account. Last, our treasury stock account has decreased due to exercise of stock compensation awards by our employees. We expect to exhaust our supply of treasury shares during 2012 as we provide them to employees upon exercise of stock compensation awards; if our supply is exhausted, we may issue additional shares as awards are exercised.

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.

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 2011. 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,
 
   2012     2011  

Net cash provided by operating activities

   $ 20.6      $ 10.3   

Net cash used in investing activities

     (15.3     (10.3

Net cash provided by (used in) financing activities

     (12.1     (6.3

Cash flows from operating activities increased from the prior year period largely due to improved management of our working capital, especially accounts receivable.

Capital expenditures for the first three months of 2012 and 2011 were $16.6 million and $10.4 million, respectively. In these periods, the expenditures include $4.1 million and $0.7 million, respectively, of expenditures associated with establishing our South African chromite operations. In the three months ended March 31, 2012, the majority of our capital expenditures occurred in our oilfield services segment (to increase the size of our equipment fleet) and our minerals and materials segment (mostly for maintenance capital to ensure stability as the business experiences growth). We expect our capital expenditures in our fiscal year for 2012 to exceed the levels experienced in recent years.

 

27


Table of Contents
Financial Position
($ in millions)
   As at  
   March 31,
2012
     December 31,
2011
 

Non-cash working capital

   $ 276.8       $ 270.5   

Goodwill & intangible assets

     107.1         106.1   

Total assets

     850.1         842.7   
     

Long-term debt

     250.7         260.7   

Other long-term obligations

     65.1         63.7   

Total equity

     422.8         400.2   

Non-cash working capital at March 31, 2012 increased $6.3 million as compared to the amount at December 31, 2011 due to increased working capital required to support the growth in the business. 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 levels have historically increased in the early and middle parts of the year and then decreased later in the year; we do not see a reason why this trend would not continue.

Improved performance of working capital allowed us to reduce long-term debt by $10.0 million in the first quarter of 2012. Long-term debt as a percentage of total capitalization decreased 220 basis points to 37.2%. We have approximately $179.2 million of borrowing capacity available from our revolving credit facility as of March 31, 2012. We are in compliance with the financial covenants related to the revolving credit facility as of the period covered by this report.

We are party to a number of lawsuits arising in the normal course of business. Since the mid-1980s, we and/or our subsidiaries have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content of our bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of our foundry customers. Our oilfield services segment is also party to two lawsuits alleging damages caused by our coiled tubing operations in Louisiana; one lawsuit alleges damages of $28 million and the other of $9 million. We do not believe that any pending litigation will have a material adverse effect on our consolidated financial statements.

Contractual Obligations and Off-Balance Sheet Arrangements

Item 7 of our Annual Report on Form 10-K, for the year ended December 31, 2011 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, 2011 other than those discussed in Part 1, Item 2 of this report.

 

28


Table of Contents
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

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

 

Item 4: Mine Safety Disclosures

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Form 10-Q.

 

29


Table of Contents
Item 6: Exhibits

 

Exhibit
Number

   

10.1

  Credit Agreement dated as of January 20, 2012 by and among the Company, certain of its subsidiaries, BMO Harris Bank N.A., as administrative agent, and certain other financial institutions identified as lenders therein (1)

10.2

  2012 Performance Agreement dated March 14, 2012 by and between the Company and Michael Johnson

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

95.1

  Mine Safety Disclosures

101

 

The following information from our Quarterly Report on Form 10-Q for the period ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language):

(i)     Condensed Consolidated Balance Sheets at March 31, 2012, and December 31, 2011,

(ii)   Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011,

(iii)  Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2012 and 2011,

(iv)  Condensed Consolidated Statements of Changes in Equity for three months ended March 31, 2012 and 2011,

(v)    Condensed Consolidated Statements of Cash Flows for three months ended March 31, 2012 and 2011, and

(vi)  Notes to Condensed Consolidated Financial Statements.

 

(1) 

Exhibit is incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 23, 2012

 

30


Table of Contents

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 10, 2012    

    /s/ Ryan F. McKendrick

      Ryan F. McKendrick         
      President and Chief Executive Officer

 

Date:   May 10, 2012    

    /s/ Donald W. Pearson

      Donald W. Pearson         
              Vice President and Chief Financial Officer

 

31


Table of Contents

INDEX TO EXHIBITS

 

10.2

  2012 Performance Agreement dated March 14, 2012 by and between the Company and Michael Johnson

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

95.1

  Mine Safety Disclosures

101

 

The following information from our Quarterly Report on Form 10-Q for the period ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language):

(i)     Condensed Consolidated Balance Sheets at March 31, 2012, and December 31, 2011,

(ii)   Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011,

(iii)  Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2012 and 2011,

(iv)  Condensed Consolidated Statements of Changes in Equity for three months ended March 31, 2012 and 2011,

(v)    Condensed Consolidated Statements of Cash Flows for three months ended March 31, 2012 and 2011, and

(vi)  Notes to Condensed Consolidated Financial Statements.

 

32

XNYS:ACO Quarterly Report 10-Q Filling

XNYS:ACO Stock - Get Quarterly Report SEC Filing of XNYS:ACO stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
XNYS:ACO Quarterly Report 10-Q Filing - 3/31/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Popularity |  Our Choices Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: XNYS:ACO Insider Activity 4/A Filing - 2/1/2012  |  Next: XNYS:ACRE Ares Commercial Real Estate Corp Insider Activity 3 Filing - 4/25/2012