10-K/A 1 ai5349.htm FORM 10-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
Amendment No. 2

(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, 2005

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: 0-15661

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.)

One North Arlington, 1500 West Shure Drive, Suite 500
Arlington Heights, Illinois		60004-7803
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (847) 394-8730

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock

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 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 the Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer x

Non-accelerated filer 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 $.01 par value Common Stock held by non-affiliates of the registrant (based upon the per share closing price of $18.79 per share on June 30, 2005, and, for the purpose of this calculation only, the assumption that all of the registrant’s directors and executive officers are affiliates) was approximately $421.2 million.

Registrant had 29,888,634 shares of $.01 par value Common Stock outstanding as of February 28, 2006.

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.

EXPLANATORY NOTE

This Amendment No. 2 (this “Amendment No. 2” or “Form 10-K/A”) to the Annual Report of AMCOL International Corporation (the “Company”) on Form 10-K for the fiscal year ended December 31, 2005, which was originally filed on March 16, 2006 (the “Original Filing”), and amended on March 21, 2006 (“Amendment No. 1”), is being filed to include the notes to the financial statements, which were inadvertently excluded from Amendment No. 1 due to a clerical error.

As required under SEC rules, this Amendment No. 2 sets forth the complete text of “Item 15: Exhibits and Financial Statement Schedules,” as amended. Except for the specific change referred to above, no other changes have been made. This Amendment continues to speak as of the date of the Original Filing and the Company has not updated the disclosure in this Amendment to speak to any later date.

Item 15. Exhibits and Financial Statement Schedules

(a)		1. See Index to Financial Statements and Financial Statement Schedule below.
		2. See Financial Statements and Index to Financial Statement Schedule below.
		Such Financial Statements and Schedule are incorporated herein by reference.
		3. See Index to Exhibits immediately following the signature page.
(b)		See Index to Exhibits immediately following the signature page.
(c)		See Index to Financial Statements and Financial Statement Schedule below.

Item 15(a) Index to Financial Statements and Financial Statement Schedule

		Page

(1)	Financial Statements:
	Report of Independent Registered Public Accounting Firm	F-2
	Consolidated Balance Sheets, December 31, 2005 and 2004	F-4
	Consolidated Statements of Operations, Years ended December 31, 2005, 2004 and 2003	F-6
	Consolidated Statements of Comprehensive Income, Years ended December 31, 2005, 2004 and 2003	F-7
	Consolidated Statements of Stockholders’ Equity, Years ended December 31, 2005, 2004 and 2003	F-8
	Consolidated Statements of Cash Flows, Years ended December 31, 2005, 2004 and 2003	F-9
	Notes to Consolidated Financial Statements	F-10

All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is not material.

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
AMCOL International Corporation:

We have audited the consolidated financial statements of AMCOL International Corporation and subsidiaries as listed in the accompanying index. We have also audited management’s assessment , included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that AMCOL International Corporation and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). AMCOL International Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements, an opinion on management’s assessment, and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-2

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMCOL International Corporation and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, management’s assessment that AMCOL International Corporation and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our opinion, AMCOL International Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As described in Note 1 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation effective January 1, 2003.

	KPMG LLP

Chicago, Illinois
March 16, 2006

F-3

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)

	December 31,

ASSETS	2005		2004

Current assets:
Cash	$	15,997	$	17,594
Accounts receivable:
Trade, less allowance for doubtful accounts of $2,350 and $4,637 in 2005 and 2004, respectively		98,824		86,128
Other		2,901		2,214
Inventories		77,928		63,882
Prepaid expenses		6,595		7,111
Current deferred tax assets		3,698		4,293
Income taxes receivable		4,864		10,750
Assets held for sale		402		752

Total current assets		211,209		192,724

Investment in and advances to joint ventures		19,730		16,133

Property, plant, equipment, and mineral rights and reserves:
Land and mineral rights		12,761		12,019
Depreciable assets		252,430		247,280

		265,191		259,299
Less: accumulated depreciation		165,127		165,658

		100,064		93,641

Other assets:
Goodwill		20,644		19,225
Intangible assets, less accumulated amortization of $5,479 and $4,629 in 2005 and 2004, respectively		3,009		3,802
Deferred tax assets		4,579		3,710
Other assets		9,294		7,207

		37,526		33,944

	$	368,529	$	336,442

Continued…

F-4

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)

	December 31,

LIABILITIES AND STOCKHOLDERS’ EQUITY	2005		2004

Current liabilities:
Accounts payable		24,722	$	25,474
Accrued liabilities		38,547		36,207

Total current liabilities		63,269		61,681

Long-term debt		34,838		34,295

Minority interests in subsidiaries		259		5
Deferred compensation		7,045		5,872
Other liabilities		14,262		12,655

		21,566		18,532

Stockholders’ equity:
Common stock, par value $.01 per share. Authorized 100,000,000 shares; issued 32,015,771 shares in 2005 and 2004		320		320
Additional paid in capital		72,194		69,763
Retained earnings		184,125		154,366
Accumulated other comprehensive income		8,644		14,905

		265,283		239,354
Less:
Treasury stock (2,232,132 and 2,620,016 shares in 2005 and 2004, respectively)		16,427		17,420

		248,856		221,934

	$	368,529	$	336,442

See accompanying notes to consolidated financial statements.

F-5

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)

	Year Ended December 31,

	2005			2004			2003

Continuing Operations
Net sales	$	535,924		$	461,778		$	374,483
Cost of sales		397,901			343,210			274,415

Gross profit		138,023			118,568			100,068
General, selling and administrative expenses		90,947			82,584			71,053

Operating profit		47,076			35,984			29,015

Other income (expense):
Interest expense, net		(1,660	)		(826	)		(280	)
Other, net		(393	)		(86	)		526

		(2,053	)		(912	)		246

Income before income taxes, income from affiliates and joint ventures		45,023			35,072			29,261
Income tax expense		11,645			4,687			9,946

Income before income from affiliates and joint ventures		33,378			30,385			19,315
Income from affiliates and joint ventures		2,912			1,180			600

Income from continuing operations		36,290			31,565			19,915

Discontinued Operations
Gain on 2001 disposal (including income tax benefits of $5,255 and $8,741 in 2005 and 2003, respectively)		4,755			—			8,950

Income from discontinued operations		4,755			—			8,950

Net income	$	41,045		$	31,565		$	28,865

See accompanying notes to consolidated financial statements.

Continued…

F-6

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)

	Year Ended December 31,

	2005		2004		2003

Earnings per share
Basic earnings per share:
Continuing operations	$	1.23	$	1.08	$	0.70

Discontinued operations:
Gain on disposal		0.16		—		0.32

		0.16		—		0.32

Net income	$	1.39	$	1.08	$	1.02

Diluted earnings per share:
Continuing operations	$	1.18	$	1.03	$	0.67

Discontinued operations:
Gain on disposal		0.15		—		0.30

		0.15		—		0.30

Net income	$	1.33	$	1.03	$	0.97

Consolidated Statements of Comprehensive Income
(In thousands)

	Year Ended December 31,

	2005			2004			2003

Net income	$	41,045		$	31,565		$	28,865
Other comprehensive income (loss) -
Minimum pension liability (net of $169 tax benefit in 2005 and $0 in 2004)		154			(457	)		—
Foreign currency translation adjustment		(6,415	)		6,990			6,367

Comprehensive income	$	34,784		$	38,098		$	35,232

See accompanying notes to consolidated financial statements.

F-7

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(In thousands, except share and per share amounts)

	Common Stock										Accumulated Other Comprehensive Income (Loss)

	Number of Shares		Amount		Additional Paid-in Capital
								Retained Earnings						Treasury Stock
								Retained Earnings						Treasury Stock			Total

Balance at December 31, 2002		32,015,771	$	320	$	69,850		$	107,874		$	2,005		$	(22,114	)	$	157,935
Net income		—		—		—			28,865			—			—			28,865
Cash dividends ($0.16 per share)		—		—		—			(4,560	)		—			—			(4,560	)
Currency translation adjustment		—		—		—			—			6,367			—			6,367
Purchase of 266,963 treasury shares		—		—		—			—			—			(2,853	)		(2,853	)
Sales of 1,492,806 treasury shares pursuant to options		—		—		(5,145	)		—						7,273			2,128
Tax benefit from employee stock plans		—		—		2,195			—			—			—			2,195
Vesting of common stock in connection with employee stock plans		—		—		613			—			—			760			1,373

Balance at December 31, 2003		32,015,771		320		67,513			132,179			8,372			(16,934	)		191,450
Net income									31,565									31,565
Cash dividends ($0.32 per share)									(9,378	)								(9,378	)
Currency translation adjustment												6,990						6,990
Purchase of 189,800 treasury shares															(3,243	)		(3,243	)
Sales of 477,809 treasury shares pursuant to options						(1,551	)								2,757			1,206
Tax benefit from employee stock plans						2,027												2,027
Vesting of common stock in connection with employee stock plans						1,774												1,774
Minimum pension liability												(457	)					(457	)

Balance at December 31, 2004		32,015,771		320		69,763			154,366			14,905			(17,420	)		221,934
Net income									41,045									41,045
Cash dividends ($0.38 per share)									(11,286	)								(11,286	)
Currency translation adjustment												(6,415	)					(6,415	)
Purchase of 109,629 treasury shares															(2,058	)		(2,058	)
Sales of 497,513 treasury shares pursuant to options						(1,561	)								3,051			1,490
Tax benefit from employee stock plans						1,601												1,601
Vesting of common stock in connection with employee stock plans						2,391												2,391
Minimum pension liability												154						154

Balance at December 31, 2005		32,015,771		320		72,194			184,125			8,644			(16,427	)		248,856

See accompanying notes to consolidated financial statements.

F-8

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)

	Year Ended December 31,

				2004			2003
		2005		(revised)*			(revised)*

Cash flow from operating activities:
Net income	$	41,045		$	31,565		$	28,865
Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash items:
Gain on the disposal of discontinued operations		(4,755	)		—			(8,950	)
Depreciation, depletion, and amortization		19,558			20,124			18,910
Undistributed earnings from affiliates and joint ventures		(3,156	)		(867	)		(403	)
Minority interest in income of subsidiaries		42			7			—
Increase (decrease) in allowance for doubtful accounts		(2,381	)		1,063			813
Decrease (increase) in deferred income taxes		(1,139	)		(995	)		(2,663	)
Tax benefit from employee stock plans		1,601			2,027			2,195
Gain on sale of depreciable assets		(1,433	)		(311	)		(73	)
Stock compensation expense		2,391			1,772			613
Other non-cash charges		—			(457	)		—
(Increase) decrease in current assets, net of effects of acquisitions:
Accounts receivable		(10,172	)		(22,040	)		(12,615	)
Income taxes receivable		5,886			(3,869	)		777
Inventories		(14,046	)		(16,817	)		(6,721	)
Prepaid expenses		508			(2,003	)		(1,588	)
Increase (decrease) in current liabilities, net of effects of acquisitions:
Accounts payable		(1,109	)		2,897			2,447
Accrued liabilities		2,878			5,975			8,841
Increase in other noncurrent assets		(2,362	)		(1,893	)		(1,345	)
Increase (decrease) in other noncurrent liabilities		2,934			1,209			(457	)

Net cash provided by operating activities		36,290			17,387			28,646

Cash flow from investing activities:
Proceeds from sale of depreciable assets		3,574			739			195
Capital expenditures for land, mineral reserves, and depreciable assets		(28,626	)		(21,627	)		(15,795	)
(Increase) decrease in investments in and advances to affiliates and joint ventures		(901	)		(775	)		(49	)
Acquisitions		(2,118	)		(13,333	)		(7,144	)
Net tax refunds from the sale of discontinued operations		4,755			8,625			—
Receipts from (payments to) minority interest partners		259			(111	)		(499	)
Decrease (increase) in other assets		735			427			505

Net cash used in investing activities		(22,322	)		(26,055	)		(22,787	)

Cash flow from financing activities:
Proceeds from issuance of debt		55,785			88,208			17,145
Principal payments of debt		(55,764	)		(67,718	)		(25,469	)
Proceeds from sales of treasury stock		1,397			1,090			2,888
Purchases of treasury stock		(1,965	)		(2,879	)		(1,593	)
Dividends paid		(11,286	)		(9,377	)		(4,560	)

Net cash provided by (used in) financing activities		(11,833	)		9,324			(11,589	)

Effect of foreign currency rate changes on cash		(3,732	)		3,413			3,658

Net increase (decrease) in cash and cash equivalents		(1,597	)		4,069			(2,072	)
Cash and cash equivalents at beginning of year		17,594			13,525			15,597

Cash and cash equivalents at end of year	$	15,997		$	17,594		$	13,525

Supplemental disclosures of cash flow information:
Cash paid for:
Interest, net	$	1,755		$	537		$	415

Net income taxes paid (refunded)	$	1,451		$	(706	)	$	12,808

*See Note 1 of the notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

F-9

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies

Segments

We operate in two principal areas of activity: minerals and environmental. We also operate a transportation business which includes delivery of our own products. The composition of consolidated revenues by segment is as follows:

	Percentage of Sales

	2005			2004			2003

Minerals		55	%		57	%		58	%
Environmental		39	%		37	%		36	%
Transportation		9	%		9	%		10	%
Intersegment Shipping		-3	%		-3	%		-4	%

		100	%		100	%		100	%

Further descriptions of our products, principal markets and the relative significance of segment operations within AMCOL International Corporation (the Company) are included in Note 3, “Business Segment and Geographic Area Information.”

Principles of Consolidation

The consolidated financial statements include the accounts of our domestic and foreign subsidiaries. We consolidate all subsidiaries which are greater than 50% owned by us. Our ownership interests in the Mexican, Indian, and Egyptian ventures range between 20% and 50%. Accordingly, these investments are accounted for using the equity method. Our ownership interest in the Japanese investment is recorded at cost. All material intercompany balances and transactions, including profits on inventories, have been eliminated in consolidation.

Use of Estimates

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

Translation of Foreign Currencies

The assets and liabilities of subsidiaries located outside of the United States are translated into U.S. dollars at the rates of exchange at the balance sheet dates. The statements of operations are translated at the weighted average rates during the periods. Foreign exchange translation adjustments are accumulated as a separate component of stockholders’ equity, while foreign currency transaction gains or losses are included in income.

Inventories

Inventories are valued at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) or moving average methods. Exploration costs are expensed as incurred. Costs incurred in removing overburden and mining bentonite are capitalized as advance mining costs until the bentonite from the mining area is transported to the plant site, at which point the costs are included in crude bentonite stockpile inventory.

F-10

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

Property, Plant, Equipment, and Mineral Rights and Reserves

Property, plant, equipment, and mineral rights and reserves are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method for substantially all of the assets. Certain other assets, primarily field equipment, are depreciated on the units-of-production method. Mineral rights and reserves are depleted using the units-of-production method.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, goodwill is tested annually (or more frequently if impairment indicators arise) for impairment. Other intangibles, including trademarks and non-compete agreements, are amortized on the straight-line method over the expected periods to be benefited, which extend up to 10 years.

Impairment of Long-Lived Assets

We review the carrying values of long-lived assets whenever facts and circumstances indicate that the assets may be impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs of disposal.

Income Taxes

We file a consolidated tax return for our U.S. based subsidiaries. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Revenue Recognition

Product revenue is recognized when products are shipped to customers. Allowances for discounts, rebates, and estimated returns are recorded at the time of sale and are reported as a reduction in revenue. We generate some sales through independent, third-party representatives. These sales are recorded in revenues, and the commission compensation paid to the representatives is recorded in general, selling and administrative expenses.

Transportation segment revenue for freight delivery services is recognized when the service is provided. Amounts payable for purchased transportation, commissions and insurance are accrued when the related revenue is recognized.

Service revenues, primarily earned by the environmental segment, represent less than 10% of consolidated net sales. Revenue for services performed are recognized in the period such services are performed.

F-11

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

Shipping Revenues and Costs

We report shipping and handling costs that are passed on to customers as sales revenue and cost of sales in the consolidated statements of operations.

Product Liability & Warranty Expenses

We report expenses incurred for warranty and product costs in general, selling and administrative expenses in the consolidated statements of operations. Our warranty accrual is based on known warranty issues as of the balance sheet date as well as a reserve for unidentified claims based on historical experience.

Land Reclamation

We mine various minerals using a surface-mining process that requires the removal of overburden. We are obligated to restore the land comprising each mining site upon completion of mining activity. We recognize this liability for land reclamation based on the estimated fair value of the obligation. The obligation is adjusted to reflect the passage of time and changes in estimated future cash outflows. The following table presents our reclamation liability and changes therein for 2005 and 2004:

	2005			2004

Balance at beginning of the year	$	4,850		$	5,060
Settlement of obligations		(1,403	)		(1,325	)
Liabilities incurred and accretion expense		1,519			1,115

Balance at the end of the period	$	4,966		$	4,850

Research and Development

Research and development costs are included in general, selling and administrative expenses.

Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding after consideration of the dilutive effect of stock options. A reconciliation between the number of shares used to compute basic and diluted earnings per share follows:

	2005		2004		2003

Weighted average of common shares outstanding for the year		29,525,033		29,140,892		28,357,009
Dilutive impact of stock equivalents		1,278,105		1,561,969		1,492,569

Weighted average of common and common equivalent shares for the year		30,803,138		30,702,861		29,849,578

Common shares outstanding at December 31		29,783,639		29,395,755		29,107,746

Weighted average anti-dilutive shares excluded from the computation of diluted earnings per share		248,685		234,970		—

Stock-Based Compensation

Prior to 2003, we accounted for fixed plan stock options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost was reflected in operations prior to 2003, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123),

F-12

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

and elected to apply these provisions prospectively, in accordance with SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an Amendment of FASB Statement No. 123, to all employee awards granted, modified, or settled after January 1, 2003. Awards under our plans vest over three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income in 2003 and each year thereafter is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS 123.

Results for prior years have not been adjusted to reflect the use of the fair value based method of accounting for employee awards. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period:

	Year Ended December 31,

	2005			2004			2003

Net income, as reported	$	41,045		$	31,565		$	28,865
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		1,470			1,090			405
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(1,612	)		(1,348	)		(962	)

Pro forma net income	$	40,903		$	31,307		$	28,308

Earnings per share:
Basic - as reported	$	1.39		$	1.08		$	1.02
Basic - pro forma	$	1.39		$	1.07		$	1.00
Diluted - as reported	$	1.33		$	1.03		$	0.97
Diluted - pro forma	$	1.33		$	1.02		$	0.95

Derivative Instruments and Hedging Activities

Occasionally, we use derivative financial instruments (principally interest rate swaps or options) to manage exposure to changes in interest rates. We do not use derivative instruments for trading or other speculative purposes, and we did not have any derivative financial instruments outstanding at either December 31, 2005 or 2004.

Reclassifications and Revisions

Certain items in the consolidated financial statements contained herein and notes thereto have been reclassified to conform with the consolidated financial statement presentation for 2005. These reclassifications did not have a material impact on our financial statements.

Beginning in the quarter ended March 31, 2005 and for all periods thereafter, we began reporting certain expenses related to product liability, warranty and royalty expenses in general, selling and administrative expenses rather than as deductions within net sales. For the 2004 and 2003 periods presented herein, these deductions have been reclassified to conform to the current year financial statement presentation. This change in financial statement presentation did not impact reported net income or earnings per share.

We have revised the 2004 and 2003 consolidated statement of cash flows presented herein to include the effect of discontinued operations within the operating and investing portions of those statements as opposed to showing these cash flows as a separate category within the consolidated statement of cash flows. In 2004, this revision has the effect of decreasing cash used in investing activities by $8,625 to $26,055 versus the $34,680 previously reported. In 2003, this revision did not affect either the total cash flows provided from operating activities or the total cash flows used in investing activities.

F-13

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

(2) Discontinued Operations

In 2004, we filed an amended tax return seeking a refund of state taxes paid on the sale of our absorbent polymers segment that occurred in 2000. No amounts for this refund were reflected in the financial statements in 2004. In June 2005, we successfully settled this claim for $7,800 and recorded a net income tax receivable of $5,255, accrued professional fees of $500 and a gain on the sale of discontinued operations of $4,755.

In 2003, the Internal Revenue Service concluded audits which resulted in an actual tax liability that was lower than the amounts previously estimated. Consequently in 2003, we recorded $8.9 million of income from discontinued operations related to the sale of the Company’s U.K. metalcasting business in 2001 and closure of the U.K. cat litter business in 2000.

(3) Business Segment and Geographic Area Information

We operate in two principal business segments: minerals and environmental. We also operates a transportation business. The minerals segment mines, processes and distributes clays and products with similar applications to various industrial and consumer markets. The environmental segment processes and distributes clays and products with similar applications for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications. The transportation segment includes a long-haul trucking business and a freight brokerage business that provides services to our subsidiaries as well as third-party customers.

We identify segments based on management responsibility and the nature of the business activities of each component of the Company. Intersegment sales are insignificant, other than intersegment shipping, which is disclosed in this Note. We measures segment profit based on operating profit, which is defined as sales less cost of sales and general, selling and administrative expenses related to a segment’s operations. The costs deducted to arrive at operating profit do not include interest or income taxes.

Segment assets are those assets used in the operations of that segment. Corporate assets include cash, corporate leasehold improvements, the nanocomposite investment and other miscellaneous equipment.

F-14

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

The following summaries set forth certain financial information by business segment and geographic area as of and for the years ended December 31, 2005, 2004 and 2003:

	2005			2004			2003

Business Segment:
Revenues:
Minerals	$	295,686		$	264,167		$	217,203
Environmental		210,846			172,723			133,769
Transportation		49,708			40,650			37,549
Intersegment shipping		(20,316	)		(15,762	)		(14,038	)

Total	$	535,924		$	461,778		$	374,483

Operating profit (loss):
Minerals	$	36,502		$	30,632		$	23,462
Environmental		28,668			20,522			17,879
Transportation		2,717			1,720			1,547
Corporate		(20,811	)		(16,890	)		(13,873	)

Total	$	47,076		$	35,984		$	29,015

Assets:
Minerals	$	186,718		$	172,972		$	144,973
Environmental		146,588			128,154			83,459
Transportation		3,027			3,122			1,891
Corporate		32,196			32,194			35,006

Total	$	368,529		$	336,442		$	265,329

Depreciation, depletion and amortization:
Minerals	$	10,295		$	10,546		$	10,334
Environmental		6,316			6,751			6,002
Transportation		97			108			88
Corporate		2,850			2,719			2,486

Total	$	19,558		$	20,124		$	18,910

Capital expenditures:
Minerals	$	13,751		$	9,860		$	6,464
Environmental		13,198			10,647			7,660
Transportation		29			101			80
Corporate		1,648			1,019			1,591

Total	$	28,626		$	21,627		$	15,795

Research and development expenses:
Minerals	$	2,715		$	2,517		$	2,184
Environmental		1,865			1,921			1,873
Corporate		1,665			911			961

Total	$	6,245		$	5,349		$	5,018

Continued…

F-15

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

	2005		2004		2003

Geographic area:
Sales to unaffiliated customers shipped to:
Americas	$	356,777	$	296,897	$	252,797
Europe		127,987		124,260		90,719
Asia Pacific		51,160		40,621		30,967

Total	$	535,924	$	461,778	$	374,483

Operating profit from sales to:
Americas	$	22,443	$	17,853	$	16,244
Europe		15,905		12,679		8,658
Asia Pacific		8,728		5,452		4,113

Total	$	47,076	$	35,984	$	29,015

Identifiable assets in:
Americas	$	227,923	$	202,766	$	170,797
Europe		94,165		97,777		70,114
Asia Pacific		46,441		35,899		24,418

Total	$	368,529	$	336,442	$	265,329

Revenues by product line for each fiscal year are as follows:

	2005			2004			2003

Metalcasting	$	139,427		$	117,755		$	91,866
Lining technologies		94,942			78,688			56,392
Specialty minerals		91,519			89,863			77,017
Water treatment		62,085			42,664			35,326
Pet products		60,177			53,370			48,319
Building materials		58,382			54,550			42,052
Transportation		49,708			40,650			37,549
Intersegment shipping revenue		(20,316	)		(15,762	)		(14,038	)

Total	$	535,924		$	461,778		$	374,483

(4) Allowance for Doubtful Accounts

The allowance for doubtful accounts as of and the activity for the years ended December 31 was as follows:

	2005			2004			2003

Balance at the beginning of the year	$	4,637		$	3,455		$	2,642
Charged to expense (income)		(731	)		2,467			1,082
Acquisitions		94			—			—
Write-offs and currency translation adjustments		(1,650	)		(1,285	)		(269	)

Balance at the end of the year		2,350			4,637			3,455

As mentioned in Item 7 of this form 10-K, the above allowance is based on historical bad debt experience, an analysis of aged accounts and a consideration of specific accounts.

F-16

AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)

(5) Inventories

Inventories at December 31 consisted of:

	2005		2004

Advance mining	$	4,429	$	2,277
Crude stockpile inventories		18,877		25,159
In-process inventories		25,935		18,123
Other raw material, container, and supplies inventories		28,687		18,323

	$	77,928	$	63,882

Included within Other raw material, container and supplies inventories in the table above is the Company’s reserve for slow moving and obsolete inventory. The balance of this reserve as of and the activity for the years ended December 31 was as follows:

	2005			2004			2003

Balance at the beginning of the year	$	1,574		$	1,747		$	1,313
Charged to costs and expenses		872			784			1,497
Acquisitions		—			277			64
Disposals and currency translation adjustments		(461	)		(1,234	)		(1,127	)

Balance at the end of the year		1,985			1,574			1,747

(6) Property, Plant, Equipment and Mineral Rights and Reserves

Property, plant, equipment and mineral rights and reserves consisted of the following:

	December 31,

	2005		2004

Mineral rights and reserves	$	3,770	$	4,169
Other land		8,991		7,850
Buildings and improvements		63,105		61,987
Machinery and equipment		180,181		178,640
Construction in progress		9,144		6,653

	$	265,191