10-K 1 form10k.htm AMCOL INTERNATIONAL CORPORATION 10-K 12-31-2013

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑K
(Mark one)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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)
 
(I.R.S. Employer Identification No.)
2870 Forbs Avenue
Hoffman Estates, Illinois
 
 
60192
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (847) 851-1500
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class:
Name of Exchange on which registered:
$0.01 par value Common Stock
New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o   No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. 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.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” 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 Act).
Yes o   No x

The aggregate market value of the registrant’s $0.01 par value Common Stock held by non-affiliates of the registrant (based upon the per share closing price of $31.69 per share on June 28, 2013, and, for the purpose of this calculation only, the assumption that all of the registrant’s directors and executive officers are affiliates) was approximately $794.9 million.

Registrant had 32,525,203 shares of $0.01 par value Common Stock outstanding as of February 13, 2014.
 
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by reference into Part III hereof.
2

RECENT DEVELOPMENTS
 
On February 11, 2014, AMCOL International Corporation ("AMCOL", the "Company", or "we") entered into an Agreement and Plan of Merger (the "Merger Agreement") with Imerys SA, a corporation organized under the laws of France ("Imerys"), and Imerys Minerals Delaware, Inc., a Delaware corporation and an indirect wholly owned subsidiary of Imerys ("Purchaser").  Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Purchaser will commence a cash tender offer (the "Offer") to acquire all of the outstanding shares of our common stock (the "Shares") at a purchase price of $41.00 per Share, net to the seller in cash, without interest.

The obligation of the Purchaser to complete the Offer is subject to the condition that there be validly tendered in accordance with the terms of the Offer and not validly withdrawn prior to the expiration date of the Offer that number of Shares that, when added to the Shares then owned by Purchaser, would represent one Share more than one-half (1/2) of the sum of (i) all Shares then outstanding and (ii) all Shares that AMCOL may be required to issue upon the vesting (including vesting solely as a result of the consummation of the Offer), conversion, settlement or exercise of all then outstanding warrants, options, obligations or securities convertible or exchangeable into Shares, or other rights to acquire or be issued Shares (including all then outstanding options, restricted stock units and Shares subject to specified vesting criteria), regardless of the conversion or exercise price or other terms and conditions thereof. The completion of the Offer is also subject to the satisfaction of other customary conditions, including the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.  Completion of the Offer is not subject to any financing condition.

Pursuant to the Merger Agreement, as soon as practicable following the completion of the Offer, and subject to the satisfaction or waiver of the remaining conditions set forth in the Merger Agreement, Purchaser will be merged with and into AMCOL, with AMCOL continuing as the surviving corporation and an indirect wholly owned subsidiary of Imerys, pursuant to the procedure provided for under Section 251(h) of the Delaware General Corporation Law without any additional approval of AMCOL's stockholders (the "Merger").  At the effective time of the Merger, each Share issued and outstanding immediately prior to such effective time (other than (i) Shares then owned by AMCOL, Imerys or Purchaser and (ii) Shares that are held by any stockholder who properly demands appraisal in connection with the Merger) will cease to be issued and outstanding, will be canceled, will cease to exist and will be converted into the right to receive an amount in cash equal to the same amount in cash per Share that is paid pursuant to the Offer, without interest, less any applicable withholding taxes.

The Merger Agreement includes customary representations, warranties and covenants of AMCOL, Imerys and Purchaser.  AMCOL has agreed to operate its business in the ordinary course consistent with past practices until the effective time of the Merger, subject to customary exceptions.  AMCOL has also agreed to certain restrictions, subject to certain exceptions described in the Merger Agreement, on its ability to solicit, initiate or encourage discussions with third parties regarding other proposals to acquire AMCOL.

On February 24, 2014, AMCOL received an unsolicited proposal from Minerals Technologies, Inc. ("MTI") to acquire all of AMCOL's outstanding Shares at a price per Share of $42.50 in cash (the "MTI Proposal").   The MTI Proposal included a draft merger agreement and financing commitment letter.  The draft merger agreement provided that MTI could terminate the merger agreement if financing is unavailable to consummate the acquisition.  In such a circumstance, MTI would be obligated to pay AMCOL a $70 million reverse termination fee, but AMCOL would not have a right to seek specific performance to require MTI to complete the transaction.

In the morning of February 26, 2014, in response to the MTI Proposal, Imerys proposed to amend the Merger Agreement to increase the price to be paid in the Offer to $42.75 per Share, but otherwise leave all other terms of the Merger Agreement in place (the "Merger Agreement Amendment").  After comparing the relative merits of the MTI Proposal and the Merger Agreement Amendment during a meeting held in the afternoon of February 26, 2014, the AMCOL Board determined that the MTI Proposal was not superior to the Merger Agreement Amendment, found the Merger Agreement Amendment to be fair to and in the best interests of AMCOL's stockholders and approved the Merger Agreement Amendment.  Later on February 26, 2014, AMCOL, Imerys and Purchaser executed the Merger Agreement Amendment.

The foregoing description of the Merger Agreement and the Merger Agreement Amendment does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to AMCOL's current report on Form 8-K filed on February 12, 2014, and to the Merger Agreement Amendment, which is filed as Exhibit 2.1 to AMCOL's current report on Form 8-K filed on February 27, 2014, both of which are incorporated herein by reference.

Unless otherwise noted, all information in this Annual Report on Form 10-K is presented assuming the Company remains a stand-along going concern.
3

PART I

Item 1. Business

GENERAL
 
AMCOL International Corporation (together with its subsidiaries, “AMCOL,” “we,” “us” or “our”) is a leading international producer of specialty materials and related products and services for industrial and consumer markets.  AMCOL was originally incorporated in South Dakota in 1924, reincorporated in Delaware in 1959, and is listed on the New York Stock Exchange under the ticker symbol ACO.
 
We operate in five segments: performance materials, construction technologies, energy services, transportation and corporate. 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 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 revenues as well as certain expenses associated with research and development, management, employee benefits and information technology activities.
 
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.
 
The following table sets forth the percentage of our revenues generated from each segment for each of our last three fiscal years:

   
Percentage of Net Sales
 
 
 
2013
   
2012
   
2011
 
Performance materials
   
48
%
   
49
%
   
50
%
Construction technologies
   
22
%
   
23
%
   
27
%
Energy services
   
29
%
   
27
%
   
21
%
Transportation
   
4
%
   
5
%
   
6
%
Intersegment sales
   
-3
%
   
-4
%
   
-4
%
 
   
100
%
   
100
%
   
100
%
 
                          

Net revenues, operating profit, assets, depreciation, depletion and amortization, capital expenditures and research and development expenditures attributable to each of our segments are set forth in our Notes to Consolidated Financial Statements included later herein.
4

OUR SEGMENTS
 
Performance Materials Segment
 
Our performance materials segment is one of the world’s leading producers and suppliers of bentonite and bentonite-related products.  It also supplies chromite and leonardite, and operates more than 25 mining or production facilities worldwide.  We excel in transforming ordinary minerals and materials into valuable products, meeting the needs of our customers around the world.
 
Bentonite is a sedimentary deposit containing greater than 50% montmorillonite and is volcanic in origin. It is surface mined and then dried, crushed, sent through grinding mills where it is sized to customer requirements, and transferred to silos for automatic bagging or bulk shipment.  The processed bentonite may be chemically modified.  Bentonite’s unique chemical structure gives it a diverse range of capabilities, enabling it to act as a thickener, sealant, binder, lubricant or absorption agent.  From a commercial standpoint, there are two primary types of natural bentonite, sodium and calcium. Sodium-bentonite is characterized by its ability to absorb large amounts of water and form viscous, thixotropic suspensions. Calcium-bentonite, in contrast, is characterized by its low water absorption and swelling capabilities and its inability to stay suspended in water. Each type of bentonite has its own unique applications.
 
We mine chromite, an iron chromium oxide, from open cast mines in South Africa and transport it to our nearby processing facility.  There, the chromite ore is further crushed, milled, washed, and separated from impurities. We are improving our chromite production process to manufacture a wider range of precisely specified materials to provide value to our customers’ operations and efficiency.
 
We mine leonardite, a form of oxidized lignite, in North Dakota and transport it to our nearby processing facility.  Its primary uses include metalcasting, drilling fluid additive, and agricultural applications.
 
Our performance materials segment conducts its business through wholly-owned subsidiaries and investments in affiliates and joint ventures throughout the world.  It is comprised of four key product lines: metalcasting; specialty materials; basic minerals; and pet products. Our principal products are marketed under various registered trade names, including VOLCLAY®, PANTHER CREEK®, PREMIUM GEL®, ADDITROL®, ENERSOL®, and Hevi-Sand®.
 
Performance Materials Product Lines
 
Metalcasting: In the formation of sand molds for metalcastings, sand is bonded with minerals and various other additives to yield desired casting form and surface finish. Our metalcasting products include blended mineral binders containing sodium and calcium bentonite and organic additives sold under the trade name ADDITROL®. We employ a consultative sales process to sell custom-blended mineral and non-mineral products to strengthen sand molds for casting auto parts, farm and construction equipment, oil and gas production equipment, power generation turbine castings and rail car components. Our products help our customers in the foundry and casting industry to reduce waste from metalcasting defects, improve the efficiency and recycling of sand blends in mold sand systems, and improve air quality by reducing volatile organic compound emissions.
 
In the ferrous casting market, we specialize in blending bentonite of various grades by themselves or with mineral binders containing sodium bentonite, calcium bentonite, seacoal and other ingredients. We also have a line of formulated additives that introduce silicon and carbon in the melt phase of the casting process.
 
In the steel alloy casting market, we sell chromite products with a particle size distribution specific to customers’ needs. One of chromite’s qualities is its ability to conduct heat. Thus, we market the product for use in making very large, high integrity, steel alloy castings where the chromite is better suited to withstand the high heat and pressure associated with the casting process.
 
Specialty Materials:  Our specialty materials products contain bentonite and synthetic additives offering proprietary solutions for consumer and industrial applications.  Bio-agricultural and fabric care products are the main offerings in this product line.  We supply fabric care products and additives consisting of high-grade, agglomerated bentonite and other mineral additives that perform as softening agents in certain powdered-detergent formulations or act as a carrier for colorants and fragrances.  These fabric care products are not only cost-effective but also provide product development capabilities to adapt along with our customers’ requirements.
5

Basic Minerals: Our basic minerals product line supplies minerals to a variety of key markets and industrial applications, including the following:
 
Drilling Fluid Additives: Sodium bentonite and leonardite are components of certain drilling fluids used in oil and gas well drilling. Bentonite imparts thickening and suspension properties that facilitate the transport of rock cuttings to the surface during the drilling process. It also contributes to a drilling fluid’s ability to lubricate the drill bit and coat the underground formations to prevent hole collapse and drill-bit seizing.  We market our drilling fluid additives under our own and private-label trade names. At least two drilling fluid service competitors have captive bentonite operations while others are party to long-term bentonite supply agreements. The potential customers for our products, therefore, are generally limited to those service organizations that neither are vertically integrated nor have long-term supply arrangements with other bentonite producers.  Our primary trademark for this application is the trade name PREMIUM GEL®.
 
Ferro Alloys: A by-product of our chromite processing operations for foundry products includes a chromite ore which has physical properties suited for use in producing ferrochrome. The ore generally needs to have a chromite content in excess of 42% to meet metallurgical grade specifications. Manufacturers of stainless steel are the primary users of ferrochrome.
 
Other Industrial: We produce bentonite and bentonite blends for the construction industry to be used as a plasticizing agent in cement, and plaster and bricks. We also supply bentonite to help pelletize other materials for ease of use. Examples of this application include the pelletizing of iron ore.
 
Pet Products: Our pet products include sodium bentonite-based scoopable (clumping), traditional and alternative cat litters as well as specialty pet products sold to grocery and drug stores, mass merchandisers, wholesale clubs and pet specialty stores throughout the U.S. Our scoopable products’ clump-forming capability traps urine, thereby reducing waste by allowing for easy removal of only the odor-producing elements from the litter box.  We are primarily a private-label producer of cat litter, and our products are marketed under various trade names.  These products are sold mainly in the U.S. from three principal sites from which we package and distribute finished goods. Our transportation segment provides logistics services and is a key component of our capability in supplying customers on a national basis.
 
Sales and Distribution
 
In 2013, the top ten customers of our performance materials segment accounted for approximately 32% of this segment’s sales, with no individual customer accounting for greater than 10% of such sales.
 
The following table sets forth the percentage of the segment’s net sales generated from each product line in 2013:
 
Performance Materials Product Line
 
2013 Percentage of Net Sales
 
 
 
 
Metalcasting
   
55.2
%
Specialty materials
   
17.3
%
Basic minerals
   
13.1
%
Pet products
   
12.5
%
Other product lines
   
1.9
%
 
       
Total
   
100.0
%
 
       

6

The following table sets forth the percentage of the performance material segment’s 2013 net sales attributable to our different geographic regions:
 
Performance Materials
 
2013 Percentage of Net Sales by Region
 
 
 
 
Americas
   
52.8
%
EMEA(1)
   
22.9
%
Asia Pacific
   
24.3
%
 
       
 
   
100.0
%
(1) Europe, Middle East and Africa
       

Our performance materials segment sells products not only to third party customers but also to our other segments.  The sales to other segments, principally our construction technologies segment, relate to the sale of products within basic minerals line.  Bentonite is a material included within several products in our construction technologies segment, most notably within our environmental products.
 
Sales and distribution of products is conducted primarily by our own employees.  Our industry-specialized sales groups and technically-oriented sales persons serve each of our major markets.  Certain of our products are distributed through networks of distributors and representatives, who warehouse specific products at strategic locations.
 
We believe our strong, global market position in the metalcasting industry is largely due to our technical service capabilities and our distribution network. We provide training courses and laboratory testing for customers who use our products and blends in the metalcasting process. Our technical sales personnel provide expertise not only to educate our customers on the bentonite blend properties but also to aid them in producing castings efficiently and productively.
 
Seasonality
 
We do not consider our performance materials segment to be seasonal in nature.

Construction Technologies Segment
 
Our construction technologies segment serves customers engaged in a broad range of construction projects, including site remediation, concrete waterproofing for underground structures, liquid containment on projects ranging from landfills to flood control, and drilling applications including foundation, slurry wall, tunneling, water well, and horizontal drilling.
 
Our construction technologies segment conducts its business through wholly-owned subsidiaries and joint ventures throughout the world.  This segment is comprised of four key product lines: building materials; contracting services; drilling products; and environmental products.
 
Construction Technologies Product Lines
 
Environmental Products: We sell lining and other products for a variety of applications, most of which are directed to preserving or remediating environmental issues. We help customers protect ground water and soil through the sale of geosynthetic clay liner products containing bentonite. We market these products under the BENTOMAT® and CLAYMAX® trade names principally for lining and capping landfills, mine waste disposal sites, water and wastewater lagoons, secondary containments in tank farms, and other contaminated sites. We also provide associated geosynthetic materials for these applications, including geotextiles and drainage geocomposites.
7

Our environmental products also includes specialized technologies to mitigate vapor intrusion in new building construction. Our innovative vapor barrier systems prevent potentially harmful vapors from entering occupied space, thus facilitating low-risk redevelopment.  We also provide reactive capping technologies and solutions to effectively contain residual contamination, reduce costs associated with ex-situ remedies, and aid in environmental protection. Products offered include Liquid Boot®, a liquid applied vapor barrier system; REACTIVE CORE-MAT™, an in-situ sediment capping material; ORGANOCLAY®, which absorbs organic containments; and QUIK-SOLID®, a super absorbent media.
 
Building Materials: We offer a wide variety of active and passive waterproofing and greenroof technologies for use in protecting the building envelope of non-residential construction, including buildings, subways, and parkway systems.  Our products include VOLTEX®, a waterproofing composite comprised of two polypropylene geotextiles filled with sodium bentonite; ULTRASEAL®, an advanced membrane using a unique active polymer core; and COREFLEX®, featuring heat-welded seams for protection of critical infrastructure. In addition to these membrane materials, we also provide roofing products and a variety of sealants and other accessories required to create a functional waterproofing system.
 
Drilling Products: Our drilling products are used in environmental and geotechnical drilling applications, horizontal directional drilling, mineral exploration and foundation construction. The products are used to install monitoring wells, facilitate horizontal and water well drilling, and seal abandoned exploration drill holes. VOLCLAY GROUT™, HYDRAUL-EZ®, BENTOGROUT® and VOLCLAY TABLETS™ are among the trade names for products used in these applications. Ground source heat loop systems utilizing GEOTHERMAL GROUT™ represent a developing area for drilling products. We also offer a range of drilling products used in the excavation of foundations for large buildings, bridges and dams; these products include SHORE PAC® and PREMIUM GEL®.
 
Contracting Services: Contracting services, which involve installation of products, are occasionally offered to customers for select projects.
 
Sales and Distribution
 
On an individual customer basis, we generated less than $5 million of sales from each of the top five customers in the construction technologies segment.
 
The following table sets forth the percentage of our net sales generated from each product line in 2013:
 
Construction Technologies Product Line
 
2013 Percentage of Net Sales
 
 
 
 
Environmental products
   
42.3
%
Building materials
   
34.1
%
Drilling products
   
18.8
%
Contracting services
   
4.8
%
 
       
Total
   
100.0
%
 
       

The following table sets forth the percentage of our construction technologies segment’s 2013 net sales attributable to our different geographic regions:
 
Construction Technologies
 
2013 Percentage of Net Sales by Region
 
 
 
 
Americas
   
38.2
%
EMEA
   
44.1
%
Asia Pacific
   
17.7
%
 
       
 
   
100.0
%
 
       

8

Our building materials products are sold through our own sales professionals as well as through an integrated distributor and dealer network. The end-users of these products are generally building sub-contractors who are responsible for installing the products. These products include a long-term warranty in instances where we can control or monitor the installation of the final product on the job site.  Our sales and technical staff typically assist project designers by providing technical data to engineers and architects who specify our products in the design of building structures.
 
Our drilling products are generally sold through an extensive distribution network coordinated by our regional sales managers. The end customers for these products are typically small well drilling companies and general contractors.
 
Sales and distribution of our environmental products are primarily performed through our own personnel and facilities. Our staff includes sales professionals and technical support engineers who analyze the suitability of our products in relation to the customer’s specific application and the conditions that products will endure or the environment in which they will operate.
 
Seasonality
 
Most of the products in our construction technologies segment are impacted by weather and soil conditions. Many of the products cannot be applied in wet or winter weather conditions and, as such, sales and profits tend to be greater during the period from April through October. As a result, we consider the business of this segment to be seasonal.

Energy Services Segment
 
Our energy services segment provides services to improve the production, costs, compliance, and environmental impact of activities performed in the oil and gas industry.  We offer a range of patented and unpatented technologies, products and services for all phases of oil and gas production, transportation, refining, and storage throughout the world.  We provide both land-based and offshore water treatment, well testing, pipeline separation, nitrogen, coil tubing and other services to the oil and gas industry. We provide our services through subsidiaries located in Australia, Brazil, Malaysia, Nigeria, the United Kingdom, and the U.S., principally in the Gulf of Mexico and the surrounding on-shore area.
 
Principal Services  The following are the principal services we provide:
 
Water Treatment: We help customers comply with regulatory requirements by providing equipment, technologies, personnel and filtration media to treat waste water generated during oil production.
 
Coil Tubing:  Our coil tubing services utilize metal piping which comes spooled on a large reel.  We provide both equipment and operating personnel to perform services ranging from acid stimulation, reverse circulation, cementing, pressure control, nitrogen injection, and other operations that involve pumping fluids into a well.  Horizontal wells and shale completions are a large component of our operations.
 
Well Testing:  We provide equipment and personnel to help customers control well production as well as to clean up, unload, separate, measure component flow, and dispose of fluids from oil and gas wells.
 
Nitrogen Services:  Liquid nitrogen is commonly used in the pipeline, refinery, and oil and natural gas industry. By providing liquid nitrogen that is then changed into nitrogen gas with our personnel and mobile equipment, we help customers perform maintenance activities in a safe environment on their production platforms, pipeline operations, and refineries.  These services are provided in jetting wells that are loaded with fluid stimulating wells, including fracturizing and acidizing; displacing completion fluids prior to perforating; inflating flotation devices for offshore installations; and pressure testing and other maintenance activities.
 
Pipeline: Our personnel utilize engineered equipment that separates, filters, cleans and allows treatment of effluents arising from pipeline testing and maintenance activities.  
9

Sales and Distribution
 
The top ten customers in our energy services segment accounted for 44% of the segment sales worldwide in 2013, with Chevron Corporation accounting for 12% of this segment’s sales.  However, the composition of customers within this segment varies from year to year and is significantly dependent on the type of activities each customer is undertaking within the year, regulations, and overall dynamics of the oil and gas industry. Approximately 86% of sales are in the Americas. Our largest geographical market is the U.S., and more specifically the Gulf of Mexico region. Approximately 8% of sales are in the Asia-Pacific region and 6% are in EMEA.
 
Employees in this segment primarily sell our services on a direct basis. Our principal customers are companies who maintain substantial drilling and production operations for both oil and natural gas.
 
Seasonality
 
Much of the business in the energy services segment is impacted by weather conditions. Our business is concentrated in the Gulf of Mexico and surrounding states where our customers’ oil and gas production facilities are subject to natural disasters, such as hurricanes. Given this, our sales could be lower in the June to November months. It can also experience periods of growth after a hurricane as customers require our services to start their operations back up.

Transportation Segment
 
We operate a long-haul trucking business and a freight brokerage business primarily for delivery of finished products throughout the continental U.S. These services are provided to our subsidiaries as well as third-party customers. By having a captive transportation business, we are better able to control costs, maintain delivery schedules and assure equipment availability in the delivery of our products. In 2013, approximately 54% of the revenues of this operation involved domestic services provided to our performance materials and construction technologies segments.

MINERAL RESERVES AND MINING
 
Mineral Reserves
 
We have reserves of sodium and calcium bentonite at various locations in the U.S., including Wyoming, South Dakota, Montana and Alabama, as well as in Australia, China, and Turkey. Through our investments in affiliates and joint ventures, we also have access to bentonite deposits in Egypt, India, and Mexico. Assuming the continuation of our 2013 consumption rates and product mix, we have proven and probable, assigned reserves of commercially usable sodium bentonite for the next 36 years.  Under the same assumptions, we have proven and probable, assigned reserves of commercially usable calcium bentonite for the next 15 years. While we believe that our reserve estimates are reasonable and our title and mining rights to our reserves are valid, we have not obtained any independent verification of such reserve estimates or such title or mining rights.
 
We own or control the properties on which our reserves are located through long-term leases, royalty agreements (including easement and right of way agreements) and patented and unpatented mining claims. Forty-four percent of our reserves are owned. No single or group of mining claims or leases is significant or material to the financial condition or operations of our Company or our segments.
 
The majority of our current bentonite mining in the U.S. occurs on reserves where our rights to such reserves accrue to us through over eighty mining lease and royalty agreements and 2,000 mining claims. The majority of these are with private parties and located in Montana, South Dakota and Wyoming. The bentonite deposits underlying these claims and leases generally lie in parcels of land varying between 20 and 40 acres.
10

In general, our bentonite reserves are immediately adjacent to, or within sixty miles of, one of seven related processing plants. All of the properties on which our reserves are located are either physically accessible for the purposes of mining and hauling or the cost of obtaining physical access would not be material. Access to processing facilities from the mining areas is generally by private road, public highways, or railroads. For most of our leased property and mining claim, there are multiple means of access.
 
To retain possessory rights in unpatented mining claims in North America, a fee of $140 per year per 20 acres for each unpatented mining claim is required. The validity of title to unpatented mining claims is dependent upon numerous factual matters. We believe that the unpatented mining claims that we own are in compliance with all applicable federal, state and local mining laws, rules and regulations. We are not aware of any material conflicts with other parties concerning our claims. From time to time, members of Congress and members of the executive branch of the federal government have proposed amendments to existing federal mining laws. The various amendments would have had a prospective effect on mining operations on federal lands and include, among other things, the imposition of royalty fees on the mining of unpatented claims, the elimination or restructuring of the patent system and an increase in fees for the maintenance of unpatented claims. To the extent that future proposals may result in the imposition of royalty fees on unpatented lands, the mining of our unpatented claims may become uneconomic and royalty rates for privately leased lands may be affected. We cannot predict the effect any potential amendments may have or whether or when any such amendments might be adopted.
 
We maintain a continuous program of worldwide exploration for additional reserves and attempt to acquire reserves sufficient to replenish our consumption each year, but we cannot assure that additional reserves will continue to become available.
 
We oversee all of our mining operations, including our exploration activity and securing the necessary permits from appropriate government agencies.

11

The following table shows a summary of our mineral sales from active mining areas for the last 3 years in short tons, as well as mineral reserves by major mineral category.
 
    
Tons Sold (000s)
   
Wet Tons
   
Assigned
   
Unassigned
    
    
    
Mining Claims
 
     
2013
   
2012
   
2011
   
of Reserves
   
Reserves
   
Reserves
   
Conversion
   
Owned
   
Unpatented
   
Leased
 
                        
(000s)
   
(000s)
    
(000s)
   
Factor
          
**
         
Sodium Bentonite
 
   
   
                           
   
           
 
Assigned
   
  
   
 
   
 
                              
 
   
 
            
 
 
Australia
   
18
     
17
     
13
     
1,350
     
1,350
     
-
     
80
%
   
-
     
-
     
1,350
 
Belle/Colony, WY/SD
   
1,259
     
1,144
     
1,125
     
52,445
     
52,445
     
-
     
76
%
   
2,338
     
11,415
     
38,692
 
Lovell, WY
   
550
     
590
     
598
     
28,644
     
28,644
     
-
     
86
%
   
14,300
     
11,203
     
3,141
 
TOTAL ASSIGNED
   
1,827
     
1,751
     
1,736
     
82,439
     
82,439
     
-
             
16,638
     
22,618
     
43,183
 
 
                                                                               
Unassigned
                                                                               
SD, WY, MT
   
-
     
-
     
-
     
72,831
     
-
     
72,831
     
81
%
   
54,815
     
15,048
     
2,968
 
TOTAL UNASSIGNED
   
-
     
-
     
-
     
72,831
     
-
     
72,831
             
54,815
     
15,048
     
2,968
 
 
                                                                               
TOTAL SODIUM BENTONITE
   
1,827
     
1,751
     
1,736
     
155,270
     
82,439
     
72,831
             
71,453
     
37,666
     
46,151
 
  
                                   
53
%
   
47
%
           
46
%
   
24
%
   
30
%
Calcium Bentonite
                                                                               
Assigned
                                                                               
Chao Yang, Liaoning, China
   
400
     
374
     
351
     
1,393
     
1,393
     
-
     
78
%
   
-
     
-
     
1,393
 
Nevada
   
-
     
-
     
2
     
1,538
     
1,038
     
500
     
76
%
   
1,038
     
500
     
-
 
Sandy Ridge, AL
   
73
     
82
     
91
     
5,867
     
5,867
     
-
     
75
%
   
1,721
     
-
     
4,146
 
Turkey
   
125
     
160
     
140
     
3,483
     
3,483
     
-
     
77
%
   
-
     
-
     
3,483
 
TOTAL ASSIGNED
   
598
     
616
     
584
     
12,281
     
11,781
     
500
             
2,759
     
500
     
9,022
 
  
                                                                               
Unassigned
                                                                               
Vici, OK
   
-
     
-
     
-
     
99
     
-
     
99
     
76
%
   
-
     
-
     
99
 
TOTAL UNASSIGNED
   
-
     
-
     
-
     
99
     
-
     
99
             
-
     
-
     
99
 
 
                                                                               
TOTAL CALCIUM BENTONITE
   
598
     
616
     
584
     
12,380
     
11,781
     
599
             
2,759
     
500
     
9,121
 
 
                                   
95
%
   
5
%
           
22
%
   
4
%
   
74
%
Leonardite
                                                                               
 
                                                                               
Gascoyne, ND
   
52
     
50
     
52
     
2,427
     
2,427
     
-
     
73
%
   
-
     
1,740
     
687
 
 
                                   
100
%
                                   
28
%
Chromite
                                                                               
  
                                                                               
South Africa
   
183
     
145
     
121
     
4,174
     
4,174
     
-
     
75
%
   
4,174
     
-
     
-
 
Other
                                                                               
   
                                                                               
Nevada
   
-
     
-
     
-
     
2,997
     
-
     
2,997
     
80
%
           
-
     
2,997
 
    
                                                                               
GRAND TOTALS
   
2,660
     
2,562
     
2,493
     
177,248
     
100,821
     
76,427
             
78,386
     
39,906
     
58,956
 
 
                                   
57
%
   
43
%
           
44
%
   
23
%
   
33
%
**    Quantity of reserves that would be owned if patent was granted.
 
Assigned reserves are reserves which could be reasonably expected to be processed in existing plants. Unassigned reserves are reserves which will require additional expenditures for processing facilities. Conversion factor is the percentage of reserves that will be available for sale after processing. Our estimates of assigned and unassigned reserves in the above table require us to make certain key assumptions. These assumptions relate to consistency of clay beds in relation to drilling samples obtained with respect to both quantity and quality of reserves contained therein; the ratio of overburden to mineral deposits; any environmental or social impact of mining the minerals; and profitability of extracting those minerals, including haul distance to processing plants, applicability of minerals to various end markets and selling prices within those markets, and our past experiences in the mineral beds, several of which we have been operating in for over 80 years. We estimate that available supplies of other materials utilized in our performance materials business are sufficient to meet our production requirements for the foreseeable future.

12

Mining and Processing
 
Bentonite is surface mined, generally with large earthmoving scrapers, and then loaded into trucks and off-highway-haul wagons for movement to processing plants. The mining and hauling of our bentonite is done by us and by independent contractors.
 
At the processing plants, bentonite is dried, crushed and sent through grinding mills, where it is sized to customer requirements, then chemically modified where needed and transferred to silos for automatic bagging or bulk shipment. Most of the production is shipped as processed rather than stored for inventory.
 
Chromite is mined from open cast pits from our property in South Africa and transported to our nearby processing facility. In our facility, the ore is further crushed, milled, washed, and separated from impurities.
 
COMPETITION
 
We believe that we are one of the largest global producers of bentonite products. Our performance materials segment competes with our substantial domestic and international competition on the basis of product quality, price, logistics, service and technical support. There are numerous major producers of competing products and various regional suppliers in the areas we serve. Some of our competitors, especially in the chromite market, are companies primarily in other lines of business with substantially greater financial resources than ours.
 
Our lining technologies product line competes with geosynthetic clay liner manufacturers worldwide, several suppliers of alternative lining technologies, and providers of soil and environmental remediation solutions and products. The building materials product line competes in a highly fragmented market comprised of a wide variety of alternative technologies. A number of integrated bentonite companies compete with our drilling products. Competition for all product lines is based on product quality, service, price, technical support and product availability.
 
Our energy services segment competes with other oil and gas services companies. Several of these competitors have significantly more resources than we do and consequently may be better able to compete in periods of economic downturn, especially in terms of selling prices. However, we believe we offer several competitive advantages, especially in the area of water treatment services, due to superior and innovative technologies that we have developed internally and the combination of services that we can provide.
 
RESEARCH AND DEVELOPMENT
 
We have always placed a strong emphasis on product-oriented research and development relating to the identification of new technologies and new applications for our existing products to enhance the products and solutions we offer our customers.  Our research and development efforts emphasize markets with which we are familiar and products for which we believe there is a viable market.  We maintain research centers and laboratory testing facilities in Broussard, Louisiana; Hoffman Estates, Illinois; Birkenhead and Winsford, England; and Tianjin, China.  In 2013, 2012 and 2011 we spent $10.6 million, $8.4 million and $7.3 million, respectively, on our research and development programs.
 
INTELLECTUAL PROPERTY
 
We hold a number of U.S. and international patents, and we obtain patents on new technologies and applications when appropriate.  However, we do not believe that any one or any combination of such patents is material to our business as a whole.
13

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
 
Our operations are subject to a variety of national (including federal, state, and local) and international laws and regulations relating to environmental, health and safety (“EHS”) matters. Numerous governmental departments issue rules and regulations to implement and enforce such regulations that are often complex and costly to comply with and that carry substantial administrative, civil and possibly criminal penalties for noncompliance.  Under these evolving laws and regulations, we may be liable for remediation or removal costs, damages and other costs associated with releases of hazardous materials into the environment, and such liability may be imposed on us even if the acts that resulted in the releases were in compliance with all applicable laws at the time such acts were performed.  In particular, we are subject to certain requirements under the Clean Air Act. Our production processes involve the grinding and handling of dried clay, which generates dust. All of our plants are equipped with dust collection systems. We have not had, and do not presently anticipate, any significant regulatory problems in connection with our dust emission, though we expect ongoing expenditures for the maintenance of our dust collection systems and required annual fees. We have expended, and anticipate that we will continue to expend, financial and managerial resources to comply with EHS regulations.
 
We are also subject to land reclamation requirements.  Because reclamation of exhausted mining sites has been a regular component of our surface mining operations since 1973, maintaining compliance with current reclamation-related regulation has not materially affected our mining costs.  Our reclamation costs are included in the cost of the bentonite sold.
 
While the costs of compliance with, and penalties imposed under, these EHS laws historically have not had a material adverse effect on us, future events, such as changes in or modified interpretations of existing laws and regulations, enforcement policies, or further investigation or evaluation of potential health hazards of certain products, may give rise to additional compliance and other costs that could have a material adverse effect on us.
 
EXPORT SALES AND FOREIGN OPERATIONS
 
Approximately 40% of our 2013 net sales were generated in countries outside the Americas. Our foreign operations have typically comprised about a third of our income from continuing operations before income taxes, income from affiliates and joint-ventures, and non-controlling interests. However, in 2013, our foreign operations contributed losses as we recorded a $52.3 million impairment charge on our South African chromite assets.  Of our tons sold from our domestic mineral deposits in 2013, approximately 20% of these shipments were made to our sister companies and third party customers located outside the United States as compared to 24% and 17% in 2012 and 2011, respectively.
 
We maintain mineral processing plants in the United Kingdom, China, Australia, South Korea, Poland, Thailand, South Africa and Turkey. Chartered vessels deliver large quantities of our bulk, dried U.S. sodium bentonite to the plants outside the U.S. where it is processed and mixed with other clays and distributed throughout EMEA and the Asia-Pacific region. We manufacture geosynthetic clay liners in the United Kingdom, Spain, Poland, China, South Korea and India. These international operations provide a cost-effective means of supplying the EMEA and Asia-Pacific markets. In addition, we maintain a worldwide network of independent dealers, distributors, and representatives to support sales and distribution.
 
Our energy services segment maintains offices and operations centers in Australia, Brazil, Malaysia, Nigeria and Scotland to service customers in those local markets.
 
See Notes to our Consolidated Financial Statements included in Item 8 of this report for additional geographic data relating to our business.
 
EMPLOYEES
 
As of December 31, 2013, we employed 2,804 people in our global organization, 1,305 of whom were employed outside of the United States. Operating plants are adequately staffed, and no significant labor shortages are presently foreseen. Labor relations have been satisfactory.
14

AVAILABLE INFORMATION
 
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements and other information filed by the Company at the SEC’s Public Reference Room at 100 F. Street N.E., Washington, D.C., 20549. Please call (800) SEC-0330 for further information on the Public Reference Room. The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings are available to the public at this website, www.sec.gov.
 
Our principal Internet address is www.amcol.com. Our annual, quarterly and current reports, and amendments to those reports, are available free of charge on www.amcol.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 1A. Risk Factors

Certain statements we make from time to time, including statements in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section hereafter, constitute “forward-looking statements” made in reliance upon the safe harbor contained in Section 21E of the Securities Exchange Act of 1934, as amended.  Such forward-looking statements include statements relating to 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, acquisitions, levels of capital expenditures, future dividends, expansion into global markets and the development of new products.  Such forward-looking statements speak only as of the date hereof and 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.  We undertake no duty to update any forward-looking statements to conform the statements to actual results or changes in our expectations.

A number of risks will challenge us in meeting our long-term profit and strategic objectives, and there can be no assurance that we will achieve success in implementing any one or more of them.  Specifically, the risks outlined below could affect the achievement of our expected results.  In addition, political, economic, or credit crises occur from time to time in our geographic markets, and these crises could affect or heighten the risks outlined below, especially with regard to our reliance on key industries, the volatility of our stock price, and increased exchange rate sensitivity.  Any credit crisis may also affect our ability to obtain capital or finance acquisitions or other activities on terms substantially similar to our current debt facilities should that need arise in the future.  Any of these factors or the risks outlined below could affect our business opportunities and results:
 
Risks Related to the Imerys Transaction:

The Company is subject to certain risks relating to the proposed Imerys transaction, including, but not limited to, those set forth below.

The Imerys transaction is subject to a number of conditions and termination events which if not satisfied or waived would adversely impact the ability to complete the transaction

Completion of the Imerys transaction is subject to the satisfaction or waiver of various conditions, including the receipt of approval from certain regulatory authorities, as well as the absence of any event, change or other circumstances that would give rise to the termination of the Merger Agreement. There can be no assurance that all of the various conditions will be satisfied or waived or that a termination event will not transpire. Further, there can be no assurance as to whether they will be satisfied or waived. Therefore, there can be no assurance as to whether, or when, the Imerys transaction will be completed.

15

The outcome of legal proceedings that have been instituted or may be instituted in the future against the Company in connection with the Imerys transaction could have a material adverse effect on the Company's business and results of operations

Since the announcement of the Imerys transaction, several lawsuits have been filed in which the Company and its directors, among others, have been named as defendants.  These lawsuits allege that AMCOL's directors breached their fiduciary duties in connection with the negotiation, consideration and approval of the Merger Agreement by, among other things, agreeing to sell AMCOL for inadequate consideration and on otherwise inappropriate terms.  The complaints allege that Imerys, and in certain cases AMCOL, aided and abetted the alleged breaches of fiduciary duty by AMCOL's directors.  Based on these allegations, the lawsuits, among other relief, seek certain injunctive relief, including the enjoining of the Imerys transaction, and damages.  The lawsuits also seek recovery of the costs of the actions, including attorneys' fees.

AMCOL expects that additional stockholder class action complaints, or amendments to the existing complaints, may be filed with respect to the Imerys transaction.

The pending acquisition of the Company by Imerys could have a material adverse effect on the Company's business

The announcement and pending nature of the Imerys transaction, and the possibility that additional competing offers or acquisition proposals may be made, could cause disruptions in the Company's business, including affecting its relationships with customers, vendors and employees and diverting the attention of its management team, which could have an adverse effect on the Company's business, financial results and operations. Further, the Imerys Merger Agreement includes certain restrictions on the Company's freedom to operate its business prior to the closing of the transaction, which could have a material adverse effect on the Company's ability to pursue certain activities that it might otherwise view as advisable.

The failure to complete the Imerys transaction could have a material adverse effect on the Company's business

There is no assurance that the Imerys transaction will be consummated. If the proposed transaction or a similar transaction is not completed, the share price of the Company's common stock may drop to the extent that the current market price of the common stock reflects an assumption that a transaction will be completed. In addition, the Company has incurred certain costs related to the Imerys transaction that are payable whether or not the transaction is completed, including legal, accounting, financial advisor and printing fees and, under circumstances defined in the Imerys Merger Agreement, the Company may be required to pay a termination fee of $39 million. Further, a failed transaction may result in negative publicity and a negative impression of the Company in the investment community.  There can be no assurance that the Company's business, relationships or financial condition will not be adversely affected in a material way if the transaction is not consummated.

Risks Related to the Company's Business and Operations:
 
Reliance on Metalcasting & Construction Markets

Approximately 55% of our performance materials segment’s sales in 2013 were to the metalcasting market.  Our construction technologies segment’s sales are predominantly derived from the commercial construction and infrastructure markets.  All of these markets depend heavily upon the strength of the domestic and international economies. If these economies weaken, demand for our products sold to these markets may decline and our business or future financial results may be adversely affected.

Susceptibility to Oil and Natural Gas Markets
 
Revenues from our energy services segment in 2013 represent 29% of consolidated revenues.  Oil and natural gas production activities are heavily influenced by the benchmark price of these commodities, which can be influenced by both economic and political events and, in turn, affect our customers’ demand for our products and services.  Thus, the benchmark prices of oil and natural gas may ultimately affect the performance of this segment.
 
In addition, oil and natural gas exploration and production activities depend heavily on the location of these natural resources within the earth’s geology and geographic location as well as technologies available to profitably extract them.  For example, the recent application of horizontal drilling technologies allow oil and natural gas production companies to extract significantly greater amounts of oil and natural gas in geological deposits located in areas where we currently do not have a significant presence.  Thus, the performance of our energy services segment is affected by changes in technologies, locations of customers’ targeted reserves, and competition in various geographic markets.
16

Sensitivity to Energy and Petroleum Related Products

We purchase a significant amount of raw materials which are derived from petrochemical products.  Our production processes also consume a significant amount of energy, primarily electricity, diesel fuel, natural gas and coal.  We use diesel fuel to operate our mining and processing equipment and our freight costs are heavily dependent upon fuel prices and surcharges.
 
On a combined basis, these factors represent a large exposure to petrochemical and energy products which may be subject to significant price fluctuations.  While we have been successful in attaining price increases in certain markets to offset some of these rising costs, there can be no assurance that we will be successful in continuing to achieve these price increases or protecting our margins.

Availability and Cost of Shipping

We rely on shipping bulk cargos of bentonite from the United States, Turkey and China to customers, as well as our own subsidiaries, and we are sensitive to our ability to recover these shipping costs.  In the last few years, bulk cargo shipping rates have been very volatile, and, to a lesser extent, the availability of bulk cargo containers has been suspect.  If we cannot secure our container requirements or offset additional shipping costs with price increases to customers, our profitability could be impacted.

Seasonality of Our Energy Services and Construction Technologies Segments

Our energy services and construction technologies segments are affected by seasonal weather patterns.  A majority of our energy services revenues are derived from the Gulf of Mexico and surrounding states, which are susceptible to hurricanes that typically occur June 1st through November 30th.  In addition, it is affected by customers’ demands for natural gas.  Natural gas is affected by weather patterns as colder winters increase the demand for natural gas to heat homes and warmer summers increase the demand for natural gas to fuel generators providing electricity to run air conditioners.  Actual or threatened hurricanes or changes in the demand for natural gas can result in volatile demand for services provided by our energy services segment.

Our construction technologies segment is affected by weather patterns which determine the feasibility of construction activities.  Typically, less construction activity occurs in winter months and thus this segment’s revenues tend to be greatest in the second and third quarters when weather patterns in our geographic markets are more conducive to construction activities.

Cyclicality of Our Segments

All of our segments are affected by economic cycles.  During periods of economic slowdown, our customers often reduce their capital expenditures and defer or cancel pending projects.  Such developments occur even amongst customers that are not experiencing financial difficulties.  These risks are more predominant in our construction technologies and performance materials segments.

In our construction technologies segment, the construction and infrastructure markets are heavily dependent upon the strength of domestic and international economies.  In our performance materials segment, the metalcasting market is dependent upon the demand for castings for automobile components, farm and construction equipment, oil and gas production equipment, power generation turbine castings, and rail car components.  Many of these types of equipment are sensitive to fluctuations in demand during periods of recession or tough economies, which ultimately may affect the demand for our construction technologies and performance materials segments’ products and services.
17

In periods of lower economic productivity or recession, oil and natural gas prices tend to decrease, which in turn causes exploration companies to reduce their capital expenditures and production and exploration activities.  This has the effect of decreasing the demand and increasing competition for the services that our energy services segment provides.

Risks of International Expansion & Operation

An important part of our business strategy is to expand internationally by establishing a presence in new markets when possible or through acquisitions, joint ventures or other strategic alliances.  Sales and earnings from our overseas operations have increased considerably in recent years and comprise a significant portion of our financial results, including our joint ventures.  As we expand and operate internationally, we will be subject to a myriad of risks, especially in less developed countries whose economies may increase at rates faster than more developed nations.  These risks relate to currency exchange rates, political and economic environments, business and trade laws, and regulatory and compliance issues.  Many of these risks are beyond our control and can lead to sudden, and potentially prolonged, changes in demand for our products, difficulty in enforcing agreements, losses in the realizability of our assets, or fluctuations in our earnings due to the impact from our joint ventures.

Regulatory and Legal Matters

Our operations are subject to various federal, state, local and foreign laws and regulations, including those related to EHS matters.  Substantial penalties may be imposed if we violate certain of these laws and regulations, even if the violation was inadvertent or unintentional.  If these laws or regulations are changed or interpreted differently in the future, it may become more difficult or expensive for us to comply.  In addition, investigations or evaluations of our products by government agencies may require us to adopt additional safety measures or precautions.  If our costs to comply with such laws and regulations in the future materially increase, our business and future financial results could be materially and adversely affected.  We may also be subject to adverse litigation results in addition to increased compliance costs arising from future changes in laws and regulations that may negatively impact our operations and profits.  Last, certain of our customers are subject to various federal and foreign laws and regulations relating to environmental and health and safety matters, especially our energy services customers who are subject to drilling permits, waste water disposal and other regulations.  To the extent that these laws and regulations affecting our customers change, demand for our products and services could also change and thereby affect our financial results.

Ability to Complete, Integrate & Finance Acquisitions

Our business strategy includes pursuing acquisitions of complementary businesses, through either our own wholly-owned subsidiaries or our investments in affiliates and joint ventures.  The success of any future acquisitions or investments will be dependent upon our ability to locate attractive businesses at a reasonable price and our ability to successfully integrate them into our existing operations.

In addition, we have typically financed our acquisitions and investments with debt available to us under our various credit facilities and our ability to issue new debt.  We may or may not be able to secure such debt financing on terms substantially similar to our current facilities.  In the future, we may even decide to pay all or a portion of the purchase price of any future acquisition or investment with shares of our common stock.  If we use our common stock in this way, the price of our stock may decrease.

Ability to Pay Dividends

We currently declare and pay regular cash dividends on our common stock.  Any future payment of cash dividends will depend upon our financial condition, earnings, legal requirements, restrictions in our debt agreements and other factors deemed relevant by our board of directors.  Our board of directors may decrease or discontinue payment of dividends at any time.

18

Impact of Competition

Our businesses have many competitors, some of whom are larger and have more resources than we do.  We also face competition for some of our products from alternative products, and some of the competition we face comes from competitors in lower-cost production countries like China and India.  Many factors could change the level of competition we face in our markets, which could result in decreased demand for our products and services and negatively affect our financial performance.

Item 1B. Unresolved Staff Comments

We have received no written comments regarding our periodic or current reports from the staff of the SEC that were issued 180 days or more preceding the end of our 2013 fiscal year and that remain unresolved.

19

Item 2. Properties

We operate the following principal plants, mines and other facilities, all of which are owned, except as noted below.  We also have numerous other facilities which blend ADDITROL ®, package cat litter and chromite sand, warehouse products and serve as sales offices.

LOCATION
PRINCIPAL FUNCTION
PERFORMANCE MATERIALS
 
Colony, WY (two plants)
Mine and manufacture sodium bentonite, package cat litter
Lovell, WY (1)
Mine and manufacture sodium bentonite
Sandy Ridge, AL
Mine and manufacture calcium bentonite; blend ADDITROL®
Chao Yang, Liaoning, China
Mine and manufacture calcium bentonite
Enez, Turkey
Mine and manufacture calcium bentonite
Laemchabang, Thailand
Manufacture sodium and calcium bentonite and laundry care products
Ruighoek Farm, Northwest Province, South Africa
Mine and manufacture chromite ore
Yangbuk-Myeun, Kyeung-buk, South Korea
Manufacture metalcasting products
Tianjin, China
Manufacture metalcasting and laundry care products
Winsford, Cheshire, U.K.
Manufacture bentonite,  other minerals, and laundry care products
CONSTRUCTION TECHNOLOGIES
 
Cartersville, GA
Manufacture components for geosynthetic clay liners; manufacture Bentomat® and Claymax® geosynthetic clay liners; manufactures other building materials products
Lovell, WY (1)
Manufacture Bentomat® and Claymax® geosynthetic clay liners and other building materials products
Birkenhead, Merseyside, U.K. (1)(2)
Manufacture Bentomat® geosynthetic clay liner; research laboratory; headquarters for CETCO (Europe) Ltd.
Cheste, Spain
Manufacture Bentomat® geosynthetic clay liners
Suzhou, China
Center for China operations; manufactures lining and waterproofing products for China and greater Asian markets
Szczytno, Poland
Manufacture Bentomat® and Claymax® geosynthetic clay liners
ENERGY SERVICES
   
Beckville, TX (2)
Well testing services
Broussard, LA (2)
Central operations and distribution
Covington, LA (2)
Energy Services headquarters
Driscoll, TX (2)
Coil tubing services
Harvey, LA (2)
Nitrogen sales and service
Kenamen, Malaysia (2)
Filtration services and sales
New Iberia, LA (2)
Coil tubing services
Springtown, TX (2)
Well testing services
TRANSPORTATION
 
Scottsbluff, NE
Transportation headquarters and terminal
CORPORATE
 
Hoffman Estates, IL (2)
Corporate headquarters; Construction Technologies headquarters; Performance Materials headquarters; research laboratory
 
 
(1)  Shared facilities between performance materials and construction technologies segments.
(2)  Certain offices and facilities are leased.

We consider our plants in the Western U.S. to be of strategic importance given their production capacity, products manufactured, and proximity to our mineral reserves.  All of our pet products are manufactured either in our Lovell, WY plant or one of our Colony, WY plants given their granularization capabilities and the fact that their location provides freight cost savings to key customers.  Our Sandy Ridge, AL facility supplies calcium bentonite to our U.S. blending plants as an ingredient for production of ADDITROL®.  The blending plants have collective importance since they produce customized products for metalcasting customers.
20

Item 3. Legal Proceedings

AMCOL is the subject of various pending or threatened legal actions in the ordinary course of its business.

Litigation Related to the Imerys Transaction

On or about February 18, 2014, Hilary Coyne filed a purported class action complaint on behalf of herself and all other similarly situated stockholders of AMCOL in the Circuit Court of Cook County, Illinois, Chancery Division (Hilary Coyne v. AMCOL International Corporation, John Hughes, Ryan McKendrick, Audrey L. Weaver, Paul C. Weaver, Jay D. Proops, Donald J. Gallagher, William H. Schumann III, Clarence O. Redman, Daniel P. Casey, Frederick J. Palensky, Dale E. Stahl, Imerys S.A., and Imerys Minerals Delaware, Inc., Case No. 2014 CH02849).

On or about February 24, 2014, a second AMCOL stockholder filed a complaint in the Circuit Court of Cook County, Illinois, Chancery Division, on behalf of the same purported class of AMCOL stockholders and against the same defendants as the first case as well as a former AMCOL director (City of Monroe Employees' Retirement System, individually and on behalf of all others similarly situated v. AMCOL International Corporation, Imerys S.A., Imerys Minerals Delaware, Inc., John Hughes, Ryan McKendrick, Arthur Brown, Daniel P. Casey, Frederick J. Palensky, Jay D. Proops, Clarence O. Redman, Dale E. Stahl,  Audrey L. Weaver, Paul C. Weaver, Donald J. Gallagher, William H. Schumann III, Case No. 2014 CH03236).

On or about February 21, 2014, Benjamin Halberstam, on behalf of himself and all other similarly situated AMCOL stockholders, filed a purported class action complaint in the Court of Chancery of the State of Delaware  against the same defendants in the Coyne case (Benjamin Halberstam v. AMCOL International Corporation, John Hughes, Ryan F. McKendrick, Daniel P. Casey, Frederick J. Palensky, Jay D. Proops, Clarence O. Redman, Dale E. Stahl, Audrey L. Weaver, Paul C. Weaver, Donald J. Gallagher, William H. Schumann III, Imerys S.A., and Imerys Minerals Delaware, Inc., Case No. 9381)

All three lawsuits allege, among other things, that AMCOL's directors breached their fiduciary duties in connection with the negotiation, consideration and approval of the Imerys Merger Agreement by, among other things, agreeing to sell AMCOL for inadequate consideration and on otherwise inappropriate terms.  The complaints allege that Imerys, and in certain cases AMCOL, aided and abetted the alleged breaches of fiduciary duty by the AMCOL directors.  Based on these allegations, the lawsuits, among other relief, seek certain injunctive relief, including the enjoining of the Imerys Transaction, and damages. The lawsuits also seek recovery of the costs of the actions, including attorneys' fees.

AMCOL expects that additional stockholder class action complaints, or amendments to the existing complaints, may be filed with respect to the Imerys Transaction.

Armada Litigation

On May 8, 2013, Armada (Singapore) PTE Limited, an ocean shipping company now in bankruptcy ("Armada") filed a case in federal court in the Northern District of Illinois against AMCOL and certain of its subsidiaries (Armada (Singapore) PTE Limited v. AMCOL International Corp., et al., United States District Court for the Northern District of Illinois, Case No. 13 CV 3455).  A co-defendant is Ashapura Minechem Limited, a company located in Mumbai, India ("AML").  During the relevant time period, 2008-2010, AMCOL owned slightly over 20% of the outstanding AML stock through December 2009, after which it owned approximately 19%.  In 2008, AML entered into two contracts of affreightment ("COA") with Armada for over 60 ship loads of bauxite from India to China.  After one shipment, AML made no further shipments which led Armada to file arbitrations in London, one for each COA.  AML did not appear in the London arbitrations and default awards of approximately $70 million were entered.  The litigation filed by Armada against AMCOL and AML relates to these awards, which AML has not paid.  The substance of the allegations by Armada is that AML and AMCOL engaged in illegal conduct to thwart Armada's efforts to collect the arbitration award.  The counts in the complaint include both violations of the Illinois Fraudulent Transfer laws as well as federal RICO violations. The lawsuit seeks money damages as well injunctive relief.  The litigation is now entering the discovery phase. Fact discovery and expert discovery is currently scheduled to last through June 12, 2015.
 
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-K.

21

Executive Officers of Registrant

NAME
AGE
PRINCIPAL OCCUPATION FOR LAST FIVE YEARS
   
James W. Ashley
64
Vice President and General Counsel of the Company since January 2012; prior thereto, Partner at Locke Lord LLP since 2008; prior thereto, Partner at Lord Bissell & Brook LLP.
   
Patrick E. Carpenter
50
Vice President of the Company and President of the construction technologies segment since January 2012; prior thereto, Vice President of Business Development of Colloid Environmental Technologies Company from January 2010 through December 2011, and its Vice President of Construction Materials from January 2007 through December 2009.
   
Gary L. Castagna
52
Executive Vice President and Chief Operating Officer of the Company since January 2014;  prior thereto, Senior Vice President of the Company and President of our performance materials segment since May 2008; prior thereto, Senior Vice President, Chief Financial Officer and Treasurer of the Company since February 2001; prior thereto, a consultant to AMCOL since June 2000;  prior thereto, Vice President of the Company and President of Chemdal International Corporation (this business is a former subsidiary of AMCOL, and consisted of the absorbent polymers business that was sold to BASF AG in June 2000) since August 1997;  since January 2000, Director of M~Wave Incorporated, a manufacturer and distributor of printed circuit boards.
   
Michael R. Johnson
55
Senior Vice President of the Company since January 2010; President of the energy services segment since 2003; prior thereto, Vice President of CETCO Oilfield Services since 2000.
   
Ryan F. McKendrick
62
Chief Executive Officer of the Company since January 1, 2011; prior thereto, Chief Operating Officer of the Company since January 1, 2010; prior thereto, Senior Vice President of the Company and President of our environmental segment since November 1998; and President of Volclay International Corporation  since 2002.
   
Donald W. Pearson
52
Senior Vice President, Chief Financial Officer and Treasurer of the Company since May 2008; prior thereto, Vice President Finance, UPM - Kymmene Corporation North America (a large forest products company), May 2006 through May 2008; Financial Controller UPM - Kymmene Corporation North America, February 2004 through May 2006; prior thereto, Senior Vice President, Business Planning, Information Resources, Inc. (an information services provider), August 2000 through February 2004.
 
All executive officers of the Company are elected annually by the Board of Directors for a term expiring at the annual meeting of directors following their election or when their respective successors are elected and shall have qualified.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock trades on the New York Stock Exchange under the symbol “ACO.”  The following table sets forth, for the periods indicated, the high and low sale prices of the common stock, as reported by the New York Stock Exchange, and cash dividends declared per share.
22

 
  
 
Stock Price
   
Cash Dividends
 
 
 
 
High
   
Low
   
Declared Per Share
 
 
1st Quarter
 
$
33.89
   
$
28.68
   
$
0.20
 
Fiscal Year Ended December 31, 2013:
2nd Quarter
   
32.92
     
27.59
     
0.20
 
 
3rd Quarter
   
37.05
     
31.61
     
0.20
 
 
4th Quarter
   
34.51
     
29.48
     
0.20
 
 
 
                       
 
1st Quarter
 
$
30.96
   
$
25.93
   
$
0.18
 
Fiscal Year Ended December 31, 2012:
2nd Quarter
   
34.27
     
26.63
     
0.18
 
 
3rd Quarter
   
36.23
     
27.70
     
0.20
 
 
4th Quarter
   
34.68
     
28.26
     
0.20
 
 
We have paid cash dividends every year since 1938.  As of February 10, 2014, there were approximately 10,663 holders of record of the common stock, including shares held in street name.
 
Purchases of Equity Securities

We did not repurchase any of our outstanding common stock in 2013.

Equity Compensation Plan Information

The following table summarizes information about our equity compensation plans as of December 31, 2013. All outstanding awards relate to our common stock. Shares issued under all of the following plans may be from the Company’s treasury, newly issued or both.
 
Plan category
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the first
column)
 
Equity compensation plans approved by security holders
   
1,601,801
(1)
 
$
26.99
(2)
   
795,852
(3)
Equity compensation plans not approved by security holders
   
N/A
 
   
N/A
 
   
N/A
 
Total
   
1,601,801
(1)
 
$
26.99
(2)    
795,852
(3)

(1)            Includes stock options, stock settled appreciation rights, restricted stock awards, and restricted stock units issued and outstanding under the following AMCOL plans: 2006 Long-Term Incentive Plan; and 2010 Long-Term Incentive Plan.
 
(2)            Does not include restricted stock awards and restricted stock units.
 
(3)            Subject to issuance pursuant to our 2010 Long-Term Incentive Plan.

23

Performance Graph

The graph below sets forth a comparison of cumulative total shareholder returns for the past five years for: (i) our stock as traded on the NYSE, (ii) the S&P SmallCap600 Index, and (iii) a custom peer group of publicly traded companies selected in good faith by us (the “Peer Group”).  The graph assumes that $100 was invested at the close of business on December 31, 2008.  All returns were calculated assuming dividend reinvestment on a quarterly basis.  The returns of each company in the Peer Group have been weighted according to market capitalization.  We believe the Peer Group is representative of companies whose businesses, sales sizes, market capitalization and stock trading volumes are similar to AMCOL.  The Peer Group consists of the following companies:  Compass Minerals International, Inc., Dycom Industries, Inc., Lufkin Industries, Inc. (included through 07/01/2013 when it was acquired by General Electric), Martin Marietta Materials Inc., Minerals Technologies Inc., Oil-Dri Corporation, Rockwood Holdings Inc., RPM International Inc., and Superior Energy Services Inc.
 

 
INDEXED RETURNS Years Ending
 
    
    
 
 
    
  
 
 
 
  
 
  
 
Base Period
 
 
 
 
 
 
Company Name / Index
   
12/2008
     
12/2009
     
12/2010
     
12/2011
     
12/2012
     
12/2013
 
AMCOL International Corporation
   
100
     
140.89
     
157.89
     
140.00
     
164.12
     
186.38
 
S&P SmallCap 600 Index
   
100
     
125.57
     
158.60
     
160.22
     
186.37
     
263.37
 
Peer Group
   
100
     
131.43
     
172.05
     
161.72
     
183.24
     
243.25
 

24

Item 6. Selected Financial Data

The following is selected financial data for the Company for each of the below annual periods ending December 31st.

SUMMARY OF OPERATIONS
(In millions, except ratios and share and per share amounts)

 
2013
   
2012
   
2011
   
2010
   
2009
 
Operations Data
  
   
 
   
 
   
 
   
 
 
Net sales
 
$
1,012.7
   
$
967.4
   
$
926.3
   
$
809.4
   
$
672.4
 
Gross profit
   
215.6
     
265.5
     
247.5
     
214.7
     
179.1
 
Selling, general and administrative  expenses
   
179.8
     
167.7
     
161.5
     
139.6
     
130.2
 
Operating profit
   
35.8
     
97.8
     
86.0
     
75.1
     
48.9
 
Net interest expense
   
(10.3
)
   
(10.4
)
   
(11.0
)
   
(9.6
)
   
(12.0
)
Net other income (expense)
   
(2.8
)
   
(3.4
)
   
0.3
     
1.5
     
0.2
 
Gain on sale of available-for-sale securities
   
12.6
     
-
     
-
     
-
     
-
 
Pretax income
   
35.3
     
84.0
     
75.3
     
67.0
     
37.1
 
Income taxes
   
11.0
     
23.3
     
20.8
     
22.7
     
5.5
 
Income (loss) from affiliates and joint ventures
   
3.2
     
3.9
     
5.2
     
(11.0
)
   
-
 
Income from continuing operations
   
27.5
     
64.6
     
59.7
     
33.3
     
31.6
 
Discontinued operations
   
(4.2
)
   
0.3
     
(1.2
)
   
(4.8
)
   
0.3
 
Net income
   
23.3
     
64.9
     
58.5
     
28.5
     
31.9
 
Net income (loss) attributable to noncontrolling interests
   
(6.9
)
   
(0.2
)
   
-
     
(0.7
)
   
(0.1
)
Net income attributable to AMCOL shareholders
   
30.2
     
65.1
     
58.5
     
29.2
     
32.0
 
Per Share Data
                                       
Basic earnings (loss) per share attributable to AMCOL shareholders
    
 
Continuing operations
   
1.06
     
2.03
     
1.88
     
1.09
     
1.04
 
Discontinued operations
   
(0.13
)
   
0.01
     
(0.04
)
   
(0.15
)
   
0.01
 
Net income
   
0.93
     
2.04
     
1.84
     
0.94
     
1.05
 
Diluted earnings (loss) per share attributable to AMCOL shareholders
     
 
Continuing operations
   
1.05
     
2.00
     
1.86
     
1.08
     
1.02
 
Discontinued operations
   
(0.13
)
   
0.01
     
(0.04
)
   
(0.15
)
   
0.01
 
Net income
   
0.92
     
2.01
     
1.82
     
0.93
     
1.03
 
Dividends
   
0.80
     
0.76
     
0.72
     
0.72
     
0.72
 

Continued…

25

SUMMARY OF OPERATIONS
(In millions, except ratios and share and per share amounts)

 
 
2013
   
2012
   
2011
   
2010
   
2009
 
Shares Outstanding Data
    
 
     
 
       
 
      
 
     
 
  
End of period
   
32,468,752
     
32,184,110
     
31,728,969
     
31,032,791
     
30,773,908
 
Weighted average for the period-basic
   
32,463,634
     
32,050,538
     
31,708,949
     
31,178,813
     
30,764,282
 
Incremental impact of stock equivalents
   
303,319
     
347,827
     
436,824
     
368,778
     
269,432
 
Weighted average for the period-diluted
   
32,766,953
     
32,398,365
     
32,145,773
     
31,547,591
     
31,033,714
 
Balance Sheet Data (at end of period)
                                       
Current assets
 
$
460.5
   
$
429.5
   
$
406.5
   
$
355.1
   
$
293.1
 
Net property and equipment
   
263.6
     
301.9
     
273.5
     
271.7
     
248.3
 
Other long-term assets
   
154.6
     
179.2
     
169.1
     
180.5
     
205.4
 
Total assets
   
878.7
     
910.6
     
849.1
     
807.3
     
746.8
 
Current liabilities
   
121.0
     
114.5
     
118.0
     
112.5
     
92.1
 
Long-term debt
   
249.1
     
248.8
     
260.7
     
235.7
     
207.0
 
Other long-term liabilities
   
62.1
     
82.2
     
75.5
     
65.0
     
72.2
 
Total equity
   
446.5
     
465.1
     
394.9
     
394.1
     
375.5
 
Other Statistics for Continuing  Operations
                                       
Depreciation, depletion and amortization
 
$
49.7
   
$
45.3
   
$
42.1
   
$
36.3
   
$
36.7
 
Capital expenditures
   
87.7
     
74.5
     
61.0
     
47.3
     
50.7
 
Capital expenditures - corporate building
   
-
     
-
     
-
     
-
     
9.7
 
Gross profit margin
   
21.3
%
   
27.4
%
   
26.7
%
   
26.5
%
   
26.6
%
Operating profit  margin
   
3.5
%
   
10.1
%
   
9.3
%
   
9.3
%
   
7.3
%
Pretax profit margin
   
3.5
%
   
8.7
%
   
8.1
%
   
8.3
%
   
5.5
%
Effective tax rate
   
31.2
%
   
27.7
%
   
27.6
%
   
33.9
%
   
14.8
%
Net profit from continuing operations margin
   
2.7
%
   
6.7
%
   
6.4
%
   
4.1
%
   
4.7
%
Return on average equity
   
6.6
%
   
15.1
%
   
14.8
%
   
7.6
%
   
9.1
%

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a global company focused on long term profitability growth through the development and application of minerals and technology products and services to various industrial and consumer markets.  The majority of our revenue growth has been achieved by sustaining our products’ technological advantages, developing new products and applying them in innovative ways, 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.

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.
26

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 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.  Our fastest growing markets are in the Asia-Pacific and certain European regions, which have continued to outpace the U.S. in economic growth.

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

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

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

· Mineral development: Bentonite is a component in many 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.

There can be no assurance that we will achieve success in implementing any one or more of the strategic initiatives described above.
 
A number of risks will challenge us in meeting our long-term objectives.  We describe certain of these risks, such as competition and our reliance on economically sensitive markets, under “Item 1A. Risk Factors” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”  We intend to manage these risks actively, but there can be no assurance of our success to do so.
27

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations describes relevant aspects of our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.  The preparation of these financial statements requires us to select accounting policies that are appropriate for our business, and to make certain estimates, judgments and assumptions about matters that are inherently uncertain in applying those policies.  On an ongoing basis, we re-evaluate these estimates, judgments and assumptions for reasonableness because of the critical impact that these factors have on the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  Actual results may differ from these estimates.

Our financial statements are based in part upon critical accounting policies that involve complex and subjective decisions and assessments.  Our senior management has discussed the development, selection and disclosure of these policies with the members of the Audit Committee of our Board of Directors.  We believe our selection of accounting policies has resulted in actual results approximating the estimated amounts in each respective area.  These policies are discussed below and also in Note 1 of the Notes to Consolidated Financial Statements.  The discussion which follows should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

Valuation of Accounts Receivable

We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations.  Our customer base is diverse and includes customers located throughout the world.  Payment terms in certain of the foreign countries in which we do business are longer than those that are customary in the U.S., and, as a result, may give rise to additional credit risk related to outstanding accounts receivable from these non-U.S. customers.  Likewise, a change in the financial position, liquidity or prospects of any of our customers could have an impact on our ability to collect amounts due.  While concentrations of credit risk related to trade receivables are somewhat limited by our large customer base, we do extend significant credit to some of our customers.

We make estimates of the amounts of our gross accounts receivable that will not be collectible, and record an allowance for doubtful accounts to reduce the carrying value of accounts receivable to the amount that is expected to be realized.  The allowance for doubtful accounts is established based upon our historical bad debt experience, a review of the overall aging of the accounts, and an analysis of specific customer accounts, particularly those with past-due balances.  The recorded allowance for doubtful accounts is intended to cover specific customer collection issues identified by management at the balance sheet date and to provide for potential losses from other accounts based on our historical experience.  Increases in the allowance for doubtful accounts are recorded as an expense and included in selling, general and administrative expenses in the period identified.  Our estimate of the required allowance for doubtful accounts is a critical accounting estimate because it is susceptible to changes in customer payment patterns, dynamics of the industries in which we operate, our judgments about the future collectibility of customer accounts and other factors.

Inventory Valuation

Inventories are recorded at the lower of cost or net realizable value.  In addition, we regularly review inventory quantities on hand and evaluate significant items to determine whether they are excess or obsolete.  We record the value of estimated excess or obsolete inventory as a reduction of inventory and as an expense in cost of sales in the period it is identified.  Our estimate of excess and obsolete inventory is a critical accounting estimate because it is susceptible to changes in estimates of the future demand for inventory, customer purchasing behaviors, competition, and other factors.
28

Our process to evaluate inventories for excess or obsolete items is comprehensive.  We quantify the amount of inventory on hand that, based on projected demand, is not anticipated to be sold within the next 12 to 24 months or, based on our current product offerings, is excess or obsolete.  This involves a review by sales and production management personnel to determine whether this list of potential excess or obsolete inventory is complete.  Factors which impact this evaluation include, for example, whether there has been a change in the market or packaging for particular products, and whether there are components of inventory that incorporate obsolete formulations or technology.  In certain businesses in which we are engaged, such as our domestic cat litter and personal care business, product and packaging changes can occur rapidly and expose us to excess and obsolete inventories.

Goodwill and Long-Lived Assets

Our goodwill and intangible assets have largely arisen from business combinations or acquisitions that we have completed.  We follow the guidance in Accounting Standard Codification (“ASC”) Topic 805 related to business combinations when initially recognizing the fair value of assets and liabilities acquired in a business combination.  Under these guidelines, we are required to recognize the fair value of the intangible assets we acquire in a business combination.  These are typically customer related assets, developed technology, non-compete agreements, patents, and trademarks and trade names.  We are required to make significant estimates and critical assumptions as to the nature of these assets including future profitability, useful life, longevity of customer relationships, probability and impact of competition from former owners or management employees of businesses we acquire, royalty and discount rates, as well as comparable market data.

For property, plant and equipment and intangible assets with finite lives, we evaluate the recoverability of these assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.  For testing the recoverability, we primarily use discounted cash flow models or cost approach to estimate the fair value of these long-lived assets.  Critical assumptions used in conducting these tests include expectations of our business performance and financial results, useful lives of assets, and discount rates as well as comparable market data.

For goodwill, we perform our impairment assessment annually or more frequently if impairment indicators arise.  This assessment is made at the reporting unit level.  In conducting our goodwill impairment tests we rely on both the qualitative and the quantitative assessment methodologies.  For the qualitative method, we consider various events and circumstances (or factors) that would affect the estimated fair value of our reporting units and the level of impact a particular factor would have on the estimated fair value.  For the quantitative method, we use discounted cash flow models and comparative market multiples to estimate the fair value of our reporting units.  Critical assumptions used in both these testing methodologies include expectations of our business performance and financial results, impact of macroeconomic changes, and weighted average cost of capital as well as comparable market data and our market capitalization.

For indefinite lived intangible assets, we perform our impairment assessment annually or more frequently if impairment indicators arise.  This assessment is made at the individual asset level.  In evaluating the recoverability of our indefinite lived intangible assets, we make several critical assumptions as to the applicable market royalty rate and discount rates as well as the future performance of the assets underpinning those intangibles.

Our estimates related to the carrying values of these assets are considered to be critical accounting estimates because they are susceptible to change from period to period based on our judgments about a variety of factors and due to the uncontrollable variability of market factors underlying them.  For example, judgment is required to determine whether events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.  In addition, in performing assessments of the carrying values of these assets, we must make judgments about our future business; economic, regulatory, and political conditions affecting these assets; appropriate risk-related rates for discounting estimated future cash flows; and reasonable estimates of disposal values.

During the year ended December 31, 2013, our performance materials segment recorded an impairment charge of $52.3 million relating to South African chromite operations.  Additionally, we had a $6.6 million impairment charge in relation to Health and Beauty (our personal care product) operations which is included in discontinued operations.
29

South African chromite operations:
 
The market for our South African chromite products have recently developed into a significant state of oversupply.  This has impacted our pricing and ability to grow market share in the foundry grade chromite market, requiring us to review the recoverability of our chromite assets in the 2013 third quarter.  Based on that review, we determined the long-lived assets that produce chromite were not recoverable on a gross cash flow analysis.  In the 2013 third quarter and using a discounted cash flow approach (a Level 3 fair value input), we recorded an impairment charge of $36.0 million for mineral rights and $16.3 million for depreciable assets that reduced the carrying value of these assets to their respective fair values.

Health and Beauty (HBS) operations:

During the third quarter of 2013, we committed to divest our HBS operations within performance materials segment and consequently performed a recoverability test for HBS’s net assets.  We concluded that the fair value of HBS’s net assets was lower than the carrying amount and recorded both an impairment charge of $4.2 million ($1.8 million for goodwill, $1.1 million for other intangible assets, and $1.3 million for plant, property, and equipment) and a valuation allowance against HBS’s net assets of $2.4 million.  We used an observable Level 2 fair value input to assess the fair value of goodwill, relief from royalty rate method, a Level 3 fair value input, to assess the fair value of other intangible assets relating to trademarks and developed technology, and the cost method adjusted for age and deterioration, a Level 3 input, to assess the fair value of plant, property and equipment.

The market value of our common stock continues to fluctuate and if, among other factors, (1) our equity value declines, (2) the fair value of our reporting units decline, (3) we don’t achieve our expected future results, or (4) the adverse impacts of economic or competitive factors are worse than anticipated, we could conclude in future periods that impairment losses are required in order to reduce the carrying value of our goodwill, other intangible assets, or other long-lived assets.  Depending on the severity of the changes in the key factors underlying the respective impairment tests, such losses could be significant.

Retirement Benefits

We sponsor a qualified defined benefit pension plan for substantially all of our U.S. employees hired before January 1, 2004.  We also sponsor a supplementary pension plan (“SERP”) that provides benefits in excess of qualified plan limitations for certain employees.  In order to measure the expense and obligations associated with these retirement benefits, we estimate various factors used in valuing the associated assets and liabilities, such as discount rates, expected return on plan assets, rate of compensation increases, employee turnover rates, retirement rates, mortality rates and other factors.  Our benefit plan committee determines the key assumptions related to the discount rate, expected investment rate of return, long term rate of compensation increases, and other assumptions based on consultation with our actuaries.  The most important assumptions that affect the computations are the discount rate and the expected long-term rate of return on plan assets.

Our discount rate assumption is intended to reflect the rate at which the retirement benefits could be effectively settled based upon the assumed timing of the benefit payments.  In determining the discount rate for December 31, 2013, we utilized the Aon Hewitt AA Bond Universe yield curve, which is a hypothetical double A yield curve comprised of a series of annualized individual spot discount rates, applied to the projected benefit payments for our plans. The discount rate used to determine our retirement pension benefit obligation at December 31, 2013 was 5.00% for the qualified defined benefit plan and 4.85% for our SERP.  A 50 basis point decrease in this discount rate would have increased the benefit obligation at December 31, 2013 by $5.3 million and would increase our net cost expected in 2014 by 13%, or $276 thousand.  Likewise at December 31, 2013, a 50 basis point increase in the discount rate would have decreased the benefit obligation by $4.8 million and would decrease our net cost expected in 2014 by 5%, or $106 thousand.

The expected long-term rate of return on defined benefit plan assets was based on our current asset allocations and the expected returns based on current capital market assumptions.  Information regarding our asset allocations is included in the Notes to Consolidated Financial Statements in "Item 8. ­Financial Statements and Supplementary Data."  We assumed a weighted-average expected long-term rate of return on pension plan assets of 7.50% to determine our net defined benefit pension plan expense in 2013.  A 50 basis point decrease in the expected return would increase the net cost expected in 2014 by approximately 20%, or $226 thousand.  Likewise, a 50 basis point increase in the expected return would decrease the net cost expected in 2014 by approximately 20%, or $226 thousand.
30

Income Taxes

Our effective tax rate is based on the income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.  Significant judgment is required in determining our effective tax rate and in evaluating our tax positions.  We account for our tax positions in accordance with the guidance for accounting for uncertainty in income taxes codified in ASC Topic 740, and thus our effective tax rate includes the impact of changes to our liability for uncertain tax positions.

Our estimates of income tax items, expenses and reserves are considered to be critical accounting estimates because they are susceptible to change from period to period based on rulings by various taxing authorities, changes in tax laws, changes in projected levels of taxable income and availability of future tax planning strategies.  On a quarterly basis, these estimates are more critical as they involve estimates of our taxable income expected for the remainder of the fiscal year by taxing jurisdiction.

In addition, our effective tax rate reflects the impact of certain undistributed foreign earnings for which no U.S. taxes have been provided because such earnings are planned to be reinvested indefinitely outside the U.S.  Most of the amounts held outside the U.S. could be repatriated to the U.S., but would be subject to U.S. federal income taxes and foreign withholding taxes, less applicable foreign tax credits or deductions.

Valuation allowances are recorded, if necessary, to measure a deferred tax asset at the amount that will more likely than not be realized.  Both positive and negative evidence are considered in forming our judgment as to whether a valuation allowance is appropriate.  Changes in a valuation allowance are recorded in the period when we determine events have occurred that will impact the realizable value of the asset.

A number of years may elapse before a particular matter is audited and finally resolved.  Audits of our U.S. federal income tax returns have been completed for our income tax returns relating to fiscal years of 2009 and prior.  State income tax returns are audited less frequently.  Unfavorable settlement of any particular issue would require use of our cash and could result in the recording of additional tax expense.  Favorable resolution would be recognized as a reduction to our tax provision in the year of resolution.

Accounting for Long Term Contracts

Our construction technologies and energy services segments generate a small portion of their sales and revenues under long term contracts with customers.  Where applicable, these revenues and related costs are accounted for under the percentage of completion revenue recognition method whereby revenues are recognized as completion occurs, which can be generally measured by either the costs incurred in relation to the total expected costs to complete the contract or the amount of product installed in relation to the total amount expected to be installed.  In addition, we recognize losses on contracts in the period in which we first forecast a loss will occur on the overall contract.  This revenue recognition methodology requires that we continually update our estimates of the amount of work remaining to complete a contract.  Thus, our sales and revenues and related costs are subject to fluctuation depending on changes in estimates of the cost or product required  to complete a contract.

31

Results of Operations for the Three Years Ended December 31, 2013

The discussion below references the consolidated statement of operations included in “Item 8. Financial Statements and Supplementary Data.”

Consolidated Income Statement Review

The following table compares our operating results for the past three years.
 
    Year Ended December 31,          
Consolidated  
2013
   
2012
   
2011
   
2013 vs.
2012
   
2012 vs.
2011
 
    
(Dollars in Millions)
 
Continuing Operations
                   
Net sales
 
$
1,012.7
   
$
967.4
   
$
926.3
     
4.7
%
   
4.4
%
Cost of sales
   
797.1
     
701.9
     
678.8
                 
Gross profit
   
215.6
     
265.5
     
247.5
     
-18.8
%
   
7.3
%
margin %
   
21.3
%
   
27.4
%
   
26.7
%
               
Selling, general and administrative expenses
   
179.8
     
167.7
     
161.5
     
7.2
%
   
3.8
%
Operating profit
   
35.8
     
97.8
     
86.0
     
-63.4
%
   
13.7
%
margin %
   
3.5
%
   
10.1
%
   
9.3
%
               
Other income (expense):
                                       
Interest expense, net
   
(10.3
)
   
(10.4
)
   
(11.0
)
   
-1.0
%
   
-5.5
%
Gain on sale of available-for-sale securities
   
12.6
     
-
     
-
     
*
     
*
 
Other, net
   
(2.8
)
   
(3.4
)
   
0.3
     
*
     
*
 
 
   
(0.5
)
   
(13.8
)
   
(10.7
)
               
 
                                       
Income before income taxes and income (loss) from affiliates and joint ventures
   
35.3
     
84.0
     
75.3
                 
Income tax expense
   
11.0
     
23.3
     
20.8
     
-52.8
%
   
12.0
%
Income before income (loss) from affiliates and joint ventures
   
24.3
     
60.7
     
54.5
                 
Income (loss) from affiliates and joint ventures
   
3.2
     
3.9
     
5.2
     
*
     
*
 
Income from continuing operations
   
27.5
     
64.6
     
59.7
                 
 
                                       
Discontinued Operations
                                       
Income (loss) on discontinued operations
   
(4.2
)
   
0.3
     
(1.2
)
   
*
     
*
 
           
Net income (loss)
   
23.3
     
64.9
     
58.5
     
-64.1
%
   
10.9
%
 
                                       
Net income (loss) attributable to noncontrolling interests
   
(6.9
)
   
(0.2
)
   
-
     
*
     
*
 
 
                                       
Net income attributable to AMCOL shareholders
   
30.2
     
65.1
     
58.5
     
-53.6
%
   
11.3
%
* Not meaningful
                                       
 
                                       

32

The following analysis comments on the significant fluctuations in our results for the past three years by material category.  The comments are organized in relation to our company’s overall results in general followed by a detailed discussion of these general comments as they relate to each segment individually and in detail.

Net sales

 We measure overall sales growth as being derived organically from base businesses, acquisitions or foreign currency exchange rate fluctuations.  Base or organic businesses represent operations owned for more than one year whereas acquisitions are those owned less than one year.  We did not make any significant acquisitions in the past three years.  Foreign exchange isolates the impact of currency changes over the prior-year period.  The following tables detail components of consolidated 2013 and 2012 sales changes over their respective prior years:
 
2013 vs. 2012  
Organic
   
Acquisitions
   
Foreign Exchange
   
Total
 
Performance materials
   
1.8
%
   
0.0
%
   
-0.3
%
   
1.5
%
Construction technologies
   
-0.7
%
   
0.0
%
   
0.2
%
   
-0.5
%
Energy services
   
4.1
%
   
0.1
%
   
-0.3
%
   
3.9
%
Transportation & intersegment sales
   
-0.2
%
   
0.0
%
   
0.0
%
   
-0.2
%
Total
   
5.0
%
   
0.1
%
   
-0.4
%
   
4.7
%
% of change
   
106.4
%
   
2.1
%
   
-8.5
%
   
100.0
%
 
                               
 
2012 vs. 2011  
Organic
   
Acquisitions
   
Foreign Exchange
   
Total
 
Performance materials
   
2.0
%
   
0.0
%
   
-0.4
%
   
1.6
%
Construction technologies
   
-2.0
%
   
0.0
%
   
-1.1
%
   
-3.1
%
Energy services
   
6.9
%
   
0.0
%
   
-0.2
%
   
6.7
%
Transportation & intersegment sales
   
-0.8
%
   
0.0
%
   
0.0
%
   
-0.8
%
Total
   
6.1
%
   
0.0
%
   
-1.7
%
   
4.4
%
% of change
   
136.8
%
   
0.0
%
   
-36.8
%
   
100.0
%
 
                               

Over the past two years, our revenues have grown organically as opposed to via acquisitions or due to fluctuations in foreign currency rates.  Overall, revenue growth would have been greater except for the negative effect of foreign currency exchange rate fluctuations, mostly affecting entities within our EMEA region.

Growth in our energy services segment comprised 84.1% and 152.3% of our overall revenue growth in 2013 and 2012, respectively.  This segment has benefitted from increased demand for services and increased capacity to provide those services.

33

The following table provides a comparison of consolidated sales by geographical region over the last three years:

  
 
2013
   
2012
   
2011
 
 
 
   
   
 
Americas
   
59.8
%
   
60.9
%
   
58.9
%
EMEA *
   
22.4
%
   
22.0
%
   
26.2
%
Asia Pacific
   
17.9
%
   
17.1
%
   
14.9
%
Total
   
100.0
%
   
100.0
%
   
100.0
%
 
                       
* Europe, Middle East and Africa

Inter-regional sales in the table above are eliminated in Americas.  Strong growth in our energy services’ Malaysian operations, growth in our Asian metalcasting product line sales, and continued softness in our construction technologies’ European sales underlie the trend in our revenues becoming slightly more concentrated in the Asia Pacific as opposed to the EMEA region.

Gross profit

Our gross profit decreased in 2013 due to a $52.2 million impairment charge recorded on our South African chromite assets within in our performance materials segment.  As mentioned previously, these assets became impaired due to a developing state of oversupply in the market.

Nearly two thirds of the increase in gross profit in 2012 results from increased sales, especially in our energy services segment where gross profits increased 27%.  The majority of the gross margin improvement stems from increased gross margins in our performance materials segment, largely reflective of the continued strong performance in our metalcasting product line.

Selling, general, and administrative expenses (S