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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-11430
--
MINERALS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware |
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25-1190717 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
622 Third Avenue, New York, New York 10017-6707
(Address of principal executive offices, including zip code)
(212) 878-1800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of exchange on which registered |
Common Stock, $0.10 par value |
MTX |
New York Stock Exchange LLC |
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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or and emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ |
Accelerated Filer ☐ |
Non-accelerated Filer ☐ (Do not check if a smaller reporting company) |
Smaller Reporting Company ☐ |
Emerging Growth Company ☐ |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of July 22, 2019, there were 35,062,611 shares of common stock, par value of $0.10 per share, of the registrant outstanding.
MINERALS TECHNOLOGIES INC.
INDEX TO FORM 10-Q
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Page No. |
PART I. FINANCIAL INFORMATION |
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Item 1. |
Financial Statements: |
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Item 2. |
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24 |
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Item 3. |
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35 |
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Item 4. |
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36 |
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PART II. OTHER INFORMATION |
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Item 1. |
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37 |
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Item 1A. |
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38 |
|
|
|
Item 2. |
|
38 |
|
|
|
Item 3. |
|
38 |
|
|
|
Item 4. |
|
38 |
|
|
|
Item 5. |
|
38 |
|
|
|
Item 6. |
|
39 |
|
|
|
|
|
40 |
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars, except per share data) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
438.0 |
|
|
$ |
445.0 |
|
|
$ |
855.4 |
|
|
$ |
857.2 |
|
Service revenue |
|
|
25.8 |
|
|
|
19.7 |
|
|
|
46.1 |
|
|
|
38.8 |
|
Total net sales |
|
|
463.8 |
|
|
|
464.7 |
|
|
|
901.5 |
|
|
|
896.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
334.0 |
|
|
|
335.3 |
|
|
|
648.0 |
|
|
|
640.3 |
|
Cost of service revenue |
|
|
17.8 |
|
|
|
13.5 |
|
|
|
31.8 |
|
|
|
26.3 |
|
Total cost of sales |
|
|
351.8 |
|
|
|
348.8 |
|
|
|
679.8 |
|
|
|
666.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production margin |
|
|
112.0 |
|
|
|
115.9 |
|
|
|
221.7 |
|
|
|
229.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses |
|
|
48.4 |
|
|
|
45.3 |
|
|
|
91.3 |
|
|
|
89.7 |
|
Research and development expenses |
|
|
4.9 |
|
|
|
6.4 |
|
|
|
9.7 |
|
|
|
12.5 |
|
Acquisition related transaction and integration costs |
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
|
|
1.4 |
|
Restructuring and other items, net |
|
|
13.2 |
|
|
|
0.4 |
|
|
|
13.2 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
45.5 |
|
|
|
62.8 |
|
|
|
107.5 |
|
|
|
125.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(10.9 |
) |
|
|
(11.5 |
) |
|
|
(22.3 |
) |
|
|
(22.2 |
) |
Other non-operating income (deductions), net |
|
|
(2.4 |
) |
|
|
3.1 |
|
|
|
(3.8 |
) |
|
|
0.4 |
|
Total non-operating deductions, net |
|
|
(13.3 |
) |
|
|
(8.4 |
) |
|
|
(26.1 |
) |
|
|
(21.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before tax and equity in earnings |
|
|
32.2 |
|
|
|
54.4 |
|
|
|
81.4 |
|
|
|
103.6 |
|
Provision for taxes on income |
|
|
5.1 |
|
|
|
10.3 |
|
|
|
14.4 |
|
|
|
19.6 |
|
Equity in earnings of affiliates, net of tax |
|
|
0.5 |
|
|
|
1.1 |
|
|
|
0.6 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
|
|
27.6 |
|
|
|
45.2 |
|
|
|
67.6 |
|
|
|
86.3 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests |
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.9 |
|
|
|
2.3 |
|
Net income attributable to Minerals Technologies Inc. |
|
$ |
26.6 |
|
|
$ |
44.1 |
|
|
$ |
65.7 |
|
|
$ |
84.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations attributable to Minerals Technologies Inc. |
|
$ |
0.76 |
|
|
$ |
1.25 |
|
|
$ |
1.87 |
|
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations attributable to Minerals Technologies Inc. |
|
$ |
0.75 |
|
|
$ |
1.24 |
|
|
$ |
1.86 |
|
|
$ |
2.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
35.2 |
|
|
|
35.3 |
|
|
|
35.2 |
|
|
|
35.4 |
|
Diluted |
|
|
35.3 |
|
|
|
35.6 |
|
|
|
35.3 |
|
|
|
35.6 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
27.6 |
|
|
$ |
45.2 |
|
|
$ |
67.6 |
|
|
$ |
86.3 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(18.7 |
) |
|
|
(54.5 |
) |
|
|
(19.1 |
) |
|
|
(39.1 |
) |
Pension and postretirement plan adjustments |
|
|
1.7 |
|
|
|
1.9 |
|
|
|
3.3 |
|
|
|
3.7 |
|
Unrealized gains (losses) on derivative instruments |
|
|
(3.3 |
) |
|
|
(1.3 |
) |
|
|
(2.1 |
) |
|
|
0.3 |
|
Total other comprehensive loss, net of tax |
|
|
(20.3 |
) |
|
|
(53.9 |
) |
|
|
(17.9 |
) |
|
|
(35.1 |
) |
Total comprehensive income (loss) including non-controlling interests |
|
|
7.3 |
|
|
|
(8.7 |
) |
|
|
49.7 |
|
|
|
51.2 |
|
Comprehensive income (loss) attributable to non-controlling interests |
|
|
(0.8 |
) |
|
|
0.5 |
|
|
|
(2.2 |
) |
|
|
(1.3 |
) |
Comprehensive income (loss) attributable to Minerals Technologies Inc. |
|
$ |
6.5 |
|
|
$ |
(8.2 |
) |
|
$ |
47.5 |
|
|
$ |
49.9 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(millions of dollars) |
|
June 30, 2019* |
|
|
Dec. 31, 2018 ** |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
214.5 |
|
|
$ |
208.8 |
|
Short-term investments |
|
|
5.2 |
|
|
|
3.8 |
|
Accounts receivable, net |
|
|
411.9 |
|
|
|
387.3 |
|
Inventories |
|
|
258.4 |
|
|
|
239.2 |
|
Prepaid expenses and other current assets |
|
|
41.1 |
|
|
|
37.2 |
|
Total current assets |
|
|
931.1 |
|
|
|
876.3 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
2,246.8 |
|
|
|
2,256.0 |
|
Less accumulated depreciation and depletion |
|
|
(1,177.7 |
) |
|
|
(1,153.1 |
) |
Property, plant and equipment, net |
|
|
1,069.1 |
|
|
|
1,102.9 |
|
Goodwill |
|
|
807.9 |
|
|
|
812.4 |
|
Intangible assets |
|
|
207.9 |
|
|
|
214.1 |
|
Deferred income taxes |
|
|
25.4 |
|
|
|
26.3 |
|
Other assets and deferred charges |
|
|
108.0 |
|
|
|
55.1 |
|
Total assets |
|
$ |
3,149.4 |
|
|
$ |
3,087.1 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
104.2 |
|
|
$ |
105.2 |
|
Current maturities of long-term debt |
|
|
2.1 |
|
|
|
3.3 |
|
Accounts payable |
|
|
188.2 |
|
|
|
169.1 |
|
Other current liabilities |
|
|
111.1 |
|
|
|
104.3 |
|
Total current liabilities |
|
|
405.6 |
|
|
|
381.9 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of unamortized discount and deferred financing costs |
|
|
874.2 |
|
|
|
907.8 |
|
Deferred income taxes |
|
|
194.2 |
|
|
|
196.8 |
|
Accrued pension and post-retirement benefits |
|
|
123.0 |
|
|
|
124.2 |
|
Other non-current liabilities |
|
|
130.8 |
|
|
|
91.1 |
|
Total liabilities |
|
|
1,727.8 |
|
|
|
1,701.8 |
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
4.9 |
|
|
|
4.9 |
|
Additional paid-in capital |
|
|
435.3 |
|
|
|
431.9 |
|
Retained earnings |
|
|
1,842.2 |
|
|
|
1,769.1 |
|
Accumulated other comprehensive loss |
|
|
(262.8 |
) |
|
|
(233.7 |
) |
Less common stock held in treasury |
|
|
(628.7 |
) |
|
|
(618.7 |
) |
|
|
|
|
|
|
|
|
|
Total Minerals Technologies Inc. shareholders' equity |
|
|
1,390.9 |
|
|
|
1,353.5 |
|
Non-controlling interests |
|
|
30.7 |
|
|
|
31.8 |
|
Total shareholders' equity |
|
|
1,421.6 |
|
|
|
1,385.3 |
|
Total liabilities and shareholders' equity |
|
$ |
3,149.4 |
|
|
$ |
3,087.1 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net income |
|
$ |
67.6 |
|
|
$ |
86.3 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
48.9 |
|
|
|
44.5 |
|
Amortization of right of use asset |
|
|
6.6 |
|
|
|
— |
|
Asset impairment charges |
|
|
7.5 |
|
|
|
— |
|
Other non-cash items |
|
|
4.5 |
|
|
|
(2.0 |
) |
Pension plan funding |
|
|
(3.1 |
) |
|
|
(12.3 |
) |
Net changes in operating assets and liabilities |
|
|
(33.7 |
) |
|
|
(36.3 |
) |
Net cash provided by operating activities |
|
|
98.3 |
|
|
|
80.2 |
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net |
|
|
(35.5 |
) |
|
|
(42.1 |
) |
Acquisition of business, net of cash acquired |
|
|
— |
|
|
|
(124.1 |
) |
Proceeds from sale of short-term investments |
|
|
3.4 |
|
|
|
1.8 |
|
Purchases of short-term investments |
|
|
(4.7 |
) |
|
|
(2.5 |
) |
Other investing activities |
|
|
(0.8 |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
(37.6 |
) |
|
|
(166.9 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
— |
|
|
|
(1.4 |
) |
Repayment of long-term debt |
|
|
(36.6 |
) |
|
|
(6.6 |
) |
Proceeds from issuance of short-term debt |
|
|
— |
|
|
|
113.0 |
|
Repayment of short-term debt |
|
|
(1.1 |
) |
|
|
(1.1 |
) |
Purchase of common stock for treasury |
|
|
(10.0 |
) |
|
|
(13.3 |
) |
Proceeds from issuance of stock under option plan |
|
|
0.4 |
|
|
|
1.9 |
|
Excess tax benefits related to stock incentive programs |
|
|
(1.9 |
) |
|
|
(3.2 |
) |
Dividends paid to non-controlling interests |
|
|
(3.9 |
) |
|
|
(0.2 |
) |
Capital contribution from non-controlling interests |
|
|
0.6 |
|
|
|
— |
|
Cash dividends paid |
|
|
(3.5 |
) |
|
|
(3.5 |
) |
Net cash used in financing activities |
|
|
(56.0 |
) |
|
|
85.6 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
1.0 |
|
|
|
(8.1 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
5.7 |
|
|
|
(9.2 |
) |
Cash and cash equivalents at beginning of period |
|
|
208.8 |
|
|
|
212.2 |
|
Cash and cash equivalents at end of period |
|
$ |
214.5 |
|
|
$ |
203.0 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
21.9 |
|
|
$ |
22.1 |
|
Income taxes paid |
|
$ |
13.7 |
|
|
$ |
20.9 |
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Treasury stock purchases settled after period end |
|
$ |
— |
|
|
$ |
0.3 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
(Unaudited)
|
|
Equity Attributable to Minerals Technologies Inc. |
|
|
|
|
|
|
|
(millions of dollars) |
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Treasury Stock |
|
|
Non-controlling Interests |
|
|
Total |
|
Balance as of December 31, 2018 |
|
$ |
4.9 |
|
|
$ |
431.9 |
|
|
$ |
1,769.1 |
|
|
$ |
(233.7 |
) |
|
$ |
(618.7 |
) |
|
$ |
31.8 |
|
|
$ |
1,385.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
39.1 |
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
|
|
40.0 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.9 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
2.4 |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.7 |
) |
Dividends paid to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Cumulative effect of accounting change |
|
|
— |
|
|
|
— |
|
|
|
10.9 |
|
|
|
(10.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Capital contribution from non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.8 |
|
|
|
0.8 |
|
Issuance of shares pursuant to employee stock compensation plans |
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
Stock-based compensation |
|
|
— |
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.6 |
|
Balance as of March 31, 2019 |
|
$ |
4.9 |
|
|
$ |
432.6 |
|
|
$ |
1,817.4 |
|
|
$ |
(242.7 |
) |
|
$ |
(618.7 |
) |
|
$ |
33.9 |
|
|
$ |
1,427.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
26.6 |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
27.6 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20.1 |
) |
|
|
— |
|
|
|
(0.2 |
) |
|
|
(20.3 |
) |
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
(1.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.8 |
) |
Dividends paid to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.8 |
) |
|
|
(3.8 |
) |
Capital contribution from non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
(0.2 |
) |
Issuance of shares pursuant to employee stock compensation plans |
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.2 |
|
Stock-based compensation |
|
|
— |
|
|
|
2.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.5 |
|
Purchase of common stock for treasury |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10.0 |
) |
|
|
— |
|
|
|
(10.0 |
) |
Balance as of June 30, 2019 |
|
$ |
4.9 |
|
|
$ |
435.3 |
|
|
$ |
1,842.2 |
|
|
$ |
(262.8 |
) |
|
$ |
(628.7 |
) |
|
$ |
30.7 |
|
|
$ |
1,421.6 |
|
|
|
Equity Attributable to Minerals Technologies Inc. |
|
|
|
|
|
|
|
(millions of dollars) |
|
Common Stock |
|
|
Additional Paid-in Capital |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
Treasury Stock |
|
|
Non-controlling Interests |
|
|
Total |
|
Balance as of December 31, 2017 |
|
$ |
4.9 |
|
|
$ |
422.7 |
|
|
$ |
1,607.2 |
|
|
$ |
(186.1 |
) |
|
$ |
(597.0 |
) |
|
$ |
27.4 |
|
|
$ |
1,279.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
39.9 |
|
|
|
— |
|
|
|
— |
|
|
|
1.2 |
|
|
|
41.1 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18.2 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
18.7 |
|
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
(1.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.8 |
) |
Dividends paid to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Issuance of shares pursuant to employee stock compensation plans |
|
|
— |
|
|
|
0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
Purchase of common stock for treasury |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5.7 |
) |
|
|
— |
|
|
|
(5.7 |
) |
Balance as of April 1, 2018 |
|
$ |
4.9 |
|
|
$ |
423.2 |
|
|
$ |
1,645.3 |
|
|
$ |
(167.9 |
) |
|
$ |
(602.7 |
) |
|
$ |
29.0 |
|
|
$ |
1,331.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
44.1 |
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
|
|
|
45.2 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(52.3 |
) |
|
|
— |
|
|
|
(1.6 |
) |
|
|
(53.9 |
) |
Dividends declared |
|
|
— |
|
|
|
— |
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.7 |
) |
Dividends paid to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of shares pursuant to employee stock compensation plans |
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
Stock based compensation |
|
|
— |
|
|
|
2.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2.3 |
|
Purchase of common stock for treasury |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7.7 |
) |
|
|
— |
|
|
|
(7.7 |
) |
Balance as of July 1, 2018 |
|
$ |
4.9 |
|
|
$ |
426.9 |
|
|
$ |
1,687.7 |
|
|
$ |
(220.2 |
) |
|
$ |
(610.4 |
) |
|
$ |
28.5 |
|
|
$ |
1,317.4 |
|
See Notes to Consolidated Financial Statements, which are an integral part of these statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared by management of Minerals Technologies Inc. (the “Company”, “MTI”, “we”, or “us”) in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. The results for the three-month and six-month periods ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Company Operations
The Company is a resource- and technology-based company that develops, produces and markets worldwide a broad range of specialty mineral, mineral-based and synthetic mineral products and supporting systems and services.
The Company has four reportable segments: Performance Materials, Specialty Minerals, Refractories and Energy Services.
– |
The Performance Materials segment is a leading global supplier of bentonite and bentonite-related products, chromite and leonardite. This segment also provides products for non-residential construction, environmental and infrastructure projects worldwide, serving customers engaged in a broad range of construction projects. |
– |
The Specialty Minerals segment produces and sells the synthetic mineral product precipitated calcium carbonate (“PCC”) and processed mineral product quicklime (“lime”), and mines mineral ores then processes and sells natural mineral products, primarily limestone and talc. |
– |
The Refractories segment produces and markets monolithic and shaped refractory materials and specialty products, services and application and measurement equipment, and calcium metal and metallurgical wire products. |
– |
The Energy Services segment provides services to improve the production, costs, compliance, and environmental impact of activities performed in the oil and gas industry. This segment offers a range of patented and unpatented technologies, products and services to the upstream and downstream oil and gas sector throughout the world. |
Use of Estimates
The Company employs accounting policies that are in accordance with U.S. generally accepted accounting principles and require management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Significant estimates include those related to revenue recognition, valuation of long-lived assets, goodwill and other intangible assets, income taxes, including valuation allowances, and pension plan assumptions. Actual results could differ from those estimates.
Recently Issued Accounting Standards
Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. All recently issued ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Adopted Accounting Standards
On January 1, 2019, the Company adopted the provisions of ASU 2016-02, “Leases”, which requires lessees to recognize most leases on-balance sheet. The Company has adopted this new standard under the modified retrospective transition method, using the effective date as our date of initial application. As such, financial information and required disclosures will not be provided for dates prior to January 1, 2019. The new standard provides a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. On adoption, we recognized additional operating liabilities of $61.4 million with corresponding right-of-use assets of $50.5 million based on the present value of the remaining lease payments under existing operating leases. As of December 31, 2018, we had $10.9 million in deferred charges related to some of our real estate leases that were recorded against the right of use asset as part of the transition. The adoption of this standard did not have a material impact on the Company's financial statements.
On January 1, 2019, the Company adopted the provisions of ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. As a result, the Company reclassified $10.9 million from "Accumulated other comprehensive loss" to "Retained earnings" on the Condensed Consolidated Balance Sheets as of June 30, 2019.
Note 2. Leases
We determine if an arrangement is a lease at inception. The Company has operating leases for premises, equipment, rail cars and automobiles. Our leases have remaining lease terms of 1 year to 50 years, some of which may include options to extend the leases further. The Company considers these options in determining the lease term used to establish the right-of-use assets and lease liabilities. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based upon the information available at commencement date, or as of implementation of ASC 842, in determining the present value of lease payments.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. Certain lease agreements contain both lease and non-lease components. We account for lease components together with non-lease components.
Operating lease cost was $4.0 million and $8.1 million for the three and six-month periods ended June 30, 2019, respectively. The components of lease costs are as follows:
(millions of dollars) |
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2019 |
|
|
June 30, 2019 |
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
3.9 |
|
|
$ |
7.9 |
|
Short-term lease cost |
|
|
0.1 |
|
|
|
0.2 |
|
Total |
|
$ |
4.0 |
|
|
$ |
8.1 |
|
Supplemental cash flow information and non-cash activity related to our operating leases are as follows:
(millions of dollars) |
|
June 30, 2019 |
|
|
|
|
|
Operating cash flows information: |
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
8.3 |
|
Non-cash activity: |
|
|
|
|
Right-of-use assets obtained in the exchange for operating lease liabilities |
|
$ |
3.3 |
|
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Weighted average remaining lease term, and weighted average discount rates related to the Company’s operating leases were as follows:
|
|
|
|
Weighted-average remaining operating lease term (in years) |
|
|
7.80 |
|
Weighted-average operating leases discount rate |
|
|
5.0 |
% |
The following table summarizes the Company's outstanding lease assets and liabilities and their classification on the Condensed Consolidated Balance Sheet:
(millions of dollars) |
Balance Sheet Classification |
|
June 30, 2019 |
|
|
|
|
|
|
Right-of-use asset |
Other assets and deferred charges |
|
$ |
47.1 |
|
Lease liability - current |
Other current liabilities |
|
|
12.0 |
|
Lease liability - non-current |
Other non-current liabilities |
|
|
46.1 |
|
Future minimum lease payments under the Company's operating leases as of June 30, 2019 were as follows:
(millions of dollars) |
|
June 30, 2019 |
|
|
|
|
|
For the remainder of 2019 |
|
$ |
7.7 |
|
2020 |
|
|
13.0 |
|
2021 |
|
|
9.6 |
|
2022 |
|
|
7.7 |
|
2023 |
|
|
6.2 |
|
Thereafter |
|
|
26.3 |
|
Total future minimum lease payments |
|
|
70.5 |
|
Less imputed interest |
|
|
(12.6 |
) |
Total |
|
$ |
57.9 |
|
As of December 31, 2018, minimum lease payments under non-cancellable operating leases were expected to be as follows:
(millions of dollars) |
|
Dec. 31, 2018 |
|
|
|
|
|
2019 |
|
$ |
17.3 |
|
2020 |
|
|
13.0 |
|
2021 |
|
|
9.5 |
|
2022 |
|
|
8.2 |
|
2023 |
|
|
7.0 |
|
Thereafter |
|
|
24.8 |
|
Total |
|
$ |
79.8 |
|
A summary of rent expense for the fiscal years ended December 31, 2018 and December 31, 2017 was as follows:
(millions of dollars) |
|
Dec. 31, 2018 |
|
|
Dec. 31, 2017 |
|
|
|
|
|
|
|
|
Rent expense |
|
$ |
19.5 |
|
|
$ |
19.3 |
|
The Company has certain arrangements under which we are the lessor. Lease income associated with these leases is not material.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Revenue from Contracts with Customers
The following table disaggregates our revenue by major source (product line) for the three and six-month periods ended June 30, 2019 and July 1, 2018 :
(millions of dollars) |
|
Three Months Ended |
|
|
Six Months Ended |
|
Net Sales |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metalcasting |
|
$ |
75.8 |
|
|
$ |
88.8 |
|
|
$ |
149.0 |
|
|
$ |
168.0 |
|
Household, Personal Care and Specialty Products |
|
|
69.0 |
|
|
|
58.6 |
|
|
|
143.9 |
|
|
|
107.3 |
|
Environmental Products |
|
|
29.0 |
|
|
|
25.2 |
|
|
|
44.9 |
|
|
|
37.9 |
|
Building Materials |
|
|
19.1 |
|
|
|
18.0 |
|
|
|
34.4 |
|
|
|
36.9 |
|
Basic Minerals |
|
|
22.5 |
|
|
|
23.9 |
|
|
|
42.4 |
|
|
|
51.7 |
|
Performance Materials |
|
|
215.4 |
|
|
|
214.5 |
|
|
|
414.6 |
|
|
|
401.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper PCC |
|
|
90.2 |
|
|
|
94.5 |
|
|
|
181.7 |
|
|
|
191.5 |
|
Specialty PCC |
|
|
17.3 |
|
|
|
17.3 |
|
|
|
35.4 |
|
|
|
34.3 |
|
Ground Calcium Carbonate |
|
|
24.8 |
|
|
|
25.2 |
|
|
|
47.1 |
|
|
|
47.7 |
|
Talc |
|
|
12.8 |
|
|
|
13.9 |
|
|
|
25.3 |
|
|
|
27.0 |
|
Specialty Minerals |
|
|
145.1 |
|
|
|
150.9 |
|
|
|
289.5 |
|
|
|
300.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refractory Products |
|
|
61.0 |
|
|
|
66.7 |
|
|
|
123.0 |
|
|
|
129.0 |
|
Metallurgical Products |
|
|
16.5 |
|
|
|
12.9 |
|
|
|
28.3 |
|
|
|
25.9 |
|
Refractories |
|
|
77.5 |
|
|
|
79.6 |
|
|
|
151.3 |
|
|
|
154.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services |
|
|
25.8 |
|
|
|
19.7 |
|
|
|
46.1 |
|
|
|
38.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
463.8 |
|
|
$ |
464.7 |
|
|
$ |
901.5 |
|
|
$ |
896.0 |
|
Note 4. Business Combination
On April 30, 2018, the Company completed the acquisition of Sivomatic Holding B.V. (“Sivomatic”), a leading European supplier of premium pet litter products. Sivomatic is a vertically integrated manufacturer, with production facilities in the Netherlands, Austria and Turkey. With a leading position in premier clumping products, Sivomatic’s product portfolio spans the range of pet litter derived from bentonite, sourced predominantly from wholly-owned mines in Turkey. The results of Sivomatic are included in our Performance Materials segment. The acquisition was financed through a combination of cash on hand and borrowings under the Company’s credit facilities. The fair value of the total consideration transferred, net of cash acquired, was $122.5 million.
The acquisition has been accounted for using the acquisition method of accounting, which requires, among other things, that we recognize the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. As of April 30, 2019 , the purchase price allocation has been finalized.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the Company’s final amounts recognized for assets acquired and liabilities assumed for the Sivomatic acquisition as compared with the allocation previously reported on the Company's Form 10-K for the year ended December 31, 2018:
(millions of dollars) |
|
Preliminary Allocation Previously Reported on Form 10-K as of December 31, 2018 |
|
|
Increase/ (Decrease) |
|
|
Final Allocation |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
24.4 |
|
|
$ |
— |
|
|
$ |
24.4 |
|
Inventories |
|
|
15.6 |
|
|
|
— |
|
|
|
15.6 |
|
Other current assets |
|
|
0.6 |
|
|
|
— |
|
|
|
0.6 |
|
Mineral rights |
|
|
39.7 |
|
|
|
— |
|
|
|
39.7 |
|
Property, plant and equipment |
|
|
28.3 |
|
|
|
— |
|
|
|
28.3 |
|
Goodwill |
|
|
35.0 |
|
|
|
— |
|
|
|
35.0 |
|
Intangible assets |
|
|
26.4 |
|
|
|
— |
|
|
|
26.4 |
|
Total assets acquired |
|
|
170.0 |
|
|
|
— |
|
|
|
170.0 |
|
Current maturity of long-term debt |
|
|
5.7 |
|
|
|
— |
|
|
|
5.7 |
|
Accounts payable |
|
|
9.0 |
|
|
|
— |
|
|
|
9.0 |
|
Accrued expenses |
|
|
5.6 |
|
|
|
— |
|
|
|
5.6 |
|
Long-term debt |
|
|
5.3 |
|
|
|
— |
|
|
|
5.3 |
|
Non-current deferred tax liability |
|
|
19.7 |
|
|
|
— |
|
|
|
19.7 |
|
Other non-current liabilities |
|
|
2.2 |
|
|
|
— |
|
|
|
2.2 |
|
Total liabilities assumed |
|
|
47.5 |
|
|
|
— |
|
|
|
47.5 |
|
Net assets acquired |
|
$ |
122.5 |
|
|
$ |
— |
|
|
$ |
122.5 |
|
The Company used the income, market, or cost approach (or a combination thereof) for the valuation, and used valuation inputs and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. For certain items, the carrying value was determined to be a reasonable approximation of fair value based on the information available.
Goodwill was calculated as the excess of the consideration transferred over the assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The allocation was completed during the second quarter of 2019. Goodwill recognized as a result of this acquisition is not deductible for tax purposes.
In connection with the acquisition, the Company recorded an additional deferred tax liability of $18.8 million with a corresponding increase to goodwill. The increase in the deferred tax liability represents the tax effect of the difference between the estimated assigned fair value of the tangible and intangible assets and the tax basis of such assets.
Mineral rights were valued using discounted cash flow method. Property, plant and equipment were valued using the cost method adjusted for age and deterioration.
Intangible assets acquired mainly include tradenames and customer relationships. Both tradenames and customer relationships have an estimated useful life of approximately 20 years.
The Company did not present pro forma and other financial information for the Sivomatic acquisition, as this is not considered to be a material business combination.
Note 5. Earnings per Share (EPS)
Basic earnings per share are based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the period assuming the issuance of common shares for all potentially dilutive common shares outstanding.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(in millions, except per share data) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Minerals Technologies Inc. |
|
$ |
26.6 |
|
|
$ |
44.1 |
|
|
$ |
65.7 |
|
|
$ |
84.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
35.2 |
|
|
|
35.3 |
|
|
|
35.2 |
|
|
|
35.4 |
|
Dilutive effect of stock options and stock units |
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.2 |
|
Weighted average shares outstanding, adjusted |
|
|
35.3 |
|
|
|
35.6 |
|
|
|
35.3 |
|
|
|
35.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share attributable to Minerals Technologies Inc. |
|
$ |
0.76 |
|
|
$ |
1.25 |
|
|
$ |
1.87 |
|
|
$ |
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share attributable to Minerals Technologies Inc. |
|
$ |
0.75 |
|
|
$ |
1.24 |
|
|
$ |
1.86 |
|
|
$ |
2.36 |
|
Options to purchase 470,304 shares and 357,771 shares of common stock for the three-month and six-month periods ended June 30, 2019 and July 1, 2018, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive, as the exercise prices of the options were greater than the average market price of the common shares.
Note 6. Restructuring and Other Items, net
During the second quarter of 2019, the Company initiated a restructuring and cost savings program to better align our costs and organizational structure with the current market environment. The Company recorded a $7.5 million non-cash impairment of assets charge related to facilities no longer operating and underutilization of certain equipment, and $5.7 million in other restructuring costs in the second quarter of 2019. The Company expects to realize annualized savings from this restructuring program of approximately $12 million by the first half of 2020.
The following table outlines the amount of restructuring charges recorded within the Consolidated Statements of Income and the segments they relate to for the three months ended June 30, 2019:
(millions of dollars) |
|
June 30, 2019 |
|
|
|
|
|
Impairment of assets |
|
|
|
Performance Materials |
|
$ |
4.2 |
|
Specialty Minerals |
|
|
1.6 |
|
Energy Services |
|
|
1.7 |
|
Total impairment of assets charges |
|
$ |
7.5 |
|
|
|
|
|
|
Severance and other related costs |
|
|
|
|
Performance Materials |
|
$ |
2.8 |
|
Specialty Minerals |
|
|
0.9 |
|
Refractories |
|
|
0.8 |
|
Energy Services |
|
|
0.1 |
|
Corporate |
|
|
1.1 |
|
Total severance and other related costs |
|
$ |
5.7 |
|
|
|
|
|
|
Total restructuring and other items, net |
|
$ |
13.2 |
|
At June 30, 2019, the Company had $7.1 million included within accrued liabilities in the Condensed Consolidated Balance Sheet for cash expenditures needed to satisfy remaining obligations under workforce reduction initiatives. The Company expects to pay these amounts by the first half of 2020.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table is a reconciliation of our restructuring liability balance as of June 30, 2019:
(millions of dollars) |
|
|
|
Restructuring liability, December 31, 2018 |
|
$ |
2.5 |
|
Additional provisions |
|
|
5.7 |
|
Cash payments |
|
|
(1.1 |
) |
Restructuring liability, June 30, 2019 |
|
$ |
7.1 |
|
Note 7. Income Taxes
Provision for taxes was $5.1 million and $14.4 million during the three and six-month periods ended June 30, 2019, respectively. The effective tax rate was 15.8% as compared with 18.9% in the prior year. The lower effective tax rate was primarily due to discrete items related to restructuring charges and the expiration of the tax statute of limitations due to the completion of a tax audit.
As of June 30, 2019, the Company had approximately $15.5 million of total unrecognized income tax benefits. Included in this amount were a total of $11.9 million of unrecognized income tax benefits that, if recognized, would affect the Company’s effective tax rate. While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, the Company does not expect the change to have a significant impact on the results of operations or the financial position of the Company.
The Company’s accounting policy is to recognize interest and penalties accrued relating to unrecognized income tax benefits as part of its provision for income taxes. The Company had net decreases of approximately $0.1 million and $0.2 million during the three and six-months ended June 30, 2019, respectively, and had an accrued balance of $2.8 million of interest and penalties as of June 30, 2019.
The Company operates in multiple taxing jurisdictions, both within and outside the U.S. In certain situations, a taxing authority may challenge positions that the Company has adopted in its income tax filings. The Company, with a few exceptions (none of which are material), is no longer subject to income tax examinations by tax authorities for years prior to 2010.
Note 8. Inventories
The following is a summary of inventories by major category:
(millions of dollars) |
|
June 30, 2019 |
|
|
Dec. 31, 2018 |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
102.8 |
|
|
$ |
93.4 |
|
Work-in-process |
|
|
10.0 |
|
|
|
11.2 |
|
Finished goods |
|
|
98.7 |
|
|
|
92.2 |
|
Packaging and supplies |
|
|
46.9 |
|
|
|
42.4 |
|
Total inventories |
|
$ |
258.4 |
|
|
$ |
239.2 |
|
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite lives are not amortized, but instead are assessed for impairment, at least annually. The carrying amount of goodwill was $807.9 and $812.4 million as of June 30, 2019 and December 31, 2018, respectively. The change in goodwill from December 31, 2018 to June 30, 2019 is attributable to the effects of foreign exchange.
Intangible assets subject to amortization as of June 30, 2019 and December 31, 2018 were as follows:
|
|
|
|
|
June 30, 2019 |
|
|
Dec. 31, 2018 |
|
(millions of dollars) |
|
Weighted Average Useful Life (Years) |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames |
|
|
35 |
|
|
$ |
203.9 |
|
|
$ |
29.5 |
|
|
$ |
204.2 |
|
|
$ |
26.6 |
|
Technology |
|
|
13 |
|
|
|
18.8 |
|
|
|
7.2 |
|
|
|
18.8 |
|
|
|
6.4 |
|
Patents |
|
|
19 |
|
|
|
6.4 |
|
|
|
5.8 |
|
|
|
6.4 |
|
|
|
5.6 |
|
Customer relationships |
|
|
22 |
|
|
|
25.1 |
|
|
|
3.8 |
|
|
|
26.5 |
|
|
|
3.2 |
|
|
|
|
32 |
|
|
$ |
254.2 |
|
|
$ |
46.3 |
|
|
$ |
255.9 |
|
|
$ |
41.8 |
|
The weighted average amortization period for acquired intangible assets subject to amortization is approximately 32 years. Estimated amortization expense is $4.8 million for the remainder of 2019, $36.7 million for 2020–2023 and $166.4 million thereafter.
Note 10. Derivative Financial Instruments
As a multinational corporation with operations throughout the world, the Company is exposed to certain market risks. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company's objective is to offset gains and losses resulting from interest rates and foreign currency exposures with gains and losses on the derivative contracts used to hedge them. The Company uses derivative financial instruments only for risk management and not for trading or speculative purposes.
By using derivative financial instruments to hedge exposures to changes in interest rates and foreign currencies, the Company exposes itself to credit risk and market risk. Credit risk is the risk that the counterparty will fail to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty, and therefore, it does not face any credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with major financial institutions.
Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, currency exchange rates, or commodity prices. The market risk associated with interest rate and forward exchange contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the Company records the effective portion of the gain or loss in accumulated other comprehensive income (loss) as a separate component of shareholders' equity. The Company subsequently reclassifies the effective portion of gain or loss into earnings in the period during which the hedged transaction is recognized in earnings.
The Company utilizes interest rate swaps to limit exposure to market fluctuations on floating-rate debt. In the second quarter of 2018, the Company entered into a floating to fixed interest rate swap for a notional amount of $150 million. The fair value of this swap is a liability of $6.6 million at June 30, 2019 and is recorded in other non-current liabilities on the Condensed Consolidated Balance Sheet. In addition, in the second quarter of 2016, the Company entered into a floating to fixed interest rate swap with an initial aggregate notional amount of $300 million. The notional amount was $114 million at June 30, 2019. The fair value of this swap is an asset of $0.9 million at June 30, 2019 and is recorded in other assets and deferred charges on the Condensed Consolidated Balance Sheet. These interest rate swaps are designated as cash flow hedges. As a result, the gains and losses associated with these interest rate swaps are recorded in accumulated other comprehensive income (loss).
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Net Investment Hedges
For derivative instruments that are designated and qualify as net investment hedges, the Company records the effective portion of the gain or loss in accumulated other comprehensive income (loss) as a separate component of shareholders' equity.
To protect the value of our investments in our foreign operations against adverse changes in foreign currency exchange rates, the Company from time to time hedges a portion of our net investment in one or more of our foreign subsidiaries. During the second quarter of 2018, the Company entered into a cross currency rate swap with a total notional value of $150 million to exchange monthly fixed-rate interest payments in U.S. dollars for monthly fixed-rate interest rate payments in Euros. This contract matures in May 2023 and requires the exchange of Euros and U.S. dollar principal payments upon maturity. The fair value of this swap is an asset of $7.0 million at June 30, 2019 and is recorded in other assets and deferred charges on the Condensed Consolidated Balance Sheet. Changes in the fair value of this financial instrument are recognized in accumulated other comprehensive income (loss) to offset the change in the carrying amount of the net investment being hedged. Amounts are reclassified out of accumulated other comprehensive income (loss) into earnings when the hedged net investment is either sold or substantially liquidated.
Assets and liabilities measured at fair value are based on one or more of three valuation techniques. The three valuation techniques are as follows:
● |
Market approach - prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
● |
Cost approach - amount that would be required to replace the service capacity of an asset or replacement cost. |
● |
Income approach - techniques to convert future amounts to a single present amount based on market expectations, including present value techniques, option-pricing and other models. |
The Company primarily applies the income approach for interest rate derivatives for recurring fair value measurements and attempts to utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value of our interest rate swaps and cross currency rate swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets and are categorized as Level 2.
Note 11. Long-Term Debt and Commitments
The following is a summary of long-term debt:
(millions of dollars) |
|
June 30, 2019 |
|
|
Dec. 31, 2018 |
|
|
|
|
|
|
|
|
Term Loan Facility-Variable Tranche due February 14, 2024, net of unamortized discount and deferred financing costs of $17.8 million and $19.4 million |
|
$ |
640.3 |
|
|
$ |
638.6 |
|
Term Loan Facility- Fixed Tranche due May 9, 2021, net of unamortized discount and deferred financing costs of $0.3 million and $0.3 million |
|
|
227.7 |
|
|
|
262.6 |
|
Netherlands Term Loan due 2020 |
|
|
2.3 |
|
|
|
3.4 |
|
Netherlands Term Loan due 2022 |
|
|
1.1 |
|
|
|
1.4 |
|
Japan Loan Facilities |
|
|
4.9 |
|
|
|
5.1 |
|
Total |
|
|
876.3 |
|
|
|
911.1 |
|
Less: Current maturities |
|
|
2.1 |
|
|
|
3.3 |
|
Total long-term debt |
|
$ |
874.2 |
|
|
$ |
907.8 |
|
On May 9, 2014, in connection with the acquisition of AMCOL International Corporation (“AMCOL”), the Company entered into a credit agreement providing for a $1.560 billion senior secured term loan facility (the “Term Facility”) and a $200 million senior secured revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Facilities”).
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On June 23, 2015, the Company entered into an amendment (the “First Amendment”) to the credit agreement to reprice the $1.378 billion then outstanding on the Term Facility. As amended, the Term Facility had a $1.078 billion floating rate tranche and a $300 million fixed rate tranche. On February 14, 2017, the Company entered into an amendment (the “Second Amendment”) to the credit agreement to reprice the $788 million floating rate tranche then outstanding, which extended the maturity and lowered the interest costs by 75 basis points. On April 18, 2018, the Company entered into an amendment (the “Third Amendment”) to the credit agreement to refinance the Revolving Facility. As amended, the Revolving Facility has been increased to $300 million in aggregate commitments. Following the amendments, the loans outstanding under the floating rate tranche of the Term Facility will mature on February 14, 2024, the loans outstanding under the fixed rate tranche of the Term Facility will mature on May 9, 2021 and the loans outstanding (if any) and commitments under the Revolving Facility will mature and terminate, as the case may be, on April 18, 2023. Loans under the floating rate tranche of the Term Facility bear interest at a rate equal to an adjusted LIBOR rate (subject to a floor of 0.75%) plus an applicable margin equal to 2.25% per annum. Loans under the fixed rate tranche of the Term Facility bear interest at a rate of 4.75%. Loans under the Revolving Facility bear interest at a rate equal to an adjusted LIBOR rate plus an applicable margin equal to 1.625% per annum. Such rates are subject to decrease by up to 25 basis points in the event that, and for so long as, the Company’s net leverage ratio (as defined in the credit agreement) is less than certain thresholds. The floating rate tranche of the Term Facility was issued at par and the fixed rate tranche of the Term Facility was issued at a 0.25% discount in connection with the First Amendment. The variable rate tranche of the Term Facility was issued at a 0.25% discount in connection with the Second Amendment. The variable rate tranche has a 1% required amortization per year. The Company will pay certain fees under the credit agreement, including customary annual administration fees. The obligations of the Company under the Facilities are unconditionally guaranteed jointly and severally by, subject to certain exceptions, all material domestic subsidiaries of the Company (the “Guarantors”) and secured, subject to certain exceptions, by a security interest in substantially all of the assets of the Company and the Guarantors.
During the first half of 2019, the Company repaid $35.0 million on its Term Facility.
The credit agreement contains certain customary affirmative and negative covenants that limit or restrict the ability of the Company and its restricted subsidiaries to enter into certain transactions or take certain actions. In addition, the credit agreement contains a financial covenant that requires the Company, if on the last day of any fiscal quarter loans or letters of credit were outstanding under the Revolving Facility (excluding up to $15 million of letters of credit), to maintain a maximum net leverage ratio (as defined in the credit agreement) of, initially, 5.25 to 1.00 for the four fiscal quarters preceding such day. Such maximum net leverage ratio requirement is subject to decrease during the duration of the facility to a minimum level (when applicable) of 3.50 to 1.00. In connection with the Sivomatic acquisition, the Company incurred $113 million of short-term debt under the Revolving Facility. As of June 30, 2019, there were $100 million in outstanding loans and $10.4 million in letters of credit outstanding under the Revolving Facility. The Company is in compliance with all the covenants associated with the Revolving Facility as of the end of the period covered by this report.
As part of the Sivomatic acquisition, the Company assumed $10.7 million in long-term debt, recorded at fair value, consisting of two term loans, one of which matures in 2020 and the other of which matures in 2022. These loans carry an interest rate of Euribor plus 2.0% and have quarterly repayments. During the first half of 2019, the Company repaid $1.3 million on these loans.
The Company has a committed loan facility in Japan. As of June 30, 2019, $4.9 million was outstanding under this loan facility. Principal will be repaid in accordance with the payment schedule ending in 2021. The Company repaid $0.3 million on this facility during the first half of 2019.
As of June 30, 2019, the Company had $43.5 million in uncommitted short-term bank credit lines, of which approximately $4.2 million was in use.
Note 12. Benefit Plans
The Company and its subsidiaries have pension plans covering the majority of eligible employees on a contributory or non-contributory basis. The Company also provides postretirement health care and life insurance benefits for the majority of its U.S. retired employees. Disclosures for the U.S. plans have been combined with those outside of the U.S. as the international plans do not have significantly different assumptions, and together represent less than 25% of our total benefit obligation.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Components of Net Periodic Benefit Cost
|
|
Pension Benefits |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1.8 |
|
|
$ |
2.0 |
|
|
$ |
3.6 |
|
|
$ |
3.9 |
|
Interest cost |
|
|
3.6 |
|
|
|
3.0 |
|
|
|
7.1 |
|
|
|
6.1 |
|
Expected return on plan assets |
|
|
(4.6 |
) |
|
|
(4.8 |
) |
|
|
(9.2 |
) |
|
|
(9.6 |
) |
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.2 |
|
Recognized net actuarial loss |
|
|
2.3 |
|
|
|
2.7 |
|
|
|
4.6 |
|
|
|
5.5 |
|
Net periodic benefit cost |
|
$ |
3.2 |
|
|
$ |
3.0 |
|
|
$ |
6.3 |
|
|
$ |
6.1 |
|
|
|
Other Benefits |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest cost |
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
0.1 |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
(0.4 |
) |
Recognized net actuarial (gain) loss |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
Net periodic benefit cost |
|
$ |
(0.1 |
) |
|
$ |
(0.3 |
) |
|
$ |
(0.2 |
) |
|
$ |
(0.6 |
) |
Amortization amounts of prior service costs and recognized net actuarial losses are recorded, net of tax, as increases to accumulated other comprehensive income.
The Company expects to contribute approximately $9.7 million to its pension plans and $0.3 million to its other postretirement benefit plans in 2019. As of June 30, 2019, $3.1 million has been contributed to the pension plans and less than $0.1 million has been contributed to the other postretirement benefit plans.
Note 13. Comprehensive Income
The following table summarizes the amounts reclassified out of accumulated other comprehensive loss attributable to the Company:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension items: |
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax amount |
|
$ |
2.2 |
|
|
$ |
2.4 |
|
|
$ |
4.4 |
|
|
$ |
4.9 |
|
Tax |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
(1.1 |
) |
|
|
(1.2 |
) |
Net of tax |
|
$ |
1.7 |
|
|
$ |
1.9 |
|
|
$ |
3.3 |
|
|
$ |
3.7 |
|
The pre-tax amounts in the table above are included within the components of net periodic pension benefit cost (see Note 12 to the Condensed Consolidated Financial Statements) and the tax amounts are included within the provision for taxes on income line within the Condensed Consolidated Statements of Income.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The major components of accumulated other comprehensive loss, net of related tax, attributable to MTI are as follows:
(millions of dollars) |
|
Foreign Currency Translation Adjustment |
|
|
Unrecognized Pension Costs |
|
|
Net Gain (Loss) on Derivative Instruments |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
|
$ |
(170.1 |
) |
|
$ |
(69.7 |
) |
|
$ |
6.1 |
|
|
$ |
(233.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications |
|
|
(19.5 |
) |
|
|
— |
|
|
|
(2.0 |
) |
|
|
(21.5 |
) |
Amounts reclassified from AOCI |
|
|
— |
|
|
|
3.3 |
|
|
|
— |
|
|
|
3.3 |
|
Net current period other comprehensive income (loss) |
|
|
(19.5 |
) |
|
|
3.3 |
|
|
|
(2.0 |
) |
|
|
(18.2 |
) |
Cumulative effect of accounting change |
|
|
— |
|
|
|
(10.4 |
) |
|
|
(0.5 |
) |
|
|
(10.9 |
) |
Balance as of June 30, 2019 |
|
$ |
(189.6 |
) |
|
$ |
(76.8 |
) |
|
$ |
3.6 |
|
|
$ |
(262.8 |
) |
In January 2019, the Company adopted the provisions of ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. As a result, the Company reclassified $10.9 million from "Accumulated other comprehensive loss" to "Retained earnings" on the Condensed Consolidated Balance Sheet as of June 30, 2019.
Note 14. Accounting for Asset Retirement Obligations
The Company records asset retirement obligations for situations in which the Company will be required to incur costs to retire tangible long-lived assets. The fair value of the liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.
The Company also records liabilities related to land reclamation as a part of asset retirement obligations. The Company mines various minerals using a surface mining process that requires the removal of overburden. In certain areas and under various governmental regulations, the Company is obligated to restore the land comprising each mining site to its original condition at the completion of the mining activity. The obligation is adjusted to reflect the passage of time, mining activities, and changes in estimated future cash outflows.
The following is a reconciliation of asset retirement obligations as of June 30, 2019:
(millions of dollars) |
|
|
|
Asset retirement liability, December 31, 2018 |
|
$ |
23.4 |
|
Accretion expense |
|
|
1.4 |
|
Other |
|
|
0.5 |
|
Payments |
|
|
(1.5 |
) |
Foreign currency translation |
|
|
(0.1 |
) |
Asset retirement liability, June 30, 2019 |
|
$ |
23.7 |
|
The asset retirement costs are capitalized as part of the carrying amount of the associated asset. The current portion of the liability of approximately $0.4 million is included in other current liabilities and the long-term portion of the liability of approximately $23.3 million is included in other non-current liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2019.
Note 15. Contingencies
The Company is party to a number of lawsuits arising in the normal course of our business.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Certain of the Company's subsidiaries are among numerous defendants in a number of cases seeking damages for exposure to silica or to asbestos containing materials. The Company currently has three pending silica cases and 71 pending asbestos cases. To date, 1,493 silica cases and 59 asbestos cases have been dismissed, not including any lawsuits against AMCOL or American Colloid Company dismissed prior to our acquisition of AMCOL. Thirteen and twenty new asbestos cases were filed during the three and six months ended June 30, 2019, respectively, and 16 additional asbestos cases were filed subsequent to the end of the second quarter. Two asbestos cases were dismissed during the first half of 2019 and no silica cases were dismissed during the period. Most of these claims do not provide adequate information to assess their merits, the likelihood that the Company will be found liable, or the magnitude of such liability, if any. Additional claims of this nature may be made against the Company or its subsidiaries. At this time management anticipates that the amount of the Company's liability, if any, and the cost of defending such claims, will not have a material effect on its financial position or results of operations.
The Company has settled only one silica lawsuit, for a nominal amount, and no asbestos lawsuits to date (not including any that may have been settled by AMCOL prior to completion of the acquisition). We are unable to state an amount or range of amounts claimed in any of the lawsuits because state court pleading practices do not require identifying the amount of the claimed damage. The aggregate cost to the Company for the legal defense of these cases since inception continues to be insignificant. The majority of the costs of defense for these cases, excluding cases against AMCOL or American Colloid, are reimbursed by Pfizer Inc. pursuant to the terms of certain agreements entered into in connection with the Company's initial public offering in 1992. The Company is entitled to indemnification, pursuant to agreement, for sales prior to the initial public offering. Of the 71 pending asbestos cases, 45 of the non-AMCOL cases are subject to indemnification, in whole or in part, because the plaintiffs claim liability based on sales of products that occurred either entirely before the initial public offering, or both before and after the initial public offering. In twenty of the twenty two remaining non-AMCOL cases, the plaintiffs have not alleged dates of exposure, and in the remaining two non-AMCOL cases, exposure is alleged to have been after the Company's initial public offering in 1992. The remaining four cases involve AMCOL only, so no Pfizer indemnity is available. Our experience has been that the Company is not liable to plaintiffs in any of these lawsuits and the Company does not expect to pay any settlements or jury verdicts in these lawsuits.
Environmental Matters
On April 9, 2003, the Connecticut Department of Environmental Protection issued an administrative consent order relating to our Canaan, Connecticut, plant where both our Refractories segment and Specialty Minerals segment have operations. We agreed to the order, which includes provisions requiring investigation and remediation of contamination associated with historic use of polychlorinated biphenyls ("PCBs") and mercury at a portion of the site. We have completed the required investigations and submitted several reports characterizing the contamination and assessing site-specific risks. We are awaiting regulators’ approval of the risk assessment report, which will form the basis for a proposal by the Company concerning eventual remediation.
We believe that the most likely form of overall site remediation will be to leave the existing contamination in place (with some limited soil removal), encapsulate it, and monitor the effectiveness of the encapsulation. We anticipate that a substantial portion of the remediation cost will be borne by the United States based on its involvement at the site from 1942 – 1964, as historic documentation indicates that PCBs and mercury were first used at the facility at a time of U.S. government ownership for production of materials needed by the military. Pursuant to a Consent Decree entered on October 24, 2014, the United States paid the Company $2.3 million in the 4th quarter of 2014 to resolve the Company’s claim for response costs for investigation and initial remediation activities at this facility through October 24, 2014. Contribution by the United States to any future costs of investigation or additional remediation has, by agreement, been left unresolved. Though the cost of the likely remediation remains uncertain pending completion of the phased remediation decision process, we have estimated that the Company’s share of the cost of the encapsulation and limited soil removal described above would approximate $0.4 million, which has been accrued as of June 30, 2019.
The Company is evaluating options for upgrading the wastewater treatment facilities at its Adams, Massachusetts plant. This work has been undertaken pursuant to an administrative Consent Order originally issued by the Massachusetts Department of Environmental Protection (“DEP”) on June 18, 2002. This order was amended on June 1, 2009 and on June 2, 2010. The amended Order includes the investigation by January 1, 2022 of options for ensuring that the facility's wastewater treatment ponds will not result in unpermitted discharge to groundwater. Additional requirements of the amendment include the submittal by July 1, 2022 of a plan for closure of a historic lime solids disposal area. Preliminary engineering reviews completed in 2005 indicate that the estimated cost of wastewater treatment upgrades to operate this facility beyond 2024 may be between $6 million and $8 million. The Company estimates that the remaining remediation costs would approximate $0.4 million, which has been accrued as of June 30, 2019.
The Company and its subsidiaries are not party to any other material pending legal proceedings, other than routine litigation incidental to their businesses.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 16. Segment and Related Information
On a regular basis, the Company reviews its segments and the approach used by the chief operating decision maker to assess performance and allocate resources. The Company has four reportable segments: Performance Materials, Specialty Minerals, Refractories and Energy Services. See Note 1 to the Condensed Consolidated Financial Statements. Segment information for the three and six-month periods ended June 30, 2019 and July 1, 2018 is as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials |
|
$ |
215.4 |
|
|
$ |
214.5 |
|
|
$ |
414.6 |
|
|
$ |
401.8 |
|
Specialty Minerals |
|
|
145.1 |
|
|
|
150.9 |
|
|
|
289.5 |
|
|
|
300.5 |
|
Refractories |
|
|
77.5 |
|
|
|
79.6 |
|
|
|
151.3 |
|
|
|
154.9 |
|
Energy Services |
|
|
25.8 |
|
|
|
19.7 |
|
|
|
46.1 |
|
|
|
38.8 |
|
Total |
|
$ |
463.8 |
|
|
$ |
464.7 |
|
|
$ |
901.5 |
|
|
$ |
896.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials |
|
$ |
20.7 |
|
|
$ |
29.6 |
|
|
$ |
47.0 |
|
|
$ |
55.8 |
|
Specialty Minerals |
|
|
20.0 |
|
|
|
25.1 |
|
|
|
42.0 |
|
|
|
49.2 |
|
Refractories |
|
|
7.1 |
|
|
|
10.3 |
|
|
|
19.2 |
|
|
|
23.1 |
|
Energy Services |
|
|
0.9 |
|
|
|
0.7 |
|
|
|
3.3 |
|
|
|
2.2 |
|
Total |
|
$ |
48.7 |
|
|
$ |
65.7 |
|
|
$ |
111.5 |
|
|
$ |
130.3 |
|
A reconciliation of the totals reported for the operating segments to the applicable line items in the condensed consolidated financial statements is as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations for reportable segments |
|
$ |
48.7 |
|
|
$ |
65.7 |
|
|
$ |
111.5 |
|
|
$ |
130.3 |
|
Acquisition related transaction and integration costs |
|
|
— |
|
|
|
(1.0 |
) |
|
|
— |
|
|
|
(1.4 |
) |
Unallocated corporate expenses |
|
|
(3.2 |
) |
|
|
(1.9 |
) |
|
|
(4.0 |
) |
|
|
(3.5 |
) |
Consolidated income from operations |
|
|
45.5 |
|
|
|
62.8 |
|
|
|
107.5 |
|
|
|
125.4 |
|
Non-operating deductions, net |
|
|
(13.3 |
) |
|
|
(8.4 |
) |
|
|
(26.1 |
) |
|
|
(21.8 |
) |
Income from operations before tax and equity in earnings |
|
$ |
32.2 |
|
|
$ |
54.4 |
|
|
$ |
81.4 |
|
|
$ |
103.6 |
|
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company's sales by product category are as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metalcasting |
|
$ |
75.8 |
|
|
$ |
88.8 |
|
|
$ |
149.0 |
|
|
$ |
168.0 |
|
Household, Personal Care & Specialty Products |
|
|
69.0 |
|
|
|
58.6 |
|
|
|
143.9 |
|
|
|
107.3 |
|
Environmental Products |
|
|
29.0 |
|
|
|
25.2 |
|
|
|
44.9 |
|
|
|
37.9 |
|
Building Materials |
|
|
19.1 |
|
|
|
18.0 |
|
|
|
34.4 |
|
|
|
36.9 |
|
Basic Minerals |
|
|
22.5 |
|
|
|
23.9 |
|
|
|
42.4 |
|
|
|
51.7 |
|
Performance Materials |
|
|
215.4 |
|
|
|
214.5 |
|
|
|
414.6 |
|
|
|
401.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper PCC |
|
|
90.2 |
|
|
|
94.5 |
|
|
|
181.7 |
|
|
|
191.5 |
|
Specialty PCC |
|
|
17.3 |
|
|
|
17.3 |
|
|
|
35.4 |
|
|
|
34.3 |
|
Ground Calcium Carbonate |
|
|
24.8 |
|
|
|
25.2 |
|
|
|
47.1 |
|
|
|
47.7 |
|
Talc |
|
|
12.8 |
|
|
|
13.9 |
|
|
|
25.3 |
|
|
|
27.0 |
|
Specialty Minerals |
|
|
145.1 |
|
|
|
150.9 |
|
|
|
289.5 |
|
|
|
300.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refractory Products |
|
|
61.0 |
|
|
|
66.7 |
|
|
|
123.0 |
|
|
|
129.0 |
|
Metallurgical Products |
|
|
16.5 |
|
|
|
12.9 |
|
|
|
28.3 |
|
|
|
25.9 |
|
Refractories |
|
|
77.5 |
|
|
|
79.6 |
|
|
|
151.3 |
|
|
|
154.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services |
|
|
25.8 |
|
|
|
19.7 |
|
|
|
46.1 |
|
|
|
38.8 |
|
Total |
|
$ |
463.8 |
|
|
$ |
464.7 |
|
|
$ |
901.5 |
|
|
$ |
896.0 |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Minerals Technologies Inc.:
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of Minerals Technologies Inc. and subsidiaries (the Company) as of June 30, 2019, the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2019 and July 1, 2018, the related condensed consolidated statements of shareholder's equity and cash flows for the six-month periods ended June 30, 2019 and July 1, 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 15, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ KPMG LLP
New York, New York
August 2, 2019
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Our consolidated sales for the second quarter of 2019 were $463.8 million, as compared with $464.7 million in the prior year. Income from operations was $45.5 million and represented 9.8% of sales, as compared with $62.8 million and 13.5% of sales in the prior year. Included in income from operations for the second quarter of 2019 were restructuring and other costs of $13.2 million. In addition, we recorded a $2.5 million bad debt reserve related to a customer bankruptcy. Net income was $26.6 million, as compared to $44.1 million in the second quarter of 2018. Diluted earnings in the quarter ended June 30, 2019 were $0.75 per share compared with $1.24 per share in 2018.
During the second quarter of 2019, we initiated a restructuring and cost savings program to better align our costs and organizational structure with the current market environment. We recorded a $7.5 million non-cash impairment of assets charge and $5.7 million in other restructuring costs in the second quarter of 2019. We expect to realize annualized savings from this restructuring program of approximately $12 million by the first half of 2020.
Our balance sheet continues to be strong. Cash, cash equivalents and short-term investments were $219.7 million as of June 30, 2019. We repaid $37 million of our debt in the first half of 2019. Our intention continues to be to maintain a balanced approach to capital deployment, by using excess cash flow for investments in growth, debt reduction and selective share repurchases.
Outlook
Looking forward, we remain cautious about the state of the global economy and the impact it will have on our product lines.
The Company will continue to focus on innovation and new product development and other opportunities for sales growth in 2019 from its existing businesses, as follows:
|
● |
Increase our presence and gain penetration of our bentonite-based foundry customers for the Metalcasting industry in emerging markets, such as China and India. |
|
● |
Increase our presence and market share in global pet care products, particularly in emerging markets. |
|
● |
Deploy new products in pet care such as lightweight litter. |
|
● |
Increase our presence and market share in Asia and in the global powdered detergent market. |
|
● |
Continue the development of our proprietary Enersol® products for agricultural applications worldwide. |
|
● |
Pursue opportunities for our products in environmental and building and construction markets in the Middle East, Asia Pacific and South America regions. |
|
● |
Increase our presence and market share for geosynthetic clay liners within the Environmental Products product line. |
|
● |
Develop multiple high-filler technologies under the FulFill® platform of products, to increase the fill rate in freesheet paper and continue to progress with commercial discussions and full-scale paper machine trials. |
|
● |
Develop products and processes for waste management and recycling opportunities to reduce the environmental impact of the paper mill, reduce energy consumption and improve the sustainability of the papermaking process, including our NewYield® and ENVIROFIL® products. |
|
● |
Further penetration into the packaging segment of the paper industry. |
|
● |
Increase our sales of PCC for paper by further penetration of the markets for paper filling at both freesheet and groundwood mills, particularly in emerging markets. |
|
● |
Expand the Company's PCC coating product line using the satellite model. |
|
● |
Promote the Company's expertise in crystal engineering, especially in helping papermakers customize PCC morphologies for specific paper applications. |
|
● |
Expand PCC produced for paper filling applications by working with industry partners to develop new methods to increase the ratio of PCC for fiber substitutions. |
|
● |
Develop unique calcium carbonate and talc products used in the manufacture of novel biopolymers, a new market opportunity. |
|
● |
Deploy new talc and GCC products in paint, coating and packaging applications. |
|
● |
Deploy value-added formulations of refractory materials that not only reduce costs but improve performance. |
|
● |
Deploy our laser measurement technologies into new applications. |
|
● |
Expand our refractory maintenance model to other steel makers globally. |
|
● |
Increase our presence and market penetration in offshore produced water and offshore filtration and well testing within the Energy Services segment. |
|
● |
Deploy operational excellence principles into all aspects of the organization, including system infrastructure and lean principles. |
|
● |
Continue to explore selective acquisitions to fit our core competencies in minerals and fine particle technology. |
However, there can be no assurance that we will achieve success in implementing any one or more of these opportunities.
Results of Operations
Three months ended June 30, 2019 as compared with three months ended July 1, 2018
Consolidated Income Statement Review
|
|
Three Months Ended |
|
|
|
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
463.8 |
|
|
$ |
464.7 |
|
|
|
— |
|
Cost of sales |
|
|
351.8 |
|
|
|
348.8 |
|
|
|
1 |
% |
Production margin |
|
|
112.0 |
|
|
|
115.9 |
|
|
|
(3 |
)% |
Production margin % |
|
|
24.1 |
% |
|
|
24.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses |
|
|
48.4 |
|
|
|
45.3 |
|
|
|
7 |
% |
Research and development expenses |
|
|
4.9 |
|
|
|
6.4 |
|
|
|
(23 |
)% |
Acquisition related transaction and integration costs |
|
|
— |
|
|
|
1.0 |
|
|
|
(100 |
)% |
Restructuring and other items, net |
|
|
13.2 |
|
|
|
0.4 |
|
|
|
3,200 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
45.5 |
|
|
|
62.8 |
|
|
|
(28 |
)% |
Operating margin % |
|
|
9.8 |
% |
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(10.9 |
) |
|
|
(11.5 |
) |
|
|
(5 |
)% |
Other non-operating income (deductions), net |
|
|
(2.4 |
) |
|
|
3.1 |
|
|
|
(177 |
)% |
Total non-operating deductions, net |
|
|
(13.3 |
) |
|
|
(8.4 |
) |
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before tax and equity in earnings |
|
|
32.2 |
|
|
|
54.4 |
|
|
|
(41 |
)% |
Provision for taxes on income |
|
|
5.1 |
|
|
|
10.3 |
|
|
|
(50 |
)% |
Effective tax rate |
|
|
15.8 |
% |
|
|
18.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates, net of tax |
|
|
0.5 |
|
|
|
1.1 |
|
|
|
(55 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
27.6 |
|
|
|
45.2 |
|
|
|
(39 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests |
|
|
1.0 |
|
|
|
1.1 |
|
|
|
(9 |
)% |
Net income attributable to Minerals Technologies Inc. |
|
$ |
26.6 |
|
|
$ |
44.1 |
|
|
|
(40 |
)% |
Net Sales
|
|
Three Months Ended June 30, 2019 |
|
|
|
|
|
Three Months Ended July 1, 2018 |
|
(millions of dollars) |
|
Net Sales |
|
|
% of Total Sales |
|
|
% Growth |
|
|
Net Sales |
|
|
% of Total Sales |
|
|
|
|
|
U.S. |
|
$ |
253.3 |
|
|
|
54.6 |
% |
|
|
2 |
% |
|
$ |
249.0 |
|
|
|
53.6 |
% |
International |
|
|
210.5 |
|
|
|
45.4 |
% |
|
|
(2 |
)% |
|
|
215.7 |
|
|
|
46.4 |
% |
Total sales |
|
$ |
463.8 |
|
|
|
100.0 |
% |
|
|
0 |
% |
|
$ |
464.7 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials Segment |
|
$ |
215.4 |
|
|
|
46.4 |
% |
|
|
0 |
% |
|
$ |
214.5 |
|
|
|
46.2 |
% |
Specialty Minerals Segment |
|
|
145.1 |
|
|
|
31.3 |
% |
|
|
(4 |
)% |
|
|
150.9 |
|
|
|
32.5 |
% |
Refractories Segment |
|
|
77.5 |
|
|
|
16.7 |
% |
|
|
(3 |
)% |
|
|
79.6 |
|
|
|
17.1 |
% |
Energy Services Segment |
|
|
25.8 |
|
|
|
5.6 |
% |
|
|
31 |
% |
|
|
19.7 |
|
|
|
4.2 |
% |
Total sales |
|
$ |
463.8 |
|
|
|
100.0 |
% |
|
|
0 |
% |
|
$ |
464.7 |
|
|
|
100.0 |
% |
Worldwide net sales decreased slightly to $463.8 million in the second quarter from $464.7 million in the prior year. Foreign exchange had an unfavorable impact on sales of approximately 3%.
Net sales in the United States increased to $253.3 million from $249.0 million in the prior year. International sales decreased 2% to $210.5 million from $215.7 million in the prior year.
Operating Costs and Expenses
Cost of sales was $351.8 million and 75.9% of sales as compared with $348.8 million and 75.1% of sales in the prior year. This increase was due primarily to higher raw material, logistics and energy costs across all segments.
Marketing and administrative costs were $48.4 million and 10.4% of sales compared to $45.3 million and 9.7% of sales in the prior year. Included in the marketing and administrative costs for the three months ended June 30, 2019 was bad debt expense of $2.5 million relating to the bankruptcy of a Refractories customer in the U.K.
Research and development expenses were $4.9 million, as compared with $6.4 million in the prior year, and represented 1.1% of sales compared with 1.4% of sales.
The Company recorded a $13.2 million charge for the impairment of assets and other restructuring costs during the three months ended June 30, 2019 to better align our costs and organizational structure with the market environment.
The Company recorded charges of $0.4 million and $1.0 million for restructuring costs and acquisition related transaction and integration costs, respectively during the three months ended July 1, 2018.
Income from Operations
The Company recorded income from operations of $45.5 million as compared to $62.8 million in the prior year. Operating income during the three months ended June 30, 2019 includes a $13.2 million charge for impairment of assets and other restructuring costs. In addition, the Company recorded a $2.5 million bad-debt reserve relating to the bankruptcy of a Refractories customer in the U.K. Operating income during the three months ended July 1, 2018 includes $0.4 million of restructuring costs and $1.0 million of acquisition related transaction and integration costs.
Other Non-Operating Income (Deductions)
In the second quarter of 2019, non-operating deductions were $13.3 million as compared with $8.4 million in the prior year. This increase was primarily attributable to foreign exchange gains of $0.1 million in the current year as compared with foreign exchange gains of $4.9 million in the prior year.
Provision for Taxes on Income
Provision for taxes on income was $5.1 million and $10.3 million for the three months ended June 30, 2019 and July 1, 2018, respectively. The effective tax rate was 15.8% and 18.9% for the three months ended June 30, 2019 and July 1, 2018, respectively. The lower effective tax rate was primarily due to discrete items related to restructuring charges and the expiration of the tax statute of limitations resulting from the completion of a tax audit.
Consolidated Net Income
Consolidated net income was $26.6 million for the three months ended June 30, 2019 as compared with $44.1 million in the prior year.
Segment Review
The following discussions highlight the operating results for each of our four segments.
|
|
Three Months Ended |
|
|
|
|
Performance Materials Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
Metalcasting |
|
$ |
75.8 |
|
|
$ |
88.8 |
|
|
|
(15 |
)% |
Household, Personal Care & Specialty Products |
|
|
69.0 |
|
|
|
58.6 |
|
|
|
18 |
% |
Environmental Products |
|
|
29.0 |
|
|
|
25.2 |
|
|
|
15 |
% |
Building Materials |
|
|
19.1 |
|
|
|
18.0 |
|
|
|
6 |
% |
Basic Minerals |
|
|
22.5 |
|
|
|
23.9 |
|
|
|
(6 |
)% |
Total net sales |
|
$ |
215.4 |
|
|
$ |
214.5 |
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
20.7 |
|
|
$ |
29.6 |
|
|
|
|
|
% of net sales |
|
|
9.6 |
% |
|
|
13.8 |
% |
|
|
|
|
Net sales in the Performance Materials segment increased slightly to $215.4 million from $214.5 million in the prior year. Foreign exchange had an unfavorable impact on sales of $7.3 million, or 3%. Sales in Household, Personal Care & Specialty Products increased 18%, primarily due to the continued growth of our pet care products in Europe and North America. Environmental Products sales increased 15% driven by an ongoing large international project. Sales of Building Materials products increased 6% primarily due to an increase in U.S. commercial construction projects. Sales growth in the segment was partially offset by decreased sales in Metalcasting and Basic Minerals. The decrease in Metalcasting sales was primarily due to weaker demand in U.S. automotive, heavy truck and agricultural equipment, as well as in the China metalcasting markets.
Income from operations was $20.7 million and 9.6% of sales as compared to $29.6 million and 13.8% of sales in the prior year. Included in income from operations for the three month period ended June 30, 2019 were $7.0 million of restructuring and impairment costs. While pricing actions more than offset higher raw materials and logistics costs, operating income and margins were affected by the lower Metalcasting sales and the rail infrastructure issues impacting the Company’s operations in the Western United States.
|
|
Three Months Ended |
|
|
|
|
Specialty Minerals Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
Paper PCC |
|
$ |
90.2 |
|
|
$ |
94.5 |
|
|
|
(5 |
)% |
Specialty PCC |
|
|
17.3 |
|
|
|
17.3 |
|
|
|
0 |
% |
PCC Products |
|
$ |
107.5 |
|
|
$ |
111.8 |
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ground Calcium Carbonate |
|
$ |
24.8 |
|
|
$ |
25.2 |
|
|
|
(2 |
)% |
Talc |
|
|
12.8 |
|
|
|
13.9 |
|
|
|
(8 |
)% |
Processed Minerals Products |
|
$ |
37.6 |
|
|
$ |
39.1 |
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
145.1 |
|
|
$ |
150.9 |
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
20.0 |
|
|
$ |
25.1 |
|
|
|
(20 |
)% |
% of net sales |
|
|
13.8 |
% |
|
|
16.6 |
% |
|
|
|
|
Worldwide sales in the Specialty Minerals segment were $145.1 million as compared with $150.9 million in the prior year, a decrease of 4%.
Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, decreased 4% to $107.5 million from $111.8 million in the prior year. Paper PCC sales decreased 5% to $90.2 million from $94.5 million, primarily due to the unfavorable impact of foreign exchange and reduced sales in North America driven by previously announced customer paper machine shutdowns, including the closure of a U.S. paper mill in the first quarter of 2019. Sales of Specialty PCC remained the same at $17.3 million for both three months ended June 30, 2019 and July 1, 2018.
Net sales of Processed Minerals products decreased 4% to $37.6 million, primarily due to lower sales in the automotive and construction markets. Ground Calcium Carbonate sales decreased 2% to $24.8 million from $25.2 million in the prior year. Talc sales decreased 8% to $12.8 million as compared with $13.9 million in the prior year.
Income from operations for Specialty Minerals was $20.0 million as compared with $25.1 million in the prior year. Included in income from operations for the three month period ended June 30, 2019 were $2.5 million of restructuring and impairment costs. The incremental decrease in operating income was primarily due to previously announced paper machine shutdowns in North America, lower volumes and the unfavorable impact of foreign exchange, partially offset by higher pricing.
|
|
Three Months Ended |
|
|
|
|
Refractories Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
Refractory Products |
|
$ |
61.0 |
|
|
$ |
66.7 |
|
|
|
(9 |
)% |
Metallurgical Products |
|
|
16.5 |
|
|
|
12.9 |
|
|
|
28 |
% |
Total net sales |
|
$ |
77.5 |
|
|
$ |
79.6 |
|
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
7.1 |
|
|
$ |
10.3 |
|
|
|
(31 |
)% |
% of net sales |
|
|
9.2 |
% |
|
|
12.9 |
% |
|
|
|
|
Net sales in the Refractories segment decreased 3% to $77.5 million from $79.6 million in the prior year driven by lower Refractory sales in Europe, partially offset by higher sales of Metallurgical Products. Sales of refractory products and systems to steel and other industrial applications decreased to $61.0 million. Sales of metallurgical products increased 28% to $16.5 million.
Income from operations was $7.1 million and 9.2% of sales as compared with $10.3 and 12.9% of sales in the prior year. Included in income from operations for the six month period ended June 30, 2019 were $0.8 million of restructuring costs and a $2.5 million bad debt reserve relating to a customer bankruptcy.
|
|
Three Months Ended |
|
|
|
|
Energy Services Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
25.8 |
|
|
$ |
19.7 |
|
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
0.9 |
|
|
$ |
0.7 |
|
|
|
29 |
% |
% of net sales |
|
|
3.5 |
% |
|
|
3.6 |
% |
|
|
|
|
Net sales in the Energy Services segment increased 31% to $25.8 million from $19.7 million in the prior year, primarily driven by higher well testing and filtration activity in the Gulf of Mexico.
Operating income was $0.9 million as compared with $0.7 million in the prior year. Included in income from operations for the three month period ended June 30, 2019 were $1.8 million of restructuring and impairment costs.
Six months ended June 30, 2019 as compared with six months ended July 1, 2018
Consolidated Income Statement Review
|
|
Six Months Ended |
|
|
|
|
(millions of dollars) |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
|
|
|
|
|
Net sales |
|
$ |
901.5 |
|
|
$ |
896.0 |
|
|
|
1 |
% |
Cost of sales |
|
|
679.8 |
|
|
|
666.6 |
|
|
|
2 |
% |
Production margin |
|
|
221.7 |
|
|
|
229.4 |
|
|
|
(3 |
)% |
Production margin % |
|
|
24.6 |
% |
|
|
25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses |
|
|
91.3 |
|
|
|
89.7 |
|
|
|
2 |
% |
Research and development expenses |
|
|
9.7 |
|
|
|
12.5 |
|
|
|
(22 |
)% |
Acquisition related transaction and integration costs |
|
|
— |
|
|
|
1.4 |
|
|
|
(100 |
)% |
Restructuring and other items, net |
|
|
13.2 |
|
|
|
0.4 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
107.5 |
|
|
|
125.4 |
|
|
|
(14 |
)% |
Operating margin % |
|
|
11.9 |
% |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(22.3 |
) |
|
|
(22.2 |
) |
|
|
— |
|
Other non-operating income (deductions), net |
|
|
(3.8 |
) |
|
|
0.4 |
|
|
|
* |
|
Total non-operating deductions, net |
|
|
(26.1 |
) |
|
|
(21.8 |
) |
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before tax and equity in earnings |
|
|
81.4 |
|
|
|
103.6 |
|
|
|
(21 |
)% |
Provision for taxes on income |
|
|
14.4 |
|
|
|
19.6 |
|
|
|
(27 |
)% |
Effective tax rate |
|
|
17.7 |
% |
|
|
18.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates, net of tax |
|
|
0.6 |
|
|
|
2.3 |
|
|
|
(74 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
67.6 |
|
|
|
86.3 |
|
|
|
(22 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests |
|
|
1.9 |
|
|
|
2.3 |
|
|
|
(17 |
)% |
Net income attributable to Minerals Technologies Inc. |
|
$ |
65.7 |
|
|
$ |
84.0 |
|
|
|
(22 |
)% |
Net Sales
|
|
Six Months Ended June 30, 2019 |
|
|
|
|
|
Six Months Ended July 1, 2018 |
|
(millions of dollars) |
|
Net Sales |
|
|
% of Total Sales |
|
|
% Growth |
|
|
Net Sales |
|
|
% of Total Sales |
|
|
|
|
|
U.S. |
|
$ |
485.0 |
|
|
|
53.8 |
% |
|
|
1 |
% |
|
$ |
481.3 |
|
|
|
53.7 |
% |
International |
|
|
416.5 |
|
|
|
46.2 |
% |
|
|
— |
|
|
|
414.7 |
|
|
|
46.3 |
% |
Total sales |
|
$ |
901.5 |
|
|
|
100.0 |
% |
|
|
1 |
% |
|
$ |
896.0 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials Segment |
|
$ |
414.6 |
|
|
|
46.0 |
% |
|
|
3 |
% |
|
$ |
401.8 |
|
|
|
44.8 |
% |
Specialty Minerals Segment |
|
|
289.5 |
|
|
|
32.1 |
% |
|
|
(4 |
)% |
|
|
300.5 |
|
|
|
33.5 |
% |
Refractories Segment |
|
|
151.3 |
|
|
|
16.8 |
% |
|
|
(2 |
)% |
|
|
154.9 |
|
|
|
17.3 |
% |
Energy Services Segment |
|
|
46.1 |
|
|
|
5.1 |
% |
|
|
19 |
% |
|
|
38.8 |
|
|
|
4.3 |
% |
Total sales |
|
$ |
901.5 |
|
|
|
100.0 |
% |
|
|
1 |
% |
|
$ |
896.0 |
|
|
|
100.0 |
% |
Total sales increased $5.5 million or 1% from the previous year to $901.5 million. Foreign exchange had an unfavorable impact on sales of approximately $25.8 million or 3%.
Net sales in the United States increased 1% to $485.0 million from $481.3 million in the prior year. International sales increased to $416.5 million from $414.7 million in the prior year, primarily related to the Sivomatic acquisition.
Operating Costs and Expenses
Cost of sales was $679.8 million, an increase of 2% from the prior year and was 75.4% of sales as compared with 74.4% in the prior year. The decrease in gross margin percentage was primarily attributable to higher raw material, logistics and energy costs across all segments.
Marketing and administrative costs were $91.3 million and 10.1% of sales compared to $89.7 million and 10.0% of sales in the prior year. Included in marketing and administrative costs for the six months ended June 30, 2019 was bad debt expense of $2.5 million relating to a refractories customer bankruptcy in the U.K.
Research and development expenses were $9.7 million and represented 1.1% of sales for the six months ended June 30, 2019 as compared with $12.5 million and 1.4% of sales in the prior year.
The Company recorded a $13.2 million charge for the impairment of assets and other restructuring costs during the six months ended June 30, 2019 due to the current demand environment and to improve profitability. The Company recorded a $0.4 million charge for restructuring costs and $1.4 million for acquisition related transaction and integration costs during the six months ended July 1, 2018.
Income from Operations
The Company recorded income from operations of $107.5 million as compared to $125.4 million in the prior year. Operating income was 11.9% of sales in the first six months of 2019 as compared with 14.0% in the prior year. Operating income during the six months ended June 30, 2019 includes a $13.2 million charge for impairment of assets and severance-related costs. Operating income during the six months ended July 1, 2018 includes $0.4 million of restructuring costs and $1.4 million of acquisition related integration costs.
Other Non-Operating Income (Deductions)
The Company recorded non-operating deductions of $26.1 million for the six months ended June 30, 2019 as compared with $21.8 million in the prior year. The $26.1 million in the current year is comprised primarily of $22.3 million of net interest expense. The $21.8 million recorded in the prior year included $22.2 million of net interest expense.
Provision for Taxes on Income
Provision for taxes was $14.4 million as compared to $19.6 million in the prior year. The effective tax rate was 17.7% as compared to 18.9% in the prior year. The lower effective tax rate was primarily due to discrete items related to restructuring charges and the expiration of the tax statute of limitations resulting from the completion of a tax audit.
Consolidated Net Income
Consolidated net income was $65.7 million during the six months ended June 30, 2019 as compared with $84.0 million in the prior year.
Segment Review
The following discussions highlight the operating results for each of our four segments.
|
|
Six Months Ended |
|
|
|
|
Performance Materials Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
Metalcasting |
|
$ |
149.0 |
|
|
$ |
168.0 |
|
|
|
(11 |
)% |
Household, Personal Care & Specialty Products |
|
|
143.9 |
|
|
|
107.3 |
|
|
|
34 |
% |
Environmental Products |
|
|
44.9 |
|
|
|
37.9 |
|
|
|
18 |
% |
Building Materials |
|
|
34.4 |
|
|
|
36.9 |
|
|
|
(7 |
)% |
Basic Minerals |
|
|
42.4 |
|
|
|
51.7 |
|
|
|
(18 |
)% |
Total net sales |
|
$ |
414.6 |
|
|
$ |
401.8 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
47.0 |
|
|
$ |
55.8 |
|
|
|
|
|
% of net sales |
|
|
11.3 |
% |
|
|
13.9 |
% |
|
|
|
|
Net sales in the Performance Materials segment increased 3% to $414.6 million from $401.8 million in the prior year. Sales in Metalcasting decreased 11% to $149.0 million due to weaker demand in U.S. automotive, heavy truck and agricultural equipment as well as in China. Household, Personal Care & Specialty Products increased 34%, primarily driven by higher pet care revenue, including $33.7 million from the acquisition of Sivomatic. Environmental Products sales rose 18% due to a large international project. These sales increases were partially offset by 7% lower sales in Building Materials, primarily due to the difference in the magnitude of waterproofing projects compared to the prior year, and a 18% reduction in Basic Minerals sales due to the Company's exit from the bulk chromite business in the first quarter of 2018.
Income from operations was $47.0 million and 11.3% of sales as compared to $55.8 million and 13.9% of sales in the prior year. Included in income from operations for the six month period ended June 30, 2019 were $7.0 million of restructuring and impairment costs. While pricing actions more than offset higher raw material costs, operating income and margins were affected by the lower Metalcasting sales and the rail infrastructure issues impacting the Company’s operations in the Western United States.
|
|
Six Months Ended |
|
|
|
|
Specialty Minerals Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
Paper PCC |
|
$ |
181.7 |
|
|
$ |
191.5 |
|
|
|
(5 |
)% |
Specialty PCC |
|
|
35.4 |
|
|
|
34.3 |
|
|
|
3 |
% |
PCC Products |
|
$ |
217.1 |
|
|
$ |
225.8 |
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ground Calcium Carbonate |
|
$ |
47.1 |
|
|
$ |
47.7 |
|
|
|
(1 |
)% |
Talc |
|
|
25.3 |
|
|
|
27.0 |
|
|
|
(6 |
)% |
Processed Minerals Products |
|
$ |
72.4 |
|
|
$ |
74.7 |
|
|
|
(3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
289.5 |
|
|
$ |
300.5 |
|
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
42.0 |
|
|
$ |
49.2 |
|
|
|
(15 |
)% |
% of net sales |
|
|
14.5 |
% |
|
|
16.4 |
% |
|
|
|
|
Worldwide sales in the Specialty Minerals segment were $289.5 million as compared with $300.5 million in the prior year, a decrease of 4%.
Worldwide net sales of PCC products, which are primarily used in the manufacturing process of the paper industry, decreased 4% to $217.1 million from $225.8 million in the prior year. Paper PCC sales decreased 5% to $181.7 million from $191.5 million in the prior year.
Net sales of Processed Minerals products decreased 3% to $72.4 million from $74.7 million in the prior year. Ground Calcium Carbonate sales decreased 1% primarily due to lower volumes in the construction market.
Income from operations was $42.0 million and 14.5% of net sales as compared to $49.2 million and 16.4% of sales in the prior year. Included in income from operations for the six month period ended June 30, 2019 were $2.5 million of restructuring and impairment costs.
|
|
Six Months Ended |
|
|
|
|
Refractories Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
Refractory Products |
|
$ |
123.0 |
|
|
$ |
129.0 |
|
|
|
(5 |
)% |
Metallurgical Products |
|
|
28.3 |
|
|
|
25.9 |
|
|
|
9 |
% |
Total net sales |
|
$ |
151.3 |
|
|
$ |
154.9 |
|
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
19.2 |
|
|
$ |
23.1 |
|
|
|
(17 |
)% |
% of net sales |
|
|
12.7 |
% |
|
|
14.9 |
% |
|
|
|
|
Net sales in the Refractories segment decreased 2% to $151.3 million from $154.9 million in the prior year. Sales of refractory products and systems to steel and other industrial applications decreased 5% to $123.0 million from $129.0 million in the prior year due to lower volumes. This was partially offset by higher sales in the Metallurgical Products product line, which increased 9% to $28.3 million.
Income from operations was $19.2 million and 12.7% of sales as compared with $23.1 million and 14.9% of sales. Included in income from operations for the six month period ended June 30, 2019 were $0.8 million of restructuring costs and a $2.5 million bad debt reserve relating to a customer bankruptcy.
|
|
Six Months Ended |
|
|
|
|
Energy Services Segment |
|
June 30, 2019 |
|
|
July 1, 2018 |
|
|
% Growth |
|
|
|
(millions of dollars) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
46.1 |
|
|
$ |
38.8 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
$ |
3.3 |
|
|
$ |
2.2 |
|
|
|
50 |
% |
% of net sales |
|
|
7.2 |
% |
|
|
5.7 |
% |
|
|
|
|
Net sales in the Energy Services segment increased 19% to $46.1 million from $38.8 million in the prior year, primarily driven by higher filtration activity in the North Sea and the Gulf of Mexico.
Income from operations during the six months ended June 30, 2019 was $3.3 million and represented 7.2% of sales. Included in income from operations for the six month period ended June 30, 2019 were $1.8 million of restructuring and impairment costs. Income from operations was $2.2 million and 5.7% of sales during the six months ended July 1, 2018, which included $0.4 million of restructuring costs.
Liquidity and Capital Resources
Cash provided from operations during the six months ended June 30, 2019, was approximately $98 million. Cash flows provided from operations during the first half of 2019 were principally used to repay debt, fund capital expenditures, repurchase shares and to pay the Company's dividend to common shareholders. The aggregate maturities of long-term debt are as follows: remainder of 2019 - $1.6 million; 2020 - $2.2 million; 2021 - $232.3 million; 2022 - $0.2 million; 2023 - $0.0 million; thereafter - $658.0 million.
On May 9, 2014, in connection with the acquisition of AMCOL International Corporation (“AMCOL”), the Company entered into a credit agreement providing for the $1.560 billion senior secured term loan facility (the “Term Facility”) and a $200 million senior secured revolving credit facility (the “Revolving Facility” and, together with the Term Facility, the “Facilities”).
On June 23, 2015, the Company entered into an amendment (the “First Amendment”) to the credit agreement to reprice the $1.378 billion then outstanding on the Term Facility. As amended, the Term Facility had a $1.078 billion floating rate tranche and a $300 million fixed rate tranche. On February 14, 2017, the Company entered into an amendment (the “Second Amendment”) to the credit agreement to reprice the $788 million floating rate tranche then outstanding, which extended the maturity and lowered the interest costs by 75 basis points. On April 18, 2018, the Company entered into an amendment (the “Third Amendment”) to the credit agreement to refinance the Revolving Facility. As amended, the Revolving Facility has been increased to $300 million in aggregate commitments. Following the amendments, the loans outstanding under the floating rate tranche of the Term Facility will mature on February 14, 2024, the loans outstanding under the fixed rate tranche of the Term Facility will mature on May 9, 2021 and the loans outstanding (if any) and commitments under the Revolving Facility will mature and terminate, as the case may be, on April 18, 2023. Loans under the floating rate tranche of the Term Facility bear interest at a rate equal to an adjusted LIBOR rate (subject to a floor of 0.75%) plus an applicable margin equal to 2.25% per annum. Loans under the fixed rate tranche of the Term Facility bear interest at a rate of 4.75%. Loans under the Revolving Facility bear interest at a rate equal to an adjusted LIBOR rate plus an applicable margin equal to 1.625% per annum. Such rates are subject to decrease by up to 25 basis points in the event that, and for so long as, the Company’s net leverage ratio (as defined in the credit agreement) is less than certain thresholds. The floating rate tranche of the Term Facility was issued at par and the fixed rate tranche of the Term Facility was issued at a 0.25% discount in connection with the First Amendment. The variable rate tranche of the Term Facility was issued at a 0.25% discount in connection with the Second Amendment. The variable rate tranche has a 1% required amortization per year. The Company will pay certain fees under the credit agreement, including customary annual administration fees. The obligations of the Company under the Facilities are unconditionally guaranteed jointly and severally by, subject to certain exceptions, all material domestic subsidiaries of the Company (the “Guarantors”) and secured, subject to certain exceptions, by a security interest in substantially all of the assets of the Company and the Guarantors.
During the first half of 2019, the Company repaid $35.0 million on its Term Facility.
The credit agreement contains certain customary affirmative and negative covenants that limit or restrict the ability of the Company and its restricted subsidiaries to enter into certain transactions or take certain actions. In addition, the credit agreement contains a financial covenant that requires the Company, if on the last day of any fiscal quarter loans or letters of credit were outstanding under the Revolving Facility (excluding up to $15 million of letters of credit), to maintain a maximum net leverage ratio (as defined in the credit agreement) of, initially, 5.25 to 1.00 for the four fiscal quarter periods preceding such day. Such maximum net leverage ratio requirement is subject to decrease during the duration of the facility to a minimum level (when applicable) of 3.50 to 1.00. In connection with the Sivomatic acquisition, the Company incurred $113.0 million of short-term debt under the Revolving Facility. As of June 30, 2019, there were $100 million in outstanding loans and $10.4 million in letters of credit outstanding under the Revolving Facility. The Company is in compliance with all the covenants associated with the Revolving Facility as of the end of the period covered by this report.
As part of the Sivomatic acquisition, the Company assumed $10.7 million in long term debt, recorded at fair value, consisting of two term loans, one of which matures in 2020 and the other of which matures in 2022. In the first half of 2019, the Company repaid $(1.3) million on these loans.
The Company has a committed loan facility in Japan. As of June 30, 2019, $4.9 million was outstanding under this loan facility. Principal will be repaid in accordance with the payment schedule ending in 2021. The Company repaid $(0.3) million on this facility during the first half of 2019.
As of June 30, 2019, the Company had $43.5 million in uncommitted short-term bank credit lines, of which approximately $4.2 million was in use. The credit lines are primarily outside the U.S. and are generally one year in term at competitive market rates at large, well-established institutions. The Company typically uses its available credit lines to fund working capital requirements or local capital spending needs. We anticipate that capital expenditures for 2019 should be between $70 million and $80 million, principally related to the construction of PCC plants and other opportunities that meet our strategic growth objectives. We expect to meet our other long-term financing requirements from internally generated funds, committed and uncommitted bank credit lines and, where appropriate, project financing of certain satellite plants.
On April 5, 2016, the Company entered into a floating to fixed interest rate swap for an initial aggregate notional amount of $300 million to limit exposure to interest rate increases related to a portion of the Company’s floating rate indebtedness. This swap agreement hedges a portion of contractual floating rate interest through its expiration in May 2021. As a result of the agreement, the Company’s effective fixed interest rate on the notional amount floating rate indebtedness will be 4.25%. The fair value of this instrument at June 30, 2019 was an asset of $0.9 million.
During the second quarter of 2018, the Company entered into a floating to fixed interest rate swap for a notional amount of $150 million. Additionally, the Company entered into a cross currency rate swap with a total notional value of $150 million to exchange monthly fixed-rate interest payments in U.S. dollars for monthly fixed-rate interest rate payments in Euros. These swaps mature in May 2023. As a result of these swaps, the Company’s effective fixed interest rate on the notional floating rate indebtedness will be 2.5%. The combined fair value of these instruments at June 30, 2019 was an asset of $0.4 million.
On September 21, 2017, the Company's Board of Directors authorized the Company’s management to repurchase, at its discretion, up to $150 million of the Company’s shares over a two-year period commencing October 1, 2017. As of June 30, 2019, 513,323 shares were repurchased under this program for $31.7 million, or an average price of approximately $61.74 per share.
The Company is required to make future payments under various contracts, including debt agreements and lease agreements. The Company also has commitments to fund its pension plans and provide payments for other postretirement benefit plans. During the six months ended June 30, 2019, there were no material changes in the Company’s contractual obligations. For an in-depth discussion of the Company’s contractual obligations, see “Liquidity and Capital Resources” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Cautionary Statement for “Safe Harbor” Purposes under the Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. This report contains statements that the Company believes may be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements relating to the Company’s objectives, plans or goals, future actions, future performance or results of current and anticipated products, sales efforts, expenditures, and financial results. From time to time, the Company also provides forward-looking statements in other publicly-released materials, both written and oral. Forward-looking statements provide current expectations and forecasts of future events such as new products, revenues and financial performance, and are not limited to describing historical or current facts. They can be identified by the use of words such as “believes,” “expects,” “plans,” “intends,” “anticipates,” and other words and phrases of similar meaning.
Forward-looking statements are necessarily based on assumptions, estimates and limited information available at the time they are made. A broad variety of risks and uncertainties, both known and unknown, as well as the inaccuracy of assumptions and estimates, can affect the realization of the expectations or forecasts in these statements. Many of these risks and uncertainties are difficult to predict or are beyond the Company’s control. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Significant factors affecting the expectations and forecasts are set forth under “Item 1A — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and in Exhibit 99 to this Quarterly Report on Form 10-Q.
The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof. Investors should refer to the Company's subsequent filings under the Securities Exchange Act of 1934 for further disclosures.
Recently Issued Accounting Standards
Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. All recently issued ASUs were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.
Recently Adopted Accounting Standards
On January 1, 2019, the Company adopted the provisions of ASU 2016-02, “Leases”, which requires lessees to recognize most leases on-balance sheet. The Company has adopted this new standard under the modified retrospective transition method, using the effective date as our date of initial application. As such, financial information and required disclosures will not be provided for dates prior to January 1, 2019. The new standard provides a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. On adoption, we recognized additional operating liabilities of $61.4 million with corresponding right-of-use assets of $50.5 million based on the present value of the remaining lease payments under existing operating leases. As of December 31, 2018, we had $10.9 million in deferred charges related to some of our real estate leases that were recorded against the right of use asset as part of the transition. The adoption of this standard did not have a material impact on the Company's financial statements.
On January 1, 2019, the Company adopted the provisions of ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. As a result, the Company reclassified $10.9 million from "Accumulated other comprehensive loss" to "Retained earnings" on the Condensed Consolidated Balance Sheets as of June 30, 2019.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, valuation of long-lived assets, goodwill and other intangible assets, income taxes, including valuation allowances and pension plan assumptions. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that cannot readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in market prices and foreign currency and interest rates. We are exposed to market risk because of changes in foreign currency exchange rates as measured against the U.S. dollar. We do not anticipate that near-term changes in exchange rates will have a material impact on our future earnings or cash flows. However, there can be no assurance that a sudden and significant decline in the value of foreign currencies would not have a material adverse effect on our financial condition and results of operations. A portion of our long-term bank debt bears interest at variable rates; therefore, our results of operations would be affected by interest rate changes to the extent of such outstanding bank debt. An immediate 10 percent change in interest rates would have a material effect on our results of operations over the next fiscal year. A one-percent change in interest rates, inclusive of the impact of our interest rate derivatives, would result in $3.8 million in incremental interest charges on an annual basis.
We do not enter into derivatives or other financial instruments for trading or speculative purposes. When appropriate, we enter into derivative financial instruments, such as forward exchange contracts, hedges and interest rate swaps, to mitigate the impact of foreign exchange rate movements and interest rate movements on our operating results. The counterparties are major financial institutions. Such forward exchange contracts, hedges and interest rate swaps would not subject us to additional risk from exchange rate or interest rate movements because gains and losses on these contracts would offset losses and gains on the assets, liabilities, and transactions being hedged.
On April 5, 2016, the Company entered into a floating to fixed interest rate swap for an initial aggregate notional amount of $300 million to limit exposure to interest rate increases related to a portion of the Company’s floating rate indebtedness. This swap agreement hedges a portion of contractual floating rate interest through its expiration in May 2021. As a result, the Company’s effective fixed interest rate on the notional amount floating rate indebtedness will be 4.25% through May 2021. The fair value of this instrument at June 30, 2019 was an asset of $0.9 million.
During the second quarter of 2018, the Company entered into a floating to fixed interest rate swap for a notional amount of $150 million. Additionally, the Company entered into a cross currency rate swap with a total notional value of $150 million to exchange monthly fixed-rate interest payments in U.S. dollars for monthly fixed-rate interest rate payments in Euros. These swaps mature in May 2023. As a result of these swaps, the Company’s effective fixed interest rate on the notional floating rate indebtedness will be 2.5%. The combined fair value of these instruments at June 30, 2019 was an asset of $0.4 million.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, and under the supervision and with participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report the Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
On January 1, 2019, the Company adopted the provisions of ASU No. 2016-02, "Leases (Topic 842)." Adoption of this standard did not have a material impact on the Company's financials, however, we implemented a new lease accounting system and implemented changes to our processes related to leases and related control activities.
During 2018, we closed on the acquisition of Sivomatic and we excluded Sivomatic from the scope of management's report on internal control over financial reporting for the year ended December 31, 2018. The process of integrating Sivomatic to our overall internal control over financial reporting has been completed and we will include them in scope for the year ending December 31, 2019.
There were no other changes in the Company's internal controls over financial reporting during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are the subject of various pending legal actions in the ordinary course of their businesses. Except as described below, none of such legal proceedings are material.
Silica and Asbestos Litigation
Certain of the Company's subsidiaries are among numerous defendants in a number of cases seeking damages for exposure to silica or to asbestos containing materials. The Company currently has three pending silica cases and 71 pending asbestos cases. To date, 1,493 silica cases and 59 asbestos cases have been dismissed, not including any lawsuits against AMCOL or American Colloid Company dismissed prior to our acquisition of AMCOL. Thirteen and twenty new asbestos cases were filed during the three month and six month period ended June 30, 2019, respectively, and 16 additional asbestos cases were filed subsequent to the end of the second quarter. Two asbestos cases were dismissed during the first half of 2019, and no silica cases were dismissed during the period. Most of these claims do not provide adequate information to assess their merits, the likelihood that the Company will be found liable, or the magnitude of such liability, if any. Additional claims of this nature may be made against the Company or its subsidiaries. At this time management anticipates that the amount of the Company's liability, if any, and the cost of defending such claims, will not have a material effect on its financial position or results of operations.
The Company has settled only one silica lawsuit, for a nominal amount, and no asbestos lawsuits to date (not including any that may have been settled by AMCOL prior to completion of the acquisition). We are unable to state an amount or range of amounts claimed in any of the lawsuits because state court pleading practices do not require identifying the amount of the claimed damage. The aggregate cost to the Company for the legal defense of these cases since inception continues to be insignificant. The majority of the costs of defense for these cases, excluding cases against AMCOL or American Colloid, are reimbursed by Pfizer Inc. pursuant to the terms of certain agreements entered into in connection with the Company's initial public offering in 1992. The Company is entitled to indemnification, pursuant to agreement, for sales prior to the initial public offering. Of the 71 pending asbestos cases, 45 of the non-AMCOL cases are subject to indemnification, in whole or in part, because the plaintiffs claim liability based on sales of products that occurred either entirely before the initial public offering, or both before and after the initial public offering. In 20 of the 22 remaining non-AMCOL cases, the plaintiffs have not alleged dates of exposure and are yet to be determined through discovery or pleadings, and in the remaining two non-AMCOL cases, exposure is alleged to have been after the Company's initial public offering in 1992. The remaining five cases involve AMCOL only, so no Pfizer indemnity is available. Our experience has been that the Company is not liable to plaintiffs in any of these lawsuits and the Company does not expect to pay any settlements or jury verdicts in these lawsuits.
Environmental Matters
On April 9, 2003, the Connecticut Department of Environmental Protection issued an administrative consent order relating to our Canaan, Connecticut, plant where both our Refractories segment and Specialty Minerals segment have operations. We agreed to the order, which includes provisions requiring investigation and remediation of contamination associated with historic use of polychlorinated biphenyls ("PCBs") and mercury at a portion of the site. We have completed the required investigations and submitted several reports characterizing the contamination and assessing site-specific risks. We are awaiting regulators’ approval of the risk assessment report, which will form the basis for a proposal by the Company concerning eventual remediation.
We believe that the most likely form of overall site remediation will be to leave the existing contamination in place (with some limited soil removal), encapsulate it, and monitor the effectiveness of the encapsulation. We anticipate that a substantial portion of the remediation cost will be borne by the United States based on its involvement at the site from 1942 – 1964, as historic documentation indicates that PCBs and mercury were first used at the facility at a time of U.S. government ownership for production of materials needed by the military. Pursuant to a Consent Decree entered on October 24, 2014, the United States paid the Company $2.3 million in the 4th quarter of 2014 to resolve the Company’s claim for response costs for investigation and initial remediation activities at this facility through October 24, 2014. Contribution by the United States to any future costs of investigation or additional remediation has, by agreement, been left unresolved. Though the cost of the likely remediation remains uncertain pending completion of the phased remediation decision process, we have estimated that the Company’s share of the cost of the encapsulation and limited soil removal described above would approximate $0.4 million, which has been accrued as of June 30, 2019.
The Company is evaluating options for upgrading the wastewater treatment facilities at its Adams, Massachusetts plant. This work has been undertaken pursuant to an administrative Consent Order originally issued by the Massachusetts Department of Environmental Protection (“DEP”) on June 18, 2002. This order was amended on June 1, 2009 and on June 2, 2010. The amended Order includes the investigation by January 1, 2022 of options for ensuring that the facility's wastewater treatment ponds will not result in unpermitted discharge to groundwater. Additional requirements of the amendment include the submittal by July 1, 2022 of a plan for closure of a historic lime solids disposal area. Preliminary engineering reviews completed in 2005 indicate that the estimated cost of wastewater treatment upgrades to operate this facility beyond 2024 may be between $6 million and $8 million. The Company estimates that the remaining remediation costs would approximate $0.4 million, which has been accrued as of June 30, 2019.
For a description of Risk Factors, see Exhibit 99 attached to this report. There have been no material changes to our risk factors from those disclosed in our 2018 Annual Report on Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Period |
Total Number of Shares Purchased |
|
Average Price Paid Per Share |
|
Total Number of Shares Purchased as Part of the Publicly Announced Program |
|
Dollar Value of Shares that May Yet be Purchased Under the Program |
|
|
|
|
|
|
|
|
|
|
|
|
April 1 - April 28 |
|
— |
|
|
— |
|
|
333,184 |
|
$ |
128,306,742 |
April 29 - May 26 |
|
— |
|
|
— |
|
|
333,184 |
|
$ |
128,306,742 |
May 27 - June 30 |
|
180,139 |
|
$ |
55.50 |
|
|
513,323 |
|
$ |
118,309,499 |
Total |
|
180,139 |
|
$ |
55.50 |
|
|
|
|
|
|
On September 21, 2017, the Company's Board of Directors authorized the Company’s management to repurchase, at its discretion, up to $150 million of the Company’s shares over a two-year period commencing October 1, 2017. As of June 30, 2019, 513,323 shares were repurchased under this program for $31.7 million, or an average price of approximately $61.74 per share.
ITEM 3. Default Upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
ITEM 5. Other Information
None
Exhibit No. |
|
Exhibit Title |
|
|
Letter Regarding Unaudited Interim Financial Information. |
|
|
Rule 13a-14(a)/15d-14(a) Certification executed by the Company's principal executive officer. |
|
|
Rule 13a-14(a)/15d-14(a) Certification executed by the Company's principal financial officer. |
|
|
Section 1350 Certifications. |
|
|
Information concerning Mine Safety Violations |
|
|
Risk Factors |
101.INS |
|
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH |
|
XBRL Taxonomy Extension Schema |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase |
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.
|
|
Minerals Technologies Inc. |
|
|
|
|
By: |
/s/ Matthew E. Garth |
|
|
Matthew E. Garth |
|
|
Senior Vice President, Finance and Treasury, |
|
|
Chief Financial Officer |
|
|
|
August 2, 2019 |
|
|