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MINERALS TECHNOLOGIES INC
10-Q, 2000-05-04
INDUSTRIAL INORGANIC CHEMICALS

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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 March 26, 2000
OR
[  ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-3295
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MINERALS TECHNOLOGIES INC. (Exact name of registrant as specified in its charter)
DELAWARE		25-1190717
(State or other jurisdiction of  incorporation or organization)			(I.R.S. Employer  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 Common Stock, $0.10 par value				OUTSTANDING AT April 21, 2000 20,614,703

 

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PART I. FINANCIAL INFORMATION

 ITEM 1. Financial Statements

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

(in thousands, except per share data)	Three Months Ended
	March 26, 2000		March 28, 1999
Net sales....................................................................................	$ 154,655		$ 148,576
Operating costs and expenses:
Cost of goods sold.................................................................	106,874		103,227
Marketing, distribution and administrative expenses.................	18,356		18,359
Research and development expenses.......................................	5,890		5,952
Income from operations..............................................................	23,535		21,038
Non-operating deductions, net....................................................	953		1,277
Income before provision for taxes on income and minority interests	22,582		19,761
Provision for taxes on income......................................................	7,081		6,228
Minority interests........................................................................	476		(198)
Net income.................................................................................	$  15,025		$  13,731
Earnings per share:
Basic................................................................................	$     0.72		$     0.63
Diluted.............................................................................	$     0.71		$     0.62
Cash dividends declared per common share................................	$   0.025		$   0.025
Shares used in the computation of earnings per share:
Basic...............................................................................	20,792		21,697
Diluted.............................................................................	21,280		22,304

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET

ASSETS

 * Unaudited
** Condensed from audited financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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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, 1999. 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 period ended March 26, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

Note 2 -- Inventories

The following is a summary of inventories by major category:

 

 

Note 3 -- Long-Term Debt

The following is a summary of long-term debt:

 

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MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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:

 

Note 5 -- Comprehensive Income (Loss)

The following are the components of comprehensive income (loss):

 

The components of accumulated other comprehensive loss, net of related tax, are as follows:

 

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MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 -- Segment and Related Information

Segment information for the three months ended March 26, 2000 and March 28, 1999 was as follows:

 

 

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)
Income before provision for taxes  on income and minority interests	Three Months Ended March 26, 2000	Three Months Ended March 28, 1999
Income from operations for reportable     segments...................................................................	$ 23,535	$ 21,038
Non-operating deductions, net...................................	953	1,277
Income before provision for taxes on income and minority interests........................................................	$ 22,582	$ 19,761

 

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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 March 26, 2000 and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 26, 2000 and March 28, 1999. 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, 1999, 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, 2000, 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, 1999 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

New York, New York
April 13, 2000

 

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations

Three Months Ended March 26, 2000 as Compared with Three Months Ended March 28, 1999

        Net sales in the first quarter of 2000 increased 4.1% to $154.7 million from $148.6 million in the first quarter of 1999. Foreign exchange had a negative effect on sales of approximately $1.7 million, or 1 percentage point. Net sales in the Specialty Minerals segment, which includes the Precipitated Calcium Carbonate ("PCC") and Processed Minerals product lines, grew 3.0% in the first quarter of 2000 to $111.0 million from $107.8 million in the first quarter of 1999. Net sales in the Refractories segment increased 7.1% in the first quarter of 2000 to $43.7 million from $40.8 million in the prior year.

        Worldwide net sales of PCC grew 3.6% to $92.8 million from $89.6 million in the first quarter of 1999. Foreign exchange had a negative effect of approximately $1.4 million. This was primarily due to the stronger U.S. dollar as compared to the European currencies. Sales of PCC used for filling and coating paper had a solid quarter, registering a percentage increase in tonnage volume in the mid-teens. Approximately half of this growth was generated by the start-up of two new large satellite facilities, both of which became fully operational after the first quarter of 1999. Growth in sales revenue of PCC for paper was approximately half of the increase in volume, as the average selling price per ton was approximately 6% lower in the first quarter of 2000 than in the first quarter of 1999. Over half of this decline in average selling price was attributable to the significant volume increases at the two new satellite facilities mentioned above, and to ramp-ups of volume at several other satellite facilities. Another 25% of the decline was related to foreign exchange movements, and the remainder was due to other factors, such as price adjustments associated with contract extensions and changes in product mix. The Company expects satellite PCC sales revenue growth and volume growth to be more closely aligned in the second quarter and for the remainder of the year than in the first quarter of 2000.

        The Specialty PCC product line, used in non-paper applications, experienced a sales decline. This decline was attributable primarily to inventory adjustments by several large customers early in the first quarter. The Company expects this product line to resume growth by the second half of the year.

        On March 30, 2000, the Company announced that it had signed an agreement to construct a satellite plant to supply PCC to a paper mill owned by Bahia Sul Celulose S.A. in Brazil. This satellite facility, which is scheduled to begin operating in the third quarter of 2000, is expected to be the equivalent of two satellite units. A satellite unit produces between 25,000 and 35,000 tons of PCC per year.

        Net sales of Processed Minerals products were flat at $18.2 million for the quarter. The lack of growth was primarily due to inventory adjustments at several major customers, and softness in the construction sector as compared with a strong first quarter in the prior year.

        Net sales in the Refractories segment increased 7.1% to $43.7 million as compared with $40.8 million in the prior year. This growth was primarily attributable to a recovery in the worldwide steel industry from depressed levels in the prior year.

        On April 3, 2000, the Company announced the acquisition of Ferrotron Elektronik GmbH (Ferrotron), a German company that makes sensors, advanced laser scanning devices, and other instrumentation specifically designed for the steel industry. Ferrotron's technology combined with the Company's technologically advanced refractory systems will offer steel industry 

 

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customers an integrated system of measurement, application and control. As a result of the Company's worldwide presence, Ferrotron is expected to generate for the Company between $8 to $12 million of additional sales on an annualized basis.

        Net sales in the United States in the first quarter of 2000 increased approximately 3% as compared with the first quarter of 1999. Foreign sales increased approximately 7% in the first quarter of 2000. This increase was due to the international expansion of the Company's PCC product line.

        Income from operations increased 11.9% to $23.5 million, as compared with $21.0 million for the same period last year. Operating income in the Specialty Minerals segment increased 7.9% to $16.8 million, which represented 15.1% of sales. The Refractories segment's operating income increased 23.3% to $6.8 million and was 15.5% of sales.

        Non-operating deductions decreased due to lower net interest expense and lower foreign exchange losses.

        The provision for minority interests in the first quarter of 2000 increased by approximately $0.7 million. In 2000, the provision for minority interests reflected the minority partners' share of income incurred in the consolidated joint ventures. In 1999, such joint ventures incurred losses.

       Net income increased 9.5% to $15.0 million from $13.7 million in the prior year. Diluted earnings per share were $0.71 in the first quarter of 2000 as compared with $0.62 in the prior year.

Liquidity and Capital Resources

        The Company's financial position remained strong in the first quarter of 2000. Cash flows in the first quarter of 2000 were provided from operations and were applied principally to fund capital expenditures and the repurchase of common shares for treasury. Cash provided from operating activities amounted to $24.3 million in the first quarter of 2000 as compared to $26.8 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 the end of the first quarter, the Company had repurchased approximately 2.2 million shares under this program at an average price of approximately $46 per share.

        The Company has available approximately $75 million in uncommitted, short-term bank credit lines, none of which were in use at March 26, 2000. The Company anticipates that capital expenditures for all of 2000 will range between $70-$90 million, principally related to the 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 acquired Ferrotron Electronik GmbH subsequent to the first quarter of 2000. The Company expects to meet its financing requirements from internally generated funds, the aforementioned uncommitted bank credit lines and, where appropriate, project financing of certain satellite plants.

Prospective Information and Factors That May Affect Future Results

        The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand the 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 "expects," "plans," "anticipated," "will," 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 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, 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 Exhibit 99 to this Quarterly Report.

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 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 Company's financial position and results of operations.

 

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        In March 2000, the FASB issued Interpretation No. 44 which provides guidance for applying APB Opinion No. 25, "Accounting for Stock Issued to Employees." It applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards, and changes in grantee status on or after July 1, 2000, except for provisions related to repricings and the definition of an employee, which apply to awards issued after December 15, 1998. Adoption of this Interpretation on July 1, 2000 is not expected to have a material effect on the Company's financial position and results of operations.

Year 2000

       The "year 2000 issue" arose because many computer programs and electronically controlled devices denote years using only the last two digits. 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 did not experience any material adverse effects of the transition to the year 2000, and while it is possible that such effects may arise in the future, particularly with respect to computerized interfaces with third parties, the Company does not expect this to be the case.

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.

        The Company's information technology systems are now able to convert among the former national currencies and the euro, and to 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 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 effect on the Company's financial condition or results of operation during the first quarter of 2000, and the Company does not expect any such effect 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 counterparties 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 March 26, 2000 or March 28, 1999.

 

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PART II. OTHER INFORMATION

 ITEM 1.     Legal Proceedings

        On or about October 5, 1999, the Company was notified by the U.S. Department of Justice that it had received an enforcement referral from the U.S. Environmental Protection Agency regarding alleged violations by the Company's subsidiary Barretts Minerals Inc. ("BMI") of a state-issued permit regulating pit dewatering and storm water discharge at BMI's talc mine in Barretts, Montana. The threatened federal enforcement action would duplicate in part a state enforcement action that was resolved in May 1999 through settlement and payment of a civil penalty of $14,000. BMI has entered into prefiling negotiations with the Department of Justice, and as of May 3, 2000, no complaint had been filed. We anticipate that any settlement of this matter would include a monetary penalty as well as other relief, such as a supplemental environmental project at the Barretts site. There can be no assurance that the amount of monetary penalty or the cost of other relief sought by the Department of Justice in any such complaint, if filed, would not be substantially in excess of the amount for which the previous state enforcement action was settled. 

        The Company and its subsidiaries are not party to any other material pending legal proceedings, other than ordinary routine litigation incidental to their businesses.

 

 ITEM 6. Exhibits and Reports on Form 8-K

a) Exhibits:

15-    Accountants' Acknowledgment.

27.1- Financial Data Schedule for the three months ended March 26, 2000.

99-    Statement of Cautionary Factors That May Affect Future Results.

b) No reports on Form 8-K were filed during the first quarter of 2000.

 

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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.

 

 

May 4, 2000

 

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