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Executives

Larry Washow – President and CEO

Don Pearson – VP and CFO

Analysts

Rich Wesolowski – Sidoti & Company

Al Kaschalk – Wedbush Morgan

Jay Harris – Goldsmith & Harris

Todd Vencil – Davenport

AMCOL International Corp. (ACO) Q4 2008 Earnings Call January 30, 2009 11:00 AM ET

Operator

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.

So, hopefully you have had a chance to read the press release on that, we have also issued the 8-K, we expect to file the updated 10-Qs in the very near future. I would like to also point out that our investment in India is effectively written-off at this point in time as a result of these mark-to-market expenses.

So, what does that mean going forward, effectively if Ashapura continue to have losses arising from these derivatives which are recorded mark-to-market, we would have no future losses because we can’t go below zero. What we would do, however, is off balance sheet if you will, tally up these losses and to the extent that Ashapura than became profitable we would call back levels of profits until we reach zero, from that point forward we could then start recognizing equity income as we had done in the past.

On the Australian dollar, we announced that or disclosed that in our Q3 Form 10-Q, but again to point out what happened here as we anticipated closing the pending chrome deal which is the standard deposits in South Africa. We had put a position on the Australian dollar forward. The deal did not close. In the several months that this derivative was open the Australian dollar had unprecedented decline in the range of 15%. So, effectively what happened was the deal did not close when we thought it would. We had to cover this position and that was $4.3 million loss, 2.7 net of tax or $0.09.

So, when we look at earnings per share as Larry had said, we had backlog to $0.19 from the Ashapura non-cash charge and the $0.09 on the Australian dollar.

Moving on to sales for the quarter, we do want to point out the currency fluctuation impact of $11.1 million. This is primarily due to the weakening of the pound in the fourth quarter as we converted these sales back to fewer dollars.

I want to comment on other net expenses also, you can see in the income statement, the loss of $3.3 million. That includes the $4.3 million of the Australian dollar loss. So, therefore, there is about $1 million of FX transaction gain offsetting that letting out to the $3.3 million.

Income tax expenses were low for the quarter, as a function of several things. Number one, fewer or lower pre-tax profit. Number two, based upon the effective rates of the nine months year-to-date was higher than we had or it was high relative to the final earnings for the year. So you effectively true up the effective rate in Q4. So its really a squeeze. There was also the R&D tax credit. That was enacted in Q4. That benefited us.

So, I would not anticipate seeing this type of low rate in the future. In the past we’ve suggested a rate of about 27%. Certainly, this year came in a little bit lower but going forward in the future, the effective tax rate will really be a function of where the income is earned. US tax has been higher than most of our foreign taxes. We also have some tax holidays in the future that will begin to expire.

Looking at the income and lot of this from the affiliates and joint ventures, you can see here that the current loss is $7.3 million which is $9.6 million decrease from the prior year. The majority of this loss is going to be $5.9 million taken for the charge of mark-to-market, derivative losses at Ashapura.

Moving on to debt, you see that debt increased about $164 million but in the year end balance at about $257 million. The unused facility at year end was about $58 million.

Looking forward as to needs on the debt, we well Larry, will talk about I’m sure in the questionnaire the Chrome deal that's pending, spending on that. I do want to point out that the non-cash charges from Ashapura write-offs do not impact any of our debt covenants.

Looking at working capital we had some substantial increases in working capital for the year of about $63 million. That's about 50% from inventory and accounts receivables increases.

Lot of that was due to pretty robust demand in the beginning of the year. We do lot of our building up of credit supplies in the summer months. So, we're anticipating a future robust growth. We filled up the supplies as the volumes slowdown in Q4. We were sitting with higher levels of inventory than we would typically have given the outlook.

So, in 2009, we're going to work pretty aggressively, working down the inventory, improving our demand, planning and supply chains, interfaces and really operating with a lower level of inventory.

Same, with accounts receivable, we've got a pretty strong focus on our receivables, both, the quality of them and the collections that we are working to, aggressively, improve the collection cycle on our receivables.

So, we're looking to have a pretty substantial improvement in working capital as we come in to 2009 for the full year.

Looking at capital spending, we did about $37 million in capital spending for the year and acquisitions were at $43 million. The other line item I'll talk to is advances to investments and joint ventures. That was, $7 million of that was our investment into Russia.

I think with that, Larry, I'll turn it back to you.

Larry Washow

Okay. Serena, why don’t we open up for questions at this time?

Question-and-Answer-Session

Operator

Sure. (Operator Instructions). We will take our first question from Rich Wesolowski with Sidoti & Company. Please go ahead.

Rich Wesolowski – Sidoti & Company

Good morning. How are you guys?

Larry Washow

Good morning, Rich

Don Pearson

Hey, Rich

Rich Wesolowski – Sidoti & Company

Larry, we've talked to last call about the drilling market the iron ore palletizing market really tightening the US bentonite in spite of the order weakness economy of course change a lot quicker than anybody expected. How would you characterize the pricing environment in minerals today versus three months ago?

Larry Washow

Pricing environment this is actually fairly stable still. You know obviously the demands are different the iron ore palletizing market is down. For sure the drilling market is down but at least so far the pricing has been stable. Certainly, I expect we'll be getting some pricing pressures from those markets going forward, but right now anyway the pricing side is okay. The volumes obviously are dropping off which is a big impact on our margin so.

Rich Wesolowski – Sidoti & Company

So, when you talk about -- I mean I don't think usually expects to do 23% gross margin in minerals, but should we interpret your release to say that you won't be hitting the high teens rate that you've done in recent years?

Larry Washow

No, I think the high teens is realistic, I think the mere 20s is what we already want is not going to happen until we get the volume pick up.

Rich Wesolowski – Sidoti & Company

Okay. And lastly on the working capital growth to be sold late in the year, how much of that is Amcol perhaps not performing to it's own expectations on management on versus customers changing their own payment habits?

Larry Washow

It's a little bit of both to be honest obviously as Don mentioned the inventory build tends to occur going into winter, so we typically end up with a fairly high level of inventories. The other side of the coin is we had lot of material under water heading into Asia and that's typically a six to ten week kind of cycle. And when the business started to slow down and we still had a lot of material that was heading over there obviously that’s all now been, the staff has slowed down substantially.

So, I think we are going to see a quick turnaround in the working capital, certainly it will be shrinking for sure; magnitudes quarter-by-quarter should be down several million dollars.

Rich Wesolowski – Sidoti & Company

Okay, sorry one more. Can you refresh my memory as to how much cash is going to go out the door if you complete the chrome deal both for the transaction and for the upgrade of the facility?

Larry Washow

Yes the chrome deal and I should provide you with the quick update on that, it's still in process, not completed it's not concluded yet. South Africa spends the last part of December and the first half of January pretty much on holiday, so it's been coming back over the last week or two. We are in the midst of trying to wrap that deal up. The original deal structure would have been an additional $30 million.

Don Pearson

Yes. It's current structure was in place would probably be just under $30 million to fund the deal.

Larry Washow

And at this juncture, if we do not have an anticipation that we would do major expenditures on the plant side at least for the next few quarters.

Rich Wesolowski – Sidoti & Company

So that previous $8 million to $12 million that you are going to spend after that deal has been forestalled.

Larry Washow

It is, yes, delayed, we still want to do it but we do have a plant down already as you know and initially anyway we are going to work with that and kind of make sure we see where the markets are going.

Rich Wesolowski – Sidoti & Company

Thanks a lot.

Larry Washow

Thank you.

Operator

We will take our next question from Al Kaschalk with Wedbush Morgan.

Al Kaschalk – Wedbush Morgan

Good morning, guys.

Larry Washow

Good morning, Al.

Al Kaschalk – Wedbush Morgan

Larry I wanted to try and focus on leverage or fixed costs and variable costs within the couple of segments, and it's my understanding the minerals have a large percentage of fixed costs and the other two segments have a lot more variable cost oriented. So, as volumes come down, which businesses have the greater chances of sustaining margins or maybe you said differently. Which one should we look out at saying if volume comes down our proportionate percentage decrease in margins would occur as well?

Larry Washow

Yes the environmental segment certainly has the best leverage. And their asset base is modest compared to the mineral sector. So even a decline in volume doesn’t have a same impact on margins because of that fixed cost overhead that would on minerals. So, the environment margins in the fourth quarter is 30% for environmental. I don’t think that’s a range plus or minus from there to look after 2009. It’s going to be again volume does have some impact, so I wouldn’t say its kind of get back to the mid-30s anytime soon. But they should be really in a fairly good position from a gross margin standpoint.

The mineral side is more difficult, because we do have a very high fixed cost base. But there is a reasonable level of business again you just look at that products by itself has solid volume and growing. It doesn’t offset the decline by any means in metal casting, but in those areas we are also looking and making sure that we have got sort of a right structure in place. We have several blending plans for example in metal casting. And we are evaluating if all those are required to really support the business size that it is today.

So, I think we will be shifting and trying to manage our fixed cost base as best we can in minerals to reduce that. Oilfield Services actually has a fairly high fixed cost base just given the amount of equipment that they have. The service element the people that’s more flexible for sure. But they did one of our heavy capital expenditures over the last few years. So there is still that base there. And that’s why you see a pretty good drop in the gross margins in Oilfield. Both the function of the volume and activity, the cost ongoing with the capital invested and you have to retain the good people even though they might not be as busy as you would like and not earning as much as we work on a daily basis on these jobs. So, Oilfield also has a pretty good nut that they have to crack in terms of the fixed cost.

Al Kaschalk – Wedbush Morgan

Would it be fare to say and realize this is a general statement, but maybe you can talk to one or two of the segments that the decline in margins, if you have to really feel like you bottomed to many of those, we are just getting started on the decline?

Larry Washow

No, we don’t, Oilfield really was slower at quarter, that’s I don’t think we are widely off there in terms of Q4 gross margins as an indicator for what our expectations are. It's hard to predict that if oil continuous to drop and gas drops off, could it get worse, sure it could. If the product mix because, we have some of our services that are extremely profitable. More competition for those now because there is not as much demand so that impacts the margins, but Q4 we don’t think its going to be widely off-base or kind of our '09 expectations in terms of the margins.

Environmental kind of a similar story and we don’t think its going to be horrific, these products tend to maintain reasonable margins throughout. Here we have seen some decline obviously, year-over-year and that’s primarily a function of the mix because the building materials products tend to be at a higher margin than the lining text, so given that shift, the margin that we saw in Q4 which is a slower quarter anyway. Probably, indicative of something to look at anyway for Q1, they see a little bit of decline depending on volume, but again I don’t think its going to be radical swings from those kinds of numbers.

Al Kaschalk – Wedbush Morgan

Do you have any color or set some color on January or at least the front part of the month of what you have seen in terms of activity. Has it declined further, has it softened, are you seeing any signs of positive trends?

Don Pearson

Certainly, not seeing any rebound. I mean again, there is a bright spot, this is the time when in fact products business is strong because it's winter. But a lot of the metalcasting customers the foundries, they had to shutdown for the holidays, extended their shutdowns into January in some cases. Others came back for short time, and said we are going to be down a couple of more weeks.

And I think if you go to the automotive sales, it's not a direct proxy, but it's a pretty good idea of what's happening in the metalcasting market. And clearly that being down to the levels it is, reflects on our business overall without a doubt. So can't say I am seeing anything very exciting or robust at all to start the year, but not a lot different than our expectations either.

Al Kaschalk – Wedbush Morgan

And finally, Don, on the covenants, are there covenants we should be thinking about a little bit closer to given the slowdown in business and maybe the cash flow and working capital, I think that could certainly be considered in terms of covenant that maybe shift or dividend concerns.

Don Pearson

Yes. The most important covenant that we watch is the debt-to-EBITDA, which is 3.1, and at year end, we are at 2.4.

Al Kaschalk – Wedbush Morgan

Alright. Thank you, guys.

Don Pearson

Okay, thank you.

Operator

Next, we'll go to Jay Harris with Goldsmith & Harris. Your line is open.

Jay Harris – Goldsmith & Harris

Thank you. In terms of use of cash in 2009, should we assume that 60 some odd million increase in working capital will come out and be a source of cash, or are you shooting for more than that? Give us your capital spending number and your depreciation number?

Larry Washow

Let me take a couple of those, Jay, the start with capital spending, I think as Don mentioned last year, it was $37 million without ignoring South Africa that acquisition cost that will certainly be down by something like $10 million. The working capital clearly we intent to push as hard as we can, if we get, where we get the whole increase from 2008 that I don't know, but certainly we do expect a substantial improvement in that and that obviously as you say does result in cash. Depreciation , Don.

Don Pearson

Yes, well, depreciation, amortization for '08, you could see is 34. So, certainly I think that will probably stay around there might up tick a bit but be in that range.

Jay Harris – Goldsmith & Harris

Well, it looks though South Africa goes through what will happen at number?

Larry Washow

Well, we are not again the investment is in the mine side so that --

Jay Harris – Goldsmith & Harris

Mostly in the ground?

Larry Washow

That's right.

Jay Harris – Goldsmith & Harris

Okay, so that one has any effect?

Larry Washow

Correct.

Jay Harris – Goldsmith & Harris

As we look at your mineral segment, what portion of the revenue increase in the quarter and for the year was prices?

Larry Washow

Yes, in the quarter the vast majority of the increase was pricing.

Don Pearson

Yes, certainly more than half I think over the course of the year would be pricing Jay and we really did see as the energy's cost start to come down. But the nature our business a lot of the material is already mine then in inventory. So some of the higher cost is built in there until we get to the new mining season with lower cost. So most of the improvement in 2008 was pricing but again we did start to see that cost element come in towards the second half of the year.

Jay Harris – Goldsmith & Harris

Do you think you will be able to hold those prices in '09?

Larry Washow

Certainly, our intent, again it’s a very competitive market lots of companies are aggressively looking to reduce their costs. So, we would be under pressure. We certainly will, already are. We'll hold it as strongly and as much as we can, but I can't say yes, for sure we'll hold it everywhere. We think minerals margins in Q4 really got to where they need to be in the long-term basis. So, it's hard to retrieve from that in a big way is not acceptable either. So, we are going to be very aggressive in trying to maintain the pricing we have or as much as we can.

Jay Harris – Goldsmith & Harris

As '09 progresses and you consume your high costs inventories, given the energy input into minerals product line. Would we see a significant cost of good sold advantage?

Larry Washow

It will help some, but I don't want to gain with the overhead fixed cost coming into play. We're not going to see probably as much of a benefit from that as we would has the volume stayed very strong. So, it's going to help but I don't think it's going to have a big impact on the gross margin.

Jay Harris – Goldsmith & Harris

Have the rail roads reduced all of their surcharges for higher fuel costs?

Larry Washow

Definitely surcharges are coming down. They seem to come down slower than they were now.

Don Pearson

They are definitely coming down and that’s the benefit as well.

Jay Harris – Goldsmith & Harris

Alright and in the truck transportation, is that occurring as well?

Larry Washow

It is. Yes, the diesel prices coming down certainly helped trucking. But again there you've got a lot of trucks using less volume so the competition there is very fierce. And that's a competitive market everyday. It's really one that it's hard to maintain a long-term got a high margin business. So, I expect our margins there to be similar to where they are this year but probably not real any.

Jay Harris – Goldsmith & Harris

Are you looking for much in the way of volume changes in the components of your minerals segment in '09 versus '08?

Larry Washow

Yes certainly metal casting trended down really from probably almost from the second quarter right on through the end of the year. We are not sure if that a sound a base yet. The bottom still turning down slowly, certainly the slower rate benefits which is good. The Oilfield drilling clearly has dropped off pretty dramatically and relatively quickly. And I am not sure we are quite at the base their but the rig count, we think is to come down but at a bit slower pace. I think that’s entirely dependent on what happens with the oil and gas pricing.

Jay Harris – Goldsmith & Harris

And what is the outlook for the liner business activity in '09? Does it continue at the fourth quarter pace for the year or did the projects get thinner as we go further into calendar year '09?

Don Pearson

Yes, we are starting the year with a thinner backlog than we normally do but there is as much activity on the bidding side and the project side as ever so, it’s really going to be dependent on how many of those projects turn into real money being spend on the ground. We will certainly get our portion and we think we are in good position on the some very major projects but it’s a question do they get funded, do they get built for '09? What happens? But yes I think we are starting off the year with a thinner backlog than we normally do for sure.

Jay Harris – Goldsmith & Harris

Have you hit bottom on building materials yet?

Larry Washow

Hard to say Jay, it really slowed down a lot in the last couple of quarters and we are seeing a lot of bidding activity on some of these infrastructure projects. Schools, for example, they are still building, the government is still spending money on building and we will have to see what the Chinese stimulus plan and infrastructure in the US, if that translates into some projects it ultimately will be a benefit for us in that building material sector, but hard to say, I mean, we hit the bottom, I don’t know. It certainly has slowed down. We have broadened our product range in our portfolio over the last year, which we think positioned us well for whatever is out there. But we just have to see how the bidding goes.

Jay Harris – Goldsmith & Harris

And finally, could you add some color or provide some color on debt reduction versus acquisition opportunities?

Larry Washow

No question where the focus is. It's balance sheet all the way, up and down the organization. We have spent most of our day talking about cash and cash flow over the working capital and improving it. Clearly, that is the 2009 objective. Once the South African deal is complete there is no other acquisition down the horizon that are expected or planned or even likely to occur in 2009 at all. Capital spending coming down will help the cash as well. But clearly, it's a balance sheet year as oppose to sales growth in and what our last several years have brought to us.

Jay Harris – Goldsmith & Harris

I lied. Just one more.

Larry Washow

Okay.

Jay Harris – Goldsmith & Harris

What do you think will happen to the price of chrome sands, that you hope to sell into stainless steel casting market as '09 progresses?

Larry Washow

Yes. Good question, and to report one for people to understand. We don’t sell chrome into stainless steel, in the met grade market, as they call it. That’s of no interest to us at all, pricing in that market has collapsed on the chrome side. The market we are interested in is the steel-foundry casting, very large steel castings, that’s less than 10% of the whole chrome market. But, one that we believe, with the technical support we have and the quality of the raw material and the process we are doing, we have a chance of getting a portion of that market, and we only need a portion to have a very successful start to the year.

The pricing, so far, has not come down, and in part because a lot of the chrome sand producers who make the foundry sand is bit of a sidelines have shutdown their mine and shutdown their activity just given the collapse in the chrome sand pricing for stainless steel. So, at least at this point we are pretty comfortable that the pricing market for the foundry sand which is our business is going to hang on there.

Jay Harris – Goldsmith & Harris

Thank you.

Larry Washow

Thank you.

Operator

Our next question comes from Todd Vencil with Davenport. Please go ahead.

Todd Vencil – Davenport

Hey, guys. Thanks a lot.

Larry Washow

Good morning, Todd.

Todd Vencil – Davenport

You have done a really good job. Help me just to think about what the margins are going to be in the various businesses and I guess, you get a lot of sort of detail within each of the segment in terms of thinking about how the parts of the business are tracking. I wonder if you can maybe sort of walk through and think net-net-net what do you see in terms of foreign exchange and then how the acquisition roll-off. Broadly speaking I mean, we are looking at ex-price, so we are looking at anything that could potentially be sort of up this year or is it all kind of flat and then flat to down then we think about price on top of that maybe in the mineral space.

Larry Washow

Yes, the mineral space I think the upside is assuming we can wrap up the chrome deal. There is a nice market out there. We are well connected to it and we are well position to get into it, and if we can do that that's actually an upside for the minerals activity. Some of the other areas which are getting under way were completing an expansion in Asia of our granular material which goes into detergents and other consumer products. We think that market is stable and growing. And in Asia even though I think which is slowed down dramatically sort of the transition to some of the more traditionally western products and style continues. So, we think that that's kind of growing market, we are positioned very well in that. We will have more capacity coming on and that could be a plus.

We supply materials in the paper market. It's a relatively small segment for us but it will be bigger this year than last year for sure and it has granted us only few million dollars additional sales but nice margins and that helps offset some of that declines.

So, clearly the big volume guys are the headliners and metalcasting and oil drilling being the prominent ones is other areas that are positive they kind of fit into on a plus side and not enough offset all the negative side of being per se but I do think there is going to be a reasonable balance in there. In terms of the pricing that has been improved most of which we think will stay some of the smaller segments which have good margins and will add value and obviously we're focused on the cost as well. So clearly getting the operation size correctly and doing what we can to make sure that our variable cost as well as it can be given the expected volumes will help support the margins as well.

Todd Vencil – Davenport

On the cost saving side you actually mentioned that you were may be looking to something of how many blending plants you had for the metalcasting. I mean could you talk a little bit about some of the various things you may be looking at I’m sure you are given the volumes are doing what they are?

Larry Washow

Yes we are really looking at everything Todd there is no stone that isn't appropriate to take a serious look at. Obviously our strategy for a long time has been to really quick position these plants near significant foundry areas and unfortunately in that industry some of what was significant ten years ago, foundries have closed and moved have changed are not significant anymore. And if the business levels aren't enough to really support in a very profitable way these plants were taking a look at.

At the same time we are trying to make sure that we're maximizing our major Western plants which are by far most effective operations and the more volume we keep there the better we do have other plants out of west that are kind of more of a swing plant where we pick up additional volume. We are looking at how to make sure that we've got ourselves positioned right to take advantage of the lowest cost operations we have.

Todd Vencil – Davenport

Okay. Through an FX standpoint can you just real quick, talk about where you guys stand at this point on what sort of your , what the major currencies and kind of the way things are in the businesses that are impacting your top-line?

Larry Washow

Todd, the big currencies are going to be pound, the euro and Polish zloty.

Todd Vencil – Davenport

Okay.

Larry Washow

So, in the fourth quarter the euro and the dollar, kind of moved but came back so that didn't have a big impact but on the top line it was really all about the weakening of the pound. So, the pound is the dollar is right now is at about a buck probably a buck 45 or so. So if that will be kind of a probably a good indicator on the top line on the translation side. To a lesser extent the zloty as well, the volatility that we had in the fourth quarter certainly it kind of threw all the old rules out of the book. But it seems like things are stabilizing a bit. The dollar being stronger, we know we'll have a dampening on the top line. But I think that's probably the best way to think about is that the dollar would happen to weaken, that will help our top line. But it seems that the general consensus is dollar will probably stay in this range for some time.

Todd Vencil – Davenport

Okay. And then remind me where we stand say on leaseback on the buildings?

Don Pearson

Yes that transaction is done.

Todd Vencil – Davenport

Done right?

Don Pearson

Yes so you’ll see the cash flow $23 million coming in $23 million going out we probably heard that their cost of the building is around 30 or so the remaining is just some items and the receivable our construction is in progress and a payable that is why shut a feature are there out there as well and I'll be gone within the next couple of months, as the building is, all the payments are made.

Todd Vencil – Davenport

Okay and then on the pension side, you guys, we got looking out for this year. Any strict color on what's going on there?

Don Pearson

Yes, I think our normal run-rate on pension expense was somewhere around $1 million so obviously with the decline in the assets and the pension plans and changes in discount rates, there will be some impact. So that will probably, be a little bit more than $2 million so not substantial but there will be, some impact from that obviously these, with pension accounting things are kind of taken over a period of time with gains and losses. So it's not a mark-to-market type approach, but it'll be a – it’ll probably go from the $1 million to $2 million, $2.5 million range.

Todd Vencil – Davenport

Okay and what about in terms of, in terms of cash contributions?

Don Pearson

Yes, we are fully funded so we do have the option of, if we chose to, to not have to fund this year.

Todd Vencil – Davenport

Okay and final thing is that, is Gary on the call?

Don Pearson

No.

Todd Vencil – Davenport

Okay would you tell Gary; we talked a lot in the past about prices in middle and just tell him I said congratulations.

Don Pearson

We’ll do it. He got his work cut out from this year.

Todd Vencil – Davenport

Good and thanks guys.

Don Pearson

Thank you.

Operator

We will take our next question from Rich Wesolowski with Sidoti & Company.

Rich Wesolowski – Sidoti & Company

I hope I have my mute button on. In a road show though I was surprised to see you call out offshore portion of business which I thought was in better shape than the land based drilling. Is there a big difference between the two and have you seen the drop-off in both or just one.

Don Pearson

Both the drop up Rich I think the, the impact on the offshore side is the big projects, they tend to go on and they are very nice and they are profitable. But the activity level out there has certainly slowed down offshore. And clearly, especially in the gas market onshore, it is way down.

The other impact is the acquisition we did mid-year last year on the coiled tubing, that it was obviously an expected acquisition. It's a very high-value service that is provided. But with the lower activity level, they are not certainly fully utilized and the rates are coming down, because there are more coiled tubing units available today just because of the activity levels. Whereas last year or year ago at this time, there were not enough, so typical sort of thing where you see the competition picking up a lot, and it does have a big impact on margins obviously.

Rich Wesolowski – Sidoti & Company

Okay. Lastly, can you talk about whether the product of all the factors, did you have any earnings or you will have in 2009 will put you close to any of your debt covenants? And secondly, whether you have any ability to raise the ceiling on your existing revolver at any point during the recession?

Larry Washow

To keep that covenant, Don mentioned is that EBITDA multiple, and that is the one we really watch very-very carefully, certainly are going to work hard not to get in a position where we would have an issue with that.

Having said that, I suspect like everyone, we are looking at any and all options just to understand what the market looks like today for different sort of financing vehicles, not expecting to use it, but at least making sure we know. If there is an opportunity, one, for a good approach, we want to know that.

And secondarily, if we do get to the stage where we might have an issue, then we want to know really how to deal with all the options. But at this juncture, we have been more talking and learning than certainly making any decisions on that.

Rich Wesolowski – Sidoti & Company

Great. Thanks again.

Larry Washow

Thank you.

Operator

Gentlemen, we have no further questions at this time.

Larry Washow

Great, thank you everybody for joining and talk to you next quarter.

Operator

Once again, that does conclude today's conference. Thank you for joining us and have a wonderful day.

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Source: AMCOL International Corp., Q4 2008 Earnings Call Transcript
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