# Minerals Technologies Inc: Form 10-Q for the period ended Sep 27, 2020

- Company: [Minerals Technologies Inc](/companies/mtx.md) (CIK 891014)
- Form: 10-Q
- Filed: 2020-10-30
- Accepted by EDGAR: Oct 30, 2020, 16:30 ET
- Period: 2020-09-27
- Accession: 0000891014-20-000057
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/891014/000089101420000057/form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/891014/000089101420000057/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-09-27.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-06-29 to 2020-09-27 | $388.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2020-01-01 to 2020-09-27 | $1.16bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-06-29 to 2020-09-27 | $289.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2020-01-01 to 2020-09-27 | $868.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2020-06-29 to 2020-09-27 | $98.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2020-01-01 to 2020-09-27 | $294.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2020-06-29 to 2020-09-27 | $4.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2020-01-01 to 2020-09-27 | $15.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2020-06-29 to 2020-09-27 | $42.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2020-01-01 to 2020-09-27 | $127.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-06-29 to 2020-09-27 | $48.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-01-01 to 2020-09-27 | $133.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-06-29 to 2020-09-27 | $10.1m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2020-01-01 to 2020-09-27 | $27.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-06-29 to 2020-09-27 | $7.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-01-01 to 2020-09-27 | $17.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-06-29 to 2020-09-27 | $28.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2020-01-01 to 2020-09-27 | $81.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-06-29 to 2020-09-27 | $0.83 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-01-01 to 2020-09-27 | $2.38 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-06-29 to 2020-09-27 | $0.83 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-01-01 to 2020-09-27 | $2.38 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-06-29 to 2020-09-27 | 34,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-01-01 to 2020-09-27 | 34,200,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-01-01 to 2020-09-27 | $148.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2020-01-01 to 2020-09-27 | $45.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2020-01-01 to 2020-09-27 | $5.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2020-01-01 to 2020-09-27 | $25.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-09-27 | $379.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-09-27 | $1.05bn | us-gaap:AssetsCurrent |
| Total assets | at 2020-09-27 | $3.21bn | us-gaap:Assets |
| Current liabilities | at 2020-09-27 | $272.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-09-27 | $1.74bn | us-gaap:Liabilities |
| Long-term debt | at 2020-09-27 | $1.01bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-09-27 | $900.0k | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2020-09-27 | $0 | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2020-09-27 | $1.44bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,502 characters.

### Executive Summary

Our consolidated sales for the third quarter of 2020 were $388.3 million, as compared with $449.3 million in the prior year. Income from operations was $48.5 million and represented 12.5% of sales, as compared with $53.5 million and 11.9% of sales in the prior year. Included in income from operations for the third quarter of 2020 were $1.5 million of restructuring and other items, net. In addition, we recorded $1.5 million of litigation expenses associated with the bankruptcy of Novinda Corp. Net income was $28.3 million, as compared to $38.0 million in the third quarter of 2019. Diluted earnings in the third quarter ended September 27, 2020 were $0.83 per share, as compared with $1.08 per share in 2019.

In 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 deployed rigorous health, safety and wellness protocols for all of our facilities in order to protect our employees. 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 continues to closely adhere to all government regulations as they are issued. Applicable governmental directives across the United States and other global locations have typically permitted 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 had qualified as essential businesses. Accordingly, all of the Company’s production facilities are currently operational. In a few locations, however, sites were temporarily impacted by the pandemic.

The recent economic environment related to the rapidly evolving global pandemic, which has slowed business activity in several key end-markets, negatively impacted the Company’s third quarter results. The pandemic has affected and may continue to affect the demand for a number of our Performance Materials segment’s products and services. Paper consumption has been and may continue to be down. 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 the COVID-19 pandemic, which, if sustained, will continue to cause oil and natural gas companies to reduce their capital expenditures and production and exploration activities.

The impacts of the COVID-19 pandemic may continue to impact our results for the fourth quarter. The extent to which our operations will be impacted by the pandemic will depend largely on future developments, including the continued severity of the pandemic and future 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 $381.8 million as of September 27, 2020. On June 30, 2020, the Company completed a $400 million private offering of senior unsecured notes due 2028. The net proceeds were used to repay $148 million of fixed rate term loans and $100 million of outstanding borrowing under its revolving credit facility and the remainder for general corporate purposes. As a result, the Company currently has more than $650 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 anticipated funding requirements.

### Outlook

The COVID-19 pandemic had an adverse effect on our reported results for our second and third quarters, and may continue to negatively impact our business and results of operations for our fourth quarter. The extent to which our operations will be impacted by the pandemic will depend largely on future developments, including the severity of the pandemic 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 COVID-19 pandemic.

The Company will also continue to focus on innovation and new product development and other opportunities for sales growth from our 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 September 27, 2020 as compared with three months ended September 29, 2019

### Consolidated Income Statement Review

| (millions of dollars) | Three Months Ended Sep. 27, 2020 | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $388.3 | $449.3 | (14)% |
| Cost of sales | 289.9 | 338.1 | (14)% |
| Production margin | 98.4 | 111.2 | (12)% |
| Production margin % | 25.3% | 24.7% |  |
| Marketing and administrative expenses | 42.1 | 46.9 | (10)% |
| Research and development expenses | 4.8 | 5.2 | (8)% |
| Litigation expenses | 1.5 | 5.6 | (73)% |
| Restructuring and other items, net | 1.5 | — | \* |
| Income from operations | 48.5 | 53.5 | (9)% |
| Operating margin % | 12.5% | 11.9% |  |
| Interest expense, net | (10.1) | (11.0) | (8)% |
| Non-cash pension settlement charge | (1.1) | — | \* |
| Other non-operating deductions, net | (1.5) | (1.6) | (6)% |
| Total non-operating deductions, net | (12.7) | (12.6) | 1% |
| Income from operations before tax and equity in earnings | 35.8 | 40.9 | (12)% |
| Provision for taxes on income | 7.0 | 2.6 | 169% |
| Effective tax rate | 19.6% | 6.4% |  |
| Equity in earnings of affiliates, net of tax | 0.5 | 0.8 | (38)% |
| Net income | 29.3 | 39.1 | (25)% |
| Net income attributable to non-controlling interests | 1.0 | 1.1 | (9)% |
| Net income attributable to Minerals Technologies Inc. | $28.3 | $38.0 | (26)% |

\* Not meaningful

### Net Sales

| (millions of dollars) | Three Months Ended Sep. 27, 2020 Net Sales | % of Total Sales | % Change | Three Months Ended Sep. 29, 2019 Net Sales | % of Total Sales |
| --- | ---: | ---: | ---: | ---: | ---: |
| U.S. | $199.9 | 51.5% | (18)% | $243.6 | 54.2% |
| International | 188.4 | 48.5% | (8)% | 205.7 | 45.8% |
| Total sales | $388.3 | 100.0% | (14)% | $449.3 | 100.0% |
| Performance Materials Segment | $190.6 | 49.1% | (8)% | $207.3 | 46.1% |
| Specialty Minerals Segment | 125.1 | 32.2% | (13)% | 143.1 | 31.9% |
| Refractories Segment | 59.3 | 15.3% | (19)% | 73.4 | 16.3% |
| Energy Services Segment | 13.3 | 3.4% | (48)% | 25.5 | 5.7% |
| Total sales | $388.3 | 100.0% | (14)% | $449.3 | 100.0% |

25

Worldwide net sales decreased 14% to $388.3 million in the third quarter from $449.3 million in the prior year. Foreign exchange had an unfavorable impact on sales of $3 million or 1 percentage point. Sales decreased in all business segments primarily due to reduced volumes related to the impacts of the COVID-19 pandemic.

Net sales in the United States decreased 18% to $199.9 million from $243.6 million in the prior year. International sales decreased 8% to $188.4 million from $205.7 million in the prior year.

### Operating Costs and Expenses

Cost of sales was $289.9 million and represented 74.7% of sales for the three month period ended September 27, 2020, as compared with $338.1 million and 75.3% of sales in the prior year. Production margin increased from 24.7% of sales in the prior year to 25.3% of sales in the third quarter of 2020. This improvement was primarily due to favorable mix, higher selling prices and cost control.

Marketing and administrative costs were $42.1 million and 10.8% of sales for the three months ended September 27, 2020, as compared to $46.9 million and 10.4% of sales in the prior year.

Research and development expenses were $4.8 million and represented 1.2% of sales for the three months ended September 27, 2020, as compared with $5.2 million and 1.2% of sales in the prior year.

The Company recorded $1.5 million for asset write-downs and other restructuring costs for the three months ended September 27, 2020.

In addition, the Company recorded $1.5 million and $5.6 million related to litigation expenses associated with the bankruptcy of Novinda Corp. for the three months ended September 27, 2020 and September 29, 2019, respectively.

### Income from Operations

The Company recorded income from operations of $48.5 million as compared to $53.5 million in the prior year. Operating income during the three months ended September 27, 2020 includes a $1.5 million charge for the impairment of assets and other restructuring items, net and $1.5 million related to litigation expenses associated with the bankruptcy of Novinda Corp. Operating income during the three months ended September 29, 2019 includes a $5.6 million charge related to litigation expenses associated with the bankruptcy of Novinda Corp.

### Other Non-Operating Income (Deductions)

In the third quarter of 2020, non-operating deductions were $12.7 million as compared with $12.6 million in the prior year. Included in other non-operating deductions for the third quarter of 2020 is a $1.1 million non-cash pension settlement charge associated with one of our plans in the U.S.

### Provision for Taxes on Income

Provision for taxes on income was $7.0 million and $2.6 million for the three months ended September 27, 2020 and September 29, 2019, respectively. The effective tax rate was 19.6% and 6.4% for the three months ended September 27, 2020 and September 29, 2019, respectively. The higher effective tax rate was primarily due to tax benefits in the prior year resulting from the expiration of the statute of limitations.

### Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $28.3 million for the three months ended September 27, 2020, as compared with $38.0 million in the prior year.

### Segment Review

The following discussions highlight the operating results for each of our four segments.

| Performance Materials Segment Net Sales | Three Months Ended Sep. 27, 2020 (millions of dollars) | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Metalcasting | $66.3 | $69.0 | (4)% |
| Household, Personal Care & Specialty Products | 93.9 | 94.1 | 0% |
| Environmental Products | 16.9 | 27.1 | (38)% |
| Building Materials | 13.5 | 17.1 | (21)% |
| Total net sales | $190.6 | $207.3 | (8)% |
| **Income from operations** | $28.2 | $26.9 |  |
| % of net sales | 14.8% | 13.0% |  |

Net sales in the Performance Materials segment decreased 8% to $190.6 million from $207.3 million in the prior year. Sales in Metalcasting decreased 4% from prior year primarily driven by COVID-19 related automotive production slowdown in North American and parts of Asia. Metalcasting sales in China grew over 20%, as economic activity rebounded following the COVID-19 related shutdowns, and we continued to penetrate the market with our pre-blended greensand bond formulations. Household, Personal Care & Specialty Products sales decreased slightly as compared with prior year. We saw continued strong performance from our global pet care business, which grew 11% and personal care, which grew 4%. This was offset by lower volume in fabric care and by weakness in specialty drilling products. Environmental Products and Building Materials sales both decreased 38% and 21%, respectively, primarily due to COVID-19 related project delays.

Income from operations was $28.2 million and 14.8% of sales as compared to $26.9 million and 13.0% of sales in the prior year. The impact of lower volumes was offset by expense control, input cost reductions, and continued pricing actions.

| Specialty Minerals Segment Net Sales | Three Months Ended Sep. 27, 2020 (millions of dollars) | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Paper PCC | $74.5 | $90.2 | (17)% |
| Specialty PCC | 17.3 | 17.7 | (2)% |
| PCC Products | $91.8 | $107.9 | (15)% |
| Ground Calcium Carbonate | $23.2 | $23.0 | 1% |
| Talc | 10.1 | 12.2 | (17)% |
| Processed Minerals Products | $33.3 | $35.2 | (5)% |
| Total net sales | $125.1 | $143.1 | (13)% |
| **Income from operations** | $16.6 | $21.7 | (24)% |
| % of net sales | 13.3% | 15.2% |  |

Worldwide sales in the Specialty Minerals segment were $125.1 million, as compared with $143.1 million in the prior year, a decrease of 13%.

Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, decreased 15% to $91.8 million from $107.9 million in the prior year. Paper PCC sales decreased 17% to $74.5 million from $90.2 million in the prior year, primarily due to the decline in printing and writing paper demand resulting from the COVID-19 pandemic and paper machine shutdowns. Paper PCC sales in China grew 18% on continued penetration and strong demand from our customers. Sales of Specialty PCC decreased 2% to $17.3 million from $17.7 million in the prior year due to lower demand.

Net sales of Processed Minerals products decreased 5% to $33.3 million due to COVID-19 related slowdown in construction and automotive activity. Ground Calcium Carbonate sales increased 1% to $23.2 for the three month periods ending September 27, 2020 as compared to $23.0 million in the prior year. Talc sales decreased 17% to $10.1 million as compared with $12.2 million in the prior year.

Income from operations for Specialty Minerals was $16.6 million as compared with $21.7 million in the prior year and represented 13.3% of sales. The impact from volume reductions as compared with prior year were partially offset by continued pricing actions and cost control. Included in income from operations for the three months ended September 27, 2020 were $1.4 million of impairment and restructuring costs.

| Refractories Segment Net Sales | Three Months Ended Sep. 27, 2020 (millions of dollars) | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Refractory Products | $48.8 | $61.3 | (20)% |
| Metallurgical Products | 10.5 | 12.1 | (13)% |
| Total net sales | $59.3 | $73.4 | (19)% |
| **Income from operations** | $7.3 | $10.2 | (28)% |
| % of net sales | 12.3% | 13.9% |  |

Net sales in the Refractories segment decreased 19% to $59.3 million from $73.4 million in the prior year driven by lower volumes of Refractory and Metallurgical Products globally as steel mills reduced production in response to weaker demand from construction and automotive markets. Sales of refractory products and systems to steel and other industrial applications decreased 20% to $48.8 million and sales of metallurgical products decreased 13% to $10.5 million.

Income from operations was $7.3 million and 12.3% of sales as compared with $10.2 million and 13.9% of sales in the prior year due to lower volumes.

| Energy Services Segment | Three Months Ended Sep. 27, 2020 (millions of dollars) | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| **Net Sales** | $13.3 | $25.5 | (48)% |
| **Income from operations** | $- | $2.0 | (100)% |
| % of net sales | 0.0% | 7.8% |  |

Net sales in the Energy Services segment decreased 48% to $13.3 million from $25.5 million in the prior year, primarily driven by decreased activity due to COVID-19 restrictions and the impacts of storm activity in the Gulf of Mexico.

Operating income was at break-even as compared with $2.0 million in the prior year.

### Nine months ended September 27, 2020 as compared with nine months ended September 29, 2019

### Consolidated Income Statement Review

| (millions of dollars) | Nine Months Ended Sep. 27, 2020 | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $1,163.0 | $1,350.8 | (14)% |
| Cost of sales | 868.9 | 1,017.9 | (15)% |
| Production margin | 294.1 | 332.9 | (12)% |
| Production margin % | 25.3% | 24.6% |  |
| Marketing and administrative expenses | 127.3 | 138.2 | (8)% |
| Research and development expenses | 15.0 | 14.9 | 1% |
| Litigation expenses | 10.4 | 5.6 | 86% |
| Restructuring and other items, net | 8.0 | 13.2 | (39)% |
| Income from operations | 133.4 | 161.0 | (17)% |
| Operating margin % | 11.5% | 11.9% |  |
| Interest expense, net | (27.5) | (33.3) | (17)% |
| Non-cash pension settlement charge | (5.4) | — | \* |
| Other non-operating deductions, net | (1.1) | (5.4) | (80)% |
| Total non-operating deductions, net | (34.0) | (38.7) | (12)% |
| Income from operations before tax and equity in earnings | 99.4 | 122.3 | (19)% |
| Provision for taxes on income | 17.6 | 17.0 | 4% |
| Effective tax rate | 17.7% | 13.9% |  |
| Equity in earnings of affiliates, net of tax | 2.0 | 1.4 | 43% |
| Net income | 83.8 | 106.7 | (21)% |
| Net income attributable to non-controlling interests | 2.5 | 3.0 | (17)% |
| Net income attributable to Minerals Technologies Inc. | $81.3 | $103.7 | (22)% |

\* Not meaningful

### Net Sales

| (millions of dollars) | Nine Months Ended Sep. 27, 2020 Net Sales | % of Total Sales | % Growth | Nine Months Ended Sep. 29, 2019 Net Sales | % of Total Sales |
| --- | ---: | ---: | ---: | ---: | ---: |
| U.S. | $607.5 | 52.2% | (17)% | $728.6 | 53.9% |
| International | 555.5 | 47.8% | (11)% | 622.2 | 46.1% |
| Total sales | $1,163.0 | 100.0% | (14)% | $1,350.8 | 100.0% |
| Performance Materials Segment | $550.6 | 47.3% | (11)% | $621.9 | 46.0% |
| Specialty Minerals Segment | 372.0 | 32.0% | (14)% | 432.6 | 32.0% |
| Refractories Segment | 184.2 | 15.8% | (18)% | 224.7 | 16.6% |
| Energy Services Segment | 56.2 | 4.8% | (22)% | 71.6 | 5.3% |
| Total sales | $1,163.0 | 100.0% | (14)% | $1,350.8 | 100.0% |

Total sales decreased 14% from the previous year to $1,163.0 million. Foreign exchange had an unfavorable impact on sales of approximately $18.6 million or 1%. Sales decreased in all business segments primarily due to reduced volumes related to the impacts of the COVID-19 pandemic.

Net sales in the United States decreased to $607.5 million from $728.6 million in the prior year. International sales decreased to $555.5 million from $622.2 million in the prior year.

### Operating Costs and Expenses

Cost of sales decreased 15% from the prior year and was 74.7% of sales, as compared with 75.4% in the prior year. Gross margin increased to 25.3% of sales as compared with 24.6% of sales in the prior year. This improvement was primarily due to higher selling prices and cost control.

Marketing and administrative costs were $127.3 million and 10.9% of sales compared to $138.2 million and 10.2% of sales in the prior year. Included in marketing and administrative costs for the nine months ended September 29, 2019 was bad debt expense of $2.5 million relating to a refractories customer bankruptcy in the U.K.

Research and development expenses were $15.0 million and represented 1.3% of sales for the nine months ended September 27, 2020 as compared with $14.9 million and 1.1% of sales in the prior year.

The Company recorded $8.0 million and $13.2 million for asset write-downs and other restructuring costs for the nine months ended September 27, 2020 and September 29, 2019, respectively.

In addition, the Company recorded $10.4 million and $5.6 million related to litigation expenses associated with the bankruptcy of Novinda Corp. for the nine months ended September 27, 2020 and September 29, 2019, respectively.

### Income from Operations

The Company recorded income from operations of $133.4 million, as compared to $161.0 million in the prior year. Operating income was 11.5% and 11.9% of sales for the nine months ended September 27, 2020 and September 29, 2019, respectively. Operating income during the nine months ended September 27, 2020 includes a $8.0 million charge for the impairment of assets and other restructuring costs and $10.4 million related to litigation costs associated with the bankruptcy of Novinda Corp.

Operating income during the nine months ended September 29, 2019 includes $13.2 million of restructuring costs and $5.6 million related to litigation cost associated with the bankruptcy of Novinda Corp.

### Other Non-Operating Income (Deductions)

The Company recorded non-operating deductions of $34.0 million for the nine months ended September 27, 2020, as compared with $38.7 million in the prior year. Included in non-operating deductions for the nine months ended September 27, 2020 is $27.5 million of net interest expense and a $5.4 million non-cash pension settlement charge. Included in non-operating deductions for the nine months ended September 29, 2019 was $33.3 million of net interest expense.

### Provision for Taxes on Income

Provision for taxes was $17.6 million as compared to $17.0 million in the prior year. The effective tax rate was 17.7% as compared to 13.9% in the prior year. The higher effective tax rate was primarily due to tax benefits in the prior year resulting from the expiration of the statute of limitations.

### Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $81.3 million during the nine months ended September 27, 2020, as compared with $103.7 million in the prior year.

### Segment Review

The following discussions highlight the operating results for each of our four segments.

| Performance Materials Segment Net Sales | Nine Months Ended Sep. 27, 2020 (millions of dollars) | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Metalcasting | $180.8 | $218.0 | (17)% |
| Household, Personal Care & Specialty Products | 278.0 | 280.4 | (1)% |
| Environmental Products | 48.3 | 72.0 | (33)% |
| Building Materials | 43.5 | 51.5 | (16)% |
| Total net sales | $550.6 | $621.9 | (11)% |
| **Income from operations** | $73.3 | $73.9 |  |
| % of net sales | 13.3% | 11.9% |  |

Net sales in the Performance Materials segment decreased to $550.6 million from $621.9 million in the prior year. Sales in Metalcasting decreased 17% to $180.8 million due to COVID-19 related weaker foundry demand in U.S. and Asia. Household, Personal Care & Specialty Products decreased slightly as compared to prior year. Environmental Products sales decreased 33% primarily due to a large project completed in the prior year and COVID-19 related project delays. Building Materials sales decreased 16% due to COVID-19 related project delays.

Income from operations was $73.3 million and 13.3% of sales as compared to $73.9 million and 11.9% of sales in the prior year. Included in income from operations for the nine month period ended September 29, 2019 were $7.0 million of restructuring and impairment costs.

| Specialty Minerals Segment Net Sales | Nine Months Ended Sep. 27, 2020 (millions of dollars) | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Paper PCC | $225.1 | $271.9 | (17)% |
| Specialty PCC | 49.7 | 53.1 | (6)% |
| PCC Products | $274.8 | $325.0 | (15)% |
| Ground Calcium Carbonate | $66.4 | $70.1 | (5)% |
| Talc | 30.8 | 37.5 | (18)% |
| Processed Minerals Products | $97.2 | $107.6 | (10)% |
| Total net sales | $372.0 | $432.6 | (14)% |
| **Income from operations** | $45.9 | $63.7 | (28)% |
| % of net sales | 12.3% | 14.7% |  |

Worldwide sales in the Specialty Minerals segment were $372.0 million, as compared with $432.6 million in the prior year, a decrease of 14%.

Worldwide net sales of PCC products, which are primarily used in the manufacturing process of the paper industry, decreased 15% to $274.8 million from $325.0 million in the prior year. Paper PCC sales decreased 17% to $225.1 million from $271.9 million in the prior year due to previously announced customer paper machine shutdowns in North America and lower demand in printing and writing paper resulting from the COVID-19 pandemic. Specialty PCC products decreased 6%, primarily due to lower demand.

Net sales of Processed Minerals products decreased 10% to $97.2 million from $107.6 million in the prior year. Ground Calcium Carbonate sales decreased 5% primarily due to lower demand in the construction and automotive markets as a result of COVID-19. Talc sales decreased 18% primarily due to lower demand.

Income from operations was $45.9 million and 12.3% of net sales as compared to $63.7 million and 14.7% of sales in the prior year. Included in income from operations for the nine month period ended September 27, 2020 and September 29, 2019 were $7.7 million and $2.5 million of restructuring and impairment costs, respectively. The impact of lower volumes was partially offset by continued pricing actions and cost control.

| Refractories Segment Net Sales | Nine Months Ended Sep. 27, 2020 | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| Refractory Products | $151.7 | $184.3 | (18)% |
| Metallurgical Products | 32.5 | 40.4 | (20)% |
| Total net sales | $184.2 | $224.7 | (18)% |
| **Income from operations** | $24.4 | $29.4 | (17)% |
| % of net sales | 13.2% | 13.1% |  |

Net sales in the Refractories segment decreased 18% to $184.2 million from $224.7 million in the prior year. Sales of refractory products and systems to steel and other industrial applications decreased 18% to $151.7 million from $184.3 million in the prior year due to lower demand from steel mills.

Income from operations was $24.4 million and 13.2% of sales as compared with $29.4 million and 13.1% of sales. Included in income from operations for the nine month period ended September 29, 2019 were $0.8 million of restructuring costs and a $2.5 million bad debt reserve relating to a customer bankruptcy.

| Energy Services Segment | Nine Months Ended Sep. 27, 2020 (millions of dollars) | Sep. 29, 2019 | % Change |
| --- | ---: | ---: | ---: |
| **Net Sales** | $56.2 | $71.6 | (22)% |
| **Income from operations** | $4.6 | $5.3 | (13)% |
| % of net sales | 8.2% | 7.4% |  |

Net sales in the Energy Services segment decreased 22% to $56.2 million from $71.6 million in the prior year, primarily driven the decrease in activity due to COVID-19 restrictions and the impact of storm activity in the Gulf of Mexico.

Income from operations during the nine months ended September 27, 2020 was $4.6 million and represented 8.2% of sales. Included in income from operations for the nine month period ended September 29, 2019 were $1.8 million of restructuring and impairment costs.

### Liquidity and Capital Resources

Cash provided from operations during the nine months ended September 27, 2020, was approximately $148 million. Cash flows provided from operations during 2020 were principally used to repay debt, fund capital expenditures, acquire assets, repurchase shares and to pay the Company’s dividend to common shareholders. The aggregate maturities of long-term debt are as follows: remainder of 2020 - $0.3 million; 2021 - $4.4 million; 2022 - $0.2 million; 2023 - $0.0 million; 2024 - $628.0 million; thereafter - $400.0 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.

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 its then existing senior secured revolving credit facility. In connection with the Third Amendment, the existing senior secured revolving credit facility was replaced with a new revolving credit facility with $300 million of aggregate commitments (the “Revolving Credit Facility” and, together with the Term Facility, the “Senior Secured Credit Facilities”). Following the amendments, the loans outstanding under the floating rate tranche of the Term Facility are scheduled to mature on February 14, 2024, 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 fixed rate tranche of the Term Facility were repaid in full in June 2020. 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 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 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 Senior Secured Credit 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.

On June 30, 2020, the Company issued $400 million aggregate principal amount of 5.0% Senior Notes due 2028 (the “Notes”). The Notes were issued pursuant to an indenture, dated as of June 30, 2020, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. The Company used the net proceeds of its offering of the Notes to repay all of its outstanding loans under the fixed rate tranche of the Term Facility, repay all of its outstanding borrowings under its Revolving Credit Facility, and the remainder for general corporate purposes

The Notes bear an interest rate of 5.0% per annum payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2021. The Notes are unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly owned domestic restricted subsidiaries that is a borrower under or that guarantees the Company’s obligations under its Senior Secured Credit Facilities or that guarantees the Company’s or any of the Company’s wholly owned domestic subsidiaries’ long-term indebtedness in an aggregate amount in excess of $50 million.

At any time and from time to time prior to July 1, 2023, the Company may redeem some or all of the Notes for cash at a redemption price equal to 100% of their principal amount, plus the “make-whole” premium described in the Indenture and accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Beginning on July 1, 2023, the Company may redeem some or all of the Notes at any time and from time to time at the applicable redemption prices listed in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time and from time to time prior to July 1, 2023, the Company may redeem up to 40% of the aggregate principal amount of the Notes with funds from one or more equity offerings at a redemption price equal to 105.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If the Company experiences a change of control (as defined in the indenture), the Company is required to offer to repurchase the Notes at 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

The credit agreement and the Notes contain 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 $25 million of letters of credit), to maintain a maximum net leverage ratio (as defined in the credit agreement) of 3.50 to 1.00 for the four fiscal quarter periods preceding such day. As of September 27, 2020, there were no outstanding loans and $9.5 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 matured in the third quarter of 2020 and the other of which matures in 2022. In the first nine months of 2020, the Company repaid $1.4 million on these loans.

The Company has a committed loan facility in Japan. As of September 27, 2020, $4.1 million was outstanding under this loan facility. Principal will be repaid in accordance with the payment schedule ending in 2021. The Company repaid $0.5 million on this facility during the first half of 2020.

As of September 27, 2020, the Company had $42.2 million in uncommitted short-term bank credit lines, of which none were 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 2020 should be between $55 million and $65 million, principally related to the construction of PCC plants and other opportunities that meet our strategic growth objectives. In the third quarter of 2020, the Company acquired the assets of a mining and hauling company in the western United States for $9.2 million to support our bentonite clay mining operations. 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 September 27, 2020 was a liability of $0.1 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. The fair value of this instrument at September 27, 2020 is a liability of $8.5 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. The fair value of this instrument at September 27, 2020 is an asset of $8.5 million. 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%.

On October 23, 2019, the Company’s Board of Directors authorized the Company’s management to repurchase, at its discretion, up to $75 million of the Company’s shares over a one-year period. As of September 27, 2020, 912,446 shares have been repurchased under this program for $45.6 million, or an average price of approximately $49.94 per share. This program is now completed. Over this program’s one-year period, 984,202 shares were repurchased for $49.6 million under this program, or an average price of approximately $ 50.36 per share.

On October 21, 2020, the Company’s Board of Directors authorized the Company’s management to repurchase, at its discretion, up to $75 million of the Company’s shares over a one-year period.

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. Except for the incurrence of debt in connection with the issuance of the Notes, during the nine months ended September 27, 2020, there were no material changes in the Company’s contractual obligations. For an in-depth discussion of the Company’s contractual obligations, see “Liquidity and Capital Resources” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 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.

In October 2020, we detected a ransomware attack impacting certain of our information technology systems. Immediately upon our detection of the security incident, we implemented our cyber security emergency response plan and launched an investigation. The network security incident primarily impacted our internal corporate functions. The Company’s manufacturing sites, which rely on different networks, continued to operate safely and with limited interruption. Further, we currently do not believe that any of our customers or suppliers were impacted as a result of this incident. Nonetheless, we believe that the security event included unauthorized access to personal data of employees, former employees and their dependents. Based on our preliminary assessment, although we expect to incur some costs in responding to and mitigating the incident, we do not currently believe the incident will have a material impact on our business, operations or financial results.

### 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 that could affect the expectations and forecasts include 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 the agreements governing our debt; 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, 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. 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

#### Measurement 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, 2020 using a modified retrospective transition method. The Company did not record a cumulative-effect adjustment upon adoption of this standard. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

### 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.

## Market risk

As filed, 3,135 characters.

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 $1.7 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 September 27, 2020 was a liability of $0.1 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. The fair value of this instrument at September 27, 2020 is a liability of $8.5 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. The fair value of this instrument at September 27, 2020 is an asset of $8.5 million. 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%.

## Controls and procedures

As filed, 966 characters.

### 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

There were no changes in the Company’s internal controls over financial reporting during the quarter ended September 27, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 12,129 characters.

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 2019 Annual Report on Form 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 could 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 record low prices. 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.

***Servicing the Company’s debt will require a significant amount of cash. This could reduce the Company’s flexibility to respond to changing business and economic conditions or fund capital expenditures or working capital needs. Our ability to generate cash depends on many factors beyond our control.***

At September 27, 2020, the Company had $1,032.8 million aggregate principal amount of total indebtedness (consisting primarily of $628.0 million aggregate principal amount of loans under our term facility and $400.0 million aggregate principal amount of notes) and an additional $290.5 million of borrowing capacity under the revolving credit facility (after giving effect to $9.5 million of outstanding letters of credit). Our outstanding indebtedness will require a significant amount of cash to make interest payments. Further, the interest rate on a significant portion of our borrowings under our senior secured credit facility is based on LIBOR interest rates, which could result in higher interest expense in the event of an increase in interest rates. In addition, since these borrowings under our senior secured credit facility extend beyond 2021, the interest rates for these obligations might be subject to change based on the United Kingdom’s Financial Conduct Authority’s intention to phase out LIBOR by the end of 2021. Our ability to pay interest on our debt and to satisfy our other debt obligations will depend in part upon our future financial and operating performance and upon our ability to renew or refinance borrowings. Prevailing economic conditions and financial, business, competitive, regulatory and other factors, many of which are beyond our control, will affect our ability to make these payments. We cannot guarantee that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to fund our liquidity needs. If we are unable to generate sufficient cash flow to meet our debt service obligations, we will have to pursue one or more alternatives, such as reducing or delaying capital or other expenditures, refinancing debt, selling assets, or raising equity capital. Further, the requirement to make significant interest payments may reduce the Company’s flexibility to respond to changing business and economic conditions or fund capital expenditure or working capital needs and may increase the Company’s vulnerability to adverse economic conditions.

***The agreements and instruments governing our debt contain various covenants that could significantly impact our ability to operate our business.***

The agreement governing our senior secured credit facility and the indenture that governs our 5.0% Senior Notes due 2028 contain a number of significant covenants that, among other things, limit our ability to: incur or guarantee additional indebtedness, pay dividends or make other distributions or repurchase or redeem capital stock, prepay, redeem or repurchase certain debt, issue certain preferred stock or similar equity securities, make loans and investments, sell or otherwise dispose of assets, incur liens, enter into transactions with affiliates, enter into agreements restricting our subsidiaries’ ability to pay dividends and consolidate, merge or sell all or substantially all of our assets. In addition, our revolving credit facility, if used, requires us to comply with specific financial ratios, including a maximum net leverage ratio, under which we are required to achieve specific financial results. Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these covenants would result in a default under the applicable agreements. In the event of any default under our senior secured credit facility, our lenders could elect to declare all amounts borrowed under the credit agreement, together with accrued interest thereon, to be due and payable. In such an event, we cannot assure you that we would have sufficient assets to pay debt then outstanding under the credit agreement, the indenture governing our notes, and any other agreements governing our debt. Any future refinancing of the senior secured credit facility is likely to contain similar restrictive covenants. We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.

***Our operations have been and will continue to be subject to cyber-attacks that could have a material adverse impact on our business, consolidated results of operations, and consolidated financial condition.***

Our operations are becoming increasingly dependent on digital technologies and services. We use these technologies for internal purposes, including data storage, processing, and transmissions, as well as in our manufacturing operations and in our interactions with customers and suppliers. Digital technologies are subject to the risk of cyber-attacks. If our systems for protecting against cybersecurity risks prove not to be sufficient, we could be adversely affected by, among other things: loss of or damage to intellectual property, proprietary or confidential information, or customer, supplier, or employee data; interruption of our business operations; and increased costs required to prevent, respond to, or mitigate cybersecurity attacks.

In October 2020, we detected a ransomware attack impacting certain of our information technology systems. The network security incident primarily impacted our internal corporate functions. The Company’s manufacturing sites, which rely on different networks, continued to operate safely and with limited interruption. Further, we currently do not believe that any of our customers or suppliers were impacted as a result of this incident. Nonetheless, we believe that the security event included unauthorized access to personal data of employees, former employees and their dependents.

The risks associated with the October 2020 incident or future incidents could harm our reputation and our relationships with customers, suppliers, employees, and other third parties, and may result in claims against us. In addition, although we do not currently believe the October 2020 incident will have a material impact on us, there can be no assurance that this incident or future incidents will not have a material adverse effect on our business, consolidated results of operations, and consolidated financial condition.

Filed Oct 30, 2020.
Source: SEC EDGAR, the filing index for accession 0000891014-20-000057. Last ingested by Listed: Oct 30, 2026, 15:40 ET. No prices; not investment advice.