Minerals Technologies Inc. — 2013 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2013; the filing also reports unaudited fourth-quarter results. Minerals Technologies develops and sells specialty mineral products, systems and services through Specialty Minerals (including precipitated calcium carbonate, or PCC, lime, talc and limestone) and Refractories (refractory materials, services and metallurgical products). Its principal end markets include paper and steel, as well as construction, automotive and other industries.
Financial performance
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $1,018.2 million | $996.8 million |
| Production margin | $233.6 million; 22.9% of sales | $222.3 million; 22.3% |
| Income from operations | $126.9 million; 12.5% of sales | $113.6 million; 11.4% |
| Income from continuing operations | $89.2 million | $78.7 million |
| Net income attributable to MTI | $80.3 million | $74.1 million |
| Diluted EPS attributable to MTI | $2.30 total; $2.46 from continuing operations | $2.09 total; $2.16 from continuing operations |
| Cash from continuing operating activities | $137.5 million | $142.1 million |
- Annual sales rose 2%; foreign exchange reduced reported sales by $11.2 million, or about one percentage point of growth. Operating income rose 12%, with management citing productivity gains, cost control and stronger segment performance.
- Specialty Minerals sales increased 3% to $669.8 million and segment operating income rose to $98.4 million from $87.7 million. Refractories sales increased 1% to $348.4 million and segment operating income was $35.9 million, including a $2.5 million insurance gain, versus $32.6 million.
- Paper PCC sales were $480.0 million, up 2%; processed minerals sales rose 6% to $122.6 million. Refractory product sales were essentially flat at $264.0 million, while metallurgical products increased 6% to $84.4 million.
- Fourth-quarter net sales were $256.6 million, operating income $33.5 million, income from continuing operations $23.6 million, and net income attributable to MTI $22.6 million. Diluted EPS was $0.65, including $0.65 from continuing operations.
Liquidity, debt and capital
- Year-end cash, cash equivalents and short-term investments totaled approximately $506.0 million. Working capital was $634.2 million and the current ratio was 4.5.
- Total debt was $88.7 million; the debt-to-capital ratio was 9.2%. The company had $189.7 million of uncommitted short-term credit lines, of which $5.5 million was drawn.
- Operating cash flow from continuing operations was $137.5 million; capital expenditures were $43.8 million. The company also paid $6.9 million in dividends and used $51.8 million to repurchase shares.
- In October 2013, MTI issued $75 million of senior notes due in 2020 and 2023, at fixed rates of 3.46% and 4.13%, to refinance $75 million of maturing notes. Planned 2014 capital expenditures were $65–$75 million.
Material changes, outlook and risks
- MTI reported its fourth consecutive year of record earnings per share. It attributed improved results to a 5% company-wide productivity improvement, reported savings of $3.3 million, price increases and stronger Specialty Minerals performance. A $2.5 million one-time insurance settlement gain benefited 2013 operating income.
- The company ceased operations at its underutilized Walsum, Germany merchant PCC facility in Q2 2013 and recorded $5.9 million of pretax closure costs. The facility’s discontinued operations produced a $5.8 million after-tax loss in 2013, compared with $2.5 million in 2012.
- Management remained cautious about the global economy and the sustainability of the 2013 market improvement. Its 2014 priorities included further PCC satellite expansion, commercializing FulFill high-filler technologies, developing new mineral and refractory products, and pursuing selective acquisitions. No company-wide earnings or sales guidance is provided in the supplied filing text.
- FulFill had 15 commercial contracts and generated $2.5 million of operating income in 2013; management expected $4.0–$4.5 million in 2014. The company also had PCC capacity projects underway: two newly contracted facilities were expected to add about 60,000 tons and be operational by Q4 2014; a separate 100,000-ton Changshu, China satellite was expected to start in Q1 2015.
- On February 14, 2014, MTI proposed acquiring AMCOL International for $42 per share in cash. The proposal was not a completed transaction; any deal was subject to acceptance, financing and customary closing conditions, with a potential first-half 2014 close.
- Key exposures include cyclical paper, steel, construction and automotive markets; customer mill closures and concentration; renewal of long-term PCC contracts; raw-material, energy and foreign-exchange volatility; international operating risks; and environmental, health and safety regulation. About 45% of sales were international. Higher raw-material costs affected Specialty Minerals by $4.7 million in 2013, partly offset by pricing.
- At year-end, pension plans were approximately 83% funded, up from 66% in 2012; management projected 2014 pension expense of about $15 million. Environmental accruals included approximately $0.4 million each for the Canaan and Adams sites; potential Adams wastewater upgrades were preliminarily estimated at $6–$8 million. MTI disclosed 72 pending silica cases and 15 asbestos cases, but said it did not expect these matters to materially affect results or financial position.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the AMCOL proposal proceeded, its financing and any resulting impact on MTI’s liquidity, debt and capital plans.
- Whether projected FulFill earnings, new satellite plant commissioning dates and planned 2014 capital spending were achieved.
- How much of the operating-income increase is sustainable after excluding the $2.5 million insurance gain, and how margins respond to input costs and customer demand.
- The filing gives different 2013 sales figures for the SULB Bahrain refractory contract in separate passages ($12.5 million and $13.9 million); verify the correct amount and its treatment.
- Progress and cost exposure for environmental remediation, pension funding, and pending litigation, including uncertainties not quantified in the filing.