Minerals Technologies Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing also reports unaudited fourth-quarter results. Filed February 14, 2020. Minerals Technologies develops and sells specialty mineral products and related systems and services through Performance Materials, Specialty Minerals, Refractories, and Energy Services.
Financial results and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net sales | $1,791.0 million | $1,807.6 million | Down 0.9% |
| Production margin | $440.6 million; 24.6% | $461.4 million; 25.5% | Down $20.8 million; 0.9 percentage points |
| Income from operations | $208.7 million; 11.7% margin | $255.9 million; 14.2% margin | Down 18.4% |
| Net income attributable to MTI | $132.7 million | $169.0 million | Down 21.5% |
| Diluted EPS | $3.78 | $4.75 | Down 20.4% |
| Cash provided by operations | $238.3 million | $203.6 million | Up $34.7 million |
| Capital expenditures | $65.0 million | $75.9 million | Down $10.9 million |
Foreign exchange reduced 2019 sales by approximately $32.8 million, or 2 percentage points. U.S. sales rose 0.1% to $962.4 million; international sales fell 2.1% to $828.6 million. Management attributed lower production margin chiefly to unfavorable product mix and higher raw-material and logistics costs.
At year-end, cash and cash equivalents were $241.6 million, with $1.6 million of short-term investments. Working capital was $520.7 million. Total debt was $927.6 million, comprising $101.2 million short-term debt and $826.4 million long-term debt before current maturities and balance-sheet adjustments; long-term debt reported net was $824.3 million. The company repaid approximately $88 million of long-term principal during 2019. Its $300 million revolving facility had $100 million drawn and $9.7 million of letters of credit outstanding; the company reported compliance with its covenants.
Quarter four sales were $440.2 million versus $447.5 million a year earlier; operating income was $47.7 million versus $62.3 million, and net income attributable to MTI was $29.0 million versus $43.1 million. Diluted EPS was $0.83 versus $1.22.
Material changes by segment
- Performance Materials: Sales decreased 0.6% to $823.3 million and operating income fell to $97.1 million from $116.8 million. Metalcasting sales declined $37.7 million, reflecting lower pricing and volumes and weaker U.S. automotive, heavy-truck, and agricultural-equipment demand. Pet care and other household products, and environmental products, grew.
- Specialty Minerals: Sales decreased 2.5% to $574.4 million; operating income declined to $83.1 million from $95.4 million. Paper PCC sales fell as North American mills shut down, partly offset by Asian volume growth. Processed Minerals sales also declined.
- Refractories: Sales decreased 4.4% to $298.1 million and operating income fell to $39.8 million from $45.4 million, primarily due to lower refractory volumes.
- Energy Services: Sales increased 21.6% to $95.2 million and operating income rose to $7.8 million from $4.5 million, on stronger well-testing and filtration activity and equipment sales.
Outlook, risks, and unusual items
- Management described its outlook as cautious about the global economy. It provided no specific 2020 revenue or earnings guidance in the supplied filing text. Planned 2020 capital expenditures were $70 million to $80 million, principally for PCC plants and strategic growth projects.
- A 2019 restructuring and cost-savings program generated $13.2 million of charges, including $7.5 million of asset write-downs and $5.7 million of other restructuring costs. Management expected approximately $12 million in annualized savings by the first half of 2020.
- The company recorded $10.9 million of litigation expense relating to the Novinda bankruptcy arbitration. The hearing occurred in the fourth quarter; the company said it could not reasonably estimate any possible loss and had not recorded a loss-contingency liability. An adverse result could materially affect results in the period recorded.
- Key exposures include cyclical customer industries, North American paper-mill closures, volatility in raw-material, energy, and shipping costs, foreign exchange, and dependence on long-term satellite PCC contracts. The company also cited debt-service and covenant risk, variable-rate debt and the planned phaseout of LIBOR, environmental and product-liability matters, and operational, weather, and cybersecurity risks.
- Environmental items include estimated company shares of approximately $0.4 million each for remediation at the Canaan, Connecticut site and remaining remediation costs at the Adams, Massachusetts site. Potential wastewater-treatment upgrades at Adams were preliminarily estimated at $6 million to $8 million; the timing and final cost remain uncertain.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Pension-obligation measurement was identified as a critical audit matter, particularly the discount-rate assumption.
Important facts for investors to verify
- Whether the restructuring program delivers the projected $12 million annualized savings and how much of the $13.2 million charge is nonrecurring.
- Developments and potential financial exposure from the Novinda arbitration, for which no loss estimate was provided.
- Sales, volumes, and contract renewals at satellite PCC plants given continued paper-market declines and mill shutdowns.
- Debt repayment, revolver usage, covenant headroom, and exposure to floating rates and LIBOR transition.
- Actual 2020 capital spending, project returns, and the ability to offset raw-material, energy, freight, and currency pressures.
- The extent and timing of environmental remediation and any wastewater-treatment investment beyond amounts accrued.