MINERALS TECHNOLOGIES INC (MTX)

Item 7.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations

Cautionary Statement for “Safe Harbor” Purposes under the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the
Company. This report contains statements that the Company believes may be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements relating to the Company’s objectives, plans or
goals, future actions, future 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 and 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 the use of words such as “outlook,” “forecast,” “believes,” “expects,” “plans,” “intends,” “anticipates,” 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. Many of these risks and uncertainties are
difficult to predict or are beyond the Company’s control. Consequently, no forward-looking statements can be guaranteed. Actual future results may vary materially. Significant factors affecting the expectations and forecasts are set forth under “Item
1A — Risk Factors” in this Annual Report on Form 10-K.

The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date
hereof. Investors should refer to the Company’s subsequent filings under the Securities Exchange Act of 1934 for further disclosures.

Executive Summary

Worldwide sales decreased 2%
in 2024 to $2.119 billion as
compared with $2.170 billion in 2023.
Consolidated income from operations was $286.5 million, as compared with $171.8 million in the prior year.  Included in income from operations for 2024 was $11.3 million of litigation expenses incurred in connection with the bankruptcy of the Company’s subsidiaries, BMI Oldco Inc. (f/k/a Barretts Minerals Inc.)
("Oldco") and Barretts Ventures Texas LLC ("BVT" and together with Oldco, the "Chapter 11 Debtors").  In addition, in 2024, the Company entered into a Debtor-in-Possession Credit Agreement with Oldco (the "DIP Credit Agreement") which resulted in a $30.0 million provision for credit loss charge.  The Company also recorded a $12.3 million net gain on the sale of assets relating to a facility in the Engineered Solutions segment in 2024.  Included in income from operations in 2023 was a $71.7 million non-cash impairment charge for Oldco's fixed assets and $29.2 million of litigation expenses in connection with Oldco's bankruptcy filing and by Oldco to defend
against and restore its reserve for claims associated with certain talc products.  In addition, the Company recorded $6.9 million of restructuring charges in 2023.  Net income was $167.1
million in 2024, as compared to $84.1
million in the prior year.  The Company reported diluted earnings of $5.17 per share in 2024 as compared with $2.58 per share in the prior year.

The Company refinanced its senior secured revolving credit facility and term loan in the fourth quarter of 2024, increasing the aggregate
commitments under the revolving credit facility to $400 million and extending out maturities to 2029 for the revolving credit facility and 2031 for the term loan. In connection with the refinancing, the Company incurred $1.8 million of debt
extinguishment expenses.

In 2024, the Company
continued to deliver on its strategic growth initiatives driven by multi-year advancements in new product development, positioning in growth markets and geographies, geographic penetration and growth from acquisitions.

Our balance sheet continues to be strong.  Cash, cash equivalents and short-term investments were $337.1 million as of December 31, 2024.  Cash flow from operations
for 2024 was $236.4 million.  The
Company currently has more than $700 million of available liquidity, including cash on hand, as well as availability under its revolving credit facility. We believe these factors will allow us to meet our anticipated funding requirements. Our intention
is to maintain a balanced approach to capital deployment, by using cash flow for investments in growth, returns to shareholders, and continued debt reduction.

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Outlook

The Company will continue to focus on innovation and new product development and other opportunities for sales growth in 2025 from its existing businesses, as follows:

Consumer & Specialties Segment

Engineered Solutions Segment

All Segments

However, there can be no assurance that we will achieve success in implementing any one or more of these opportunities.

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Results of Operations

Consolidated Income Statement Review

Net Sales

Worldwide net sales in 2024
decreased 2.4% from the previous year to $2,118.5
million.  Included in sales from the prior year were $40.6 million of sales related to Oldco, which was deconsolidated in the fourth quarter of 2023 and primarily impacted sales in the United States.  Net sales in the United States decreased 4.8% to $1,089.4 million in 2024 and represented 51.0% of consolidated
net sales.  International sales increased 0.3% to $1,029.1 million in 2024 and represented 49.0% of consolidated net sales.

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Worldwide net sales in 2023
increased 2.1% from the previous year to $2,169.9
million.  Net sales in the United States increased 0.7% to $1,144.0 million in 2023 and represented 53.0% of consolidated net sales. International sales increased 3.6%
to $1,025.9 million in 2023 and
represented 47.0% of consolidated net sales.

Operating Costs and Expenses

Consolidated cost of sales was $1,570.8
million, $1,662.8 million and $1,660.5
million in 2024, 2023 and 2022, respectively.  Production margin as a percentage of net sales was 25.9% in 2024, 23.4% in 2023 and 21.9% in 2022.  Production margin increased in 2024 primarily due to improved pricing, lower input costs and higher productivity.

Marketing and administrative costs were $209.2
million, $206.0 million and $192.1
million in 2024, 2023 and 2022, respectively.  Marketing and administrative costs as a percentage of net sales were 9.9% in 2024, 9.5% in 2023 and 9.0% in 2022.

Research and development expenses were $23.0
million, $21.2 million and $20.4
million in 2024, 2023 and 2022, respectively.  Research and development expenses as a percentage of net sales were 1.1% in 2024, 1.0% in 2023 and 1.0% in 2022.

In 2024, the Company
recorded a $30.0 million provision for credit losses in connection with the DIP Credit Agreement.  In addition, the Company recorded litigation
expenses of $11.3 million in connection with Oldco's bankruptcy filing.  The Company also recorded a $12.3 million net gain on sale of refractories manufacturing assets in China.

In 2023, the Company recorded a $71.7 million non-cash impairment charge relating to Oldco's fixed assets within the Consumer & Specialties segment, $6.9 million in restructuring costs to further streamline our cost structure as a result of organization efficiencies gained through our resegmentation, and $0.3 million of acquisition-related expenses.  In addition, the Company recorded $29.2
million of net litigation expenses in connection with Oldco’s bankruptcy and by Oldco to defend against and restore its reserve for claims associated with certain talc products.

In 2022, the Company recorded $32.6 million of litigation expenses relating to costs incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from Oldco.  In addition, the Company recorded a $5.1 million charge for acquisition-related expenses.

Income from Operations

During 2024, the Company
recorded income from operations of $286.5 million, as compared with $171.8 million in the prior year.  Income from operations represented 13.5% of sales
compared with 7.9% of sales in the prior year.  Income from operations in 2024 reflected a $30.0 million charge for a provision of credit losses in connection
with the DIP Credit Agreement and $11.3 million of litigation expenses.  In addition, the Company recorded a $12.3 million net gain on sale of refractories manufacturing assets in China.

During 2023, the Company
recorded income from operations of $171.8 million, as compared with $214.8 million in the prior year.  Income from operations represented 7.9% of sales
compared with 10.1% of sales in the prior year.  Income from operations in 2023 reflected $78.6 million in impairment and restructuring charges and $29.2 million of net litigation expenses.

Non-Operating Income (Deductions)

The Company recorded non-operating deductions, net of $62.9 million in 2024 as compared with $64.1 million in the previous year.

Included in non-operating deductions was net interest expense of $56.4 million in 2024 as compared to $59.2 million in the prior year.  In addition, the Company recorded debt extinguishment expenses of $1.8 million related to the refinancing of its credit facilities in the fourth quarter of 2024.

Included in non-operating deductions was net interest expense
of $59.2 million in 2023 as compared to $43.9 million in the prior year, primarily due to higher interest rates. In 2022, the Company recorded debt extinguishment expenses of $6.9 million
related to the refinancing of its credit facilities.  Additionally, the Company recorded a $3.5 million non-cash pension settlement charge relating to some of the Company’s retirement plans in the United
States.

Provision for Taxes on Income

Provision for taxes was $59.4
million, $23.7 million and $32.1
million in 2024, 2023 and 2022, respectively.  The effective tax rates were 26.6%,
22.0% and 20.5% during 2024, 2023 and 2022, respectively.

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The higher effective tax rate in 2024
as compared to 2023 was primarily due to the expected credit loss in connection with the DIP Credit Agreement that the Company entered into
with its subsidiary, Oldco.  Such credit loss is not currently deductible as the loans under such agreement are treated as an equity contribution for tax purposes.  The current expected credit loss may become fully deductible in a future period.  The
timing of such deductibility is dependent on developments in the bankruptcy proceedings.

The higher effective tax rate in 2023
as compared to 2022 was primarily due to the impact of rate differentials related to foreign earnings indefinitely invested.

The other factors having the most significant impact on our effective tax rates in recent periods are percentage depletion, the Global
Intangible Low-Tax Income provision ("GILTI"), Foreign-Derived Intangible Income (“FDII”), 162(m) disallowance, and the tax benefits on restructuring and impairment charges.

Percentage depletion allowances (tax deductions for depletion that may exceed our tax basis in our mineral reserves) are available to us
under the income tax laws of the United States for operations conducted in the United States.  The tax benefits from percentage depletion were $10.0 million in 2024, $11.1 million in 2023 and $9.6 million in 2022.

The Company has elected, as its accounting policy, to treat the taxes due from GILTI as a current period expense when incurred. The net
charge to the Company for GILTI was $1.5 million, $1.1 million and $3.5 million for 2024, 2023 and 2022, respectively.

We operate in various countries around the world that have tax laws, tax incentives and tax rates that are significantly different than
those of the United States.  These differences combine to move our overall effective tax rate higher or lower than the United States statutory rate depending on the mix of income relative to income earned in the United States.  The effects of foreign
earnings and the related foreign rate differentials resulted in increases of $10.5 million, $8.2 million and $3.8 million in 2024, 2023 and 2022, respectively.

In December 2021, as part of the Organization for Economic Co-operation and Development’s (“OECD”) Inclusive Framework, 140 member
countries agreed to the implementation of the Pillar Two Global Minimum Tax (“Pillar 2”).  The Company began implementation of the Pillar 2 Model Rules in the first quarter of 2024.  The Company continues to assess the effect of the Pillar 2 rules in
all jurisdictions and does not expect that Pillar 2 will have a material impact on its consolidated financial statements.

Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $170.9
million in 2024 and included a $31.7 million charge, net of tax.  This charge consisted of a provision for credit loss and litigation
expenses, offset by a gain on a sale of assets.

Consolidated net income was $88.3
million in 2023 and included a $85.8 million charge, net of tax.  This charge consisted of impairment of assets, litigation expenses,
restructuring and acquisition-related expenses.

Segment Review

The following discussions highlight the operating results for each of our two segments.

Consumer & Specialties Segment

2024 v 2023

Net sales in the Consumer & Specialties segment decreased 1.7% to $1,140.2 million, as compared with $1,160.2 million in the prior year.  Household & Personal Care sales increased 2.4%
to $530.0 million from $517.6
million the prior year. This increase was primarily driven by strong demand for our pet litter products in all regions and growth in other high-margin consumer-oriented products.  Specialty Additives sales decreased 5.0% to $610.2 million from $642.6 million primarily as a result of the deconsolidation of Oldco in the fourth quarter of 2023.  Included in Specialty Additives' sales from the prior
year were $40.6 million of sales related to Oldco.

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Income from operations was $165.5
million in 2024, as compared to $41.6
million in 2023.  In 2023, the Company recorded a $71.7 million non-cash impairment of Oldco's fixed assets and litigation expenses of $29.2
million in connection with Oldco's bankruptcy filing and by Oldco to defend against and restore its reserve for claims associated with certain talc products.

2023 v 2022

Net sales in the Consumer & Specialties segment increased 3.2% to $1,160.2 million, as compared with $1,124.6 million in the prior year.  Household & Personal Care sales increased 8.7% to $517.6 million from $476.2 million in the prior year.  This increase was primarily
driven by strong demand for our pet litter products in all regions and growth in other high-margin consumer-oriented products.  Specialty Additives sales decreased 0.9% to $642.6 million from $648.4 million primarily as a result of the deconsolidation of
Oldco in the fourth quarter of 2023.  Sales for Oldco in the fourth quarter of 2022 were $12.0 million.

Income from operations was $41.6
million in 2023, as compared to $79.0
million in 2022.  In 2023, the
Company recorded a $71.7 million non-cash impairment of assets related to Oldco.  In addition, litigation expenses of $29.2 million and $32.6 million were recorded
in 2023 and 2022, respectively,
relating to Oldco.

Engineered Solutions Segment

2024 v 2023

Net sales in the Engineered Solutions segment decreased 3.1% to $978.3 million, as compared with $1,009.7 million in the prior year.  High-Temperature Technologies sales decreased 1.1%
to $713.2 million, as compared with $720.9
million in the prior year.  This decrease was driven by softer demand in some industrial end markets.  Environmental & Infrastructure sales decreased 8.2%
to $265.1 million, as compared with $288.8
million in the prior year as a result of low levels of project activity.

Income from operations was $174.0
million and 17.8% of sales, as compared with $147.8
million and 14.6% of sales in the prior year.  Included in income from operations for 2024 is a $12.3 million net gain on sale of assets.
Included in income from operations for 2023 are $3.2 million of restructuring expenses.

2023 v 2022

Net sales in the Engineered Solutions segment increased 0.9% to $1,009.7 million, as compared with $1,000.9 million in the prior year. High-Temperature Technologies sales increased 2.6% to $720.9 million, as compared with $702.5 million in the prior year.  This increase was
driven by strong demand in the North America market and volume recovery in China. Environmental & Infrastructure decreased 3.2% to $288.8
million, as compared with $298.4 million in the prior year.  This decrease is a result of weak commercial construction activity in 2023.

Income from operations was $147.8
million and 14.6% of sales, as compared with $147.1
million and 14.7% of sales in the prior year.  Included in income from operations for 2023 are $3.2 million of restructuring expenses.

Inflation

While inflation historically has not had a material impact on the Company, our financial performance could be adversely affected by
increases in energy and commodity prices. Our production processes consume a significant amount of energy, primarily electricity, diesel fuel, natural gas and coal. We use diesel fuel to operate our mining and processing equipment and our freight costs
are heavily dependent upon fuel prices and surcharges. Energy costs also affect the cost of raw materials. On a combined basis, these factors represent a large exposure to petrochemical and energy products which may be subject to significant price
fluctuations. The contracts pursuant to which we construct and operate our satellite PCC plants generally adjust pricing to reflect the pass-through of increases in costs resulting from inflation, including lime and energy prices. However, there is a
time lag before such price adjustments can be implemented. The Company and its customers will typically negotiate reasonable price adjustments in order to recover a portion of these escalating costs, but there can be no assurance that we will be able
to recover increasing costs through such negotiations.

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Cyclical Nature of Customers’ Businesses

Portions of our sales to customers in the paper manufacturing, metalcasting, steel manufacturing, oil and gas and construction industries
have historically been cyclical. The pricing structure of some of our long-term PCC contracts makes our PCC business less sensitive to declines in the quantity of product purchased.  Oil and natural gas prices decreased significantly between 2014 through 2017 and again in 2020, which has caused exploration companies to reduce their capital expenditures and production and exploration activities. This has had the effect of
decreasing the demand and increasing competition for the services we provide. We cannot predict the economic outlook in the countries in which we do business, nor in the key industries we serve.

Liquidity and Capital Resources

Cash provided from continuing operations in 2024 was $236.4 million, compared with $233.6 million in prior year. Cash flows provided from operations in 2024
were principally used to fund capital expenditures, repay debt, repurchase shares and to pay the Company’s dividend to common shareholders. The Company’s intention is to use cash flow for investments in growth, returns to shareholders, and continued
debt reduction.

On November 26, 2024, the Company, entered into a Refinancing Facility Agreement and Incremental Facility Amendment (the
“Amendment”) to amend the Company's previous credit agreement (the "Previous Credit Agreement; the previous credit agreement, as amended by the Amendment, being the "Amended Credit Agreement"). The Amendment provides for, among other things, a new
senior secured revolving credit facility with aggregate commitments of $400 million (the “Revolving Facility”), a portion of which may be used for the issuance of letters of credit and swingline loans, and a new senior secured term loan facility
with aggregate commitments of $575 million (the “Term Loan Facility” and, together with the Revolving Facility, the "Senior Secured Credit Facilities"). The Revolving Facility and the Term Loan Facility replace the facilities under the Previous
Credit Agreement, which provided for, among other things, a $550 million senior secured term loan facility and a $300 million senior secured revolving credit facility. The maturity date for loans and commitments under the Revolving Facility is
November 26, 2029, and the maturity date for loans under the Term Loan Facility is November 26, 2031; provided that the maturity dates of the Revolving Facility and the Term Loan Facility will be adjusted to the date that is 91 days prior to the
stated maturity date of the Company’s 5.0% Senior Notes due 2028 (the “Notes”) unless, prior to the date that is 91 days prior to the stated maturity date of the Notes, all amounts in excess of $50 million of the Notes have been either (a)
refinanced with indebtedness permitted under the Amended Credit Agreement maturing later than 90 days after the scheduled maturity date of the Revolving Facility or of the Term Loan Facility, as applicable, or (b) repaid, discharged or repaid
(other than with the proceeds of any indebtedness maturing earlier than 91 days after the scheduled maturity date of the Revolving Facility or of the Term Loan Facility, as applicable).  Loans under the Term Loan Facility amortize at a rate equal
to 1.00% per annum, payable in equal quarterly instalments, and were issued with original issue discount at 99.875% of par.

Loans under the Revolving Facility will bear interest at a rate equal to (a) for loans denominated in U.S. dollars, at the election
of the Company, Term SOFR plus an applicable margin equal to 1.375% per annum or a base rate plus an applicable margin equal to 0.375% per annum, (b) for loans denominated in Euros, adjusted EURIBOR plus an applicable margin equal to 1.375% per annum
and (c) for loans denominated in Pounds Sterling, SONIA plus an applicable margin equal to 1.375% per annum, subject in each case to (i) an increase of 37.5 basis points in the event that, and for so long as, the Net Leverage Ratio (as defined in the
Amended Credit Agreement) is greater than or equal to 3.00 to 1.00 as of the last day of the preceding fiscal quarter, (ii) an increase of 12.5 basis points in the event that, and for so long as, the Net Leverage Ratio is less than 3.00 to 1.00 and
greater than or equal to 2.00 to 1.00 as of the last day of the preceding fiscal quarter and (iii) a decrease of 12.5 basis points in the event that, and for so long as, the Net Leverage Ratio is less than 1.00 to 1.00 as of the last day of the
preceding fiscal quarter.  Loans under the Term Loan Facility will bear interest at a rate equal to, at the election of the Company, Term SOFR plus an applicable margin equal to 2.00% per annum or a base rate plus an applicable margin equal to 1.00%
per annum.  The Company will pay certain fees under the Amended Credit Agreement, including (a) a commitment fee of 0.175% per annum on the undrawn portion of the Revolving Facility (subject to a step-ups to 0.300% and 0.250% and a step-down to
0.150% at the same levels described above), (b) a fronting fee of 0.125% per annum on the average daily undrawn amount of, plus unreimbursed amounts in respect of disbursements under, letters of credit issued under the Revolving Facility and (c)
customary annual administration fees. The obligations of the Company under the Senior Secured Credit Facilities are unconditionally guaranteed jointly and severally by, subject to certain exceptions, all material domestic subsidiaries of the Company
(the “Guarantors”) and secured, subject to certain exceptions, by a security interest in substantially all of the tangible and intangible assets of the Company and the Guarantors.

In the fourth quarter of 2024, the Company recorded $1.8 million in non-cash debt extinguishment expenses related to the refinancing of our credit facilities, which represents the difference between the redemption payment and the carrying value of
the debt at the refinancing date. All lenders under the previous facility were repaid in full.

As of December 31, 2024,
there were $4.5 million in loans and $9.1
million in letters of credit outstanding under the Revolving Facility.

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On June 30, 2020, the Company issued $400 million aggregate principal amount of Notes. The Notes were issued pursuant to an indenture,
dated as of June 30, 2020, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Indenture”).  The Notes bear an interest rate of 5.0% per annum payable semi-annually on January 1 and July 1 of each year, beginning
on January 1, 2021.  The Notes are unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly owned domestic restricted subsidiaries that is a borrower under or that guarantees the Company’s obligations
under its Senior Secured Credit Facilities or that guarantees the Company’s or any of the Company’s wholly owned domestic subsidiaries’ long-term indebtedness in an aggregate amount in excess of $50 million.

The Company may redeem some or all of the Notes at any time and from time to time at the applicable redemption prices listed in
the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If the Company experiences a change of control (as defined in the indenture), the Company is required to offer to repurchase the Notes at
101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

The Amended Credit Agreement and the Indenture both contain certain customary affirmative and negative covenants that limit or restrict
the ability of the Company and its restricted subsidiaries to enter into certain transactions or take certain actions, as well as customary events of default. In addition, the Amended Credit Agreement contains a financial covenant that requires the
Company to maintain a maximum Net Leverage Ratio of 4.00 to 1.00 for each four fiscal quarter period (subject to an increase to 5.00 to 1.00 for four quarters in connection with certain significant acquisitions).

The Company has a committed loan facility in Japan. As of December 31, 2024, there was an outstanding balance of $0.9 million on this facility.  Principal
will be repaid in accordance with the payment schedule ending in 2026.  The Company repaid $0.4 million on these loans in 2024.

As part of the Concept Pet acquisition, the Company assumed $1.9 million in long-term debt, recorded at fair value, consisting of two
terms loans, one that matures in 2025 and one that matures in 2027.  Both loans have annual payments and carry a variable interest rate.  The Company repaid $0.3
million on these loans during 2024.

As of December 31, 2024, the
Company had $24.3 million in uncommitted short-term bank credit lines, $0.6 million of which were in use. The credit lines are primarily outside the U.S. and are generally one year in term
at competitive market rates at large, well-established institutions.  The Company typically uses its available credit lines to fund working capital requirements or local capital spending needs.  We anticipate that capital expenditures for 2025 should be between $90 million and $100 million, principally related to
opportunities to improve our operations and meet our strategic growth objectives. We expect to meet our other long-term financing requirements from internally generated funds and committed and uncommitted bank credit lines.

In the second quarter of 2023, the Company entered into a floating to fixed interest rate swap for a notional amount of $150 million.  The fair value of this instrument as of December 31, 2024 is an asset of $0.3 million.

In addition to long-term debt, the Company has committed cash outflow related to pension and post-retirement benefit obligations,
non-cancelable operating leases, primarily for office space and equipment, and other long-term contractual obligations. Other long-term liabilities include tax liabilities, including contingent obligations associated with gross unrecognized tax
benefits for uncertain tax positions and a tax liability for the one-time transition tax on accumulated foreign subsidiary earnings, asset retirement obligations relating to the retirement of certain tangible long-lived assets and land restoration
obligations at the Company’s PCC satellite facilities and mining operations.  See Notes 2, 8, 15, 16 and 20 to the Consolidated Financial Statements.

On October 18, 2023, the Company’s Board of Directors authorized the Company’s management to repurchase, at its discretion, up to $75
million of the Company’s shares over a one-year period.  Over this program's one-year period, 1,034,692 shares have been repurchased under
this program for $75 million, or an average price of approximately $72.48 per share.  This program is now complete.

On October 16, 2024, the Company's Board of Directors authorized the Company's management to repurchase, at its discretion, up to $200
million of the Company's shares.  As of December 31, 2024, 34,934 shares have been repurchased under this program for $2.8 million, or an
average price of approximately $79.27 per share. This authorization has no expiration date.

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On January 22, 2025, the Company’s Board of Directors declared a regular quarterly dividend on its common stock of $0.11 per share.  No
dividend will be payable unless declared by the Board and unless funds are legally available for payment thereof.

The Company and certain of the Company’s subsidiaries are
among numerous defendants in over six hundred cases seeking damages for alleged exposure to asbestos-contaminated talc products sold by the Company’s subsidiary Oldco. The Company’s position is that these cases are meritless and all talc products
sold by Oldco are safe. On October 2, 2023 (the “Petition Date”), notwithstanding the Company’s confidence in the safety of Oldco’s talc products, the Chapter 11 Debtors filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of Texas (the “Chapter 11 Cases”) to address and comprehensively resolve Oldco’s liabilities associated with talc. Minerals Technologies Inc. and the Company’s other subsidiaries
were not included in the Chapter 11 filing. In the second quarter of 2024, Oldco sold its talc assets under section 363 of the U.S. Bankruptcy Code. In
addition, in the second quarter of 2024, the Company entered into a Debtor-in-Possession Credit Agreement with Oldco (the "DIP Credit Agreement") and recorded a provision for credit loss of $30 million for the maximum principal amount under such DIP
Credit Agreement. Proceeds of the sale of Oldco's talc assets, as well as the funds drawn by Oldco under the DIP Credit Agreement, will be used to fund the Chapter 11 Cases.
The Chapter 11 Debtors' ultimate goal in the Chapter 11 Cases is to confirm a plan of reorganization under Section 524(g) of the U.S. Bankruptcy Code and utilize this provision of the Bankruptcy Code to establish a trust that will address all current
and future talc-related claims.  In January 2024, the Chapter 11 Debtors and Minerals Technologies Inc. commenced a court-approved mediation process with the Official Committee of Unsecured Creditors (appointed in the Chapter 11 Cases as the
representative of current talc claimants) and the Future Claimants Representative (appointed in the Chapter 11 Cases as the representative of future talc claimants) regarding the terms of a potential consensual plan of reorganization and the ultimate
amount to be contributed to any trust.  The mediation process is ongoing. During the pendency of the Chapter 11 Cases, the Company anticipates that the Chapter 11 Debtors will benefit from the operation of the automatic stay, which stays ongoing
litigation in connection with talc-related claims against Oldco. In addition, subject to certain exceptions, the filing or continued prosecution of all talc-related claims against Oldco’s non-debtor affiliates is temporarily stayed through April 15,
2025 (subject to further extensions), the date on which a hearing is scheduled on the status of the Chapter 11 Cases. The Chapter 11 Debtors have been deconsolidated from the Company’s financial statements since the Petition Date. Although the
Chapter 11 Cases are progressing, it is not possible to predict the form of any ultimate resolution or when an ultimate resolution might occur at this time. Accordingly, the amount that will be necessary to fully and finally resolve all of the
Chapter 11 Debtors' current and future talc-related claims in connection with a confirmed Chapter 11 plan of reorganization cannot be estimated with certainty at this time.  See Note 17 to the consolidated financial statements included in this report for more information.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting principles.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, valuation of long-lived
assets, goodwill and other intangible assets, income taxes, including valuation allowances and pension plan assumptions. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that cannot readily be determined from other sources.  There can be no assurance that actual results will not differ from those estimates.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our
consolidated financial statements.

Revenue Recognition

Revenue is recognized at the point in time when the customer obtains control of the promised goods or services in an amount that reflects
the consideration we expect to receive in exchange for those goods or services.  The Company’s revenues are primarily derived from the sale of products.  Our primary performance obligation is satisfied upon shipment or delivery to our customer based on
written sales terms, which is also when control is transferred.   Revenue, where our performance obligations are satisfied in phases, is recognized over time using certain input measures based on the measurement of the value transferred to the
customer, including milestones achieved.  Revenues from sales of equipment are recorded upon completion of installation and transfer of control to the customer.   Revenues from services are recorded when the services are performed.

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In most of our PCC contracts, the price per ton is based upon the total number of tons sold to the customer during the year. Under those
contracts, the price billed to the customer for shipments during the year is based on periodic estimates of the total annual volume that will be sold to the customer. Revenues are adjusted at the end of each year to reflect the actual volume sold.
There were no significant revenue adjustments in the fourth quarter of 2024 and 2023, respectively. We have consignment arrangements with certain customers in our Engineered Solutions segment.  Revenues for these transactions are recorded when the consigned products are
consumed by the customer.

Allowance for Credit Losses

The allowance for credit losses (ACL) is management's estimate of the current expected credit losses at the balance sheet date.  Our
credit exposure includes an unfunded load commitment.  For this exposure, we recognized an ACL associated with the unfunded amount, which is reported as a liability in accrued expenses and other current liabilities on our consolidated balance sheet.

Valuation of Long-lived Assets, Goodwill and Other Intangible Assets

We assess the possible impairment of long-lived assets and identifiable amortizable intangibles whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.

Goodwill is evaluated for impairment at least annually.  Factors we consider important that could trigger an impairment review include the
following:

Annually, the Company performs a qualitative assessment for each of its reporting units to determine if the two-step process for
impairment testing is required.  If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company then evaluates the recoverability of goodwill using a two-step impairment
test approach at the reporting unit level.  Step one involves a) developing the fair value of total invested capital of each reporting unit in which goodwill is assigned; and b) comparing the fair value of total invested capital for each reporting unit
to its carrying amount, to determine if there is goodwill impairment.  Should the carrying amount for a reporting unit exceed its fair value, then the step one test is failed, and the magnitude of any goodwill impairment is determined under step two.
The amount of impairment loss is determined in step two by comparing the implied fair value of reporting unit goodwill with the carrying amount of goodwill.

The Company has two reporting units; Consumer & Specialties and Engineered Solutions. We identify our reporting units by assessing
whether the components of our operating segments constitute businesses for which discrete financial information is available, and management regularly reviews the operating results of those components.  In the fourth quarter of 2024, the Company performed a qualitative assessment of each of its reporting units and determined it was not more likely than not that the fair value of
any of its reporting units was less than their carrying values.

Property, plant and equipment are depreciated over their useful lives. Useful lives are based on management’s estimates of the period that
the assets can generate revenue, which does not necessarily coincide with the remaining term of a customer’s contractual obligation to purchase products made using those assets.  Our sales of PCC are predominately pursuant to long-term evergreen
contracts, initially ten years in length, with paper mills at which we operate satellite PCC plants.  The terms of many of these agreements have been extended, often in connection with an expansion of the satellite PCC plant.  Failure of a PCC customer
to renew an agreement or continue to purchase PCC from our facility could result in an impairment of assets or accelerated depreciation at such facility.

We evaluate the recoverability of our property, plant and equipment whenever events or change in circumstances indicate that the carrying
value of the assets may not be recoverable.  For testing the recoverability, we primarily use discounted cash flow models or cost approach to estimate the fair value of these assets.  Critical assumptions used in conducting these tests included
expectations of our business performance and financial results, useful lives of assets, discount rates and comparable market data.

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When we acquire a company, we determine fair value on the acquisition date of assets acquired and liabilities assumed.  We use the income,
market or cost approach (or a combination thereof) for the valuation and use valuation inputs and analyses that are based on market participant assumptions. Changes in assumptions can have a significant impact on the fair value of tangible assets.
Goodwill is calculated as the excess of the consideration transferred over the assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the
jurisdictions in which we operate.  This process involves estimating current tax expense together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes.  These differences result in deferred
tax assets and liabilities, which are included in the consolidated balance sheet.  We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely,
we must establish a valuation allowance.  To the extent we establish a valuation allowance or change this allowance in a period, we must include an expense within the tax provision in the Consolidated Statements of Income.

Deferred tax liabilities represent the amount of income taxes payable in future periods.  Such liabilities arise because of temporary
differences between the financial reporting and tax bases of assets and liabilities.  Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.  Such assets arise because of temporary
differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating losses.  We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from
all sources, including reversal of taxable temporary differences and forecasted operating earnings.  These sources of income inherently rely heavily on estimates. We use our historical experience and business forecasts to provide insight.  The amount
recorded for the net deferred tax liability was $115.7 million and $123.3 million at December 31, 2024 and 2023, respectively.

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As
such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and
judgments can materially affect the amounts recognized in the consolidated balance sheets and statements of operations. See Note 8 to the
Consolidated Financial Statements for additional details on our uncertain tax positions.

Pension Benefits

We sponsor pension and other retirement plans in various forms covering the majority of employees who meet eligibility requirements.
Several statistical and actuarial models which attempt to estimate future events are used in calculating the expense and liability related to the plans.  These models include assumptions about the discount rate, expected return on plan assets and the
rate of future compensation increases as determined by us, within certain guidelines.  Our assumptions reflect our historical experience and management’s best judgment regarding future expectations.  In addition, our actuarial consultants also use
subjective factors such as withdrawal and mortality rates to estimate these assumptions.  The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates,
or longer or shorter life spans of participants, among other things.

The investment strategy for pension plan assets is to maintain a broadly diversified portfolio designed to both preserve and grow plan
assets to meet future plan obligations. The Company’s average rate of return on assets from inception through December 31, 2024 was
approximately 9%.  The Company’s assets are strategically allocated among equity, debt and other investments to achieve a diversification level
that dampens fluctuations in investment returns.  The Company’s long-term investment strategy is an investment portfolio mix of approximately 55%-65% in equity securities, 30%-35% in fixed income securities and 0%-15% in other securities.  As of December 31, 2024,
the Company had approximately 55% of its pension assets in equity securities, 33% in fixed income securities and 12% in other securities.

The Company recognized pension expense of $1.9
million in 2024 as compared to $5.7
million in 2023.  Accounting guidance on retirement benefits requires companies to discount future benefit obligations back to today’s dollars
using a discount rate that is based on high-quality fixed-income investments.  A decrease in the discount rate increases the pension benefit obligation, while an increase in the discount rate decreases the pension benefit obligation.  This increase or
decrease in the pension benefit obligation is recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as an actuarial gain or loss.  The guidance also requires companies to use an expected long-term rate of
return on plan assets for computing current year pension expense.  Differences between the actual and expected returns are also recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as actuarial gains and
losses.  At the end of 2024, total actuarial losses recognized in Accumulated other comprehensive loss for pension plans were $1.3 million as compared to $32.1 million in 2023.

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A net gain of $40.6 million
($30.6 million after-tax) primarily due to actuarial gains, driven by a change in discount rates is included in other comprehensive income in 2024. In 2023, a net gain of $7.6 million ($5.6 million after-tax) was
recorded in other comprehensive income, primarily due to actuarial gains, driven by a change in discount rates. In 2022, a net gain of $46.3 million ($35.3 million after-tax) was
recorded in other comprehensive income, primarily due to a change in discount rates.

Actuarial losses for pensions will be impacted in future periods by actual asset returns, discount rate changes, actual demographic
experience and other factors that impact these expenses.  These losses, reported in Accumulated other comprehensive income (loss), will generally be amortized as a component of net periodic benefit cost on a straight-line basis over the average
remaining service period of active employees expected to receive benefits under the benefit plans.  At the end of 2024, the average remaining
service period of active employees or life expectancy for fully eligible employees was 9 years.

For a detailed discussion on the application of these and other accounting policies, see “Summary of Significant Accounting Policies” in
Note 1 to the Consolidated Financial Statements. This discussion and analysis should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this report.

Recently Issued Accounting Standards

Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial
Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to
be either not applicable or are expected to have a minimal impact on our consolidated financial position and results of operations.

Adoption of Segment Reporting (Topic 280):  Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):  Improvements to Reportable Segment Disclosures”, which
requires entities to report incremental information about significant segment expenses included in a segment’s profit or loss measure, as well as the name and title of the chief operating decision maker.  The guidance also requires interim disclosures
related to reportable segment profit or loss and assets that had previously only been disclosed annually.  The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December
15, 2023.  The Company adopted this guidance on January 1, 2024 and updated the disclosures contained in Note 21.  This guidance did not
impact the Company's consolidated financial statements.

Income Taxes (Topic 740):  Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):  Improvements to Income Tax Disclosures”, that requires entities
to disclose additional information about federal, state, and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid.  The new standard also eliminates certain existing disclosure requirements related to
uncertain tax positions and unrecognized deferred tax liabilities.  The new standard is effective for interim and annual periods beginning on or after December 15, 2024.   The adoption of this standard is not expected to have a material impact on the
Company’s consolidated financial statements but will result in disaggregation of the Company's tax footnote.

Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):  Disaggregation
of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures
(Subtopic 220-40):  Disaggregation of Income Statement Expenses”, that requires entities to disclose additional information in the notes to the financial statements about prescribed categories underlying any relevant income statement expense caption.
The new standard is effective for annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027.  The adoption of this standard is not expected to have a material impact on the Company’s
consolidated financial statements.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for “Safe Harbor” Purposes under the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. This report contains statements that the Company believes may be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements relating to the Company’s objectives, plans or goals, future actions, future 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 and 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 the use of words such as “outlook,” “forecast,” “believes,” “expects,” “plans,” “intends,” “anticipates,” 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. Many of these risks and uncertainties are difficult to predict or are beyond the Company’s control. Consequently, no forward-looking statements can be guaranteed. Actual future results may vary materially. Significant factors affecting the expectations and forecasts are set forth under “Item 1A — Risk Factors” in this Annual Report on Form 10-K.

The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof. Investors should refer to the Company’s subsequent filings under the Securities Exchange Act of 1934 for further disclosures.

Executive Summary

Worldwide sales increased 2% in 2023 to $2.170 billion as compared with $2.126 billion in 2022.  Consolidated income from operations was $171.8 million, as compared with $214.8 million in the prior year.  Included in income from operations for 2023 was a $71.7 million non-cash impairment charge related to the fixed assets of the Company’s subsidiaries, Barretts Minerals Inc.’s (“BMI”) and Barretts Ventures Texas LLC (together with BMI, “Barretts”) and $29.2 million of net litigation expenses incurred in connection with BMI’s bankruptcy, and by BMI to defend against and restores its reserve for claims associated with certain talc products.  In addition, the Company recorded $6.9 million of restructuring charges and $0.3 million of acquisition-related expenses in 2023. Included in income from operations in 2022 was $32.6 million of litigation expenses and $5.1 million of acquisition-related expenses.  Net income was $84.1 million in 2023, as compared to $122.2 million in the prior year.  The Company reported diluted earnings of $2.58 per share in 2023 as compared with $3.73 per share in the prior year.

On October 2, 2023, notwithstanding the Company’s confidence in the safety of BMI’s talc products, Barretts filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas to address and comprehensively resolve BMI’s liabilities associated with talc.  Minerals Technologies Inc. and the Company’s other subsidiaries were not included in the Chapter 11 filing.  Upon this filing, BMI was deconsolidated from the Company’s consolidated financial statements.

In 2023, the Company continued to deliver on its strategic growth initiatives driven by multi-year advancements in new product development, positioning in growth markets and geographies, geographic penetration and growth from acquisitions.

Our balance sheet continues to be strong.  Cash, cash equivalents and short-term investments were $321.5 million as of December 31, 2023.  Cash flow from operations for 2023 was $233.6 million.  The Company currently has more than $500 million of available liquidity, including cash on hand, as well as availability under its revolving credit facility. We believe these factors will allow us to meet our anticipated funding requirements. Our intention is to maintain a balanced approach to capital deployment, by using cash flow for investments in growth and continued debt reduction.

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Outlook

The Company will continue to focus on innovation and new product development and other opportunities for sales growth in 2024 from its existing businesses, as follows:

Consumer & Specialties Segment

Engineered Solutions Segment

All Segments

However, there can be no assurance that we will achieve success in implementing any one or more of these opportunities.

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Results of Operations

Consolidated Income Statement Review

*  Not meaningful

Net Sales

Worldwide net sales in 2023 increased 2.1% from the previous year to $2,169.9 million.  Net sales in the United States increased 0.7% to $1,144.0 million in 2023 and represented 53.0% of consolidated net sales.  International sales increased 3.6% to $1,025.9 million in 2023 and represented 47.0% of consolidated net sales.

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Worldwide net sales in 2022 increased 14.4% from the previous year to $2,125.5 million. Included in net sales for 2022 are $14.7 million of net sales of Concept Pet Heimtierprodukte GmbH (“Concept Pet”), a European supplier of pet litter products we that acquired in April 2022, and $70.0 million of incremental sales from Normerica Inc. (“Normerica”), a North American supplier of premium pet care products that we acquired in July 2021. Foreign exchange had an unfavorable impact on sales of approximately $100 million or 6 percentage points. Net sales in the United States increased 18.3% to $1,135.6 million in 2022 and represented 53.0% of consolidated net sales. International sales increased 10.1% to $989.9 million in 2022 and represented 47.0% of consolidated net sales.

Operating Costs and Expenses

Consolidated cost of sales was $1,662.8 million, $1,660.5 million and $1,411.8 million in 2023, 2022 and 2021, respectively.  Production margin as a percentage of net sales was 23.4% in 2023, 21.9% in 2022 and 24.0% in 2021.  Production margin increased in 2023 primarily due to timing of pricing actions relative to higher inflationary costs, including energy and other manufacturing costs as well as supply chain and logistics challenges.

Marketing and administrative costs were $206.0 million, $192.1 million and $186.2 million in 2023, 2022 and 2021, respectively.  Marketing and administrative costs as a percentage of net sales were 9.5% in 2023, 9.0% in 2022 and 10.0% in 2021.

Research and development expenses were $21.2 million, $20.4 million and $19.5 million in 2023, 2022 and 2021, respectively.  Research and development expenses as a percentage of net sales were 1.0% in 2023, 1.0% in 2022 and 1.0% in 2021.

In 2023, the Company recorded a $71.7 million non-cash impairment charge relating to Barretts’ fixed assets within the Consumer & Specialties segment, $6.9 million in restructuring costs to further streamline our cost structure as a result of organization efficiencies gained through our recent resegmentation, and $0.3 million of acquisition-related expenses.  In addition, the Company recorded $29.2 million of net litigation expenses in connection with BMI’s bankruptcy and by BMI to defend against and restore its reserve for claims associated with certain talc products.

In 2022, the Company recorded $32.6 million of litigation expenses relating to costs incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from BMI.  In addition, the Company recorded a $5.1 million charge for acquisition related transaction and integration costs.

In 2021, the Company recorded a $1.1 million charge for asset write-downs and other restructuring costs and $4.0 million for acquisition related transaction and integration costs.

Income from Operations

During 2023, the Company recorded income from operations of $171.8 million, as compared with $214.8 million in the prior year.  Income from operations represented 7.9% of sales compared with 10.1% of sales in the prior year.  Income from operations in 2023 reflected $78.6 million in impairment and restructuring charges,  a $0.3 million charge for acquisition-related expenses, and  $29.2 million of net litigation expenses.

During 2022, the Company recorded income from operations of $214.8 million, as compared with $235.7 million in the prior year.  Income from operations represented 10.1% of sales compared with 12.7% of sales in the prior year.  Income from operations in 2022 reflected a $32.6 million charge for litigation costs  and a $5.1 million charge for acquisition related transaction and integration costs.

Non-Operating Income (Deductions)

The Company recorded non-operating deductions, net of $64.1 million in 2023 as compared with $58.1 million in the previous year.

Included in non-operating deductions was net interest expense of $59.2 million in 2023 as compared to $43.9 million in the prior year, primarily due to higher interest rates.

Included in non-operating deductions was net interest expense of $43.9 million in 2022 as compared to $37.2 million in the prior year, primarily due to higher interest rates. In 2022, the Company recorded debt extinguishment expenses of $6.9 million related to the refinancing of its credit facilities.  Additionally, the Company recorded a $3.5 million non-cash pension settlement charge relating to some of the Company’s retirement plans in the United States.

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Provision for Taxes on Income

Provision for taxes was $23.7 million, $32.1 million and $36.6 million in 2023, 2022 and 2021, respectively.  The effective tax rates were 22.0%, 20.5% and 18.1% during 2023, 2022 and 2021, respectively.

The higher effective tax rate in 2023 as compared to 2022 was primarily due to the impact of rate differentials related to foreign earnings indefinitely invested.  The higher effective tax rate in 2022 as compared to 2021 was primarily due to the impact of  the Global Intangible Low-Tax Income provision (“GILTI”) and the 162(m) disallowance.

The other factors having the most significant impact on our effective tax rates in recent periods are percentage depletion, GILTI, Foreign-Derived Intangible Income (“FDII”), 162(m) disallowance, and the tax benefits on restructuring and impairment charges.

Percentage depletion allowances (tax deductions for depletion that may exceed our tax basis in our mineral reserves) are available to us under the income tax laws of the United States for operations conducted in the United States.  The tax benefits from percentage depletion were $11.1 million in 2023, $9.6 million in 2022 and $10.9 million in 2021.

The Company has elected, as its accounting policy, to treat the taxes due from GILTI as a current period expense when incurred. The net charge to the Company for GILTI was $1.1 million, $3.5 million and $1.2 million for 2023, 2022 and 2021, respectively.

We operate in various countries around the world that have tax laws, tax incentives and tax rates that are significantly different than those of the United States.  These differences combine to move our overall effective tax rate higher or lower than the United States statutory rate depending on the mix of income relative to income earned in the United States.  The effects of foreign earnings and the related foreign rate differentials resulted in increases of $8.2 million, $3.8 million and $5.2 million in 2023, 2022 and 2021, respectively.

In 2021, as part of the Organization for Economic Co-operation and Development’s (“OECD”) Inclusive Framework, 140 member countries agreed to the implementation of the Pillar Two Global Minimum Tax (“Pillar 2”).  The Company expects to be subject to the Pillar 2 Model Rules starting in the 2024 calendar year.  Management is currently assessing the jurisdictions that could give rise to additional taxation as well as any potential impacts as a result of the implementation of the rules.  At this time, the Company does not anticipate Pillar 2 to have a material impact on its consolidated financial statements.

Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $88.3 million in 2023 and included a $85.8 million charge, net of tax.  This charge consisted of impairment of assets, litigation expenses, restructuring and acquisition related transaction and integration costs.

Consolidated net income was $126.3 million in 2022 and included a $37.9 million charge, net of tax.  This charge consisted of litigation expenses, acquisition related transaction and integration costs, debt extinguishment expenses and a non-cash pension settlement charge.

Segment Review

On a regular basis, the Company reviews its segments and the approach used by the chief decision maker to assess performance and allocate resources. Effective January 1, 2023, the Company realigned its business reporting structure and reorganized into two segments, Consumer & Specialties and Engineered Solutions. Following the realignment, the two new segments consist of the following businesses:

The Consumer & Specialties segment serves consumer end markets directly and provides mineral-based solutions and technologies that are essential to our customers’ products. The two product lines in this segment are Household & Personal Care - our mineral-to-shelf product line that serves pet care, personal and household care, fluid purification and other consumer oriented markets, and Specialty Additives, delivering specialty mineral additives to a variety of consumer and industrial end markets including paper, packaging, construction, automotive, and consumer markets including food and pharmaceuticals

The Engineered Solutions segment combines all engineered systems, mineral blends, and technologies that are designed to aid in customer processes and projects. The two product lines in this segment are High-Temperature Technologies – combining all of our mineral-based blends, technologies, and systems serving the foundry, steel, glass, aluminum and other high-temperature processing industries, and Environmental & Infrastructure, which includes environmental and remediation solutions such as geosynthetic clay lining systems, water remediation technologies as well as drilling, commercial building and infrastructure-related products.

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The following discussions highlight the operating results for each of our two segments.

Consumer & Specialties Segment

2023 v 2022

Net sales in the Consumer & Specialties segment increased 3.2% to $1,160.2 million, as compared with $1,124.6 million in the prior year.  Household & Personal Care sales increased 8.7% to $517.6 million from $476.2 million the prior year. This increase was primarily driven by strong demand for our pet litter products in all regions and growth in other high-margin consumer-oriented products.  Specialty Additives sales decreased 0.9% to $642.6 million from $648.4 million primarily as a result of the deconsolidation of BMI in the fourth quarter of 2023.  Sales for BMI in the fourth quarter of 2022 were $12.0 million.

Income from operations was $41.6 million in 2023, as compared to $79.0 million in 2022.  In 2023, the Company recorded a $71.7 million non-cash impairment of assets related to BMI.  In addition, litigation expenses of $29.2 million and $32.6 million were recorded in 2023 and 2022, respectively, relating to BMI.

2022 v 2021

Net sales in the Consumer & Specialties segment increased 16.8% to $1,124.6 million, as compared with $962.6 million in the prior year.  Household & Personal Care sales increased 24.1% to $476.2 million from $383.7 million in the prior year. This increase was driven by strong demand for consumer-oriented products and the acquisition of Concept Pet. Included within 2022 net sales for Household, Personal Care & Specialty Products are $14.7 million of net sales for Concept Pet and $70.0 million of incremental sales from Normerica.  Specialty Additives increased 12.0% to $648.4 million, as compared with $578.9 million in the prior year.  This increase is due to the ramp-up of new paper and packaging volumes and strength in the residential construction and automotive markets.

Income from operations was $79.0 million in 2022, as compared to $119.5 million in 2021.  Included in income from operations for 2022 were $32.6 million relating to costs incurred to defend against, opportunistically settle and establish a reserve for claims associated with certain talc products relating to BMI.  Operating margin was impacted by the timing of contractual and negotiated price increases relative to inflationary cost increases including energy and other manufacturing costs.

Engineered Solutions Segment

2023 v 2022

Net sales in the Engineered Solutions segment increased 1% to $1,009.7 million, as compared with $1,000.9 million in the prior year.  High-Temperature Technologies sales increased 2.6% to $720.9 million, as compared with $702.5 million in the prior year.  This increase was driven by strong demand in the North America market and volume recovery in China.  Environmental & Infrastructure sales decreased 3.2% to $288.8 million, as compared with $298.4 million in the prior year.  This decrease is a result of weak commercial construction activity in 2023.

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Income from operations was $147.8 million and 14.6% of sales, as compared with $147.1 million and 14.7% of sales in the prior year.  Included in income from operations for 2023 are $3.2 million of restructuring expenses.

2022 v 2021

Net sales in the Engineered Solutions segment increased 11.7% to $1,000.9 million, as compared with $895.7 million in the prior year. High-Temperature Technologies sales increased 9.3% to $702.5 million, as compared with $642.7 million in the prior year.  This increase is primarily driven by improved steel market conditions, strong operating performance and new business development.  Environmental & Infrastructure increased 17.9% to $298.4 million, as compared with $253.0 million in the prior year.  This increase is due to our strength in remediation, wastewater and filtration activity which was offset by a slight decrease in building materials from the timing of projects.

Income from operations increased $5.1 million, or 7.5% to $72.9 million in 2021 and represented 12.6% of net sales compared to $67.8 million and 13.3% of sales in the prior year. Included in income from operations were $1.1 million of restructuring and impairment costs.  Operating margin was impacted by the timing of contractual and negotiated price increases relative to inflationary cost increases including energy and other manufacturing costs.  In addition, logistics and labor challenges impacted both sales and operating performance.

Inflation

While inflation historically has not had a material impact on the Company, our financial performance was affected in 2023, and could continue to be adversely affected by increases in energy and commodity prices. Our production processes consume a significant amount of energy, primarily electricity, diesel fuel, natural gas and coal. We use diesel fuel to operate our mining and processing equipment and our freight costs are heavily dependent upon fuel prices and surcharges. Energy costs also affect the cost of raw materials. On a combined basis, these factors represent a large exposure to petrochemical and energy products which may be subject to significant price fluctuations. The contracts pursuant to which we construct and operate our satellite PCC plants generally adjust pricing to reflect the pass-through of increases in costs resulting from inflation, including lime and energy prices. However, there is a time lag before such price adjustments can be implemented. The Company and its customers will typically negotiate reasonable price adjustments in order to recover a portion of these escalating costs, but there can be no assurance that we will be able to recover increasing costs through such negotiations.

Cyclical Nature of Customers’ Businesses

Portions of our sales to customers in the paper manufacturing, metalcasting, steel manufacturing, oil and gas and construction industries have historically been cyclical. The pricing structure of some of our long-term PCC contracts makes our PCC business less sensitive to declines in the quantity of product purchased.  Oil and natural gas prices decreased significantly between 2014 through 2017 and again in 2020, which has caused exploration companies to reduce their capital expenditures and production and exploration activities. This has had the effect of decreasing the demand and increasing competition for the services we provide. We cannot predict the economic outlook in the countries in which we do business, nor in the key industries we serve.

Liquidity and Capital Resources

Cash provided from continuing operations in 2023 was $233.6 million, compared with $105.7 million in prior year. Cash flows provided from operations in 2023 were principally used to fund capital expenditures, repay debt, repurchase shares and to pay the Company’s dividend to common shareholders. The Company’s intention is to use excess cash flow for investments in growth, continued debt reduction and selective share repurchases.

On August 11, 2022, the Company entered into a Refinancing Facility Agreement (the “Amendment”) to amend the Company’s previous credit agreement (the “Previous Credit Agreement”; the previous credit agreement, as amended by the Amendment, being the “Amended Credit Agreement”). The Amendment provides for, among other things, a new senior secured revolving credit facility with aggregate commitments of $300 million (the “Revolving Facility”), a portion of which may be used for the issuance of letters of credit and swingline loans, and a new senior secured term loan facility with aggregate commitments of $550 million (the “Term Loan Facility” and, together with the Revolving Facility, the “Senior Secured Credit Facilities”). The Revolving Facility and the Term Loan Facility replace the facilities under the Previous Credit Agreement, which provided for, among other things, a $788 million senior secured floating rate term loan facility and a $300 million senior secured revolving credit facility. The maturity date for loans under the Senior Secured Credit Facilities is August 11, 2027.

In the third quarter of 2022, the Company recorded $6.9 million in non-cash debt extinguishment expenses related to the refinancing of our credit facilities, which represents the difference between the redemption payment and the carrying value of the debt at the refinancing date. All lenders under the previous facility were repaid in full.

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Loans under the Senior Secured Credit Facilities will bear interest at a rate equal to, at the election of the Company, Term SOFR plus a credit spread adjustment equal to 0.100% plus an applicable margin equal to 1.500% per annum or a base rate plus an applicable margin equal to 0.500% per annum, subject in each case to (a) an increase of 25 basis points in the event that, and for so long as, the net leverage ratio (as defined in the Amended Credit Agreement) is greater than or equal to 3.00 to 1.00 as of the last day of the preceding fiscal quarter, (b) a decrease of 12.5 basis points in the event that, and for so long as, the net leverage ratio is less than 2.00 to 1.00 and greater than or equal to 1.00 to 1.00 as of the last day of the preceding fiscal quarter and (c) an decrease of 25 basis points in the event that, and for so long as, the net leverage ratio is less than 1.00 to 1.00 as of the last day of the preceding fiscal quarter.  The Company will pay certain fees under the Amended Credit Agreement, including (a) a commitment fee of 0.250% per annum on the undrawn portion of the Revolving Facility (subject to a step-up to 0.300% and step-downs to 0.175% and 0.150% at the same levels described above), (b) a fronting fee of 0.125% per annum on the average daily undrawn amount of, plus unreimbursed amounts in respect of disbursements under, letters of credit issued under the Revolving Facility and (c) customary annual administration fees. The obligations of the Company under the Senior Secured Credit Facilities are unconditionally guaranteed jointly and severally by, subject to certain exceptions, all material domestic subsidiaries of the Company (the “Guarantors”) and secured, subject to certain exceptions, by a security interest in substantially all of the tangible and intangible assets of the Company and the Guarantors.  In the third quarter of 2023, the Company’s subsidiaries Barretts Minerals Inc. and Barretts Ventures Texas LLC were removed as borrowers under, and Guarantors of, the Senior Secured Credit Facilities.

As of December 31, 2023, there were $85.0 million in loans and $9.1 million in letters of credit outstanding under the Revolving Facility.

On June 30, 2020, the Company issued $400 million aggregate principal amount of 5.0% Senior Notes due 2028 (the “Notes”).  The Notes were issued pursuant to an indenture, dated as of June 30, 2020, between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Indenture”).  The Notes bear an interest rate of 5.0% per annum payable semi-annually on January 1 and July 1 of each year, beginning on January 1, 2021.  The Notes are unconditionally guaranteed on a senior unsecured basis by each of the Company’s existing and future wholly owned domestic restricted subsidiaries that is a borrower under or that guarantees the Company’s obligations under its Senior Secured Credit Facilities or that guarantees the Company’s or any of the Company’s wholly owned domestic subsidiaries’ long-term indebtedness in an aggregate amount in excess of $50 million.  In the third quarter of 2023, the Company’s subsidiaries Barretts Minerals Inc. and Barretts Ventures Texas LLC were removed as guarantors of the Notes.

The Company may redeem some or all of the Notes at any time and from time to time at the applicable redemption prices listed in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If the Company experiences a change of control (as defined in the indenture), the Company is required to offer to repurchase the Notes at 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

The Amended Credit Agreement and the Indenture both contain certain customary affirmative and negative covenants that limit or restrict the ability of the Company and its restricted subsidiaries to enter into certain transactions or take certain actions, as well as customary events of default. In addition, the Amended Credit Agreement contains financial covenants that require the Company to maintain, as of the last day of any fiscal quarter, (x) a maximum net leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for the four fiscal quarter period preceding such day (subject to an increase to 5.00 to 1.00 for four quarters in connection with certain significant acquisitions) and (y) a minimum interest coverage ratio (as defined in the Amended Credit Agreement) of 3.00 to 1.00. The Company is in compliance with all the covenants contained in the Amended Credit Agreement throughout the period covered by this report.

The Company has a committed loan facility in Japan. As of December 31, 2023, there was an outstanding balance of $1.4 million on this facility.  Principal will be repaid in accordance with the payment schedule ending in 2026.  The Company repaid $0.5 million on these loans in 2023.

As part of the Concept Pet acquisition, the Company assumed $1.9 million in long-term debt, recorded at fair value, consisting of two terms loans, one that matures in 2025 and one that matures in 2027.  Both loans have annual payments and carry a variable interest rate.  The Company repaid $0.6 million on these loans during 2023.

As of December 31, 2023, the Company had $25.5 million in uncommitted short-term bank credit lines, $0.4 million of which were in use. The credit lines are primarily outside the U.S. and are generally one year in term at competitive market rates at large, well-established institutions.  The Company typically uses its available credit lines to fund working capital requirements or local capital spending needs.  We anticipate that capital expenditures for 2024 should be between $90 million and $100 million, principally related to opportunities to improve our operations and meet our strategic growth objectives. We expect to meet our other long-term financing requirements from internally generated funds, committed and uncommitted bank credit lines and, where appropriate, project financing of certain satellite plants.

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During the second quarter of 2018, the Company entered into a floating to fixed interest rate swap for a notional amount of $150 million.  This instrument matured in May 2023. Additionally, the Company entered into a cross currency rate swap with a total notional value of $150 million to exchange monthly fixed-rate interest rate payments in U.S. dollars for monthly fixed-rate interest rate payments in Euros.  This cross currency swap matured in May 2023.  At maturity, the Company realized, in comprehensive income, an after-tax gain of $7.6 million. In the second quarter of 2023, the Company entered into a new floating to fixed interest rate swap for a notional amount of $150 million.  The fair value of this instrument as of December 31, 2023 is a liability of $0.1 million.

In addition to long-term debt, the Company has committed cash outflow related to pension and post-retirement benefit obligations, non-cancelable operating leases, primarily for office space and equipment, and other long-term contractual obligations. Other long-term liabilities include tax liabilities, including contingent obligations associated with gross unrecognized tax benefits for uncertain tax positions and a tax liability for the one-time transition tax on accumulated foreign subsidiary earnings, asset retirement obligations relating to the retirement of certain tangible long-lived assets and land restoration obligations at the Company’s PCC satellite facilities and mining operations.  See Notes 2, 8, 15, 16 and 20 to the Consolidated Financial Statements.

On October 18, 2023, the Company’s Board of Directors authorized the Company’s management to repurchase, at its discretion, up to $75 million of the Company’s shares over a one-year period.  As of December 31, 2023, 228,127 shares have been repurchased under this program for $14.2 million, or an average price of approximately $62.24 per share.

On January 24, 2024, the Company’s Board of Directors declared a regular quarterly dividend on its common stock of $0.10 per share.  No dividend will be payable unless declared by the Board and unless funds are legally available for payment thereof.

The Company and certain of the Company’s subsidiaries are among numerous defendants in over five hundred cases seeking damages for alleged exposure to asbestos-contaminated talc products sold by the Company’s subsidiary BMI. The Company’s position is that these cases are meritless and all talc products sold by BMI are safe. On October 2, 2023 (the “Petition Date”), notwithstanding the Company’s confidence in the safety of BMI’s talc products, Barretts, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Chapter 11 Cases”) to address and comprehensively resolve BMI’s liabilities associated with talc.  Minerals Technologies Inc. and the Company’s other subsidiaries were not included in the Chapter 11 filing. BMI intends to pursue a sale of its talc assets under section 363 of the U.S. Bankruptcy Code. Proceeds of the sale will be used to fund the Chapter 11 Cases.  Barretts’ ultimate goal in the Chapter 11 Cases is to confirm a plan of reorganization under Section 524(g) of the U.S. Bankruptcy Code and utilize this provision to establish a trust that will address all current and future talc-related claims.  During the pendency of the Chapter 11 Cases, the Company anticipates that BMI will benefit from the operation of the automatic stay, which stays ongoing litigation in connection with talc-related claims against Barretts.  In addition, subject to certain exceptions, the filing or continued prosecution of all talc-related claims against Barretts’ non-debtor affiliates is temporarily stayed through April 1, 2024 (subject to further extensions), the date on which a hearing is scheduled on the status of the Chapter 11 Cases. Barretts has been deconsolidated from the Company’s financial statements since the Petition Date. The Company recognized a $71.7 million non-cash impairment charge related to Barretts’ fixed assets, and $29.2 million of litigation expenses associated with the Chapter 11 Cases and by BMI to defend against and restore its reserve for claims associated with certain talc products.  Although the Chapter 11 Cases are progressing, it is not possible to predict the form of any ultimate resolution or when an ultimate resolution might occur at this time. Accordingly, the amount that will be necessary to fully and finally resolve all of BMI’s current and future talc-related claims in connection with a confirmed Chapter 11 plan of reorganization cannot be estimated with certainty at this time.  See Note17 to the consolidated financial statements included in this report for more information.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, valuation of long-lived assets, goodwill and other intangible assets, income taxes, including valuation allowances and pension plan assumptions. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that cannot readily be determined from other sources.  There can be no assurance that actual results will not differ from those estimates.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

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Revenue Recognition

Revenue is recognized at the point in time when the customer obtains control of the promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services.  The Company’s revenues are primarily derived from the sale of products.  Our primary performance obligation is satisfied upon shipment or delivery to our customer based on written sales terms, which is also when control is transferred.   Revenue, where our performance obligations are satisfied in phases, is recognized over time using certain input measures based on the measurement of the value transferred to the customer, including milestones achieved.  Revenues from sales of equipment are recorded upon completion of installation and transfer of control to the customer.   Revenues from services are recorded when the services are performed.

In most of our PCC contracts, the price per ton is based upon the total number of tons sold to the customer during the year. Under those contracts, the price billed to the customer for shipments during the year is based on periodic estimates of the total annual volume that will be sold to the customer. Revenues are adjusted at the end of each year to reflect the actual volume sold. There were no significant revenue adjustments in the fourth quarter of 2023 and 2022, respectively. We have consignment arrangements with certain customers in our Engineered Solutions segment.  Revenues for these transactions are recorded when the consigned products are consumed by the customer.

Valuation of Long-lived Assets, Goodwill and Other Intangible Assets

We assess the possible impairment of long-lived assets and identifiable amortizable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill is evaluated for impairment at least annually.  Factors we consider important that could trigger an impairment review include the following:

Annually, the Company performs a qualitative assessment for each of its reporting units to determine if the two-step process for impairment testing is required.  If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company then evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level.  Step one involves a) developing the fair value of total invested capital of each reporting unit in which goodwill is assigned; and b) comparing the fair value of total invested capital for each reporting unit to its carrying amount, to determine if there is goodwill impairment.  Should the carrying amount for a reporting unit exceed its fair value, then the step one test is failed, and the magnitude of any goodwill impairment is determined under step two.  The amount of impairment loss is determined in step two by comparing the implied fair value of reporting unit goodwill with the carrying amount of goodwill.

The Company has two reporting units; Consumer & Specialties and Engineered Solutions. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, and management regularly reviews the operating results of those components.  In the fourth quarter of 2023, the Company performed a qualitative assessment of each of its reporting units and determined it was not more likely than not that the fair value of any of its reporting units was less than their carrying values.

Property, plant and equipment are depreciated over their useful lives. Useful lives are based on management’s estimates of the period that the assets can generate revenue, which does not necessarily coincide with the remaining term of a customer’s contractual obligation to purchase products made using those assets.  Our sales of PCC are predominately pursuant to long-term evergreen contracts, initially ten years in length, with paper mills at which we operate satellite PCC plants.  The terms of many of these agreements have been extended, often in connection with an expansion of the satellite PCC plant.  Failure of a PCC customer to renew an agreement or continue to purchase PCC from our facility could result in an impairment of assets or accelerated depreciation at such facility.

We evaluate the recoverability of our property, plant and equipment whenever events or change in circumstances indicate that the carrying value of the assets may not be recoverable.  For testing the recoverability, we primarily use discounted cash flow models or cost approach to estimate the fair value of these assets.  Critical assumptions used in conducting these tests included expectations of our business performance and financial results, useful lives of assets, discount rates and comparable market data.

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When we acquire a company, we determine fair value on the acquisition date of assets acquired and liabilities assumed.  We use the income, market or cost approach (or a combination thereof) for the valuation and use valuation inputs and analyses that are based on market participant assumptions. Changes in assumptions can have a significant impact on the fair value of tangible assets. Goodwill is calculated as the excess of the consideration transferred over the assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.

Income Taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.  This process involves estimating current tax expense together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet.  We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance.  To the extent we establish a valuation allowance or change this allowance in a period, we must include an expense within the tax provision in the Consolidated Statements of Income.

Deferred tax liabilities represent the amount of income taxes payable in future periods.  Such liabilities arise because of temporary differences between the financial reporting and tax bases of assets and liabilities.  Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.  Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating losses.  We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences and forecasted operating earnings.  These sources of income inherently rely heavily on estimates. We use our historical experience and business forecasts to provide insight.  The amount recorded for the net deferred tax liability was $123.3 million and $156.0 million at December 31, 2023 and 2022, respectively.

The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of operations. See Note 8 to the Consolidated Financial Statements for additional detail on our uncertain tax positions.

Pension Benefits

We sponsor pension and other retirement plans in various forms covering the majority of employees who meet eligibility requirements.  Several statistical and actuarial models which attempt to estimate future events are used in calculating the expense and liability related to the plans.  These models include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by us, within certain guidelines.  Our assumptions reflect our historical experience and management’s best judgment regarding future expectations.  In addition, our actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate these assumptions.  The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants, among other things.

The investment strategy for pension plan assets is to maintain a broadly diversified portfolio designed to both preserve and grow plan assets to meet future plan obligations. The Company’s average rate of return on assets from inception through December 31, 2023 was approximately 9%.  The Company’s assets are strategically allocated among equity, debt and other investments to achieve a diversification level that dampens fluctuations in investment returns.  The Company’s long-term investment strategy is an investment portfolio mix of approximately 55%-65% in equity securities, 30%-35% in fixed income securities and 0%-15% in other securities.  As of December 31, 2023, the Company had approximately 51% of its pension assets in equity securities, 35% in fixed income securities and 14% in other securities.

The Company recognized pension expense of $5.7 million in 2023 as compared to $4.9 million in 2022.  Accounting guidance on retirement benefits requires companies to discount future benefit obligations back to today’s dollars using a discount rate that is based on high-quality fixed-income investments.  A decrease in the discount rate increases the pension benefit obligation, while an increase in the discount rate decreases the pension benefit obligation.  This increase or decrease in the pension benefit obligation is recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as an actuarial gain or loss.  The guidance also requires companies to use an expected long-term rate of return on plan assets for computing current year pension expense.  Differences between the actual and expected returns are also recognized in Accumulated other comprehensive income (loss) and subsequently amortized into earnings as actuarial gains and losses.  At the end of 2023, total actuarial losses recognized in Accumulated other comprehensive loss for pension plans were $32.1 million as compared to $38.1 million in 2022.  The majority of the actuarial losses were due to decreases in the discount rate and lower actual rates of return on assets than expected during the financial crisis of 2008.

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A net gain of $7.6 million ($5.6 million after-tax) primarily due to actuarial gains, driven by a change in discount rates is included in other comprehensive income in 2023. In 2022, a net gain of $46.3 million ($35.3 million after-tax) was recorded in other comprehensive income, primarily due to actuarial gains, driven by a change in discount rates. In 2021, a net gain of $60.6 million ($45.2 million after-tax) was recorded in other comprehensive income, primarily due to a change in discount rates.

Actuarial losses for pensions will be impacted in future periods by actual asset returns, discount rate changes, actual demographic experience and other factors that impact these expenses.  These losses, reported in Accumulated other comprehensive income (loss), will generally be amortized as a component of net periodic benefit cost on a straight-line basis over the average remaining service period of active employees expected to receive benefits under the benefit plans.  At the end of 2023, the average remaining service period of active employees or life expectancy for fully eligible employees was 9 years.

For a detailed discussion on the application of these and other accounting policies, see “Summary of Significant Accounting Policies” in Note 1 to the Consolidated Financial Statements. This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.

Recently Issued Accounting Standards

Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASUs) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

Segment Reporting (Topic 280):  Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2024-07, “Segment Reporting (Topic 280):  Improvements to Reportable Segment Disclosures”, which requires entities to report incremental information about significant segment expenses included in a segment’s profit or loss measure, as well as the name and title of the chief operating decision maker.  The guidance also requires interim disclosures related to reportable segment profit or loss and assets that had previously only been disclosed annually.  The new standard is effective for interim and annual periods beginning on or after December 15, 2024.  The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Income Taxes (Topic 740):  Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2024-09, “Income Taxes (Topic 740):  Improvements to Income Tax Disclosures”, that requires entities to disclose additional information about federal, state, and foreign income taxes primarily related to the income tax rate reconciliation and income taxes paid.  The new standard also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities.  The new standard is effective for interim and annual periods beginning on or after December 15, 2024.   The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for “Safe Harbor” Purposes under the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. This report contains statements that the Company believes may be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements relating to the Company’s objectives, plans or goals, future actions, future 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 and 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 the use of words such as “outlook,” “forecast,” “believes,” “expects,” “plans,” “intends,” “anticipates,” 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. Many of these risks and uncertainties are difficult to predict or are beyond the Company’s control. Consequently, no forward-looking statements can be guaranteed. Actual future results may vary materially. Significant factors affecting the expectations and forecasts are set forth under “Item 1A — Risk Factors” in this Annual Report on Form 10-K.

The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances that arise after the date hereof. Investors should refer to the Company's subsequent filings under the Securities Exchange Act of 1934 for further disclosures.

Executive Summary

Worldwide sales increased 14% in 2022 to $2.126 billion as compared with $1.858 billion in 2021.  Foreign exchange had an unfavorable impact on sales of $100 million or 6%.  Consolidated income from operations was $214.8 million, as compared with $235.7 million in the prior year.  Included in income from operations for 2022 was $32.6 million recorded for litigation costs to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company's Barretts Minerals Inc. subsidiary and $5.1 million of acquisition related transaction and integration costs. Included in income from operations in 2021 was $1.1 million for assets write-downs and severance-related costs and $4.0 million of acquisition related transaction and integration costs.  Net income was $122.2 million in 2022, as compared to $164.4 million in the prior year.  The Company reported diluted earnings of $3.73 per share in 2022 as compared with $4.86 per share in the prior year.

The Company refinanced its revolving credit facility and term loan in the third quarter of 2022, extending out maturities to 2027.  In connection with the refinancing, the Company incurred $6.9 million of debt extinguishment expenses.

In 2022, the Company continued to execute on its key growth initiatives driven by multi-year advancements in new product development, of geographic penetration, and growth from acquisitions.  On April 29, 2022, the Company completed the acquisition of Concept Pet, a European supplier of pet litter products.  The purchase of Concept Pet supports the expansion of our European pet care business as well as providing additional mineral reserves.

Our balance sheet continues to be strong.  Cash, cash equivalents and short-term investments were $252.8 million as of December 31, 2022.  Cash flow from operations for 2022 was $105.7 million.  The Company currently has more than $400 million of available liquidity, including cash on hand, as well as availability under its revolving credit facility. We believe these factors will allow us to meet our anticipated funding requirements. Our intention is to maintain a balanced approach to capital deployment, by using cash flow for investments in growth and continued debt reduction.

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Outlook

The Company will continue to focus on innovation and new product development and other opportunities for sales growth in 2023 from its existing businesses, as follows:

However, there can be no assurance that we will achieve success in implementing any one or more of these opportunities.

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Results of Operations

Consolidated Income Statement Review

*  Not meaningful

Net Sales

Worldwide net sales in 2022 increased 14.4% from the previous year to $2,125.5 million.  Included in net sales for 2022 are $14.7 million of net sales of Concept Pet and $70.0 million of incremental sales from our Normerica acquisition last year.  Foreign exchange had an unfavorable impact on sales of approximately $100 million or 6 percentage points. Net sales in the United States increased 18.3% to $1,135.6 million in 2022 and represented 53.0% of consolidated net sales.  International sales increased 10.1% to $989.9 million in 2022 and represented 47.0% of consolidated net sales.

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Worldwide net sales in 2021 increased 16.5% from the previous year to $1,858.3 million.  Included in net sales for 2021 are $48.6 million of net sales of Normerica.  Foreign exchange had a favorable impact on sales of approximately $27 million or 2 percentage point.  Net sales in the United States increased 16.7% to $959.6 million in 2021 and represented 52.0% of consolidated net sales. International sales increased 16.4% to $898.7 million in 2021 and represented 48.0% of consolidated net sales.

Operating Costs and Expenses

Consolidated cost of sales was $1,660.5 million, $1,411.8 million and $1,189.4 million in 2022, 2021 and 2020, respectively.  Production margin as a percentage of net sales was 21.9% in 2022, 24.0% in 2021 and 25.4% in 2020.  Production margin decreased in 2022 primarily due to timing of pricing actions relative to higher inflationary costs, including energy and other manufacturing costs as well as supply chain and logistics challenges.

Marketing and administrative costs were $192.1 million, $186.2 million and $176.5 million in 2022, 2021 and 2020, respectively.  Marketing and administrative costs as a percentage of net sales were 9.0% in 2022, 10.0% in 2021 and 11.1% in 2020.

Research and development expenses were $20.4 million, $19.5 million and $19.9 million in 2022, 2021 and 2020, respectively.  Research and development expenses as a percentage of net sales were 1.0% in 2022, 1.0% in 2021 and 1.2% in 2020.

In 2022, the Company recorded $32.6 million of litigation costs relating to costs incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company's Barretts Minerals Inc. subsidiary.  In addition, the Company recorded a $5.1 million charge for acquisition related transaction and integration costs.

In 2021, the Company recorded a $1.1 million charge for asset write-downs and other restructuring costs and $4.0 million for acquisition related transaction and integration costs.

In 2020, the Company recorded a $10.4 million charge related to litigation expenses associated with the bankruptcy of Novinda Corp.  In addition, the Company recorded a $7.6 million charge for asset write-downs and other restructuring cost and $3.1 million for acquisition related transaction and integration costs.

Income from Operations

During 2022, the Company recorded income from operations of $214.8 million, as compared with $235.7 million in the prior year.  Income from operations represented 10.1% of sales compared with 12.7% of sales in the prior year.  Income from operations in 2022 included a $32.6 million charge for litigation costs relating to costs incurred to defend against, opportunistically settle, and establish a reserve for claims associated with certain talc products from the Company's Barretts Minerals Inc. subsidiary and a $5.1 million charge for acquisition related transaction and integration costs.

During 2021, the Company recorded income from operations of $235.7 million, as compared with $187.9 million in the prior year.  Income from operations represented 12.7% of sales compared with 11.8% of sales in the prior year.  Income from operations in 2021 included $1.1 million for asset write-downs and severance-related costs and $4.0 million of acquisition related transaction and integration costs.

Non-Operating Income (Deductions)

The Company recorded non-operating deductions, net of $58.1 million in 2022 as compared with $33.4 million in the previous year.

Included in non-operating deductions was net interest expense of $43.9 million in 2022 as compared to $37.2 million in the prior year, primarily due to higher interest rates. The Company recorded debt extinguishment expenses of $6.9 million related to the refinancing of its credit facilities.  In addition, the Company recorded a non-cash pension settlement charge of $3.5 million  relating to some of the Company's retirement plans in the United States.

Included in non-operating deductions was net interest expense of $37.2 million in 2021 as compared to $38.2 million in the prior year, primarily due to lower interest rates. Additionally, the Company recorded at $1.8 million non-cash pension settlement charge relating to one of the Company's retirement plans in the United States.

Provision for Taxes on Income

Provision for taxes was $32.1 million, $36.6 million and $24.4 million in 2022, 2021 and 2020, respectively.  The effective tax rates were 20.5%, 18.1% and 17.7% during 2022, 2021 and 2020, respectively.

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The U.S. Tax Cuts and Jobs Act ("U.S. Tax Reform) legislation, enacted in December 2017, established several significant changes the U.S. tax code, such as a new Global Intangible Low-Tax Income provision (“GILTI”) that currently taxes certain income from foreign operations and Foreign-Derived Intangible Income ("FDII") which is the portion of a domestic corporation's intangible income that is derived from serving foreign jurisdictions.

The higher effective tax rate in 2022 as compared to 2021 was primarily due to the impact of GILTI and the 162(m) disallowance.  The higher effective tax rate in 2021 as compared to 2020 was primarily due to tax credits in the prior year resulting from the expiration of a tax statute of limitations.

The other factors having the most significant impact on our effective tax rates in recent periods are the rate differentials related to foreign earnings indefinitely invested, percentage depletion, GILTI, FDII and the tax benefits on restructuring and impairment charges at a higher rate.

Percentage depletion allowances (tax deductions for depletion that may exceed our tax basis in our mineral reserves) are available to us under the income tax laws of the United States for operations conducted in the United States.  The tax benefits from percentage depletion were $9.6 million in 2022, $10.9 million in 2021 and $8.5 million in 2020.

The Company has elected, as its accounting policy, to treat the taxes due from GILTI as a current period expense when incurred. The net charge to the Company for GILTI was $3.5 million,  $1.2 million and $0.6 million for 2022, 2021 and 2020, respectively.

We operate in various countries around the world that have tax laws, tax incentives and tax rates that are significantly different than those of the United States.  These differences combine to move our overall effective tax rate higher or lower than the United States statutory rate depending on the mix of income relative to income earned in the United States.  The effects of foreign earnings and the related foreign rate differentials resulted in increases of $3.8 million, $5.2 million and $4.6 million in 2022, 2021 and 2020, respectively.

Consolidated Net Income Attributable to MTI Shareholders

Consolidated net income was $126.3 million in 2022 and included a $37.9 million charge, net of tax.  This charge consisted of litigation costs, acquisition related transaction and integration costs, debt extinguishment expenses and a non-cash pension settlement charge.

Consolidated net income was $168.5 million in 2021 and included a $5.3 million charge, net of tax.  This charge consisted of asset write-downs, severance-related costs, acquisition-related transaction and integration costs and a non-cash pension settlement charge.

Segment Review

The following discussions highlight the operating results for each of our three segments.

Performance Materials Segment

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2022 v 2021

Net sales in the Performance Materials segment increased 15.5% to $1,127.7 million as compared with $976.0 in the prior year.  Household, Personal Care & Specialty Products sales increased 21.8% to $560.9 million from $460.5 million the prior year. This increase is driven by strong demand for consumer-oriented products and the acquisition of Concept Pet. Included within 2022 net sales for Household, Personal Care & Specialty Products are $14.7 million of net sales for Concept Pet and $70.0 million of incremental sales from our Normerica acquisition last year.  Metalcasting’s sales increased 4.6% from $319.2 million in the prior year to $334.0 million in 2022, as strength in North America and the rest of the world offset weakness in China due to  COVID-19 related restrictions and shutdowns.  Environmental Products sales grew 27.7% on strength in remediation, wastewater and filtration activity.  Building Materials sales were 2% lower than prior year on timing of projects.