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| MTX > SEC Filings for MTX > Form 10-Q on 27-Jul-2012 | All Recent SEC Filings |
27-Jul-2012
Quarterly Report
of Operations
Income and Expense Items
as a Percentage of Net Sales
Three Months Ended Six Months Ended
July July July July
1, 3, 1, 3,
2012 2011 2012 2011
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 77.8 80.0 78.2 79.9
Production margin 22.2 20.0 21.8 20.1
Marketing and
administrative expenses 8.6 8.8 8.8 8.8
Research and development
expenses 2.0 1.8 2.0 1.8
Income from operations 11.6 9.3 11.0 9.4
Net income 7.8 % 6.1 % 7.4 % 6.1 %
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Executive Summary
The Company achieved record earnings for the second quarter and first half of 2012. Consolidated sales for the second quarter of 2012 decreased 5% to $254.0 million from $268.4 million in the prior year. Income from operations grew 18% to $29.5 million in the second quarter of 2012 from $25.1 million the prior year. The improvement in operating income occurred in both the Specialty Minerals and Refractories segments and was attributable to increased pricing, higher productivity, lower material and energy costs and to cost and expense control. Net income increased 20% to $19.7 million from $16.4 million in the second quarter of 2011.
The Company's results continue to show solid financial performance, despite weakening economic conditions in Europe. The Company remains focused on the execution of its geographic expansion and new product development growth strategies and we continue to see progress in our major growth strategy of developing and commercializing new products such as our FulFill™ platform of technologies of higher filler loading and our LaCam® - Torpedo measuring system. The Company entered into commercial agreements with three paper mills for the adoption of our FulFill™ higher filler technology since the beginning of the second quarter of 2012, and now have nine commercial agreements with papermakers around the world. In addition, the Company signed an agreement to perform all refractory maintenance at a greenfield steel mill in Bahrain that is due to the start up during the third quarter of 2012.
The Company's balance sheet as of July 1, 2012 continues to be very strong. Cash, cash equivalents and short-term investments were approximately $441 million. We have available lines of credit of $190 million, our debt to equity ratio was 11%, and our current ratio was 4.1. Our cash flows from operations were approximately $40 million in the second quarter of 2012.
We face some significant risks and challenges in the future:
· The industries we serve, primarily paper, steel,
construction and automotive, can be adversely affected by
the uncertain global economic climate. Our Refractories
segment primarily serves the steel industry. Although North
American steel production improved 6% in the second quarter
2012 as compared with the prior year, it remains well below
2008 levels. In Europe, we are seeing further softening in
steel production as the EU27 declined 6.1% versus the second
quarter of 2011. In the paper industry, which is served by
our Paper PCC product line, production levels for printing
and writing papers within North America and Europe, our two
largest markets, for the second quarter 2012 were 3% and 5%
below the prior year. In addition, our Processed Minerals
and Specialty PCC product lines are affected by the seasonal
demand of the domestic building and construction markets.
· Some of our customers may experience shutdowns due to
industry consolidations, or may face liquidity issues, or
bankruptcy, which could deteriorate the aging of our
accounts receivable, increase our bad debt exposure and
possibly trigger impairment of assets or realignment of our
businesses.
· Consolidations and rationalizations in the paper and steel
industries concentrate purchasing power in the hands of
fewer customers, increasing pricing pressure on suppliers
such as Minerals Technologies Inc.
· Most of our Paper PCC sales are subject to long-term contracts that may be
terminated pursuant to their terms, or may be renewed on terms less favorable
to us.
· We are subject to volatility in pricing and supply availability of our key
raw materials used in our Paper PCC product line and Refractory product line.
· We continue to rely on China for a portion of our supply of magnesium oxide
in the Refractories segment, which may be subject to uncertainty in
availability and cost.
· Fluctuations in energy costs have an impact on all of our businesses.
· Changes in the fair market value of our pension assets, rates of return on
assets, and discount rates could continue to have a significant impact on our
net periodic pension costs as well as our funding status.
· As we expand our operations abroad we face the inherent risks of doing
business in many foreign countries, including foreign exchange risk, import
and export restrictions, and security concerns.
· The Company's operations, particularly in the mining and environmental areas
(discharges, emissions and greenhouse gases), are subject to regulation by
federal, state and foreign authorities and may be subject to, and presumably
will be required to comply with, additional laws, regulations and guidelines
which may be adopted in the future.
During the second quarter of 2011, Metsa Board Corporation, formerly M-real Corporation, announced plans to divest its Alizay paper mill in France. Over the past several months, Metsa Board had been in discussions with a number of paper producers; however none of the candidates have fulfilled Metsa Board's conditions for sale. Although the paper mill is presently not operating, we believe discussions for the sale of the mill continue. If Metsa Board can not sell the facility, the Company would likely shut down its PCC satellite facility permanently and could incur an impairment of assets charge. Under that scenario, the Company could pursue options for mitigation or recovery of assets, including redeployment of assets to other locations to the extent feasible. The net book value of the facility as of July 1, 2012 was $3.9 million. In 2011, sales at Alizay were approximately $7 million.
During the third quarter of 2011, NewPage Corporation filed for Chapter 11 bankruptcy protection. The Company does business with five NewPage mills, including operating three satellite PCC facilities at NewPage locations. At present, the Company continues to supply PCC to these mills. If NewPage is unable to emerge from the bankruptcy process or should these facilities cease operations, the Company could incur an impairment of assets charge of up to $16 million and may incur additional provisions for bad debt. Annual sales to NewPage locations in 2011 were approximately $20 million.
The Company has evaluated these facilities for impairment of assets and, based upon the information currently available and probability-weighted cash flows of various potential outcomes, has determined that no impairment charge is required in the second quarter.
The Company will continue to focus on innovation and new product development and other opportunities for continued growth as follows:
· Develop multiple high-filler technologies, such as
filler-fiber, under the FulfillTM platform of products, to
increase the fill rate in freesheet paper and continue to
progress with commercial discussions and full-scale paper
machine trials.
· 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 carbonates and talc products used in
the manufacture of novel biopolymers, a new market
opportunity.
· Deploy new talc, PCC and GCC products in paint, coating and
packaging applications.
· Deploy value-added formulations of refractory materials that
not only reduce costs but improve performance.
· Expand our solid core wire product line into BRIC, Middle
Eastern and other Asian countries.
· Deploy our laser measurement technologies into new
applications.
· Deploy operational excellence principles into all aspects of
the organization, including system infrastructure and lean
principles.
· 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 July 1, 2012 as compared with three months ended July 3,
2011.
Sales
(millions of dollars) Second Second % of
Quarter % of Total Quarter Total
Net Sales 2012 Sales Growth 2011 Sales
U.S $ 143.3 56.4 % 1 % $ 141.2 52.6 %
International 110.7 43.6 % (13) % 127.2 47.4 %
Net sales $ 254.0 100.0 % (5) % $ 268.4 100.0 %
Paper PCC $ 119.3 47.0 % (3) % $ 123.6 46.0 %
Specialty PCC 17.0 6.7 % 2 % 16.6 6.2 %
PCC Products $ 136.3 53.7 % (3) % $ 140.2 52.2 %
Talc $ 13.1 5.1 % 3 % $ 12.7 4.7 %
Ground Calcium Carbonate 18.7 7.4 % (1) % 18.9 7.0 %
Processed Minerals Products $ 31.8 12.5 % 1 % $ 31.6 11.8 %
Specialty Minerals Segment $ 168.1 66.2 % (2) % $ 171.8 64.0 %
Refractory Products $ 65.4 25.7 % (13) % $ 75.3 28.1 %
Metallurgical Products 20.5 8.1 % (4) % 21.3 7.9 %
Refractories Segment $ 85.9 33.8 % (11) % $ 96.6 36.0 %
Net sales $ 254.0 100.0 % (5) % $ 268.4 100.0 %
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Worldwide net sales in the second quarter of 2012 decreased 5% to $254.0 million from $268.4 million from the previous year. Foreign exchange had an unfavorable impact on sales of approximately $8.6 million or approximately 3 percentage points. Sales in the Specialty Minerals segment, which includes the PCC and Processed Minerals product lines, decreased 2% to $168.1 million as compared with $171.8 million for the same period in 2011. Sales in the Refractories segment decreased 11% from the previous year to $85.9 million.
Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, decreased 3% in the second quarter to $136.3 million from $140.2 million in the prior year. Foreign exchange had an unfavorable impact on sales of $5.6 million or approximately 4 percentage points. Paper PCC sales decreased 3% to $119.3 million in the second quarter of 2012 from $123.6 million in the prior year. Paper PCC volumes declined 3% from prior year with 18% declines in Europe more than offsetting the increased volumes in all other regions. Sales were affected by the closure of one satellite PCC facility in Finland, the temporary shutdown of a satellite PCC facility in France and volume declines due to lower paper production in Europe. Sales of Specialty PCC increased 2% to $17.0 million from $16.6 million in the prior year. This increase was primarily due to increased volumes.
Net sales of Processed Minerals products increased 1% in the second quarter to $31.8 million from $31.6 million in the second quarter of 2011. Talc sales increased 3%.
Net sales in the Refractories segment in the second quarter of 2012 decreased 11% to $85.9 million from $96.6 million in the prior year. Foreign exchange had an unfavorable impact on sales of $3.0 million or approximately 3 percentage points. Sales of refractory products and systems to steel and other industrial applications decreased 13% to $65.4 million from $75.3 million in the prior year due to volume declines associated with deconsolidation of the company's Refractory operations in Korea of $1.9 million and to volume declines in Europe of 5% due to weakness in the European steel industry during the quarter. Sales of metallurgical products within the Refractories segment decreased 4% to $20.5 million as compared with $21.3 million in the same period last year.
Net sales in the United States increased 1% to $143.3 million in the second quarter of 2012. International sales in the second quarter of 2012 decreased 13% to $110.7 from $127.2 million primarily due to lower volumes in Europe and the effects of foreign exchange.
Second Second
Operating Costs and Expenses Quarter Quarter
(millions of dollars) 2012 2011 Growth
Cost of goods sold $ 197.6 $ 214.7 (8) %
Marketing and administrative $ 21.8 $ 23.7 (8) %
Research and development $ 5.0 $ 4.9 2 %
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Cost of goods sold was 77.8% of sales as compared with 80.0% of sales in the prior year. Production margin increased $2.7 million, or 5% as compared with a 5% decrease in sales. In the Specialty Minerals segment, production margin increased 9% as compared with a 2% decrease in sales. This was primarily attributable to increased pricing, net of material cost increases of $3 million, lower energy costs of $1 million and continued productivity and cost improvements of $1 million, which more than offset permanent and temporary PCC facility closures and other volume declines of $1.5 million and the effects of foreign exchange of $0.5 million. In the Refractories segment, production margin decreased 1% as compared with an 11% decrease in sales. The decrease in margin was less than the decrease in sales due to lower materials costs of $2.1 million, cost and expense control and productivity improvements, which partially offset refractory volume and equipment declines of $2 million and the effects of foreign exchange.
Marketing and administrative costs decreased 8% in the second quarter to $21.8 million from $23.7 million in the prior year and represented 8.6% of sales as compared with 8.8% of sales in the prior year. This was primarily due to our expense control initiatives and the effects of foreign exchange.
Research and development expenses increased 2% to $5.0 million from $4.9 million in the prior year and represented 2.0 % of sales as compared with 1.8% of sales in the prior year. The increased costs were primarily due to Paper PCC trial activity.
Second Second
Income from Operations Quarter Quarter
(millions of dollars) 2012 2011 Growth
Income from operations $ 29.5 $ 25.1 18 %
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The Company recorded income from operations of $29.5 million in the second quarter of 2012, an 18% increase from prior year income from operations of $25.1 million. Income from operations represented 11.6% of net sales in the current year as compared with 9.3% of sales in the second quarter of 2011.
Income from operations in the second quarter of 2012 for the Specialty Minerals segment was $22.1 million, as compared to income from operations of $18.6 million in the prior year. Operating income for the Refractories segment was $8.7 million as compared to income from operations of $7.8 million in the prior year.
Second Second
Non-Operating Deductions Quarter Quarter
(millions of dollars) 2012 2011 Growth
Non-operating deductions,
net $ (0.8 ) $ (0.8 ) 0 %
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In the second quarter of 2012, net non-operating deduction remained flat as compared to prior year at $0.8 million.
Second Second
Provision for Taxes on Income Quarter Quarter
(millions of dollars) 2012 2011 Growth
Provision (benefit) for taxes on income $ 8.5 $ 7.1 20 %
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The second quarter effective tax rate for 2012 was 29.5% as compared with 29.3% for the second quarter of 2011.
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