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 June 29, 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 July 21, 1997 Common Stock, $.10 par value 22,560,427
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 six-month periods ended June 29, 1997 and June 30,1996 3 Condensed Consolidated Balance Sheet as of June 29, 1997 and December 31, 1996 4 Condensed Consolidated Statement of Cash Flows for the six-month periods ended June 29, 1997 and June 30, 1996 5 Notes to Condensed Consolidated Financial Statements 6 Independent Auditors' Report 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 Signature 11
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Six Months Ended Ended ---------------- ---------------- June 29, June 30, June 29, June 30, 1997 1996 1997 1996 ------- ------- ------- ------- (thousands of dollars, except per share data) Net sales $151,765 $140,466 $289,391 $268,575 Operating costs and expenses: Cost of goods sold 107,400 99,357 204,501 192,434 Marketing, distribution and administrative expenses 19,007 19,125 37,336 36,225 Research and development expenses 5,179 4,948 10,224 9,779 ------- ------- ------- ------- Income from operations 20,179 17,036 37,330 30,137 Non-operating deductions, net 1,619 1,188 3,088 1,976 ------- ------- ------- ------- Income before provision for taxes on income and minority interests 18,560 15,848 34,242 28,161 Provision for taxes on income 5,940 4,927 10,957 8,927 Minority interests 259 114 356 (120) ------- ------- ------- ------- Net income $ 12,361 $ 10,807 $ 22,929 $ 19,354 ======= ======= ======= ======= Earnings per common share $ .55 $ 0.48 $ 1.02 $ 0.86 ======= ======= ======= ======= Cash dividends declared per common share $ 0.025 $ 0.025 $ 0.050 $ 0.050 ======= ======= ======= ======= Weighted average number of common shares outstanding 22,563 22,627 22,575 22,632 ======= ======= ======= ======= See accompanying Notes to Condensed Consolidated Financial Statements.
-3- MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEET ASSETS (thousands of dollars) June 29, December 31, 1997* 1996** -------- ----------- Current assets: Cash and cash equivalents $ 19,385 $ 15,446 Accounts receivable, net 115,140 102,494 Inventories 64,239 70,438 Other current assets 12,532 13,902 ------- ------- Total current assets 211,296 202,280 Property, plant and equipment, less accumulated depreciation and depletion - June 29, 1997 -$333,258; Dec. 31, 1996 - $311,815 497,763 501,067 Other assets and deferred charges 11,768 10,514 ------- ------- Total assets $720,827 $713,861 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 14,304 $ 25,339 Accounts payable 31,164 29,223 Other current liabilities 34,748 32,178 ------- ------- Total current liabilities 80,216 86,740 Long-term debt 102,391 104,900 Other noncurrent liabilities 77,457 73,971 ------- ------- Total liabilities 260,064 265,611 ------- ------- Shareholders' equity: Common stock 2,531 2,526 Additional paid-in capital 136,960 135,676 Retained earnings 386,009 364,210 Currency translation adjustment 4,543 11,560 Unrealized holding gains 181 163 ------- -------- 530,224 514,135 Less common stock held in treasury, at cost 69,461 65,885 ------- ------- Total shareholders' equity 460,763 448,250 ------- ------- Total liabilities and shareholders' equity $720,827 $713,861 ======= ======= * Unaudited ** Condensed from audited financial statements See accompanying Notes to Condensed Consolidated Financial Statements.
-4- MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended ------------------- (thousands of dollars) June 29, June 30, 1997 1996 -------- -------- Operating Activities Net income $ 22,929 $ 19,354 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 25,860 22,248 Other non-cash items 824 2,302 Net changes in operating assets and liabilities (3,090) (32,011) ------- ------- Net cash provided by operating activities 46,523 11,893 ------- ------- Investing Activities Purchases of property, plant and equipment(30,126) (57,925) Other investing activities, net 3,762 475 ------- ------- Net cash used in investing activities (26,364) (57,450) ------- ------- Financing Activities Proceeds from issuance of short-term and long-term debt 11,528 61,659 Repayment of debt (25,000) (13,027) Purchase of common shares for treasury (3,576) (2,813) Dividends paid (1,130) (1,132) Other financing activities, net 2,301 1,170 ------- ------- Net cash (used in) provided by financing activities (15,877) 45,857 ------- ------- Effect of exchange rate changes on cash and cash equivalents (343) (631) ------- ------- Net increase (decrease) in cash and cash equivalents 3,939 (331) Cash and cash equivalents at beginning of period 15,446 11,318 ------- ------- Cash and cash equivalents at end of period $ 19,385 $ 10,987 ======= ======= Interest paid $ 4,240 $ 3,556 ======= ======= Income taxes paid $ 6,576 $ 6,838 ======= ======= See accompanying Notes to Condensed Consolidated Financial Statements.
-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 six-month periods ended June 29, 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: June 29, December 31, (thousands of dollars) 1997 1996 -------- ----------- Raw materials $ 22,500 $ 23,585 Work in process 5,830 8,513 Finished goods 19,266 20,670 Packaging and supplies 16,643 17,670 ------- ------- Total inventories $ 64,239 $ 70,438 ======= ======= Note 3 -- Long-Term Debt The following is a summary of long-term debt: June 29, December 31, (thousands of dollars) 1997 1996 -------- ------------ 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 Variable/Fixed Rate Industrial Development Revenue Bonds Due 2012 9,000 -- 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 1,988 -- ------- ------- 115,888 117,900 Less: Current maturities 13,497 13,000 ------- ------- Long-term debt $102,391 $104,900 ======= ======= The Variable/Fixed Rate Industrial Development Revenue Bonds due 2012 are tax-exempt 15-year instruments and were issued on April 1, 1997 to finance the construction of a PCC plant in Jackson, Alabama. 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%.
-6- 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 June 29, 1997 and the related condensed consolidated statements of income for each of the three-month and six-month periods ended June 29, 1997 and June 30, 1996 and cash flows for the six-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 August 8, 1997
-7- 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 Six Months Ended Ended ---------------- ---------------- June 29, June 30, June 29, June 30, 1997 1996 1997 1996 -------- -------- -------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 70.8 70.8 70.7 71.7 Marketing, distribution and administrative expenses 12.5 13.6 12.9 13.5 Research and development expenses 3.4 3.5 3.5 3.6 ----- ----- ----- ----- Income from operations 13.3 12.1 12.9 11.2 Net income 8.1% 7.7% 7.9% 7.2% ===== ===== ===== ===== Results of Operations THREE MONTHS ENDED JUNE 29, 1997 AS COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996 Net sales in the second quarter of 1997 increased 8.0% to $151.8 million from $140.5 million in the second quarter of 1996. Higher volumes in the precipitated calcium carbonate (PCC) and processed mineral product lines were primarily responsible for the sales increase. The stronger U.S. dollar had an unfavorable impact of approximately $2.2 million on sales growth. Excluding the effect of foreign exchange, sales growth was approximately 10%. PCC sales grew 13.2% to $73.4 million from $64.9 million in the second quarter of 1996. This increase was primarily attributable to the startup of four new satellite PCC plants since June 1996, to the significant ramp up of four satellite PCC plants that commenced operations in early 1996 and to a general improvement in the paper industry. The Company has signed contracts for three new PCC satellite plants since the end of the first quarter. These satellite PCC plants will be located in South Africa, France and Germany. 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. A satellite "unit" produces between 25,000 and 35,000 tons of PCC annually. 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 Germany will be equivalent to two satellite units and is also scheduled to begin operations in the first quarter of 1998. In addition, our satellite plant in Indonesia began operations early in the third quarter of 1997. The Company now operates 47 satellite PCC plants in 12 countries and has four satellite plants under construction. Net sales of processed mineral products grew 7.9% in the second quarter of 1997 to $29.2 million, from $27.0 million in the comparable quarter of 1996. Net sales of refractory products increased 1.3% to $49.2 million from $48.6 million in the second quarter of 1996. In 1997, the Company recorded a $1.6 million provision for loss as guarantor of indebtedness of a company which was the subject of an involuntary bankruptcy petition under Chapter 7 of the U.S. Bankruptcy Code. In addition, the Company recognized a gain of approximately $1.4 million related to the sale of property in Japan. Such non-recurring items are included in marketing, distribution and administrative expenses. Income from operations rose 18.4% in the second quarter of 1997 to $20.2 million. This increase was due primarily to solid growth in the PCC product line; improved profitability in refractory products, due primarily to the successful execution of the Company's strategy of introducing high value innovative products; and to increased growth in the processed minerals product line.
-8- Non-operating deductions increased due to 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 second quarter of 1997. Net income grew 14.4% to $12.4 million from $10.8 million in the prior year. Earnings per common share were $0.55 in the second quarter of 1997 compared to $0.48 in the prior year. SIX MONTHS ENDED JUNE 29, 1997 AS COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996 Net sales in the first half of 1997 increased 7.8% to $289.4 million from $268.6 million in 1996. PCC sales increased 16.7% to $144.0 million from $123.4 million in the first half of 1996. Sales increases were primarily attributable to the start-up of four new satellite PCC plants since the second quarter of 1996, significant volume increases from four satellite PCC plants that commenced operations in early 1996 and to volume increases from other satellite PCC plants due to a general improvement in the paper industry. Net sales of processed mineral products rose 5.7% to $49.9 million in the first half of 1997. Refractory product sales decreased 2.5% to $95.5 million in the first half of 1997. This decrease was primarily due to overall volume declines in lower margin products and to unfavorable exchange rates. Net sales in the United States increased 7% in the first half of 1997 primarily due to the growth in the PCC product line. Net foreign sales increased approximately 8% in the first half of 1997 as a result of the continued international expansion of the PCC product line. Income from operations rose 23.9% to $37.3 million in the first half of 1997 from $30.1 million in the previous year. Non-operating deductions increased due to 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 half of 1997. Net income increased 18.5% to $22.9 million from $19.4 million in 1996. Earnings per common share were $1.02 compared to $0.86 in the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's financial position remained strong in the first half of 1997. Cash flows in the first half of 1997 were provided from operations and were applied principally to fund $30.1 million of capital expenditures and to remit the required principal payment of $13 million under the Company's Guarantied Senior Notes due June 11, 2000. Cash provided from operating activities amounted to $46.5 million in the first half of 1997 as compared to $11.9 million in the prior year. This increase was primarily due to an improvement in working capital. The Variable/Fixed Rate Industrial Development Revenue Bonds due 2012 are tax-exempt 15-year instruments and were issued on April 1, 1997 to finance the construction of a PCC plant in Jackson, Alabama. 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 available approximately $120 million in uncommitted, short-term bank credit lines, none of which were outstanding at June 29, 1997. The Company anticipates that capital expenditures for all of 1997 will be approximately $80 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 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.
-9- 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 2. CHANGES IN SECURITIES On January 30, 1997, in a transaction not involving a public offering and therefore exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, the Company issued 10,520 shares of Common Stock to Walter Nazarewicz, retired President of Specialty Minerals Inc., in exchange for consulting services to Specialty Minerals Inc. during 1994 and 1995. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting on May 22, 1997. At the meeting, (1) Paul M. Meister was elected a director of the Company, by a plurality of 19,592,301 votes, with 183,291 votes being withheld; (2) Michael F. Pasquale was elected a director of the Company, by a plurality of 19,609,372 votes, with 166,220 votes being withheld; and (3) the appointment of KPMG Peat Marwick LLP as independent auditors of the Company for the year 1997 was approved by a vote of 19,773,241 for and 9,748 against, with 32,603 abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 10.19 - Company Savings and Investment Plan, as amended April 24, 1997. 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). b) No reports on Form 8-K were filed during the second quarter of 1997.
-10- 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 August 8, 1997
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