WASHINGTON, D.C. 20549
MINERALS TECHNOLOGIES INC.
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.
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).
MINERALS TECHNOLOGIES INC.
PART 1. FINANCIAL INFORMATION
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
See accompanying Notes to Condensed Consolidated Financial Statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
See Notes to Consolidated Financial Statements, which are an integral part of these statements.
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, 2018.2019. 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, 2019March 29, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020.
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.
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.
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,March 29, 2020, there were $100 million in outstanding loans and $10.4$9.4 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 halfquarter of 2019,2020, the Company repaid $1.3$0.4 million on these loans.
Amortization amounts of prior service costs and recognized net actuarial losses are recorded, net of tax, as increases to accumulated other comprehensive income.
The major components of accumulated other comprehensive loss, net of related tax, attributable to MTI are as follows:
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.
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,March 29, 2020, the related condensed consolidated statements of income and comprehensive income for the three-month and six-month periods ended June 30,March 29, 2020 and March 31, 2019, and July 1, 2018, the related condensed consolidated statements of shareholder's equity and cash flows for the six-monththree-month periods ended June 30,March 29, 2020 and March 31, 2019, the related condensed statements of changes in shareholder's equity for the three-month periods ended March 29, 2020 and July 1, 2018,March 31, 2019, 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, 2018,2019, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 15, 2019,14, 2020, 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, 2018,2019, 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, 2019May 1, 2020
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Our consolidated sales for the secondfirst quarter of 20192020 were $463.8$417.5 million, as compared with $464.7$437.7 million in the prior year. Income from operations was $45.5$57.7 million and represented 9.8%13.8% of sales, as compared with $62.8$62.0 million and 13.5%14.2% of sales in the prior year. Included in income from operations for the secondfirst quarter of 20192020 were restructuring and other costslitigation expenses of $13.2 million. In addition, we recorded a $2.5$0.6 million bad debt reserve related to a customer bankruptcy.associated with the bankruptcy of Novinda Corp. Net income was $26.6$38.6 million, as compared to $44.1$39.1 million in the secondfirst quarter of 2018.2019. Diluted earnings in the first quarter ended June 30, 2019March 29, 2020 were $0.75$1.12 per share, as compared with $1.24$1.11 per share in 2018.2019.
DuringIn March 2020, the World Health Organization categorized the novel coronavirus (COVID-19) as a pandemic. We have remained focused on the health and safety of our employees, and have implemented enhanced protocols across all of our locations. We have also conducted scenario planning and developed contingency plans to ensure we are supporting our customers and adjusting to changing market dynamics. Around the world, the Company is closely adhering to all government regulations as they are issued. Applicable governmental directives across the United States and other global locations typically permit the continued operation of essential critical infrastructure sectors. As the Company supplies products and services to many essential industries, including critical manufacturing and energy sectors, all of our operations have qualified as essential businesses. Accordingly, the majority of the Company’s production facilities are currently operational. In a few locations, however, sites have been temporarily impacted by government directives.
The COVID-19 pandemic affected sales in the first quarter of 2020 by approximately $7 million. The current economic environment related to the rapidly evolving global pandemic, which is slowing business activity in several key end-markets, is expected to negatively impact the Company’s second quarter results. The pandemic has affected and we expect will continue to affect the demand for a number of 2019, we initiated a restructuringour Performance Materials segment’s products and cost savings programservices. We expect paper consumption 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 costsbe down in the second quarternext quarter. Global steel production has been and will continue to be affected by volatility in the market due to the COVID-19 pandemic and we expect steel consumption to be lower due to delays in the construction and automotive industries, which will impact our Refractory segment. Oil and natural gas prices have decreased significantly as a result of 2019. We expectthe COVID-19 pandemic, which, if sustained, will continue to realize annualized savings from this restructuring program of approximately $12 millioncause oil and natural gas companies to reduce their capital expenditures and production and exploration activities.
The extent to which our operations will be impacted by the first halfpandemic will depend largely on future developments, including the severity of 2020.the pandemic and actions by government authorities to contain it or treat its impact. These conditions are highly uncertain and cannot be accurately predicted. We will continue to actively monitor and respond to the COVID-19 pandemic. We are actively managing the business to maintain cash flow.
Our balance sheet continues to be strong. Cash, cash equivalents and short-term investments were $219.7$218.1 million as of June 30, 2019. We repaid $37March 29, 2020. The Company currently has more than $400 million of available liquidity, including cash on hand as well as availability under its revolving credit facility. We believe that these factors will allow us to meet 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.anticipated funding requirements.
Outlook
Looking forward,While the COVID-19 pandemic did not have a material adverse effect on our reported results for our first fiscal quarter, we remain cautious aboutexpect it will negatively impact our business and results of operations for our second quarter. The extent to which our operations will be impacted by the statepandemic will depend largely on future developments, including the severity of the global economypandemic and actions by government authorities to contain it or treat its impact. These are highly uncertain and cannot be accurately predicted. We will continue to actively monitor and respond to the impact it will have on our product lines.COVID-19 pandemic.
The Company will also continue to focus on innovation and new product development and other opportunities for sales growth in 2019 from itsour existing businesses in 2020, 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, 2019March 29, 2020 as compared with three months ended July 1, 2018March 31, 2019
Consolidated Income Statement Review
| | | Three Months Ended | | | | | | Three Months Ended | | | | |
| (millions of dollars) | | June 30, 2019 | | | July 1, 2018 | | | % Growth | | | Mar. 29, 2020 | | | Mar. 31, 2019 | | | % Growth | |
| | | | | | | | | | | | | |
| Net sales | | $ | 463.8 | | | $ | 464.7 | | | | — | | | $ | 417.5 | | | $ | 437.7 | | | | (5 | )% |
| Cost of sales | | | 351.8 | | | | 348.8 | | | | 1 | % | | | 310.7 | | | | 328.0 | | | | (5 | )% |
| Production margin | | | 112.0 | | | | 115.9 | | | | (3 | )% | | | 106.8 | | | | 109.7 | | | | (3 | )% |
| Production margin % | | | 24.1 | % | | | 24.9 | % | | | | | | | 25.6 | % | | | 25.1 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Marketing and administrative expenses | | | 48.4 | | | | 45.3 | | | | 7 | % | | | 43.4 | | | | 42.9 | | | | 1 | % |
| Research and development expenses | | | 4.9 | | | | 6.4 | | | | (23 | )% | | | 5.1 | | | | 4.8 | | | | 6 | % |
| Acquisition related transaction and integration costs | | | — | | | | 1.0 | | | | (100 | )% | |
| Restructuring and other items, net | | | 13.2 | | | | 0.4 | | | | 3,200 | % | |
| Litigation expenses | | | | 0.6 | | | | — | | | | * | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | | 45.5 | | | | 62.8 | | | | (28 | )% | | | 57.7 | | | | 62.0 | | | | (7 | )% |
| Operating margin % | | | 9.8 | % | | | 13.5 | % | | | | | | | 13.8 | % | | | 14.2 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense, net | | | (10.9 | ) | | | (11.5 | ) | | | (5 | )% | | | (9.3 | ) | | | (11.4 | ) | | | (18 | )% |
| Other non-operating income (deductions), net | | | (2.4 | ) | | | 3.1 | | | | (177 | )% | | | 0.6 | | | | (1.4 | ) | | | (143 | )% |
| Total non-operating deductions, net | | | (13.3 | ) | | | (8.4 | ) | | | 58 | % | | | (8.7 | ) | | | (12.8 | ) | | | (32 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations before tax and equity in earnings | | | 32.2 | | | | 54.4 | | | | (41 | )% | | | 49.0 | | | | 49.2 | | | | 0 | % |
| Provision for taxes on income | | | 5.1 | | | | 10.3 | | | | (50 | )% | | | 9.7 | | | | 9.3 | | | | 4 | % |
| Effective tax rate | | | 15.8 | % | | | 18.9 | % | | | | | | | 19.8 | % | | | 18.9 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity in earnings of affiliates, net of tax | | | 0.5 | | | | 1.1 | | | | (55 | )% | | | 0.3 | | | | 0.1 | | | | 200 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 27.6 | | | | 45.2 | | | | (39 | )% | | | 39.6 | | | | 40.0 | | | | (1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income attributable to non-controlling interests | | | 1.0 | | | | 1.1 | | | | (9 | )% | | | 1.0 | | | | 0.9 | | | | 11 | % |
| Net income attributable to Minerals Technologies Inc. | | $ | 26.6 | | | $ | 44.1 | | | | (40 | )% | | $ | 38.6 | | | $ | 39.1 | | | | (1 | )% |
Net Sales
| | | Three Months Ended June 30, 2019 | | | | | | Three Months Ended July 1, 2018 | | | Three Months Ended Mar. 29, 2020 | | | | | | Three Months Ended Mar. 31, 2019 | |
| (millions of dollars) | | Net Sales | | | % of Total Sales | | | % Growth | | | Net Sales | | | % of Total Sales | | | Net Sales | | | % of Total Sales | | | % Growth | | | Net Sales | | | % of Total Sales | |
| | | | | | | |
| U.S. | | $ | 253.3 | | | | 54.6 | % | | | 2 | % | | $ | 249.0 | | | | 53.6 | % | | $ | 226.9 | | | | 54.3 | % | | | (2 | )% | | $ | 231.7 | | | | 52.9 | % |
| International | | | 210.5 | | | | 45.4 | % | | | (2 | )% | | | 215.7 | | | | 46.4 | % | | | 190.6 | | | | 45.7 | % | | | (7 | )% | | | 206.0 | | | | 47.1 | % |
| Total sales | | $ | 463.8 | | | | 100.0 | % | | | 0 | % | | $ | 464.7 | | | | 100.0 | % | | $ | 417.5 | | | | 100.0 | % | | | (5 | )% | | $ | 437.7 | | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Performance Materials Segment | | $ | 215.4 | | | | 46.4 | % | | | 0 | % | | $ | 214.5 | | | | 46.2 | % | | $ | 186.2 | | | | 44.6 | % | | | (7 | )% | | $ | 199.2 | | | | 45.5 | % |
| Specialty Minerals Segment | | | 145.1 | | | | 31.3 | % | | | (4 | )% | | | 150.9 | | | | 32.5 | % | | | 137.1 | | | | 32.8 | % | | | (5 | )% | | | 144.4 | | | | 33.0 | % |
| Refractories Segment | | | 77.5 | | | | 16.7 | % | | | (3 | )% | | | 79.6 | | | | 17.1 | % | | | 69.0 | | | | 16.5 | % | | | (7 | )% | | | 73.8 | | | | 16.9 | % |
| Energy Services Segment | | | 25.8 | | | | 5.6 | % | | | 31 | % | | | 19.7 | | | | 4.2 | % | | | 25.2 | | | | 6.0 | % | | | 24 | % | | | 20.3 | | | | 4.6 | % |
| Total sales | | $ | 463.8 | | | | 100.0 | % | | | 0 | % | | $ | 464.7 | | | | 100.0 | % | | $ | 417.5 | | | | 100.0 | % | | | (5 | )% | | $ | 437.7 | | | | 100.0 | % |
Worldwide net sales decreased slightly5% to $463.8$417.5 million in the secondfirst quarter from $464.7$437.7 million in the prior year. ForeignThe COVID-19 pandemic affected sales in the first quarter of 2020 by approximately $7.0 million. In addition, foreign exchange had an unfavorable impact on sales of approximately 3%$6.0 million or 1%.
Net sales in the United States increaseddecreased to $253.3$226.9 million from $249.0$231.7 million in the prior year. International sales decreased 2%7% to $210.5$190.6 million from $215.7$206.0 million in the prior year.
Operating Costs and Expenses
Cost of sales was $351.8$310.7 million and 75.9%represented 74.4% of sales for the three month period ended March 29, 2020, as compared with $348.8$328.0 million and 75.1%74.9% of sales in the prior year. Production margin increased from 25.1% of sales to 25.6% of sales. This increaseimprovement was primarily due primarily to higher raw material, logisticsselling prices and energy costs across all segments.cost control.
Marketing and administrative costs were $48.4$43.4 million and 10.4% of sales for the three months ended March 29, 2020, as compared to $45.3$42.9 million and 9.7%9.8% 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$5.1 million and represented 1.2% of sales for the three months ended March 29, 2020, as compared with $6.4$4.8 million and 1.1% of sales in the prior year, and represented 1.1% of sales compared with 1.4% of sales.year.
The Company recorded a $13.2$0.6 million chargerelated to litigation costs associated with the bankruptcy of Novinda Corp. 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.March 29, 2020.
Income from Operations
The Company recorded income from operations of $45.5$57.7 million as compared to $62.8$62.0 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 secondfirst quarter of 2019,2020, non-operating deductions were $13.3$8.7 million as compared with $8.4$12.8 million in the prior year. This increaseThe decrease was primarily attributablerelated to lower interest expense and higher foreign exchange gains of $0.1 million induring the current yearthree months ended March 29, 2020 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$9.7 million and $10.3$9.3 million for the three months ended June 30,March 29, 2020 and March 31, 2019, and July 1, 2018, respectively. The effective tax rate was 15.8%19.8% and 18.9% for the three months ended June 30,March 29, 2020 and March 31, 2019, and July 1, 2018, respectively. The lowerhigher effective tax rate was primarily due to discrete items related to restructuring charges and the expirationmix of the tax statute of limitations resulting from the completion of a tax audit.earnings.
Consolidated Net Income Attributable to MTI Shareholders
Consolidated net income was $26.6$38.6 million for the three months ended June 30, 2019March 29, 2020, as compared with $44.1$39.1 million in the prior year.
Segment Review
The following discussions highlight the operating results for each of our four segments.
| | | Three Months Ended | | | | | | Three Months Ended | | | | |
| Performance Materials Segment | | June 30, 2019 | | | July 1, 2018 | | | % Growth | | | Mar. 29, 2020 | | | Mar. 31, 2019 | | | % Growth | |
| | | (millions of dollars) | | | | | | (millions of dollars) | | | | |
| Net Sales | | | | | | | | | | | | | | | | | | |
| Metalcasting | | $ | 75.8 | | | $ | 88.8 | | | | (15 | )% | | $ | 61.7 | | | $ | 73.2 | | | | (16 | )% |
| Household, Personal Care & Specialty Products | | | 69.0 | | | | 58.6 | | | | 18 | % | | | 96.2 | | | | 94.8 | | | | 1 | % |
| Environmental Products | | | 29.0 | | | | 25.2 | | | | 15 | % | | | 11.5 | | | | 15.9 | | | | (28 | )% |
| Building Materials | | | 19.1 | | | | 18.0 | | | | 6 | % | | | 16.8 | | | | 15.3 | | | | 10 | % |
| Basic Minerals | | | 22.5 | | | | 23.9 | | | | (6 | )% | |
| Total net sales | | $ | 215.4 | | | $ | 214.5 | | | | 0 | % | | $ | 186.2 | | | $ | 199.2 | | | | (7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | $ | 20.7 | | | $ | 29.6 | | | | | | | $ | 24.1 | | | $ | 26.3 | | | | | |
| % of net sales | | | 9.6 | % | | | 13.8 | % | | | | | | | 12.9 | % | | | 13.2 | % | | | | |
Net sales in the Performance Materials segment increased slightlydecreased 7% to $215.4$186.2 million from $214.5$199.2 million in the prior year. Foreign exchange had an unfavorableThe impact on sales of $7.3 million, or 3%.COVID-19 in China and late in the quarter in North America contributed to approximately half of the decline from prior year. Sales in Metalcasting decreased primarily due to weaker foundry demand in the U.S. and Asia, including the impact of COVID-19. Household, Personal Care & Specialty Products sales increased 18%1%, driven by continued growth in our global pet care business, which grew 6%, as well as 4% growth in our personal care business. Environmental Products sales decreased 28% primarily due to a large project completed in the continued growth of our pet care products in Europe and North America. Environmental Productsprior year. Building Materials sales increased 15%10% primarily driven by an ongoing large international project. Sales of Building Materials products increased 6% primarily due to an increase in U.S. commercialNorth American 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.activity.
Income from operations was $20.7$24.1 million and 9.6%12.9% of sales as compared to $29.6$26.3 million and 13.8%13.2% 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, operatingOperating income and margins were affected primarily by the lower Metalcasting sales and the rail infrastructure issues impacting the Company’s operations in the Western United States.sales.
| | | Three Months Ended | | | | | | Three Months Ended | | | | |
| Specialty Minerals Segment | | June 30, 2019 | | | July 1, 2018 | | | % Growth | | | Mar. 29, 2020 | | | Mar. 31, 2019 | | | % Growth | |
| | | (millions of dollars) | | | | | | (millions of dollars) | | | | |
| Net Sales | | | | | | | | | | | | | | | | | | |
| Paper PCC | | $ | 90.2 | | | $ | 94.5 | | | | (5 | )% | | $ | 85.1 | | | $ | 91.5 | | | | (7 | )% |
| Specialty PCC | | | 17.3 | | | | 17.3 | | | | 0 | % | | | 17.5 | | | | 18.1 | | | | (3 | )% |
| PCC Products | | $ | 107.5 | | | $ | 111.8 | | | | (4 | )% | | $ | 102.6 | | | $ | 109.6 | | | | (6 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ground Calcium Carbonate | | $ | 24.8 | | | $ | 25.2 | | | | (2 | )% | | $ | 22.6 | | | $ | 22.3 | | | | 1 | % |
| Talc | | | 12.8 | | | | 13.9 | | | | (8 | )% | | | 11.9 | | | | 12.5 | | | | (5 | )% |
| Processed Minerals Products | | $ | 37.6 | | | $ | 39.1 | | | | (4 | )% | | $ | 34.5 | | | $ | 34.8 | | | | (1 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total net sales | | $ | 145.1 | | | $ | 150.9 | | | | (4 | )% | | $ | 137.1 | | | $ | 144.4 | | | | (5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | $ | 20.0 | | | $ | 25.1 | | | | (20 | )% | | $ | 20.3 | | | $ | 22.0 | | | | (8 | )% |
| % of net sales | | | 13.8 | % | | | 16.6 | % | | | | | | | 14.8 | % | | | 15.2 | % | | | | |
Worldwide sales in the Specialty Minerals segment were $145.1$137.1 million, as compared with $150.9$144.4 million in the prior year, a decrease of 4%5%.
Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, decreased 4%6% to $107.5$102.6 million from $111.8$109.6 million in the prior year. Paper PCC sales decreased 5%7% to $90.2$85.1 million from $94.5$91.5 million in the prior year, 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.North America. This was partially offset by Paper PCC sales in Asia, which grew 4% driven by 8% growth in China. 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$17.5 million from $79.6$18.1 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 salesslowed late 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.quarter.
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%1% to $72.4$34.5 million. Ground Calcium Carbonate sales increased 1% to $22.6 for the three month periods ending March 29, 2020 as compared to prior year. Talc sales decreased 5% to $11.9 million from $74.7as compared with $12.5 million in the prior year. Ground Calcium Carbonate sales decreased 1% primarily due to lower volumes in the construction market.
Income from operations for Specialty Minerals was $42.0$20.3 million and 14.5% of net sales as compared to $49.2with $22.0 million and 16.4% of sales in the prior year. Includedyear and represented 14.8% of sales. The decrease in operating income from operations forwas primarily due to the six month period ended June 30, 2019 were $2.5 million of restructuringpaper mill shutdowns in North America. This was partially offset by higher pricing and impairment costs.cost control.
| | | Six Months Ended | | | | | | Three Months Ended | | | | |
| Refractories Segment | | June 30, 2019 | | | July 1, 2018 | | | % Growth | | | Mar. 29, 2020 | | | Mar. 31, 2019 | | | % Growth | |
| | | (millions of dollars) | | | | | | (millions of dollars) | | | | |
| Net Sales | | | | | | | | | | | | | | | | | | |
| Refractory Products | | $ | 123.0 | | | $ | 129.0 | | | | (5 | )% | | $ | 55.8 | | | $ | 62.0 | | | | (10 | )% |
| Metallurgical Products | | | 28.3 | | | | 25.9 | | | | 9 | % | | | 13.2 | | | | 11.8 | | | | 12 | % |
| Total net sales | | $ | 151.3 | | | $ | 154.9 | | | | (2 | )% | | $ | 69.0 | | | $ | 73.8 | | | | (7 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | $ | 19.2 | | | $ | 23.1 | | | | (17 | )% | | $ | 11.2 | | | $ | 12.1 | | | | (7 | )% |
| % of net sales | | | 12.7 | % | | | 14.9 | % | | | | | | | 16.2 | % | | | 16.4 | % | | | | |
Net sales in the Refractories segment decreased 2%7% to $151.3$69.0 million from $154.9$73.8 million in the prior year.year driven by lower Refractory sales globally, partially offset by higher Metallurgical Products sales. Sales of refractory products and systems to steel and other industrial applications decreased 5%10% to $123.0$55.8 million due to lower demand from $129.0steel mills in the U.S., lower equipment sales and the impact of foreign exchange. Sales of metallurgical products increased 12% to $13.2 million.
Income from operations was $11.2 million and 16.2% of sales as compared with $12.1 million and 16.4% of sales 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 | | | | | | Three Months Ended | | | | |
| Energy Services Segment | | June 30, 2019 | | | July 1, 2018 | | | % Growth | | | Mar. 29, 2020 | | | Mar. 31, 2019 | | | % Growth | |
| | | (millions of dollars) | | | | | | (millions of dollars) | | | | |
| | | | | | | | | | | | | | | | | | | |
| Net Sales | | $ | 46.1 | | | $ | 38.8 | | | | 19 | % | | $ | 25.2 | | | $ | 20.3 | | | | 24 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | $ | 3.3 | | | $ | 2.2 | | | | 50 | % | | $ | 3.2 | | | $ | 2.4 | | | | 33 | % |
| % of net sales | | | 7.2 | % | | | 5.7 | % | | | | | | | 12.7 | % | | | 11.8 | % | | | | |
Net sales in the Energy Services segment increased 19%24% to $46.1$25.2 million from $38.8$20.3 million in the prior year, primarily driven by higher filtrationwell testing activity in the North Sea and the Gulf of Mexico.Mexico and increased international sales.
Income from operations duringOperating income was $3.2 million as compared with $2.4 million in 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.prior year.
Liquidity and Capital Resources
Cash provided from operations during the sixthree months ended June 30, 2019,March 29, 2020, was approximately $98$30 million. Cash flows provided from operations during the first halfquarter of 20192020 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$1.7 million; 2021 - $232.3$182.1 million; 2022 - $0.2 million; 2023 - $0.0 million; 2024 - $658.0 million; thereafter - $658.0$0.0 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,March 29, 2020, there were $100 million in outstanding loans and $10.4$9.4 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 halfquarter of 2019,2020, the Company repaid $(1.3)$0.4 million on these loans.
The Company has a committed loan facility in Japan. As of June 30, 2019, $4.9March 29, 2020, $4.3 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)$0.2 million on this facility during the first halfquarter of 2019.2020.
As of June 30, 2019,March 29, 2020, the Company had $43.5$40.7 million in uncommitted short-term bank credit lines, of which approximately $4.2$0.9 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 20192020 should be between $70$50 million and $80$60 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, 2019March 29, 2020 was an asseta liability of $0.9$0.2 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, 2019March 29, 2020 was an asset of $0.4$6.9 million.
On September 21, 2017,October 23, 2019, the Company's Board of Directors authorized the Company’sCompany's management to repurchase, at its discretion, up to $150$75 million of the Company’sCompany's shares over a two-year period commencing October 1, 2017.one-year period. As of June 30, 2019, 513,323March 29, 2020, 851,258 shares werehave been repurchased under this program for $31.7$42.6 million, or an average price of approximately $61.74$50.00 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 sixthree months ended June 30, 2019,March 29, 2020, there were no material changes in the Company’s contractual obligations. For an in-depth discussion of the Company’sCompany's contractual obligations, see “Liquidity"Liquidity and Capital Resources”Resources" in “Management’s"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, 2018.2019.
As we cannot predict the duration or scope of the COVID-19 pandemic and its impact on our customers and suppliers, the negative financial impact to our results cannot be reasonably estimated, but could be material. We are actively managing the business to maintain cash flow and we have significant liquidity. We believe that these factors will allow us to meet our anticipated funding requirements.
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 affectingthat could affect the expectations and forecasts areinclude the duration and scope of the COVID-19 pandemic, and government and other third-party responses to it; worldwide general economic, business, and industry conditions, including the effects of the COVID-19 pandemic on the global economy; the cyclicality of our customers’ businesses and their changing demands; the dependence of certain of our product lines on the commercial construction and infrastructure markets, the domestic building and construction markets, and the automotive market; our ability to effectively achieve and implement our growth initiatives; our ability to service our debt; our ability to comply with the covenants in our senior secured credit facility; our ability to renew or extend long term sales contracts for our PCC satellite operations; consolidation in customer industries, principally paper, foundry and steel; compliance with or changes to regulation in the areas of environmental, health and safety, and tax; claims for legal, environmental and tax matters or product stewardship issues; our ability to successfully develop new products; our ability to ability to defend our intellectual property; the increased risks of doing business abroad; the availability of raw materials and access to ore reserves at our mining operations; increases in costs of raw materials, energy, or shipping; our ability to compete in very competitive industries; operating risks and capacity limitations affecting our production facilities; seasonality of some of our segments; cybersecurity and other threats relating to our information technology systems; and other risks set forth under “Item 1A — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, 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 not listed below 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.
Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging
In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities, Investments - Equity Method and Joint Ventures, and Derivatives and Hedging", which addresses the accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The standard is effective for interim and annual periods beginning on or after December 15, 2020. The adoption of this standard is not expected to have a material impact on the Company's financial statements.
Recently Adopted Accounting Standards
OnMeasurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", which replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost. The Company adopted this guidance 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 the2020 using a modified retrospective transition method, using the effective date as our datemethod. The Company did not record a cumulative-effect adjustment upon adoption 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 adoptionthis standard. Adoption of this standard did not have a material impact on the Company's consolidated 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$4.4 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, 2019March 29, 2020 was an asseta liability of $0.9$0.2 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, 2019March 29, 2020 was an asset of $0.4$6.9 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, 2019March 29, 2020 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. TheAs of March 29, 2020, the Company currently has three pending silica cases and 71135 pending asbestos cases. To date,In total, 1,493 silica cases and 5978 asbestos cases have beenwere dismissed as of the end of the first quarter, not including any lawsuits against AMCOL or American Colloid Company dismissed prior to our acquisition of AMCOL. Thirteen and twentyTwenty nine 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 duringin the first halfquarter of 2019,2020. Fourteen asbestos cases and no silica cases were dismissed during the period.first quarter of 2020. 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 one1 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 71135 pending asbestos cases 45as of the end of the first quarter, 113 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 20sixteen of the 22twenty remaining non-AMCOL cases as of the plaintiffs have not allegedend of the first quarter are subject to indemnity in part until dates of exposure, and are yet to be determined through discovery or pleadings, andwhich were not alleged in the complaint, can be ascertained in discovery. In the four remaining two non-AMCOL cases, exposure is alleged to have been after the Company's initial public offering in 1992. The remaining fivetwo 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.
Other Litigation
The Company is also the respondent in an arbitration requested by the Plan Administrator for the Bankruptcy Estate of Novinda Corp. (“Novinda”), a start-up company which declared bankruptcy in April 2016 and with which the Company had several relationships, including an equity and debt interest and a product supply relationship. On July 30, 2018, the Plan Administrator filed a Demand for Arbitration against the Company and certain of its officers, which demands damages (including fees, interest, and punitive damages) for the alleged destruction of Novinda’s business. The Company has meritorious defenses for this matter. We are awaiting the outcome of the arbitration, which occurred in the fourth quarter of 2019. The Company is not able to reasonably estimate the amount, if any, of reasonably possible loss from this matter and has not recorded a loss contingency liability. We do not expect the outcome of this matter to have a material adverse effect on our financial position although, if determined adversely, it could materially impact results of operations in the period recorded. There can be no assurance as to the ultimate outcome of this matter. The Company has recorded litigation expenses of $11.5 million in total related to this matter as of March 29, 2020.
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.March 29, 2020.
The Company and its subsidiaries are not party to any other material pending legal proceedings, other than routine litigation incidental to their businesses.
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 20182019 Annual Report on Form 10-K.10-K, except for the following:
We have been and expect to continue to be adversely affected by the recent COVID-19 outbreak.
The COVID-19 outbreak, declared a pandemic by the World Health Organization, has surfaced in nearly all regions around the world. Governments around the world have taken preventative measures to contain or mitigate the outbreak, including travel restrictions, border closings, restrictions on public gatherings, shelter-in-place restrictions and limitations on business. This has affected, and is continuing to affect, the global economy, the United States economy and the global financial markets. The outbreak and resulting preventative measures have disrupted our operations and affected our business, and we expect this to continue. The impacts include, but are not limited to, the following:
| ● | We have experienced, and expect to experience in the future, temporary facility closures in response to government mandates in certain jurisdictions in which we operate. We may also be required to close certain of our facilities for the safety of our employees in response to positive diagnoses for COVID-19. Even in facilities that are not closed, we could be affected by reductions in employee availability and effectiveness, changes in operating procedures, and increased costs. |
| ● | Our customers have been, and may continue to be, affected by COVID-19 and the business slowdown caused by preventative measures, resulting in decreased demand for our products and services, delayed payments from customers and uncollectable accounts. |
| ● | Our supply chain has been, and could continue to be, disrupted. This could materially adversely impact our ability to secure raw materials and supplies for our facilities, which could materially adversely affect our operations. |
| ● | Significant disruption of global financial markets could have a negative impact on our ability to access capital in the future. |
| ● | Further or prolonged impact from COVID-19 could result in impairment of asset charges, including long-lived or intangible assets, inventory or bad debt charges. |
We cannot predict the degree to which, or the time period that, global economic conditions and our business, sales, liquidity, financial condition and results of operations will continue to be affected by the COVID-19 pandemic and the resulting preventative measures. The extent to which we are affected will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease. The effects on our business, sales, liquidity, financial condition and results of operations could be material.
Our customers’ businesses are cyclical or have changing regional demands. Our operations are subject to these trends and we may not be able to mitigate these risks.
Our Performance Materials segment’s sales are predominantly derived from the metalcasting market. The metalcasting market is dependent upon the demand for castings for automobile components, farm and construction equipment, oil and gas production equipment, power generation turbine castings, and rail car components. Many of these types of equipment are sensitive to fluctuations in demand during periods of recession or difficult economic conditions, including the current conditions resulting from the COVID-19 pandemic, which has affected and we expect will continue to affect the demand for our Performance Materials segment’s products and services.
In the paper industry, which is served by our Paper PCC product line, production levels for uncoated freesheet within North America and Europe, our two largest markets are projected to continue to decrease. The reduced demand for premium writing paper products has also caused recent paper mill closures. We expect paper consumption to be down in the next quarter as a result of the COVID-19 pandemic.
Our Refractories segment primarily serves the steel industry. Global steel production has been and will continue to be affected by volatility in the market due to the COVID-19 pandemic. We expect steel consumption to be lower due to delays in the construction and automotive industries.
Demand for our Energy Services segment’s products and services is affected by the level of exploration, development, and production activity of, and the corresponding capital spending by, oil and natural gas companies, which are heavily influenced by the benchmark price of these commodities. Oil and natural gas prices decreased significantly as a result of the COVID-19 pandemic with West Texas Intermediate (WTI) oil spot prices declining from a high of $63 per barrel in January 2020 to a low of $13 per barrel in April 2020. We expect the current decline, if sustained, will continue to cause oil and natural gas companies to reduce their capital expenditures and production and exploration activities. This has the effect of decreasing the demand and increasing competition for the services we provide. In addition, the performance of our Energy Services segment is affected by changes in technologies, locations of customers’ targeted reserves, and competition in various geographic markets.
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 | | | | | | |
| 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 |
| | | | | | | | | | | | |
| January 1 - January 26 | | 100,362 | | $ | 56.91 | | | 460,735 | | $ | 49,294,219 |
| January 27 - February 23 | | 101,294 | | $ | 55.77 | | | 562,029 | | $ | 43,645,151 |
| February 24 - March 29 | | 289,229 | | $ | 38.76 | | | 851,258 | | $ | 32,434,290 |
| Total | | 490,885 | | $ | 45.98 | | | | | | |
On September 21, 2017,October 23, 2019, the Company's Board of Directors authorized the Company’sCompany's management to repurchase, at its discretion, up to $150$75 million of the Company’sCompany's shares over a two-year period commencing October 1, 2017.one-year period. As of June 30, 2019, 513,323March 29, 2020, 851,258 shares werehave been repurchased under this program for $31.7$42.6 million, or an average price of approximately $61.74$50.00 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(the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL documentdocument). |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contain in Exhibit 101). |
SIGNATURE
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, 2019May 1, 2020 | | |