UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

or

[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-11430
--
MINERALS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
            DELAWARE
25-1190717    
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

622 Third Avenue, New York, New York 10017-6707
(Address of principal executive offices, including zip code)

(212) 878-1800
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

YES   X  
NO  _____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES   X   
NO        
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b2 of the Exchange Act.

Large Accelerated Filer [ X ]
Accelerated Filer [  ]
Non- accelerated Filer [  ]
Smaller Reporting Company [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES          
NO  

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Common Stock, $0.10 par value
Outstanding at April  12, 2013
34,861,809

 



MINERALS TECHNOLOGIES INC.
INDEX TO FORM 10-Q


 
 
Page No.
PART I.    FINANCIAL INFORMATION
 
 
 
Item 1.
Financial Statements:
 
 
 
 
3
 
 
 
4
 
 
 
5
 
 
 
6
 
 
 
7
 
 
 
15
 
 
 
 
Item 2.
16
 
 
Item 3.
22
 
 
 
 
 
Item 4.
23
 
 
 
 
 
PART II.  OTHER INFORMATION
 
 
 
Item 1.
23
 
 
Item 1A.
24
 
 
 
Item 2.
24
 
 
 
Item 3.
24
 
 
Item 4.
24
 
 
 
Item 5.
25
 
 
Item 6.
25
 
 
 
 
26



PART I.  FINANCIAL INFORMATION


ITEM 1.  Financial Statements

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                          
Three Months Ended
(thousands, except per share data)
 
 
March 31, 2013
 
 
 
April 1, 2012
 
 
 
 
 
 
 
 
 
 
Net sales                                                                                                                      
 
$
251,289
 
 
$
257,138
 
Cost of goods sold                                                                                                                      
 
 
196,401
 
 
 
202,201
 
   
Production margin                                                                                                                
 
 
54,888
 
 
 
54,937
 
 
 
 
 
 
 
 
 
 
Marketing and administrative expenses                                                                                                                      
 
 
22,934
 
 
 
22,898
 
Research and development expenses                                                                                                                      
 
 
4,818
 
 
 
5,047
 
 
 
 
 
 
 
 
 
 
 
 
Income from operations                                                                                                                
 
 
27,136
 
 
 
26,992
 
 
 
 
 
 
 
 
 
 
Non-operating income (deductions), net                                                                                                                      
 
 
168
 
 
 
(598
)
 
Income from continuing operations before provision for taxes
 
 
27,304
 
 
 
26,394
 
Provision for taxes on income                                                                                                                      
 
 
7,700
 
 
 
7,786
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net income  
 
 
19,604
 
 
 
18,608
 
 
 
 
 
 
 
 
 
 
Less: Net income attributable to non-controlling interests
 
 
848
 
 
 
576
 
 
Net income attributable to Minerals Technologies Inc. (MTI)
 
$
18,756
 
 
$
18,032
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic  
 
$
0.54
 
 
$
0.51
 
 
Diluted  
 
$
0.53
 
 
$
0.51
 
Cash dividends declared per common share                                                                                                                      
 
$
0.05
 
 
$
0.025
 
 
 
 
 
 
 
 
 
 
Shares used in computation of earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic                                                                                                            
 
 
34,996
 
 
 
35,436
 
 
Diluted                                                                                                            
 
 
35,253
 
 
 
35,600
 

See accompanying Notes to Condensed Consolidated Financial Statements.
3


MINERALS TECHNOLOGIES INC.  AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended
(thousands of dollars)
 
March 31,  2013
 
 
 
April 1, 2012
 
Consolidated net income                                                                                                
$
19,604
 
 
$
18,608
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
  
Foreign currency translation adjustments                                                                                            
 
(14,785
)
 
 
9,099
 
 
Pension and postretirement plan adjustments                                                                                            
 
1,766
 
 
 
1,821
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
Net derivative gains (losses) arising during the period
 
586
 
 
 
(534
)
Comprehensive income                                                                                                
 
7,171
 
 
 
28,994
 
Comprehensive income attributable to
 
 
 
 
 
 
 
 
non-controlling interest  
 
(379
)
 
 
(943
)
Comprehensive income attributable to MTI                                                                                                
$
6,792
 
 
$
28,051
 
 
 
 
 
 
 
 
 




See accompanying Notes to Condensed Consolidated Financial Statements.




4



MINERALS TECHNOLOGIES INC.  AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS


ASSETS
(thousands of dollars)
 
March 31,
 2013*
 
 
 
December 31,
2012**
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
     
Cash and cash equivalents  
$
454,331
 
 
$
454,092
 
 
Short-term investments, at cost which approximates market
 
15,586
 
 
 
14,178
 
 
Accounts receivable, net  
 
197,834
 
 
 
193,328
 
 
Inventories  
 
88,755
 
 
 
84,569
 
 
Prepaid expenses and other current assets  
 
18,364
 
 
 
18,318
 
        
Total current assets  
 
774,870
 
 
 
764,485
 
 
 
 
 
 
 
 
 
Property, plant and equipment, less accumulated depreciation and depletion – March 31, 2013- $943,676; December 31, 2012 - $944,283….....
 
312,436
 
 
 
317,669
 
Goodwill                                                                                                                
 
65,081
 
 
 
65,829
 
Other assets and deferred charges                                                                                                                
 
58,732
 
 
 
63,206
 
        
Total assets  
$
1,211,119
 
 
$
1,211,189
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
Short-term debt  
$
7,226
 
 
$
7,111
 
 
Current maturities of long-term debt  
 
77,260
 
 
 
76,977
 
 
Accounts payable  
 
109,857
 
 
 
98,371
 
 
Other current liabilities  
 
55,785
 
 
 
67,639
 
 
Total current liabilities  
 
250,128
 
 
 
250,098
 
 
 
 
 
 
 
 
 
Long-term debt                                                                                                                
 
8,200
 
 
 
8,478
 
Accrued Pension and Post-Retirement Benefits                                                                                                                
 
108,719
 
 
 
108,035
 
Other non-current liabilities                                                                                                                
 
31,313
 
 
 
30,859
 
 
Total liabilities  
 
398,360
 
 
 
397,470
 
 
 
 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
 
 
 
Common stock  
 
4,717
 
 
 
4,700
 
 
Additional paid-in capital  
 
349,470
 
 
 
345,929
 
 
Retained earnings  
 
1,049,870
 
 
 
1,032,869
 
 
Accumulated other comprehensive loss  
 
(63,162
)
 
 
(51,198
)
 
Less common stock held in treasury  
 
(551,337
)
 
 
(541,889
)
 
 
 
 
 
 
 
 
 
Total  MTI shareholders' equity                                                                                                                
 
789,558
 
 
 
790,411
 
Non-controlling interest                                                                                                                
 
23,201
 
 
 
23,308
 
 
Total shareholders' equity  
 
812,759
 
 
 
813,719
 
 
 
 
 
 
 
 
 
 
 
Total liabilities and shareholders' equity  
$
1,211,119
 
 
$
1,211,189
 

*  Unaudited
**  Condensed from audited financial statements

See accompanying Notes to Condensed Consolidated Financial Statements.
5

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


                 
Three Months Ended
(thousands of dollars)
 
 
March 31, 2013
 
 
 
April 1,
2012
 
Operating Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated net income                                                                                                                              
 
$
19,604
 
 
$
18,608
 
 
 
 
 
 
 
 
 
 
Adjustments to reconcile net income to net cash
 
 
 
 
 
 
 
 
  
provided by operating activities:
 
 
 
 
 
 
 
 
   
Depreciation, depletion and amortization                                                                                                                  
 
 
11,599
 
 
 
13,026
 
 
Payments relating to restructuring activities                                                                                                                  
 
 
--
 
 
 
(620
)
 
Other non-cash items                                                                                                                  
 
 
2,070
 
 
 
1,874
 
 
Net changes in operating assets and liabilities                                                                                                                  
 
 
(8,584
)
 
 
(8,168
)
Net cash provided by operating activities                                                                                                                              
 
 
24,689
 
 
 
24,720
 
 
 
 
 
 
 
 
 
 
Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment                                                                                                                              
 
 
(8,681
)
 
 
(9,354
)
Proceeds from sale of short-term investments                                                                                                                              
 
 
--
 
 
 
1,484
 
Purchases of short-term investments                                                                                                                              
 
 
(941
)
 
 
(2,583
)
Net cash used in investing activities                                                                                                                              
 
 
(9,622
)
 
 
(10,453
)
 
 
 
 
 
 
 
 
 
Financing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net repayment of short-term debt                                                                                                                              
 
 
(81
)
 
 
(593
)
Purchase of common shares for treasury                                                                                                                              
 
 
(7,587
)
 
 
--
 
Proceeds from issuance of stock under option plan                                                                                                                              
 
 
2,751
 
 
 
2,084
 
Cash dividends paid                                                                                                                              
 
 
(1,754
)
 
 
(887
)
Dividends paid to non-controlling interests                                                                                                                              
 
 
(486
)
 
 
--
 
Excess tax benefits related to stock incentive programs                                                                                                                              
 
 
184
 
 
 
--
 
Net cash provided by (used in) financing activities                                                                                                                              
 
 
(6,973
)
 
 
604
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
 
(7,855
)
 
 
4,982
 
 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents                                                                                                                              
 
 
239
 
 
 
19,853
 
Cash and cash equivalents at beginning of period                                                                                                                              
 
 
454,092
 
 
 
395,152
 
Cash and cash equivalents at end of period                                                                                                                              
 
$
454,331
 
 
$
415,005
 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
 
Interest paid                                                                                                                              
 
$
172
 
 
$
158
 
 
 
 
 
 
 
 
 
 
 
Income taxes paid                                                                                                                              
 
$
5,657
 
 
 
10,583
 
Non-cash financing activities:
 
 
 
 
 
 
 
 
             Treasury stock purchases settled after period-end                                                                                                                              
 
$
1,860
 
 
$
--
 
 
 
 
 
 
 
 
 
 

 
See accompanying Notes to Condensed Consolidated Financial Statements.




6

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.  Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with the rules and regulations of the United States Securities and Exchange Commission.  Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.  In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included.  The results for the three-month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

     Certain reclassifications were made to prior year amounts to conform to current year presentation.

     On November 14, 2012 the Company's Board of Directors authorized a two-for-one stock split of the of the Company's outstanding common stock, which was effected in the form of a 100-percent stock distribution payable on December 11, 2012 to shareholders of record on November 27, 2012.  Treasury shares were not treated as outstanding shares in the stock split.  The par-value of the Company's stock remained at $0.10 per share.  Unless otherwise noted, all share amounts and per share calculations in this quarterly report on Form 10-Q have been adjusted for all periods presented to reflect the impact of this split and to provide data on a comparable basis.

Note 2.  Summary of Significant Accounting Policies

     Use of Estimates

     The Company employs accounting policies that are in accordance with U.S. generally accepted accounting principles and require management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Significant estimates include those related to revenue recognition, allowance for doubtful accounts, valuation of inventories, valuation of long-lived assets, goodwill and other intangible assets, pension plan assumptions, income tax, income tax valuation allowances, and litigation and environmental liabilities. Actual results could differ from those estimates.

Note 3.  Earnings Per Share (EPS)

     Basic earnings per share are based upon the weighted average number of common shares outstanding during the period.  Diluted earnings per share are based upon the weighted average number of common shares outstanding during the period assuming the issuance of common shares for all potentially dilutive common shares outstanding.

The following table sets forth the computation of basic and diluted earnings per share:
 
Three Months Ended
Basic EPS
(in millions, except per share amounts)
March 31, 2013
April 1, 2012
 
 
 
 
 
 
 
 
 
 
Net income attributable to MTI
$
18.8
 
 
$
18.0
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding  
 
35.0
 
 
 
35.4
 
 
 
 
 
 
 
 
 
Basic earnings per share attributable to MTI  
$
0.54
 
 
$
0.51
 

7

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Three Months Ended
Diluted EPS
(in millions, except per share amounts)
March 31, 2013
April 1, 2012
 
 
 
 
 
 
 
 
 
 
Net income attributable to MTI
$
18.8
 
 
$
18.0
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding  
 
35.0
 
 
 
35.4
 
Dilutive effect of stock options and stock units                                                                                                                    
 
0.3
 
 
 
0.2
 
           Weighted average shares outstanding , adjusted  
$
35.3
 
 
$
35.6
 
 
 
 
 
 
 
 
 
Diluted earnings per share attributable to MTI  
$
0.53
 
 
$
0.51
 
 
     Options to purchase 239,770 and 257,886 shares of common stock for the three-month periods ended March 31, 2013 and April 1, 2012, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive, as the exercise prices of the options were greater than the average market price of the common shares.
 
Note 4.   Income Taxes

     As of March 31, 2013, the Company had approximately $5.0 million of total unrecognized income tax benefits. Included in this amount were a total of $3.3 million of unrecognized income tax benefits that, if recognized, would affect the Company's effective tax rate. While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, we do not expect the change to have a significant impact on the results of operations or the financial position of the Company.

     The Company's accounting policy is to recognize interest and penalties accrued relating to unrecognized income tax benefits as part of its provision for income taxes. The Company had a net increase of approximately $0.1 million during the first three months of 2013, and had an accrued balance of $1.1 million of interest and penalties as of March 31, 2013.

     The Company operates in multiple taxing jurisdictions, both within and outside the U.S.  In certain situations, a taxing authority may challenge positions that the Company has adopted in its income tax filings. The Company, with a few exceptions (none of which are material), is no longer subject to U.S. federal, state, local, and European  income tax examinations by tax authorities for years prior to 2006.

Note 5.   Inventories

     The following is a summary of inventories by major category:

(millions of dollars)
 
 
March 31,
2013
December 31,
2012
 
Raw materials  
 
$
34.0
 
 
$
30.8
 
Work-in-process  
 
 
6.8
 
 
 
6.5
 
Finished goods  
 
 
26.8
 
 
 
26.5
 
Packaging and supplies  
 
 
21.2
 
 
 
20.8
 
Total inventories  
 
$
88.8
 
 
$
84.6
 

Note 6.  Goodwill and Other Intangible Assets

     Goodwill and other intangible assets with indefinite lives are not amortized, but instead are tested for impairment, at least annually. The carrying amount of goodwill was $65.1 million and $65.8 million as of March 31, 2013 and December 31, 2012, respectively.  The net change in goodwill since December 31, 2012 was attributable to the effect of foreign exchange.

8

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  
   Acquired intangible assets subject to amortization as of March 31, 2013 and December 31, 2012 were as follows:

 
 
March 31, 2013
 
December 31, 2012
(millions of dollars)
 
 
Gross Carrying Amount
 
 
 
Accumulated Amortization
 
 
 
Gross Carrying Amount
 
 
 
Accumulated Amortization
 
Patents and trademarks  
 
$
6.0
 
 
 
3.5
 
 
 
6.0
 
 
 
3.4
 
Customer lists  
 
 
2.9
 
 
 
2.4
 
 
 
2.9
 
 
 
2.4
 
 
 
$
8.9
 
 
 
5.9
 
 
 
8.9
 
 
 
5.8
 

     The weighted average amortization period for acquired intangible assets subject to amortization is approximately 15 years.  Estimated amortization expense is $0.6 million for 2013 and $0.4 million each of the next five years through 2018.

     Included in other assets and deferred charges is an intangible asset of approximately $0.5 million which represents the non-current unamortized amount paid to a customer in connection with contract extensions at seven PCC satellite facilities.  In addition, a current portion of $0.4 million is included in prepaid expenses and other current assets.  Such amounts will be amortized as a reduction of sales over the remaining lives of the customer contracts.  Approximately $0.1 million was amortized in the first quarter of 2013. Estimated amortization as a reduction of sales is as follows: remainder of 2013 - $0.3 million; 2014 - $0.4 million; 2015 - $0.1 million.

Note 7.   Long-Term Debt and Commitments

     The following is a summary of long-term debt:
(millions of dollars)                                             
March 31,
2013
December 31,
2012
 
5.53% Series 2006A Senior Notes
 
 
 
 
Due October 5, 2013  
$
50.0
 
$
50.0
Floating Rate Series 2006A Senior Notes
 
 
 
 
Due October 5, 2013  
 
25.0
 
 
25.0
Variable/Fixed Rate Industrial
 
 
 
 
Development Revenue Bonds Series 1999 Due November 1, 2014
 
8.2
 
 
8.2
Installment obligations  
 
1.4
 
 
1.4
Other borrowings  
 
0.9
 
 
0.9
 
Total  
 
85.5
 
 
85.5
Less: Current maturities  
 
77.3
 
 
77.0
Long-term debt  
$
8.2
 
$
8.5
     
     As of March 31, 2013, the Company had $191.2 million of uncommitted short-term bank credit lines, of which approximately $7.2 million was in use.

Note 8.  Benefit Plans

     The Company and its subsidiaries have pension plans covering the majority of eligible employees on a contributory or non-contributory basis. .  The Company also provides postretirement health care and life insurance benefits for the majority of its U.S. retired employees.   Disclosures for the U.S. plans have been combined with those outside of the U.S. as the international plans do not have significantly different assumptions, and together represent less than 25% of our total benefit obligation.

9

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Components of Net Periodic Benefit Cost
 
 
 
Pension Benefits
 
 
 
Other Benefits
 
 
 
 
Three Months Ended
 
 
 
Three Months Ended
 
(millions of dollars)
 
 
March 31, 2013
 
 
 
April 1, 2012
 
 
 
March 31, 2013
 
 
 
April 1, 2012
 
Service cost                                                                            
 
$
2.3
 
 
$
2.3
 
 
$
0.2
 
 
$
0.2
 
Interest cost                                                                            
 
 
2.8
 
 
 
2.9
 
 
 
0.1
 
 
 
0.1
 
Expected return on plan assets                                                                            
 
 
(3.7
)
 
 
(3.5
)
 
 
--
 
 
 
--
 
Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost  
 
 
0.3
 
 
 
0.3
 
 
 
(0.8
)
 
 
(0.8
)
 
Recognized net actuarial loss  
 
 
3.4
 
 
 
3.4
 
 
 
--
 
 
 
--
 
 
Net periodic benefit cost  
 
$
5.1
 
 
$
5.4
 
 
$
(0.5
)
 
$
(0.5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

     Amortization amounts of prior service costs and recognized net actuarial losses are recorded, net of tax, as increases to accumulated other comprehensive income.

Employer Contributions

     The Company expects to contribute approximately $10 million to its pension plans and $1.0 million to its other post retirement benefit plans in 2013.  As of March 31, 2013, $0.9 million has been contributed to the pension plans and approximately $0.2 million has been contributed to the other post retirement benefit plans.

Note 9.  Comprehensive Income

The following are the reclassifications out of accumulated other comprehensive income, net of related tax:

(millions of dollars)
 
March 31,
2013
 
Amortization of prior service cost  
$
(0.3
)
Amortization of actuarial gains(losses)  
 
2.0
 
Total reclassifications from accumulated other comprehensive income
$
1.7
 

The above amounts are included in net periodic pension costs.  Please see note 8 to the condensed consolidated financial statements.

The major components of accumulated other comprehensive income, net of related tax, are as follows:

(millions of dollars)
Foreign Currency Translation Adjustments
Unrecognized Pension Costs
Net Gain on Cash Flow Hedges
Total
Balance as of December 31, 2012
$
32.0
 
$
(85.3
)
$
2.1
 
$
(51.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income/loss before reclassifications
 
(14.3
)
 
--
 
 
0.6
 
 
(13.7
)
Amounts reclassified from AOCI
 
--
 
 
1.7
 
 
--
 
 
1.7
 
Net current period other comprehensive income/loss
 
(14.3
)
 
1.7
 
 
0.6
 
 
(12.0
)
Balance as of March 31, 2013                                                              
$
17.7
 
$
(83.6
)
$
2.7
 
$
(63.2
)

 
Note 10.  Accounting for Asset Retirement Obligations

     The Company records asset retirement obligations for situations in which the Company will be required to incur costs to retire tangible long-lived assets. These are primarily related to its PCC satellite facilities and mining operations. The Company has also recorded the provisions related to conditional asset retirement obligations at its facilities.  The Company has recorded asset retirement obligations at all of its facilities except where there are no
 
10

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
legal or contractual obligations.  The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.

     The following is a reconciliation of asset retirement obligations as of March 31, 2013:

(millions of dollars)
 
 
 
 
 
 
 
Asset retirement liability, December 31, 2012
$
15.0
 
Accretion expense                                                                                            
 
0.2
 
Additions                                                                                            
 
0.1
 
Reversals                                                                                            
 
(0.3
)
Foreign currency translation and other                                                                                            
 
(0.1
)
Asset retirement liability,  March 31, 2013                                                                                            
$
14.9
 

     The current portion of the liability of approximately $0.4 million is included in other current liabilities and  the long-term portion of the liability of approximately $14.5 million is included in other non-current liabilities in the Condensed Consolidated Balance Sheet as of March 31, 2013.

Note 11.  Legal Proceedings

          Certain of the Company's subsidiaries are among numerous defendants in a number of cases seeking damages for exposure to silica or to asbestos containing materials.  The Company currently has 72 pending silica cases and 10 pending asbestos cases. To date, 1,394 silica cases and 33 asbestos cases have been dismissed. Four new asbestos cases were filed in the first quarter of 2013, and one was dismissed.  Most of these claims do not provide adequate information to assess their merits, the likelihood that the Company will be found liable, or the magnitude of such liability, if any.  Additional claims of this nature may be made against the Company or its subsidiaries.  At this time management anticipates that the amount of the Company's liability, if any, and the cost of defending such claims, will not have a material effect on its financial position or results of operations.

     The Company has not settled any silica or asbestos lawsuits to date.  We are unable to state an amount or range of amounts claimed in any of the lawsuits because state court pleading practices do not require identifying the amount of the claimed damage.  The aggregate cost to the Company for the legal defense of these cases since inception was approximately $0.2 million, the majority of which has been reimbursed by Pfizer Inc pursuant to the terms of certain agreements entered into in connection with the Company's initial public offering in 1992. Of the 10 pending asbestos cases, all allege liability based on products sold largely or entirely prior to the initial public offering, and for which the Company is therefore entitled to indemnification pursuant to such agreements. Our experience has been that the Company is not liable to plaintiffs in any of these lawsuits and the Company does not expect to pay any settlements or jury verdicts in these lawsuits.

Environmental Matters
        On April 9, 2003, the Connecticut Department of Environmental Protection issued an administrative consent order relating to our Canaan, Connecticut, plant where both our Refractories segment and Specialty Minerals segment have operations. We agreed to the order, which includes provisions requiring investigation and remediation of contamination associated with historic use of polychlorinated biphenyls ("PCBs") and mercury at a portion of the site. We have completed the required investigations and submitted several reports characterizing the contamination. We are now conducting a site-specific risk assessment required by the regulators.
We believe that the most likely form of overall site remediation will be to leave the existing contamination in place (with some limited soil removal), encapsulate it, and monitor the effectiveness of the encapsulation. We anticipate that a substantial portion of the remediation cost will be borne by the United States based on its involvement at the site from 1942 – 1964, as historic documentation indicates that PCBs and mercury were first used at the facility at a time of U.S. government ownership for production of materials needed by the military. Though the cost of the likely remediation remains uncertain pending completion of the phased remediation decision process, we have estimated that the Company's share of the cost of the encapsulation and limited soil removal described above would approximate $0.4 million, which has been accrued as of March 31, 2013.
 
11

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     The Company is evaluating options for upgrading the wastewater treatment facilities at its Adams, Massachusetts plant. This work has been undertaken pursuant to an administrative Consent Order originally issued by the Massachusetts Department of Environmental Protection ("DEP") on June 18, 2002. This order was amended on June 1, 2009 and on June 2, 2010.  The amended Order includes the investigation by January 1, 2022 of options for ensuring that the facility's wastewater treatment ponds will not result in unpermitted discharge to groundwater.  Additional requirements of the amendment include the submittal by July 1, 2022 of a plan for closure of a historic lime solids disposal area. Preliminary engineering reviews completed in 2005 indicate that the estimated cost of wastewater treatment upgrades to operate this facility beyond 2024 may be between $6 million and $8 million. The Company estimates that the remaining remediation costs would approximate $0.4 million, which has been accrued as of March 31, 2013.
     The Company and its subsidiaries are not party to any other material pending legal proceedings, other than routine litigation incidental to their businesses.
Note 12.  Non-Operating Income and Deductions, Net

 
Three Months Ended
(millions of dollars)
 
 
March 31, 2013
 
 
 
April 1, 2012
 
   
Interest income  
$
0.7
 
 
$
1.0
 
 
Interest expense  
 
(0.8
)
 
 
(0.8
)
 
Foreign exchange gains (losses)  
 
0.6
 
 
 
(0.4
)
 
Other deductions  
 
(0.3
)
 
 
(0.4
)
Non-operating income (deductions), net  
$
0.2
 
 
$
(0.6
)
 
 
 
 
 
 
 
 
 
Note 13 .  Non-controlling interests

          The following is a reconciliation of beginning and ending total equity, equity attributable to MTI, and equity attributable to non-controlling interests:

 
Equity Attributable to MTI
 
 
 
(millions of dollars)
Common Stock
Additional
 Paid-in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
 Stock
 
Non-controlling Interests
 
Total
Balance as of December 31, 2012
$
4.7
 
$
345.9
 
$
1,032.9
 
$
(51.2
)
 
$
(541.9
)
 
$
23.3
 
 
$
813.7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income  
 
--
 
 
--
 
 
18.8
 
 
--
 
 
 
--
 
 
 
0.9
 
 
 
19.7
 
Other comprehensive income  
 
--
 
 
--
 
 
--
 
 
(12.0
)
 
 
--
 
 
 
(0.5
)
 
 
(12.5
)
Dividends declared  
 
--
 
 
--
 
 
(1.8
)
 
--
 
 
 
--
 
 
 
--
 
 
 
(1.8
)
Dividends to non-controlling interest
 
--
 
 
--
 
 
--
 
 
--
 
 
 
--
 
 
 
(0.5
)
 
 
(0.5
)
Employee benefit transactions  
 
--
 
 
2.7
 
 
--
 
 
--
 
 
 
--
 
 
 
--
 
 
 
2.7
 
Income tax benefit arising from employee
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
stock option plans  
 
--
 
 
0.7
 
 
--
 
 
--
 
 
 
--
 
 
 
--
 
 
 
0.7
 
Purchase of common stock for treasury
 
--
 
 
--
 
 
--
 
 
--
 
 
 
(9.4
)
 
 
--
 
 
 
(9.4
)
Stock based compensation  
 
--
 
 
0.2
 
 
--
 
 
--
 
 
 
            --
 
 
 
--
 
 
 
0.2
 
Balance as of March 31, 2013  
$
4.7
 
$
349.5
 
$
1,049.9
 
$
(63.2
)
 
$
(551.3
)
 
$
23.2
 
 
$
812.8
 
   
  The income attributable to non-controlling interests for the three-month periods ended March 31, 2013 and April 1, 2012 was from continuing operations. The remainder of the income was attributable to MTI. There were no changes in MTI's ownership interest for the period ended March 31, 2013 as compared with December 31, 2012.
 
12

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 14.  Segment and Related Information

     Segment information for the three-month periods ended March 31, 2013 and April 1, 2012 was as follows:
Net Sales
(millions of dollars)
Three Months Ended
 
March 31, 2013
 
 
 
April 1, 2012
 
Specialty Minerals  
$
167.7
 
 
$
167.7
 
Refractories  
 
83.6
 
 
 
89.4
 
Total  
$
251.3
 
 
$
257.1
 

Income from Operations
(millions of dollars)
Three Months Ended
 
March 31, 2013
 
 
 
April 1, 2012
 
Specialty Minerals  
$
22.2
 
 
$
19.9
 
Refractories  
 
6.9
 
 
 
9.1
 
Total  
$
29.1
 
 
$
29.0
 
 
 
 
 
 
 
 
 

     The carrying amount of goodwill by reportable segment as of March 31, 2013 and December 31, 2012 was as follows:
Goodwill
(millions of dollars)
 
Three Months Ended
 
March 31,
2013
December 31, 2012
Specialty Minerals  
$
13.6
 
 
 
14.1
 
Refractories  
 
51.5
 
 
 
51.7
 
Total  
$
65.1
 
 
 
65.8
 
 
 
 
 
 
 
 
 

     A reconciliation of the totals reported for the operating segments to the applicable line items in the condensed consolidated financial statements is as follows:

Income from operations before provision for taxes on income:
Three Months Ended
(millions of dollars)
March  31,
2013
 
 
 
April 1,
 2012
 
 
 
 
 
 
 
 
 
Income from operations for reportable segments
$
29.1
 
 
$
29.0
 
Unallocated corporate expenses  
 
(2.0
)
 
 
(2.0
)
Consolidated income from operations  
 
27.1
 
 
 
27.0
 
Non-operating income (deductions)  
 
0.2
 
 
 
(0.6
)
Income from continuing operations
 
 
 
 
 
 
 
 
before provision for taxes on income  
$
27.3
 
 
$
26.4
 
 
 
 
 
 
 
 
 
13

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     The Company's sales by product category are as follows:

 
Three Months Ended
(millions of dollars)
March 31,
2013
 
 
 
April 1,
2012
 
Paper PCC  
$
121.3
 
 
$
121.7
 
Specialty PCC  
 
16.8
 
 
 
16.4
 
Talc  
 
12.4
 
 
 
12.1
 
Ground Calcium Carbonate  
 
17.2
 
 
 
17.5
 
Refractory Products  
 
62.4
 
 
 
69.1
 
Metallurgical Products  
 
21.2
 
 
 
20.3
 
 
Net sales  
$
251.3
 
 
$
257.1
 
14


REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Shareholders
Minerals Technologies Inc.:

     We have reviewed the accompanying condensed consolidated balance sheet of Minerals Technologies Inc. and subsidiaries as of March 31, 2013, the related condensed consolidated statements of income and comprehensive income for the three-month periods ended March 31, 2013 and April 1, 2012, and the related condensed consolidated statements of cash flows for the three-month periods ended March 31, 2013 and April 1, 2012.  These condensed consolidated financial statements are the responsibility of the Company's management.

     We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

     Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

     We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Minerals Technologies Inc. and subsidiaries as of December 31, 2012, and the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2013, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2012 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


/s/ KPMG LLP



New York, New York
April 26, 2013



15


ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

 
Income and Expense Items
 as a Percentage of Net Sales
Three Months Ended
 
March 31, 2013
 
 
 
April 1, 2012
 
 
Net sales  
 
100.0
%
 
 
100.0
%
 
Cost of goods sold  
 
78.2
 
 
 
78.6
 
 
 
 
 
 
 
 
 
 
 
Production margin  
 
21.8
 
 
 
21.4
 
 
 
 
 
 
 
 
 
 
 
Marketing and administrative expenses  
 
9.1
 
 
 
8.9
 
 
Research and development expenses  
 
1.9
 
 
 
2.0
 
 
 
 
 
 
 
 
 
 
 
Income from operations  
 
10.8
 
 
 
10.5
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to MTI  
 
7.5
%
 
 
7.0
%
 
 
 
 
 
 
 
 
 
 

Executive Summary

    The Company reported earnings per share in the first quarter of 2013 of $0.53, an increase of 4% over $0.51 reported in the first quarter of 2012.  Net income increased 4% to $18.8 million as compared to $18.0 million in the prior year.  The results reflected continued solid financial performance.

     Worldwide sales for the first quarter of 2013 decreased 2% from the prior year to $251.3 million from $257.1 million.  Foreign exchange had an unfavorable impact on sales of approximately $2.0 million or one percentage point.

     The Company continued to advance the execution of its growth strategies of geographic expansion and new product innovation and development.  During the first quarter of 2013, we experienced volume growth of 8% in our Paper PCC operations in Asia as a result of three new satellites which began operations since the first quarter of last year.  Our agreement with United Steel Company B.S.C. (SULB), in Bahrain, which began operations in the third quarter of 2012, generated sales of $2.0 million in the first quarter of 2013.  We expect to generate between $8 million-$10 million per year of revenue over the 3 year term of the contract.  The Company continues to see progress in our major growth strategy of developing and commercializing new products as our FulFill® platform of technologies of higher filler loading resulted in three more commercial agreements, our first two agreements in North America and our first agreement in Brazil.  We presently have thirteen commercial contracts for FulFill®.  We expect the contribution of our FulFill® program to operating income between $2.5 million and $3.0 million in 2013.

     Income from operations grew 1% to $27.1 million in the first quarter of 2013 from $27.0 million in the first quarter of 2012. Our Specialty Minerals segment reported a first quarter record operating income of $22.2 million, a 12% increase over the prior year.  However, our Refractories segment continues to be affected by weak steel conditions in our two largest markets, North America and Europe.  Operating Income for this segment declined 24% to $6.9 million in the first quarter of 2013.  The Company achieved productivity improvements of 6% over the prior year due to our Operational Excellence programs.

     The Company's balance sheet as of March 31, 2013 continues to be very strong.  Cash, cash equivalents and short-term investments were approximately $470 million.  We have available lines of credit of $191 million and our debt to equity ratio was 10%.  Our cash flows from operations were approximately $25 million in the first quarter of 2013.

16

     We face some significant risks and challenges in the future:

·
The industries we serve, primarily paper, steel, construction and automotive, have been adversely affected by the uncertain global economic climate, primarily in Europe. Although these markets have stabilized, our global business could be adversely affected by further decreases in economic activity.  Our Refractories segment primarily serves the steel industry.  North America and Europe steel production in the first quarter of 2013 decreased approximately 5% from the prior year.  In the paper industry, which is served by our Paper PCC product line, first quarter 2013 production levels for printing and writing papers within North America and Europe, our two largest markets, both decreased 5% from the prior year.  Our Processed Minerals and Specialty PCC product lines are affected by the domestic building and construction markets and the automotive market all of which experienced growth.
·
Some of our customers may experience mill shutdowns due to further consolidations, or may face liquidity issues, or bankruptcy, which could deteriorate the aging of our accounts receivable, increase our bad debt exposure and possibly trigger impairment of assets or realignment of our businesses.
·
Consolidations and rationalizations in the paper and steel industries concentrate purchasing power in the hands of fewer customers, increasing pricing pressure on suppliers such as us.
·
Most of our Paper PCC sales are subject to long-term contracts that may be terminated pursuant to their terms, or may be renewed on terms less favorable to us.
·
We are subject to volatility in pricing and supply availability of our key raw materials used in our Paper PCC product line and Refractory product line.
·
We continue to rely on China for a portion of our supply of magnesium oxide in the Refractories segment, which may be subject to uncertainty in availability and cost.
·
Fluctuations in energy costs have an impact on all of our businesses.
·
Changes in the fair market value of our pension assets, rates of return on assets, and discount rates could continue to have a significant impact on our net periodic pension costs as well as our funding status.
·
As we expand our operations abroad we face the inherent risks of doing business in many foreign countries, including foreign exchange risk, import and export restrictions, and security concerns.
·
The Company's operations, particularly in the mining and environmental areas (discharges, emissions and greenhouse gases), are subject to regulation by federal, state and foreign authorities and may be subject to, and presumably will be required to comply with, additional laws, regulations and guidelines which may be adopted in the future.

     During the second quarter of 2011, M-real Corporation announced plans to divest its Alizay paper mill in France. Since that time, the mill has not been operating. In January 2013, Double A Paper Company announced it had acquired the Alizay mill.  We expect the paper mill to resume operations in the first half of 2013 and, while there can be no assurance, we expect to negotiate a contract and resume operations.  In 2011, sales from our Alizay satellite were approximately $7 million.

The Company has evaluated this facility for impairment of assets and, based upon the information currently available and probability-weighted cash flows of various potential outcomes, has determined that no impairment charge was required in the first quarter.
   The Company plans to discontinue its operations at its merchant PCC facility at Walsum, Germany in the second quarter.   The Company recorded an impairment charge related to Walsum in connection with the Company's 2007 restructuring of its European coating PCC operations, with this facility continuing to operate well below capacity levels. The Company anticipates that the residual closure costs of this facility will result in a second quarter charge of up to $6 million.
    
Outlook
 
     Looking forward, we remain cautious about the state of the global economy, particularly in Europe, and the impact it will have on our product lines.   

     In 2013, the Company will continue to focus on innovation and new product development and other opportunities for sales growth as follows:

·
Develop multiple high-filler technologies, such as filler-fiber, under the FulFillTM platform of products, to increase the fill rate in freesheet paper and continue to progress with commercial discussions and full-scale
 
17

paper machine trials.
·
Increase our sales of PCC for paper by further penetration of the markets for paper filling at both freesheet and groundwood mills, particularly in emerging markets.
·
Expand the Company's PCC coating product line using the satellite model.
·
Promote the Company's expertise in crystal engineering, especially in helping papermakers customize PCC morphologies for specific paper applications.
·
Expand PCC produced for paper filling applications by working with industry partners to develop new methods to increase the ratio of PCC for fiber substitutions.
·
Develop unique calcium carbonates and talc products used in the manufacture of novel biopolymers, a new market opportunity.
·
Deploy new talc and GCC products in paint, coating and packaging applications.
·
Deploy value-added formulations of refractory materials that not only reduce costs but improve performance.
·
Expand our solid core wire product line into BRIC, Middle Eastern and other Asian countries.
·
Deploy our laser measurement technologies into new applications.
·
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.
·
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 March 31, 2013 as compared with three months ended April 1, 2012

Sales

(millions of dollars)
 
 
First
Quarter
2013
 
% of Total
Sales
 
 
Growth
 
 
 
First
Quarter
2012
 
 
% of Total Sales
 
Net Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S                                                          
 
$
139.8
 
55.6
%
 
(4)
%
 
$
145.8
 
 
56.7
%
International                                                          
 
 
111.5
 
44.4
%
 
0
%
 
 
111.3
 
 
43.3
%
    
Net sales  
 
$
251.3
 
100.0
%
 
(2)
%
 
$
257.1
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Paper PCC                                                          
 
$
121.3
 
48.3
%
 
0
%
 
$
121.7
 
 
47.3
%
Specialty PCC                                                          
 
 
16.8
 
6.7
%
 
2
%
 
 
16.4
 
 
6.4
%
      
PCC Products  
 
$
138.1
 
55.0
%
 
0
%
 
$
138.1
 
 
53.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Talc                                                          
 
$
12.4
 
4.9
%
 
2
%
 
$
12.1
 
 
4.7
%
Ground Calcium Carbonate                                                          
 
 
17.2
 
6.8
%
 
(2)
%
 
 
17.5
 
 
6.8
%
     
Processed Minerals Products
 
$
29.6
 
11.7
%
 
0
%
 
$
29.6
 
 
11.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Specialty Minerals Segment  
 
$
167.7
 
66.7
%
 
0
%
 
$
167.7
 
 
65.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Refractory Products                                                          
 
$
62.4
 
24.8
%
 
(10)
%
 
$
69.1
 
 
26.9
%
Metallurgical Products                                                          
 
 
21.2
 
8.5
%
 
4
%
 
 
20.3
 
 
7.9
%
     
Refractories Segment  
 
$
83.6
 
33.3
%
 
(6)
%
 
$
89.4
 
 
34.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales  
 
$
251.3
 
100.0
%
 
(2)
%
 
$
257.1
 
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

     Worldwide net sales in the first quarter of 2013 decreased 2% from the previous year to $251.3 million from $257.1 million. Foreign exchange had an unfavorable impact on sales of approximately $2.0 million or one percentage point. Sales in the Specialty Minerals segment, which includes the PCC and Processed Minerals product lines, were flat at $167.7 million as compared with the prior year.  Sales in the Refractories segment decreased 6% to $83.6 million as compared with $89.4 million in the prior year.

18

     Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, were flat at $138.1 million as compared with the prior year.  Foreign exchange had an unfavorable impact on sales of $1.2 million or approximately one percentage point.  Paper PCC sales were down slightly at $121.3 million in the first quarter of 2013 compared to $121.7 million in the prior year.  Sales growth in Asia related to three new PCC satellites were offset by several paper mill and paper machine shutdowns in North America.  Sales of Specialty PCC increased 2% to $16.8 million from $16.4 million in the prior year.  This increase was primarily due to slightly higher volumes and increased pricing.

     Net sales of Processed Minerals products were flat at $29.6 million in the first quarter of 2013 as compared with the prior year.  Talc sales increased 2% to $12.4 million due primarily to higher pricing.

     Net sales in the Refractories segment in the first quarter of 2013 decreased 6% to $83.6 million from $89.4 million in the prior year.  Foreign exchange had an unfavorable impact on sales of approximately $0.8 million or one percentage point.  Sales of refractory products and systems to steel and other industrial applications decreased 10% to $62.4 million from $69.1 million in the prior year due to weak market conditions in North America and Europe, lower equipment sales, and lower sales to non-steel applications.  Sales of metallurgical products within the Refractories segment increased 4% to $21.2 million as compared with $20.3 million in the same period last year, primarily attributable to higher volumes in North America.

     Net sales in the United States decreased 4% to $139.8 million in the first quarter of 2013 from $145.8 million in the prior year.  International sales in the first quarter of 2013 were relatively flat at $111.5 million compared to $111.3 million.

Operating Costs and Expenses
(millions of dollars)
 
First
 Quarter
2013
 
 
First Quarter
2012
 
Growth
 
 
 
 
 
 
 
 
 
 
Cost of goods sold  
$
196.4
 
$
202.2
 
(3)
%
Marketing and administrative  
$
22.9
 
$
22.9
 
0
%
Research and development  
$
4.8
 
$
5.0
 
 (4)
%

     Cost of goods sold was 78.2% of sales compared with 78.6% of sales in the prior year.  Production margin remained flat at $54.9 million despite a 2% decrease in sales.  In the Specialty Minerals segment, production margin increased $2.2 million, or 6%, on the same level of sales.  This was primarily attributable to improved profitability in Asia of approximately $1.1 million, price increases, net of raw material cost increases, of $1.0 million, and continued productivity and cost improvements of $0.8 million.  This was partially offset by paper mill and paper machine shutdowns of $0.4 million and higher energy costs of $0.4 million.  In the Refractories segment, production margin decreased $2.2 million or 11%.  The decrease in margin was due to reduced Refractory volumes of $1.2 million, lower pricing, partially offset by a reduction in materials costs, of $0.4 million and lower equipment sales of $0.4 million.

     Marketing and administrative costs remained flat at $22.9 million and represented 9.1% of net sales as compared with 8.9% of net sales in the prior year.

     Research and development expenses decreased 4% to $4.8 million from $5.0 million in the prior year and represented 1.9% of net sales as compared with 2.0% of net sales in the prior year.  This decrease was primarily attributable to lower trial activity as compared with prior year.

Income from Operations
(millions of dollars)
 
First
Quarter
2013
 
 
First
Quarter
2012
 
Growth
 
 
 
 
 
 
 
 
 
 
Income from operations                                                                      
$
27.1
 
$
27.0
 
--
%

     The Company recorded income from operations of $27.1 million in the first quarter of 2013 as compared to $27.0 million in the prior year.  Income from operations represented 10.8% of sales in the first quarter of 2013 as compared with 10.5% of sales in the prior year.

19

     Income from operations for the Specialty Minerals segment increased 12% to $22.2 million from $19.9 million in the prior year and was 13.2% of net sales as compared with 11.9% in the first quarter of 2012. Operating income for the Refractories segment was $6.9 million, as compared to income from operations of $9.1 million in the prior year, and represented 8.3% net of sales as compared with 10.2% in the prior year.

Non-Operating Income (Deductions)
(millions of dollars)
 
First
Quarter
2013
 
 
 
First
Quarter
2012
 
 
Growth
 
 
 
 
 
 
 
 
 
 
 
Non-operating income (deductions), net
$
0.2
 
 
$
(0.6
)
 
*
%
* Percentage not meaningful

     In the first quarter of 2013, the Company recorded net non-operating income of $0.2 million as compared to net non-operating deductions of ($0.6) million in the prior year.  The change was primarily due to foreign exchange gains of $0.6 million in the current year compared with foreign exchange losses of ($0.4) million in the prior year.

Provision for Taxes on Income
 
(millions of dollars)
 
First
Quarter
2013
 
 
 
First
Quarter
2012
 
 
Growth
 
 
 
 
 
 
 
 
 
 
 
 
Provision for taxes on income                                                                      
$
7.7
 
 
$
7.8
 
 
(1)
%

     Provision for taxes on income during the first quarter of 2013 was $7.7 million as compared to $7.8 million during the first quarter of 2012.  The effective tax rate for the first quarter 2013 was 28.2% as compared to 29.5% for the first quarter of 2012.  The reduction in the effective tax rate was primarily due to the reinstatement of research and development tax credits from the American Taxpayer Relief Act of 2012.
  
Consolidated Net Income, net of tax
 
(millions of dollars)
 
First
Quarter
2013
 
 
 
First
Quarter
2012
 
 
Growth
 
Consolidated net income, net of tax
$
19.6
 
 
$
18.6
 
 
5
%

     The Company recorded consolidated net income, net of tax, of $19.6 million as compared with $18.6 million in the prior year.

Non-controlling Interests
 
(millions of dollars)
 
First
Quarter
2013
 
 
 
First
Quarter
2012
 
 
Growth
 
Non-controlling interests                                                                      
$
0.8
 
 
$
0.6
 
 
33
%

     The increase in the income attributable to non-controlling interests is due to higher profitability in our joint ventures.

Net Income attributable to MTI
 
(millions of dollars)
 
First
Quarter
2013
 
 
 
First
Quarter
2012
 
 
Growth
 
Net income attributable to MTI                                                                      
$
18.8
 
 
$
18.0
 
 
4
%

     Net income attributable to MTI was $18.8 million in the first quarter of 2013 as compared with income of $18.0 million in the prior year.  Diluted earnings per common share were $0.53 per share in the first quarter of 2013 as compared with $0.51 per share in the prior year.

Liquidity and Capital Resources

     Cash provided from operating activities in the first quarter 2013 was $24.7 million, the same level as the prior year.  Cash flows provided from operations in the first quarter of 2013 were principally used to fund capital expenditures, pay the Company's dividend to common shareholders and to repurchase shares.
 
 
20

     Working capital is defined as trade accounts receivable, trade accounts payable and inventories.  Working capital decreased approximately 1% from December 2012.  Total average days of working capital decreased to 55 days in the first quarter of 2013 from 59 days in the fourth quarter of 2012.  This decrease was primarily attributable to an increase in days payable outstanding.

     In 2011, 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 two-year period. As of March 31, 2013, 861,825 shares have been repurchased under this program for $40.1 million.
     
          The Company had $191 million in uncommitted short-term bank credit lines, of which $7.2 million were in use at March 31, 2013.  The credit lines are primarily in the US, with approximately $21 million or 11% outside the US.  The credit lines 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 requirement or local capital spending needs. We anticipate that capital expenditures for 2013 should be between $60 million and $75 million, principally related to the construction of PCC plants and other opportunities that meet our strategic growth objectives. We expect to meet our other long-term financing requirements from internally generated funds, uncommitted bank credit lines and, where appropriate, project financing of certain satellite plants.  The aggregate maturities of long-term debt are as follows:  remainder of  2013 - $77.0 million; 2014 - $8.5 million; 2015 - $-- million; 2016 - $-- million; 2017 - $-- million thereafter - $-- million.

     The Company's debt to capital ratio is 10.2%, which is below the only financial covenant ratio in its debt agreements.

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 affecting the expectations and forecasts are set forth under "Item 1A — Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, 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.
21

     The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.
     In June 2011, the FASB issued amendments to disclosure requirements for presentation of comprehensive income. This guidance, effective retrospectively for the interim and annual periods beginning on or after December 15, 2011 (early adoption was permitted), requires presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued an amendment to defer the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for annual and interim financial statements. The implementation of the amended accounting guidance has not had a material impact on our consolidated financial position or results of operations. In February 2013, the FASB issued amendments to disclosure requirements for presentation of comprehensive income. The standard requires presentation (either in a single note or parenthetically on the face of the financial statements) of the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety, a cross reference to the related footnote for additional information will be required. The amendments are effective prospectively for reporting periods beginning after December 15, 2012 (early adoption was permitted). The Company adopted this guidance effective January 1, 2013. The implementation of the amended accounting guidance did not have a material impact on our consolidated financial position or results of operations.
          In July 2012, the FASB issued amendments to the indefinite-lived intangible asset impairment guidance which provides an option for companies to use a qualitative approach to test indefinite-lived intangible assets for impairment if certain conditions are met. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012 (early adoption is permitted). The Company adopted this guidance effective January 1, 2013.  The Company does not have any indefinite-lived intangible assets; therefore, the implementation of the amended accounting guidance did not have any impact on our consolidated financial position or results of operations.
Critical Accounting Policies

     Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

     On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, valuation of inventories, valuation of long-lived assets, pension plan assumptions, stock-based compensation assumptions, income taxes, income tax valuation allowances and litigation and environmental liabilities.  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 can not readily be determined from other sources.  There can be no assurance that actual results will not differ from those estimates.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

     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.  Approximately 45% of our bank debt bears interest at variable rates; therefore our results of operations would only be affected by interest rate changes to such outstanding bank debt.  An immediate 10 percent change in interest rates would not have a material effect on our results of operations over the next fiscal year.     
 
22

     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.

     We had open forward exchange contracts to purchase approximately $1.9 million of foreign currencies as of March 31, 2013. The contracts mature between April 2013 and July 2013.  The fair value of these instruments at March 31, 2013 was a liability of less than $0.1 million.

     The Company has open foreign exchange contracts to sell 15 million Euros as a hedge of its net investment in Europe. These contracts mature in October 2013. The fair value of these instruments at March 31, 2013 was an asset of $4.1 million.
 
 
ITEM 4.  Controls and Procedures

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 the Company's disclosure controls and procedures were effective as of March 31, 2013.

Changes in Internal Control Over Financial Reporting
     
     There was no change in the Company's internal control over financial reporting during the quarter ended March 31, 2013  that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II.  OTHER INFORMATION

ITEM 1.  Legal Proceedings

Certain of the Company's subsidiaries are among numerous defendants in a number of cases seeking damages for exposure to silica or to asbestos containing materials.  The Company currently has 72 pending silica cases and 10 pending asbestos cases. To date, 1,394 silica cases and 33 asbestos cases have been dismissed. Four new asbestos cases were filed in the first quarter of 2013, and one was dismissed.  Most of these claims do not provide adequate information to assess their merits, the likelihood that the Company will be found liable, or the magnitude of such liability, if any.  Additional claims of this nature may be made against the Company or its subsidiaries.  At this time management anticipates that the amount of the Company's liability, if any, and the cost of defending such claims, will not have a material effect on its financial position or results of operations.

     The Company has not settled any silica or asbestos lawsuits to date.  We are unable to state an amount or range of amounts claimed in any of the lawsuits because state court pleading practices do not require identifying the amount of the claimed damage.  The aggregate cost to the Company for the legal defense of these cases since inception was approximately $0.2 million, the majority of which has been reimbursed by Pfizer Inc pursuant to the terms of certain agreements entered into in connection with the Company's initial public offering in 1992. Of the 10 pending asbestos cases, all allege liability based on products sold largely or entirely prior to the initial public offering, and for which the Company is therefore entitled to indemnification pursuant to such agreements. Our experience has been that the Company is not liable to plaintiffs in any of these lawsuits and the Company does not expect to pay any settlements or jury verdicts in these lawsuits.

Environmental Matters
        On April 9, 2003, the Connecticut Department of Environmental Protection issued an administrative consent order relating to our Canaan, Connecticut, plant where both our Refractories segment and Specialty Minerals
23

segment have operations. We agreed to the order, which includes provisions requiring investigation and remediation of contamination associated with historic use of polychlorinated biphenyls ("PCBs") and mercury at a portion of the site. We have completed the required investigations and submitted several reports characterizing the contamination. We are now conducting a site-specific risk assessment required by the regulators.
We believe that the most likely form of overall site remediation will be to leave the existing contamination in place (with some limited soil removal), encapsulate it, and monitor the effectiveness of the encapsulation. We anticipate that a substantial portion of the remediation cost will be borne by the United States based on its involvement at the site from 1942 – 1964, as historic documentation indicates that PCBs and mercury were first used at the facility at a time of U.S. government ownership for production of materials needed by the military. Though the cost of the likely remediation remains uncertain pending completion of the phased remediation decision process, we have estimated that the Company's share of the cost of the encapsulation and limited soil removal described above would approximate $0.4 million, which has been accrued as of March 31, 2013.
     The Company is evaluating options for upgrading the wastewater treatment facilities at its Adams, Massachusetts plant. This work has been undertaken pursuant to an administrative Consent Order originally issued by the Massachusetts Department of Environmental Protection ("DEP") on June 18, 2002. This order was amended on June 1, 2009 and on June 2, 2010.  The amended Order includes the investigation by January 1, 2022 of options for ensuring that the facility's wastewater treatment ponds will not result in unpermitted discharge to groundwater.  Additional requirements of the amendment include the submittal by July 1, 2022 of a plan for closure of a historic lime solids disposal area. Preliminary engineering reviews completed in 2005 indicate that the estimated cost of wastewater treatment upgrades to operate this facility beyond 2024 may be between $6 million and $8 million. The Company estimates that the remaining remediation costs would approximate $0.4 million, which has been accrued as of March 31, 2013.
     The Company and its subsidiaries are not party to any other material pending legal proceedings, other than routine litigation incidental to their businesses.
ITEM 1A.  Risk Factors
     There have been no material changes to our risk factors from those disclosed in our 2012 Annual Report on Form 10-K. For a description of Risk Factors, see Exhibit 99 attached to this report.

ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds

     Issuer Purchases of Equity Securities
 Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of the Publicly Announced Program
 
Dollar Value of Shares that May Yet be Purchased Under the Program
 
 
 
 
 
 
 
 
 
January 1 – January 27                                                                  
 
--
 
$
--
 
 
633,575
 
$
44,347,948
January 28 – February 24                                                                  
 
17,900
 
 
40.53
 
 
651,475
 
 
43,622.389
February 25 – March 31                                                                  
 
210,350
 
 
41.46
 
 
861,825
 
$
34,900,300
 
 
 
 
 
 
 
 
 
            Total                                                                  
 
228,250
 
$
41.39
 
 
 
 
 
 
     
     In 2011, 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 two-year period. As of March 31, 2013, 861,825 shares have been repurchased under this program for $40.1 million.

ITEM 3.  Default Upon Senior Securities

     Not applicable.

ITEM 4.  Mine Safety Disclosures
     The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Quarterly Report on Form 10-Q.
24

 
ITEM 5.  Other Information

     None
ITEM 6.  Exhibits

Exhibit No.
 
Exhibit Title
 
 
 
 
 
 
 
10.1
 
Third Amendment to Employment Agreement, dated February 21, 2013, by and between Joseph C. Muscari and the Company (incorporated by reference to the Exhibit 10.1 filed with the Company's Current Report on form 8-K filed on February 21, 2013)
10.2
 
Employment Agreement, dated February 4, 2013, between the Company and Robert S. Wetherbee (incorporated by reference to the Exhibit 10.1 filed with the Company's Current Report on form 8-K filed on March 4, 2013)
10.3
 
Form of Amendment to the Company's Standard Form of Severance Agreement (incorporated by reference to the Exhibit 10.1 filed with the Company's Current Report on form 8-K filed on March 25, 2013)
15
 
Letter Regarding Unaudited Interim Financial Information.
31.1
 
Rule 13a-14(a)/15d-14(a) Certification executed by the Company's principal executive officer.
31.2
 
Rule 13a-14(a)/15d-14(a) Certification executed by the Company's principal financial officer.
32
 
Section 1350 Certifications.
95
 
Information concerning Mine Safety Violations
99
 
Risk Factors
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase



25


SIGNATURE



          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


          Minerals Technologies Inc.
 
 
 
By:
/s/Douglas T. Dietrich
 
Douglas T. Dietrich
 
Senior Vice President-Finance and Treasury,
 
Chief Financial Officer
 
 (principal financial officer)





April 26, 2013


 

 
26

Exhibit Index

The following documents are filed as part of this report:


 
 
 
15
 
31.1
 
31.2
 
32
 
95
 
99
 
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase