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  
September 30, 2013
or
o 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 o

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 o

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 o
Non-accelerated filer o
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  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 October 31, 2013
(Common stock, $.01 par value)
32,443,588 Shares
 

AMCOL INTERNATIONAL CORPORATION

INDEX
 
 
 
Page No.
Part I - Financial Information
 
 
 
 
Item 1:
Financial Statements
 
 
3
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
8
 
 
 
 
 9
 
 
 
Item 2:
25
 
 
 
Item 3:
41
 
 
 
Item 4:
41
 
 
 
Part II - Other Information
 
 
 
 
Item 4:
42
 
 
 
Item 6:
43

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

Item 1: Financial Statements

 
September 30,
   
December 31,
 
 
2013
   
2012
 
ASSETS
 
(unaudited)
   
 
 
Current assets:
 
   
 
Cash and cash equivalents
 
$
38.1
   
$
40.0
 
Accounts receivable, net
   
226.3
     
202.7
 
Inventories
   
154.4
     
153.8
 
Prepaid expenses
   
24.0
     
17.0
 
Assets held-for-sale
   
14.5
     
0.2
 
Income tax receivable
   
17.4
     
7.0
 
Available-for-sale securities
   
9.1
     
-
 
Deferred income taxes
   
6.7
     
7.0
 
Other
   
0.8
     
1.8
 
 
               
Total current assets
   
491.3
     
429.5
 
 
               
Noncurrent assets:
               
Property, plant, equipment, and mineral rights and reserves:
               
Land
   
10.8
     
13.0
 
Mineral rights
   
5.1
     
48.6
 
Depreciable assets
   
557.7
     
552.0
 
 
               
 
   
573.6
     
613.6
 
Accumulated depreciation and depletion
   
(318.6
)
   
(311.7
)
 
               
 
   
255.0
     
301.9
 
 
               
Goodwill
   
68.6
     
70.2
 
Intangible assets, net
   
28.9
     
33.9
 
Investment in and advances to affiliates and joint ventures
   
34.5
     
27.8
 
Available-for-sale securities
   
-
     
14.6
 
Deferred income taxes
   
5.3
     
7.4
 
Other assets
   
27.4
     
25.3
 
 
               
Total noncurrent assets
   
419.7
     
481.1
 
Total Assets
 
$
911.0
   
$
910.6
 

Continued
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

 
September 30,
   
December 31,
 
 
2013
   
2012
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
(unaudited)
   
 
 
Current liabilities:
 
   
 
Accounts payable
 
$
58.3
   
$
51.1
 
Accrued income taxes
   
12.5
     
5.0
 
Accrued liabilities
   
64.4
     
58.4
 
Total current liabilities
   
135.2
     
114.5
 
 
               
Noncurrent liabilities:
               
Long-term debt
   
270.9
     
248.8
 
Pension liabilities
   
38.1
     
37.5
 
Deferred compensation
   
10.9
     
9.4
 
Deferred income taxes
   
1.6
     
12.8
 
Other long-term liabilities
   
19.5
     
22.5
 
Total noncurrent liabilities
   
341.0
     
331.0
 
 
               
Shareholders' Equity:
               
Common stock
   
0.3
     
0.3
 
Additional paid in capital
   
115.5
     
105.1
 
Retained earnings
   
343.0
     
355.2
 
Accumulated other comprehensive income (loss)
   
(20.2
)
   
0.8
 
Total AMCOL shareholders' equity
   
438.6
     
461.4
 
 
               
Noncontrolling interest
   
(3.8
)
   
3.7
 
 
               
Total equity
   
434.8
     
465.1
 
Total Liabilities and Shareholders' Equity
 
$
911.0
   
$
910.6
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in millions, except per share amounts)

 
Nine Months Ended
   
Three Months Ended
 
 
September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Continuing Operations
 
   
   
   
 
Net sales
 
$
755.2
   
$
731.8
   
$
263.5
   
$
249.2
 
Cost of sales
   
605.0
     
527.1
     
246.1
     
180.5
 
Gross profit
   
150.2
     
204.7
     
17.4
     
68.7
 
Selling, general and administrative expenses
   
133.6
     
124.9
     
42.0
     
40.3
 
Operating profit (loss)
   
16.6
     
79.8
     
(24.6
)
   
28.4
 
Other income (expense):
                               
Interest expense, net
   
(7.6
)
   
(8.0
)
   
(2.6
)
   
(2.6
)
Other, net
   
(2.0
)
   
(2.7
)
   
(0.8
)
   
-
 
 
   
(9.6
)
   
(10.7
)
   
(3.4
)
   
(2.6
)
 
                               
Income (loss) before income taxes and income from affiliates and joint ventures
   
7.0
     
69.1
     
(28.0
)
   
25.8
 
Income tax expense (benefit)
   
5.0
     
19.2
     
(4.8
)
   
7.6
 
 
                               
Income (loss) before income from affiliates and joint ventures
   
2.0
     
49.9
     
(23.2
)
   
18.2
 
Income from affiliates and joint ventures
   
2.5
     
3.4
     
0.7
     
1.0
 
 
                               
Income (loss) from continuing operations
   
4.5
     
53.3
     
(22.5
)
   
19.2
 
Discontinued Operations
                               
Income (loss) on discontinued operations
   
(4.0
)
   
0.6
     
(4.1
)
   
(0.2
)
Net income (loss)
   
0.5
     
53.9
     
(26.6
)
   
19.0
 
 
                               
Net income (loss) attributable to noncontrolling interests
   
(6.8
)
   
(0.2
)
   
(6.8
)
   
-
 
Net income (loss) attributable to AMCOL shareholders
 
$
7.3
   
$
54.1
   
$
(19.8
)
 
$
19.0
 
 
                               
Weighted average common shares outstanding
   
32.4
     
32.0
     
32.5
     
32.1
 
 
                               
Weighted average common and common equivalent shares outstanding
   
32.7
     
32.3
     
32.5
     
32.5
 
 
                               
Amounts attributable to AMCOL shareholders
                               
Income (loss) from continuing operations, net of tax
 
$
11.3
   
$
53.5
   
$
(15.7
)
 
$
19.2
 
Discontinued operations, net of tax
   
(4.0
)
   
0.6
     
(4.1
)
   
(0.2
)
Net income (loss)
 
$
7.3
   
$
54.1
   
$
(19.8
)
 
$
19.0
 
 
                               
Earnings (loss) per share attributable to AMCOL shareholders:
                               
 
                               
Basic earnings (loss) per share
                               
Continuing operations
 
$
0.34
   
$
1.67
   
$
(0.48
)
 
$
0.60
 
Discontinued operations
   
(0.12
)
   
0.02
     
(0.13
)
   
(0.01
)
Net income (loss)
 
$
0.22
   
$
1.69
   
$
(0.61
)
 
$
0.59
 
 
                               
Diluted earnings (loss) per share
                               
Continuing operations
 
$
0.34
   
$
1.65
   
$
(0.48
)
 
$
0.60
 
Discontinued operations
   
(0.12
)
   
0.02
     
(0.13
)
   
(0.01
)
Net income (loss)
 
$
0.22
   
$
1.67
   
$
(0.61
)
 
$
0.59
 
 
                               
Dividends declared per share
 
$
0.60
   
$
0.56
   
$
0.20
   
$
0.20
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in millions)

 
Nine Months Ended
September 30,
   
Three Months Ended
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Net income (loss)
 
$
0.5
   
$
53.9
   
$
(26.6
)
 
$
19.0
 
Other comprehensive income (loss), net of tax:
                               
Foreign currency translation adjustments
   
(19.4
)
   
4.3
     
1.3
     
7.8
 
Unrealized gain (loss) on available-for-sale securities
   
(4.3
)
   
4.1
     
(1.6
)
   
4.9
 
Unrealized gain (loss) on interest rate swap agreements
   
1.4
     
-
     
0.2
     
-
 
Pension adjustment
   
0.6
     
0.6
     
0.2
     
0.2
 
Total other comprehensive income (loss), net of tax
   
(21.7
)
   
9.0
     
0.1
     
12.9
 
Total comprehensive income (loss) including noncontrolling interests
   
(21.2
)
   
62.9
     
(26.5
)
   
31.9
 
 
                               
Less: Net income (loss) attributable to noncontrolling interests
   
(6.8
)
   
(0.2
)
   
(6.8
)
   
-
 
Less: Foreign currency translation adjustments attributable to noncontrolling interests
   
(0.7
)
   
(0.1
)
   
(0.2
)
   
-
 
Total comprehensive income (loss) attributable to noncontrolling interests
   
(7.5
)
   
(0.3
)
   
(7.0
)
   
-
 
 
                               
Total comprehensive income (loss) attributable to AMCOL shareholders
 
$
(13.7
)
 
$
63.2
   
$
(19.5
)
 
$
31.9
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2011
 
$
394.9
   
$
314.3
   
$
(14.7
)
 
$
0.3
   
$
(3.4
)
 
$
94.3
   
$
4.1
 
Net income (loss)
   
53.9
     
54.1
                                     
(0.2
)
Cash dividends
   
(17.9
)
   
(17.9
)
                                       
 
                                                       
Issuance of treasury shares pursuant to employee stock compensation plans
   
4.8
                             
2.6
     
2.2
         
 
                                                       
Tax benefit from employee stock compensation plans
   
(0.1
)
                                   
(0.1
)
       
 
                                                       
 
                                                       
Vesting of common stock in connection with employee stock compensation plans
   
4.4
                                     
4.4
         
Other comprehensive income (loss)
   
9.0
             
9.1
                             
(0.1
)
Contribution from noncontrolling partner
   
0.1
                                     
0.1
         
 
                                                       
Balance at September 30, 2012
   
449.1
     
350.5
     
(5.6
)
   
0.3
     
(0.8
)
   
100.9
     
3.8
 
 
                                                       
Balance at December 31, 2012
 
$
465.1
   
$
355.2
   
$
0.8
   
$
0.3
   
$
-
   
$
105.1
   
$
3.7
 
Net income (loss)
   
0.5
     
7.3
                                     
(6.8
)
Cash dividends
   
(19.5
)
   
(19.5
)
                                       
 
                                                       
Issuance of shares pursuant to employee stock compensation plans
   
6.5
                                     
6.5
         
 
                                                       
Tax benefit from employee stock compensation plans
   
(0.2
)
                                   
(0.2
)
       
 
                                                       
 
                                                       
Vesting of common stock in connection with employee stock compensation plans
   
4.0
                                     
4.0
         
Other comprehensive income (loss)
   
(21.7
)
           
(21.0
)
                           
(0.7
)
Contribution from noncontrolling partner
   
0.1
                                     
0.1
         
 
                                                       
Balance at September 30, 2013
   
434.8
     
343.0
     
(20.2
)
   
0.3
     
-
     
115.5
     
(3.8
)

The accompanying notes are an integral part of these condensed consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
 
 
Nine Months Ended
 
 
September 30,
 
 
 
2013
   
2012
 
Cash flow from operating activities:
 
   
 
Net income
 
$
0.5
   
$
53.9
 
 
               
Adjustments to reconcile from net income (loss) to net cash provided by (used in) operating activities:
               
Depreciation, depletion, and amortization
   
37.7
     
33.3
 
Asset impairment charge
   
59.7
     
0.8
 
Other non-cash items
   
(6.0
)
   
4.5
 
Changes in assets and liabilities, net of effects of acquisitions:
               
Decrease (increase) in current assets
   
(57.6
)
   
(42.6
)
Decrease (increase) in noncurrent assets
   
(2.5
)
   
-
 
Increase (decrease) in current liabilities
   
22.9
     
17.1
 
Increase  (decrease) in noncurrent liabilities
   
1.6
     
5.2
 
Net cash provided by (used in) operating activities
   
56.3
     
72.2
 
Cash flow from investing activities:
               
Capital expenditures
   
(66.3
)
   
(54.2
)
(Increase) decrease in investments in and advances (to) from affiliates and joint ventures
   
(4.8
)
   
0.2
 
Proceeds from sale of land and depreciable assets
   
4.2
     
1.5
 
Acquisition of business, net of cash acquired
   
(1.8
)
   
-
 
Other
   
1.9
     
1.9
 
Net cash (used in) investing activities
   
(66.8
)
   
(50.6
)
Cash flow from financing activities:
               
Net change in outstanding debt
   
22.2
     
(16.8
)
Net proceeds from stock compensation activity
   
6.5
     
4.8
 
Dividends paid
   
(19.4
)
   
(17.2
)
Excess tax benefits from stock-based compensation
   
0.2
     
0.2
 
Contribution from noncontrolling partner
   
0.1
     
0.1
 
 
               
Net cash provided by (used in) financing activities
   
9.6
     
(28.9
)
Effect of foreign currency rate changes on cash
   
(1.0
)
   
0.9
 
Net increase (decrease) in cash and cash equivalents
   
(1.9
)
   
(6.4
)
Cash and cash equivalents at beginning of period
   
40.0
     
24.1
 
Cash and cash equivalents at end of period
 
$
38.1
   
$
17.7
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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 leading producer and marketer of diverse specialty materials with a core expertise in minerals and polymer science.  Through five business segments, performance materials, construction technologies, energy services, transportation, and corporate, we create solutions that enhance the quality, efficiency and sustainability of our customers’ products and services in a growing global marketplace.

Our performance materials segment is a leading supplier of bentonite related products.

Our construction technologies segment provides products for non-residential construction, environmental and infrastructure projects worldwide.

 Our energy services segment offers a range of patented and non-patented technologies, products and services for both upstream and downstream oil and gas production.

Our transportation segment, which serves our domestic subsidiaries as well as third parties, is a dry van and flatbed carrier and freight brokerage service provider.

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 69% and 73% of the revenue elimination in the nine months ended September 30, 2013 and 2012, respectively, and 68% and 73% of the revenue elimination in the three months ended September 30, 2013 and 2012, respectively, represents elimination of shipping revenues between our transportation segment and its domestic sister companies.
 
A significant portion of the products sold by our performance materials segment and, to a lesser extent, our construction technologies segment, utilize a mineral called bentonite.  Bentonite has several valuable characteristics, including its ability to bind, swell, adsorb, control rheology, soften fabrics, and have its surface modified through chemical and physical reactions. We also develop applications for other specialty minerals, most significantly chromite and leonardite.
 
We earn revenues from the sale of finished products, provision of services, rental of equipment, and charges for shipping goods and materials to customers.  Our service revenues are derived primarily from our construction technologies, energy services, and transportation segments; our transportation segment is purely service based.

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
 
The composition of our revenues by segment is as follows:

 
Nine Months Ended
 
 
September 30,
 
 
 
2013
   
2012
 
Performance materials
   
48
%
   
50
%
Construction technologies
   
21
%
   
24
%
Energy services
   
30
%
   
25
%
Transportation
   
5
%
   
5
%
Intersegment sales
   
-4
%
   
-4
%
 
   
100
%
   
100
%
 
Further discussion of our 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, 2012, is unaudited.  The condensed consolidated balance sheet as of December 31, 2012 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, 2012.  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 September 30, 2013 and 2012, and our financial position as of September 30, 2013, 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, 2012.

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 and nine months ended September 30, 2013.  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 construction technologies segment, which varies due to the seasonal nature of the construction industry, and our energy services segment, which varies due to seasonal weather patterns in its various geographic markets.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)

Recently Adopted and Recently Issued Accounting Guidance

Adopted:

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02 codified in Accounting Standards Codification (“ASC”) Topic 220 – Comprehensive Income which adds new disclosure requirements for items reclassified out of accumulated other comprehensive income.  This ASU requires entities to disclose additional information about reclassification adjustments, including changes in accumulated other comprehensive income balances by component and significant items reclassified out of accumulated other comprehensive income.  Other than additional disclosure requirements, the adoption of this ASU on January 1, 2013 had no impact on our financial statements.

In July 2012, the FASB issued ASU 2012-02, codified in ASC Topic 350 – Intangibles – Goodwill and Other .   This ASU gives entities the option to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired.  If impairment is indicated, the fair value of the indefinite-lived intangible asset should be determined and the quantitative impairment test should be performed by comparing the fair value with the carrying value in accordance with subtopic 350-30.  If impairment is not indicated, the entity is not required to take further action.  The adoption of this ASU on January 1, 2013 had no impact on our financial statements.

Issued:

In March 2013, the FASB issued ASU 2013-05 codified in ASC Topic 830 – Foreign Currency Matters . This ASU clarifies the applicable guidance relating to a parent entity’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. A parent entity is required to release any related cumulative foreign currency translation adjustment from accumulated other comprehensive income into net income in the following circumstances: (i) a parent entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided; (ii) a partial sale of an equity method investment that is a foreign entity; (iii) a partial sale of an equity method investment that is not a foreign entity whereby the partial sale represents a complete or substantially complete liquidation of the foreign entity that held the equity method investment; and (iv) the sale of an investment in a foreign entity. This ASU will become effective for us on January 1, 2014. The impact of this ASU on our financial statements will be considered in the event we initiate any of the transactions described above.

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
 
Note 2: EARNINGS (LOSS) PER SHARE

The following table provides further share information used in calculating our earnings (loss) per share for the periods presented herein.  Basic earnings (loss) per share was calculated by dividing net income (loss) attributable to AMCOL shareholders by the weighted average number of common shares outstanding during each period.  Diluted earnings per share was calculated by dividing net income (loss) 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.

 
 
Nine Months Ended
   
Three Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Weighted average number of common shares outstanding
   
32,438,002
     
32,024,603
     
32,516,744
     
32,071,202
 
Dilutive impact of stock based compensation
   
303,327
     
315,636
     
-
     
381,676
 
Weighted average number of common and common equivalent shares outstanding for the period
   
32,741,329
     
32,340,239
     
32,516,744
     
32,452,878
 
Number of common shares outstanding at the end of the period
   
32,439,479
     
31,959,139
     
32,439,479
     
31,959,139
 
Weighted average number of anti-dilutive shares excluded from
   the computation of diluted earnings per share
   
268,437
     
635,738
     
493,773
     
276,753
 

Note 3: ADDITIONAL BALANCE SHEET INFORMATION

Our inventories at September 30, 2013 and December 31, 2012 are comprised of the following components:

 
 
September 30,
   
December 31,
 
 
 
2013
   
2012
 
Crude stockpile inventories
 
$
49.3
   
$
60.8
 
In-process and finished goods inventories
   
80.6
     
70.5
 
Other raw material, container, and supplies inventories
   
24.5
     
22.5
 
 
 
$
154.4
   
$
153.8
 
 
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, current activities, and changes in estimated future cash outflows.  A reconciliation of the activity within our reclamation liability is as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
 
 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
2013
   
2012
 
Balance at beginning of period
 
$
9.5
   
$
9.3
 
Settlement of obligations
   
(2.3
)
   
(3.1
)
Liabilities incurred and accretion expense
   
1.8
     
3.8
 
Foreign currency
   
(0.6
)
   
(0.1
)
 
               
Balance at end of period
 
$
8.4
   
$
9.9
 

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 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 tax expense.  Segment assets are those assets used within each 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 cash equivalents, fixed assets, assets associated with certain employee benefit plans, and other miscellaneous assets.

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
The following tables set forth certain financial information by segment:

 
 
Nine Months Ended
   
Three Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Net sales:
 
   
   
   
 
Performance materials
 
$
362.7
   
$
362.6
   
$
126.1
   
$
116.7
 
Construction technologies
   
161.6
     
173.0
     
62.8
     
60.6
 
Energy services
   
223.6
     
185.5
     
72.8
     
69.1
 
Transportation
   
34.4
     
33.5
     
12.7
     
10.7
 
Intersegment sales
   
(27.1
)
   
(22.8
)
   
(10.9
)
   
(7.9
)
Total
 
$
755.2
   
$
731.8
   
$
263.5
   
$
249.2
 
 
                               
Operating profit (loss):
                               
Performance materials
 
$
2.6
   
$
61.2
   
$
(32.1
)
 
$
18.4
 
Construction technologies
   
10.3
     
14.3
     
9.3
     
7.0
 
Energy services
   
20.8
     
20.4
     
3.8
     
7.9
 
Transportation
   
1.0
     
0.7
     
0.5
     
0.2
 
Corporate
   
(18.1
)
   
(16.8
)
   
(6.1
)
   
(5.1
)
Total
 
$
16.6
   
$
79.8
   
$
(24.6
)
 
$
28.4
 
 
 
 
As of Sep. 30, 2013
   
As of Dec. 31, 2012
 
Assets:
       
Performance materials
 
$
392.4
   
$
454.0
 
Construction technologies
   
172.3
     
157.6
 
Energy services
   
248.9
     
225.8
 
Transportation
   
4.2
     
4.0
 
Corporate
   
93.2
     
69.2
 
Total
 
$
911.0
   
$
910.6
 

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
 
 
 
September 30,
   
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Depreciation, depletion and amortization:
 
   
   
   
 
Performance materials
 
$
14.9
   
$
14.5
   
$
5.2
   
$
5.0
 
Construction technologies
   
4.0
     
4.0
     
1.3
     
1.3
 
Energy services
   
16.1
     
12.6
     
6.0
     
4.4
 
Transportation
   
0.1
     
0.1
     
-
     
0.1
 
Corporate
   
2.6
     
2.1
     
0.9
     
0.7
 
Total
 
$
37.7
   
$
33.3
   
$
13.4
   
$
11.5
 
 
                               
Capital expenditures:
                               
Performance materials
 
$
18.9
   
$
20.7
   
$
8.4
   
$
9.9
 
Construction technologies
   
2.1
     
7.9
     
1.5
     
1.6
 
Energy services
   
35.4
     
20.8
     
8.3
     
7.8
 
Transportation
   
0.2
     
-
     
0.1
     
-
 
Corporate
   
9.7
     
4.8
     
3.9
     
2.7
 
Total
 
$
66.3
   
$
54.2
   
$
22.2
   
$
22.0
 
 
                               
Research and development (income) expense:
                               
Performance materials
 
$
4.3
   
$
3.9
   
$
1.5
   
$
1.2
 
Construction technologies
   
2.1
     
1.8
     
0.7
     
0.6
 
Energy services
   
1.6
     
1.2
     
0.6
     
0.4
 
Corporate
   
-
     
(0.1
)
   
-
     
-
 
Total
 
$
8.0
   
$
6.8
   
$
2.8
   
$
2.2
 

Note 5: EMPLOYEE BENEFIT PLANS

We have a defined benefit pension plan covering substantially all of our domestic employees hired before January 1, 2004.  We also sponsor a supplementary pension plan that provides benefits in excess of qualified plan limitations for certain employees.  Pension cost for both of our plans is comprised of :

 
 
Defined Benefit Pension Plan
   
Supplementary Pension Plan
 
 
 
Nine Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Service cost
 
$
1.3
   
$
1.3
   
$
0.3
   
$
0.2
 
Interest cost
   
2.0
     
2.0
     
0.4
     
0.4
 
Expected return on plan assets
   
(2.2
)
   
(1.9
)
   
-
     
-
 
Amortization of acturial loss
   
0.7
     
0.7
     
0.2
     
0.1
 
 
                               
Net periodic benefit cost
 
$
1.8
   
$
2.1
   
$
0.9
   
$
0.7
 

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
 
 
 
Defined Benefit Pension Plan
   
Supplementary Pension Plan
 
 
 
Three Months Ended
September 30,
   
Three Months Ended
September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Service cost
 
$
0.4
   
$
0.4
   
$
0.1
   
$
-
 
Interest cost
   
0.7
     
0.7
     
0.1
     
0.2
 
Expected return on plan assets
   
(0.7
)
   
(0.6
)
   
-
     
-
 
Amortization of acturial loss
   
0.2
     
0.2
     
0.1
     
-
 
 
                               
Net periodic benefit cost
 
$
0.6
   
$
0.7
   
$
0.3
   
$
0.2
 

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, we expect to contribute $1.2 to the defined benefit pension plan in 2013, of which $0.9 was contributed in the nine months ended September 30, 2013.

Note 6: INCOME TAXES

Our effective tax rate for the nine months ended September 30, 2013 and 2012 was 71.4% and 27.8%, respectively.  For 2013 and 2012, the rate differs from the U.S. federal statutory rate of 35.0% due to depletion deductions and differences in local tax rates on the income from our foreign subsidiaries.  Additionally, for the nine months ended September 30, 2013, the effective tax rate includes the establishment of a valuation allowance of $2.5 for deferred tax assets in certain foreign entities, primarily related to the performance of our South African operations.  For 2013, the effective tax rate is also negatively impacted by jurisdictions with losses for which a tax benefit cannot be recognized.  Due to changes in the mix of income and losses amongst jurisdictions, we changed 2013’s estimated annual effective tax rate (absent discrete items) from 27.6% to 41.2%.

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 2008.  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.

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)

The following table sets forth the fair values of our derivative instruments and where they are recorded within our condensed consolidated balance sheet:

 
Fair Value as of
 
Liability Derivatives
Balance Sheet Location
 
September 30, 2013
   
December 31, 2012
 
 
 
 
   
 
Derivatives designated as hedging instruments:
 
 
   
 
 
 
 
   
 
Interest rate swaps
Other long-term liabilities
 
$
(5.9
)
 
$
(8.4
)
 
 
               
Interest rate swaps
Accrued liabilities
   
(0.5
)
   
-
 
 
Cash flow hedges

 
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives
 
 
(Effective Portion)
 
 
Nine Months Ended
September 30,
   
Three Months Ended
September 30,
 
Derivatives in Cash Flow Hedging Relationships
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
 
         
2020
     
Interest rate swaps, net of tax
 
$
1.4
   
$
-
   
$
0.2
   
$
-
 

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 September 30, 2013 and 2012, we had interest rate swaps outstanding which effectively hedge the variable interest rate on $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 for the following currencies: British pound sterling (GBP), Chinese renminbi (CYN), Danish kroner (DKK),  Euro, India rupee (INR), Malaysian ringgit (MYR), Norwegian krone (NOK), Polish Zloty (PLN), South African rand (ZAR), Swiss franc (SEK), and Thai baht (THB).  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:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
 
Amount of Gain or (Loss) Recognized in Income on
Derivatives
 
Nine Months Ended
September 30,
 
Three Months Ended
September 30,
 
Derivatives Not Designated as Hedging Instruments
Location of Gain or (Loss) Recognized in Income on Derivatives
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
Other, net
 
$
(2.8
)
 
$
-
   
$
(1.9
)
 
$
(0.3
)

We did not have any significant foreign exchange derivative instruments outstanding as of September 30, 2013 or December 31, 2012.

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 – Values are 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 – Values are 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 – Values are based on model based techniques that use unobservable inputs for the asset or liability. These inputs reflect our beliefs about the assumptions market participants would use in pricing the asset or liability.

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
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
 
 
 
   
Quoted Prices in Active Markets for Identical Assets
   
Significant Other Observable Inputs
   
Significant Unobservable Inputs
 
Description
 
Asset / (Liability) Balance at
 
 
 
9/30/2013
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
 
 
   
   
   
 
Interest rate swaps
 
$
(6.4
)
 
$
-
   
$
(6.4
)
 
$
-
 
 
                               
Available-for-sale securities
   
9.1
     
9.1
     
-
     
-
 
 
                               
Deferred compensation plan assets
   
10.9
     
-
     
10.9
     
-
 
 
                               
Supplementary pension plan assets
   
8.9
     
-
     
8.9
     
-
 


 
 
   
Fair Value Measurements Using
 
 
 
   
Quoted Prices in Active Markets for Identical Assets
   
Significant Other Observable Inputs
   
Significant Unobservable Inputs
 
Description
 
Asset / (Liability) Balance at
 
 
 
12/31/2012
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
 
 
   
   
   
 
Interest rate swaps
 
$
(8.4
)
 
$
-
   
$
(8.4
)
 
$
-
 
 
                               
Available-for-sale securities
   
14.6
     
14.6
     
-
     
-
 
 
                               
Deferred compensation plan assets
   
9.4
     
-
     
9.4
     
-
 
 
                               
Supplementary pension plan assets
   
8.2
     
-
     
8.2
     
-
 

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.

The carrying value of our long-term debt approximates its fair value as the interest rate is near the current market rate yield.  The fair value of our long-term debt is determined using current applicable rates for similar instruments as of the balance sheet date.  The fair value of long-term debt for disclosure purpose is a Level 3 liability within the fair value category.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
 
Note 9: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the changes in other comprehensive income (loss) by component:

 
Nine Months Ended September 30,
 
 
2013
   
2012
 
 
 
Pre-Tax Amount
   
Tax (Expense) Benefit
   
Net-Of-Tax Amount
   
Pre-Tax Amount
   
Tax (Expense) Benefit
   
Net-Of-Tax Amount
 
 
 
   
   
   
   
   
 
Foreign currency translation adjustment
 
$
(19.4
)
 
$
-
   
$
(19.4
)
 
$
4.3
   
$
-
   
$
4.3
 
 
                                               
Unrealized gain (loss) on available-for-sale securities
   
(5.5
)
   
1.2
     
(4.3
)
   
4.1
     
-
     
4.1
 
 
                                               
Interest rate swap agreements:
                                               
Unrealized gain (loss) arising during period
   
0.5
     
(0.2
)
   
0.3
     
(1.8
)
   
0.7
     
(1.1
)
Reclassification of net (gain) loss to net income
   
1.8
     
(0.7
)
   
1.1
     
1.8
     
(0.7
)
   
1.1
 
 
                                               
Pension plans:
                                               
Reclassification of net acturial loss to net income
   
0.9
     
(0.3
)
   
0.6
     
0.9
     
(0.3
)
   
0.6
 
 
                                               
Total other comprehensive income (loss)
 
$
(21.7
)
 
$
-
   
$
(21.7
)
 
$
9.3
   
$
(0.3
)
 
$
9.0
 

 
Three Months Ended September 30,
 
 
2013
   
2012
 
 
 
Pre-Tax Amount
   
Tax (Expense) Benefit
   
Net-Of-Tax Amount
   
Pre-Tax Amount
   
Tax (Expense) Benefit
   
Net-Of-Tax Amount
 
 
 
   
   
   
   
   
 
Foreign currency translation adjustment
 
$
1.3
   
$
-
   
$
1.3
   
$
7.8
   
$
-
   
$
7.8
 
 
                                               
Unrealized gain (loss) on available-for-sale securities
   
(1.6
)
   
-
     
(1.6
)
   
4.9
     
-
     
4.9
 
 
                                               
Interest rate swap agreements:
                                               
Unrealized gain (loss) arising during period
   
(0.3
)
   
0.1
     
(0.2
)
   
(0.6
)
   
0.3
     
(0.3
)
Reclassification of net (gain) loss to net income
   
0.6
     
(0.2
)
   
0.4
     
0.6
     
(0.3
)
   
0.3
 
 
                                               
Pension plans:
                                               
Reclassification of net acturial loss to net income
   
0.3
     
(0.1
)
   
0.2
     
0.3
     
(0.1
)
   
0.2
 
 
                                               
Total other comprehensive income (loss)
 
$
0.3
   
$
(0.2
)
 
$
0.1
   
$
13.0
   
$
(0.1
)
 
$
12.9
 

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)

The following table summarizes the additions to and reclassifications out of accumulated other comprehensive income (loss) attributable to the Company and the affected line items in the condensed consolidated statement of operations:

 
Amounts Reclassified Out of
Accumulated Other Comprehensive
Income (Loss)
 
 
Nine Months Ended
September 30,
   
Three Months Ended
September 30,
 
Affected Line Item in the Statement Where Net Income (Loss) is Presented
 
 
2013
   
2012
   
2013
   
2012
 
 
Reclassification of net (gain) loss on interest rate swaps:
 
   
   
   
 
     
Pre-tax amount
 
$
1.8
   
$
1.8
   
$
0.6
   
$
0.6
 
 Interest expense, net
Tax
   
(0.7
)
   
(0.7
)
   
(0.2
)
   
(0.3
)
 Income tax expense
Net of tax
   
1.1
     
1.1
     
0.4
     
0.3
 
 
 
                               
      
Amortization of pension items:
                               
     
Net acturial loss, pre-tax amount
   
0.9
     
0.9
     
0.3
     
0.3
 
 Components of net periodic benefit cost
(see Employee Benefit Plans note for details)
Tax
   
(0.3
)
   
(0.3
)
   
(0.1
)
   
(0.1
)
 Income tax expense
Net of tax
   
0.6
     
0.6
     
0.2
     
0.2
 
 
 
                               
      
Total reclassifications for the period, net of tax
 
$
1.7
   
$
1.7
   
$
0.6
   
$
0.5
 
 

Note 10: REORGANIZATION CHARGES

Our results for the three and nine months ended September 30, 2013 include certain expenses associated with reorganizing our operations.  These reorganization efforts mainly relate to our operations in Europe to close or reorganize certain offices there, improve our cost structure, and increase operating efficiencies.  The following table outlines the amount of expenses, where they were recognized in our condensed consolidated statements of income, and the segments they relate to:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)

Nine Months Ended September 30, 2013
 
Performance Materials
   
Construction Technologies
 
 
 
   
 
 
 
   
 
Cost of sales line:
 
   
 
Employee termination and other benefits
 
$
0.1
   
$
0.7
 
 
               
Selling, general and administrative expenses line:
               
Employee termination and other benefits
   
0.6
     
2.5
 
Non-cash impairment charges (1)
   
-
     
0.6
 
 
               
Total
 
$
0.7
   
$
3.8
 

(1)              Non-cash impairment charges relate to write-down of certain assets held-for-sale to their estimated fair values based on a third-party appraisal (a Level 2 fair value input).

Three Months Ended September 30, 2013
Performance Materials
 
Construction Technologies
 
 
 
 
 
 
 
Cost of sales line:
 
 
Employee termination and other benefits
 
$
0.1
   
$
-
 
 
               
Selling, general and administrative expenses line:
               
Employee termination and other benefits
   
-
     
(0.1
)
 
               
Total
 
$
0.1
   
$
(0.1
)

At September 30, 2013, we had $0.5 included within accrued liabilities within our condensed consolidated balance sheets for cash expenditures needed to satisfy remaining obligations under these reorganization initiatives.  We expect to pay these amounts by the end of 2013.

Note 11: IMPAIRMENTS

Health and Beauty Operations:

During the third quarter of 2013, we committed to divest our health and beauty (HBS) operations within our performance materials segment and adjusted the carrying value of HBS’s net assets held-for-sale to their $12.0 fair value less cost to sell (see Note 12 for further details). The fair value adjustment  resulted in impairment charges of $1.8, $1. 1 , and $1. 3; relating to HBS’s goodwill, intangible assets, and property, plant and equipment, respectively.

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)

As required by ASC Topic 350 – Intangibles – Goodwill and Other , we completed an interim test for goodwill and intangible assets for HBS’s operations during the third quarter of 2013. In the first step of the goodwill impairment evaluation, we compared the fair value of HBS based on an observable Level 2 fair value input with its carrying amount, which suggested the goodwill was impaired.  In performing the second step of impairment test, we determined that the implied fair value of goodwill was lower than carrying amount, and recorded an impairment loss of $1.8.

The $1. 1 impairment charge for intangible assets relates to trademarks and developed technology, and was assessed using the relief from royalty rate method (Level 3 fair value input). Critical assumptions used in conducting these tests included applicable market royalty rates and discount rates as well as the future performance of these assets.

The $1. 3 impairment charge relating to HBS’s plant, property and equipment was assessed using cost method adjusted for age and deterioration (Level 3 fair value input).

South Africa:

                During the quarter ended September 30, 2013, our performance materials segment recorded an impairment charge of $52.3 to record a write down of mineral rights ($36.0) and depreciable assets ($16.3) from their carrying value to their estimated fair values.  Fair value for mineral rights was assessed using discounted cash flow approach (Level 3 fair value input) and for depreciable assets using a combination of mass appraisal technique and market approach technique (Level 2 fair value input).  The impairment charge relates to a significant adverse change in the business climate experienced by our South African chromite operations.  Specifically, recently developed overcapacity in the supply of chromite has impacted our pricing and ability to grow market share in the foundry grade market which required us to perform a review of recoverability in the third quarter of 2013.  Based on that evaluation, we determined the long-lived assets that produce chromite were not recoverable on a gross cash flow analysis.  The impairment charge is recorded within our condensed consolidated statements of operations within cost of sales ($52.2) and selling, general and administrative expense ($0.1).

Note 12: DISCONTINUED OPERATIONS

            In September 2013 we committed to divest our health and beauty (HBS) operations within our performance materials segment.  The results of these operations have been reclassified and recorded net of income tax within Income (loss) on discontinued operations within our condensed consolidated statements of operations.


AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in millions)
The following table presents amounts of HBS’s net sales and pretax income reported in discontinued operations during the three and nine months ended September 30, 2013:

HBS
 
Nine Months Ended September 30,
 
Three Months Ended September 30,
 
 
 
2013
   
2012
 
2013
 
2012
 
Net Sales
 
$
11.4
   
$
14.7
   
$
3.7
   
$
4.3
 
 
                               
Pre-tax income (loss)
   
(5.3
)
   
0.8
     
(6.1
)
   
(0.4
)

            In accordance with ASC Topic 360, Impairment and Disposal of Long Lived Assets, the assets of HBS met the held for sale criteria and we adjusted the carrying value of HBS’s net asset held-for-sale to their fair value less cost to sell, $12.0. This fair value adjustment resulted in a $6.6 loss, of which $4.2 related to impairment charges against HBS’s long-lived assets (see Note 11) and $2.4 related to establishing a valuation allowance against HBS’s net assets.  The total loss of $6.6, offset by a $2.4 income tax benefit, for the three and nine months ended September 30, 2013 is recorded within Income (loss) on discontinued operations within our condensed consolidated statements of operations.

Note 13: CONTINGENCIES

We are party to a number of lawsuits arising in the normal course of business.   Our energy services segment is party to two lawsuits in Louisiana, one of which alleges damages of $30 and the other of $9.  We do not believe that any of the aforementioned pending litigation will have a material adverse effect on our consolidated financial statements.
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 construction technologies and energy 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 leading producer and marketer of diverse specialty materials with a core expertise in minerals and polymer science.  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.

The principal mineral that we utilize to generate revenues 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 develop applications for other minerals, including chromite ore from our mine in South Africa and leonardite.

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.
We operate in five segments:  performance materials, construction technologies, energy services, transportation and corporate.  Both our performance materials and construction technologies segments operate manufacturing facilities in North America, Europe, and the Asia-Pacific region.  Our performance materials segment also owns and operates a chrome mine in South Africa.  Our energy 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 provides trucking services for our domestic performance materials and construction technologies segments as well as third parties.

Our customers are engaged in various end-markets and geographic regions. Customers in the performance 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 construction technologies segment include construction contractors, engineering contractors and government agencies.  The energy 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 commercial construction industries, impacts our revenues.

A sustainable, profitable business with 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 emerging markets and international markets in general to expand our revenues and earnings over the long-term given the expected growth rates in these areas.  We expect to take advantage of these growing markets, 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.
 
· 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, 2012.  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, 2012.

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, 2012.

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 in conjunction with the accompanying condensed consolidated financial statements.

In the quarter and year to date period ended September 30, 2013, we recorded a $52.3 million non-cash impairment charge against our performance materials segment’s South African chromite long-lived assets due to recent excess capacity that has developed within the market for our chromite products.  This excess capacity has developed as South African chromite producers focus more on the application of chromite to the foundry industry as opposed to their traditional ferrochrome industry given competitive factors that have transpired in that industry.

The decrease in outlook and impairment resulted in an increase to cost of goods sold ($52.2 million) and SG&A expenses ($0.1 million) and was partially offset by tax benefits ($10.3 million) and non-controlling interests ($6.9 million), resulting in a $35.1 million reduction in net income attributable to AMCOL shareholders.  The $10.3 million tax benefit is comprised of $12.8 million of tax benefits recorded in the South African entities that recorded the impairment expense as well as $2.5 million of tax expense recorded in certain of our UK subsidiaries.  The UK tax expenses result from recording valuation allowances against certain deferred tax assets as we believe that our tax planning strategies, which depended upon income in our South African subsidiaries to recover the value of those assets, are no longer prudent and feasible.
The amounts associated with the South African impairment decreased net income available to AMCOL shareholders by $35.1 million, which equates to $1.08 and $1.07 per diluted share for the three and nine months ending September 30, 2013, respectively.

Also during the third quarter of 2013, we committed to divest our health and beauty operations (HBS) within our performance materials segment.  In conjunction with this decision, we recorded expenses of $4.2 million, net of tax, to reduce the long-lived assets within these operations to their fair market value.  We included this impairment expense along with the normal results of the HBS operations within discontinued operations.  When divided by the weighted average common and common equivalent shares outstanding for the three and nine months ending September 30, 2013, the $4.2 million charge equates to $0.13 per diluted share for each period.

We have prepared a schedule showing our actual operating profit results by component for the three and nine month periods ended September 30, 2013 and our pro forma results excluding the South African impairment expenses as a non-GAAP measure.  We have also done the same for the operating profit within our performance materials segment since this was the segment affected by the South African impairment charge.  Operating profit is a key measure of our performance and management found it helpful to understand the underlying business dynamics, as compared to the prior year’s period, excluding these charges.  In addition, we do not expect such charges to recur in the future, so analyzing our business excluding them appears more appropriate to determining how our business compares against historical performance.  Last, we believe the pro forma information is more useful when comparing our results to our competitors’ results.  This pro forma information is not prepared in accordance with GAAP, is not an alternative to GAAP financial information and may be computed differently than GAAP information or information prepared by other companies.  Thus, undue reliance should not be placed on this information.

 
Three Months Ended September 30,
 
 
2013
   
2012
 
Consolidated
 
As Reported
   
Less South Africa Impairment Charge
   
Pro Forma
   
As Reported
 
 
 
(In Millions, Except Per Share Amounts)
 
 
 
   
   
   
 
Net sales
 
$
263.5
   
   
$
263.5
   
$
249.2
 
Cost of sales
   
246.1
     
52.2
     
193.9
     
180.5
 
Gross profit (loss)
   
17.4
     
(52.2
)
   
69.6
     
68.7
 
margin %
   
6.6
%
           
26.4
%
   
27.6
%
Selling, general, and administrative expenses
   
42.0
     
0.1
     
41.9
     
40.3
 
Operating profit (loss)
   
(24.6
)
   
(52.3
)
   
27.7
     
28.4
 
margin %
   
-9.3
%
           
10.5
%
   
11.4
%

 
Nine Months Ended September 30,
 
 
2013
   
2012
 
Consolidated
 
As Reported
   
Less South Africa Impairment Charge
   
Pro Forma
   
As Reported
 
 
 
(In Millions, Except Per Share Amounts)
 
 
 
   
   
   
 
Net sales
 
$
755.2
   
   
$
755.2
   
$
731.8
 
Cost of sales
   
605.0
     
52.2
     
552.8
     
527.1
 
Gross profit (loss)
   
150.2
     
(52.2
)
   
202.4
     
204.7
 
margin %
   
19.9
%
           
26.8
%
   
28.0
%
Selling, general, and administrative expenses
   
133.6
     
0.1
     
133.5
     
124.9
 
Operating profit (loss)
   
16.6
     
(52.3
)
   
68.9
     
79.8
 
margin %
   
2.2
%
           
9.1
%
   
10.9
%
 
 
Three Months Ended September 30,
 
 
2013
   
2012
 
Performance Materials
 
As Reported
   
Less South Africa Impairment Charge
   
Pro Forma
   
As Reported
 
 
 
(Dollars In Millions)
 
 
 
   
   
   
 
Net sales
 
$
126.1
   
   
$
126.1
   
$
116.7
 
Cost of sales
   
145.6
     
52.2
     
93.4
     
86.6
 
Gross profit (loss)
   
(19.5
)
   
(52.2
)
   
32.7
     
30.1
 
margin %
   
-15.5
%
           
25.9
%
   
25.8
%
Selling, general, and administrative expenses
   
12.6
     
0.1
     
12.5
     
11.7
 
Operating profit (loss)
   
(32.1
)
   
(52.3
)
   
20.2
     
18.4
 
margin %
   
-25.5
%
           
16.0
%
   
15.8
%

 
Nine Months Ended September 30,
 
 
2013
   
2012
 
Performance Materials
 
As Reported
   
Less South Africa Impairment Charge
   
Pro Forma
   
As Reported
 
 
 
(Dollars In Millions)
 
 
 
   
   
   
 
Net sales
 
$
362.7
   
   
$
362.7
   
$
362.6
 
Cost of sales
   
323.0
     
52.2
     
270.8
     
267.0
 
Gross profit (loss)
   
39.7
     
(52.2
)
   
91.9
     
95.6
 
margin %
   
10.9
%
           
25.3
%
   
26.4
%
Selling, general, and administrative expenses
   
37.1
     
0.1
     
37.0
     
34.4
 
Operating profit (loss)
   
2.6
     
(52.3
)
   
54.9
     
61.2
 
margin %
   
0.7
%
           
15.1
%
   
16.9
%

The following consolidated income statement review and segment analysis discuss the results for the three months ended September 30, 2013 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.

Three Months Ended September 30, 2013 vs. September 30, 2012

Consolidated Income Statement Review

The table below compares certain of certain of our operating results for the three months ended September 30, 2013 and 2012.

Three Months Ended September 30,
 
Consolidated
2013
Actual
 
2013
Pro Forma
 
2012
 
2013 Pro Forma vs. 2012
 
 
(In Millions, Except Per Share Amounts)
 
 
 
 
 
 
Net sales
 
$
263.5
   
$
263.5
   
$
249.2
     
5.7
%
Cost of sales
   
246.1
     
193.9
     
180.5
         
Gross profit
   
17.4
     
69.6
     
68.7
     
1.3
%
margin %
   
6.6
%
   
26.4
%
   
27.6
%
       
Selling, general and administrative expenses
   
42.0
     
41.9
     
40.3
     
4.0
%
Operating profit (loss)
   
(24.6
)
   
27.7
     
28.4
     
-2.5
%
margin %
   
-9.3
%
   
10.5
%
   
11.4
%
       

One measure of our sales growth includes determining the amount of growth attributable to organic growth, acquisitions, or foreign currency exchange rate fluctuations.  Organic growth represents growth from operations owned for more than one year whereas acquisitions are those owned for less than one year.  Foreign currency exchange rate fluctuations isolate the impact of currency changes over the prior-year period.  The following table details the components of consolidated sales changes over the prior year’s comparable period:

 
 
Organic
   
Acquisitions
   
Foreign Exchange
   
Total
 
Performance materials
   
4.3
%
   
0.0
%
   
-0.5
%
   
3.8
%
Construction technologies
   
0.6
%
   
0.0
%
   
0.3
%
   
0.9
%
Energy services
   
1.5
%
   
0.4
%
   
-0.4
%
   
1.5
%
Transportation & intersegment sales
   
-0.4
%
   
0.0
%
   
0.0
%
   
-0.4
%
Total
   
6.0
%
   
0.4
%
   
-0.6
%
   
5.8
%
% of change
   
103.4
%
   
6.9
%
   
-10.3
%
   
100.0
%

Our net sales grew organically, led by our performance materials segment.

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
 
Performance materials
   
24.1
%
   
12.6
%
   
11.2
%
   
47.9
%
Construction technologies
   
9.1
%
   
11.7
%
   
3.0
%
   
23.8
%
Energy services
   
24.1
%
   
2.1
%
   
1.4
%
   
27.6
%
Transportation & intersegment sales
   
0.7
%
   
0.0
%
   
0.0
%
   
0.7
%
 
                               
Total - current year's period
   
58.0
%
   
26.4
%
   
15.6
%
   
100.0
%
Total from prior year's comparable period
   
56.7
%
   
25.1
%
   
18.2
%
   
100.0
%


Inter-regional sales in the geographic table above are eliminated in Americas.  The decreased concentration of revenues from our Asia Pacific operations reflects the decreased revenues in our energy services’ Malaysian operations.

Gross profit decreased due to the $52.3 million impairment recorded in our South African operations.  Excluding this impairment, gross profit increased marginally and gross profit margin decreased 120 basis points due mostly to decreases in our energy services segment.

Operating profit decreased as well due to the aforementioned impairment charge.  Excluding this charge, operating profit decreased marginally due to increased SG&A expenses, which occurred mostly in our corporate segment.

Income tax benefit for the quarter is driven by the $10.3 million net tax benefit relating to the South African related items as previously discussed.  Excluding the effect of the South Africa related items, our effective income tax rate for the quarter was 22.6%, a 690 basis point decrease from the 29.5% in the prior year’s period.  Approximately 500 basis points of the difference resulted from discrete items that occurred in the 2013 quarter as well as changes in estimates of forecasted income for the year.  We estimate that the change in the forecasted income for the year will result in approximately 41% effective tax rate being used in compiling our results for the fourth quarter of 2013 given our current estimates.

Quarterly Review of Each Segment’s Results

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

Performance Materials

 
Three Months Ended September 30,
 
Performance Materials
 
2013
Actual
   
2013
Pro Forma
   
2012
   
2013 Pro Forma vs. 2012
 
 
 
(Dollars in millions)
 
 
 
   
   
   
   
   
   
   
 
Net sales
 
$
126.1
     
100.0
%
 
$
126.1
     
100.0
%
 
$
116.7
     
100.0
%
 
$
9.4
     
8.1
%
Cost of sales
   
145.6
     
115.5
%
   
93.4
     
74.1
%
   
86.6
     
74.2
%
               
Gross profit (loss)
   
(19.5
)
   
-15.5
%
   
32.7
     
25.9
%
   
30.1
     
25.8
%
   
2.6
     
8.6
%
Selling, general and
                                                               
administrative expenses
   
12.6
     
10.0
%
   
12.5
     
9.9
%
   
11.7
     
10.0
%
   
0.8
     
6.8
%
Operating profit (loss)
   
(32.1
)
   
-25.5
%
   
20.2
     
16.0
%
   
18.4
     
15.8
%
   
1.8
     
9.8
%

 
Three Months Ended September 30,
 
Performance Materials Product Line Sales
 
2013
   
2012
   
% change
 
 
 
(Dollars in Millions)
 
 
 
   
   
 
Metalcasting
 
$
67.2
   
$
67.8
     
-0.9
%
Specialty materials
   
23.9
     
21.3
     
12.2
%
Basic minerals
   
15.8
     
14.7
     
7.5
%
Pet products
   
15.9
     
12.0
     
32.5
%
Other product lines
   
3.3
     
0.9
     
*
 
 
                       
Total
   
126.1
     
116.7
     
8.1
%
* Not meaningful
                       

Overall, revenues increased by $9.4 million, comprised of $10.2 million of volume increases and $0.8 million of price decreases.  Volumes increased in our pet product, specialty materials and other product lines.  Within pet products, we have been successful in winning new business under contract with key customers.  Our fabric care product volumes have also increased due to increased demand from a large customer.  Increased inter-segment sales gave rise to the increase in other product line revenues.

Gross profit decreased due to the $52.2 million impairment charge previously mentioned.  Excluding this charge, gross profit increased due to the increased sales discussed above.

SG&A expenses increased $0.9 million.  Excluding $0.1 million related to the South African impairment charge previously discussed, SG&A expenses increased $0.8 million, or 6.8%, due to increased bad debt expenses and professional fees for chromite mine reserve evaluations.


Construction Technologies


 
Three Months Ended September 30,
 
Construction Technologies
 
2013
   
2012
   
2013 vs. 2012
 
 
 
(Dollars in Millions)
 
 
 
   
   
   
   
   
 
Net sales
 
$
62.8
     
100.0
%
 
$
60.6
     
100.0
%
 
$
2.2
     
3.6
%
Cost of sales
   
41.3
     
65.8
%
   
40.6
     
67.0
%
   
0.7
     
1.7
%
Gross profit
   
21.5
     
34.2
%
   
20.0
     
33.0
%
   
1.5
     
7.5
%
 
                                               
Selling, general and administrative expenses
   
12.2
     
19.4
%
   
13.0
     
21.4
%
   
(0.8
)
   
-6.2
%
Operating profit
   
9.3
     
14.8
%
   
7.0
     
11.6
%
   
2.3
     
32.9
%

 
Three Months Ended September 30,
 
Construction Technologies Product Line Sales
 
2013
   
2012
   
% change
 
 
 
(Dollars in Millions)
 
 
 
   
   
 
Lining technologies
 
$
29.5
   
$
25.3
     
16.6
%
Building materials
   
19.3
     
20.3
     
-4.9
%
Drilling products
   
12.1
     
9.8
     
23.5
%
Contracting services
   
1.9
     
5.2
     
-63.5
%
 
                       
Total
   
62.8
     
60.6
     
3.6
%
 
The increase in revenues is driven by increased volumes of $3.7 million offset by decreased pricing of $1.5 million.  Our lining technologies product revenues increased due to increased volumes, partially driven by reduced pricing.  Revenues from our drilling product line increased in all regions as that product line continues to grow due to increased demand and greater sales efforts.  Contracting services revenues continue to decrease in line with our intent to reduce our involvement in these types of services.

Gross profit increased due to the increase in sales and the 120 basis point increase in gross profit margin that resulted from the effect of reorganization efforts, increased volumes, and better product mix, especially in our European operations.  SG&A expenses decreased due to lower employment levels as a result of our reorganization efforts and lower bad debt expenses, especially in our European operations.  As a result, operating profit increased along with operating profit margin.

Energy  Services

 
Three Months Ended September 30,
 
Energy Services
 
2013
    2012     2013 vs 2012  
 
 
(Dollars in Millions)
 
 
 
   
   
   
   
   
 
Net sales
 
$
72.8
     
100.0
%
 
$
69.1
     
100.0
%
 
$
3.7
     
5.4
%
Cost of sales
   
58.8
     
80.8
%
   
51.4
     
74.4
%
               
Gross profit
   
14.0
     
19.2
%
   
17.7
     
25.6
%
   
(3.7
)
   
-20.9
%
 
                                               
Selling, general and administrative expenses
   
10.2
     
14.0
%
   
9.8
     
14.2
%
   
0.4
     
4.1
%
Operating profit
   
3.8
     
5.2
%
   
7.9
     
11.4
%
   
(4.1
)
   
-51.9
%

Revenues increased $3.7 million, 5.4%, as our domestic revenue increase of $13.0 million was partially offset by a $9.3 million decrease in international revenues.  Domestic filtration revenues increased as activity in the offshore market continues to recover.  Demand for our land based services, especially coil tubing services, increased, albeit at lower prices.  Not only did our Malaysian filtration revenues decrease, but we increased our estimates of the costs required to complete fixed price sales of capital equipment and were unable to pass on those additional costs.  Both of these negatively impacted gross profit margin.  The 640 basis point decrease in gross profit margin was also caused by selling price pressure resulting from increased competition on our US land based services.  The decreased gross profits combined with flat SG&A expenses decreased the segment’s operating profits by $4.1 million.

Transportation Segment

 
Three Months Ended September 30,
 
Transportation
 
2013
   
2012
   
2013 vs 2012
 
 
 
(Dollars in Millions)
 
 
 
   
   
   
   
   
 
Net sales
 
$
12.7
     
100.0
%
 
$
10.7
     
100.0
%
 
$
2.0
     
18.7
%
Cost of sales
   
11.3
     
89.0
%
   
9.6
     
89.7
%
               
Gross profit
   
1.4
     
11.0
%
   
1.1
     
10.3
%
   
0.3
     
27.3
%
 
                                               
Selling, general and administrative expenses
   
0.9
     
7.1
%
   
0.9
     
8.4
%
   
-
     
0.0
%
Operating profit
   
0.5
     
3.9
%
   
0.2
     
1.9
%
   
0.3
     
150.0
%

This segment provides services to third parties as well as AMCOL companies within our other segments.  Although this business continues to face increased competition and a decreased availability of drivers, management has focused on increasing utilization of its assets, efforts which led to increase in revenues as price increases and fuel surcharges only comprise 31% and 29% of the revenue increase, respectively.  These efforts have also led to the increase in gross profit and operating profit and related margins.

Corporate Segment

 
Three Months Ended September 30,
 
Corporate
 
2013
   
2012
   
2013 vs. 2012
 
 
 
(Dollars in Millions)
 
 
 
   
   
   
 
Intersegment sales
 
$
(10.9
)
 
$
(7.9
)
   
(3.0
)
 
 
Intersegment cost of sales
   
(10.9
)
   
(7.7
)
         
 
Gross profit (loss)
   
-
     
(0.2
)
   
0.2
   
 
 
                         
 
Selling, general and administrative expenses
   
6.1
     
4.9
     
1.2
     
24.5
%
Operating loss
   
(6.1
)
   
(5.1
)
   
(1.0
)
   
19.6
%
 
Intersegment sales are eliminated in our corporate segment.  These are mostly sales between our transportation segment and our performance materials and construction technologies segments as well as sales between our performance materials segment and construction technologies and energy services segments.

Corporate SG&A expenses increased $1.2 million for a variety of factors, the largest of which was increased information technology and new product development expenses.
Nine Months Ended September 30, 2013 vs. September 30, 2012

The following consolidated income statement review and segment analysis discuss the results for the nine months ended September 30, 2013 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.

Consolidated Income Statement Review

The table below compares certain of our operating results for the nine months ended September 30, 2013 and 2012.

 
Nine Months Ended September 30,
 
Consolidated
 
2013
Actual
   
2013
Pro Forma
   
2012
   
2013 Pro Forma vs. 2012
 
 
 
(In Millions, Except Per Share Amounts)
 
 
 
   
   
   
 
Net sales
 
$
755.2
   
$
755.2
   
$
731.8
     
3.2
%
Cost of sales
   
605.0
     
552.8
     
527.1
         
Gross profit
   
150.2
     
202.4
     
204.7
     
-1.1
%
margin %
   
19.9
%
   
26.8
%
   
28.0
%
       
 
                               
Selling, general and administrative expenses
   
133.6
     
133.5
     
124.9
     
6.9
%
Operating profit
   
16.6
     
68.9
     
79.8
     
-13.7
%
margin %
   
2.2
%
   
9.1
%
   
10.9
%
       

             The following table details the components of consolidated sales changes over the prior year’s comparable period:

 
 
Organic
   
Acquisitions
   
Foreign Exchange
   
Total
 
Performance materials
   
0.3
%
   
0.0
%
   
-0.3
%
   
0.0
%
Construction technologies
   
-1.8
%
   
0.0
%
   
0.2
%
   
-1.6
%
Energy services
   
5.4
%
   
0.1
%
   
-0.3
%
   
5.2
%
Transportation & intersegment shipping
   
-0.5
%
   
0.0
%
   
0.0
%
   
-0.5
%
Total
   
3.4
%
   
0.1
%
   
-0.4
%
   
3.1
%
% of growth
   
109.7
%
   
3.2
%
   
-12.9
%
   
100.0
%

Generally, sales growth has occurred for organic reasons and largely in our energy services segment.

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
 
Performance materials
   
25.5
%
   
11.0
%
   
11.5
%
   
48.0
%
Construction technologies
   
8.7
%
   
9.7
%
   
3.0
%
   
21.4
%
Energy services
   
25.4
%
   
1.7
%
   
2.5
%
   
29.6
%
Transportation & intersegment sales
   
1.0
%
   
0.0
%
   
0.0
%
   
1.0
%
 
                               
Total - current year's period
   
60.6
%
   
22.4
%
   
17.0
%
   
100.0
%
Total from prior year's comparable period
   
61.0
%
   
22.5
%
   
16.5
%
   
100.0
%
 
Inter-regional sales in the geographic table above are eliminated in Americas.  Our distribution of revenues across geographic regions has not changed significantly.

 Although sales have increased, gross profit decreased due to the $52.2 million South African impairment charge previously discussed.  Excluding that charge, gross profit would have decreased $2.3 million, or 1.1%, and gross profit margin would have decreased 120 basis points due to decreases in our performance materials and energy services segments.  Our energy services segment has suffered from significant price pressure, especially for land based services.  Our performance materials segment has experienced decreased volumes which have increased per unit production costs.

The fluctuation in operating profit follows on from the decrease in gross profit and increased SG&A expenses.  Income tax expense decreased due to the $10.3 million benefit relating to the South African charges previously discussed in addition to changes in the estimate of forecasted profits between the periods.

Year-to-Date Review of Each Segment’s Results

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

Performance Materials

Nine Months Ended September 30,
 
Performance Materials
2013
Actual
 
2013
Pro Forma
 
2012
 
2013 Pro Forma vs. 2012
 
 
(Dollars in millions)
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
362.7
     
100.0
%
 
$
362.7
     
100.0
%
 
$
362.6
     
100.0
%
 
$
0.1
     
0.0
%
Cost of sales
   
323.0
     
89.1
%
   
270.8
     
74.7
%
   
267.0
     
73.6
%
               
Gross profit
   
39.7
     
10.9
%
   
91.9
     
25.3
%
   
95.6
     
26.4
%
   
(3.7
)
   
-3.9
%
 
                                                               
Selling, general and administrative expenses
   
37.1
     
10.2
%
   
37.0
     
10.2
%
   
34.4
     
9.5
%
   
2.6
     
7.6
%
Operating profit
   
2.6
     
0.7
%
   
54.9
     
15.1
%
   
61.2
     
16.9
%
   
(6.3
)
   
-10.3
%

 
Nine Months Ended September 30,
 
Performance Materials Product Line Sales
 
2013
   
2012
   
% change
 
 
 
(Dollars in Millions)
 
 
 
   
   
 
Metalcasting
 
$
200.4
   
$
201.6
     
-0.6
%
Specialty materials
   
64.8
     
70.0
     
-7.4
%
Basic minerals
   
45.9
     
48.0
     
-4.4
%
Pet products
   
43.8
     
40.0
     
9.5
%
Other product lines
   
7.8
     
3.0
     
*
 
 
                       
Total
   
362.7
     
362.6
     
0.0
%
* Not meaningful
                       
 
Revenues remained fairly constant overall as $0.9 million of price increases were offset by $0.8 million of volume decreases.  On a product line basis, specialty materials volumes and prices decreased in our fabric care products due to weak customer demand, primarily in the first six months of 2013.  Other product revenues increased due to greater intersegment sales.  The $52.2 million South African impairment charge and the decrease in volumes drove the decrease in gross profit and gross profit margin as per unit production costs increased.

SG&A expenses increased $2.7 million, $0.7 million of which related to increased costs within our chromite operations for mine studies and bad debts while another $0.7 million relates to restructuring costs within the segment.  Excluding these, increased employee and employee related compensation comprised the next largest increase.  Operating profit and operating profit margin fluctuations follow on from the decrease in gross profit, gross profit margin, and increased SG&A expenses.

Construction Technologies

 
Nine Months Ended September 30,
 
Construction Technologies Product Line Sales
 
2013
   
2012
   
% change
 
 
 
(Dollars in Millions)
 
 
 
   
   
 
Lining technologies
 
$
67.4
   
$
72.0
     
-6.4
%
Building materials
   
56.1
     
58.2
     
-3.6
%
Drilling products
   
31.5
     
29.0
     
8.6
%
Contracting services
   
6.6
     
13.8
     
-52.2
%
 
                       
Total
   
161.6
     
173.0
     
-6.6
%
 
The $11.4 million decrease in revenues results almost entirely from decreased volumes ($10.3 million), the largest portion of which occurred in our contracting services product line as we are reducing our involvement in those services.  Our lining technologies revenues decreased due to discontinuation of lower margin, distributed products and the lack of a large sale that occurred in 2012.

Gross profit decreased due to the decrease in sales as mentioned above.  Gross profit margin, however, increased due to improved product mix.  SG&A expenses increased $3.1 million due to the restructuring costs within the segment.  The increased expenses combined with the fluctuations in gross profit partially offset by the improvement in gross profit margin drove the decrease in operating profit and operating profit margin.

Energy  Services

 
Nine Months Ended September 30,
 
Energy Services
 
2013
   
2012
    2013 vs 2012  
 
 
(Dollars in Millions)
 
 
 
   
   
   
   
   
 
Net sales
 
$
223.6
     
100.0
%
 
$
185.5
     
100.0
%
 
$
38.1
     
20.5
%
Cost of sales
   
169.4
     
75.8
%
   
133.2
     
71.8
%
               
Gross profit
   
54.2
     
24.2
%
   
52.3
     
28.2
%
   
1.9
     
3.6
%
 
                                               
Selling, general and administrative expenses
   
33.4
     
14.9
%
   
31.9
     
17.2
%
   
1.5
     
4.7
%
Operating profit
   
20.8
     
9.3
%
   
20.4
     
11.0
%
   
0.4
     
2.0
%

Our domestic revenue increase of $43.1 million was partially offset by decreased international revenues of $5.0 million, leading to the overall $38.1 million, 20.5%, revenue increase.  The domestic revenue increase occurred in our filtration, coil tubing, and nitrogen services due to increased sales of capital equipment, increased service capacity with the recent purchases of service equipment, and increased demand.  The international revenue decrease occurred primarily in our Malaysian operations due to decreased revenues from the construction of saleable capital equipment.

Gross profit increased due to the increase in sales, but gross profit margin decreased as competition for land based services has intensified, making those revenues less profitable overall.  SG&A expenses increased marginally as employee and employee related costs were partially offset by decreased bad debt expenses.  As a result, operating profit increased marginally and operating profit margins decreased 170 basis points.

Transportation

 
Nine Months Ended September 30,
 
Transportation
 
2013
   
2012
   
2013 vs 2012
 
 
 
(Dollars in Millions)
 
 
 
   
   
   
   
   
 
Net sales
 
$
34.4
     
100.0
%
 
$
33.5
     
100.0
%
 
$
0.9
     
2.7
%
Cost of sales
   
30.7
     
89.2
%
   
30.0
     
89.6
%
               
Gross profit
   
3.7
     
10.8
%
   
3.5
     
10.4
%
   
0.2
     
5.7
%
 
                                               
Selling, general and administrative expenses
   
2.7
     
7.9
%
   
2.8
     
8.3
%
   
(0.1
)
   
-3.6
%
Operating profit
   
1.0
     
2.9
%
   
0.7
     
2.1
%
   
0.3
     
42.9
%

This segment provides services to third parties as well as AMCOL companies within our other segments.  Revenues increased largely as a result of increased fuel surcharges.

Corporate

 
Nine Months Ended September 30,
 
Corporate
 
2013
   
2012
   
2013 vs. 2012
 
 
 
(Dollars in Millions)
 
 
 
   
   
   
 
Intersegment sales
 
$
(27.1
)
 
$
(22.8
)
   
(4.3
)
 
 
Intersegment cost of sales
   
(27.2
)
   
(22.7
)
         
 
Gross profit (loss)
   
0.1
     
(0.1
)
   
0.2
   
 
 
                         
 
Selling, general and administrative expenses
   
18.2
     
16.7
     
1.5
     
9.0
%
Operating loss
   
(18.1
)
   
(16.8
)
   
(1.3
)
   
7.7
%

Intersegment sales are eliminated in our corporate segment.  These are mostly sales between our transportation segment and our performance materials and construction technologies segments as well as sales between our performance materials segment and construction technologies and energy services segments.

Corporate SG&A expenses in the prior year period include $0.7 million of impairment expenses associated with certain information technology assets.  Excluding this, SG&A expenses increased $2.2 million in 2013.  Approximately $1.1 million of this relates to increased professional fees, largely related to the restatement of prior year financial statements incurred as part of our 2012 Form 10-K filing.  Information technology and product development expenses rounded out the remaining increase.

Balance Sheet Review

 
As of
 
Financial Position
($ in millions)
 
September 30,
2013
   
December 31,
2012
 
Non-cash working capital
 
$
318.0
   
$
275.0
 
Goodwill & intangible assets
   
97.5
     
104.1
 
Total assets
   
911.0
     
910.6
 
 
               
Long-term debt
   
270.9
     
248.8
 
Other long-term obligations
   
68.5
     
69.4
 
Total equity
   
434.8
     
465.1
 

Non-cash working capital at September 30, 2013 increased 15.6%, or $43.0 million, as compared to the amount at December 31, 2012.  Approximately $7.0 of the increase was for reclassifying HBS’s long-lived assets to assets held for sale and $9.1 million was for reclassifying available-for-sale securities from non-current assets based on our current intentions for these securities.  The remaining increase in non-cash working capital was incurred to support the growth in our business.

Property, plant, equipment, and mineral rights and reserves decreased $40.0 million mainly due to a $52.3 million impairment of our South African chromite assets partially offset by expenditures we made, mostly in our energy services and performance materials segments, to grow and maintain those businesses.
Investment in and advances to affiliates and joint ventures increased $6.7 million and reflects an investment in Novinda Corporation that we made in January 2013.

Long-term debt increased $22.1 million as borrowings under our debt facilities increased to fund working capital, capital expenditures, and the Novinda investment noted previously.

Accumulated other comprehensive loss increased $21.0 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 rate between the USD and the AUD, the BRL, the PLN, the TRY, and the ZAR has fluctuated significantly, causing the majority of the change in this account.

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 2012.  Terms of any new facilities, especially interest rates or covenants, may be significantly different from those we currently have.

Approximately 92% of our cash and cash equivalents on our condensed consolidated balance sheet as of September 30, 2013, is held by our international subsidiaries.  Although the cash overseas is significantly less than the amounts these subsidiaries owe to our domestic subsidiaries, our foreign subsidiaries have cash needs which affect the ability to repatriate this cash.  Due to these liquidity needs, we consider our foreign earnings permanently reinvested and have not provided income taxes on approximately $90.4 million of foreign subsidiary earnings as of September 30, 2013.

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.

Nine Months Ended
 
Cash Flows
September 30,
 
($ in millions)
2013
 
2012
 
Net cash provided by operating activities
 
$
56.3
   
$
72.2
 
Net cash used in investing activities
   
(66.8
)
   
(50.6
)
Net cash provided by (used in) financing activities
   
9.6
     
(28.9
)

Cash flows from operating activities decreased from the prior year period as our investment in working capital increased.
Cash flows used in investing activities increased due to increased capital expenditures.  During the nine months ended September 30, 2013, the majority of our capital expenditures occurred in our energy services segment to support the growth in this segment.  We expect our capital expenditures in 2013 to exceed the levels experienced in recent years.  Our investment in Novinda Corporation resulted in a $5.0 million expenditure in 2013 and gave rise to the increase in investments in and advances (to) from affiliates and joint ventures.

Our cash flow from financing activities increased in the current year period as borrowings under our debt facilities increased to fund the working capital, capital expenditures, and the Novinda investment noted previously.  Long-term debt as a percentage of total capitalization increased 350 basis points to 38.4%.  Year-to-date dividends declared were $0.60 per share and $0.56 per share during the nine months ended September 30, 2013 and 2012, respectively.

We have approximately $156.6 million of borrowing capacity available from our revolving credit facility as of September 30, 2013.  We are in compliance with the financial covenants related to the revolving credit facility as of the end of the period covered by this report.

           We are party to a number of lawsuits arising in the normal course of business.   Our energy services segment is party to two lawsuits in Louisiana, one lawsuit alleges damages of $30 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, 2012 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, 2012 other than those discussed in Part 1, Item 2 of this report.

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.
Item 6 : Exhibits

Exhibit
Number
 
 
10.1
First Amendment to Credit Agreement dated as of October 22, 2013 by and among AMCOL International Corporation, certain wholly-owned AMCOL subsidiaries, BMO Harris Bank N.A., as administrative agent, and certain other financial institutions as lenders therein (1)
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 September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language):
 
(i)
Condensed Consolidated Balance Sheets at September 30, 2013, and December 31, 2012,
  (ii)
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012,
  (iii)
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2013 ,
  (iv)
Condensed Consolidated Statements of Changes in Equity for nine months ended September 30, 2013 and 2012,
  (v)
Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2013 and 2012, and
  (vi)
Notes to Condensed Consolidated Financial Statements.
 
(1)
Exhibit is incorporated by reference to the Company’s Form 8-K filed on October 25, 2013.


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:
November 8, 2013
 
   /s/ Ryan F. McKendrick
 
 
 
Ryan F. McKendrick
 
 
 
President and Chief Executive Officer
 
 
 
 
Date:
November 8, 2013
 
   /s/ Donald W. Pearson
 
 
 
Donald W. Pearson
 
 
 
Senior Vice President and Chief Financial Officer

INDEX TO EXHIBITS
 
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
Mine Safety Disclosures
101
The following information from our Quarterly Report on Form 10-Q for the period ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language):
 
(i)
Condensed Consolidated Balance Sheets at September 30, 2013, and December 31, 2012,
  (ii)
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012,
  (iii)
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2013 and 2012,
  (iv)
Condensed Consolidated Statements of Changes in Equity for nine months ended September 30, 2013 and 2012,
  (v)
Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2013 and 2012, and
  (vi)
Notes to Condensed Consolidated Financial Statements.
 
 
45
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