SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-3295
--
MINERALS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1190717
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
405 Lexington Avenue, New York, New York 10174-1901
(Address of principal executive offices, including zip code)
(212) 878-1800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
------ -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT July 23, 1999
Common Stock, $.10 par value 21,430,221
<PAGE>
MINERALS TECHNOLOGIES INC.
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
---------------------
Item 1.
Financial Statements:
Condensed Consolidated Statement of Income for
the three-month and six-month periods ended
June 27, 1999 and June 28, 1998 3
Condensed Consolidated Balance Sheet as
of June 27, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Cash Flows for
the six-month periods ended June 27, 1999 and
June 28, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 9
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3.
Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
-----------------
Item 1.
Legal Proceedings 14
Item 4.
Submission of Matters to a Vote of Security Holders 14
Item 6.
Exhibits and Reports on Form 8-K 14
Signature 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
(thousands of dollars, June 27, June 28, June 27, June 28,
except per share data) 1999 1998 1999 1998
------- ------- ------- -------
Net sales...................... $158,837 $155,752 $307,413 $299,854
Operating costs and expenses:
Cost of goods sold........... 109,106 107,256 212,333 206,529
Marketing, distribution and
administrative expenses...... 19,255 19,829 37,614 38,683
Research and
development expenses......... 6,223 5,282 12,175 10,159
----- ----- ------ ------
Income from operations......... 24,253 23,385 45,291 44,483
Non-operating deductions, net.. 510 2,517 1,787 3,826
------ ------ ------ ------
Income before provision
for taxes on income a
and minority interests........ 23,743 20,868 43,504 40,657
Provision for taxes on income.. 7,417 6,820 13,645 13,248
Minority interests............. 604 (609) 406 (49)
------ ------ ------ ------
Net income..................... $15,722 $ 14,657 $ 29,453 $ 27,458
======= ======== ======== ========
Earnings per share:
Basic........................ $ 0.73 $ 0.65 $ 1.36 $ 1.22
Diluted...................... $ 0.70 $ 0.63 $ 1.32 $ 1.18
Cash dividends declared
per common share............. $ 0.025 $ 0.025 $ 0.050 $ 0.050
Shares used in the computation
of earnings per share:
Basic........................ 21,518 22,464 21,605 22,505
Diluted...................... 22,477 23,203 22,388 23,208
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(thousands of dollars) June 27, December 31,
1999* 1998**
-------- -----------
Current assets:
Cash and cash equivalents................ $ 15,006 $ 20,697
Accounts receivable, net................. 116,003 110,192
Inventories.............................. 58,085 63,657
Other current assets..................... 12,882 16,284
------- -------
Total current assets 201,976 210,830
Property, plant and equipment,
less accumulated depreciation
and depletion June 27, 1999 - $402,620;
Dec. 31, 1998 - $381,690................ 518,691 524,529
Other assets and deferred charges......... 25,518 25,553
------- -------
Total assets......................... $746,185 $760,912
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt......................... $ 13,454 $ 13,511
Accounts payable........................ 36,057 32,084
Other current liabilities............... 58,340 52,343
------- -------
Total current liabilities............ 107,851 97,938
Long-term debt............................ 74,826 88,167
Other noncurrent liabilities.............. 88,687 85,644
------- -------
Total liabilities.................... 271,364 271,749
Shareholders' equity:
Common stock............................ 2,568 2,553
Additional paid-in capital.............. 148,641 144,088
Retained earnings....................... 495,630 467,257
Accumulated other comprehensive loss.... (32,031) (9,612)
------- -------
614,808 604,286
Less treasury stock..................... 139,987 115,123
------- -------
Total shareholders' equity........... 474,821 489,163
------- -------
Total liabilities and
shareholders' equity................. $746,185 $760,912
======== ========
*Unaudited
**Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended
-------------------
(thousands of dollars) June 27, June 28,
1999 1998
------- -------
Operating Activities
- --------------------
Net income...................................... $29,453 $27,458
Adjustments to reconcile net
income to net cash
provided by operating activities:
Depreciation, depletion and amortization..... 28,759 26,588
Other non-cash items......................... 2,634 4,226
Net changes in operating
assets and liabilities...................... 3,971 5,223
------ ------
Net cash provided by operating activities....... 64,817 63,495
------ ------
Investing Activities
- --------------------
Purchases of property, plant and equipment...... (37,406) (35,621)
Acquisition of business......................... -- (33,486)
Proceeds from disposition of business........... -- 32,357
Other investing activities, net................. (435) 452
------ ------
Net cash used in investing activities........... (37,841) (36,298)
------ ------
Financing Activities
- --------------------
Proceeds from issuance of
short-term and long-term debt................. 21,898 273
Repayment of debt............................... (35,014) (13,799)
Purchase of common shares for treasury.......... (24,864) (16,721)
Dividends paid.................................. (1,080) (1,128)
Proceeds from issuance of common stock.......... 4,568 3,363
Equity and debt proceeds
from minority interests....................... 1,900 --
------ -----
Net cash used in financing activities........... (32,592) (28,012)
------ ------
Effect of exchange rate changes on cash and
cash equivalents.............................. (75) (994)
------ ------
Net decrease in cash and cash equivalents....... (5,691) (1,809)
Cash and cash equivalents at
beginning of period........................... 20,697 41,525
------ ------
Cash and cash equivalents at end of period...... $15,006 $39,716
====== ======
Interest paid................................... $ 3,128 $ 3,601
====== ======
Income taxes paid............................... $ 6,438 $ 7,489
====== ======
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
- -------------------------------
The accompanying unaudited condensed consolidated financial
statements have been prepared by management in accordance with the
rules and regulations of the United States Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Therefore, these financial statements should
be read in conjunction with the consolidated financial statements
and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. In the opinion of
management, all adjustments, consisting solely of normal recurring
adjustments necessary for a fair presentation of the financial
information for the periods indicated, have been included. The
results for the three-month and six-month periods ended June 27, 1999
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
Note 2 -- Inventories
- ---------------------
The following is a summary of inventories by major category:
(thousands of dollars) June 27, December 31,
1999 1998
------ ----------
Raw materials............................ $20,737 $21,681
Work in process.......................... 4,857 5,483
Finished goods........................... 16,046 19,650
Packaging and supplies................... 16,445 16,843
------ ------
Total inventories........................ $58,085 $63,657
====== ======
Note 3 -- Long-Term Debt and Commitments
- ----------------------------------------
The following is a summary of long-term debt:
June 27, December 31,
(thousands of dollars) 1999 1998
------ ----------
7.75% Economic Development
Revenue Bonds Series 1990 Due 2010..... -- $ 4,600
Variable/Fixed Rate Industrial
Development Revenue Bonds Due 2009..... 4,000 4,000
Variable/Fixed Rate Industrial
Development Revenue Bonds
Due April 1, 2012...................... 7,545 7,545
Variable/Fixed Rate Industrial
Development Revenue Bonds
Due August 1, 2012..................... 8,000 8,000
Economic Development Authority Refunding
Revenue Bonds Series 1999 Due 2010..... 4,600 --
6.04% Guarantied Senior Notes
Due June 11, 2000...................... 13,000 26,000
7.49% Guaranteed Senior Notes
Due July 24, 2006...................... 50,000 50,000
Other borrowings......................... 1,135 1,533
------ -------
88,280 101,678
Less: Current maturities................. 13,454 13,511
------ -------
Long-term debt........................... $74,826 $ 88,167
====== =======
6
<PAGE>
Note 4 -- Earnings Per Share (EPS)
- ----------------------------------
Basic earnings per share are based upon the weighted average
number of common shares outstanding during the period. Diluted
earnings per share are based upon the weighted average number of
common shares outstanding during the period assuming the issuance
of common shares for all dilutive potential common shares
outstanding. The following table sets forth the computation
of basic and diluted earnings per share:
Basic EPS Three Months Ended Six Months Ended
- --------- ------------------ ----------------
(in thousands, June 27, June 28, June 27, June 28,
except per share data) 1999 1998 1999 1998
------- ------- ------- -------
Net income......................... $15,722 $14,657 $29,453 $27,458
Weighted average shares outstanding 21,518 22,464 21,605 22,505
------ ------ ------ ------
Basic earnings per share........... $ 0.73 $ 0.65 $ 1.36 $ 1.22
====== ====== ====== ======
Diluted EPS
- -----------
Net income......................... $15,722 $14,657 $29,453 $27,458
------ ------ ------ ------
Weighted average shares outstanding 21,518 22,464 21,605 22,505
Dilutive effect of stock options... 959 739 783 703
------ ------ ------ ------
Weighted average shares
outstanding, adjusted............. 22,477 23,203 22,388 23,208
------ ------ ------ ------
Diluted earnings per share......... $ 0.70 $ 0.63 $ 1.32 $ 1.18
====== ====== ====== ======
Note 5 -- Comprehensive Income (Loss)
- -------------------------------------
The following are the components of comprehensive income (loss):
Three Months Ended Six Months Ended
------------------ ----------------
(thousands of dollars) June 27, June 28, June 27, June 28,
1999 1998 1999 1998
------- ------- ------- -------
Net income........................ $15,722 $14,657 $29,453 $27,458
Other comprehensive income,
net of tax:
Foreign currency
translation adjustments......... (564) (5,603) (22,333) (6,565)
Unrealized holding gains
(losses), net of
reclassification adjustments... -- (44) (86) 2
------ ----- ----- -----
Comprehensive income......... $15,158 $ 9,010 $ 7,034 $20,895
====== ===== ====== ======
The components of accumulated other comprehensive loss, net of
related tax are as follows:
June 27, December 31,
1999 1998
------- -----------
Foreign currency translation adjustments.... $(31,030) $(8,697)
Minimum pension liability adjustments....... (1,001) (1,001)
Unrealized holding gains.................... -- 86
------ ------
Accumulated other comprehensive loss........ $(32,031) $(9,612)
====== =====
The change in unrealized holding gains for the six months ended
June 27,1999 includes reclassification adjustments of $174,000 for
gains realized in income from the sale of securities. Foreign currency
translation losses increased for the six months ended June 27, 1999 as
a result of the strengthening of the U.S. dollar against the Latin
American, European and Asian currencies since December 31, 1998.
7
<PAGE>
MINERALS TECHNOLOGIES AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 -- Segment and Related Information
- -----------------------------------------
Segment information for the three-month and six-month periods
ended June 27, 1999 and June 28, 1998 was as follows:
(thousands of dollars) Net Sales
---------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
------- ------- ------- -------
Specialty Minerals Segment... $116,297 $107,803 $224,086 $206,107
Refractories Segment......... 42,540 47,949 83,327 93,747
------- ------- ------- -------
Total. ................ $158,837 $155,752 $307,413 $299,854
======= ======= ======= =======
(thousands of dollars) Income from Operations
-------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
------- ------- ------- -------
Specialty Minerals Segment... $17,423 $15,344 $32,984 $30,081
Refractories Segment......... 6,830 8,041 12,307 14,402
------ ------ ------ ------
Total................... $24,253 $23,385 $45,291 $44,483
====== ====== ====== ======
A reconciliation of the totals reported for the operating segments
to the applicable line items in the consolidated financial statements is
as follows:
(thousands of dollars) Three Months Ended Six Months Ended
------------------ ----------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
------- ------- ------- -------
Income before provision for
---------------------------
taxes on income and
-------------------
minority interests
------------------
Income from operations for
reportable segments.......... $24,253 $23,385 $45,291 $44,483
Non-operating deductions, net. 510 2,517 1,787 3,826
------ ------ ------ ------
Income before provision for
taxes on income and
minority interests........... $23,743 $20,868 $43,504 $40,657
====== ====== ====== ======
8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Minerals Technologies Inc.:
We have reviewed the condensed consolidated balance sheet
of Minerals Technologies Inc. and subsidiary companies as of
June 27, 1999 and the related condensed consolidated statements of
income for each of the three-month and six-month periods ended
June 27, 1999 and June 28, 1998, and cash flows for the six-month
periods then ended. These financial statements are the responsibility
of the company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquiries
of persons responsible for financial and accounting matters.
It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Minerals
Technologies Inc. and subsidiary companies as of December 31, 1998,
and the related consolidated statements of income, shareholders' equity,
and cash flows for the year then ended (not presented herein);
and in our report dated January 19, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1998 is fairly presented, in all
material respects, in relation to the consolidated balance sheet from
which it has been derived.
KPMG LLP
New York, New York
July 30, 1999
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Income and Expense Items
As a Percentage of Net Sales
----------------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
------- ------- ------- -------
Net sales.................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........... 68.7 68.9 69.1 68.9
Marketing, distribution and
administrative expenses..... 12.1 12.7 12.2 12.9
Research and
development expenses........ 3.9 3.4 4.0 3.4
---- ---- ---- ----
Income from operations....... 15.3 15.0 14.7 14.8
Net income................... 9.9% 9.4% 9.6% 9.2%
==== ==== ==== ====
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 1999 AS COMPARED WITH THREE MONTHS
ENDED JUNE 28, 1998
Net sales in the second quarter of 1999 increased 1.9% to
$158.8 million from $155.8 million in the second quarter of 1998.
The stronger U.S. dollar had an unfavorable impact of approximately
one percentage point of sales growth.
Net sales in the Specialty Minerals segment, which includes
the Precipitated Calcium Carbonate ("PCC") and Processed Minerals product
lines, grew 7.9% in the second quarter of 1999 to $116.3 million.
Worldwide net sales of PCC grew 12.0% to $95.9 million from
$85.6 million in the second quarter of 1998. This sales growth was
primarily attributable to the commencement of operations at two new
satellite PCC plants in 1999, increased sales from three satellite plants
that commenced operations in the second quarter of 1998, expansions at
several existing satellite plants, and to sales from the acquisition in
April 1998 of a PCC business in the United Kingdom. The new satellite
plants are located at Courtland, Alabama and Dagang, China.
In the second quarter, the Company announced that it will invest
approximately $20 million to construct a merchant manufacturing facility
in Brookhaven, Mississippi for the production of Specialty PCC.
Specialty PCC is used in applications other than paper. The plant is
expected to be in operation during the second quarter of 2000.
Net sales of Processed Minerals products decreased 8.1% in the second
quarter to $20.4 million compared to the same period in 1998. Excluding
the divested Midwest limestone business, which was sold in April 1998,
sales of Processed Minerals declined 2.4%. The sales decline in
Processed Minerals was primarily due to the usage of a significant
portion of the Company's lime for the production of PCC instead of for
sales to third parties, and to a decline in sales of talc products.
Net sales in the Refractories segment were $42.5 million for the
second quarter of 1999, an 11.3% decrease compared to the same period
last year. The sales decline was due primarily to unfavorable economic
conditions in the worldwide steel industry.
Net sales in the United States in the second quarter of 1999
increased approximately 2.3%. Foreign sales increased approximately 1.2%
in the second quarter of 1999.
Income from operations was $24.3 million, an increase of 3.8%
from $23.4 million in the second quarter of 1998. Income from
operations in the Specialty Minerals segment increased 13.7% in the
second quarter. This increase was primarily attributable to the growth
in the PCC product line. Income from operations in the Refractories
segment decreased 15.0% in the second quarter. The decrease in operating
income was primarily attributable to the downturn in the worldwide steel
industry that began late in the third quarter of 1998.
Non-operating deductions decreased primarily as a result of
foreign exchange gains in 1999 as compared to foreign exchange losses in
the same period of 1998.
The provision for minority interests in the second quarter of 1999
increased by approximately $1.2 million. In 1999, the provision for
minority interests reflected the minority partners' share of income
incurred in the consolidated joint ventures. In 1998, such joint
ventures incurred losses, primarily as a result of foreign exchange
losses in Asia.
10
<PAGE>
Net income increased 6.8% to $15.7 million from $14.7 million in
the prior year. Diluted earnings per share were $0.70 in the second
quarter of 1999 as compared to $0.63 in the prior year.
SIX MONTHS ENDED JUNE 27, 1999 AS COMPARED WITH SIX MONTHS ENDED
JUNE 28, 1998
Net sales in the first half of 1999 increased 2.5% to $307.4 million
from $299.9 million in 1998. The stronger U.S. dollar had an unfavorable
impact of approximately one percentage point of sales growth.
Net sales in the Specialty Minerals segment increased 8.7% in the
first half of 1999. Worldwide net sales in the PCC product line grew
12.4% to $185.5 million for the first six months of 1999. Net
sales in the Processed Minerals product line declined 5.9% in the first
half of 1999. Excluding the divested Midwest limestone business, which
was sold in April 1998, the sales decline was 2.0%.
Net sales in the Refractories segment decreased 11.1% to $83.3
million. This decrease was due to the unfavorable economic conditions in
the worldwide steel industry for the entire first half.
Income from operations rose 1.8% to $45.3 million in the first half
of 1999 from $44.5 million in the previous year. Income from operations
in the Specialty Minerals segment increased 9.6% in the first half of
1999. Income from operations in the Refractories segment declined 14.6%
for the first six months of 1999. This decline was due to the
aforementioned weakness in the worldwide steel industry.
Non-operating deductions decreased primarily as a result of foreign
exchange losses recorded in Asia the first six months of 1998. There
were no significant foreign exchange gains or losses recorded in the same
period of 1999.
Net income increased 7.3% to $29.5 million from $27.5 million
in 1998. Diluted earnings per common share were $1.32 as compared with
$1.18 for the first six months of 1998.
Liquidity and Capital Resources
- -------------------------------
The Company's financial position remained strong in the second
quarter of 1999. Cash flows in the second quarter of 1999 were provided
from operations and were applied principally to fund capital expenditures,
to repurchase common shares for treasury, and to remit the required
principal payment of $13 million under the Company's Guarantied Senior
Notes due June 11, 2000. In addition, in June the Company utilized funds
from its short-term bank credit lines. Such amounts were repaid from
cash provided by operations prior to the end of the second quarter.
Cash provided from operating activities amounted to $64.8 million in
the second quarter of 1999 as compared to $63.5 million in the prior year.
On February 26, 1998, the Company's Board of Directors authorized
a $150 million program to repurchase Company stock on the open market from
time to time. As of July 23, 1999, the Company had repurchased
approximately 1,400,000 shares under this program at an average price of
approximately $48 per share.
The Company has available approximately $110 million in uncommitted,
short-term bank credit lines, none of which were in use at June 27, 1999.
The Company anticipates that capital expenditures for all of 1999 will be
between $80-$90 million. The capital expenditures will principally be
related to construction of satellite PCC plants, expansion projects at
existing satellite PCC plants, a merchant manufacturing facility in
Brookhaven, Mississippi for the production of specialty PCC, and other
opportunities that meet the strategic growth objectives of the Company.
The Company expects to meet such requirements from internally generated
funds, the aforementioned uncommitted bank credit lines and, where
appropriate, project financing of certain satellite plants.
Prospective Information and Factors That May Affect Future Results
- ------------------------------------------------------------------
The Securities and Exchange Commission encourages companies to
disclose forward-looking information so that investors can better
understand companies' future prospects and make informed investment
decisions. This report may contain forward-looking statements that set
out anticipated results based on management's plans and assumptions.
Words such as "anticipate," "estimate," "expects," and "projects," and
words and terms of similar substance used in connection with any
discussion of future operating or financial performance, identify these
forward-looking statements.
The Company cannot guarantee that the outcomes suggested in any
forward-looking statement will be realized, although it believes it has
been prudent in its plans and assumptions. Achievement of future
results is subject to risks,
11
<PAGE>
uncertainties and inaccurate assumptions. Should known or unknown risks
or uncertainties materialize, or should underlying assumptions prove
inaccurate, actual results could vary materially from those anticipated,
estimated or projected. Investors should bear this in mind as they
consider forward-looking statements and should refer to the discussion of
certain risks, uncertainties and assumptions under the heading
"Cautionary Factors That May Affect Future Results" in Item 1
of the Company's Annual Report on Form 10-K for 1998.
Recently Issued Accounting Standards
- ------------------------------------
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The statement, as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The
Company will adopt SFAS 133 by January 1, 2001. Adoption of SFAS 133 is
not expected to have a material effect on the consolidated financial
statements.
Year 2000
- ---------
The "year 2000 issue" arises because many computer programs and
electronically controlled devices denote years using only the last
two digits. Because these programs and devices may fail to recognize the
year 2000 correctly, calculations or other tasks that involve the years
2000 and beyond may cause the programs to produce erroneous results or to
fail altogether. Like other companies, the Company uses operating
systems, applications and electronically controlled devices that were
produced by many different vendors at different times, and many of which
were not originally designed to be year 2000 compatible.
The Company's State of Readiness
--------------------------------
Information Technology
----------------------
The Company has completed its assessment of its exposure to year
2000-related risks arising from information technology, and is engaged in
remediation of the areas of exposure it has identified.
In 1996, the Company began a project to install new computer
hardware and software systems to improve the capability of its technology,
to harmonize the various information technology platforms in use, and to
centralize certain financial functions. The project encompasses
corporate financial and accounting functions as well as manufacturing
and costing, procurement, planning and scheduling of production and
maintenance, and customer order management.
The Company has acquired substantially all of the hardware and
software required to implement this project, and is currently bringing
the majority of its domestic business locations on to the new systems
sequentially. This process is substantially complete, and the Company
expects the new systems to be operational in all affected U.S. locations
no later than the third quarter of 1999. Other U.S. manufacturing
locations are currently year 2000 compatible.
Outside of the United States, preparations for the year 2000 are
being carried out by the relevant business units on a decentralized basis.
Information technology systems have been evaluated and are in the process
of being remediated or replaced as required. The Company expects this
process to be completed by all non-U.S. locations no later than the third
quarter of 1999.
Non-Information Technology
--------------------------
The Company's exposures to the year 2000 issue other than in the area
of information technology arise mostly with respect to process control
systems and instrumentation at the Company's manufacturing locations and
in equipment used at customer locations. Telephone and e-mail systems,
operating systems and applications in free-standing personal computers,
local area networks, and site services such as electronic security systems
and elevators may also be affected. A failure of these systems which
interrupts the Company's ability to supply products to its customers could
have a material adverse impact on its results of operations. These issues
are being addressed by the individual business units, by obtaining from
vendors and service providers either necessary modifications to the
software or assurance that the system will not be disrupted by the
year 2000 issue. This process is substantially complete, and is expected
to be fully completed no later than the third quarter of 1999.
12
<PAGE>
Third Parties
-------------
The Company's divisions are communicating with their principal
customers and vendors to inquire about their year 2000 readiness.
This project is substantially complete, and is expected to be fully
completed no later than the third quarter of 1999. The Company has
received responses from a substantial number of those customers and
vendors an interruption in the operations of which would have, in the
Company's opinion, a material adverse effect on the Company's results
of operations. No such customer or vendor has indicated that it expects
such an interruption to occur. However, because so many firms are
exposed to the risk of failure not only of their own systems, but of
the systems of other firms, the ultimate effect of the year 2000 issue
is subject to a very high degree of uncertainty.
Costs
-----
The Company expects to spend approximately $16-19 million before
January 1, 2000, for new computer hardware and software, other
information technology upgrades and replacements, and upgrades and
replacements to non-IT systems worldwide. These expenditures, which
include both internal and external costs, will provide benefits to the
Company which include, but are not limited to, the achievement of year
2000 readiness. Of this amount approximately $15 million had been
expended as of June 27, 1999. These expenditures will be capitalized or
expensed in accordance with Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use,"
which the Company has adopted, and other related pronouncements.
The Company will finance these expenditures solely from working
capital, and does not expect the total cost associated with its plans
to address the year 2000 issue to have a material effect on its financial
position or results of operations.
None of the Company's other significant information technology
projects has been delayed due to the implementation of year 2000
solutions.
Risks of the Year 2000 Issue
----------------------------
Like other companies, the Company relies on its customers for
revenues, on its suppliers for raw materials and on its other vendors for
products and services of all kinds. These third parties all face the
year 2000 issue. An interruption in the ability of any of them to
provide goods or services, or to pay for goods or services provided to
them, or an interruption in the business operations of customers causing
a decline in demand for the Company's products, could have a material
adverse effect on the Company. In particular, each of the Company's
satellite PCC plants relies on one customer for most or all of its
business, and in many cases for raw materials as well, so that a shutdown
of a host paper mill's operation could also cause the satellite PCC plant
to shut down. The Company believes that the most reasonably likely
worst-case scenario caused by the transition to the year 2000 would involve
interruption of its ability to obtain raw materials or to conduct
manufacturing operations at multiple manufacturing sites simultaneously.
Contingency Plan
----------------
Based upon the risks described above, the Company is currently
engaged in preparing a contingency plan to mitigate the effects of an
interruption of its ability to obtain raw materials or to conduct
manufacturing operations at multiple manufacturing locations.
The components of this plan are being generated by the individual sites,
taking into consideration their particular conditions, such as customer
relationships and the availability of alternate sources of supply.
We expect that the Company's contingency plan, which will be the
aggregate of these individual plans, will be completed by the third
quarter of 1999.
The statements in this section regarding the effect of the
year 2000 and the Company's responses to it are forward-looking
statements. They are based on assumptions that the Company believes to
be reasonable in light of its current knowledge and experience. A
number of contingencies could cause actual results to differ materially
from those described in forward-looking statements made by or on behalf
of the Company. Please see "Cautionary Factors That May Affect Future
Results" in Item 1 of the Company's Annual Report on Form 10-K for 1998.
Adoption of a Common European Currency
- --------------------------------------
On January 1, 1999, eleven European countries adopted the euro as
their common currency. From that date until January 1, 2002, debtors and
creditors may choose to pay or be paid in euros or in the former national
currencies. On and after January 1, 2002, the former national currencies
will cease to be legal tender.
13
<PAGE>
The Company's information technology systems are now able to convert
among the former national currencies and the euro, and process
transactions and balances in euros, as required. The financial
institutions with which the Company does business are capable of receiving
deposits and making payments both in euros and in the former national
currencies. The Company does not expect that adapting its information
technology systems to the euro will have a material impact on its financial
condition or results of operations. The Company is also reviewing contracts
with customers and vendors calling for payments in currencies that are to be
replaced by the euro, and intends to complete in a timely way any required
changes to those contracts.
Adoption of the euro is likely to have competitive effects in Europe,
as prices that had been stated in different national currencies become
directly comparable to one another. In addition, the adoption of a common
monetary policy by the countries adopting the euro can be expected to have
an effect on the economy of the region. These competitive and economic
effects had no material impact on the Company's financial condition or
results of operations in the second quarter, and the Company does not
expect any such material impact to occur. There can be no assurance,
however, that the transition to the euro will not have a material effect
on the Company's business in Europe in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
-----------
The Company is exposed to various market risks, including the
potential loss arising from adverse changes in foreign currency exchange
rates. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. When appropriate,
the Company enters into derivative financial instruments, such as forward
exchange contracts, to mitigate the impact of foreign exchange rate
movements on the Company's operating results. The counter parties are
major financial institutions. Such forward exchange contracts would not
subject the Company to additional risk from exchange rate movements
because gains and losses on these contracts would offset losses and
gains on the assets, liabilities and transactions being hedged. There
were no open forward exchange contracts outstanding at
June 27, 1999 or June 28, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 2, 1999, the Company, without admitting any wrongdoing,
entered into a confidential settlement agreement with the plaintiff,
Eaton Corporation, in a lawsuit captioned "Eaton Corporation v.
Pfizer Inc, Minerals Technologies Inc. and Specialty Minerals Inc."
which was filed on July 31, 1996. The suit alleged that certain
materials sold to Eaton for use in truck transmissions were defective,
necessitating repairs for which Eaton sought reimbursement. The
Company's insurance covered a substantial portion of the settlement and
there was no material impact on the Company's results of operations or
financial position as a result of this settlement.
The Company and its subsidiaries are not party to any other material
pending legal proceedings, other than ordinary routine litigation
incidental to their businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on May 27, 1999. At the meeting,
(1) Steven J. Golub was elected a director of the Company, by a
plurality of 19,378,105 votes, with 146,551 votes being withheld;
(2) William L. Lurie was elected a director of the Company, by a
plurality of 19,378,505 votes, with 146,151 votes being withheld;
(3) Jean- Paul Valles was elected a director of the Company,
by a plurality of 19,371,364 votes, with 153,292 votes being withheld;
and (4) the appointment of KPMG LLP as independent auditors of the
Company for the year 1999 was approved by a vote of 19,491,066 for
and 9,937 against, with 23,653 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
15 - Accountants' Acknowledgment (Part I Data).
27 - Financial Data Schedule for the six months ended June 27, 1999.
b) No reports on Form 8-K were filed during the second quarter of 1999.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Minerals Technologies Inc.
By: /s/ Neil M. Bardach
-------------------
Neil M. Bardach
Vice President-Finance
and Chief Financial
Officer; Treasurer
(principal financial
officer)
August 10, 1999
15
<PAGE>
EXHIBIT 15
ACCOUNTANTS' ACKNOWLEDGMENT
The Board of Directors
Minerals Technologies Inc.:
Re: Registration Statement Nos. 33-59080, 33-65268, 33-96558
and 333-62739
With respect to the subject registration statements, we acknowledge
our awareness of the use therein of our report dated July 30, 1999,
related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such
report is not considered a part of a registration statement prepared or
certified by an accountant or a report prepared or certified by an
accountant within the meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG LLP
New York, New York
August 10, 1999
<PAGE>
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This schedule contains summary financial information extracted
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