# Minerals Technologies Inc: Form 10-Q for the period ended Oct 1, 2023

- Company: [Minerals Technologies Inc](/companies/mtx.md) (CIK 891014)
- Form: 10-Q
- Filed: 2023-10-27
- Accepted by EDGAR: Oct 27, 2023, 15:32 ET
- Period: 2023-10-01
- Accession: 0000891014-23-000103
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/891014/000089101423000103/form10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/891014/000089101423000103/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-01.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-03 to 2023-10-01 | $547.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-10-01 | $1.65bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-03 to 2023-10-01 | $414.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-10-01 | $1.26bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-03 to 2023-10-01 | $133.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-10-01 | $381.8m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-03 to 2023-10-01 | $5.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-10-01 | $16.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-03 to 2023-10-01 | $50.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-10-01 | $155.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-03 to 2023-10-01 | −$7.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-10-01 | $105.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-03 to 2023-10-01 | $15.3m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-10-01 | $44.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-03 to 2023-10-01 | −$3.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-10-01 | $14.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-03 to 2023-10-01 | −$19.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-10-01 | $44.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-03 to 2023-10-01 | −$0.59 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-10-01 | $1.36 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-03 to 2023-10-01 | −$0.59 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-10-01 | $1.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-03 to 2023-10-01 | 32,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-10-01 | 32,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-10-01 | $138.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-10-01 | $71.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-10-01 | $4.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-10-01 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-10-01 | $268.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-01 | $1.09bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-01 | $3.34bn | us-gaap:Assets |
| Current liabilities | at 2023-10-01 | $473.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-10-01 | $1.72bn | us-gaap:Liabilities |
| Long-term debt | at 2023-10-01 | $918.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-10-01 | $14.4m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2023-10-01 | $109.2m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-10-01 | $1.59bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 41,442 characters.

### Executive Summary

Our consolidated sales for the third quarter of 2023 were $547.8 million, an increase of 1% as compared with $541.9 million in the prior year. Income (loss) from operations was $(7.9) million, as compared with $35.6 million in the prior year. Included in loss from operations for the third quarter of 2023, was a $71.7 million non-cash impairment charge related to the fixed assets of the Company's subsidiaries, Barretts Minerals Inc.'s ("BMI") and Barretts Ventures Texas LLC (together with BMI, "Barretts") and $12.9 million of litigation expenses incurred in connection with the BMI's bankruptcy, and by BMI to defend against and restore its reserve for claims associated with certain talc products. Included in income from operations for the third quarter of 2022 were $0.5 million of acquisition-related expenses and $31.1 million of litigation expenses. Net income (loss) was $(19.2) million, as compared to $13.4 million in the third quarter of 2022. Diluted earnings (loss) in the third quarter ended October 1, 2023 were $(0.59) per share, as compared with $0.41 per share in the third quarter of 2022.

During the third quarter 2023, the Company continued to deliver on its strategic growth initiatives driven by multi-year advancements in new product development, positioning in growth markets and geographies, geographic penetration and growth from acquisitions.

On October 2, 2023, notwithstanding the Company’s confidence in the safety of BMI's talc products, Barretts filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas to address and comprehensively resolve BMI’s liabilities associated with talc. Minerals Technologies Inc. and the Company’s other subsidiaries were not included in the Chapter 11 filing.

Our balance sheet continues to be strong. Cash, cash equivalents and short-term investments were $278.2 million as of October 1, 2023 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 2023, as follows:

#### Consumer & Specialties Segment

- Increase our presence and market share in global pet litter products, particularly in emerging markets.
- Deploy new products in pet care such as lightweight litter.
- Increase our sales of calcium carbonate products by further penetration into filling and coating applications in the paper and packaging markets.
- Promote the Company's expertise in crystal engineering by developing crystal morphologies that help our customers achieve functional benefits.
- Deploy new calcium carbonate products in paint, coating and packaging applications.
- Continue developing products and processes for waste management and recycling opportunities to reduce the environmental impact for our customers by reducing energy consumption and improve the sustainability of their products.
- Continue to develop innovative applications for our bleaching earth products for edible oil and biofuel industries.
- Develop new mineral-based solutions for personal care applications.
- Increase our presence and market share in globally for retinol delivery technology for personal care applications.
- Expand our bentonite product solutions for animal health applications.
- Increase our presence and market share in fabric care, particularly in emerging markets.

#### Engineered Solutions Segment

- Increase our presence and gain penetration of our bentonite-based foundry customers for the metalcasting industry in emerging markets, such as China and India.
- 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.
- 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 globally.
- Continue expansion of our drilling product solutions, including geothermal alternative energy project applications.

#### All Segments

- Further operational excellence principles into all aspects of the organization, including system infrastructure and lean principles.
- Continue to explore selective acquisitions to fit our competencies in minerals and our core technologies.

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 1, 2023 as compared with three months ended October 2, 2022

### Consolidated Income Statement Review

*(in millions of dollars)*

|  | Three Months Ended Oct. 1, 2023 | Oct. 2, 2022 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $547.8 | $541.9 | 1% |
| Cost of sales | 414.7 | 423.6 | (2)% |
| Production margin | 133.1 | 118.3 | 13% |
| Production margin % | 24.3% | 21.8% |  |
| Marketing and administrative expenses | 50.9 | 46.0 | 11% |
| Research and development expenses | 5.2 | 5.1 | 2% |
| Restructuring and other items, net | 0.3 | — | \* |
| Impairment of assets | 71.7 | — | \* |
| Acquisition-related expenses | — | 0.5 | \* |
| Litigation expenses | 12.9 | 31.1 | \* |
| Income (loss) from operations | (7.9) | 35.6 | (122)% |
| Operating margin % | (1.4)% | 6.6% |  |
| Interest expense, net | (15.3) | (11.0) | 39% |
| Debt extinguishment expenses | — | (6.9) | \* |
| Non-cash pension settlement charge | — | (0.2) | \* |
| Other non-operating income (deductions), net | 0.6 | (0.4) | (250)% |
| Total non-operating deductions, net | (14.7) | (18.5) | (21)% |
| Income (loss) before tax and equity in earnings | (22.6) | 17.1 | (232)% |
| Provision (benefit) for taxes on income | (3.5) | 3.2 | (209)% |
| Effective tax rate | 15.5% | 18.7% |  |
| Equity in earnings of affiliates, net of tax | 1.0 | 0.7 | 43% |
| Net income (loss) | (18.1) | 14.6 | (224)% |
| Net income attributable to non-controlling interests | 1.1 | 1.2 | (8)% |
| Net income (loss) attributable to Minerals Technologies Inc. | $(19.2) | $13.4 | (243)% |

\* Not meaningful

### Net Sales

*(in millions of dollars)*

|  | Three Months Ended Oct. 1, 2023 Net Sales | % of Total Sales | % Change | Three Months Ended Oct. 2, 2022 Net Sales | % of Total Sales |
| --- | ---: | ---: | ---: | ---: | ---: |
| U.S. | $291.6 | 53.2% | 4% | $279.9 | 51.7% |
| International | 256.2 | 46.8% | (2)% | 262.0 | 48.3% |
| Total sales | $547.8 | 100.0% | 1% | $541.9 | 100.0% |
| Consumer & Specialties Segment | $291.2 | 53.2% | 2% | $284.7 | 52.5% |
| Engineered Solutions Segment | 256.6 | 46.8% | 0% | 257.2 | 47.5% |
| Total sales | $547.8 | 100.0% | 1% | $541.9 | 100.0% |

Worldwide net sales increased 1% to $547.8 million in the third quarter from $541.9 million in the prior year.

Net sales in the United States were $291.6 million in the third quarter of 2023, as compared to $279.9 million in the prior year, an increase of 4%. International sales decreased 2% to $256.2 million from $262.0 million in the prior year.

### Operating Costs and Expenses

Cost of sales was $414.7 million and represented 75.7% of sales for the three month period ended October 1, 2023, as compared with $423.6 million and 78.2% of sales in the prior year. Production margin increased from 21.8% of sales in the prior year to 24.3% of sales in the third quarter of 2023. Margin was impacted by the timing of pricing actions relative to cost increases.

Marketing and administrative costs were $50.9 million and 9.3% of sales for the three months ended October 1, 2023, as compared to $46.0 million and 8.5% of sales in the prior year.

Research and development expenses were $5.2 million and represented 0.9% of sales for the three months ended October 1, 2023, as compared with $5.1 million and 0.9% of sales in the prior year.

In the third quarter of 2023, the Company recorded a $71.7 million non-cash impairment of assets charge related to Barretts' fixed assets within the Consumer & Specialties segment associated with Barrett's Chapter 11 filing. In addition, BMI recorded litigation expenses of $12.9 million for the three months ended October 1, 2023 in connection with BMI's bankruptcy and by BMI to defend against and restore its reserve for claims associated with certain talc products. The Company recorded litigation expenses of $31.1 million and $0.5 million of acquisition-related expenses during the three months ended October 2, 2022.

### Income (Loss) from Operations

The Company recorded income (loss) from operations of $(7.9) million as compared to $35.6 million in the prior year. Operating income (loss) during the three months ended October 1, 2023 includes a $71.7 million non-cash impairment of assets charge related to Barretts' fixed assets within the Consumer & Specialties segment. In addition, BMI recorded litigation expenses of $12.9 million for the three months ended October 1, 2023 in connection with BMI's bankruptcy and by BMI to defend against and restore its reserve for claims associated with certain talc products. The Company recorded litigation expenses of $31.1 million and $0.5 million of acquisition-related expenses during the three months ended October 2, 2022.

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

In the third quarter of 2023, non-operating deductions were $14.7 million, as compared with $18.5 million in the prior year. The Company had higher interest expense in the current year resulting from higher interest rates. This was offset by debt extinguishment expenses and non-cash pension settlement charges recorded in the prior year. Included in other non-operating deductions in the third quarter of 2023 was net interest expense of $15.3 million, as compared to $11.0 million in the prior year.

### Provision (Benefit) for Taxes on Income

Provision (benefit) for taxes on income was $(3.5) million and $3.2 million for the three months ended October 1, 2023 and October 2, 2022, respectively. The effective tax rate was 15.5% and 18.7% for the three months ended October 1, 2023 and October 2, 2022, respectively. The lower tax rate was primarily due to the benefit recorded on impairment of asset charges recorded in the current year.

### Net Income (Loss) Attributable to MTI Shareholders

Net income (loss) attributable to MTI shareholders was $(19.2) million for the three months ended October 1, 2023, as compared with $13.4 million in the prior year.

### Segment Review

On a regular basis, the Company reviews its segments and the approach used by the chief decision maker to assess performance and allocate resources. Effective January 1, 2023, the Company realigned its business reporting structure and reorganized into two segments, Consumer & Specialties and Engineered Solutions. Following the realignment, the two new segments consist of the following businesses:

The Consumer & Specialties segment serves consumer end markets directly and provides mineral-based solutions and technologies that are essential to our customers’ products. The two product lines in this segment are Household & Personal Care - our mineral-to-shelf product line that serves pet care, personal and household care, fluid purification and other consumer oriented markets, and Specialty Additives, delivering specialty mineral additives to a variety of consumer and industrial end markets including paper, packaging, construction, automotive, and consumer markets including food and pharmaceuticals

The Engineered Solutions segment combines all engineered systems, mineral blends, and technologies that are designed to aid in customer processes and projects. The two product lines in this segment are High-Temperature Technologies – combining all of our mineral-based blends, technologies, and systems serving the foundry, steel, glass, aluminum and other high-temperature processing industries, and Environmental & Infrastructure, which includes environmental and remediation solutions such as geosynthetic clay lining systems, water remediation technologies as well as drilling, commercial building and infrastructure-related products.

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

*(in millions of dollars)*

| Consumer & Specialties Segment Net Sales | Three Months Ended Oct. 1, 2023 | Oct. 2, 2022 | % Change |
| --- | ---: | ---: | ---: |
| Household & Personal Care | $128.9 | $118.7 | 9% |
| Special Additives | 162.3 | 166.0 | (2)% |
| Total net sales | $291.2 | $284.7 | 2% |
| **Loss from operations** | $(46.5) | $(0.3) | \* |
| % of net sales | \* | \* |  |

Net sales in the Consumer & Specialties segment increased 2% to $291.2 million from $284.7 million in the prior year. Household & Personal Care sales increased 9% to $128.9 million, as compared with $118.7 million in the prior year on continued strong demand for our pet litter products and favorable pricing actions. Sales in Specialty Additives decreased 2% as compared with prior year.

Loss from operations was $(46.5) million, as compared to $(0.3) million in the prior year. In the third quarter of 2023, the Company recorded a $71.7 million non-cash impairment of assets charge related to Barretts' fixed assets. In addition, included in the loss from operations for the three months ended October 1, 2023 and October 2, 2022 are litigation expenses of $12.9 million and $31.1 million, respectively.

*(in millions of dollars)*

| Engineered Solutions Segment Net Sales | Three Months Ended Oct. 1, 2023 | Oct. 2, 2022 | % Change |
| --- | ---: | ---: | ---: |
| High-Temperature Technologies | $177.4 | $176.1 | 1% |
| Environmental & Infrastructure | 79.2 | 81.1 | (2)% |
| Total net sales | $256.6 | $257.2 | — |
| **Income from operations** | $40.6 | $36.4 | 12% |
| % of net sales | 15.8% | 14.2% |  |

Net sales in the Engineered Solutions segment decreased slightly to $256.6 million from $257.2 million in the prior year. High-Temperature Technologies sales increased 1% to $177.4 million, as compared with $176.1 in the prior year. Environmental & Infrastructure sales decreased 2% to $79.2 million, as compared with $81.1 million in the prior year as a result of weak commercial construction market conditions in North America.

Income from operations was $40.6 million and 15.8% of sales as compared with $36.4 million and 14.2% of sales in the prior year.

### Nine months ended October 1, 2023 as compared with nine months ended October 2, 2022

### Consolidated Income Statement Review

*(in millions of dollars)*

|  | Nine Months Ended Oct. 1, 2023 | Oct. 2, 2022 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | $1,645.4 | $1,617.9 | 2% |
| Cost of sales | 1,263.6 | 1,250.6 | 1% |
| Production margin | 381.8 | 367.3 | 4% |
| Production margin % | 23.2% | 22.7% |  |
| Marketing and administrative expenses | 155.0 | 143.6 | 8% |
| Research and development expenses | 16.1 | 15.2 | 6% |
| Restructuring and other items, net | 6.9 | — | \* |
| Impairment of assets | 71.7 | — | \* |
| Acquisition-related expenses | 0.3 | 4.7 | \* |
| Litigation expenses | 26.8 | 32.6 | \* |
| Income from operations | 105.0 | 171.2 | (39)% |
| Operating margin % | 6.4% | 10.6% |  |
| Interest expense, net | (44.0) | (31.2) | 41% |
| Debt extinguishment expenses | — | (6.9) | \* |
| Non-cash pension settlement charge | — | (1.7) | \* |
| Other non-operating deductions, net | (1.9) | (2.0) | (5)% |
| Total non-operating deductions, net | (45.9) | (41.8) | 10% |
| Income before tax and equity in earnings | 59.1 | 129.4 | (54)% |
| Provision for taxes on income | 14.5 | 25.8 | (44)% |
| Effective tax rate | 24.5% | 19.9% |  |
| Equity in earnings of affiliates, net of tax | 3.0 | 1.4 | 114% |
| Consolidated net income | 47.6 | 105.0 | (55)% |
| Net income attributable to non-controlling interests | 3.2 | 2.6 | 23% |
| Net income attributable to Minerals Technologies Inc. | $44.4 | $102.4 | (57)% |

\* Not meaningful

### Net Sales

*(in millions of dollars)*

|  | Nine Months Ended Oct. 1, 2023 Net Sales | % of Total Sales | % Growth | Nine Months Ended Oct. 2, 2022 Net Sales | % of Total Sales |
| --- | ---: | ---: | ---: | ---: | ---: |
| U.S. | $874.3 | 53.1% | 3% | $852.6 | 52.7% |
| International | 771.1 | 46.9% | 1% | 765.3 | 47.3% |
| Total sales | $1,645.4 | 100.0% | 2% | $1,617.9 | 100.0% |
| Consumer & Specialties Segment | $878.8 | 53.4% | 3% | $851.4 | 52.6% |
| Engineered Solutions Segment | 766.6 | 46.6% | — | 766.5 | 47.4% |
| Total sales | $1,645.4 | 100.0% | 2% | $1,617.9 | 100.0% |

25

Total sales increased 2% from the previous year to $1,645.4 million. Net sales in the United States increased to $874.3 million from $852.6 million in the prior year, an increase of 3%. International sales increased by 1% to $771.1 million from $765.3 million in the prior year.

### Operating Costs and Expenses

Cost of sales increased 1% from the prior year and was 76.8% of sales, as compared with 77.3% in the prior year. Gross margin increased to 23.2% of sales as compared with 22.7% of sales in the prior year. Margin was impacted by the timing of pricing actions relative to cost increases.

Marketing and administrative costs were $155.0 million and 9.4% of sales for the nine months ended October 1, 2023, as compared to $143.6 million and 8.9% of sales in the prior year.

Research and development expenses were $16.1 million and represented 1.0% of sales for the nine months ended October 1, 2023, as compared with $15.2 million and 0.9% of sales in the prior year.

The Company recorded a $71.7 million non-cash asset impairment charge relating to Barretts' fixed assets within the Consumer & Specialties segment, $6.9 million in restructuring costs to further streamline our cost structure as a result of organizational efficiencies gained through our recent resegmentation, and $0.3 million of acquisition-related expenses during the nine months ended October 1, 2023. In addition, BMI recorded $26.8 million of litigation expenses during the nine months ended October 1, 2023 in connection with BMI's bankruptcy and by BMI to defend against and restore its reserve for claims associated with certain talc products.

The Company recorded $4.7 million of acquisition-related expenses and $32.6 million of litigation expenses for the nine months ended October 2, 2022.

### Income from Operations

The Company recorded income from operations of $105.0 million for the nine months ended October 1, 2023, as compared to $171.2 million in the prior year. Operating income was 6.4% and 10.6% of sales for the nine months ended October 1, 2023 and October 2, 2022, respectively. Operating income includes $78.6 million in restructuring and impairment charges during the nine months ended October 1, 2023. In addition, operating income during the nine months ended October 1, 2023 and October 2, 2022 includes $0.3 million and $4.7 million of acquisition-related expenses, respectively. Operating income also includes $26.8 million and $32.6 million of litigation expenses during the nine months ended October 1, 2023 and October 2, 2022, respectively.

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

The Company recorded non-operating deductions of $45.9 million for the nine months ended October 1, 2023, as compared with $41.8 million in the prior year. Included in non-operating deductions for the nine months ended October 1, 2023 is $44.0 million of net interest expense. Included in non-operating deductions for the nine months ended October 2, 2022 was $31.2 million of net interest expense and a $1.7 million non-cash pension settlement charge.

### Provision for Taxes on Income

Provision for taxes was $14.5 million as compared to $25.8 million in the prior year. The effective tax rate was 24.5% as compared to 19.9% in the prior year. The higher tax rate was primarily due to a change in the mix of earnings.

### Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $44.4 million during the nine months ended October 1, 2023, as compared with $102.4 million in the prior year.

### Segment Review

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

*(in millions of dollars)*

| Consumer & Specialties Segment Net Sales | Nine Months Ended Oct. 1, 2023 | Oct. 2, 2022 | % Change |
| --- | ---: | ---: | ---: |
| Household & Personal Care | $383.6 | $358.0 | 7% |
| Specialty Additives | 495.2 | 493.4 | — |
| Total net sales | $878.8 | $851.4 | 3% |
| **Income from operations** | $5.1 | $62.6 | (92)% |
| % of net sales | 0.6% | 7.4% |  |

Net sales in the Consumer & Specialties segment increased 3% to $878.8 million from $851.4 million in the prior year. Household & Personal Care sales increased 7% to $383.6 as compared to $358.0 million in the prior year as a result of continued strong demand for our pet littler products, higher pricing, and as a result of the Concept Pet acquisition. Sales in Specialty Additives were at the same level as prior year.

Income from operations was $5.1 million and 0.6% of sales as compared to $62.6 million and 7.4% of sales in the prior year. Included in income from operations for the nine months ended October 1, 2023 and October 2, 2022 are litigation expenses of $26.8 million and $31.1 million, respectively. The Company recorded a $71.7 million non-cash impairment of assets charge in the third quarter of 2023 related to Barretts' fixed assets. In addition, there are $6.9 million of restructuring charges for the nine months ended October 1, 2023. For the nine months ended October 2, 2022, there were $3.3 million of acquisition-related expenses included in income from operations.

*(in millions of dollars)*

| Engineered Solutions Segment Net Sales | Nine Months Ended Oct. 1, 2023 | Oct. 2, 2022 | % Change |
| --- | ---: | ---: | ---: |
| High-Temperature Technologies | $538.6 | $532.7 | 1% |
| Environmental & Infrastructure | 228.0 | 233.8 | (2)% |
| Total net sales | $766.6 | $766.5 | 0% |
| **Income from operations** | $111.1 | $115.4 | (4)% |
| % of net sales | 14.5% | 15.1% |  |

Worldwide sales in the Engineered Solutions segment increased slightly to $766.6 million from $766.5 million in the prior year. High-Temperature sales increased 1% to $538.6 million from $532.7 million in the prior year. Environmental & Infrastructure sales decreased 2% to $228.0 million from $233.8 million in the prior year driven by weak commercial construction market conditions in North America.

Income from operations was $111.1 million and 14.5% of net sales as compared to $115.4 million and 15.1% of sales in the prior year. Included in income from operations for the nine months ended October 1, 2023 are $3.2 million of restructuring expenses.

### Liquidity and Capital Resources

Cash provided from operations during the nine months ended October 1, 2023, was approximately $138.3 million. Cash flows provided from operations during the first three months of 2023 were principally used to fund capital expenditures, repay debt, and to pay the Company’s dividend to common shareholders. The aggregate maturities of long-term debt are as follows: remainder of 2023 - $3.8 million; 2024 - $18.0 million; 2025 - $31.7 million; 2026 - $41.9 million; 2027 - $443.7 million; thereafter - $400.0 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. In the third quarter of 2023, the Company’s subsidiaries Barretts Minerals Inc. and Barretts Ventures Texas LLC were removed as borrowers under, and Guarantors of, the Senior Secured Credit Facilities.

As of October 1, 2023, there were $108.0 million in loans and $10.6 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. In the third quarter of 2023, the Company’s subsidiaries Barretts Minerals Inc. and Barretts Ventures Texas LLC were removed as guarantors of the Notes.

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.

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.

The Company has a committed loan facility in Japan. As of October 1, 2023, $1.5 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 2023.

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. The Company repaid $0.4 million on these loans in 2023.

As of October 1, 2023, the Company had $25.1 million in uncommitted short-term bank credit lines, of which $1.2 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 2023 will be approximately $95 million, principally related to opportunities to improve our operations and 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. This instrument matured in May 2023. Additionally, in the second quarter of 2018, 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. This cross currency swap matured in May 2023. At maturity, the Company realized, in comprehensive income, an after-tax gain of $7.6 million. In the second quarter of 2023, the Company entered into a new floating to fixed interest rate swap for a notional amount of $150 million. The fair value of this instrument at October 1, 2023 is an asset of $2.8 million.

On October 18, 2023, 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. During the nine months ended October 1, 2023, 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 five hundred cases seeking damages for alleged exposure to asbestos-contaminated talc products sold by the Company’s subsidiary BMI. The Company’s position is that these cases are meritless and all talc products sold by BMI are safe. On October 2, 2023 (the “Petition Date”), notwithstanding the Company’s confidence in the safety of BMI’s talc products, Barretts, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Chapter 11 Cases”) to address and comprehensively resolve BMI’s liabilities associated with talc. Minerals Technologies Inc. and the Company’s other subsidiaries were not included in the Chapter 11 filing. BMI intends to pursue a sale of its talc assets under section 363 of the Bankruptcy Code. Proceeds of the sale will be used to fund the Chapter 11 Cases. Barretts’ ultimate goal in the Chapter 11 Cases is to confirm a plan of reorganization under Section 524(g) of the U.S. Bankruptcy Code and utilize this provision to establish a trust that will address all current and future talc-related claims. During the pendency of the Chapter 11 Cases, the Company anticipates that BMI will benefit from the operation of the automatic stay, which stays ongoing litigation in connection with talc-related claims against Barretts. By agreement, the filing or continued prosecution of all talc-related claims against Barretts’ non-debtor affiliates is temporarily stayed through November 14, 2023, the date on which a hearing is scheduled on whether to permanently enjoin the filing or further prosecution of any talc-related claims against Barretts’ non-debtor affiliates during the pendency of the Chapter 11 Cases. Barretts has been deconsolidated from the Company’s financial statements since the Petition Date. In connection with the Chapter 11 filing, the Company recognized a $72 million non-cash impairment charge of Barretts' fixed assets, and $13 million of litigation costs associated with the Chapter 11 Cases and by BMI to defend against and restore its reserve for claims associated with talc products. Although the Chapter 11 Cases are progressing, it is not possible to predict the form of any ultimate resolution or when an ultimate resolution might occur at this time. Accordingly, the amount that will be necessary to fully and finally resolve all of BMI’s current and future talc-related claims in connection with a confirmed Chapter 11 plan of reorganization cannot be estimated with certainty at this time. See Notes 13 and 15 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, 2022, 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 worldwide general economic, business, and industry conditions; the cyclicality of our customers’ businesses and their changing regional demands; 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 satellite operations; our ability to generate cash 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 or consummate the transactions described in the statements; 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, or 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; risks and uncertainties related to the voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code filed by our subsidiaries Barretts Minerals Inc. and Barretts Ventures Texas LLC; claims for legal, environmental and tax matters or product stewardship issues; the continuing effects of the COVID-19 pandemic and the resulting preventative measures; operating risks and capacity limitations affecting our production facilities; seasonality of some of our businesses; cybersecurity and other threats relating to our information technology systems; and other risk factors set forth under “Item 1A — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, 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 2022 Annual Report on Form 10-K.

## Market risk

As filed, 2,467 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 $4 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. 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. These swaps both matured in May 2023. In the second quarter of 2023, the Company entered into a new floating to fixed interest rate swap for a notional amount of $150 million. The fair value of this instrument at October 1, 2023 is an asset of $2.8 million.

## Controls and procedures

As filed, 963 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 October 1, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 4,698 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 2022 Annual Report on Form 10-K, except for the following:

***The Company’s subsidiaries, Barretts Minerals Inc. (“BMI”) and Barretts Ventures Texas LLC (together with BMI, “Barretts”), have filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code to address and comprehensively resolve BMI’s liabilities associated with talc. Risks and uncertainties related to this filing could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.***

The Company and certain of the Company’s subsidiaries are among numerous defendants in over five hundred cases seeking damages for alleged exposure to asbestos-contaminated talc products sold by the Company’s subsidiary BMI. On October 2, 2023 (the “Petition Date”), notwithstanding the Company’s confidence in the safety of BMI’s talc products, BMI and Barretts Ventures Texas LLC filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Chapter 11 Cases”) to address and comprehensively resolve BMI’s liabilities associated with talc. Minerals Technologies Inc. and the Company’s other subsidiaries were not included in the Chapter 11 filing. BMI intends to pursue a sale of its talc assets under section 363 of the Bankruptcy Code. Proceeds of the sale will be used to fund the Chapter 11 Cases. Barretts’ ultimate goal in the Chapter 11 Cases is to confirm a plan of reorganization under Section 524(g) of the U.S. Bankruptcy Code and utilize this provision to establish a trust that will address all current and future talc-related claims. During the pendency of the Chapter 11 Cases, the Company anticipates that BMI will benefit from the operation of the automatic stay, which stays ongoing litigation in connection with talc-related claims against Barretts. By agreement, the filing or continued prosecution of all talc-related claims against Barretts’ non-debtor affiliates is temporarily stayed through November 14, 2023, the date on which a hearing is scheduled on whether to permanently enjoin the filing or further prosecution of any talc-related claims against Barretts’ non-debtor affiliates during the pendency of the Chapter 11 Cases. Barretts has been deconsolidated from the Company’s financial statements since the Petition Date.

Although the Chapter 11 Cases are progressing, it is not possible at this time to predict the form of any ultimate resolution or when an ultimate resolution might occur. Accordingly, the amount that will be necessary to fully and finally resolve all of BMI’s current and future talc-related claims in connection with a confirmed Chapter 11 plan of reorganization cannot be estimated at this time. Several risks and uncertainties related to Barretts’ Chapter 11 Cases could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows, including the value of Barretts, as deconsolidated, reflected in the Company’s financial statements, the ultimate amount necessary to be contributed to any trust established pursuant to Section 524(g) of the U.S. Bankruptcy Code, the potential for the Company’s talc-related exposure to extend beyond BMI arising from claims by talc plaintiffs relating to the Company’s liability for talc claims, corporate veil piercing efforts or otherwise, any final resolution of the scope of the Pfizer indemnity, the costs of the Chapter 11 Cases and the length of time necessary to resolve the cases, either through settlement or as a result of litigation arising in connection with the Chapter 11 Cases, and the possibility that Barretts will be unsuccessful in attaining relief under Chapter 11. Further, while the Company anticipates that Barretts will benefit from the operation of the automatic stay during the Chapter 11 proceedings, depending on the ultimate outcome of any of these litigation matters, the Company could in the future be required to pay significant amounts as a result of settlements or judgments, potentially in excess of liabilities accrued to date in respect of such matters. The resolution of, or recognition of additional liabilities in connection with, pending litigation could have a material adverse effect on the Company’s results of operations, cash flows and financial condition.

For a further discussion of the Chapter 11 Cases and BMI talc-related liabilities, see Note 13 to the Consolidated Financial Statements, included in this report.

Filed Oct 27, 2023.
Source: SEC EDGAR, the filing index for accession 0000891014-23-000103. Last ingested by Listed: Oct 30, 2026, 15:40 ET. No prices; not investment advice.