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AMCOL International Corp. (ACO)

Q4 2008 Earnings Call

January 30, 2009, 11:00 a.m. ET


Larry Washow – President and CEO

Don Pearson – VP and CFO


Rich Wesolowski – Sidoti & Company

Al Kaschalk – Wedbush Morgan

Jay Harris – Goldsmith & Harris

Todd Vencil – Davenport



Good day and welcome to the AMCOL International Fourth Quarter 2008 Earnings Results Conference Call. Today's call is being recorded. A replay of this call will be available starting at 12:30 pm Central Time today. You may access the replay by dialing 888-203-1112 and referencing pass-code 4308334. The speakers today will be Mr. Larry Washow, President and Chief Executive Officer and Mr. Don Pearson, Vice President and Chief Financial Officer.

At this time I would like to turn the call over to Mr. Larry Washow, please go ahead, sir.

Larry Washow

Thank you, Serena and welcome everybody. By now you've had a series of press releases hopefully to take a good look at as we announced our joint venture activities in India and the impact on the quarter and the year. A couple of days ago and then last night turning out the press release with the earnings for Q4 and the wrap up for 2008.

When we look through all the details the way we look at Q4 is about $0.29 a share in earnings for the ongoing business, I will talk about that and Don will get into more of the financials in a little bit. And then we'll obviously open it up for questions.

Taking look at the bright spot for the quarter obviously minerals had a very good quarter continuing the trend that we saw throughout the year of improved gross margins. And actually beginning to approach what I would like to say is the long term target and I think ultimately sustainable, once the business is at the proper level.

So the good news is there we can't get to that type of level with pricing and cost control reduction and energy cost particularly being a benefit in there. But obviously what we are seeing in '09, with the metal casting market slowing down. You've all heard and seen the activity in the car and automotive markets, heavy equipment, both of which use a substantial number of castings obviously that impacts our business.

Oil drilling looking at the rig count through these, so looking ahead a little bit on the mineral sector the consumer related business products are doing well, that should continue the industrial side obviously as the from everybody I am sure, slowing down and that will certainly have an impact at least in the first couple of quarters on the gross margins.

Environmental we talked last quarter a little bit about the slowing down of building activities in Western Europe. That has certainly carried on through and around world, commercial construction has definitely slowed dramatically from where it was a year or two ago. That process will have to work its way through, nobody can predict the time.

It has a real impact on our business and shows up pretty interestingly if you look at the supplementary information towards the back of the press release, we breakout the product line sales and building material is actually down year-over-year 2008, 2007 on a global basis. Certainly, the first time that has happened I suspect since we broke out the Environmental segment at all, but clearly that business is now slowing down.

On the brighter side, their lining tends to be a bit more stable. Certainly, it's project-driven, but the landfill side particular generally if it sell as whole, you build a new sale, you close up the old one and you line the new one, and there is a relatively predictable pattern of activity there. So lining tech, a little less volatility expected than in the building material side.

Oil field services saw some sales growth, but certainly an impact on the margins very obvious, price of gas and oil came down dramatically in Q4, and definitely impacts our business in a big way.

We do provide a nice portfolio of services, so we are confident that there is a very good on-going business with a lower activity levels, clearly it's more competitive. And again, not having the volume there makes the big difference as well on the operating margins.

So, if we look longer-term, longer-term being the next few quarters anyway for oilfield services. The gross margins in the fourth quarter probably more indicative of what we are likely to see until the markets pickup as opposed to the mid-30s that I think our expectation would be in a normalized market.

So, clearly the world is changing, no surprise there. It's obvious to all and we are changing as well and managing the business, monitoring and managing the cost, making sure we have the right staffing in the right palaces. And at the same time really focusing hard on the balance sheet and working capital which is where I will turn it over to Don.

Don Pearson

Thank you, Larry. Before I get into the balance sheet and cash flow, a couple of comments I want to make on the income statement relating to Ashapura, and the Australian dollar cost recognized in the fourth quarter.

As noted in yesterday’s press release AMCOL will restate it's 2008 second and third quarter on Form 10-Q, as we did not properly account for the fair value of derivative instruments held by Ashapura. I want to point out that these are non-cash charges but the require mark-to-market accounting under US-GAAP which is not required under an Indian accounting principles.

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