SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 No.) 405 Lexington Avenue, New York, New York 10174-1901 (Address of principal executive offices, including zip code) (212) 878-1800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT October 20, 1997 Common Stock, $.10 par value 22,556,198 <PAGE BREAK> -1- MINERALS TECHNOLOGIES INC. INDEX TO FORM 10-Q Page No. ------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Statement of Income for the three-month and nine-month periods ended September 28, 1997 and September 29, 1996 3 Condensed Consolidated Balance Sheet as of September 28, 1997 and December 31, 1996 4 Condensed Consolidated Statement of Cash Flows for the nine-month periods ended September 28, 1997 and September 29, 1996 5 Notes to Condensed Consolidated Financial Statements 6 Independent Auditors' Report 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature 12 <Page Break> -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Ended Nine Months Ended __________________ __________________ Sept.28, Sept.29, Sept.28, Sept.29, 1997 1996 1997 1996 ________ ________ ________ ________ (thousands of dollars, except per share data) Net sales $155,012 $144,121 $444,403 $412,696 Operating costs and expenses: Cost of goods sold 108,588 102,540 313,089 294,974 Marketing, distribution and administrative expenses 19,488 18,152 56,823 54,377 Research and development expenses 4,974 4,892 15,199 14,671 ________ ________ ________ ________ Income from operations 21,962 18,537 59,292 48,674 Non-operating deductions, net (2,560) (1,240) (5,648) (3,216) ________ ________ ________ ________ Income before provision for taxes on income and minority interests 19,402 17,297 53,644 45,458 Provision for taxes on income 6,207 5,366 17,164 14,293 Minority interests (518) 41 (162) (79) ________ ________ ________ ________ Net income $13,713 $11,890 $36,642 $31,244 ======== ======== ======== ======== Earnings per common share $ 0.61 $ 0.53 $ 1.62 $ 1.38 ======== ======== ======== ======== Cash dividends declared per common share $ 0.025 $ 0.025 $ 0.075 $ 0.075 ======== ======== ======== ======== Weighted average number of common shares outstanding 22,545 22,616 22,565 22,627 ======== ======== ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements. <Page Break> -3- MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEET ASSETS (thousands of dollars) Sept. 28, Dec. 31, 1997* 1996** ________ ________ Current assets: Cash and cash equivalents $ 31,530 $ 15,446 Accounts receivable, net 115,961 102,494 Inventories 63,710 70,438 Other current assets 15,429 13,902 ________ ________ Total current assets 226,630 202,280 Property, plant and equipment, less accumulated depreciation and depletion - Sept. 28, 1997 - $343,720; Dec. 31, 1996 - $311,815 496,138 501,067 Other assets and deferred charges 11,067 10,514 ________ ________ Total assets $733,835 $713,861 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 13,582 $ 25,339 Accounts payable 31,043 29,223 Other current liabilities 42,231 32,178 ________ ________ Total current liabilities 86,856 86,740 Long-term debt 101,610 104,900 Other non-current liabilities 78,288 73,971 ________ ________ Total liabilities 266,754 265,611 ________ ________ Shareholders' equity: Common stock 2,534 2,526 Additional paid-in capital 137,751 135,676 Retained earnings 399,157 364,210 Currency translation adjustment (1,640) 11,560 Unrealized holding gains 179 163 ________ ________ 537,981 514,135 Less common stock held in treasury, at cost 70,900 65,885 ________ ________ Total shareholders' equity 467,081 448,250 ________ ________ Total liabilities and shareholders' equity $733,835 $713,861 ======== ======== *Unaudited **Condensed from audited financial statements. See accompanying Notes to Condensed Consolidated Financial Statements. <Page Break> -4- MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended ______________________ (thousands of dollars) Sept. 28, Sept. 29, 1997 1996 _________ ________ Operating Activities Net income $36,642 $31,244 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 39,522 34,445 Other non-cash items 3,261 5,022 Net changes in operating assets and liabilities (2,969) (28,784) ________ ________ Net cash provided by operating activities 76,456 41,927 ________ ________ Investing Activities Purchases of property, plant and equipment (46,984) (78,283) Other investing activities, net 3,762 1,725 ________ ________ Net cash used in investing activities (43,222) (76,558) ======== ======== Financing Activities Proceeds from issuance of short-term and long-term debt 19,597 111,659 Repayment of debt (34,537) (71,117) Purchase of common shares for treasury (5,015) (4,311) Equity and debt proceeds from minority interests 3,214 --- Other financing activities, net 541 110 ________ ________ Net cash (used in) provided by financing activities (16,200) 36,341 ________ ________ Effect of exchange rate changes on cash and cash equivalents (950) (884) ________ ________ Net increase in cash and cash equivalents 16,084 826 Cash and cash equivalents at beginning of period 15,446 11,318 ________ ________ Cash and cash equivalents at end of period $ 31,530 $ 12,144 ======== ======== Interest paid $ 6,662 $ 4,408 ======== ======== Income taxes paid $ 9,907 $ 10,446 ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements. <Page Break> -5- MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 -- Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. The results for the three-month and nine-month periods ended September 28, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. Note 2 -- Inventories The following is a summary of inventories by major category: September 28, December 31, (thousands of dollars) 1997 1996 ____________ ___________ Raw materials $22,347 $23,585 Work in process 6,056 8,513 Finished goods 18,829 20,670 Packaging and supplies 16,478 17,670 _______ _______ Total inventories $63,710 $70,438 ======= ======= Note 3 -- Long-Term Debt and Commitments The following is a summary of long-term debt: September 28, December 31, (thousands of dollars) 1997 1996 ____________ ___________ 7.70% Industrial Development Revenue Bond Series 1990 Due 2009 (secured) $ --- $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 Variable/Fixed Rate Industrial Development Revenue Bonds Due April 1, 2012 7,545 --- Variable/Fixed Rate Industrial Development Revenue Bonds Due August 1, 2012 8,000 --- 6.04% Guarantied Senior Notes Due June 11, 2000 39,000 52,000 7.49% Guaranteed Senior Notes Due July 24, 2006 50,000 50,000 Other borrowings 1,953 --- ________ ________ 115,098 117,900 Less: Current maturities 13,488 13,000 ________ ________ Long-term debt $101,610 $104,900 ======== ======== The Variable/Fixed Rate Industrial Development Revenue Bonds due August 1, 2012 are tax-exempt 15-year instruments that were issued on August 1, 1997 to finance the construction of a PCC plant in North America. 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 <Page Break> -6- under the fixed rate option and monthly under the variable rate option. The Company has selected the variable rate option on these borrowings and the average interest rate was approximately 4%. On July 31, 1997, the Company retired the $7.3 million Industrial Development Revenue Bonds Due 2009. On August 4, 1997, the Company redeemed $1,455,000 of the Variable/Fixed Rate Industrial Development Revenue Bonds due April 1, 2012. This represented the unused portion of the original bond issuance proceeds received on April 1, 1997 to finance the construction of a PCC plant in Jackson, Alabama. The Company has available $120 million in uncommitted short-term bank credit lines, none of which is in use at September 28, 1997. <Page Break> -7- INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Minerals Technologies Inc.: We have reviewed the condensed consolidated balance sheet of Minerals Technologies Inc. and subsidiary companies as of September 28, 1997 and the related condensed consolidated statements of income for each of the three-month and nine-month periods ended September 28, 1997 and September 29, 1996 and cash flows for the nine-month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Minerals Technologies Inc. and subsidiary companies as of December 31, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 4, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG Peat Marwick LLP New York, New York November 3, 1997 <Page Break> -8- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Income and Expense Items As a Percentage of Net Sales _____________________________________ Three Months Ended Nine Months Ended __________________ _________________ Sept.28, Sept.29, Sept.28, Sept.29, 1997 1996 1997 1996 _______ _______ _______ _______ Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 70.0 71.1 70.5 71.5 Marketing, Distribution and administrative expenses 12.6 12.6 12.8 13.2 Research and development expenses 3.2 3.4 3.4 3.5 ____ ____ ____ ____ Income from Operations 14.2 12.9 13.3 11.8 Net income 8.8% 8.3% 8.2% 7.6% ==== ==== ==== ==== Results of Operations Three Months Ended September 28, 1997 as Compared with Three Months Ended September 29, 1996 Net sales in the third quarter of 1997 increased 7.6% to $155.0 million from $144.1 million in the third quarter of 1996. This increase in revenue was primarily attributable to higher volumes in all three product lines: precipitated calcium carbonate ("PCC") products, processed minerals products and refractory products. The stronger U.S. dollar had an unfavorable impact of approximately $3.1 million on net sales. PCC sales grew 10.0% to $75.8 million from $68.9 million in the third quarter of 1996. This increase was primarily attributable to the start of operations at five new satellite PCC plants since the third quarter of 1996 and to the significant ramp-up of several satellite plants that began operations during the first nine months of 1996. During the third quarter of 1997, developments in our PCC product line included start-up of operations of two new satellite PCC plants and an agreement to construct another satellite plant in the U.S. Late in the third quarter of 1997, the Company began operation of its first on-site acid-tolerant satellite PCC plant at the Myllykoski Paper Oy mill in Anjalankoski, Finland. This paper company is a leading producer of groundwood supercalendered paper which is used for magazines and catalogues. The satellite plant at Myllykoski is equivalent to approximately two satellite units. A satellite "unit" produces between 25,000 and 35,000 tons of PCC annually. Also in the third quarter of 1997, PT Sinar Mas Specialty Minerals, a joint venture company, began operation of a satellite PCC plant for paper filling and coating applications at a paper mill in Indonesia. This PCC plant is equivalent to approximately two satellite units. In addition, the Company announced an agreement with Champion International Corporation for the construction of a satellite PCC plant at the Champion paper mill near Pensacola, Florida. This plant is expected to be in operation in the second quarter of 1998 and will be approximately equal to two satellite units. Net sales of processed mineral products increased 3.8% in the third quarter of 1997 to $29.8 million from $28.7 million in the comparable quarter of 1996. The sales growth was due to volume increases in the lime and limestone product line. Net sales of refractory products increased 6.2% to $49.4 million from $46.5 million in the third quarter of 1996. Profitability of the refractory product line was significantly higher than the prior year due to the continued emphasis on higher margin specialty products. Net sales in the United States were 8.0% higher than in the prior year's third quarter, primarily due to volume growth in all product lines. Foreign sales were 6.6% higher than in the prior year, due primarily to the international expansion of the satellite PCC product line. This growth was partially offset by unfavorable foreign exchange rates. <Page Break> -9- Income from operations increased 18.5% in the third quarter of 1997 to $22.0 million. This increase was due primarily to good growth in the PCC satellite operations and improved profitability in refractory products, largely due to the successful implementation of the Company's strategy of introducing high-value, innovative products. This growth was partially offset by weakness in the processed minerals product line, specifically in the talc operations. Non-operating deductions increased primarily as a result of foreign exchange losses in Asia. Net income grew 15.3% to $13.7 million from $11.9 million in the prior year. Earnings per share rose 15.1% to $0.61 in the third quarter of 1997 compared to $0.53 in the prior year. Nine Months Ended September 28, 1997 as Compared with Nine Months Ended September 29, 1996 Net sales for the first nine months of 1997 increased 7.7% to $444.4 million from $412.7 million in 1996. Excluding the impact of overall unfavorable foreign exchange rates, sales would have increased 9.7%. PCC sales increased 14.3% to $219.8 million from $192.3 million in the prior year. This increase was primarily attributable to the commencement of operations at five new satellite PCC plants since the third quarter of 1996, significant volume increases from several satellite plants that commenced operations in early 1996 and an improvement in the paper industry from the first half of 1996. Net sales of processed minerals products rose 5.0% to $79.7 million for the first nine months of 1997. Refractory product sales for the first nine months of 1997 were $144.9 million, a slight increase over the prior year's $144.5 million. Profitability of our refractory products was significantly higher than a year ago, primarily due to our continued emphasis on higher-margin specialty products. The Company now operates 48 satellite PCC plants around the world and has four under construction, the most recent one in Pensacola, Florida; one in France; one in South Africa and another in Germany. The satellite plant in Florida is scheduled to be operational in the second quarter of 1998, and will be equivalent to two satellite units. The satellite plant in France will be equivalent to one satellite unit and is expected to commence operations in the first quarter of 1998. The satellite plant in South Africa, which will be operated through a joint venture, will be equivalent to two satellite units and is scheduled to begin operations in the fourth quarter of 1997. The satellite plant in Germany will be equivalent to two satellite units and is scheduled to begin operations in the first quarter of 1998. Net sales in the United States increased 7.6% to $306.8 million in the first nine months of 1997, due primarily to growth in the PCC product line. Net foreign sales increased approximately 7.8% to $137.6 million in the first nine months of 1997, primarily as a result of the continued international expansion of the PCC product line. Income from operations rose 21.8% to $59.3 million in the first nine months of 1997 from $48.7 million in the previous year. Non-operating deductions increased due to foreign exchange losses and higher net interest expense as a result of a reduction in capitalized interest costs associated with the construction of major capital projects. This reduction in capitalized interest was due to lower levels of capital spending in the first nine months of 1997. Net income increased 17.3% to $36.6 million from $31.2 million in 1996. Earnings per share increased 17.4% to $1.62 compared to $1.38 in the prior year. Liquidity and Capital Resources The Company's financial position remained strong in the first nine months of 1997. Cash flows of $76.5 million were provided from operations and were applied principally to fund $47.0 million of capital expenditures and to remit the required principal repayment of $13 million under the Company's Guarantied Senior Notes due June 11, 2000. The increase in cash from operating activities was due to an improvement in working capital. <Page Break> -10- The Variable/Fixed Rate Industrial Revenue Bonds due April 1, 2012 and August 1, 2012, respectively, are tax-exempt 15-year instruments issued to finance the construction of North American satellite PCC plants. 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 Company has selected the variable rate option on these borrowings and the average interest rate was approximately 4%. The total amount outstanding on these bonds at September 28, 1997 was $15.5 million. On July 31, 1997, the Company retired the $7.3 million Industrial Development Revenue Bonds Due 2009. The Company has available approximately $120 million in uncommitted, short-term bank credit lines, none of which were outstanding at September 28, 1997. The Company anticipates that capital expenditures for all of 1997 will be about $65 million, principally related to the construction of satellite PCC plants, expansion projects at existing satellite PCC plants and other opportunities that meet the strategic growth objectives of the Company. The decline in the capital expenditure forecast from the previous estimate was due to delays in finalizing satellite PCC contracts and expansions. The Company expects to meet such requirements from internally generated funds, the aforementioned uncommitted bank credit lines and, where appropriate, project financing of certain satellite plants. The Company is currently investigating the possibility of divesting its Limestone Midwest business, and intends to reach a decision by year-end wether to sell this business or continue to operate it. Based at the Port Inland mine in Gulliver, MI, Limestone Midwest is the Company's only business unit competing for sales of limestone aggregate, a commodity business. Sales for Limestone Midwest in 1996 were approximately $17.1 million. The Company has also entered into a long-term lease of its Pima County, Arizona limestone facility to The Georgia Marble Company. Sales for this facility in 1996 were approximately $1.5 million. PART II. OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGS As previously disclosed, The Company and its subsidiary Specialty Minerals Inc. are defendants in a lawsuit, captioned EATON CORPORATION V. PFIZER INC., MINERALS TECHNOLOGIES INC. AND SPECIALTY MINERALS INC. which was filed on July 31, 1996 and is 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 seeks reimbursement. While all litigation contains an element of uncertainty, the Company and Specialty Minerals Inc. believe that they have valid defenses to the claims asserted by Eaton in this lawsuit, are continuing to vigorously defend all such claims, and believe that the outcome of this matter will not have a material adverse effect on the Company's consolidated financial position or results of operations. The Company and its subsidiaries are not party to any other material pending legal proceedings, other than ordinary routine litigation incidental to their businesses. ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 11 - Schedule re: Computation of earnings per common share (Part I Data). 15 - Accountants' Acknowledgment (Part I Data). 27 - Financial Data Schedule (submitted electronically to the Securities and Exchange Commission, and not filed, pursuant to Rule 402 of Regulation S-T). 99 - Cautionary factors that may affect future results. b) No reports on Form 8-K were filed during the third quarter of 1997. <Page Break> -11- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Minerals Technologies Inc. By: /s/ John R. Stack John R. Stack Vice President-Finance and Chief Financial Officer November 10, 1997 <Page Break> -12-