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| MTX > SEC Filings for MTX > Form 10-Q on 31-Jul-2009 | All Recent SEC Filings |
31-Jul-2009
Quarterly Report
of Operations
Income and Expense Items
as a Percentage of Net Sales
Three Months Ended Six Months Ended
June
28, June 29, June 28, June 29,
2009 2008 2009 2008
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 84.5 79.2 84.3 78.7
Production margin 15.5 20.8 15.7 21.3
Marketing and administrative
expenses 10.8 8.9 10.3 9.1
Research and development expenses 2.1 2.0 2.2 2.1
Impairment of assets 18.0 -- 9.0 --
Restructuring and other costs 4.6 0.3 2.4 0.4
Income from operations (20.0 ) 9.6 (8.2 ) 9.7
Income from continuing operations (17.9 ) 6.2 (7.9 ) 6.1
Income (loss) from discontinued
operations (1.7 ) 1.6 (0.9 ) 0.9
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Net income (19.6 ) 7.8 % (8.8 ) 7.0 %
Executive Summary
In the second quarter of 2009, as a result of the continuation of the severe downturn in the worldwide steel industry, the Company initiated a restructuring program to improve efficiencies through the consolidation and rationalization of certain manufacturing operations and through the reduction of costs. As a result, the Company recorded an impairment of assets charge of $37.5 million and a restructuring charge of $9.6 million related to this realignment. The Company will reduce its current workforce by approximately 200 employees related to the plant consolidations as well as the streamlining of corporate and divisional management structures to operate more efficiently through the current economic environment. This realignment will allow the Company to better position itself strategically for improved profitability when the economy recovers. The major components of this realignment, which is primarily in the Refractories segment are as follows:
Americas Refractories
• The Company will consolidate its refractory operations at Old Bridge, New
Jersey into its facilities in Bryan, Ohio, and Baton Rouge, Louisiana,
thereby improving operating efficiencies and reducing logistics for key raw
materials. The Company recorded an impairment charge of $4.3 million for
this facility.
• The Company will rationalize its North American specialty shapes product
line and recorded an impairment charge of $1.5 million.
• The Company also recorded an impairment of assets charge of $3.7 million
for refractory application equipment as a result of underutilized assets at
customer locations under depressed volume conditions.
Asia Refractories
• The Company recorded impairment charges of $100 million for its Asian refractory operations as a result of continued difficulties in market penetration from its Chinese and other Asian manufacturing facilities. To take advantage of its strong technological capability in refractories, the Company will consolidate its Asian operations and actively seek a regional alliance to aid in the marketing of its high value products.
Europe Refractories
• The Company will rationalize some of its European operations and recorded
an impairment of assets charge of $2.2 million.
• The Company also recorded an impairment of assets charge of $3.3 million
for refractory application equipment as a result of underutilized assets
at customer locations under depressed volume conditions.
• The Company recorded an impairment of assets charge of $6.0 million for
certain intangible assets from its 2006 acquisition of a business in
Turkey.
North America Paper PCC
• In the Paper PCC business, the Company recorded an impairment of asset charge of $6.5 million relating to its satellite PCC facility in Millinocket, Maine. This facility has been idle since September 2008 when the host Paper Company indefinitely shut one of its paper machines due to rising operational costs. The potential for the startup of our satellite at this facility is unlikely.
Other Assets
• In addition, the Company recorded impairment charges of $5.6 million to recognize the lower market value of its Mt. Vernon, Indiana, operation, which has been held for sale since October of 2007 and is included in discontinued operations.
The Company continues to be affected by weak demand in the end markets we serve - primarily, steel, construction, automotive and paper, which has caused a significant drop in demand for our products. Volume declines in all product lines, under weak market conditions more than offset the benefits derived from our announced restructuring programs and overall expense reduction initiatives.
We continue to face uncertainty in the economic environment as a result of the worldwide recession. However, due to our strong balance sheet and cash flow, the Company believes it is in a strong position to manage through these difficult and uncertain times, particularly as the result of the restructuring initiatives undertaken in 2007 and 2008, coupled with the realignment of our operations in the second quarter of 2009.
We face some significant risks and challenges in the future:
• Our global business could continue to be adversely affected by a weak
economic environment. North American steel production is at its lowest levels
since the mid 1980's at an average of approximately 1.1 million tons per
week, approximately 50% of production levels experienced in the first three
quarters of 2008. In the Paper industry, production levels for printing and
writing papers within North America, our largest market, were down 23% as
compared with last year. Housing starts are at 24 year lows with the June
2009 annualized rate at 582,000 units, as compared to 2.1 million units in
2005. In the automotive industry, light vehicle sales in the U.S. were down
51% for the first six months of 2009 as compared to the first six months of
2008.
• The availability of credit in the financial markets could adversely affect
the ability of our customers and/or our suppliers to obtain financing.
• The industries we serve, primarily paper, steel, construction and automotive
have been adversely affected by the global economic climate. Some of our
customers may experience further consolidations and shutdowns or may face
increased liquidity issues, 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 in the paper and steel industries concentrate purchasing power
in the hands of fewer customers, increasing pricing pressure on the Company.
• 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.
The Company will continue to focus on innovation and new product development and other opportunities for continued growth as follows:
• Development of the filler-fiber composite program, which continues to undergo
large-scale paper machine trials, to increase the fill-rate for uncoated
freesheet paper.
• Increasing 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.
• Further growth of the Company's PCC coating product sales using the satellite
model.
• Leveraging the Company's expertise in crystal engineering, especially in
helping papermakers customize PCC morphologies for specific paper
applications.
• Development of unique calcium carbonates used in the manufacture of novel
biopolymers, a new market opportunity.
• Rapid deployment of value-added formulations of refractory materials that not
only reduce costs but improve performance.
• Continuing our penetration in emerging markets.
Results of Operations
Three months ended June 28, 2009 as compared with three months ended June 29, 2008.
Sales
(millions of dollars) Second Second % of
Quarter % of Total Quarter Total
Net Sales 2009 Sales Growth 2008 Sales
U.S $ 110.7 53.1 % (30) % $ 158.3 52.8 %
International 97.9 46.9 % (31) % 141.5 47.2 %
Net sales $ 208.6 100.0 % (30) % $ 299.8 100.0 %
Paper PCC $ 115.6 55.5 % (19) % $ 142.2 47.4 %
Specialty PCC 12.1 5.8 % (23) % 15.8 5.3 %
PCC Products $ 127.7 61.3 % (19) % $ 158.0 52.7 %
Talc $ 7.8 3.7 % (18) % $ 9.5 3.2 %
Ground Calcium Carbonate 16.5 7.9 % (24) % 21.6 7.2 %
Processed Minerals Products $ 24.3 11.6 % (22) % $ 31.1 10.4 %
Specialty Minerals Segment $ 152.0 72.9 % (20) % $ 189.1 63.1 %
Refractory Products $ 46.7 22.4 % (48) % $ 89.8 29.9 %
Metallurgical Products 9.9 4.8 % (53) % 20.9 7.0 %
Refractories Segment $ 56.6 27.1 % (49) % $ 110.7 36.9 %
Net sales $ 208.6 100.0 % (30) % $ 299.8 100.0 %
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Worldwide net sales in the second quarter of 2009 decreased 30% from the previous year to $208.6 million. Foreign exchange had an unfavorable impact on sales of approximately $16.2 million or 5 percentage points of decline. Sales in the Specialty Minerals segment, which includes the PCC and Processed Minerals product lines, decreased 20% to $152.0 million compared with $189.1 million for the same period in 2008. Sales in the Refractories segment declined 49% from the previous year to $56.6 million.
Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, decreased 19% in the second quarter to $127.7 million from $158.0 million in the prior year. Foreign exchange had an unfavorable impact on sales of $11.2 million or approximately 7 percentage points of decline. Paper PCC sales declined 19% to $115.6 million in the second quarter of 2009 from $142.2 million in the prior year. Approximately $9.7 million or 7 percentage points of decline was attributable to the effects of foreign exchange. Paper PCC volumes declined in all regions, but primarily in North America and Europe which accounted for $24.2 million of the decline. This was partially offset by higher prices in those regions of $7.3 million. Sales of Specialty PCC decreased 23% to $12.1 million from $15.8 million in the prior year. This decrease was primarily due to the effect of foreign exchange.
Net sales of Processed Minerals products decreased 22% in the second quarter to $24.3 million from $31.1 million in the second quarter of 2008. This decrease was primarily attributable to the continued weakness in the residential and commercial construction markets and the automotive market. Volumes declined 25% from prior year levels.
Net sales in the Refractories segment in the second quarter of 2009 decreased 49% to $56.6 million from $110.7 million in the prior year. Foreign exchange had an unfavorable impact on sales of $5.0 million or approximately 5 percentage points of decline. Sales of refractory products and systems to steel and other industrial applications decreased 48% to $46.7 million from $89.8 million. Sales of metallurgical products within the Refractories segment decreased 53 percent to $9.9 million as compared with $20.9 million in the same period last year. The declines in all product lines within this segment are driven by lower worldwide volumes as this segment has been severely affected by the downturn in the steel industry.
Net sales in the United States decreased 30% to $ 110.7 million in the second quarter of 2009. International sales in the second quarter of 2009 decreased 31% to $ 97.9 million, primarily due to lower worldwide volumes and the effects of foreign exchange.
Second Second
Operating Costs and Expenses Quarter Quarter
(millions of dollars) 2009 2008 Growth
Cost of goods sold $ 176.2 $ 237.5 (26) %
Marketing and administrative $ 22.6 $ 26.6 (15) %
Research and development $ 4.4 $ 6.0 (27) %
Impairment of assets 37.5 -- * %
Restructuring and other costs $ 9.6 $ 0.9 * %
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* Percentage not meaningful
Production margin decreased $29.9 million from the prior year. This reduction was attributable to lower volumes in all product lines related to the weak market conditions, and was approximately $26.4 million of the decline. Approximately $2.4 million was due to the effect of foreign exchange. In the Specialty Minerals segment, production margin decreased 26% or $9.7 million from the prior year. This was attributable to lower volumes of $9.9 million due to weak market conditions in both the PCC and Processed Minerals product line, and additional volume losses relating to permanent and temporary shutdowns in the Paper PCC product line. In the Refractories segment, production margin declined 80% or $20.1 million from the prior year. This was primarily attributable to volume decreases of approximately $18 million.
Marketing and administrative costs decreased in the second quarter to $22.6 million from $26.6 million in the prior year and represented 10.8% of net sales as compared with 8.9% of net sales in the prior year. This decline was due to the benefits derived from our restructuring program and as well as other cost savings initiatives.
Research and development expenses decreased 27% to $4.4 million and represented 2.1% of net sales as compared with 2.0% of net sales in the prior year.
In the third quarter of 2007, the Company initiated a plan to realign its business operations to improve profitability and increase shareholder value by exiting certain businesses and consolidating some product lines. As part of this program, the Company reduced its workforce by approximately 7 percent to better control operating expenses and improve efficiencies and recorded a pre-tax charge of $16.0 million for restructuring and other exit costs during the second half of 2007.
Restructuring costs incurred in the second quarter of 2009 and 2008 relating to the 2007 restructuring program were as follows:
Restructuring and other costs (2007 program):
Second Quarter Second Quarter
2009 2008
Severance and other employee benefits $ -- $ 0.9
Other exit costs -- --
$ -- $ 0.9
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The Company expects incremental annualized savings in 2009 of $2 million from this program over 2008. The total expected annualized savings in 2009 is approximately $13 million from this program and we realized savings of $11 million in 2008. Approximately $0.6 million and $2.2 million in severance payments were paid in the second quarter of 2009 and 2008, respectively. A restructuring liability of $2.8 million remains at June 28, 2009 and will be paid in 2009. Such amounts will be funded from operating cash flows.
In the fourth quarter of 2008, as a result of the worldwide economic downturn and the resulting impact on the Company's sales and operating profits, the Company initiated an additional restructuring program by reducing its workforce by approximately 14% through a combination of permanent reductions and temporary layoffs. The Company recorded a charge of $3.9 million associated with this program.
Restructuring costs incurred in the second quarter of 2009 relating to the 2008 restructuring program were as follows:
Restructuring and other costs (2008 program):
Second Quarter
2009
Severance and other employee benefits $ 0.6
Other exit costs 0.1
$ 0.7
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The Company expects annualized savings of between $6 million to $8 million as it relates to this program. The Company realized compensation and related expense savings of approximately $2.0 million in the second quarter of 2009 which was as expected. Approximately $1.9 million in severance payments was paid in the second quarter of 2009. The remaining liability of $0.9 million will be paid in 2009 from cash flow from operations.
In the second quarter of 2009, as a result of the continuation of the severe downturn in the worldwide steel industry, the Company initiated a restructuring program, primarily in the Refractories segment, to improve efficiencies through consolidation of manufacturing operations and reduction of costs. This realignment resulted in impairment of asset charges and restructuring charges in the second quarter of 2009 as follows:
Restructuring and other costs (2009 program):
Second
Quarter
(millions of dollars) 2009
Severance and other employee benefits $ 8.4
Contract termination costs 0.4
Other exit costs 0.1
$ 8.9
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The restructuring program will reduce the current workforce by approximately 200 employees worldwide. This reduction in force relates to plant consolidations as well as a streamlining of corporate and divisional management structures to operate more efficiently. The Company expects to realize annualized pre-tax cost savings of approximately $10 million upon completion of the program as a result of lower compensation and related expenses. The Company expects severance amounts to be paid in 2009. The payments will be funded from operating cash flows.
Impairment of asset charges:
Second Quarter
(millions of dollars) 2009
Americas Refractories 9.5
Europe Refractories 11.5
Asia Refractories 10.0
North America Paper PCC 6.5
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$ 37.5
The impairment of assets charge includes a write-down of $6.0 million for certain intangible assets related to our 2006 acquisition in Turkey.
Second Second
Income (Loss) from Operations Quarter Quarter
(millions of dollars) 2009 2008 Growth
Income (loss) from operations $ (41.6) $ 28.8 * %
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Loss from operations in the second quarter of 2009 was $41.6 million as compared with income from operations of $28.8 million in the prior year. Income from operations represented 9.6% of net sales in the second quarter of 2008.
Income from operations for the Specialty Minerals segment declined 79% to $4.3 million from $20.1 million in the prior year and was 2.9% of its net sales as compared with 10.6% in the second quarter of 2008. Loss from operations for the Refractories segment was $45.4 million as compared with income from operations of $8.9 million in the prior year.
Second Second
Non-Operating Deductions Quarter Quarter
(millions of dollars) 2009 2008 Growth
Non-operating deductions, net $ (3.5) $ (0.7) * %
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In the second quarter of 2009, net non-operating deductions increased to $3.5 million from $0.7 million in the prior year. Included in non-operating deductions is a $2.3 million foreign currency translation loss recognized upon the Company's liquidation of its plant in Gomez Palacio, Mexico.
Second Second
Provision (Benefit) for Taxes on Income Quarter Quarter
(millions of dollars) 2009 2008 Growth
Provision (benefit) for taxes on income $ (8.6) $ 8.7 * %
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Benefit for taxes on income during the second quarter of 2009 was $8.6 million as compared to a provision for taxes of $8.7 million during the second quarter of 2008. The effective tax rate for the second quarter of 2009 was 19% compared to 31% for the second quarter of 2008. This decrease primarily relates to the reduction in income taxes resulting from a change in the earnings in the foreign jurisdictions and the related foreign tax rates, the increase in the tax benefit of depletion as a percentage of the decreased earnings and the effect of the restructuring and impairments. The tax benefit on the restructuring and impairment of assets charge was $9.0 million or an effective tax benefit of 18.5% on such charge.
Second Second
Income (Loss) from Continuing Operations, net of tax Quarter Quarter
(millions of dollars) 2009 2008 Growth
Income (loss) from continuing operations, net of tax $ (36.5) $ 19.4 * %
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Loss from continuing operations was $36.5 million as compared with income from continuing operations of $19.4 million in the prior year.
Second Second
Income (Loss) from Discontinued Operations Quarter Quarter
(millions of dollars) 2009 2008 Growth
Income (loss) from discontinued operations $ (3.5) $ 4.6 * %
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* Percentage not meaningful
In the second quarter of 2009 the Company recognized a loss from discontinued operations of $ 3.5 million as compared with income of $4.6 million in the prior year. Included in loss from operations in the second quarter of
2009 are impairment of asset charges of $3.5 million, net of tax. The Company recorded an impairment of assets charge to reflect the lower market value of its Mt. Vernon, Indiana facility. Included in income from discontinued operations for 2008 is a gain of approximately $4.3 million, net of tax, for the sale of our idle Woodville and Chester facilities.
Second Second
Net Income (Loss) Attributable to MTI Quarter Quarter
(million of dollars) 2009 2008 Growth
Net income (loss) $ (40.9) $ 23.3 * %
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Net loss in the second quarter of 2009 was $40.9 million as compared with net income of $23.3 million in the prior year. Diluted loss per common share was $2.18 per share in the second quarter of 2009 as compared with earnings per share of $1.22 per share in the prior year.
Six months ended June 28, 2009 as compared with six months ended June 29, 2008
(millions of dollars) % of
First Half % of Total First Half Total
Net Sales 2009 Sales Growth 2008 Sales
U.S $ 222.8 53.4 % (28) % $ 306.8 53.1 %
International 194.1 46.6 % (28) % 270.5 46.9 %
Net sales $ 416.9 100.0 % (28) % $ 577.3 100.0 %
Paper PCC $ 228.2 54.7 % (19) % $ 280.0 48.5 %
Specialty PCC 22.6 5.4 % (27) % 31.1 5.4 %
PCC Products $ 250.8 60.1 % (19) % $ 311.1 53.9 %
. . .
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