# Minerals Technologies Inc: Form 10-Q for the period ended Oct 2, 2022

- Company: [Minerals Technologies Inc](/companies/mtx.md) (CIK 891014)
- Form: 10-Q
- Filed: 2022-10-28
- Accepted by EDGAR: Oct 28, 2022, 15:31 ET
- Period: 2022-10-02
- Accession: 0000891014-22-000053
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/891014/000089101422000053/form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/891014/000089101422000053/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-10-02.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-04 to 2022-10-02 | $541.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-10-02 | $1.62bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-04 to 2022-10-02 | $423.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-10-02 | $1.25bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-04 to 2022-10-02 | $118.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-10-02 | $367.3m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-04 to 2022-10-02 | $5.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-10-02 | $15.2m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-07-04 to 2022-10-02 | $46.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-10-02 | $143.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-04 to 2022-10-02 | $35.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-10-02 | $171.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-04 to 2022-10-02 | $11.0m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-10-02 | $31.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-04 to 2022-10-02 | $3.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-10-02 | $25.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-04 to 2022-10-02 | $13.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-10-02 | $102.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-04 to 2022-10-02 | $0.41 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-10-02 | $3.11 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-04 to 2022-10-02 | $0.41 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-10-02 | $3.12 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-04 to 2022-10-02 | 32,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-10-02 | 32,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-10-02 | $63.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-10-02 | $59.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2022-01-01 to 2022-10-02 | $4.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2022-01-01 to 2022-10-02 | $56.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-10-02 | $224.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-10-02 | $1.07bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-10-02 | $3.39bn | us-gaap:Assets |
| Current liabilities | at 2022-10-02 | $493.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-10-02 | $1.85bn | us-gaap:Liabilities |
| Long-term debt | at 2022-10-02 | $944.9m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-10-02 | $700.0k | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2022-10-02 | $118.5m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2022-10-02 | $1.50bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,039 characters.

### Executive Summary

Our consolidated sales for the third quarter of 2022 were $541.9 million, an increase of 15% as compared with $473.2 million in the prior year. Included in sales for the third quarter of 2022 were $4.9 million in sales related to our acquisition of Concept Pet in the second quarter of 2022. Foreign exchange had an unfavorable impact on sales of approximately $33 million, or 7 percentage points as compared with prior year. Income from operations was $35.6 million and represented 6.6% of sales, as compared with $60.6 million and 12.8% of sales in the prior year. Included in income from operations for the third quarter of 2022, were $0.5 million of acquisition related transaction and integration costs and $31.1 million recorded for litigation costs to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company’s Barretts Minerals Inc. subsidiary. Net income was $13.4 million, as compared to $41.4 million in the third quarter of 2021. Diluted earnings in the third quarter ended October 2, 2022 were $0.41 per share, as compared with $1.22 per share in the third quarter of 2021.

Third quarter 2022 results were strong as the Company continued to deliver on its strategic growth initiatives driven by multi-year advancements in new product development, geographic penetration and growth from acquisitions.

The Company refinanced its revolving credit facility and term loan in the third quarter of 2022. In connection, the Company incurred $6.9 million of debt extinguishment expenses.

Our balance sheet continues to be strong. Cash, cash equivalents and short-term investments were $226.4 million as of October 2, 2022 and the Company had more than $400 million of available liquidity, including cash on hand as well as availability under its revolving credit facility. We believe that these factors will allow us to meet our anticipated funding requirements.

### Outlook

The Company will also continue to focus on innovation and new product development and other opportunities for sales growth from our existing businesses in 2022, 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 FLUORO-SORB® products which remediate contamination of Per-and polyflouroalkyl substances (PFAS) and Perflourooctane sulfanate (PFOS).
- 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.
- Continue the development of our proprietary products for agricultural applications worldwide.
- 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.
- 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 October 2, 2022 as compared with three months ended October 3, 2021

### Consolidated Income Statement Review

| (millions of dollars) | Three Months Ended Oct. 2, 2022 | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $541.9 | $473.2 | 15% |
| Cost of sales | 423.6 | 359.9 | 18% |
| Production margin | 118.3 | 113.3 | 4% |
| Production margin % | 21.8% | 23.9% |  |
| Marketing and administrative expenses | 46.0 | 45.5 | 1% |
| Research and development expenses | 5.1 | 4.6 | 11% |
| Acquisition related transaction and integration costs | 0.5 | 1.5 | (67)% |
| Litigation costs | 31.1 | — | \* |
| Restructuring and other items, net | — | 1.1 | \* |
| Income from operations | 35.6 | 60.6 | (41)% |
| Operating margin % | 6.6% | 12.8% |  |
| Interest expense, net | (11.0) | (9.2) | 20% |
| Debt extinguishment expenses | (6.9) | — | \* |
| Non-cash pension settlement charge | (0.2) | (0.8) | (75)% |
| Other non-operating deductions, net | (0.4) | (0.1) | \* |
| Total non-operating deductions, net | (18.5) | (10.1) | 83% |
| Income before tax and equity in earnings | 17.1 | 50.5 | (66)% |
| Provision for taxes on income | 3.2 | 8.9 | (64)% |
| Effective tax rate | 18.7% | 17.6% |  |
| Equity in earnings of affiliates, net of tax | 0.7 | 0.8 | (13)% |
| Consolidated net income | 14.6 | 42.4 | (66)% |
| Net income attributable to non-controlling interests | 1.2 | 1.0 | 20% |
| Net income attributable to Minerals Technologies Inc. | $13.4 | $41.4 | (68)% |

\* Not meaningful

### Net Sales

| (millions of dollars) | Three Months Ended Oct. 2, 2022 Net Sales | % of Total Sales | % Change | Three Months Ended Oct. 3, 2021 Net Sales | % of Total Sales |
| --- | ---: | ---: | ---: | ---: | ---: |
| U.S. | $279.9 | 51.7% | 14% | $245.5 | 51.9% |
| International | 262.0 | 48.3% | 15% | 227.7 | 48.1% |
| Total sales | $541.9 | 100.0% | 15% | $473.2 | 100.0% |
| Performance Materials Segment | $290.4 | 53.6% | 16% | $250.4 | 53.0% |
| Specialty Minerals Segment | 166.0 | 30.6% | 13% | 146.9 | 31.0% |
| Refractories Segment | 85.5 | 15.8% | 13% | 75.9 | 16.0% |
| Total sales | $541.9 | 100.0% | 15% | $473.2 | 100.0% |

22

Worldwide net sales increased 15% to $541.9 million in the third quarter from $473.2 million in the prior year. Included in the net sales in the quarter are $4.9 million of net sales for Concept Pet. Foreign exchange had an unfavorable impact on sales of $33 million or 7 percentage points.

Net sales in the United States were $279.9 million in the third quarter of 2022, as compared to $245.5 million in the prior year, an increase of 14%. International sales increased 15% to $262.0 million from $227.7 million in the prior year.

### Operating Costs and Expenses

Cost of sales was $423.6 million and represented 78.2% of sales for the three month period ended October 2, 2022, as compared with $359.9 million and 76.1% of sales in the prior year. The increase in cost of sales was primarily due to higher raw material, energy, and other manufacturing costs. Production margin decreased from 23.9% of sales in the prior year to 21.8% of sales in the third quarter of 2022. Margin was impacted by the timing of pricing actions relative to cost increases.

Marketing and administrative costs were $46.0 million and 8.5% of sales for the three months ended October 2, 2022, as compared to $45.5 million and 9.6% of sales in the prior year.

Research and development expenses were $5.1 million and represented 0.9% of sales for the three months ended October 2, 2022, as compared with $4.6 million and 1.0% of sales in the prior year.

The Company recorded $0.5 million of acquisition related transaction and integration costs during the three months ended October 2, 2022. In addition, the Company recorded $31.1 million of litigation costs during the three months ended October 2, 2022 relating to costs incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company’s Barretts Minerals Inc. subsidiary.

The Company recorded $1.5 million of acquisition related transaction and integration costs during the three months ended October 3, 2021. In addition, the Company recorded $1.1 million of restructuring and other items, net during the three months ended October 3, 2021.

### Income from Operations

The Company recorded income from operations of $35.6 million as compared to $60.6 million in the prior year. Operating income during the three months ended October 2, 2022 includes $0.5 million of acquisition related transaction and integration costs and $31.1 million of litigation costs. Operating income during the three months ended October 3, 2021 includes $1.5 million of acquisition related transaction and integration costs and $1.1 million of restructuring and other items, net.

### Other Non-Operating Income (Deductions), net

In the third quarter of 2022, non-operating deductions were $18.5 million, as compared with $10.1 million in the prior year. Included in other non-operating deductions in the third quarter of 2022 was net interest expense of $11.0 million, as compared to $9.2 million in the prior year. The Company recorded debt extinguishment expenses of $6.9 million during the three month period ended October 2, 2022 related to the refinancing of our credit facilities. In addition, the Company recorded a non-cash pension settlement charge of $0.2 million and $0.8 million for the three month periods ended October 2, 2022 and October 3, 2021, respectively.

### Provision for Taxes on Income

Provision for taxes on income was $3.2 million and $8.9 million for the three months ended October 2, 2022 and October 3, 2021, respectively. The effective tax rate was 18.7% and 17.6% for the three months ended October 2, 2022 and October 3, 2021, respectively.

### Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $13.4 million for the three months ended October 2, 2022, as compared with $41.4 million in the prior year.

### Segment Review

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

| Performance Materials Segment Net Sales | Three Months Ended Oct. 2, 2022 (millions of dollars) | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Household, Personal Care & Specialty Products | $141.5 | $121.8 | 16% |
| Metalcasting | 85.4 | 72.9 | 17% |
| Environmental Products | 47.7 | 39.8 | 20% |
| Building Materials | 15.8 | 15.9 | (1)% |
| Total net sales | $290.4 | $250.4 | 16% |
| **Income from operations** | $37.9 | $32.0 | 18% |
| % of net sales | 13.1% | 12.8% |  |

Net sales in the Performance Materials segment increased 16% to $290.4 million from $250.4 million in the prior year. Foreign exchange had an unfavorable impact on sales of $20 million or 8 percentage points. Household, Personal Care & Specialty Products sales increased 16% to $141.5 million, as compared with $121.8 million in the prior year on continued strong demand for consumer-oriented products and as a result of the Concept Pet acquisition. Included in the net sales in the quarter are $4.9 million of net sales of Concept Pet. Sales in Metalcasting increased 17% as stronger sales in North America and the rest of the world offset a slower than expected rebound in China following COVID-19 restrictions. Environmental Products sales increased 20% as compared with prior year on strength in remediation, wastewater, and filtration activities. Building Materials sales decreased 1%, as higher levels of project activity in North America offset slower activity levels in Europe.

Income from operations was $37.9 million and 13.1% of sales, as compared to $32.0 million and 12.8% of sales in the prior year. Included in income from operations for the three months ended October 2, 2022 were $0.3 million of acquisition related transaction and integration costs. Margin was impacted by the timing of pricing actions relative to cost increases and operational efficiencies.

| Specialty Minerals Segment Net Sales | Three Months Ended Oct. 2, 2022 (millions of dollars) | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Paper PCC | $97.7 | $89.5 | 9% |
| Specialty PCC | 25.5 | 18.2 | 40% |
| PCC Products | $123.2 | $107.7 | 14% |
| Ground Calcium Carbonate | $28.6 | $25.0 | 14% |
| Talc | 14.2 | 14.2 | 0% |
| Processed Minerals Products | $42.8 | $39.2 | 9% |
| Total net sales | $166.0 | $146.9 | 13% |
| **Income (loss) from operations** | $(14.2) | $17.3 | \* |
| % of net sales | \* | 11.8% |  |

24

Worldwide sales in the Specialty Minerals segment were $166.0 million, as compared with $146.9 million in the prior year, an increase of 13%. Foreign exchange had an unfavorable impact on sales of $7 million or 5 percentage points.

Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, increased 14% to $123.2 million from $107.7 million in the prior year on continued strong demand for Specialty PCC in consumer, automotive, and residential construction applications, and higher pricing across all product lines. Paper PCC sales increased 9% to $97.7 million from $89.5 million in the prior year. Sales of Specialty PCC increased 40% to $25.5 million from $18.2 million in the prior year.

Net sales of Processed Minerals products increased 9% to $42.8 million driven primarily by strong demand for Ground Calcium Carbonate products. Ground Calcium Carbonate sales increased 14% to $28.6 million for the three month period ending October 2, 2022 as compared to $25.0 million in the prior year. Talc sales increased were flat at $14.2 million as compared with the prior year.

Specialty Minerals had a loss from operations of $14.2 million as compared with income of $17.3 million in the prior year. Included in the loss from operations for the current year are litigation costs of $31.1 million relating to costs incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company’s Barretts Minerals Inc. subsidiary. Operating margins were impacted by the timing of contractual and negotiated price increases relative to continued inflationary cost increases.

| Refractories Segment Net Sales | Three Months Ended Oct. 2, 2022 (millions of dollars) | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Refractory Products | $68.9 | $58.3 | 18% |
| Metallurgical Products | 16.6 | 17.6 | (6)% |
| Total net sales | $85.5 | $75.9 | 13% |
| **Income from operations** | $12.4 | $13.2 | (6)% |
| % of net sales | 14.5% | 17.4% |  |

Net sales in the Refractories segment increased 13% to $85.5 million from $75.9 million in the prior year. Foreign exchange had an unfavorable impact on sales of $6 million or 7 percentage points. The increase in sales was driven by the ramp up of new business and higher pricing to cover inflationary cost increases. Sales of refractory products and systems to steel and other industrial applications increased 18% to $68.9 million and sales of metallurgical products decreased 6% to $16.6 million.

Income from operations was $12.4 million and 14.5% of sales as compared with $13.2 million and 17.4% of sales in the prior year.

### Nine months ended October 2, 2022 as compared with nine months ended October 3, 2021

### Consolidated Income Statement Review

| (millions of dollars) | Nine Months Ended Oct. 2, 2022 | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $1,617.9 | $1,381.4 | 17% |
| Cost of sales | 1,250.6 | 1,040.9 | 20% |
| Production margin | 367.3 | 340.5 | 8% |
| Production margin % | 22.7% | 24.6% |  |
| Marketing and administrative expenses | 143.6 | 139.9 | 3% |
| Research and development expenses | 15.2 | 14.5 | 5% |
| Acquisition related transaction and integration costs | 4.7 | 1.9 | 147% |
| Litigation costs | 32.6 | — | \* |
| Restructuring and other items, net | — | 1.1 | \* |
| Income from operations | 171.2 | 183.1 | (6)% |
| Operating margin % | 10.6% | 13.3% |  |
| Interest expense, net | (31.2) | (28.2) | 11% |
| Debt extinguishment expenses | (6.9) | — | \* |
| Non-cash pension settlement charge | (1.7) | (3.0) | (43)% |
| Other non-operating income (deductions), net | (2.0) | 0.3 | \* |
| Total non-operating deductions, net | (41.8) | (30.9) | 35% |
| Income before tax and equity in earnings | 129.4 | 152.2 | (15)% |
| Provision for taxes on income | 25.8 | 27.6 | (7)% |
| Effective tax rate | 19.9% | 18.1% |  |
| Equity in earnings of affiliates, net of tax | 1.4 | 1.8 | (22)% |
| Consolidated net income | 105.0 | 126.4 | (17)% |
| Net income attributable to non-controlling interests | 2.6 | 3.2 | (19)% |
| Net income attributable to Minerals Technologies Inc. | $102.4 | $123.2 | (17)% |

\* Not meaningful

### Net Sales

| (millions of dollars) | Nine Months Ended Oct. 2, 2022 Net Sales | % of Total Sales | % Growth | Nine Months Ended Oct. 3, 2021 Net Sales | % of Total Sales |
| --- | ---: | ---: | ---: | ---: | ---: |
| U.S. | $852.6 | 52.7% | 20% | $712.9 | 51.6% |
| International | 765.3 | 47.3% | 14% | 668.5 | 48.4% |
| Total sales | $1,617.9 | 100.0% | 17% | $1,381.4 | 100.0% |
| Performance Materials Segment | $862.1 | 53.3% | 20% | $719.7 | 52.1% |
| Specialty Minerals Segment | 493.3 | 30.5% | 13% | 437.4 | 31.7% |
| Refractories Segment | 262.5 | 16.2% | 17% | 224.3 | 16.2% |
| Total sales | $1,617.9 | 100.0% | 17% | $1,381.4 | 100.0% |

26

Total sales increased 17% from the previous year to $1,617.9 million. Included in the net sales for the year are $89.0 million of net sales of Normerica and $9.1 million of net sales of Concept Pet. Foreign exchange had an unfavorable impact on sales of approximately $70 million or 5%.

Net sales in the United States increased to $852.6 million from $712.9 million in the prior year, an increase of 20%. International sales increased by 14% to $765.3 million from $668.5 million in the prior year.

### Operating Costs and Expenses

Cost of sales increased 20% from the prior year and was 77.3% of sales, as compared with 75.4% in the prior year. The increase in cost of sales was primarily due to higher raw material, energy, and other manufacturing costs. Gross margin decreased to 22.7% of sales as compared with 24.6% of sales in the prior year. Margin was impacted by the timing of pricing actions relative to cost increases.

Marketing and administrative costs were $143.6 million and 8.9% of sales compared to $139.9 million and 10.1% of sales in the prior year.

Research and development expenses were $15.2 million and represented 0.9% of sales for the nine months ended October 2, 2022 as compared with $14.5 million and 1.0% of sales in the prior year.

The Company recorded $4.7 million of acquisition related transaction and integration costs during the nine months ended October 2, 2022. In addition, the Company recorded $32.6 million of litigation costs during the nine months ended October 2, 2022 relating to costs incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company’s Barretts Minerals Inc. subsidiary.

The Company recorded $1.9 million of acquisition related transaction and integration costs for the nine months ended October 3, 2021. In addition, the Company recorded $1.1 million of restructuring and other items, net for the nine months ended

October 3, 2021.

### Income from Operations

The Company recorded income from operations of $171.2 million, as compared to $183.1 million in the prior year. Operating income was 10.6% and 13.3% of sales for the nine months ended October 2, 2022 and October 3, 2021, respectively. Operating income during the nine months ended October 2, 2022 and October 3, 2021 includes $4.7 million and $1.9 million of acquisition related transaction and integration costs, respectively. In addition, operating income during the nine months ended October 2, 2022 includes $32.6 million of litigation costs. Operating income also includes $1.1 million of restructuring and other items, net during the nine months ended October 3, 2021.

### Other Non-Operating Income (Deductions), net

The Company recorded non-operating deductions of $41.8 million for the nine months ended October 2, 2022, as compared with $30.9 million in the prior year. Included in non-operating deductions for the nine months ended October 2, 2022 is $31.2 million of net interest expense, $6.9 million for debt extinguishment expenses related to the refinancing of our credit facilities and a $1.7 million non-cash pension settlement charge. Included in non-operating deductions for the nine months ended October 3, 2021 was $28.2 million of net interest expense and a $3.0 million non-cash pension settlement charge.

### Provision for Taxes on Income

Provision for taxes was $25.8 million as compared to $27.6 million in the prior year. The effective tax rate was 19.9% as compared to 18.1% in the prior year. The higher tax rate was primarily due to a change in the mix of earnings and a reduced depletion benefit.

### Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $102.4 million during the nine months ended October 2, 2022, as compared with $123.2 million in the prior year.

### Segment Review

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

| Performance Materials Segment Net Sales | Nine Months Ended Oct. 2, 2022 (millions of dollars) | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Household, Personal Care & Specialty Products | $424.1 | $333.9 | 27% |
| Metalcasting | 254.4 | 235.0 | 8% |
| Environmental Products | 138.0 | 105.8 | 30% |
| Building Materials | 45.6 | 45.0 | 1% |
| Total net sales | $862.1 | $719.7 | 20% |
| **Income from operations** | $108.5 | $96.5 | 12% |
| % of net sales | 12.6% | 13.4% |  |

Net sales in the Performance Materials segment increased 20% to $862.1 million from $719.7 million in the prior year. Foreign exchange had an unfavorable impact on sales of approximately $43 million or 6%. Household, Personal Care & Specialty Products increased 27% to $424.1 as compared to $333.9 million in the prior year as a result of continued strong demand for consumer-oriented products and the acquisitions of Normerica and Concept Pet. Included in the net sales for the year are $89.0 million of net sales of Normerica and $9.1 million of net sales of Concept Pet. Sales in Metalcasting increased 8% to $254.4 million as strong foundry demand in North America and the rest of world offset a slower than expected rebound in China following COVID-19 restrictions. Environmental Products sales increased 30% on strength in remediation, wastewater, and filtration activities. Building Materials increased 1% as higher levels of project activity in North America offset slower activity levels in Europe.

Income from operations was $108.5 million and 12.6% of sales as compared to $96.5 million and 13.4% of sales in the prior year due higher volume from increased demand. Included in income from operations for the nine months ended October 2, 2022 were $3.3 million of acquisition related transaction and integration costs.

| Specialty Minerals Segment Net Sales | Nine Months Ended Oct. 2, 2022 (millions of dollars) | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Paper PCC | $286.4 | $264.9 | 8% |
| Specialty PCC | 77.7 | 57.1 | 36% |
| PCC Products | $364.1 | $322.0 | 13% |
| Ground Calcium Carbonate | $84.0 | $74.5 | 13% |
| Talc | 45.2 | 40.9 | 11% |
| Processed Minerals Products | $129.2 | $115.4 | 12% |
| Total net sales | $493.3 | $437.4 | 13% |
| **Income from operations** | $24.4 | $58.4 | (58)% |
| % of net sales | 4.9% | 13.4% |  |

Worldwide sales in the Specialty Minerals segment were $493.3 million, as compared with $437.4 million in the prior year, an increase of 13%. Foreign exchange had an unfavorable impact on sales of approximately $14 million or 3%.

Worldwide net sales of PCC products, which are primarily used in the manufacturing process of the paper industry, increased 13% to $364.1 million from $322.0 million in the prior year on continued strong demand and higher pricing for paper, packaging, and specialty PCC applications. Paper PCC sales increased 8% to $286.4 million from $264.9 million in the prior year. Sales of Specialty PCC products increased 36% to $77.7 million from $57.1 million in the prior year.

Net sales of Processed Minerals products increased 12% to $129.2 million from $115.4 million in the prior year due to strength in residential construction and automotive markets. Ground Calcium Carbonate sales increased 13% to $84.0 million from $74.5 million in the prior year. Talc sales increased 11% to $45.2 million from $40.9 million.

Income from operations was $24.4 million and 4.9% of net sales as compared to $58.4 million and 13.4% of sales in the prior year. Included in income from operations for the current year are litigation costs of $31.1 million incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company’s Barretts Minerals Inc. subsidiary.

Operating margins were impacted by the timing of contractual and negotiated price increases relative to continued inflationary cost increases.

| Refractories Segment Net Sales | Nine Months Ended Oct. 2, 2022 (millions of dollars) | Oct. 3, 2021 | % Change |
| --- | ---: | ---: | ---: |
| Refractory Products | $203.9 | $175.1 | 16% |
| Metallurgical Products | 58.6 | 49.2 | 19% |
| Total net sales | $262.5 | $224.3 | 17% |
| **Income from operations** | $45.1 | $36.9 | 22% |
| % of net sales | 17.2% | 16.5% |  |

Net sales in the Refractories segment increased 17% to $262.5 million from $224.3 million in the prior year. Foreign exchange had an unfavorable impact on sales of approximately $13 million or 6%. The growth in sales was driven by the ramp up of new business and higher pricing to cover inflationary cost increases. Sales of refractory products and systems to steel and other industrial applications increased 16% to $203.9 million from $175.1 million and sales of metallurgical products increased 19% to $58.6 million from $49.2 million in the prior year.

Income from operations was $45.1 million and 17.2% of sales as compared with $36.9 million and 16.5% of sales in the prior year. Operating margins were strong, primarily driven by pricing actions and operational efficiencies.

### Liquidity and Capital Resources

Cash provided from operations during the nine months ended October 2, 2022, was approximately $63.6 million. Cash from operations in the first nine months of 2022 was significantly lower than prior year driven by a deliberate, strategic inventory build and the impact of higher pricing on accounts receivable. Cash flows provided from operations during the first nine months of 2022 were principally used to fund acquisitions and capital expenditures, repurchase shares and to pay the Company’s dividend to common shareholders. The aggregate maturities of long-term debt are as follows: remainder of 2022 - $3.8 million; 2023 - $14.6 million; 2024 - $18.0 million; 2025 - $31.8 million; 2026 - $41.8 million; thereafter - $843.6 million.

On August 11, 2022, the Company entered into a Refinancing Facility Agreement (the “Amendment”) to amend the Company’s previous credit agreement (the “Previous Credit Agreement”; the previous credit agreement, as amended by the Amendment, being the “Amended Credit Agreement”). The Amendment provides for, among other things, a new senior secured revolving credit facility with aggregate commitments of $300 million (the “Revolving Facility”), a portion of which may be used for the issuance of letters of credit and swingline loans, and a new senior secured term loan facility with aggregate commitments of $550 million (the “Term Loan Facility” and, together with the Revolving Facility, the “Senior Secured Credit Facilities”). The Revolving Facility and the Term Loan Facility replace the facilities under the Previous Credit Agreement, which provided for, among other things, a $788 million senior secured floating rate term loan facility and a $300 million senior secured revolving credit facility. The maturity date for loans under the Senior Secured Credit Facilities is August 11, 2027.

Loans under the Senior Secured Credit Facilities will bear interest at a rate equal to, at the election of the Company, Term SOFR plus a credit spread adjustment equal to 0.100% plus an applicable margin equal to 1.500% per annum or a base rate plus an applicable margin equal to 0.500% per annum, subject in each case to (a) an increase of 25 basis points in the event that, and for so long as, the net leverage ratio (as defined in the Amended Credit Agreement) is greater than or equal to 3.00 to 1.00 as of the last day of the preceding fiscal quarter, (b) a decrease of 12.5 basis points in the event that, and for so long as, the net leverage ratio is less than 2.00 to 1.00 and greater than or equal to 1.00 to 1.00 as of the last day of the preceding fiscal quarter and (c) an decrease of 25 basis points in the event that, and for so long as, the net leverage ratio is less than 1.00 to 1.00 as of the last day of the preceding fiscal quarter. The Company will pay certain fees under the Amended Credit Agreement, including (a) a commitment fee of 0.250% per annum on the undrawn portion of the Revolving Facility (subject to a step-up to 0.300% and step-downs to 0.175% and 0.150% at the same levels described above), (b) a fronting fee of 0.125% per annum on the average daily undrawn amount of, plus unreimbursed amounts in respect of disbursements under, letters of credit issued under the Revolving Facility and (c) 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 tangible and intangible assets of the Company and the Guarantors.

As of October 2, 2022, there were $$115.0 million in loans and $10.3 million in letters of credit outstanding under the Revolving Facility.

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 “Indenture”). 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% 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 Amended Credit Agreement and the Indenture both 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, as well as customary events of default. In addition, the Amended Credit Agreement contains financial covenants that require the Company to maintain, as of the last day of any fiscal quarter, (x) a maximum net leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for the four fiscal quarter period preceding such day (subject to an increase to 5.00 to 1.00 for four quarters in connection with certain significant acquisitions) and (y) a minimum interest coverage ratio (as defined in the Amended Credit Agreement) of 3.00 to 1.00. The Company is in compliance with all the covenants contained in the Amended Credit Agreement throughout 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 matured in the first quarter of 2022. During the first quarter of 2022, the Company repaid the remaining $0.2 million on this loan.

The Company has a committed loan facility in Japan. As of October 2, 2022, $2.0 million was outstanding under this loan facility. Principal will be repaid in accordance with the payment schedule ending in 2026. The Company repaid $0.4 million on this facility during the first nine months of 2022.

As part of the Concept Pet acquisition, the Company assumed $1.9 million in long-term debt, recorded at fair value, consisting of two terms loans, one that matures in 2025 and one that matures in 2027. Both loans have annual payments and carry a variable interest rate.

As of October 2, 2022, the Company had $24.6 million in uncommitted short-term bank credit lines, of which $$3.5 million 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 2022 should be between $80 million and $85 million, principally related to the construction of PCC plants and other opportunities that meet our strategic growth objectives.

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 October 2, 2022 is an asset of $1.2 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 October 2, 2022 is an asset of $25.3 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 20, 2021, 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 October 2, 2022, 1,027,768 shares have been repurchased under this program for $67.8 million, or an average price of approximately $65.99 per share. This program is now complete.

The Company is required to make future payments under various contracts, including debt agreements and lease agreements. The Company also has commitments to fund its pension plans and provide payments for other postretirement benefit plans. During the nine months ended October 2, 2022, there were no material changes in the Company’s contractual obligations.

The Company and certain of the Company’s subsidiaries are among numerous defendants in over four hundred cases seeking damages for alleged exposure to asbestos-containing materials related to talc products sold by the Company’s subsidiary Barretts Minerals Inc. Based on its evaluation of available information, the Company accrued $31 million for litigation costs during the three months ended October 2, 2022. The litigation costs were incurred to defend against, opportunistically settle, and establish a reserve for such cases. The Company’s position is that these cases are meritless and all talc products sold by Barretts Minerals Inc. are safe. However, we cannot predict the ultimate outcome of pending litigation. The Company could in the future be required to pay significant amounts as a result of settlements or judgments in these matters, potentially in excess of liabilities accrued to date. See Note 13 to the condensed consolidated financial statements included in this report for more information.

At the current time, we are operating without any material impacts from the COVID-19 pandemic, and the pandemic is not having a materially negative impact to our consolidated results. However, as we cannot predict the duration or scope of the COVID-19 pandemic and its impact on our customers and suppliers, we cannot reasonably estimate any negative financial impact to our results in future periods. We continue to generate operating cash flows to meet our short-term liquidity needs and continue to maintain access to capital markets. See “Item 1A — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and in Exhibit 99 to this Quarterly Report on Form 10-Q, for additional risks to the Company related to the COVID-19 pandemic.

### 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 compete in very competitive industries; consolidation in customer industries, principally paper, foundry and steel; our ability to renew or extend long term sales contracts for our PCC satellite operations; our ability to service our debt; our ability to comply with the covenants in the agreements governing our debt; our ability to effectively achieve and implement our growth initiatives; our ability to successfully develop new products; our 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; 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; 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, 2021, and in Exhibit 99 to this Quarterly Report on Form 10-Q.

The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof. Investors should refer to the Company’s subsequent filings under the Securities Exchange Act of 1934 for further disclosures.

### Recently Issued Accounting Standards

Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. All recently issued ASUs 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.

### Critical Accounting Policies and Estimates

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.

There have been no material changes to the critical accounting estimates that our accounting policies require us to make in the preparation of our consolidated financial statements, as described in the 2021 Annual Report on Form 10-K.

## Market risk

As filed, 2,537 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 $1.3 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.

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 October 2, 2022 is an asset of $1.2 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 October 2, 2022 is an asset of $25.3 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, 1,444 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

During 2021, we closed on the acquisition of Normerica and we excluded Normerica from the scope of management’s report on internal control over financial reporting for the year ended December 31, 2021. We are in the process of integrating Normerica to our overall internal control over financial reporting and will include them in scope for the year ending December 31, 2022. This process may result in additions or changes to our internal control over financial reporting.

There were no other changes in the Company’s internal controls over financial reporting during the quarter ended October 2, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 191 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 2021 Annual Report on Form 10-K.

Filed Oct 28, 2022.
Source: SEC EDGAR, the filing index for accession 0000891014-22-000053. Last ingested by Listed: Oct 30, 2026, 15:40 ET. No prices; not investment advice.