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, 1997
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:
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Title of each Name of each exchange
class on which registered
- ---------------------------------------------------------------------------
Common Stock, $.10 par value New York Stock Exchange
- ---------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
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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 January 30, 1998 was approximately $735.0 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, 1998, the Registrant had outstanding 22,574,368 shares
of common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated April 3, 1998 Part III
MINERALS TECHNOLOGIES INC.
1997 FORM 10-K ANNUAL REPORT
Table of Contents
Page
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PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management 20
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K 21
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Signatures 24
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 emphasizes 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 Company
has also built satellite PCC plants that replace ground calcium carbonate.
In addition, the Company has constructed satellites for coating PCC and
more recently satellites for the use of its patented acid-tolerant PCC
technology. This technology provides higher performance qualities to
manufacturers of groundwood paper like newsprint, magazine and catalogue
papers. 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, 1997, see "Item 2--Properties" below.
Satellite PCC Plants
at End of Quarter
--------------------
Calendar Year First Second Third Fourth
------------- ----- ------ ----- ------
1993 30 31 31 34
1994 36 36 36 36
1995 37 37 38 38
1996 41 42 43 44
1997 45 46 48 49
In 1997, the Company commenced operations at five new satellite PCC
plants
in five different countries. These satellite PCC plants are located
in the United States, Slovakia, Indonesia, Finland and South Africa.
During 1997, the Company signed agreements to construct six new
satellite plants--four of which are now under construction. The satellite
PCC plants under construction are located in France, Germany 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 plants and 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 $299.9 million, $263.1
million, $226.6 million for the years ended December 31, 1997, 1996 and
1995, 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 1997, more than 80% of North American
wood-free paper was produced employing alkaline technology.
Presently, the Company owns and operates 34 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 34 paper mills
will increase. The Company also estimates that a few 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[tm] PCC) that provides enhanced brightness and opacity properties
without the undesirable darkening phenomenon. During 1997, the Company
signed three contracts for the use of its patented acid-tolerant PCC
technology which will enable the Company to expand its sales to makers of
groundwood paper grades.
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 [TM)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.
Refractory Products and Markets
Refractory Products.
The Company offers a broad range of monolithic refractory products as
well as pre-cast monolithic refractory shapes. 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
3
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.
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.
The Company's refractory net sales were $195.9 million, $192.2 million
and $202.5 million for the years ended December 31, 1997, 1996 and 1995,
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, 1997, 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
4
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 1997 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. The other component of this product
line represents sales of limestone aggregate, a commodity business.
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 $106.5
million, $100.7 million and $95.4 million for the years ended December 31,
1997, 1996 and 1995, respectively. See "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations."
In March 1998, the Company entered into a Memorandum of Understanding
with another company for the sale of its Limestone Midwest business. 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.
The Company's natural mineral products are supported by the Company's
limestone reserves, which the Company believes are strategically located in
the western 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.
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;
5
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
facilitates 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. 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. Since the second half of 1996, worldwide prices of Chinese
magnesia have decreased from peak prices and appear to have stabilized.
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.
6
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 its main research facilities in Bethlehem and
Easton, Pennsylvania, with more than 170 employees engaged in research and
development. It also has smaller research and development facilities in
Finland, Ireland and Japan. 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, 1997, 1996 and 1995, the Company
expended approximately $20.4 million, $19.7 million and $19.7 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. The Company's research and development spending
for 1997 approximated 3.4% of net sales.
Patents and Trademarks
The Company owns or has the right to use approximately 390 patents and
approximately 700 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. 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, 1997, the Company employed approximately 2,250
persons, of whom approximately 650 were employed by the Company outside the
United States. The Company believes its relationships with its employees
are good.
7
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.
Cautionary Factors That May Affect Future Results
The disclosure and analysis set forth in this report contains certain
forward-looking statements, particularly statements relating to future
actions, performance or results of current and anticipated products, sales
efforts, expenditures, and financial results. From time to time, the
Company also provides forward-looking statements in other publicly-released
materials, both written and oral. Forward-looking statements provide
current expectations or forecasts of future events such as new products,
revenues and financial performance, and are not limited to describing
historical or current facts. They can be identified by their use of words
such as "plans," "expects," "anticipated," "will" and other words and
phrases of similar meaning.
Forward-looking statements are necessarily based on assumptions,
estimates and limited information available at the time they are made. A
broad variety of risks and uncertainties, both known and unknown, as well
as the inaccuracy of assumptions and estimates, can affect the realization
of the expectations or forecasts in these statements. Consequently, no
forward-looking statement can be guaranteed. Actual future results may
vary materially.
The Company undertakes no obligation to update any forward-looking
statements. You should refer to the Company's subsequent filings under the
Securities Exchange Act of 1934 for further disclosures.
As permitted by the Private Securities Litigation Reform Act of 1995,
the Company is providing the following cautionary statements which identify
factors that could cause the Company's actual results to differ
materially from historical and expected results. It is not possible to
foresee or identify all such factors. You should not consider this list an
exhaustive statement of all potential risks, uncertainties and inaccurate
assumptions.
- -- Historical Growth Rate
Continuance of the historical growth rate of the Company depends upon
a number of uncertain events, including the outcome of the Company's
strategies of increasing its penetration into geographical markets such as
Asia, Latin America and Europe; increasing its penetration into product
markets such as the market for paper coating pigments and the market for
groundwood paper pigments; increasing sales to existing PCC customers by
increasing the amount of PCC used in each ton of paper produced; and
developing, introducing and selling new products. Difficulties, delays or
failures of any of these strategies could cause the future growth rate of
the Company to differ materially from its historical growth rate.
8
- -- Contract Renewals
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 this will continue to be the case. Failure of a
number of the Company's customers to renew existing agreements could cause
the future growth rate of the Company to differ materially from its
historical growth rate, and could have a substantial adverse effect on the
Company's results of operations.
-- Litigation; Environmental Exposures
The Company's operations are subject to international, federal, state
and local environmental, tax and other laws and regulations, and
potentially to claims for various legal, environmental and tax matters.
The Company is currently a party to various litigation matters, including
the Eaton litigation which has previously been disclosed in the
Management's Discussion and Analysis sections of the Company's most recent
filings under the Securities Exchange Act of 1934. While the Company
carries liability insurance which it believes to be appropriate to its
businesses, and has provided reserves for such matters which it believes to
be adequate, an unanticipated liability arising out of such a litigation
matter or a tax or environmental proceeding could have a material adverse
effect on the Company's financial condition or results of operations.
- -- New Products
The Company is engaged in a continuous effort to develop new products
in all of its product lines. Difficulties, delays or failures in the
development, testing, production, marketing or sale of such new products
could cause its actual results of operations to differ materially from
expected results.
- -- Competition; Protection of Intellectual Property
Particularly in its PCC and Refractory product lines, the Company
competes based in part upon proprietary knowledge, both patented and
unpatented. The Company's ability to achieve anticipated results depends
in part on its ability to defend its intellectual property against
inappropriate disclosure as well as against infringement. In addition,
development by the Company's competitors of new products or technologies
that are more effective or less expensive than those the Company offers
could have a material adverse effect on the Company's financial condition
or results of operations.
- -- Risks of Doing Business Abroad
As the Company expands its operations overseas, it faces the increased
risks of doing business abroad, including inflation, fluctuations in
interest rates and currency exchange rates, nationalization, expropriation,
limits on repatriation of funds, unstable governments and legal systems,
and other factors. Adverse developments in any of these areas could cause
actual results to differ materially from historical and expected results.
- -- Availability of Raw Materials
The Company's ability to achieve anticipated results depends in part
on having an adequate supply of raw materials for its manufacturing
operations, particularly lime and carbon dioxide for PCC operations and
magnesia for refractory operations, and on having adequate access to the
ore reserves at its mining operations. Unanticipated changes in the costs
or availability of such raw materials, or in the Company's ability to have
access to its ore reserves, could adversely affect the Company's results of
operations.
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, 1997.
Generally, the land on which each satellite PCC plant is located
is leased at a nominal amount by
9
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, Jackson Boise Cascade Corporation
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(1) Metsa-Serla Group
Finland, Anjalankoski(1) Myllykoski Paper Oy
Finland, Lappeenranta(1)(2) Enzo-Gutzeit Group
Finland, Tervakoski(1) Enzo-Gutzeit Group
France, Saillat Sur Vienne Aussedat Rey (a subsidiary of International
Paper Company)
Indonesia, Perawang(1) PT Indah Kiat Pulp and Paper Corporation
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(1) Soporcel - Sociedade Portuguesa de Celulose,
S.A.
Slovakia, Ruzomberok Severoslovenske Cululozky a Papierne s.p.
South Carolina, Eastover Union Camp Corporation
South Africa, Merebank(1) Mondi Paper Company Ltd.
Tennessee, Kingsport Willamette Industries Inc.
Texas, Pasadena Simpson Pasadena Paper Company
(a division of Simpson Paper Company)
Thailand, Tha Toom(1) 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) These plants are owned through a joint venture.
(2) This PCC plant is not located on-site at the paper mill.
10
The Company also owned at December 31, 1997 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 (4) 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 (5) Limestone
Montana, Dillon Plant; Quarry Talc
New Jersey, Old Bridge Plant Monolithic Refractories/
Shapes
New York, New York Headquarters (1); All Company Products
Sales Offices (1)
Ohio, Bryan Plant Monolithic Refractories
Ohio, Dover Plant Refractories
Pennsylvania, Bethlehem Research Laboratories; PCC, Lime, Limestone,
Sales Offices Talc, Pyrolytic
Graphite,
Pennsylvania, Easton Research Laboratories; PCC, Lime, Limestone,Talc
Plant Pyrolytic Graphite
Refractories,
Metallurgical Wire
Pennsylvania, Slippery Plant Refractory Shapes
Rock
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 Monolithic Refractories/
Office (1) 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.
(4) This plant is leased to another company.
(5) In March 1998, the Company entered into a Memorandum of Understanding
for the sale of this facility.
11
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 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 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 1997.
Executive Officers of the Registrant
Set forth below are the names and ages of all Executive Officers
of the Registrant, 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 61 Chairman of the Board and Chief Executive
Officer
Paul R. Saueracker 56 Vice President of the Company and President,
Specialty Minerals Inc.
Anton Dulski 56 Vice President of the Company and President,
MINTEQ(R) International Inc.
S. Garrett Gray 59 Vice President, General Counsel and Secretary
John R. Stack 61 Vice President, Finance and Chief Financial
Officer
Howard R. Crabtree 53 Vice President, Organization & Human Resources
William A. Kromberg 52 Vice President, Taxes
Mario J. DiNapoli 62 Controller (to March 31, 1998)
Michael A. Cipolla 40 Controller (as of April 1, 1998)
Stephen E. Hluchan 56 Treasurer
Jean-Paul Valles, Ph.D., 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
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.
12
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 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. Mr. DiNapoli will retire from the Company as of April 1, 1998.
Michael A. Cipolla will serve as Controller of the Company effective
April 1, 1998. He has served as Assistant Corporate Controller since
December 1992. Prior to joining the Company, Mr. Cipolla was with KPMG
Peat Marwick LLP from 1983; and served as a Senior Manager from 1987.
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.
13
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:
1997 Quarters First Second Third Fourth
------------- ------ ------ -------- ------
Market Price Range of Common Stock
High 42 7/8 40 7/8 44 15/16 46 1/8
Low 34 32 1/8 36 1/8 39 1/2
Close 34 1/4 37 1/4 44 3/4 45 7/16
Dividends paid per common share $ .025 $. 025 $ .025 $ .025
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
On March 3, 1998, the last reported sale price on the NYSE was $50
per share. As of March 3, 1998, there were approximately 296 holders of
record of the common stock.
On January 22, 1998, 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, 1997. 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.
On February 26, 1998, the Company's Board of Directors authorized a
$150 million stock repurchase program. The stock will be purchased on the
open market from time to time.
14
Item 6. Selected Financial Data
Thousands of Dollars, Except
Per Share Data 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Income Statement Data:
Net sales $602,335 $555,988 $524,451 $472,637 $428,313
Cost of goods sold 424,612 396,345 375,655 335,327 302,810
Marketing, distribution and
administrative expenses 77,104 72,485 70,464 66,533 63,053
Research and development
expenses 20,391 19,740 19,658 18,187 16,082
------- ------- ------- ------- -------
Income from operations 80,228 67,418 58,674 52,590 46,368
Net income $ 50,312 $ 43,097 $ 39,529 $ 33,346 $ 28,973
======= ======= ======= ======= =======
Earnings per share:
Basic earnings per share $ 2.23 $ 1.91 $ 1.75 $ 1.48 $ 1.25
======= ======= ======= ======= =======
Diluted earnings per share $ 2.18 $ 1.86 $ 1.72 $ 1.46 $ 1.24
======= ======= ======= ======= =======
Weighted average number of
common shares outstanding
Basic 22,558 22,621 22,633 22,603 23,186
Diluted 23,113 23,132 23,001 22,805 23,383
Dividends declared per
common share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10
======= ======= ======= ======= =======
Balance Sheet Data:
Working capital $132,364 $115,540 $ 86,746 $135,844 $112,238
Total assets 741,407 713,861 649,144 588,124 549,160
Long-term debt 101,571 104,900 67,927 83,031 79,030
Total debt 115,560 130,239 95,817 83,031 79,030
Total shareholders' equity $466,997 $448,250 $416,153 $381,098 $343,005
======= ======= ======= ======= =======
15
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, 1997 1996 1995
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 70.5 71.3 71.6
Marketing, distribution and administrative
expenses 12.8 13.0 13.4
Research and development expenses 3.4 3.6 3.8
----- ----- -----
Income from operations 13.3 12.1 11.2
Net income 8.4% 7.8% 7.5%
===== ===== =====
Overview of 1997 and Outlook
In 1997, the Company adhered to its strategy of expanding its Precipitated
Calcium Carbonate ("PCC") product line. The Company commenced operations
at five new satellite PCC plants in five different countries (Indonesia,
Slovakia, the United States, Finland and South Africa) and signed
agreements for construction of six new satellite plants --four of which are
now under construction. These satellite PCC plants are located in France,
Germany and the United States, and together have production capacity
equivalent to approximately seven "satellite units." (A satellite unit is
equivalent to annual production capacity of between 25,000 and 35,000 tons
of PCC.) The Company has signed three contracts for the use of its
patented acid-tolerant PCC technology. This will enable the Company to
expand its sales to makers of groundwood paper grades. In addition, the
Company expanded several satellite plants at various locations around the
world. 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 49.8% by 1997. The
Company expects this trend to continue as sales and volume growth of PCC
continues to outpace such growth in the Processed Minerals and Refractory
product lines.
Presently, the Company operates or has under construction 53 satellite PCC
plants in 14 countries worldwide. The Company is optimistic that volume
growth will continue in 1998. The Company expects additional expansions at
existing satellite PCC plants to occur in 1998 and also expects to sign
contracts for additional satellite PCC plants in the United States and
abroad.
In 1998, the Company plans 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 satellite PCC plants
in response to increased demand, which is resulting from either
increased PCC filler levels in paper or the installation of new paper
machines.
- -- 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 or at
their respective expiration dates.
The Company will continue to emphasize specialty products in its Refractory
product lines and commercialize products, processes and equipment through
research and development efforts.
As the Company continues to expand its operations overseas, it faces
inherent 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.
16
The recent exchange rate movements and economic problems in Southeast Asia
are an indication of foreign business risks experienced by multinational
corporations. However, the Company's Asian operations are a minor part of
its overall business. In 1997, they represented approximately 7% of total
sales, while Japan and Australia accounted for about 70% of total Asian
sales.
Continued uncertainties in Thailand, Indonesia and South Korea
could have adverse repercussions in other parts of Asia and conceivably in
Europe and North America.
Results of Operations
Net Sales
In Millions 1997 Growth 1996 Growth 1995
------ ------ ------ ------ ------
Net sales $602.3 8.3% $556.0 6.0% $524.5
Worldwide net sales in 1997 increased 8.3% over the previous year to
$602.3 million. Higher volumes in the PCC, Processed Minerals, and
Refractory product lines were responsible for the increase in sales growth.
The stronger U.S. dollar had an unfavorable impact of approximately $11.3
million (or 2 percentage points) on sales growth. In 1996, worldwide net
sales increased 6.0% over the prior year to $556.0 million. This increase
was primarily attributable to growth in the PCC and Processed Minerals
product lines.
Worldwide net sales of PCC in 1997 increased 14.0% to $299.9 million from
$263.1 million in the prior year. This increase was primarily attributable
to the commencement of operations at five new satellite PCC plants, located
in Indonesia, Slovakia, the United States, Finland and South Africa. In
addition, a full year of operations at several satellite PCC plants that
began operating in 1996 and volume increases generated by the Company's
long-standing satellite PCC plants also contributed to the sales growth in
1997. Foreign exchange had an unfavorable impact of approximately $4.3
million on sales growth. PCC sales in 1996 increased 16.1% to $263.1
million from $226.6 million in 1995. This increase was primarily
attributed to the start-up of operations at six new satellite plants that
began operations during 1996 and expansion of production capacity at
several locations.
Net sales of Processed Minerals increased 5.8% to $106.5 million in 1997
and rose 5.6% to $100.7 million in 1996. The sales growth in both years
was primarily attributable to higher volumes.
Net sales of Refractory Products in 1997 increased 1.9% to $195.9 million
from $192.2 million in the prior year. Excluding the impact of foreign
exchange, sales growth was 5.6%. Strategic replacement of commodity
products with specialty products and systems dramatically increased the
profitability of this product line. In 1996, net sales of Refractory
Products decreased 5.1% from the prior year while profitability increased
significantly due to continued emphasis on higher margin specialty
products. The decrease in Refractory product sales was primarily
attributable to volume declines and unfavorable foreign exchange rates.
Net sales in the United States in 1997 increased 8.2% to $414.4 million
from $383.0 million in 1996. This increase was attributable to the growth
in the PCC and Processed Minerals product lines. Foreign sales in 1997
increased 8.7% to $187.9 million, primarily as a result of the continued
international expansion of the Company's PCC product line. In 1996, net
sales in the United States were 6.3% higher than in the prior year due to
growth in the PCC and Processed Minerals product lines. Foreign sales in
1996 were 5.3% higher than in the prior year, primarily due to the
international expansion of the Company's PCC product line.
Operating Costs and Expenses
In Millions 1997 Growth 1996 Growth 1995
----------- ------ ------- ------ ------- ------
Cost of goods sold $424.6 7.1% $396.3 5.5% $375.7
Marketing, distribution
and administrative $ 77.1 6.4% $ 72.5 2.9% $ 70.5
Research and development $ 20.4 3.3% $ 19.7 0.4% $ 19.7
Cost of goods sold was 70.5% of sales. This ratio was lower than the
prior year and was primarily attributable to improved profitability in the
Refractory product line. Cost of goods sold in 1996 was 71.3% of sales
which was slightly lower than the prior year. This was also attributable to
the improved profitability of the Refractory product lines.
Marketing, distribution and administrative costs increased 6.4% to $77.1
million and were 12.8% of sales, a slight reduction from the 1996 ratio.
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. In
1996, marketing, distribution and administrative costs increased 2.9% to
$72.5 million and were 13.0% of sales.
17
Research and development expenses during 1997 increased 3.3% to $20.4
million and represented 3.4% of sales, a slight reduction from the 1996
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 1996 and 1995 research
and development spending was $19.7 million.
Income from Operations
In Millions 1997 Growth 1996 Growth 1995
----------- ----- ------ ----- ------ -----
Income from operations $80.2 19.0% $67.4 14.9% $58.7
Income from operations in 1997 increased 19.0% to $80.2 million from
$67.4 million in 1996. This increase was due primarily to solid growth in
the PCC product line and improved profitability in the Refractory product
lines. This profitability occurred because of the successful
implementation of the Company's strategy of introducing high-value,
innovative products. Operating profits were negatively impacted by startup
costs associated with the five new satellite PCC plants and some weakness
in the Processed Minerals product line, specifically in talc products. In
1996, income from operations rose 14.9% to $67.4 million from $58.7 million
in 1995. This growth was achieved through higher sales volumes in the PCC
product line, greater profitability in the Refractory product lines and an
overall decrease in costs and expenses. Operating profits in 1996 were
negatively impacted by the higher cost of magnesia and startup costs
associated with the six new satellite PCC plants.
Non-Operating Deductions
In Millions 1997 Growth 1996 Growth 1995
----------- ------ ------ ------ ------ ------
Non-operating deductions,
net $(8.0) 67.7% $(4.8) 615.5% $(0.7)
Non-operating deductions in 1997 increased due to foreign exchange
losses and higher net interest expense which resulted from a reduction in
capitalized interest costs. These deductions were partially offset by
higher interest income. The reduction in capitalized interest was due to
lower levels of capital spending in the first nine months of 1997. Gross
interest expense decreased 2.6% from the prior year to $8.2 million. The
foreign exchange losses were approximately $1.7 million and occurred
primarily in the joint ventures in Thailand, Indonesia and Korea. 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 1995 due to higher levels of cash-on-hand and
foreign exchange gains, respectively.
Provision for Taxes on Income
In Millions 1997 Growth 1996 Growth 1995
----------- ----- ------ ----- ------ -----
Provision for taxes on income $23.1 18.6% $19.5 3.4% $18.9
The effective tax rate was 32.0% in 1997. In 1996, higher depletion
and utilization of foreign tax credits decreased the effective tax rate to
31.1%; down 1.4 percentage points from the effective tax rate in 1995.
Minority Interests
In Millions 1997 Growth 1996 Growth 1995
----------- ----- ------ ----- ------ ------
Minority interests $(1.2) N.A. $ -- N.A. $(0.4)
Although the Company's consolidated joint ventures reflected
profitable income from operations, they reported a net loss in 1997 due
primarily to the aforementioned foreign exchange losses in Thailand,
Indonesia and Korea. In 1996, foreign exchange had a minimal impact on
these joint ventures.
Net Income
In Millions 1997 Growth 1996 Growth 1995
----------- ----- ------ ----- ------ ------
Net income $50.3 16.7% $43.1 9.0% $39.5
Net income increased 16.7% in 1997 to $50.3 million. In 1996, net
income increased 9.0% to $43.1 million.
Liquidity and Capital Resources
The Company's financial position remained strong during 1997. Cash
flows in 1997 were provided principally from operations and were primarily
applied to fund $77.3 million of capital expenditures. In addition, the
Company remitted its required per annum principal payment of $13 million
under the Company's Guarantied Senior Notes due June 11, 2000 and reduced
its short-term debt. The Company also retired $7.3 million of Industrial
Development Bonds due 2009. Cash provided from operating activities was
the primary source of liquidity and amounted to $120.6 million in 1997,
$69.9 million in 1996 and $58.3 million in 1995.
18
The Variable Fixed Rate Industrial Development Revenue Bonds due April 1,
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%.
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 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 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 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.
On February 26, 1998, the Company's Board of Directors authorized a $150
million stock repurchase program. The stock will be purchased on the open
market from time to time.
In March 1998, the Company entered into a Memorandum of Understanding with
another company for the sale of its Limestone Midwest business. 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 were approximately $20.8 million in
1997. The Company does not expect any significant gain or loss to result
from the sale of these operations.
The Company has also entered into a long-term lease of its Pima County,
Arizona limestone facility with the Georgia Marble Company. Sales for this
facility in 1997 were approximately $1.5 million.
The Company has available approximately $110 million in uncommitted, short-
term bank credit lines, none of which were in use at December 31, 1997.
The 1996 interest rate on the $12.0 million borrowed from these short-term
bank credit lines was 6.93%. The Company anticipates that capital
expenditures for 1998 will be approximately $90 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
its long-term financing requirements from internally generated funds, the
aforementioned uncommitted bank credit lines and, where appropriate,
project financing of certain satellite plants.
Prospective Information and Factors That May Affect Future Results
The Securities and Exchange Commission encourages companies to
disclose forward-looking information so that investors can better
understand a company's future prospects and make informed investment
decisions. This annual report contains such forward-looking statements
that set out anticipated results based on management's plans and
assumptions. Words such as "anticipate," "estimate," "expects,"
"projects," and words and terms of similar substance used in connection
with any discussion of future operating or financial performance identify
these forward-looking statements.
19
The Company cannot guarantee that any forward-looking statement will be
realized, although it believes it has been prudent in its plans and
assumptions. Achievement of future results are subject to risks,
uncertainties and inaccurate assumptions. Should known or unknown risks or
uncertainties materialize, or should underlying assumptions prove
inaccurate, actual results could vary materially from those anticipated,
estimated or projected. Investors should bear this in mind as they
consider forward-looking statements. Discussion of certain risks,
uncertainties and assumptions follow and are discussed under the heading
entitled "Cautionary Factors That May Affect Future Results" in Item 1.
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.
Recently Issued Accounting Standards
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which established standards for computing and presenting earnings
per share (EPS). The Statement simplifies the standards for computing EPS,
replaces the presentation of primary EPS with a presentation of basic EPS
and requires dual presentation of basic and diluted EPS on the face of the
income statement. This Statement required restatement of all prior-period
EPS data presented and did not have a material impact on previously
reported EPS data.
In 1998, the Company will adopt SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company does not expect adoption of these
standards to have a material impact on its Consolidated Financial
Statements.
Year 2000 Conversion
Management has initiated an enterprise-wide program to improve the
capability of the current information systems and to prepare the Company's
computer systems and applications for the year 2000. The Company is
presently in the midst of installing systems which are year 2000-compliant
and will replace the majority of the legacy information technology systems
and applications. It is anticipated that such systems will be installed by
the middle of 1999. The Company does not expect the total cost of the year
2000 conversion to have a material adverse effect on the Company's future
results of operations and financial condition.
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 and
Nominating Committee on Executive Compensation," is incorporated herein by
reference.
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 January 30, 1998" set forth
in the Company's Proxy Statement is incorporated herein by reference.
20
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 waste 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-18.
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated Statement of Income for the years ended December
31, 1997, 1996 and 1995
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995
Notes to the Consolidated Financial Statements
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.
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 (1)
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. (1)
21
10.1(a) - Agreement dated October 22, 1992 between Specialty
Refractories Inc. and Quigley Company Inc., amending Exhibit
10.1 (2)
10.1(b) - Letter Agreement dated October 29, 1992 between Specialty
Refractories Inc. and Quigley Company Inc., amending Exhibit
10.1 (2)
10.2 - Reorganization Agreement, dated as of September 28, 1992, by
and between the Company and Pfizer Inc (1)
10.2(a) - Letter Agreement dated October 29, 1992 between the Company
and Pfizer Inc, amending Exhibit 10.2 (2)
10.3 - Asset Contribution Agreement, dated as of September 28, 1992,
by and between Pfizer Inc and Specialty Minerals Inc. (1)
10.4 - Asset Contribution Agreement, dated as of September 28, 1992,
by and between Pfizer Inc and Barretts Minerals Inc. (1)
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 (2)
10.5 - Form of Employment Agreement, together with schedule
relating to executed Employment Agreements
10.6 - Form of Severance Agreement, together with schedule relating
to executed Severance Agreements (3)
10.7 - Company Employee Protection Plan, as amended August 25,
1994(3)
10.8 - Company Nonfunded Deferred Compensation and Unit Award Plan
for Non-Employee Directors, as amended January 25, 1996 (4)
10.9 - Company Stock and Incentive Plan, as amended and restated as
of May 25, 1995 (5)
10.10 - Company Retirement Annuity Plan, as amended May 25, 1995 (4)
10.11 - Company Nonfunded Supplemental Retirement Plan, as amended
October 27, 1994 (6)
10.12 - Company Savings and Investment Plan, as amended December 19,
1994 (7)
10.13 - Company Nonfunded Deferred Compensation and Supplemental
Savings Plan, as amended October 27, 1994 (6)
10.14 - Rights Agreement, dated as of October 26, 1992, by and between
the Company and Chemical Bank, as Rights Agent
10.15 - Grantor Trust Agreement, dated as of December 29, 1994,
between the Company and The Bank of New York, as Trustee (6)
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 (8)
10.17 - 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 (9)
10.18 - Indenture, dated July 22, 1963, between the Cork Harbour
Commissioners and Roofchrome Limited (1)
10.19 - Agreement of Lease, dated as of May 24, 1993, between the
Company and Cooke Properties Inc (8)
21.1 - Subsidiaries of the Company
23.1 - Report and Consent of Independent Auditors
27 - Financial Data Schedule
(1) Incorporated by reference to the exhibit so designated filed with the
Company's Registration Statement on Form S-1 (Registration No. 33-
51292), originally filed on August 25, 1992.
(2) Incorporated by reference to the exhibit so designated filed with the
Company's Registration Statement on Form S-1 (Registration No. 33-
59510), originally filed on March 15, 1993.
(3) Incorporated by reference to the exhibit so designated filed with the
Company's Annual Report on Form 10-K for the year ended December 31,
1996.
(4) Incorporated by reference to the exhibit so designated filed with the
Company's Annual Report on Form 10-K for the year ended December 31,
1995.
(5) Incorporated by reference to the exhibit so designated filed with the
Company's Registration Statement on Form S-8 (Registration No.
33-96558), originally filed September 1, 1995.
(6) Incorporated by reference to the exhibit so designated filed with the
Company's Annual Report on Form 10-K for the year ended December 31,
1994.
22
(7) Incorporated by reference to the exhibit so designated filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 29, 1997.
(8) Incorporated by reference to the exhibit so designated filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended July 4,
1993.
(9) Incorporated by reference to the exhibit so designated filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fourth quarter of 1997.
23
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: Jean-Paul Valles
--------------------------------
Jean-Paul Valles
Chairman of the Board
and Chief Executive Officer
March 16, 1998
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 and Chief March 16, 1998
Executive Officer (principal
executive officer) and Director
/s/John R. Stack
- --------------------
John R. Stack Vice President-Finance and Chief March 16, 1998
Financial Officer (principal
financial officer)
/s/Mario J. DiNapoli
- --------------------
Mario J. DiNapoli Controller and Chief Accounting March 16, 1998
Officer (principal accounting
officer)
24
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John B. Curcio
- ------------------
John B. Curcio Director March 16, 1998
/s/Steven J. Golub
- -------------------
Steven J. Golub Director March 16, 1998
/s/William L. Lurie
- -------------------
William L. Lurie Director March 16, 1998
/s/Paul M. Meister
- -------------------
Paul M. Meister Director March 16, 1998
/s/Michael F. Pasquale
- ----------------------
Michael F. Pasquale Director March 16, 1998
/s/William C. Steere, Jr.
- -------------------------
William C. Steere, Jr. Director March 16, 1998
25
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Audited Financial Statements:
Consolidated Balance Sheet as of December 31, 1997 and 1996 F-2
Consolidated Statement of Income for the years ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995 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,
------------
1997 1996
---- ----
Assets
Current assets:
Cash and cash equivalents $41,525 $15,446
Accounts receivable, less allowance for
doubtful accounts: 1997--$3,266; 1996--$2,497 108,146 102,494
Inventories 61,166 70,438
Other current assets 15,745 13,902
Total current assets 226,582 202,280
Property, plant and equipment,
less accumulated depreciation and depletion 500,731 501,067
Other assets and deferred charges 14,094 10,514
------- -------
Total assets $741,407 $713,861
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 501 $ 12,339
Current maturities of long-term debt 13,488 13,000
Accounts payable 33,163 29,223
Income taxes payable 11,101 6,609
Accrued compensation and related items 15,923 12,673
Other current liabilities 20,042 12,896
Total current liabilities 94,218 86,740
Long-term debt 101,571 104,900
Accrued postretirement benefits 19,746 20,047
Deferred taxes on income 44,664 39,238
Other noncurrent liabilities 14,211 14,686
Total liabilities 274,410 265,611
------- -------
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 25,370,402 shares in 1997 and
25,259,876 shares in 1996 2,537 2,526
Additional paid-in capital 139,113 135,676
Retained earnings 412,264 364,210
Currency translation adjustment (13,456) 11,560
Minimum pension liability adjustment (1,001) --
Unrealized holding gains 113 163
------- -------
539,570 514,135
Less common stock held in treasury, at cost;
2,830,017 shares in 1997 and 2,660,017 shares
in 1996 72,573 65,885
------- -------
Total shareholders' equity 466,997 448,250
------- -------
Total liabilities and shareholders' equity $741,407 $713,861
======= =======
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,
-----------------------------
1997 1996 1995
-------- -------- --------
Net sales $602,335 $555,988 $524,451
Operating costs and expenses:
Cost of goods sold 424,612 396,345 375,655
Marketing, distribution and administrative
expenses 77,104 72,485 70,464
Research and development expenses 20,391 19,740 19,658
------- ------- -------
Income from operations 80,228 67,418 58,674
Interest income 1,765 966 1,984
Interest expense (7,208) (5,899) (3,467)
Other income (deductions) (2,597) 139 813
------- ------- -------
Non-operating deductions, net (8,040) (4,794) (670)
------- ------- -------
Income before provision for taxes on
income and minority interests 72,188 62,624 58,004
Provision for taxes on income 23,104 19,488 18,850
Minority interests (1,228) 39 (375)
------- ------- -------
Net income $ 50,312 $ 43,097 $ 39,529
======= ======= =======
Basic earnings per share $ 2.23 $ 1.91 $ 1.75
======= ======= =======
Diluted earnings per share $ 2.18 $ 1.86 $ 1.72
======= ======= =======
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,
---------------------------
1997 1996 1995
------- ------- -------
Operating Activities
Net income $50,312 $43,097 $39,529
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 52,936 46,183 40,330
Loss on disposal of property, plant and
equipment 947 786 243
Deferred income taxes 3,689 3,361 5,925
Other (681) (1,500) (1,818)
Changes in operating assets and liabilities:
Accounts receivable (11,195) (4,699) (9,406)
Inventories 7,512 (6,977) (20,505)
Other current assets (1,802) (7,672) (2,807)
Accounts payable and accrued liabilities 14,506 (2,744) 2,591
Income taxes payable 4,564 (269) 3,182
Other (174) 382 999
------- ------ ------
Net cash provided by operating activities 120,614 69,948 58,263
------- ------ ------
Investing Activities
Purchases of property, plant and equipment (77,331) (97,308) (115,051)
Proceeds from disposal of property, plant and
equipment 3,916 1,073 1,003
------ ------ -------
Net cash used in investing activities (73,415) (96,235) (114,048)
------ ------ -------
Financing Activities
Proceeds from issuance of short-term and
long-term debt 20,089 111,659 14,890
Repayment of short-term and long-term debt (34,679) (77,237) (2,100)
Purchase of common shares for treasury (6,688) (5,885) --
Cash dividends paid (2,258) (2,262) (2,264)
Proceeds from issuance of stock under stock
option plan 2,436 2,466 711
Equity and debt proceeds from minority
interests 3,214 2,500 816
------ ------ ------
Net cash (used in) provided by financing
activities (17,886) 31,241 12,053
------ ------ ------
Effect of exchange rate changes on cash
and cash equivalents (3,234) (826) (1,190)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents 26,079 4,128 (44,922)
Cash and cash equivalents at beginning of year 15,446 11,318 56,240
------ ------ ------
Cash and cash equivalents at end of year $41,525 $15,446 $11,318
====== ====== ======
See Notes to Consolidated Financial Statements which are an integral part
of these statements.
F-4
[CAPTION]
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Additional Currency
Common Stock Paid-in Retained Translation
Shares Par Value Capital Earnings Adjustment
------ ---------- ------- -------- -----------
Balance as of
January 1, 1995 25,110 $2,511 $132,134 $286,110 $ 20,222
Net income -- -- -- 39,529 --
Dividends declared -- -- -- (2,264) --
Employee benefit
transactions 43 4 1,087 -- --
Currency translation
adjustment -- -- -- -- (3,291)
Unrealized holding
losses, net -- -- -- -- --
------ ----- ------- ------- ------
Balance as of
December 31, 1995 25,153 2,515 133,221 323,375 16,931
Net income -- -- -- 43,097 --
Dividends declared -- -- -- (2,262) --
Employee benefit
transactions 107 11 2,455 -- --
Currency translation
adjustment -- -- -- -- (5,371)
Purchase of common
stock -- -- -- -- --
Unrealized holding
gains, net -- -- -- -- --
------ ------ ------- ------- ------
Balance as of
December 31, 1996 25,260 2,526 135,676 364,210 11,560
Net income -- -- -- 50,312 --
Dividends declared -- -- -- (2,258) --
Employee benefit
transactions 110 11 2,837 -- --
Income tax benefit
arising from
employee stock
option plans -- -- 600 -- --
Currency translation
adjustment -- -- -- -- (25,016)
Minimum pension
liability adjustment -- -- -- -- --
Purchase of common
stock -- -- -- -- --
Unrealized holding
losses, net -- -- -- -- --
------ ------ -------- -------- --------
Balance as of
December 31, 1997 25,370 $2,537 $139,113 $412,264 $(13,456)
====== ====== ======== ======== ========
See Notes to Consolidated Financial Statements which are an integral part
of these statements.
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)(Continued)
Minimum Unreal-
Pension ized
Liability Holding Treasury Stock
Adjustment Gains Shares Cost Total
---------- ------- ------ -------- --------
Balance as of
January 1, 1995 $ -- $121 (2,500) $(60,000) $381,098
Net income -- -- -- -- 39,529
Dividends declared -- -- -- -- (2,264)
Employee benefit
transactions -- -- -- -- 1,091
Currency translation
adjustment -- -- -- -- (3,291)
Unrealized holding
losses, net -- (10) -- -- (10)
----- ----- ------ ------ -------
Balance as of
December 31, 1995 -- 111 (2,500) (60,000) 416,153
Net income -- -- -- -- 43,097
Dividends declared -- -- -- -- (2,262)
Employee benefit
transactions -- -- -- -- 2,466
Currency translation
adjustment -- -- -- -- (5,371)
Purchase of common
stock -- -- (160) (5,885) (5,885)
Unrealized holding
gains, net -- 52 -- -- 52
----- ----- ------ ------ ------
Balance as of
December 31, 1996 -- 163 (2,660) (65,885) 448,250
Net income -- -- -- -- 50,312
Dividends declared -- -- -- -- (2,258)
Employee benefit
transactions -- -- -- -- 2,848
Income tax benefit
arising from
employee stock
option plans -- -- -- -- 600
Currency translation
adjustment -- -- -- -- (25,016)
Minimum pension
liability adjustment (1,001) -- -- -- (1,001)
Purchase of common
stock -- -- (170) (6,688) (6,688)
Unrealized holding
losses, net -- (50) -- -- (50)
------- ---- ------ -------- --------
Balance as of
December 31, 1997 $(1,001) $113 (2,830) $(72,573) $466,997
======= ==== ====== ======== ========
See Notes to Consolidated Financial Statements which are an integral part
of these statements.
F-5
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $8.6 million and $6.0 million at December 31, 1997
and 1996, 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.
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. The resulting translation
adjustments are recorded in the currency translation adjustment account in
shareholders' equity. Income statement items are generally translated at
average exchange rates prevailing during the period. Other foreign
currency gains and losses are included in net income.
International subsidiaries operating in highly inflationary economies
translate nonmonetary assets at historical rates, while net monetary assets
are translated at current rates, with the resulting translation adjustments
included in net income.
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 bases. 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.
F-6
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Share
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings per Share," which established standards for
computing and presenting earnings per share (EPS). The statement
simplifies the standards for computing EPS, replaces the presentation of
primary EPS with a presentation of basic EPS and requires a dual
presentation of basic and diluted EPS on the face of the income statement.
Basic EPS are based upon the weighted average number of common shares
outstanding during the period.
Diluted EPS are based upon the weighted average number of common
shares outstanding during the period assuming the issuance of common shares
for all dilutive potential common shares outstanding.
Income Taxes
Income before provision for taxes, by domestic and foreign source is
as follows:
Thousands of Dollars 1997 1996 1995
------- ------- -------
Domestic $48,746 $47,410 $42,799
Foreign 23,442 15,214 $15,205
------- ------- -------
Total income before provision
for income taxes $72,188 $62,624 $58,004
======= ======= =======
The provision for taxes on income consists of the following:
Thousands of Dollars 1997 1996 1995
------- ------- -------
Domestic
Taxes currently payable
Federal $7,862 $7,845 $6,455
State and local 2,938 3,593 2,044
Deferred income taxes 4,634 3,291 5,746
Domestic tax provision 15,434 14,729 14,245
Foreign
Taxes currently payable 8,615 4,689 4,426
Deferred income taxes (945) 70 179
------- ------- -------
Foreign tax provision 7,670 4,759 4,605
Total tax provision $23,104 $19,488 $18,850
======= ======= =======
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.
F-7
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1997 1996 1995
---- ----- -----
U.S. statutory tax rate 35.0% 35.0% 35.0%
Depletion (3.7) (5.5) ( 4.7)
Difference between tax provided on
foreign earnings and the U.S.
statutory rate (0.8) (0.9) (1.2)
State and local taxes 2.9 3.9 3.5
Tax credits (0.8) (2.4) ( 0.3)
Other (0.6) 1.0 0.2
---- ---- ----
Consolidated effective tax rate 32.0% 31.1% 32.5%
==== ==== ====
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 1997 1996
---- ----
Deferred tax assets:
Pension and postretirement benefits cost reported
for financial statement purposes in excess of
amounts deductible for tax purposes $7,196 $8,775
State and local taxes 2,789 2,650
Accrued expenses 3,121 2,684
Alternative minimum tax 3,686 8,324
Other 2,060 1,818
------ ------
Total deferred tax assets 18,852 24,251
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation 61,093 61,353
Other 2,423 2,136
------ ------
Total deferred tax liabilities 63,516 63,489
------ ------
Net deferred tax liability $44,664 $39,238
====== ======
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 $14.2 million, $15.4 million and $11.0
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Foreign Operations
The Company has not provided for U.S. federal and foreign withholding
taxes on $57.0 million of foreign subsidiaries' undistributed earnings as
of December 31, 1997 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
$1.7 million.
Net foreign currency exchange gains (losses), included in other income
(deductions) in the Consolidated Statement of Income, were $(1,721,000),
$296,000 and $1,620,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
F-8
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the currency translation adjustment included in the
shareholders' equity section of the Consolidated Balance Sheet are as
follows:
Thousands of Dollars 1997 1996
-------- -------
Currency translation adjustment, January 1 $ 11,560 $16,931
Translation adjustments and hedges (25,016) (5,371)
------- ------
Currency translation adjustment, December 31 $(13,456) $11,560
======= ======
Inventories
The following is a summary of inventories by major category:
Thousands of Dollars 1997 1996
------- -------
Raw materials $19,605 $23,585
Work in process 5,858 8,513
Finished goods 19,812 20,670
Packaging and supplies 15,891 17,670
------- -------
Total inventories $61,166 $70,438
======= =======
Property, Plant and Equipment
The major categories of property, plant and equipment and accumulated
depreciation and depletion are presented below:
Thousands of Dollars 1997 1996
------- -------
Land $22,697 $22,503
Quarries/mining properties 24,148 23,143
Buildings 107,865 107,578
Machinery and equipment 598,190 569,066
Construction in progress 47,594 43,429
Furniture and fixtures and other 49,775 47,163
------- -------
850,269 812,882
Less: Accumulated depreciation and depletion 349,538 311,815
------- -------
$500,731 $501,067
======= =======
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 these instruments.
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:
1997 1996
------------------------ ------------------------
Thousands Market Gross Unrealized Market Gross Unrealized
of Dollars Value Holding Gains Value Holding Gains
- ---------- ------ ---------------- ------ ----------------
Common Stock $424 $230 $558 $340
1995
------------------------
Thousands Market Gross Unrealized
of Dollars Value Holding Gains
- ---------- ------ ----------------
Common Stock $427 $231
The unrealized holding gains, net of taxes, were $113,000, $163,000 and
$111,000, respectively, at December 31, 1997, 1996 and 1995 and are
included as a separate component of shareholders' equity.
F-9
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 these 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. There were
no open forward exchange contracts outstanding at December 31, 1997. At
December 31, 1996, the Company had open forward exchange contracts to sell
$1.1 million of foreign currencies. The difference between these contract
values and the fair value of these instruments was not significant at
December 31, 1996.
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 1997 1996
---- ----
7.70% Industrial Development Revenue Bond Series
1990 Due 2009 $ -- $ 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 1,914 --
------- -------
115,059 117,900
Less: Current maturities 13,488 13,000
------- -------
Long-term debt $101,571 $104,900
======= =======
The 7.70% Industrial Development Revenue Bond Due 2009 was a tax exempt,
19-year instrument issued to finance a PCC plant in Mobile, Alabama. The
bond was 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 was subject to redemption in
whole or in part by the Development Board on or after August 1, 1997 at
varying prices. On July 31, 1997, the company retired 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.
F-10
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Company has selected the variable rate option
on these borrowings and the average interest rate was approximately 4%.
The Variable Fixed Rate Industrial Development Revenue Bonds due April 1,
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%.
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 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 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 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 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.
The Company has available approximately $110 million in uncommitted,
short-term bank credit lines. There were no borrowings on these credit
lines
on December 31, 1997. On December 31, 1996, borrowings on these credit
lines amounted to $12.0 million with an interest rate of 6.93%. The
Company had approximately $108.0 million in unused lines of credit at
December 31, 1996.
During 1997, 1996 and 1995, respectively, the Company incurred interest
costs of $8,198,000, $8,417,000 and $5,308,000 including $990,000,
$2,518,000 and $1,841,000, respectively, 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 1997 1996 1995
---- ---- ----
Service cost -- benefits earned during the period $4.1 $4.6 $3.8
Interest cost on projected benefit obligations 5.2 5.0 4.3
Actual return on plan assets (13.0) (7.7) (9.9)
Net amortization and deferral 7.7 3.5 6.8
---- ---- ----
Net periodic pension cost $4.0 $5.4 $5.0
==== ==== ====
The long-term rate of return on plan assets used in the determination of
net periodic pension cost was 9.25% for 1997, 9% for 1996 and 10% for 1995.
F-11
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actuarial assumptions used in the measurement of the projected benefit
obligations for U.S. plans were:
1997 1996 1995
---- ---- ----
Discount rate 7.25% 7.75% 7.25%
Rate of increase in salary levels 4.25% 4.75% 4.50%
The funded status of the Company's pension plans at December 31, 1997 and
1996 is as follows:
1997 1997 1996 1996
Over- Under- Over- Under-
Funded Funded Funded Funded
Millions of Dollars Plans Plans Plans Plans
------ ------ ------ ------
Actuarial present value of
accumulated benefit obligations:
Vested $(49.1) $(10.0) $(43.6) $(8.7)
Non-vested (9.1) (1.8) (8.2) (1.7)
----- ----- ----- -----
Total (58.2) (11.8) (51.8) (10.4)
Effect of future salary increases (6.9) (2.1) (6.1) (2.6)
Projected benefit obligations (65.1) (13.9) (57.9) (13.0)
Plan assets at fair value 78.0 5.2 65.4 4.4
----- ----- ----- -----
Plan assets in excess of/(less than)
projected benefit obligations 12.9 (8.7) 7.5 (8.6)
Unrecognized underfunding at date
of adoption 3.1 0.4 3.8 0.4
Unrecognized net (gains)/losses (8.4) 1.9 (5.6) 1.0
Unrecognized prior service costs 1.9 1.0 2.1 1.1
Additional minimum liability -- (1.9) -- (0.8)
----- ----- ----- -----
Net pension asset/(liability)
included in Consolidated
Balance Sheet $ 9.5 $(7.3) $ 7.8 $(6.9)
===== ===== ===== =====
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 $3.1 million, $3.0 million and $3.0 million for
the years ended December 31, 1997, 1996 and 1995, 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 1997 1996 1995
- ------------------- ----- ----- -----
Service cost-benefits earned during the year $ 0.8 $ 0.8 $ 0.7
Interest cost on accumulated postretirement
benefit obligations 0.9 0.8 0.7
Amortization of prior service cost (1.7) (1.7) (1.7)
----- ----- -----
Net periodic postretirement benefits cost $ -- $(0.1) $(0.3)
===== ===== =====
F-12
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The actuarial and recorded liabilities for postretirement benefits are as
follows:
Millions of Dollars 1997 1996
- ------------------- ------- -------
Accumulated postretirement benefit obligation:
Retirees $ (2.31) $ (1.22)
Fully eligible active plan participants (4.20) (4.44)
Other active plan participants (7.43) (6.51)
------ ------
Total (13.94) (12.17)
Unrecognized prior service cost (7.18) (8.89)
Unrecognized net loss 1.37 1.01
------ ------
Accrued postretirement benefit liability $(19.75) $(20.05)
====== ======
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 7.75% at December 31, 1997
and 1996, respectively. Compensation levels are assumed to increase at a
rate of 4.25% and 4.75%, respectively, at December 31, 1997 and 1996.
For measurement purposes, a health care cost trend rate of approximately
10.5% for pre-age-65 benefits and 8.5% 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, 1997 by
approximately $110,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year then
ended by approximately $9,000.
Leases
Rent expense for the years ended December 31, 1997, 1996 and 1995,
amounted to approximately $4.2 million, $4.2 million and $4.3 million,
respectively. Total future minimum rental commitments under all
noncancellable leases for the years 1998 through 2002 and thereafter are
approximately $2.1 million, $2.0 million, $1.8 million, $1.8 million, $1.5
million and $16.7 million, respectively.
The Company has entered into a long-term direct financing lease of its Pima
County, Arizona limestone facility with another company. Total future
minimum payments to be received under direct financing leases for the years
1998 through 2002 and thereafter are approximately $0.1 million, $0.2
million, $0.2 million, $0.2 million, $0.2 million and $3.3 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
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
Capital Stock
The Company's authorized capital stock consists of 100 million shares of
common stock, par value $.10 per share, of which 22,540,385 shares and
22,599,859 shares were outstanding at December 31, 1997 and 1996,
respectively, and 1 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
1997. In January 1998, a cash dividend of approximately $565,000 or $ .025
per share, was declared, payable in the first quarter of 1998.
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
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1995 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
Exercised -- (96,290) 24.38
Canceled 23,473 (23,473) 30.35
Balance December 31, 1997 1,125,364 1,628,017 26.41
In 1996, the Company adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." There were no stock options
granted in 1997. The weighted-average fair value per option at the date of
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:
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) 1997 1996
- ----------------------------------------------- ----- -----
Net income As reported $50.3 $43.1
Pro forma $48.8 $41.6
Basic earnings per share As reported $2.23 $1.91
Pro forma $2.16 $1.84
Diluted earnings per share As reported $2.18 $1.86
Pro forma $2.11 $1.80
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, 1997:
Options Outstanding Options Exercisable
- ------------------------------------------ -------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Term (Years) Price at 12/31/97 Price
- --------------- ----------- ------------ -------- ----------- --------
$ 22.625-29.75 879,547 5.2 $ 22.83 879,547 $ 22.83
$ 30.625 748,470 8.1 $ 30.625 249,490 $ 30.625
F-15
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings Per Share (EPS)
Basic EPS 1997 1996 1995
------- ------- -------
Net income $50,312 $43,097 $39,529
Weighted average shares outstanding 22,558 22,621 22,633
------- ------- -------
Basic earnings per share $ 2.23 $ 1.91 $ 1.75
======= ======= =======
Diluted EPS 1997 1996 1995
------- ------- -------
Net income $50,312 $43,097 $39,529
------- ------- -------
Weighted average shares outstanding 22,558 22,621 22,633
Dilutive effect of stock options 555 511 406
------- ------- -------
Weighted average shares outstanding,
adjusted 23,113 23,132 23,039
------- ------- -------
Diluted earnings per share $ 2.18 $ 1.86 $ 1.72
======= ======= =======
Geographic Data
The Company operates in one segment, i.e., specialty minerals. This segment
includes the sale of mineral-based products and services principally 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.
Canada/
United Latin Elimina- Consoli-
($ 000) States Europe Asia America Africa tions dated
- ------------------------------------------------------------------------------
1997
Net sales $414,385 $ 76,023 $44,609 $ 59,925 $ 7,393 $ -- $602,335
Inter-
company
sales 20,847 -- -- -- -- (20,847) --
Total $435,232 $ 76,023 $44,609 $59,925 $ 7,393 $(20,847) $602,335
Income from
operations $ 47,896 $ 8,818 $ 6,916 $14,965 $ 1,633 $ -- $ 80,228
Identifiable
assets $507,601 $104,201 $57,594 $62,292 $ 9,719 $ -- $741,407
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
operations $44,463 $ 5,767 $ 4,416 $11,466 $ 1,306 $ -- $ 67,418
Identifiable
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
operations $39,080 $ 3,746 $ 1,692 $11,687 $ 2,469 $ -- $ 58,674
Identifiable
assets $432,090 $91,635 $72,971 $45,009 $ 7,439 $ -- $649,144
- ----------------------------------------------------------------------------
F-16
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarterly Financial Data (unaudited)
Thousands of Dollars, Except Per Share Amounts
1997 Quarters First Second Third Fourth
-------- -------- -------- --------
Net sales $137,626 $151,765 $155,012 $157,932
Gross profit 40,525 44,365 46,424 46,409
Net income 10,568 12,361 13,713 13,670
Earnings per share:
Basic 0.47 0.55 0.61 0.61
Diluted 0.46 0.54 0.59 0.59
Market Price Range of Common Stock
High 42 7/8 40 7/8 44 15/16 46 1/8
Low 34 32 1/8 36 1/8 39 1/2
Close 34 1/4 37 1/4 44 3/4 45 7/16
Dividends paid per common share $.025 $.025 $.025 $.025
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 share:
Basic 0.38 0.48 0.53 0.52
Diluted 0.37 0.47 0.51 0.51
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
F-17
- ---------------------------------------------------------------------------
Independent Auditors' 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, 1997
and 1996 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, 1997. 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, 1997
and 1996 and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997 in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
January 22, 1998
F-18
- ---------------------------------------------------------------------------
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
January 22, 1998
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 at End
Description of Period Expenses Deductions(a)(b) of Period
- ----------- --------- ---------- --------------- ---------
Year ended December 1997
Valuation and
qualifying accounts
deducted from assets to
which they apply
Allowance for doubtful
accounts $2,497 $1,554 $784 $3,267
====== ====== ==== ======
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
Valuation and
qualifying accounts
deducted from assets to
which they apply
Allowance for doubtful
accounts $2,786 $448 $146 $3,088
====== ====== ==== ======
(a) Includes impact of translation of foreign currencies.
(b) Uncollectible accounts charged against allowance accounts.
S-1