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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 1-3295
MINERALS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1190717
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
The Chrysler Building
405 Lexington Avenue
New York, New York 10174-1901
(address of principal executive office) (Zip Code)
(212) 878-1800
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
----
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the voting stock held by
non-affiliates of the Registrant, based upon the closing price
at which the stock was sold as of February 25, 1997 was
approximately $518.4 million. Shares of common stock held by
each officer and director and by each person who owns 5% or
more of the outstanding common stock have been excluded in that
such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 3, 1997, the Registrant had outstanding
22,579,502 shares of common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated March 31, 1997 Part III
MINERALS TECHNOLOGIES INC.
1996 FORM 10-K ANNUAL REPORT
Table of Contents
Page
----
PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Executive Officers of the Registrant 11
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 18
PART III
Item 10. Directors and Executive Officers of the
Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial
Owners and Management 19
Item 13. Certain Relationships and Related
Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K 19
-------------------------------
Signatures 22
PART I
Item 1. Business
Minerals Technologies Inc. ("the Company") is a resource-
and technology-based company that develops, produces and
markets on a worldwide basis a broad range of specialty
mineral, mineral-based and synthetic mineral products. The
Company's principal products are: precipitated calcium
carbonate ("PCC"), used primarily by paper producers in the
alkaline papermaking process; monolithic and shaped refractory
materials, used primarily by the steel, cement and glass
industries; and natural mineral and mineral-based products,
used primarily in the building materials, steel, paints and
coatings, glass, ceramic, polymers, food and pharmaceutical
industries. The Company focuses on research and development.
The level of the Company's research and development spending as
well as its history of developing and introducing
technologically advanced new products has enabled the Company
to anticipate and satisfy changing customer requirements and
create new market opportunities through new product development
and product application innovations.
PCC PRODUCTS AND MARKETS
PCC Products.
Paper can be produced under either acid or alkaline
conditions. Historically, in North America, paper was primarily
produced using acid technologies. In the mid-1980's, North
American producers of uncoated wood-free paper encountered
significant increases in the cost of wood fiber and other
materials, such as titanium dioxide, which are necessary in
greater quantities in the acid process. In response, these
paper producers sought to convert their paper production to
lower cost alkaline-based technologies, which permit mineral
fillers to be substituted for more expensive wood fiber and
pigments used to increase brightness, resulting in significant
cost savings. As a result of these conditions, the Company
believed that a significant opportunity existed to provide
paper producers with a high performance filler product that
could facilitate the transition to the alkaline papermaking
process. The Company's four-year development effort culminated
in the construction of the first commercial satellite PCC plant
at the Wisconsin Rapids paper mill of Consolidated Papers, Inc.
in 1986. The Company believes the competitive advantages
offered by the improved economics and superior optical
characteristics of the paper produced using the PCC products
manufactured by the Company's satellite PCC plants resulted in
the rapid growth in the number of the Company's satellite PCC
plants among uncoated wood-free paper producers. The following
table shows the number of satellite PCC plants operated by the
Company at the end of the periods indicated. For information
with respect to the locations of the Company's satellite PCC
plants at December 31, 1996, see "Item 2--Properties" below.
Satellite PCC Plants
at End of Quarter
--------------------
Calendar Year First Second Third Fourth
------------- ----- ------ ----- ------
1992 25 25 26 29
1993 30 31 31 34
1994 36 36 36 36
1995 37 37 38 38
1996 41 42 43 44
In 1996, the Company commenced operations at six new
satellite PCC plants. Three of these satellite PCC plants are
in Brazil, one in Thailand, one in Israel and another in the
United States.
During 1996 the Company signed contracts to construct three
new satellite PCC plants. These satellite plants are located
in Slovakia, Indonesia and the United States.
-1-
The Company staffs, operates and maintains all of its
satellite PCC plants and owns the related technology used at
its satellite PCC plants. The Company and its paper mill
customers enter into long-term agreements, generally ten years
in length, pursuant to which the Company supplies substantially
all of a customer's precipitated calcium carbonate filler
requirements. The Company is generally permitted to sell to
third parties PCC produced at a satellite plant in excess of
the host paper mill's requirements. The Company's satellite PCC
customers are listed in Item 2--"Properties".
The Company currently manufactures several customized PCC
product forms through proprietary processes at its satellite
PCC plants, each designed to provide optimum brightness,
opacity, bulking and/or paper strength. While focusing on
expanding sales at its existing satellite PCC plants, the
Company's research and development and technical service staffs
have pioneered a number of ancillary new technologies. These
include acid-tolerant PCC, which allows PCC to be introduced to
the large wood-containing segment of the printing and writing
papers market, and production of PCC crystal morphologies for
coating paper. The Company expects that research and
development in coating technology will open up a larger market
for PCC that will build slowly as paper companies begin to
include PCC in their proprietary coating formulations.
The Company also produces a full range of slurry and dry PCC
products sold on a merchant basis. In the paper industry, the
Company's merchant PCC is used as a coating pigment and as a
filler in the production of coated and uncoated wood-free
printing and writing papers. The Company sells surface-treated
and untreated grades of PCC to the polymers industry for use in
rigid polyvinyl chloride products (pipe and profiles),
thermoset polyesters (automotive body parts), sealants
(automotive and construction applications), adhesives, printing
inks and coatings. The Company's PCC is used by the food and
pharmaceutical industries as a source of bio-available calcium
in tablets and foodstuffs, as a buffering agent in tablets, and
as a mild abrasive in toothpaste. The Company also sells PCC on
a merchant basis to the paints and coatings industry.
The Company's PCC product line net sales were $263.1
million, $226.6 million and $196.6 million for the years ended
December 31, 1996, 1995 and 1994, respectively. See "Item
7--Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Key Markets.
The principal market for the Company's satellite PCC
products is the paper industry. The Company also produces PCC
on a merchant basis for sale to companies in the polymers, food
and pharmaceutical and paints and coatings industries.
Sales of PCC to the paper industry have accounted for a
steadily increasing percentage of the Company's total sales in
the past five years, a trend the Company expects to continue.
The Company's sales of PCC have been and are expected to
continue to be made to the printing and writing papers segment
of the paper industry. The Company's products are currently
used primarily by paper mills producing uncoated wood-free
paper.
North American Wood-Free Printing and Writing Papers. In the
mid-1980's, North American producers of uncoated wood-free
paper encountered significant increases in the cost of wood
fiber and other materials. In response, these paper producers
sought to convert their paper production to lower cost
alkaline-based technologies, thereby resulting in significant
cost savings. Ground chalk has historically been used by
European alkaline-based paper producers as a low-cost
substitute for wood fiber. In North America, however, the use
of ground chalk is not practical as there is no naturally
occurring chalk.
PCC must compete with other fillers, such as ground
limestone and clay, on a cost-effective basis. PCC costs more
to produce than ground limestone or clay since the production
process is inherently more complex. Limestone is mined, crushed
and ground; clay is mined, ground and perhaps calcined. PCC is
manufactured via a chemical process which takes lime (which
itself is produced by calcining a mined product, limestone),
dissolves it, combines it with carbon dioxide and separates the
final product. Drying and transportation can add over $100 per
ton to the product cost. If shipped wet, additional freight
costs would be incurred. The Company believes that in many
cases this added cost makes PCC from merchant plants
non-cost-competitive with other fillers.
-2-
In response to these conditions and as a result of a
concentrated research and development effort, the Company
developed the satellite PCC plant concept. The Company's
satellite PCC plants have facilitated the conversion of a
substantial percentage of the North American uncoated wood-free
printing and writing paper producers to alkaline papermaking.
The Company estimates that during 1996, more than 80% of North
American wood-free paper was produced employing alkaline
technology.
The Company currently owns and operates 33 commercial
satellite PCC plants located at paper mills that produce
wood-free printing and writing papers in North America. Based
upon its experience, the Company anticipates that the aggregate
volume of PCC used by these 33 paper mills will increase. The
Company also estimates that approximately five additional North
American paper mills producing wood-free paper are both
suitable for conversion to the more economical, and in the
Company's view, more ecologically sound, alkaline method and
large enough to support a satellite PCC plant.
The Company is also placing increased emphasis on the use of
PCC to coat paper. PCC increases gloss and printability of the
sheet while decreasing paper's cost-per-ton. The coating
market is large and the Company believes it will continue to
grow at a higher average growth rate than the uncoated market,
and therefore provides a substantial market opportunity for the
Company. PCC coating products can be produced at satellite PCC
plants.
Worldwide Wood-Containing Printing and Writing Papers. To
date, the Company's PCC products have primarily been used in
wood-free alkaline papermaking processes. The wood-containing
segments of the paper industry still generally employ acid
papermaking technology. The conversion to alkaline technology
by these segments has been hampered by the phenomenon of
alkaline darkening, the tendency of wood-containing papers to
darken in an alkaline environment. In an attempt to introduce
PCC to the wood-containing segments of the paper industry, the
Company has developed and patented a process for the
manufacture of an acid-tolerant form of PCC (AT-PCC) that
provides enhanced brightness and opacity properties without the
undesirable darkening phenomenon. During 1996, the Company had
commercial sales of AT-PCC to several customers in different
parts of the world. The Company presently provides the
equivalent of one "satellite unit" of AT-PCC to these customers
from existing satellite PCC plants and its merchant plant in
Massachusetts. (A satellite unit is equivalent to annual
production capacity of between 25,000 and 35,000 tons of PCC.)
In February 1997, the Company's majority-owned joint venture
signed an agreement to construct its first on-site dedicated
acid-tolerant PCC plant at the Myllykoski Paper Oy paper mill
in Anjalankoski, Finland. The Company estimates the
wood-containing segment of the printing and writing papers
market on a worldwide basis represents more than half of the
worldwide paper market.
The Company believes PCC filler levels for uncoated
wood-containing paper generally will be less than those for
uncoated wood-free paper. There can be no assurance as to the
number of producers of wood-containing paper that will
contract with the Company to purchase AT-PCC.
International Wood-Free Printing and Writing Papers. The
Company estimates the production of uncoated wood-free printing
and writing papers outside of North America that can be served
by its satellite PCC operations is approximately the same size
(measured in tons of paper produced) as the North American
uncoated wood-free paper market currently served by the
Company. A number of factors have influenced the acceptance of
the Company's satellite PCC technology in foreign markets.
Although European wood-free paper producers predominantly use
alkaline papermaking processes, PCC is not in prevalent use in
this market. Ground chalk is readily available in Europe and
commonly used as a low-cost filler product in alkaline systems.
In addition, supplies of lime suitable for the manufacture of
PCC generally are not available at attractive prices. However,
the Company believes that the superior brightness and opacity
characteristics offered by its PCC products should allow it to
compete with suppliers of ground chalk and other filler
products in certain locations in this market. In Latin
America and Asia, ground chalk is not readily available, while
supplies of lime suitable for PCC production are generally
available at attractive prices.
-3-
REFRACTORY PRODUCTS AND MARKETS
Refractory Products.
The Company offers a broad range of monolithic refractory
products, as well as pre-cast monolithic refractory shapes and
insulating bricks. Product sales are usually combined with
Company-supplied proprietary applications equipment and on-site
technical services support. The Company's proprietary
applications equipment is used to apply refractory materials to
the walls of steel-making furnaces and other high temperature
vessels to maintain and extend their lives. Robotic-type
shooters, including the Company's proprietary SEQUAD(r)
sprayer, allow for remote-controlled applications in
steel-making furnaces, as well as in steel ladles and blast
furnaces. Since the steel-making industry is characterized
by intense price competition, which results
in a continuing emphasis by steel mills on increased
productivity, the SEQUAD(r) sprayer and the related
technologically advanced blast furnace maintenance
materials developed in the Company's research
laboratories have been well accepted by the Company's
customers. These products allow steel makers to improve their
performance through, among other things, the application of
monolithic refractories to furnace linings while the furnace is
at operating temperature, thereby eliminating the need for
furnace cool-down periods and steel-production interruption.
This also results in a lower overall refractory cost to steel
makers per ton of steel produced. The Company's experienced
technical service staff and advanced applications equipment
provide greater assurance that the desired productivity
objectives of customers are achieved. In addition, laser
measurement of refractory wear is conducted by the Company's
technicians in certain plants. The Company believes that these
services, together with its refractory product offerings,
provide the Company with a strategic marketing advantage.
The Company has patented a new technology in the refractory
product line. The KILNTEQ(r) refractory technology system is a
new concept for lining the interior of lime and cement kilns.
The KILNTEQ(r) system calls for lining the huge, tube-like
kilns with refractory material in a polygonal shape. This
shape, rather than the circular linings now generally used, is
believed to increase raw material throughput and to decrease
energy use. This technology was introduced to the marketplace
in the third quarter of 1996.
The Company's refractory products are sold in the following
three product groups:
Steel Furnace Refractories. The Company sells gunnable
monolithic refractory products to users of basic oxygen
furnaces and electric furnaces for application on furnace walls
to prolong the life of furnace linings.
Specialty Products for Iron and Steel. The Company sells
monolithic refractory materials and pre-cast refractory shapes
for iron and steel ladles, vacuum degassers, continuous casting
tundishes, blast furnaces and reheating furnaces. The Company
is one of the few monolithic refractory companies offering a
full line of materials to satisfy all continuous casting
refractory applications. This full line consists of gunnable,
sprayable, trowellable and vibratable materials as well as
refractory shapes and permanent linings.
The Company uses proprietary processes to produce a number
of products that are technologically enhanced. These include
calcium metal, metallurgical wire and a number of metal
treatment specialties. The Company manufactures calcium metal
at its Canaan, Connecticut, facility and purchases calcium in
international markets. Calcium metal is used in the
manufacture of batteries and magnets. The Company sells
metallurgical wires and fluxes for use in the production of
steel. The Company's metallurgical wires are injected into
molten steel to reduce imperfections. The steel produced is
used for high-pressure pipeline and other premium-grade steel
applications. The Company's fluxes are mineral products used to
help purify steel.
Non-Steel Refractory Products. This product line encompasses
refractory shapes and linings that are sold to the glass,
cement, aluminum, petrochemical and other non-steel industries.
-4-
The Company's refractory net sales were $192.2 million,
$202.5 million and $180.8 million for the years ended December
31, 1996, 1995 and 1994, respectively. See "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Key Markets.
The principal market for the Company's refractory products
is the steel industry. For the year ended December 31, 1996,
approximately 90% of the Company's sales of refractory products
was to the steel industry. Raw steel production on a worldwide
basis has shown only modest growth in the past ten years.
However, management believes that certain trends in the
steel-making industry will continue to provide growth opportunities
for the Company. These trends include the development of
improved manufacturing processes such as continuous casting,
the need of steel producers for increased productivity and
higher grade refractories as well as a modest shift toward
electric steel making.
The use of the continuous casting method, measured in tons
of steel cast on a worldwide basis, has more than doubled in
the past ten years. The need for high quality refractory
products for this process has generated new market
opportunities for the Company's refractory products. Product
offerings for continuous casting include advanced maintenance
coatings and original linings for tundishes and robotic
applications equipment. The Company believes that the trend
toward electric steel-making mini-mills and away from
integrated steel mills has facilitated the acceptance of new
refractory products and technologies. Mini-mills require a
broad line of refractory products and certain metallurgical
products that are also produced by the Company.
PROCESSED MINERAL PRODUCTS AND MARKETS
The Company mines and processes natural mineral products,
limestone and talc, and manufactures lime, a mineral-based
product. The Company also produces a number of
technology-based products, including pyrolytic graphite.
Over 60% of the Company's sales of limestone in 1996 were
filler-grade material, i.e., limestone having sufficient purity
and color to enable it to be utilized as a pigment and filler
in building materials, paints and coatings, polymers and joint
compounds.
Talc is mined, beneficiated and processed at the Company's
Barretts site, located near Dillon, Montana, and is sold
worldwide in finely ground form for paints and coatings,
ceramics and polymers applications. Because of the exceptional
chemical purity of the Barretts ore, virtually all of the
automotive catalytic converter ceramic substrates manufactured
in the United States, Japan and Western Europe utilize the
Company's Barretts talc.
Limestone and talc are mined, crushed, screened and
beneficiated and, on occasion, subjected to surface chemical
modification.
Lime, a mineral-based product, is sold commercially to the
steel and chemical industries and used as a raw material for
the manufacture of PCC at the Company's Adams, Massachusetts,
facility.
The Company's net sales of processed mineral products were
$100.7 million, $95.4 million and $95.2 million for the years
ended December 31, 1996, 1995 and 1994, respectively. See "Item
7--Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company's natural mineral products are supported by the
Company's limestone reserves, which the Company believes are
strategically located in the western, midwestern and eastern
parts of the United States, and talc reserves, which the
Company believes are of outstanding quality. The Company
estimates these reserves, at current usage levels, to be from
40 to over 70 years at its limestone production facilities and
in excess of 40 years at its talc production facilities.
-5-
MARKETING AND SALES
The Company principally relies on its worldwide direct sales
force to market its products. The direct sales force is
augmented by worldwide technical service teams, employees who
are familiar with the industries to which the Company markets
its products, and several regional distributors. The Company's
sales force works closely with the Company's technical service
staff to solve technical and other issues faced by the
Company's customers. The Company's technical service staff
assists North American paper producers in their conversion to
alkaline papermaking and provides post-conversion assistance to
customers. In addition, the Company's technical service
personnel advise with respect to the use of monolithic
refractory materials and, in many cases, apply the refractory
materials to the customers' furnaces and other vessels pursuant
to service agreements. Continued use of skilled technical
service teams is an important component of the Company's
business strategy.
The Company works closely with its customers to ensure that
the customers' requirements are satisfied and often trains and
supports customer personnel in the use of the Company's
products. The Company conducts domestic marketing and sales
from its headquarters in New York and from regional sales
offices in the eastern and western United States. The
Company's international marketing effort is directed from
Brussels, Belgium; Tokyo, Japan and Singapore. The Company
believes its refractory manufacturing facilities are
strategically located to satisfy the stringent delivery
requirements of the steel industry. The Company also believes
that its worldwide network of sales personnel and manufacturing
facilities will facilitate the international expansion of its
satellite PCC operations.
RAW MATERIALS
The Company uses lime in the production of PCC, and is a
significant purchaser of lime in North America. Generally,
lime is purchased from unaffiliated suppliers located in close
geographic proximity to the Company's satellite PCC plants,
pursuant to long-term contracts, and to a lesser extent,
supplied by the Company from its Adams, Massachusetts,
facility. In the Great Lakes region of the United States, a key
papermaking area, the availability of lime of a quality
suitable for the manufacture of PCC is limited. This led to the
Company's acquisition of the limestone reserves formerly
belonging to Inland Steel Company in Gulliver, Michigan. The
Company now ships selectively mined high-grade limestone to a
number of lime producers in the Great Lakes region which, as a
result, are now able to produce and supply to the Company lime
suitable for the manufacture of PCC. If there were to be an
interruption in the supply of lime from any particular lime
supplier to the Company, the Company believes that it would be
able to obtain suitable lime from alternate sources, but at an
increased cost (resulting primarily from increased
transportation costs). Pursuant to the Company's contracts with
its paper mill customers, this increased cost would be
effectively assumed by the host paper mills. Accordingly, the
Company believes that alternative sources of lime will be
available in the event of supply interruptions at effectively
the same cost to the Company. In Europe, supplies of lime
suitable for the manufacture of PCC are generally available but
not at prices that are as attractive as those prevailing in
North America.
The principal raw materials used in the Company's monolithic
refractories products are refractory-grade magnesia and various
forms of aluminosilicates. The Company also purchases calcium
metal, calcium silicide, graphite, calcium carbide and various
alloys for use in the production of metallurgical wires and
uses lime and aluminum in the production of calcium metal. The
Company purchases a significant portion of its magnesite
requirements from sources in the People's Republic of China.
During 1994, the Ministry of Foreign Trade and Economic
Cooperation of the People's Republic of China instituted a
system under which Chinese exporters must purchase, through
competitive bidding, licenses to export specified commodities,
including magnesia. The exporters holding such licenses
generally attempt to pass the cost of the license fee on to
their customers. This license fee was increased significantly
as of January 1995, resulting in turn in increased worldwide
prices for Chinese magnesia. The Company had initiated price
increases in refractory products and had located lower cost
alternative sources of supply of magnesia. However, the price
increases were not sufficient to fully offset the higher cost
of magnesia, and thus far alternative sources of supply of
magnesia have been limited. During the second half of 1996,
worldwide prices of Chinese magnesia have decreased from peak
prices and appear to have stabilized. See "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
-6-
Except as noted above, the Company believes that it could
obtain adequate supplies from alternate sources in the event of
supply interruptions of its raw material requirements.
COMPETITION
The Company is continually engaged in efforts to develop new
products and technologies and refine existing products and
technologies in order to remain competitive and, in certain
circumstances, to position itself as a market leader.
With respect to its PCC products, the Company competes for
sales to the paper industry based in large part upon
technological know-how, patents and processes that allow the
Company to deliver PCC that the Company believes imparts
superior brightness and opacity properties to paper on an
economical basis. The Company is the leading manufacturer and
supplier of PCC to the North American paper industry. It
competes with certain companies both in North America and
abroad that sell PCC or offer alternative products for use in
paper filling and coating applications. Competition with
respect to the Company's PCC sales is based upon price,
availability of materials and optical characteristics such as
brightness, opacity and paper strength.
With respect to the Company's refractory products,
competitive conditions vary by geographic region. Competition
is based upon price, the performance characteristics of the
product (including strength, quality and consistency and ease
of application) and the availability of technical support. The
Company competes with different companies in different
geographic areas and in separate aspects of its product line.
The Company competes in sales of its limestone and talc
based primarily upon product quality and the geographic
location of the purchaser.
RESEARCH AND DEVELOPMENT
Many of the Company's product lines are technology-based,
and the Company's business strategy for continued growth in
sales and profitability depends, to a large extent, on the
continued success of its research and development activities.
Among the significant achievements of the Company's research
and development effort have been the satellite PCC plant
concept, acid-tolerant PCC, production of PCC crystal
morphologies for coating paper and the SEQUAD(r) sprayer, the
KILNTEQ(r) system and numerous new refractory products.
The Company maintains research facilities in Bethlehem and
Easton, Pennsylvania, with more than 170 employees engaged in
research and development. Expertise in inorganic chemistry,
crystallography and structural analysis, fine particle
technology and other aspects of materials science applies to
and supports all of the Company's product lines.
For the years ended December 31, 1996, 1995 and 1994, the
Company expended approximately $19.7 million, $19.7 million
and $18.2 million, respectively, on research and development.
The Company believes, based upon its review of publicly
available information regarding the reported research and
development spending of certain of its competitors, that its
investment in research and development as a percentage of net
sales exceeds comparable industry norms by a substantial
margin. Based upon such review, the reported average research
and development spending by competitors equals approximately 2%
of net sales. The Company's research and development spending
for 1996 approximated 3.6% of net sales.
-7-
PATENTS AND TRADEMARKS
The Company owns or has the right to use approximately 341
patents and approximately 560 trademark registrations related
to its business. The Company believes that its rights under its
existing patents, patent applications and trademarks are of
value to its operations, but no one patent, application or
trademark is material to the conduct of the Company's business
as a whole.
INSURANCE
The Company maintains liability and property insurance and
insurance for business interruption in the event of damage to
its production facilities and certain other insurance covering
risks associated with its business. The Company believes such
insurance is adequate for the operation of its business. From
time to time various types of insurance for companies in the
specialty minerals business have been very expensive or, in
some cases, unavailable. Environmental impairment liability
insurance falls into this category. There is no assurance that
in the future the Company will be able to maintain the coverage
initially obtained or that the premiums therefore will not
increase substantially.
EMPLOYEES
At December 31, 1996, the Company employed approximately
2,250 persons, of whom approximately 600 were employed by the
Company outside the United States. The Company believes its
relationships with its employees are good.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company's operations are subject to federal, state,
local and foreign laws and regulations relating to the
environment and health and safety. Certain of the Company's
operations involve and have involved the use and release of
substances that are classified as toxic or hazardous substances
within the meaning of these laws and regulations. Environmental
operating permits are, or may be, required for certain of the
Company's operations and such permits are subject to
modification, renewal and revocation. The Company regularly
monitors and reviews its operations, procedures and policies
for compliance with these laws and regulations. The Company
believes its operations are in substantial compliance with
these laws and regulations and that there are no violations
which should have a material effect on the Company. Despite
these compliance efforts, some risk of environmental and other
damage is inherent in the operation of the business of the
Company, as it is with other companies engaged in similar
businesses, and there can be no assurance that material damage
will not occur in the future. The cost of compliance with these
laws and regulations is not expected to have a material adverse
effect on the Company. However, future events, such as changes
in or modifications of interpretations of existing laws and
regulations or enforcement policies or further investigation or
evaluation of the potential health hazards of certain products
may give rise to additional compliance and other costs that
could have a material adverse effect on the Company. The
Company has a right of indemnification for certain potential
environmental, health and safety liabilities under agreements
entered into between the Company and Pfizer Inc ("Pfizer") or
Quigley Company, Inc. ("Quigley''), a wholly-owned subsidiary
of Pfizer, in connection with the reorganization. See "Certain
Relationships and Related Transactions" in Item 13.
-8-
ITEM 2. PROPERTIES
Set forth below is the location of, and customer served by,
each of the Company's satellite PCC plants at December 31,
1996. Generally, the land on which each satellite PCC plant is
located is leased at a nominal amount by the Company from the
host paper mill pursuant to a lease, the term of which runs
concurrently with the term of the PCC production and sale
agreement between the Company and the host paper mill.
Location Customer
-------- --------
Alabama, Mobile International Paper Company
Alabama, Selma International Paper Company
Arkansas, Ashdown Georgia-Pacific Corporation
Brazil, Jacarei Votorantim Celulose e Papel
Brazil, Luiz Antonio Votorantim Celulose e Papel
Brazil, Suzano Cia Suzano de Papel e Celulose
California, Anderson Simpson Paper Company
Canada, Cornwall, Ontario Domtar Inc.
Canada, Dryden, Ontario Avenor Inc.
Canada, St. Jerome, Quebec Rolland Paper Inc.
Canada, Windsor, Quebec Domtar Inc.
Finland, Aanekoski(2) Metsa-Serla Group
Finland, Lappeenranta(1)(2) Enzo-Gutzeit Group
Finland, Tervakoski(2) Enzo-Gutzeit Group
France, Saillat Sur Vienne Aussedat Rey (a subsidiary of
International Paper Company)
Israel, Hadera American Israeli Paper
Mills, Ltd.
Kentucky, Wickliffe Westvaco Corporation
Louisiana, Port Hudson Georgia-Pacific Corporation
Maine, Jay International Paper Company
Mexico, Chihuahua Corporativo Copamex, S.A.
de C.V.
Michigan, Plainwell Simpson Plainwell Paper Company
(a division of Simpson Paper
Company)
Michigan, Quinnesec Champion International
Corporation
Minnesota, Cloquet Potlatch Corporation
Minnesota, International Falls Boise Cascade Corporation
New York, Oswego International Paper Company
New York, Ticonderoga International Paper Company
North Carolina, Plymouth Weyerhaeuser Company
Ohio, Chillicothe The Mead Corporation
Ohio, West Carrollton Appleton Papers Inc.
Pennsylvania, Erie International Paper Company
Pennsylvania, Lock Haven International Paper Company
Poland, Kwidzyn International Paper Company
Portugal, Figueira da Foz (2) Soporcel - Sociedade Portuguesa
de Celulose, S.A.
South Carolina, Eastover Union Camp Corporation
Tennessee, Kingsport Willamette Industries Inc.
Texas, Pasadena Simpson Pasadena Paper Company
(a division of Simpson Paper
Company)
Thailand, Tha Toom (2) Advance Agro Public Co. Ltd.
Virginia, Franklin Union Camp Corporation
Washington, Camas James River Corporation
Washington, Longview Weyerhaeuser Company
Washington, Wallula Boise Cascade Corporation
Wisconsin, Kimberly Repap Wisconsin Inc. (a
subsidiary of Repap
Enterprises Corp., Inc.)
Wisconsin, Park Falls Cross Pointe Paper Corporation
Wisconsin, Wisconsin Rapids Consolidated Papers, Inc.
(1) This PCC plant is not located on-site at the paper mill.
(2) These plants are owned through a joint venture.
-9-
The Company also owns six plants engaged in the mining,
processing and/or production of lime, limestone and talc and
directly or indirectly owns or leases approximately 15
refractory manufacturing facilities worldwide. The Company's
corporate headquarters, sales offices, research laboratories,
plants and other facilities are owned by the Company except as
otherwise noted. Set forth below is certain information
relating to the Company's plants and office and research
facilities.
Location Facility Product Line
-------- -------- ------------
United States
-------------
Arizona, Pima County Plant; Quarry Limestone
California, Los Angeles Sales Office(1) PCC, Lime,
Limestone, Talc
California, Lucerne Valley Plant; Quarry Limestone
Connecticut, Canaan Plant; Quarry Limestone,
Metallurgical
Wire/Calcium
Indiana, Highland Plant Monolithic
Refractories
Massachusetts, Adams Plant; Quarry Limestone,
Lime, PCC
Michigan, Gulliver Plant; Quarry Limestone
Montana, Dillon Plant; Quarry Talc
New Jersey, Old Bridge Plant Monolithic
Refractories/
Shapes
New York, New York Headquarters(1);
Sales Offices(1) All Company
Products
Ohio, Bryan Plant Monolithic
Refractories
Ohio, Dover Plant Refractories
Pennsylvania, Bethlehem Research
Laboratories; PCC, Lime,
Sales Offices Limestone, Talc,
Pyrolytic
Graphite
Pennsylvania, Easton Research
Laboratories; PCC, Lime,
Plant Limestone, Talc,
Pyrolytic
Graphite,
Refractories,
Metallurgical
Wire
Pennsylvania, Slippery Rock Plant Refractory Shapes
International
-------------
Australia, Carlingford Sales Office(1) Monolithic
Refractories
Belgium, Brussels Sales Office(1) Monolithic
Refractories/PCC
Brazil, Belo Horizonte Sales Office(1) Monolithic
Refractories
Brazil, Sao Paulo Sales Office(1) PCC
Brazil, Volta Redonda Sales Office(1) Monolithic
Refractories
Canada, Lachine Plant Refractory Shapes
China, Huzhou Plant(2) Monolithic
Refractories
Ireland, Cork Plant;
Sales Office(1) Monolithic
Refractories/
Metallurgical
Wire
Italy, Brescia Sales Office;
Plant Monolithic
Refractories/
Shapes
Japan, Gamagori Plant Monolithic
Refractories/
Shapes, Calcium
Japan, Tokyo Sales Office(1) Monolithic
Refractories/
Shapes, Calcium,
PCC, Talc
Mexico, Gomez Palacio Plant(1) Monolithic
Refractories
Singapore Sales Office(1) PCC
Spain, Santander Sales Office(1) Monolithic
Refractories
South Africa, Pietermaritzburg Plant Monolithic
Refractories
South Korea, Yangsan Plant(3) Monolithic
Refractories
South Korea, Seoul Sales Office(1) Monolithic
Refractories
United Kingdom, Rotherham Plant Monolithic
Refractories/
Shapes
(1) Leased by the Company. The facilities in Cork, Ireland are
operated pursuant to a 99-year lease, the term of which
commenced in 1963. The Company's headquarters and sales
offices in New York, New York are held under a lease which
expires in 2010.
(2) This plant is leased through a joint venture.
(3) This plant is owned through a joint venture.
-10-
The Company believes that its facilities, which are of
varying ages and are of different construction types, have been
satisfactorily maintained, are in good condition, are suitable
for the Company's operations and generally provide sufficient
capacity to meet the Company's production requirements. Based
on past loss experience, the Company believes it is adequately
insured in respect of these assets, and for liabilities which
are likely to arise from its operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit captioned Eaton
Corporation v. Pfizer Inc., Minerals Technologies Inc. and
Specialty Minerals Inc. pending in the U.S. District Court for
the Western District of Michigan. The suit alleges that
certain materials sold to Eaton for use in truck transmissions
were defective, necessitating repairs for which Eaton now seeks
reimbursement. The suit was filed on July 31, 1996. The
Company has evaluated the claims of this lawsuit to the extent
possible, believes the claims to be without merit, and intends
to contest them vigorously.
The Company and its subsidiaries are not party to any other
material pending legal proceedings, other than ordinary routine
litigation incidental to their business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of all Executive
Officers of the Registrant, as of December 31, 1996, indicating
all positions and offices with the Registrant held by each such
person, and each such person's principal occupations or
employment during the past five years.
Name Age Position
---- --- --------
Jean-Paul Valles 60 Chairman of the Board and Chief
Executive Officer
Paul R. Saueracker 55 Vice President of the Company and
President, Specialty Minerals Inc.
Anton Dulski 55 Vice President of the Company and
President, MINTEQ(r) International
Inc.(effective January 1, 1996)
S. Garrett Gray 58 Vice President, General Counsel
and Secretary
John R. Stack 60 Vice President, Finance and
Chief Financial Officer
Howard R. Crabtree 52 Vice President, Organization &
Human Resources
William A. Kromberg 51 Vice President, Taxes
Mario J. DiNapoli 61 Controller
Stephen E. Hluchan 55 Treasurer
Jean-Paul Valles, PhD., has served as Chairman of the Board
and a director of the Company since April 1989. He was elected
Chief Executive Officer in August 1992. Until the completion of
the initial public offering, Dr. Valles served as a
Vice-Chairman of Pfizer, a position he had held since March
1992. At Pfizer, Dr. Valles had been responsible for a number
of Pfizer's businesses, including, since 1989, the operations
that comprise the Company, and had served in a number of other
executive positions, including Executive Vice President from
1991 to 1992. Dr. Valles continues to serve as a director of
Pfizer. In addition, he is a member of the board of trustees of
the American Management Association, a director of Junior
Achievement of New York, Inc. and of The New York Chapter of
the French-American Chamber of Commerce in the U.S., Inc., and
a member of the American Economic Association and the Financial
Executives Institute.
-11-
Paul R. Saueracker has served as Vice President of the
Company and President of Specialty Minerals Inc. since February
1994. Prior to that time, he had been Executive Vice President
of Specialty Minerals Inc. since October 1993. Since 1989, he
served as Vice President of Marketing and Sales of Specialty
Minerals Inc. Mr. Saueracker is a former President of the
Pulverized Limestone Division of the National Stone Association
and a member of the Technical Association of the Pulp and Paper
Industry and the Paper Industry Management Association.
Anton Dulski was appointed President of Minteq International
Inc. effective January 1, 1996. Previously, he served as
Senior Vice President of Minteq with responsibility for
European operations from 1993 to 1995; as Vice President of
Minteq with responsibility for sales and marketing in Europe
from 1992 to 1993; and as President of the Minteq's operations
in Japan from 1984 to 1992.
S. Garrett Gray has served as Vice President and Secretary
of the Company since April 1989. In August 1992, Mr. Gray was
appointed General Counsel of the Company. Prior to August 1992,
Mr. Gray served as a member of the legal staff of Pfizer as
Assistant General Counsel, since 1989.
John R. Stack has served as Vice President-Finance and Chief
Financial Officer of the Company since August 1992. Prior to
that time, Mr. Stack was Vice President and Controller of the
operations that comprise Specialty Minerals Inc. and Barretts
Minerals Inc. from 1987 to August 1992.
Howard R. Crabtree was appointed Vice President-Organization
& Human Resources of the Company in January 1997, having served
as Vice President-Human Resources since August 1992. Prior to
joining the Company, he held a number of positions at Pfizer,
including: Vice President Personnel, Medical Devices from
January 1992 to August 1992.
William A. Kromberg has served as Vice President-Taxes of
the Company since February 1993. From May 1989 to that time,
he was Vice President-Taxes of Culbro Corporation, a
distributor and manufacturer of consumer and industrial
products.
Mario J. DiNapoli has served as Controller of the Company
since August 1992. He served as the Director of Finance of the
operations that comprise Specialty Minerals Inc. and Barretts
Minerals Inc. from January to August 1992.
Stephen E. Hluchan has served as Treasurer of the Company
since August 1992. Prior to that time, Mr. Hluchan held the
following positions for the operations that comprise Minteq:
Controller and Vice President, Planning from January 1992 to
August 1992; and Vice President, Strategic Planning and
Business Development, May 1989 to January 1992.
-12-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NYSE under the
symbol "MTX".
Information on market prices and dividends is set forth
below:
1996 Quarters First Second Third Fourth
------------- ----- ------ ------ ------
Market Price Range of Common Stock
High $37 3/4 $39 3/8 $40 $41 3/8
Low $30 1/4 $33 $34 1/8 $36 3/8
Close $34 5/8 $34 1/4 $36 5/8 $41
Dividends paid per
common share $ .025 $ .025 $ .025 $ .025
1995 Quarters
-------------
Market Price Range of Common Stock
High $32 1/2 $36 1/8 $38 1/4 $43 1/4
Low $27 1/4 $30 3/4 $34 5/8 $34
Close $32 1/4 $36 $37 5/8 $36 1/2
Dividends paid per
common share $ .025 $ .025 $ .025 $ .025
On March 3, 1997, the last reported sale price on the NYSE
was $37 1/4 per share. As of March 3, 1997, there were
approximately 323 holders of record of the common stock.
On January 23, 1997, the Company's Board of Directors
declared a quarterly dividend on its common stock of $.025 per
share in respect of the quarter ended December 31, 1996.
Subject to satisfactory financial results and declaration by
the Board, the Company currently intends to pay quarterly cash
dividends on its common stock of at least $.025 per share.
Although the Company believes its historical earnings indicate
that this dividend policy is appropriate, it will be reviewed
by the Board from time to time in light of the Company's
financial condition, results of operations, current and
anticipated capital requirements, contractual restrictions and
other factors deemed relevant by the Board. No dividend will be
payable unless declared by the Board and unless funds are
legally available for payment thereof.
-13-
ITEM 6. SELECTED FINANCIAL DATA
Thousands of 1996 1995 1994 1993 1992
Dollars, Except ------- ------- ------- ------- -------
Per Share Data
Income Statement Data:
Net sales $555,988 $524,451 $472,637 $428,313 $394,046
Cost of goods sold 396,345 375,655 335,327 302,810 285,350
Marketing,
distribution and
administrative
expenses 72,485 70,464 66,533 63,053 58,691
Research and
development expense 19,740 19,658 18,187 16,082 14,357
------- ------- ------- ------- -------
Income from
operations 67,418 58,674 52,590 46,368 35,648
Income before
cumulative effect
of accounting
change 43,097 39,529 33,346 28,973 24,216
Cumulative effect of
accounting change(A) -- -- -- -- 1,362
------- ------- ------- ------- -------
Net income $ 43,097 $ 39,529 $ 33,346 $ 28,973 $ 25,578
======= ======= ======= ======= =======
Earnings per share(B):
Income before
cumulative effect of
accounting change $ 1.91 $ 1.75 $ 1.48 $ 1.25 $ 0.97
Cumulative effect
of accounting
change(A) -- -- -- -- 0.05
------- ------- ------- ------ -------
Net income $ 1.91 $ 1.75 $ 1.48 $ 1.25 $ 1.02
======= ======= ======= ====== =======
Weighted average
shares
outstanding 22,621 22,633 22,603 23,186 25,000
Dividends declared
per common share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ --
------- ------- ------- ------- -------
Balance Sheet Data:
Working capital
(C)(D) $115,540 $ 86,746 $135,844 $112,238 $ 95,716
Total assets 713,861 649,144 588,124 549,160 496,528
Long-term debt 104,900 67,927 83,031 79,030 14,045
Total debt 130,239 95,817 83,031 79,030 16,761
Total shareholders'
equity(D)(E) 448,250 416,153 381,098 343,005 372,540
======= ======= ======= ======= =======
(A) Reflects adoption, as of January 1, 1992, of Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes".
(B) Assumes 25 million shares of Common Stock were issued and
outstanding for all periods presented prior to the initial
public offering.
(C) Includes amounts due to affiliated companies.
(D) In 1992, approximately $129 million of amounts due to
affiliated companies were converted into shareholders'
equity.
(E) In 1993, the Company purchased 2.5 million shares of
treasury stock.
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Income and Expense Items As a Percentage of Net Sales
Year Ended December 31, 1996 1995 1994
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 71.3 71.6 70.9
Marketing, distribution
and administrative expenses 13.0 13.4 14.1
Research and development expenses 3.6 3.8 3.9
----- ----- -----
Income from operations 12.1 11.2 11.1
Net income 7.8% 7.5% 7.1%
===== ===== =====
OVERVIEW OF 1996 AND OUTLOOK
In 1996, the Company adhered to its strategy of expanding
its precipitated calcium carbonate ("PCC") product line. The
Company commenced operations at six new satellite PCC plants.
Three of these satellite PCC plants are in Brazil, one in
Thailand, one in Israel and another in the United States.
Together, these plants have production capacity equivalent to
approximately twelve "satellite units." (A satellite unit is
equivalent to annual production capacity of between 25,000 and
35,000 tons of PCC.) The Company also expanded production
capacity at several satellite PCC plants at various locations
around the world in 1996. As a result, sales of PCC as a
percentage of the Company's total net sales, which were 37.4%
in 1992, had risen to 47.3% by 1996. The Company expects this
trend to continue as volume growth of PCC sales continues to
outpace growth in the processed minerals, formerly named other
minerals, and refractory product lines.
Presently, the Company is operating 44 satellite PCC plants,
including 33 in North America. The Company expects volume
growth to continue in 1997 as three new satellite PCC plants
are now under construction. These satellite PCC plants are
located in Slovakia, Indonesia and the United States and have
combined production capacity equivalent to approximately five
satellite units. The Company expects additional expansions at
existing satellite PCC plants to occur in 1997 and also expects
to sign contracts for additional satellite PCC plants in the
United States and abroad.
In 1997, the Company expects to continue its focus on the
following growth strategies for the PCC product line:
- Continued efforts to increase market penetration in North
America, Europe, Latin America, the Pacific Rim and
elsewhere.
- Continued expansions of the capacity of existing plants
in response to increased demand, resulting from increased
PCC filler levels in paper.
- Continued research and development and marketing efforts
of acid-tolerant PCC, coating PCC and other products.
However, there can be no assurance that the Company will
achieve success in implementing any one or more of these
strategies.
The Company's sales of PCC are predominantly pursuant to
long-term agreements, generally ten years in length, with paper
mills at which the Company operates satellite PCC plants. The
terms of many of these agreements have been extended, often in
connection with an expansion of the satellite PCC plant. To
date, the Company's experience with extensions and renewals of
its satellite PCC agreements has been favorable. There is no
assurance, however, that these contracts will be renewed prior
to their respective expiration dates.
The Company will continue to emphasize specialty products,
such as the KILNTEQ(r) system, in its refractory product line
and commercialize products, processes and equipment through
research and development efforts.
As the Company expands its operations overseas, it faces the
increased risks of doing business abroad, including exchange
rate fluctuations, nationalization, expropriation, limits on
repatriation of funds and other factors. In addition, the
Company's performance depends to some extent on that of the
industries it serves, particularly the paper, steel and
construction industries.
-15-
During 1994, the Ministry of Foreign Trade and Economic
Cooperation of the People's Republic of China instituted a
system under which Chinese exporters must purchase, through
competitive bidding, licenses to export specified commodities,
including magnesia, the principal raw material used in the
Company's refractory products. The exporters holding such
licenses generally attempted to pass the cost of the license
fee on to their customers. This license fee was increased
significantly as of January 1995, resulting in increased
worldwide prices for Chinese magnesia. The Company had
initiated price increases in refractory products and had
located lower cost alternative sources of supply of magnesia.
However, the price increases were not sufficient to fully
offset the higher cost of magnesia, and thus far alternative
sources of supply of magnesia have been limited. During the
second half of 1996, worldwide prices of Chinese magnesia have
decreased from peak prices and appear to have stabilized.
RESULTS OF OPERATIONS
Net Sales
In Millions 1996 Growth 1995 Growth 1994
----------- ------ ------ ------ ------ ------
Net sales $556.0 6.0% $524.5 11.0% $472.6
Worldwide net sales in 1996 increased 6% over the previous
year to $556.0 million. Higher volumes in the PCC and
processed minerals product lines were the primary contributors
to the sales growth. The stronger U.S. dollar had an
unfavorable impact of approximately $7 million on sales growth.
In 1995, worldwide net sales increased 11.0% over the prior
year to $524.5 million. This increase was primarily attributed
to growth in the PCC and refractory product lines.
Worldwide net sales of PCC in 1996 increased 16.1% to $263.1
million from $226.6 million in the prior year. This increase
was primarily attributed to the startup of six new satellite
PCC plants, significant growth from one satellite plant that
began operations in the third quarter of 1995 and expansion of
production capacity at several locations. PCC sales in 1995
increased 15.2% to $226.6 million from $196.6 million in 1994.
This increase was primarily attributed to the start of
operations at two new satellite plants during 1995 and several
expansions of production capacity at existing satellite PCC
plants.
Net sales of processed minerals increased 5.6% to $100.7
million in 1996. The sales growth was primarily attributable
to higher volumes. In 1995, processed mineral products net
sales rose slightly to $95.4 million. Sales growth was
tempered by a slowdown in the automotive and construction
industries in 1995.
Net sales of refractory products decreased 5.1% to $192.2
million from $202.5 million in 1995. However, profitability
increased significantly due to continued emphasis on higher
margin specialty products. The decrease in refractory products
sales was primarily attributable to volume declines and
unfavorable foreign exchange rates. In addition, in 1995, the
Company brought forward the financial close of certain
international subsidiaries to a current calendar month. This
resulted in an unfavorable impact on the 1996 sales growth.
In 1995, refractory product net sales increased 12.0%. Strong
volume growth in refractory products was driven by a vibrant
steel sector in North America and Europe for most of 1995,
partially offset by difficult conditions in Asia.
Net sales in the United States in 1996 increased 6.3% to
$383.0 million from $360.2 million in 1995. This increase was
attributed to the growth in the PCC and processed minerals
product lines. Foreign sales in 1996 increased 5.3% to $173.0
million. This increase was primarily attributed to the
overseas expansion of the Company's PCC product line, partially
offset by the aforementioned prior year's accounting lag
elimination. In 1995, net sales in the United States were
8.2% higher than in the prior year. Foreign sales in 1995 were
17.6% higher than in the prior year, primarily due to the
international expansion of the PCC product line and growth in
the refractory product line in Europe.
-16-
Operating Costs and Expenses
In Millions 1996 Growth 1995 Growth 1994
----------- ------ ------ ------ ------ ------
Cost of goods sold $396.3 5.5% $375.7 12.0% $335.3
Marketing, distribution
and administrative $ 72.5 2.9% 70.5 5.9% $ 66.5
Research and
development $ 19.7 0.4% $ 19.7 8.1% $ 18.2
Cost of goods sold was 71.3% of sales. This ratio was
slightly lower than the prior year and was primarily attributed
to improved profitability in the refractory product line.
Cost of goods sold in 1995 was 71.6% of sales which was higher
than the prior year. This was primarily attributable to the
substantial increase in the cost of magnesia, the principal
raw material used in the Company's refractory products.
Marketing, distribution and administrative costs increased
2.9% to $72.5 million and were 13.0% of sales, a slight
reduction from the 1995 ratio. In 1995, marketing,
distribution and administrative costs increased 5.9% to $70.5
million and were 13.4% of sales.
Research and development expenses during 1996 were $19.7
million representing 3.6% of sales, a slight reduction from the
1995 ratio. This reduction reflects a more efficient use of
resources due to the increasing worldwide infrastructure which
allows the Company to support trials and new plants at a lower
cost while continuing its commitment to research, particularly
in the PCC product line. In 1995, research and development
spending increased 8.1% to $19.7 million.
Income from Operations
In Millions 1996 Growth 1995 Growth 1994
----------- ------ ------ ------ ------ ------
Income from
operations $ 67.4 14.9% $ 58.7 11.6% $ 52.6
Income from operations in 1996 increased 14.9% to $67.4
million from $58.7 million in 1995. Strong operating earnings
growth was achieved through higher sales volumes in the PCC
product line, improved profitability in the refractory product
lines and an overall containment of costs and expenses.
Operating profits were impacted negatively by the higher cost
of magnesia and significant startup costs associated with the
six new satellite PCC plants. In 1995, income from operations
rose 11.6% to $58.7 million from $52.6 million. This growth
was achieved through higher sales volume in the PCC and
refractory product lines.
Non-Operating Deductions
In Millions 1996 Growth 1995 Growth 1994
----------- ------ ------ ------ ------ ------
Non-operating
deductions, net $(4.8) 615.5% $(0.7) (79.8)% $(3.3)
Interest expense increased in 1996 primarily as a result of
higher interest costs associated with additional borrowings.
Interest income and other income were significantly higher in
the prior year due to higher levels of cash-on-hand and a
non-recurring foreign exchange gain, respectively. In 1995,
non-operating deductions decreased as a result of foreign
exchange gains and higher capitalized interest costs associated
with the significant growth in capital spending.
Provision for Taxes on Income
In Millions 1996 Growth 1995 Growth 1994
----------- ------ ------ ------ ------ ------
Provision for taxes
on income $ 19.5 3.4% $ 18.9 16.5% $ 16.2
The effective tax rate was 31.1% in 1996. The reduction
from the prior year was primarily due to higher depletion and
utilization of foreign tax credits. In 1995, the effective
tax rate was 32.5%.
Net Income
In Millions 1996 Growth 1995 Growth 1994
----------- ------ ------ ------ ------ ------
Net income $ 43.1 9.0% $ 39.5 18.5% $ 33.3
Net income increased 9.0% in 1996 to $43.1 million. The
income from operations growth was reduced by a significant
increase in non-operating deductions. In 1995, net income
increased 18.5% to $39.5 million. Operating income growth was
leveraged by a significant reduction in non-operating
deductions, as discussed above.
-17-
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong during
1996. Cash flows in 1996 were provided principally from
operations and long-term financing, and were applied primarily
to fund $97.3 million of capital expenditures. In addition,
the Company remitted its initial required principal payment of
$13 million under the Company's Guarantied Senior Notes due
June 11, 2000. Cash provided from operating activities was the
primary source of liquidity and amounted to $69.9 million in
1996, $58.3 million in 1995 and $66.8 million in 1994.
On July 24, 1996, through a private placement, the Company
issued $50 million of 7.49% Guaranteed Senior Notes due July
24, 2006. The proceeds from the sale of the notes were used to
refinance a portion of the short-term commercial bank debt
outstanding. No required principal payments are due until July
24, 2006. Interest on the notes is payable semi-annually.
The Company had available approximately $120 million in
uncommitted, short-term bank credit lines of which $12.0
million and $13.5 million were in use at December 31, 1996 and
1995, respectively. The interest rates on these borrowings
were 6.93% and 6.20%, respectively at December 31, 1996 and
1995. The Company anticipates that capital expenditures for
1997 will be approximately $100 million, principally related to
the construction of satellite PCC plants and expansion projects
at existing satellite PCC plants and other opportunities which
meet the strategic growth objectives of the Company. The
Company expects to meet its long-term capital requirements from
internally generated funds, the aforementioned uncommitted bank
credit lines and, where appropriate, project financing of
certain satellite plants.
INFLATION
Historically, inflation has not had a material adverse
impact on the Company. The contracts pursuant to which the
Company constructs and operates its satellite PCC plants
generally adjust pricing to reflect increases in costs
resulting from inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in
Item 14 of Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's Board of Directors
required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
The information concerning the Company's Executive Officers
required by this Item is incorporated herein by reference to
the Section in Part I under the caption "Executive Officers of
the Registrant."
The information regarding compliance with Section 16(a) of
the Securities Exchange Act of 1934 required by this Item is
incorporated herein by reference to the Company's Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Company's Proxy Statement
under the caption "Compensation of Executive Officers,"
excluding the information under the captions "Performance
Graph" and "Report of the Compensation Committee on Executive
Compensation," is incorporated herein by reference.
-18-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information appearing under the caption "Security
Ownership of Certain Beneficial Owners and Management as of
February 25, 1997" set forth in the Company's Proxy Statement
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Certain
Relationships and Related Transactions" set forth in the
Company's Proxy Statement is incorporated herein by reference.
Under the terms of certain agreements entered into in
connection with the reorganization, Pfizer and its wholly-owned
subsidiary Quigley Company, Inc. ("Quigley") agreed to
indemnify the Company against certain liabilities being
retained by Pfizer and its subsidiaries including, but not
limited to, pending lawsuits and claims, and any lawsuits or
claims brought at any time in the future alleging damages or
injury from the use, handling of or exposure to any product
sold by Pfizer's specialty minerals business prior to the
closing of the initial public offering.
Pfizer and Quigley also agreed to indemnify the Company
against any liability arising from on-site remedial waste site
claims and for other claims that may be made in the future with
respect to wastes disposed of prior to the closing of the
initial public offering. Further, Pfizer and Quigley agreed to
indemnify the Company for 50% of the liabilities in excess of
$1 million up to $10 million that may arise or accrue within
ten years after the closing of the initial public offering with
respect to remediation of on-site conditions existing at the
time of the closing of the initial public offering. The Company
will be responsible for the first $1 million of such
liabilities, 50% of all such liabilities in excess of $1
million up to $10 million, and all such liabilities in excess
of $10 million. Further, Pfizer and Quigley agreed to indemnify
the Company for non-remedial environmental claims resulting
from activities or conditions occurring or existing prior to
the closing of the initial public offering that are in excess
of $10,000 and that are received within two years after the
closing of the initial public offering, exclusive of compliance
costs and consequential damages.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following Consolidated
Financial Statements of Minerals Technologies Inc.
and Independent Auditors' Report are set forth on
pages F-1 to F-19.
Consolidated Balance Sheet as of December 31, 1996
and 1995
Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statement of Shareholders' Equity for
the years ended December 31, 1996, 1995 and 1994
Notes to the Consolidated Financial Statement
Independent Auditors' Report
2. Financial Statement Schedule. The following financial
statement schedule is filed as part of this Report:
Page
----
Schedule II - Valuation and Qualifying Account S-1
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
-19-
3. Exhibits. The following exhibits are filed as part
of or incorporated by reference into this Report.
3.1 - Restated Certificate of Incorporation of the Company*
3.2 - Restated By-Laws of the Company*
3.3 - Certificate of Designations authorizing issuance and
establishing designations, preferences and rights of
Series A Junior Preferred Stock of the Company**
4.1 - Specimen Certificate of Common Stock**
10.1 - Asset Purchase Agreement, dated as of September 28,
1992, by and between Specialty Refractories Inc.
and Quigley Company Inc.*
10.1(a) - Agreement dated October 22, 1992 between Specialty
Refractories Inc. and Quigley Company Inc.,
amending Exhibit 10.1**
10.1(b) - Letter Agreement dated October 29, 1992 between
Specialty Refractories Inc. and Quigley Company
Inc., amending Exhibit 10.1**
10.2 - Reorganization Agreement, dated as of September 28,
1992, by and between the Company and Pfizer Inc*
10.2(a) - Letter Agreement dated October 29, 1992 between the
Company and Pfizer Inc, amending Exhibit 10.2**
10.3 - Asset Contribution Agreement, dated as of September
28, 1992, by and between Pfizer Inc and Specialty
Minerals Inc.*
10.4 - Asset Contribution Agreement, dated as of September
28, 1992, by and between Pfizer Inc and Barretts
Minerals Inc.*
10.4(a) - Agreement dated October 22, 1992 between Pfizer Inc,
Barretts Minerals Inc. and Specialty Minerals Inc.,
amending Exhibits 10.3 and 10.4**
10.8 - Company Nonfunded Deferred Compensation and Unit
Award Plan for Non-Employee Directors, as amended
January 25, 1996++++
10.9 - Company Employee Protection Plan, as amended August
25, 1994
10.10 - Form of Employment Agreement,* together with
schedule relating to executed Employment Agreements**
10.10(a)- Schedule relating to additional executed Employment
Agreement****
10.10(b)- Schedule relating to additional executed Employment
Agreements++++
10.11 - Form of Severance Agreement, together with schedule
relating to executed Severance Agreements
10.12 - Indenture, dated July 22, 1963, between the Cork
Harbour Commissioners and Roofchrome Limited*
10.13 - Rights Agreement, dated as of October 26, 1992,
by and between the Company and Chemical Bank, as
Rights Agent***
10.14 - Form of Stock Purchase Agreement between the Company
and Pfizer Inc. **
10.15 - Agreement of Lease, dated as of May 24, 1993, between
the Company and Cooke Properties Inc*****
10.16 - Note Purchase Agreement, dated as of June 28, 1993,
between the Company and Metropolitan Life Insurance
Company with respect to the Company's issuance of
$65,000,000 in aggregate principal amount of its
6.04% Guarantied Senior Notes Due June 11, 2000;
together with a schedule regarding other contracts
substantially identical in all material respects
to the foregoing*****
10.17 - Company Retirement Annuity Plan, as amended May 25,
1995++++
10.18 - Company Nonfunded Supplemental Retirement Plan, as
amended October 27, 1994+
10.19 - Company Savings and Investment Plan, as amended
December 19, 1994+
10.20 - Company Nonfunded Deferred Compensation and
Supplemental Savings Plan, as amended October 27,
1994+
10.21 - Grantor Trust Agreement, dated as of December 29,
1994, between the Company and The Bank of New York,
as Trustee+
10.22 - Company Stock and Incentive Plan, as amended and
restated as of May 25, 1995++
-20-
10.23 - Note Purchase Agreement, dated as of July 24, 1996,
between the Company and Metropolitan Life Insurance
Company with respect to the Company's issuance of
$50,000,000 in aggregate principal amount of its
7.49% Guaranteed Senior Notes due July 24, 2006 +++
11.1 - Schedule re: Computation of earnings per common
share.
21.1 - Subsidiaries of the Company
23.1 - Report and Consent of Independent Auditors
27 - Financial Data Schedule
* Incorporated by reference to the exhibit bearing the
same exhibit number filed with the Registrant's
Registration Statement on Form S-1 (Registration No.
33-51292), originally filed on August 25, 1992.
** Incorporated by reference to the exhibit bearing the
same exhibit number filed with the Registrant's
Registration Statement on Form S-1 (Registration No.
33-59510), originally filed on March 15, 1993.
*** Incorporated by reference to Exhibit 1 filed with the
Registrant's Current Report on Form 8-K, dated November
6, 1992.
**** Incorporated by reference to the exhibit bearing the
same exhibit number filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1993.
***** Incorporated by reference to Exhibit 10 filed with the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1993.
+ Incorporated by reference to the exhibit bearing the
same exhibit number filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994.
++ Incorporated by reference to Exhibit 4 filed with the
Registrant's Registration Statement on Form S-8
(Registration No. 33-96558), originally filed September
1, 1995.
+++ Incorporated by reference to Exhibit 10.1 filed with
the Registrant's Quarterly Report in Form 10-Q for the
quarter ended June 30, 1996.
++++ Incorporated by reference to the exhibit bearing
the same exhibit number filed with the Registrant's
Annual Report on Form 10K for the year ended December
31, 1995.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company
during the fourth quarter of 1996.
-21-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/Jean-Paul Valles
--------------------
Jean-Paul Valles
Chairman of the Board and
Chief Executive Officer
March 19, 1997
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
-------------------- --------------------- --------------
/s/Jean-Paul Valles
--------------------
Jean-Paul Valles Chairman of the Board March 19, 1997
and Chief Executive
Officer (principal
executive officer)
and Director
/s/John R. Stack
--------------------
John R. Stack Vice President-Finance March 19, 1997
and Chief Financial
Officer (principal
financial officer)
/s/Mario J. DiNapoli
--------------------
Mario J. DiNapoli Controller and Chief March 19, 1997
Accounting Officer
(principal accounting
officer)
-22-
/s/John B. Curcio
--------------------
John B. Curcio Director March 19, 1997
/s/Steven J. Golub
--------------------
Steven J. Golub Director March 19, 1997
/s/William L. Lurie
--------------------
William L. Lurie Director March 19, 1997
/s/Paul M. Meister
--------------------
Paul M. Meister Director March 19, 1997
/s/Michael F. Pasquale
--------------------
Michael F. Pasquale Director March 19, 1997
/s/William C. Steere, Jr.
--------------------
William C. Steere, Jr. Director March 19, 1997
-23-
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Audited Financial Statements:
Consolidated Balance Sheet as of
December 31, 1996 and 1995 F-2
Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1996, 1995
and 1994 F-5
Notes to Consolidated Financial Statements F-6
Independent Auditor's Report F-18
F-1
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(thousands of dollars)
December 31, 1996 1995
------------ ------- -------
Assets
Current assets:
Cash and cash equivalents $ 15,446 $ 11,318
Accounts receivable, less allowance
for doubtful accounts: 1996--$2,497;
1995--$3,088 102,494 100,473
Inventories 70,438 64,637
Other current assets 13,902 5,997
------- -------
Total current assets 202,280 182,425
Property, plant and equipment, less
accumulated depreciation and depletion 501,067 455,809
Other assets and deferred charges 10,514 10,910
------- -------
Total assets $713,861 $649,144
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 12,339 $ 14,890
Current maturities of long-term debt 13,000 13,000
Accounts payable 29,223 30,405
Income taxes payable 6,609 6,697
Accrued compensation and related items 12,673 16,572
Other current liabilities 12,896 14,115
------- -------
Total current liabilities 86,740 95,679
Long-term debt 104,900 67,927
Accrued postretirement benefits 20,047 20,230
Deferred taxes on income 39,238 37,064
Other noncurrent liabilities 10,052 9,922
Minority interests 4,634 2,169
------- -------
Total liabilities 265,611 232,991
------- -------
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, without par value;
1,000,000 shares authorized; none issued -- --
Common stock at par, $0.10 par value;
100,000,000 shares authorized; issued
25,259,876 shares in 1996 and
25,153,015 shares in 1995 2,526 2,515
Additional paid-in capital 135,676 133,221
Retained earnings 364,210 323,375
Currency translation adjustment 11,560 16,931
Unrealized holding gains 163 111
------- -------
514,135 476,153
Less common stock held in treasury,
at cost; 2,660,017 shares in 1996 and
2,500,000 shares in 1995 65,885 60,000
------- -------
Total shareholders' equity 448,250 416,153
Total liabilities and shareholders'
equity $713,861 $649,144
======= =======
See Notes to Consolidated Financial Statements which are an
integral part of these statements.
F-2
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(thousands of dollars, except per share data)
Year ended December 31,
-----------------------
1996 1995 1994
------- ------- -------
Net sales $555,988 $524,451 $472,637
Operating costs and expenses:
Cost of goods sold 396,345 375,655 335,327
Marketing, distribution and
administrative expenses 72,485 70,464 66,533
Research and development
expenses 19,740 19,658 18,187
------- ------- -------
Income from operations 67,418 58,674 52,590
------- ------- -------
Interest income 966 1,984 1,951
Interest expense (5,899) (3,467) (4,789)
Other income 916 1,868 266
Other deductions (777) (1,055) (748)
------- ------- -------
Non-operating deductions, net (4,794) (670) (3,320)
------- ------- -------
Income before provision
for taxes on income and
minority interests 62,624 58,004 49,270
Provision for taxes on income 19,488 18,850 16,180
Minority interests 39 (375) (256)
------- ------- -------
Net income $ 43,097 $ 39,529 $ 33,346
Earnings per common share $ 1.91 $ 1.75 $ 1.48
See Notes to Consolidated Financial Statements which are an
integral part of these statements.
F-3
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(thousands of dollars)
Year ended December 31,
-----------------------
1996 1995 1994
------- ------- -------
Operating Activities
Net income $ 43,097 $ 39,529 $ 33,346
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation, depletion
and amortization 46,183 40,330 35,800
Loss on disposal of property,
plant and equipment 786 243 946
Deferred income taxes 3,361 5,925 3,430
Other (1,500) (1,818) (448)
Changes in operating assets
and liabilities:
Accounts receivable (4,699) (9,406) (875)
Inventories (6,977) (20,505) 2,470
Other current assets (7,672) (2,807) 575
Accounts payable and
accrued liabilities (2,744) 2,591 (3,468)
Income taxes payable (269) 3,182 (2,395)
Other 382 999 (2,532)
------- ------- -------
Net cash provided by
operating activities 69,948 58,263 66,849
------- ------- -------
Investing Activities
Purchases of property,
plant and equipment (97,308) (115,051) (51,643)
Proceeds from disposal of
property, plant and equipment 1,073 1,003 830
Other -- -- (1,100)
------- ------- -------
Net cash used in
investing activities (96,235) (114,048) (51,913)
Financing Activities
Proceeds from issuance of
short-term and long-term debt 111,659 14,890 4,000
Repayment of short-term
and long-term debt (77,237) (2,100) --
Purchase of common shares
for treasury (5,885) -- --
Cash dividends paid (2,262) (2,264) (2,260)
Proceeds from issuance of
stock under stock option plan 2,466 711 144
Proceeds from minority interests 2,500 816 --
------- ------- -------
Net cash provided by financing
activities 31,241 12,053 1,884
------- ------- -------
Effect of exchange rate changes
on cash and cash equivalents (826) (1,190) 1,312
------- ------- -------
Net increase (decrease) in cash
and cash equivalents 4,128 (44,922) 18,132
Cash and cash equivalents at
beginning of year 11,318 56,240 38,108
------- ------- -------
Cash and cash equivalents at
end of year $ 15,446 $ 11,318 $ 56,240
======= ======= =======
See Notes to Consolidated Financial Statements which are an
integral part of these statements.
F-4
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS'EQUITY
(In thousands)
Additional Currency Unrealized
Common Stock Paid-in Retained Translation Holdings Treasury Stock
Shares Par Value Capital Earnings Adjustment Gains Shares Cost Total
------ --------- ------- -------- ----------- ------- ------ ------- ------
Balance
as of
January
1, 1994 25,084 $2,508 $131,446 $255,024 $14,027 $-- (2,500) $60,000) $343,005
Net income -- -- -- 33,346 -- -- -- -- 33,346
Dividends
declared -- -- -- (2,260) -- -- -- -- (2,260)
Employee
benefit
trans-
actions 26 3 688 -- -- -- -- -- 691
Currency
translation
adjustment -- -- -- -- 6,195 -- -- -- 6,195
Unrealized
holding gains,
net -- -- -- -- -- 121 -- -- 121
------ ------ ------- ------- ------- ------ ----- ------ -------
Balance as
of December
31, 1994 25,110 2,511 132,134 286,110 20,222 121 (2,500) (60,000) 381,098
Net income -- -- -- 39,529 -- -- -- -- 39,529
Dividends
declared -- -- -- (2,264) -- -- -- -- (2,264)
Employee
benefit
trans-
actions 43 4 1,087 -- -- -- -- -- 1,091
Currency
translation
adjustment -- -- -- -- (3,291) -- -- -- (3,291)
Unrealized
holding
losses,
net -- -- -- -- -- (10) -- -- (10)
------ ------ ------- ------- ------- ------ ----- ------ -------
Balance
as of
December
31, 1995 25,153 2,515 133,221 323,375 16,931 111 (2,500) (60,000) 416,153
Net
income -- -- -- 43,097 -- -- -- -- 43,097
Dividends
declared -- -- -- (2,262) -- -- -- -- (2,262)
Employee
benefit
trans-
actions 107 11 2,455 -- -- -- -- -- 2,466
Currency
translation
adjustment -- -- -- -- (5,371) -- -- -- (5,371)
Purchase of
common stock -- -- -- -- -- -- (160) (5,885) (5,885)
Unrealized
holding gains,
net -- -- -- -- -- 52 -- -- 52
------ ------ ------- ------- ------- ------ ----- ------ -------
Balance
as of
December
31, 1996 25,260 $2,526 $135,676 $364,210 $11,560 $163 (2,660) $(65,885) $448,250
====== ===== ======= ======= ====== === ===== ====== =======
See Notes to Consolidated Financial Statements which are an
integral part of these statements.
F-5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include
the accounts of Minerals Technologies Inc. (the "Company") and
its wholly and majority owned subsidiaries. All intercompany
balances and transactions have been eliminated in
consolidation.
Use of Estimates
The Company employs accounting policies that are in
accordance with generally accepted accounting principles in the
United States and require management to make estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent liabilities at the date of the
financial statements. Actual results could differ from those
estimates.
Business
The Company is a resource - and technology-based company
that develops, produces and markets on a worldwide basis a
broad range of specialty mineral, mineral-based and synthetic
mineral products. The Company's products are used in
manufacturing processes of the paper and steel industries, as
well as by the building materials, polymers, ceramics, paints
and coatings, glass and other manufacturing industries.
Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less at the date of purchase to
be cash equivalents. Cash equivalents amounted to $6.0 million
and $6.5 million at December 31, 1996 and 1995, respectively.
Inventories
Inventories are valued at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost.
Significant improvements are capitalized. In general, the
straight line method of depreciation is used for financial
reporting purposes and accelerated methods are used for U.S.
and certain foreign tax reporting purposes. The annual rates
of depreciation are 4%-5% for buildings, 8%-12% for machinery
and equipment and 8%-12% for furniture and fixtures.
Depletion of the mineral and quarry properties is provided
on a unit-of-extraction basis as the related materials are
mined for financial reporting purposes and on a percentage
depletion basis for tax purposes.
Mining costs associated with waste gravel and rock removal
in excess of the expected average life of mine stripping ratio
are deferred. These costs are charged to production on a
unit-of-production basis when the ratio of waste to ore mined is
less than the average life of mine stripping ratio.
Long -Lived Assets
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). This
statement requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of an asset may
not be recoverable. This statement also requires that
long-lived assets and certain intangible assets to be disposed of
be reported at the lower of their carrying amount or fair value
less costs to sell. The adoption of this statement had no
material effect on the financial statements of the Company.
Foreign Currency
The assets and liabilities of most of the Company's
international subsidiaries are translated into U.S. dollars
using current exchange rates at the respective balance sheet
date. Income statement items are generally translated at
average exchange rates prevailing during the period. The
resulting translation adjustments are recorded in the currency
translation adjustment account in shareholders' equity. Other
foreign currency gains and losses are included in net income.
International subsidiaries operating in highly inflationary
economies translate non-monetary assets at historical rates,
while net monetary assets are translated at current rates, with
the resulting translation adjustments included in net income.
F-6
Income Taxes
Income taxes are provided for based on the asset and
liability method of accounting pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax assets and
liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
The accompanying financial statements generally do not
include a provision for U.S. income taxes on international
subsidiaries' unremitted earnings which, for the most part, are
expected to be reinvested overseas.
Stock Based Compensation
The Company has adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation"
("SFAS 123"), which requires expanded disclosures of stock-based
compensation arrangements with employees. SFAS No. 123
establishes an alternative method of accounting for stock-based
compensation awarded to employees which provides for the
recognition of compensation cost to be measured based on the
fair value of the equity instrument awarded. The Company,
however, has elected to continue to recognize compensation cost
based on the intrinsic value of the equity instrument awarded
as promulgated in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has
disclosed below under "Capital Stock -- Stock and Incentive
Plan" the pro forma effect of the fair value method on net
income and earnings per share.
Postretirement Benefits
The Company accrues the cost of postretirement benefits
during the employee's active working career as required by
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits other than
Pensions" ("SFAS 106").
Earnings Per Common Share
Earnings per common share are based upon the weighted
average number of common shares outstanding during the period.
The incremental impact of common stock equivalents was not
material and, accordingly, were not considered in the
calculation of earnings per common share.
Income Taxes
Income before provision for taxes on income, by domestic and
foreign source is as follows:
Thousands of Dollars 1996 1995 1994
------- ------- -------
Domestic $ 47,410 $ 42,799 $ 39,745
Foreign 15,214 15,205 9,525
------- ------- -------
Total income before provision
for taxes on income $ 62,624 $ 58,004 $ 49,270
======= ======= =======
The provision for taxes on income consists of the following:
Thousands of Dollars 1996 1995 1994
------- ------- -------
Domestic
Taxes currently payable
Federal $ 7,845 $ 6,455 $ 5,658
State and local 3,593 2,044 1,987
Deferred income taxes 3,291 5,746 3,985
------- ------- -------
Domestic tax provision 14,729 14,245 11,630
------- ------- -------
Foreign
Taxes currently payable 4,689 4,426 5,105
Deferred income taxes 70 179 (555)
------- ------- -------
Foreign tax provision 4,759 4,605 4,550
------- ------- -------
Total tax provision $ 19,488 $ 18,850 $ 16,180
======= ======= =======
F-7
The provision for taxes on income shown in the previous
table is classified based on the location of the taxing
authority, regardless of the location in which the taxable
income is generated.
The major elements contributing to the difference between
the U.S. federal statutory tax rate and the consolidated
effective tax rate are as follows:
Percentages 1996 1995 1994
------- ------- -------
U.S. statutory tax rate 35.0% 35.0% 35.0%
Depletion (5.5) (4.7) (6.1)
Difference between tax provided
on foreign earnings and the U.S.
statutory rate (0.9) (1.2) 2.4
State and local taxes 3.9 3.5 4.2
Tax credits (2.4) ( 0.3) (2.0)
Other 1.0 0.2 (0.7)
------- ------- -------
Consolidated effective tax rate 31.1% 32.5% 32.8%
======= ======= =======
The Company believes that its accrued liabilities are
sufficient to cover its U.S. and foreign tax contingencies.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities are presented below:
Thousands of Dollars 1996 1995
------- -------
Deferred tax assets:
Pension and postretirement
benefits cost reported for
financial statement purposes
in excess of amounts deductible
for tax purposes $ 8,775 $ 9,191
State and local taxes 2,650 2,708
Tax credits -- 912
Accrued expenses 2,684 2,414
Alternative minimum tax 8,324 10,043
Other 1,818 2,067
------- -------
Total deferred tax assets 24,251 27,335
------- -------
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation 61,353 63,669
Other 2,136 730
------- -------
Total deferred tax liabilities 63,489 64,399
------- -------
Net deferred tax liability $ 39,238 $ 37,064
======= =======
A valuation allowance for deferred tax assets has not been
recorded since management believes it is more likely than not
that the existing net deductible temporary differences will
reverse during periods in which the Company generates net
taxable income.
Net cash paid for income taxes was $15.4 million, $11.0
million and $13.4 million for the years ended December 31,
1996, 1995 and 1994, respectively.
Foreign Operations
The Company has not provided for U.S. federal and foreign
withholding taxes on $53.9 million of foreign subsidiaries'
undistributed earnings as of December 31, 1996 because such
earnings, for the most part, are intended to be reinvested
overseas. To the extent the parent company has received
foreign earnings as dividends, the foreign taxes paid on those
earnings have generated tax credits which have substantially
offset related U.S. income taxes. On repatriation certain
foreign countries impose withholding taxes. The amount of
withholding tax that would be payable on remittance of the
entire amount of undistributed earnings would approximate $1.8
million.
F-8
Net foreign currency exchange gains (losses), included in
other income (deductions) in the Consolidated Statement of
Income, were $296,000, $1,620,000 and $(145,000) for the years
end December 31, 1996, 1995 and 1994, respectively.
Changes in the currency translation adjustment included in
the shareholders' equity section of the Consolidated Balance
Sheet are as follows:
Thousands of Dollars 1996 1995
------- -------
Currency translation adjustment,
January 1 $ 16,931 $ 20,222
Translation adjustments and hedges (5,371) (3,291)
------- -------
Currency translation adjustment,
December 31 $ 11,560 $ 16,931
======= =======
Inventories
The following is a summary of inventories by major category:
Thousands of Dollars 1996 1995
------- -------
Raw materials $ 23,585 $ 17,919
Work in process 8,513 9,757
Finished goods 20,670 20,575
Packaging and supplies 17,670 16,386
------- -------
Total inventories $ 70,438 $ 64,637
Property, Plant and Equipment
The major categories of property, plant and equipment and
accumulated depreciation and depletion are presented below:
Thousands of Dollars 1996 1995
------- -------
Land $ 22,503 $ 20,211
Quarries/mining properties 23,143 21,480
Buildings 107,578 90,742
Machinery and equipment 569,066 476,572
Construction in progress 43,429 78,375
Furniture and fixtures and other 47,163 44,094
------- -------
812,882 731,474
------- -------
Less: Accumulated depreciation
and depletion 311,815 275,665
------- -------
$501,067 $455,809
Financial Instruments and Concentrations of Credit Risk
The following methods and assumptions were used to estimate
the fair value of each class of financial instrument:
Cash and cash equivalents, accounts receivable and payable, and
accrued liabilities:
The carrying amounts approximate fair value because of the
short maturity of those instruments.
F-9
Available-for-sale securities:
The available-for-sale securities are presented in
accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The fair values
are based on quoted market prices and are as follows:
Thousands of Dollars
1996 1995 1994
----------------- ----------------- ----------------
Gross Gross Gross
Market Unrealized Market Unrealized Market Unrealized
Value Holding Value Holding Value Holding
Gains Gains Gains
------ ---------- ------ ---------- ------ ----------
Common
Stock $558 $340 $427 $231 $449 $245
The unrealized holding gains, net of taxes, were $163,000,
$111,000 and $121,000, respectively, at December 31, 1996, 1995
and 1994 are included as a separate component of stockholders'
equity.
Short-term debt and other liabilities:
The carrying amounts of short-term debt and other
liabilities approximate fair value because of the short
maturity of those instruments.
Long-term debt:
The fair value of the long-term debt of the Company is
estimated based on the quoted market prices for that debt or
similar debt which approximates the carrying amount.
Forward-exchange contracts:
The fair value of forward-exchange contracts (used for
hedging purposes) is estimated by obtaining quotes from
brokers.
The Company enters into forward exchange contracts to hedge
foreign currency transactions on a continuing basis for periods
consistent with its committed exposures. It does not engage in
speculation. The effect of this practice is to delay on a
rolling basis the impact of foreign exchange rate movements on
the Company's operating results. The Company's foreign exchange
contracts do not subject the Company to risk from exchange rate
movements because gains and losses on these contracts offset
losses and gains on the assets, liabilities and transactions
being hedged. At December 31, 1996 and 1995, the Company had
open forward exchange contracts to sell $1.1 million and $5.6
million, respectively, of foreign currencies. The difference
between these contract values and the fair value of these
instruments was not significant at December 31, 1996 and 1995.
Credit risk:
Substantially all of the Company's accounts receivable are
due from companies in the paper, construction and steel
industries. Credit risk results from the possibility that a
loss may occur from the failure of another party to perform
according to the terms of the contract. The Company regularly
monitors the credit risk exposures and takes steps to mitigate
the likelihood of these exposures resulting in actual loss.
The Company's extension of credit is based on an evaluation
of the customer's financial condition and collateral is not
required. Credit losses are provided for in the financial
statements and consistently have been within management's
expectations.
Long-Term Debt and Commitments
The following is a summary of long-term debt:
Thousands of Dollars 1996 1995
------- -------
7.70% Industrial Development Revenue
Bond Series 1990 Due 2009 (secured) $ 7,300 $ 7,300
7.75% Economic Development Revenue
Bonds Series 1990 Due 2010 (secured) 4,600 4,600
Variable/Fixed Rate Industrial Development
Revenue Bonds Due 2009 4,000 4,000
6.04% Guarantied Senior Notes Due
June 11, 2000 52,000 65,000
7.49% Guaranteed Senior Notes Due
July 24, 2006 50,000 --
Other borrowings -- 27
------- -------
117,900 80,927
Less: Current maturities 13,000 13,000
------- -------
Long-term debt $104,900 $ 67,927
======= =======
F-10
The 7.70% Industrial Development Revenue Bond Due 2009 is a
tax exempt, 19-year instrument issued to finance a PCC plant in
Mobile, Alabama. The bond is dated August 1, 1990 with a
mandatory put by the purchaser on August 1, 2002 and an
optional put by the purchaser following a downgrade in the
rating of the bond below "A". The bond is subject to redemption
in whole or in part by the Development Board on or after August
1, 1997 at varying prices. Pfizer Inc ("Pfizer") is a
guarantor on this bond.
The 7.75% Economic Development Revenue Bonds Due 2010 are
tax exempt, 20-year instruments issued to finance a PCC plant
in Eastover, South Carolina. The bonds are dated September 1,
1990 with a mandatory put on September 1, 2000 and an optional
put by the purchaser following a downgrade in the rating of the
bonds below "A". Pfizer is a guarantor on these bonds.
The Variable/Fixed Rate Industrial Development Revenue Bonds
Due 2009 are tax exempt 15-year instruments issued to finance
the expansion of a PCC plant in Selma, Alabama. The bonds are
dated November 1, 1994, and provide for an optional put by the
holder (during the Variable Rate Period) and a mandatory call
by the issuer. The bonds bear interest at either a variable
rate or fixed rate, at the option of the Company. Interest is
payable semi-annually under the fixed rate option and monthly
under the variable rate option. The average interest rates on
these borrowings were 3.64% and 4.20% for the years ended
December 31, 1996 and 1995, respectively.
On June 28, 1993, through a private placement, the Company
issued $65 million of 6.04% Guarantied Senior Notes (the
"Notes") due June 11, 2000. The proceeds from the sale of the
Notes were used to refinance the $60 million bridge loan
facility with Chemical Bank originally incurred to finance the
purchase of 2.5 million shares of treasury stock, and for other
corporate purposes. Interest on the Notes is payable
semi-annually. Required principal payments, in equal installments
of $13 million per annum, commenced in 1996.
On July 24, 1996, through a private placement, the Company
issued $50 million of 7.49% Guaranteed Senior Notes due July
24, 2006. The proceeds from the sale of the notes were used to
refinance a portion of the short-term commercial bank debt
outstanding. These notes rank pari passu with the Company's
other unsecured senior obligations. No required principal
payments are due until July 24, 2006. Interest on the notes is
payable semi-annually.
On December 31, 1996 the Company was contingently liable
for guarantees of third party indebtness in the amount of
$1.6 million.
The Company had available approximately $120 million in
uncommitted, short-term bank credit lines of which $12.0
million and $13.5 million were in use at December 31, 1996 and
1995, respectively. The interest rates on these borrowings
were approximately 6.93% and 6.20%, respectively, at December
31, 1996 and 1995.
During 1996, 1995 and 1994, respectively, the Company
incurred interest costs of $8,417,000, $5,308,000, and
$5,317,000, including $2,518,000, $1,841,000, and $528,000
which were capitalized. Interest paid approximated the incurred
interest costs.
Benefit Plans
Pension Plans
The Company and its subsidiaries have pension plans covering
substantially all eligible employees on a contributory or
non-contributory basis.
The components of net periodic pension cost are as follows:
Millions of Dollars 1996 1995 1994
------- ------- -------
Service cost -- benefits earned
during the period $ 4.6 $ 3.8 $ 3.9
Interest cost on projected
benefit obligations 5.0 4.3 3.9
Actual return on plan assets (7.7) (9.9) (0.3)
Net amortization and deferral 3.5 6.8 (2.7)
------- ------- -------
Net periodic pension cost $ 5.4 $ 5.0 $ 4.8
======= ======= =======
The long-term rate of return on plan assets used in the
determination of net periodic pension cost was 9% for 1996, 10%
for 1995 and 9% for 1994 .
F-11
Actuarial assumptions used in the measurement of the
projected benefit obligations for U.S. plans were:
1996 1995 1994
------- ------- -------
Discount rate 7.75% 7.25% 8.50%
Rate of increase in
salary levels 4.75% 4.50% 5.50%
The funded status of the Company's pension plans at December
31, 1996 and 1995 is as follows:
Millions of Dollars
1996 1996 1995 1995
Overfunded Underfunded Overfunded Underfunded
Plans Plans Plans Plans
---------- ----------- ---------- -----------
Actuarial present value of accumulated benefit obligations:
Vested $(43.6) $( 8.7) $( 3.3) $(45.9)
Non-vested ( 8.2) ( 1.7) ( 0.1) ( 9.4)
------ ------- ------ ------
Total (51.8) (10.4) ( 3.4) (55.3)
Effect of future
salary increases ( 6.1) ( 2.6) ( 1.1) ( 9.9)
------ ------- ------ ------
Projected benefit
obligations (57.9) (13.0) ( 4.5) (65.2)
Plan assets at
fair value 65.4 4.4 6.4 45.9
------ ------- ------ ------
Plan assets in excess
of/(less than)
projected benefit
obligations 7.5 ( 8.6) 1.9 (19.3)
Unrecognized under-
funding at date
of adoption 3.8 0.4 ( 0.3) 5.4
Unrecognized net
(gains)/losses ( 5.6) 1.0 ( 0.3) 2.1
Unrecognized prior
service costs 2.1 1.1 0.1 2.5
Additional minimum
liability -- ( 0.8) -- ( 1.5)
------ ------- ------ ------
Net pension asset/
(liability) included
in Consolidated
Balance Sheet $ 7.8 $( 6.9) $ 1.4 $(10.8)
====== ======= ====== ======
Benefits under defined benefit plans are generally based on
years of service and the employee's career earnings. Employees
become fully vested after five years.
The Company's funding policy for U.S. plans generally is to
contribute annually into trust funds at a rate that is intended
to remain at a level percentage of compensation for covered
employees. The funding policy for the international plans
conforms to local governmental and tax requirements. The
plans' assets are invested primarily in stocks and bonds.
Savings and Investment Plans
The Company maintains a voluntary Savings and Investment
Plan for most non-union employees in the U.S. Within prescribed
limits, the Company bases its contribution to the Plan on
employee contributions. The Company contributions amounted to
$3.0 million, $3.0 million and $2.9 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
Postretirement Benefits
The Company provides postretirement health care and life
insurance benefits for substantially all of its U.S. retired
employees. Employees are generally eligible for benefits upon
retirement and completion of a specified number of years of
creditable service. The Company does not pre-fund these
benefits and has the right to modify or terminate the plan in
the future.
The components of the net periodic postretirement benefit
cost are as follows:
Millions of Dollars 1996 1995 1994
------- ------- -------
Service cost-benefits earned
during the year $ 0.8 $ 0.7 $ 0.7
Interest cost on accumulated
postretirement benefit
obligations 0.8 0 .7 0.7
Amortization of prior
service cost ( 1.7) ( 1.7) ( 1.7)
------- ------- -------
Net periodic postretirement
benefits cost $( 0.1) $( 0.3) $( 0.3)
======= ======= =======
F-12
The actuarial and recorded liabilities for postretirement
benefits, none of which have been funded, are as follows:
Millions of Dollars 1996 1995
------- -------
Accumulated postretirement
benefit obligation:
Retirees $( 1.22) $( 1.24)
Fully eligible active plan
participants ( 4.44) ( 3.55)
Other active plan participants ( 6.51) ( 6.90)
Total (12.17) (11.69)
Unrecognized prior service cost ( 8.89) (10.60)
Unrecognized net loss 1.01 2.06
Accrued postretirement benefit liability $(20.05) $(20.23)
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75% and
7.25% at December 31, 1996 and 1995, respectively.
Compensation levels are assumed to increase at a rate of 4.75%
and 4.5%, respectively, at December 31, 1996 and 1995.
For measurement purposes, a health care cost trend rate of
approximately 11.2% for pre-age-65 benefits and 8.9% for
post-age-65 benefits was used. This trend rate will decrease to
5.3% in the year 2005 and thereafter.
A 1% increase in this annual trend rate would have increased
the accumulated postretirement benefit obligation at December
31, 1996 by approximately $100,000 and the aggregate of the
service and interest cost components of net periodic
postretirement benefit cost for the year then ended by
approximately $6,000.
Lease Commitments
Rent expense for the years ended December 31, 1996, 1995 and
1994, amounted to approximately $4.2 million, $4.3 million and
$3.3 million, respectively. Total future minimum rental
commitments under all noncancellable leases for the years 1997
through 2001 and thereafter are approximately $2.3 million,
$2.1 million, $2.0 million, $1.8 million, $1.8 million and
$18.5 million respectively.
Litigation
Under the terms of certain agreements entered into in
connection with the reorganization prior to the initial public
offering of the Company's common stock in October 1992, Pfizer
and its wholly owned subsidiary, Quigley Company, Inc.
("Quigley") agreed to indemnify the Company against certain
liabilities being retained by Pfizer and its subsidiaries
including, but not limited to, pending lawsuits and claims and
any lawsuits or claims brought at any time in the future
alleging damages or injury from the use, handling of or
exposure to any product sold by Pfizer's specialty minerals
business prior to the closing of the initial public offering.
Pfizer and Quigley also agreed to indemnify the Company
against any liability arising from on-site remedial waste site
claims and for other claims that may be made in the future with
respect to wastes disposed of prior to the closing of the
initial public offering. Further, Pfizer and Quigley agreed to
indemnify the Company for 50% of the liabilities in excess of
$1 million up to $10 million that may arise or accrue within
ten years after the closing of the initial public offering with
respect to remediation of on-site conditions existing at the
time of the closing of the initial public offering. The Company
will be responsible for the first $1 million of such
liabilities, 50% of such liabilities in excess of $1 million up
to $10 million, and all such liabilities in excess of $10
million. Further, Pfizer and Quigley agreed to indemnify the
Company for non-remedial environmental claims resulting from
activities or conditions occurring or existing prior to the
closing of the initial public offering that are in excess of
$10,000 and that were received within two years after the
closing of the initial public offering, exclusive of compliance
costs and consequential damages.
F-13
The transfer by Quigley of certain real property in New
Jersey to the Company pursuant to the reorganization, including
the former Quigley facility in Old Bridge, triggered certain
obligations under the New Jersey Environmental Cleanup
Responsibility Act ("ECRA"). Quigley retained liability for
compliance with ECRA including the assessment and, if
necessary, remediation of the Old Bridge property. Quigley's
obligations under ECRA are embodied in an Administrative
Consent Order with the New Jersey Department of Environmental
Protection and Energy ("NJDEPE") that requires Quigley to
perform any necessary remediation and to provide financial
assurance of its ability to cover the costs of remediation as
estimated by NJDEPE with no obligation to the Company.
The Company is a defendant in a lawsuit captioned Eaton
Corporation v. Pfizer Inc, Minerals Technologies Inc. and
Specialty Minerals Inc. pending in the U.S. District Court for
the Western District of Michigan. The suit alleges that
certain materials sold to Eaton for use in truck transmissions
were defective, necessitating repairs for which Eaton now seeks
reimbursement. The suit was filed on July 31, 1996. The
Company has evaluated the claims of this lawsuit to the extent
possible, believes the claims to be without merit, and intends
to contest them vigorously.
CAPITAL STOCK
The Company's authorized capital stock consists of 100
million shares of common stock, par value $.10 per share, of
which 22,599,859 shares and 22,653,015 shares were outstanding
at December 31, 1996 and 1995, respectively, and one million
shares of preferred stock, none of which were issued and
outstanding.
Cash Dividends
Cash dividends of $2.3 million or $.10 per common share were
paid during 1996. In January 1997, a cash dividend of
approximately $565,000 or $.025 per share, was declared,
payable in the first quarter of 1997.
Preferred Stock Purchase Rights
Under the Company's Preferred Stock Purchase Rights Plan,
each share of the Company's common stock carries with it one
preferred stock purchase right. Subject to the terms and
conditions set forth in the plan, the rights will become
exercisable if a person or group acquires beneficial ownership
of 15% or more of the Company's common stock or announces a
tender or exchange offer which would result in the acquisition
of 30% or more thereof. If the rights become exercisable,
separate certificates evidencing the rights will be
distributed, and each right will entitle the holder to purchase
from the Company a new series of preferred stock, designated as
Series A Junior Preferred Stock, at a predefined price. The
rights also entitle the holder to purchase shares in a
change-of-control situation. The preferred stock, in addition
to a preferred dividend and liquidation right, will entitle the
holder to vote on a pro rata basis with the Company's common
stock.
The rights are redeemable by the Company at a fixed price
until 10 days, or longer as determined by the Board, after
certain defined events or at any time prior to the expiration
of the rights on October 26, 2002 if such events do not occur.
Stock and Incentive Plan
The Company has adopted a Stock and Incentive Plan (the
"Plan") which provides for grants of incentive and nonqualified
stock options, stock appreciation rights, stock awards or
performance unit awards. The Plan is administered by the
Compensation Committee of the Board of Directors. Stock options
granted under the Plan have a term not in excess of ten years.
The exercise price for stock options will not be less than the
fair market value of the common stock on the date of the grant,
and each award of stock options will vest ratably over a
specified period, generally three years.
In 1995, the Shareholders approved an amendment to the Plan
to increase the number of shares of common stock available
under the Plan by an additional one million.
F-14
The following table summarizes stock option activity for the
Plan:
Under Option
------------------------
Shares Weighted Average
Available Exercise Price
for Grant Shares Per Share ($)
--------- --------- ----------------
Balance January 1, 1994 879,142 1,120,858 22.625
Granted ( 55,500) 55,500 25.5625
Exercised -- (6,458) 22.625
Canceled 57,486 (57,486) 22.625
Balance December
31, 1994 881,128 1,112,414 22.77
---------- --------- ------------
Authorized 1,000,000 -- --
Granted (8,000) 8,000 29.75
Exercised -- (34,960) 22.625
Canceled 17,805 (17,805) 22.625
---------- --------- ------------
Balance December
31, 1995 1,890,933 1,067,649 22.83
Granted (804,111) 804,111 30.625
Exercised -- (108,911) 22.90
Canceled 15,069 (15,069) 30.06
---------- --------- ------------
Balance December
31, 1996 1,101,891 1,747,780 26.36
========= ========== ============
In 1996, the Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock Based Compensation." The
weighted-average fair value per option at the date of the grant
for options granted during 1996 was $9.64. The fair value was
estimated using the Black-Scholes option pricing model,
modified for dividends, and the following weighted-average
assumptions:
1996
------
Expected life (years) 5
Interest rate 6.20%
Volatility 21.53%
Expected dividend yield 0.33%
Pro forma net income and earnings per share reflecting
compensation cost for the fair value of stock options awarded
in 1996 were as follows:
(Millions of dollars, except per share amounts) 1996
---------------------------------------------- ----
Net income As reported $43.1
Pro forma $41.6
Earnings per share As reported $1.91
Pro forma $1.84
The amounts disclosed may not be representative of the
effects on reported net income for future years. The effect on
reported net income for 1995 was not material, and,
accordingly, was not disclosed.
The following table summarizes information concerning Plan
options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------------ --------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Term (Years) Price at 12/31/96 Price
-------- ----------- ------------ -------- ----------- --------
$22.625-
$29.75 954,377 6.2 $22.83 933,211 $22.83
$30.625 793,403 9.1 $30.625 -- $ --
F-15
Geographic Data
The Company operates in one segment, i.e. specialty
minerals. This segment includes the sale of mineral-based
products and services to the paper, iron and steel,
construction, paint and automotive industries.
The Company's consolidated operations outside the United
States are organized into geographic regions. All intercompany
transactions have been eliminated.
Identifiable assets are those assets applicable to the
respective
geographic locations.
(Thousands of Dollars)
Canada/
United Latin Elimin- Conso-
States Europe Asia America Africa ations lidated
------ ------ ---- ------- ------ ------- -------
1996
Net
sales $383,033 $69,540 $44,059 $52,282 $ 7,074 $ -- $555,988
Inter-
company
sales 20,307 735 -- -- -- $(21,042) --
------ ------ ------ ------- ------ ------- -------
Total $403,340 $70,275 $44,059 $52,282 $ 7,074 $(21,042)$555,988
Income
from
opera-
tions $ 44,463 $ 5,767 $ 4,416 $11,466 $ 1,306 $ -- $67,418
Identi-
fiable
assets $480,550 $99,064 $70,055 $59,432 $ 4,760 $ -- $713,861
1995
Net
sales $360,171 $61,494 $54,102 $37,873 $10,811 $ -- $524,451
Inter-
company
sales 15,585 -- -- -- -- $(15,585) --
------ ------ ------ ------ ------ ------- -------
Total $375,756 $61,494 $54,102 $37,873 $10,811 $(15,585)$524,451
Income
from
opera-
tions $39,080 $3,746 $1,692 $11,687 $ 2,469 $ -- $58,674
Identi-
fiable
assets $432,090 $91,635 $72,971 $45,009 $ 7,439 $ -- $649,144
1994
Net
sales $332,890 $53,971 $45,733 $32,924 $ 7,119 $ -- $472,637
Inter-
company
sales 11,702 -- -- -- -- (11,702) --
------- ------ ----- ------ ------ ------- -------
Total $344,592 $53,971 $45,733 $32,924 $ 7,119 $(11,702)$472,637
Income
from
opera-
tions $ 37,729 $ 1,240 $ 3,996 $ 7,987 $1,638 $ -- $52,590
Identi-
fiable
assets $424,144 $59,401 $67,566 $31,934 $5,079 $ -- $588,124
======= ====== ====== ====== ===== ====== =======
F-16
Management's Responsibility for Financial Statements and System
of Internal Control
The consolidated financial statements and all related
financial information herein are the responsibility of the
Company's management. The financial statements, which include
amounts based on judgments, have been prepared in accordance
with generally accepted accounting principles. Other financial
information in the annual report is consistent with that in the
financial statements.
The Company maintains a system of internal control over
financial reporting which it believes provides reasonable
assurance that transactions are executed in accordance with
management's authorization and are properly recorded, that
assets are safeguarded, and that accountability for assets is
maintained. Even an effective internal control system, no
matter how well designed, has inherent limitations and,
therefore, can provide only reasonable assurance with respect
to financial statement preparation. The system of internal
control is characterized by a control-oriented environment
within the Company which includes written policies and
procedures, careful selection and training of personnel, and
audits by a professional staff of internal auditors.
The Company's independent accountants have audited and
reported on the Company's consolidated financial statements.
Their audits were performed in accordance with generally
accepted auditing standards.
The Audit Committee of the Board of Directors is composed
solely of outside directors. The Audit Committee meets
periodically with our independent auditors, internal auditors
and management to review accounting, auditing, internal control
and financial reporting matters. Recommendations made by the
independent auditors and the Company's internal auditors are
considered and appropriate action is taken with respect to
these recommendations. Both our independent auditors and
internal auditors have free access to the Audit Committee.
Jean-Paul Valles
Chairman of the Board and Chief Executive Officer
John R. Stack
Vice President, Finance and Chief Financial Officer
Mario J. DiNapoli
Controller and Chief Accounting Officer
February 4, 1997
F-17
Independent Auditor's Report
The Board of Directors and Shareholders
Minerals Technologies Inc.:
We have audited the accompanying consolidated balance sheet
of Minerals Technologies Inc. and subsidiary companies as of
December 31, 1996 and 1995 and the related consolidated
statements of income, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Minerals Technologies Inc. and subsidiary
companies as of December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996 in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
February 4, 1997
F-18
Quarterly Financial Data (unaudited)
Thousands of Dollars, Except Per Share Amounts
1996 Quarters First Second Third Fourth
-------- -------- -------- --------
Net sales $128,109 $140,466 $144,121 $143,292
Gross profit 35,032 41,109 41,581 41,921
Net income 8,547 10,807 11,890 11,853
Earnings per common share 0.38 0.48 0.53 0.52
Market Price Range of Common Stock
High 37 3/4 39 3/8 40 41 3/8
Low 30 1/4 33 34 1/8 36 3/8
Close 34 5/8 34 1/4 36 5/8 41
Dividends paid per common
share $ .025 $ .025 $ .025 $ .025
Thousands of Dollars, Except Per Share Amounts
1995 Quarters First Second Third Fourth
-------- -------- -------- --------
Net sales $120,205 $138,617 $135,795 $129,834
Gross profit 34,519 38,592 37,912 37,773
Net income 9,014 9,886 10,567 10,062
Earnings per common share 0.40 0.44 0.47 0.44
Market Price Range of Common Stock
High $32 1/2 $36 1/8 $38 1/4 $43 1/4
Low $27 1/4 $30 3/4 $34 5/8 $34
Close $32 1/4 $36 $37 5/8 $36 1/2
Dividends paid per
Common share $ .025 $ .025 $ .025 $ .025
F-19
MINERALS TECHNOLOGIES INC. & SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(thousands of dollars)
Additions
Balance at Charged to Balance
Beginning Costs and Deductions at end of
Description of Period Expenses (a)(b) Period
----------- ---------- ---------- ---------- ---------
Year ended December 1996
Valuation and
qualifying
accounts deducted
from assets to
which they apply
Allowance for
doubtful
accounts $3,088 $ 79 $670 $2,497
===== === === =====
Year ended December 1995
Valuations and
qualifying
accounts deducted
from assets to
which they apply
Allowance for
doubtful
accounts $2,786 $448 $146 $3,088
Year ended December 1994
Valuations and
qualifying
accounts deducted
from assets to
which they apply
Allowance for
doubtful
accounts $2,906 $817 $937 $2,786
(a) Includes impact of tranlation of foreign currencies.
(b) Uncollectible accounts charged against allowance accounts.
S-1