Cash flows from operating activities decreased primarily due to a greater increase in accounts receivable relative to the prior-year period. Accounts receivable growth correlates with the increase in sales compared with the 2005 period. Additionally, our Asia/Pacific region sales growth has been higher than more established regions, which will increase accounts receivable at greater rate due to longer customer payment terms. Historically, cash flows from operations have increased over the course of the year and we anticipate this pattern to continue for the remainder of 2006.
Cash flows used in investing activities increased in the 2006 period due to increased capital expenditures. We have a number of expansion projects ongoing this year, including new manufacturing operations in Spain for the environmental segment and in China for the minerals segment. In addition, the 2006 period includes capital expenditures of approximately $2.9 million relating to the purchase of mining rights and equipment in Australia. We are also expending more funds for improving productivity at our U.S.-based mineral processing operations in 2006. Capital expenditures for 2006 are estimated to be in the range of $35 million to $40 million.
Cash flows provided by financing activities increased due to increased debt borrowings. The increase was due primarily to higher working capital and capital expenditures in the 2006 period. Dividends increased to $0.23 per share from $0.18 per share in the prior year’s corresponding period, consequently increasing the financing needs this year. We also repurchased 120,000 shares of our stock on the open market in the six months ended June 30, 2006 for an aggregate amount of $3.2 million, or an average price of $26.83 per share. We have $4.8 million remaining in funds authorized by our board of directors for the repurchase of common stock through September 30, 2006. We plan to utilize these funds for stock repurchases in the next quarter, unless we determine a better utilization of our cash or financing means. In the 2006 period, we received $2.2 million from employees on their exercise of stock options; we also recorded a $1.9 million benefit resulting from reduced tax payments on these option exercises.
Working capital at June 30, 2006, increased over the amount at December 31, 2005, due to the growth in accounts receivable and less accrued liabilities that was described earlier. Current ratio was 3.8-to-1 and 3.3-to-1 at June 30, 2006, and December 31, 2005, respectively.
Long-term debt increased commensurate with higher working capital requirements and capital expenditure funding requirements. Consequently, long-term debt relative to total capitalization rose to 16% at June 30, 2006, compared with 12% at December 31, 2005. At June 30, 2006, we had approximately $79.3 million of borrowing capacity available from our revolving credit facility. We are in compliance with financial covenants related to the revolving credit facility as of June 30, 2006.
We believe future cash flows from operations combined with financing capability from our revolving credit facility will be adequate to fund necessary investing activities planned in the future.
Since the mid 1980’s, we have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content within our bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of our former and current customers. To date, we have not incurred significant costs in defending these matters. We believe we have adequate insurance coverage and do not believe the litigation will have a material adverse impact on our financial position, liquidity or results of operations.
Contractual Obligations and Off-Balance Sheet Arrangements (in millions)
Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2005, as amended, discloses our contractual obligations and off-balance sheet arrangements. Other than the increase in our long-term bank debt as disclosed in our financial statements and the contribution to our defined benefit plan as discussed in Note 6 of the Notes to Condensed Consolidated Financial Statements within this Form 10-Q, there were no material changes in our contractual obligations and off-balance sheet arrangements.
Item 3: | Quantitative and Qualitative Disclosures About Market Risk |
There were no material changes in our market risk from the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2005, as amended.
Item 4: | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures were effective in recording, processing, summarizing, and reporting, on a timely basis, information we are required to disclose in the reports we file or submit under the Exchange Act.
30
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Information regarding risk factors appears in Part 1, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2005, as amended. There have been no material changes from the risk factors disclosed therein.
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds |
On May 13, 2004, the Board of Directors authorized a program to repurchase up to $10 million of our outstanding stock; this authorization expires September 30, 2006. The table below illustrates the stock repurchases made in 2006.
2006 | | Total Number of
Shares Repurchased
as Part of the Stock
Repurchase Program | | Average
Price Paid
Per Share | | Maximum Value of
Shares that May Yet Be
Repurchased Under the
Program | |
| |
| |
| |
| |
Balance at the beginning of the year | | | | | | | | $ | 8,035,285 | |
Activity in 2006 calendar month of: | | | | | | | | | | |
January | | | — | | $ | — | | $ | 8,035,285 | |
February | | | — | | $ | — | | $ | 8,035,285 | |
March | | | 40,000 | | $ | 26.89 | | $ | 6,959,825 | |
April | | | 10,000 | | $ | 29.48 | | $ | 6,665,075 | |
May | | | 30,000 | | $ | 28.69 | | $ | 5,804,367 | |
June | | | 40,000 | | $ | 24.70 | | $ | 4,816,242 | |
| |
|
| | | | | | | |
Total | | | 120,000 | | $ | 26.83 | | | | |
| |
|
| | | | | | | |
31
Item 4: | Submission of Matters to a Vote of Security Holders |
| (a) | The Annual Meeting of Shareholders was held on May 11, 2006. |
| (b) | See Item 4(c) below. |
| (c) | At the Annual Meeting of Shareholders, the shareholders voted on the following matters: the election of three directors to serve for a three year term, the approval of the AMCOL International Corporation 2006 Long-Term Stock Incentive Plan and the approval of the AMCOL International Corporation Annual Cash Incentive Plan. The voting results were as follows: |
| | (1) | In the election of directors, each nominee was elected by a vote of the shareholders as follows to serve for three years or until their successors are elected and qualified: |
Director | | For | | Withheld | |
| |
| |
| |
Robert E. Driscoll | | | 24,237,838.68 | | | 942,635.67 | |
Daniel P. Casey | | | 24,263,891.68 | | | 916,582.67 | |
Dale E. Stahl | | | 23,699,275.48 | | | 1,481,198.87 | |
| | (2) | The proposal to approve AMCOL International Corporation 2006 Long-Term Stock Incentive Plan was approved by the shareholders as follows: |
For | | Against | | Abstain | | Broker Non-Vote | |
| |
| |
| |
| |
20,922,546.81 | | | 1,098,570.38 | | | 65,565.16 | | | 3,093,792.00 | |
| | (3) | The proposal to approve the AMCOL International Corporation Annual Cash Incentive Plan was approved by the shareholders as follows: |
For | | Against | | Abstain | |
| |
| |
| |
24,840,476.14 | | | 283,381.01 | | | 56,615.19 | |
Exhibit
Number | |
| |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) |
32 | Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 |
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | AMCOL INTERNATIONAL CORPORATION |
| | |
Date: August 8, 2006 | | /s/ Lawrence E. Washow |
| |
|
| | Lawrence E. Washow |
| | President and Chief Executive Officer |
| | |
| | |
Date: August 8, 2006 | | /s/ Gary L. Castagna |
| |
|
| | Gary L. Castagna |
| | Senior Vice President and Chief Financial Officer |
| | and Principal Accounting Officer |
33
