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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission file number 1-3295
MINERALS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE
25-1190717
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)
Identification Number)
The Chrysler Building
405 Lexington Avenue
New York, New York 10174-1901
(address of principal executive office) (Zip Code)
(212) 878-1800
(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
- ---------------------------------------------------------------------------
Title of each class Name of each exchange
on which registered
- ---------------------------------------------------------------------------
Common Stock, $.10 par value New York Stock Exchange
- ---------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
----
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing price at which the stock was sold
as of February 1, 1999 was approximately $496.5 million. Shares of
common stock held by each officer and director and by each person who owns
5% or more of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of March 3, 1999, the Registrant had outstanding 21,627,262
shares of common stock, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated April 2, 1999
Part III
MINERALS TECHNOLOGIES INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Executive Officers of the Registrant 12
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management 21
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 22
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Signatures 25
PART I
ITEM 1. BUSINESS
Minerals Technologies Inc. (the "Company") is a resource- and
technology-based company that develops, produces and markets on a
worldwide basis a broad range of specialty mineral, mineral-based and
synthetic mineral products. The Company has two operating segments:
Specialty Minerals and Refractories. The Specialty Minerals segment
produces and sells precipitated calcium carbonate ("PCC") and lime, and
mines, processes and sells the natural mineral products limestone and talc.
This segment's products are used principally in the paper, building
materials, paints and coatings, glass, ceramic, polymers, food and
pharmaceutical industries. The Refractories segment produces and markets
monolithic and shaped refractory materials and services used primarily by
the steel, cement and glass industries. The Company emphasizes research and
development. The level of the Company's research and development spending
as well as its history of developing and introducing technologically
advanced new products has enabled the Company to anticipate and satisfy
changing customer requirements and create new market opportunities through
new product development and product application innovations.
SPECIALTY MINERALS SEGMENT
PCC PRODUCTS AND MARKETS
PCC PRODUCTS
Paper can be produced under either acid or alkaline conditions.
Historically, in North America, paper was primarily produced using acid
technologies. In the mid-1980's, North American producers of uncoated
wood-free paper encountered significant increases in the cost of wood fiber
and other materials, such as titanium dioxide, which are necessary in
greater quantities in the acid process. In response, these paper producers
sought to convert their paper production to lower-cost alkaline-based
technologies, which permit mineral fillers to be substituted for more
expensive wood fiber and pigments used to increase brightness, resulting in
significant cost savings. As a result of these conditions, the Company
believed that a significant opportunity existed to provide paper producers
with a high performance filler product that could facilitate the transition
to the alkaline papermaking process. The Company's four-year development
effort culminated in the construction of the first commercial satellite PCC
plant at the Wisconsin Rapids paper mill of Consolidated Papers, Inc. in
1986. The Company believes the competitive advantages offered by the
improved economics and superior optical characteristics of the paper
produced using the PCC products manufactured by the Company's satellite PCC
plants resulted in the rapid growth in the number of the Company's
satellite PCC plants among uncoated wood-free paper producers. The Company
has also built satellite PCC plants that replace ground calcium carbonate.
In addition, the Company has constructed satellites for coating PCC, and
more recently, satellites for the use of its patented acid-tolerant PCC
technology. This technology provides higher performance qualities to
manufacturers of groundwood paper like newsprint, magazine and catalogue
papers. The following table shows the number of satellite PCC plants
operated by the Company at the end of the periods indicated. For
information with respect to the locations of the Company's satellite PCC
plants at December 31, 1998, see Item 2, "Properties" below.
SATELLITE PCC PLANTS
AT END OF QUARTER
--------------------
CALENDAR YEAR FIRST SECOND THIRD FOURTH
- ------------- ----- ------ ----- ------
1994 36 36 36 36
1995 37 37 38 38
1996 41 42 43 44
1997 45 46 48 49
1998 50 53 53 53
In 1998, the Company commenced operations at four new satellite PCC
plants in three different countries. These satellite PCC plants are
located in France, Germany and two in the United States.
1
During 1998, the Company signed agreements to construct two new
satellite plants, both of which are now under construction. The satellite
PCC plants under construction are located in China and in the United
States. These PCC plants are scheduled to commence operations in the first
half of 1999.
In addition, on April 30, 1998, the Company acquired a precipitated
calcium carbonate manufacturing facility in the United Kingdom which allows
the Company to establish a base for its specialty PCC business in Europe.
The Company staffs, operates and maintains all of its satellite PCC
plants and owns the related technology used at its satellite PCC plants.
The Company and its paper mill customers enter into long-term agreements,
generally ten years in length, pursuant to which the Company supplies
substantially all of a customer's precipitated calcium carbonate filler
requirements. The Company is generally permitted to sell to third parties
PCC produced at a satellite plant in excess of the host paper mill's
requirements. The Company's satellite PCC plants and customers are listed
in Item 2, "Properties."
The Company currently manufactures several customized PCC product
forms through proprietary processes at its satellite PCC plants, each
designed to provide optimum brightness, opacity, bulking and/or paper
strength. While focusing on expanding sales at its existing satellite PCC
plants, the Company's research and development and technical service staffs
have pioneered a number of new technologies. These include acid-tolerant
PCC, which allows PCC to be introduced to the large wood-containing segment
of the printing and writing papers market, and PCC crystal morphologies for
coating paper. The Company expects that research and development in
coating technology will open up a larger market for PCC that will build
slowly as paper companies begin to include PCC in their proprietary coating
formulations.
The Company also produces a full range of slurry and dry PCC products
sold on a merchant basis. In the paper industry, the Company's merchant PCC
is used as a coating pigment and as a filler in the production of coated
and uncoated wood-free printing and writing papers. The Company sells
surface-treated and untreated grades of PCC to the polymers industry for
use in rigid polyvinyl chloride products (pipe and profiles), thermoset
polyesters (automotive body parts), sealants (automotive and construction
applications), adhesives, printing inks and coatings. The Company's PCC is
used by the food and pharmaceutical industries as a source of bio-available
calcium in tablets and foodstuffs, as a buffering agent in tablets, and as
a mild abrasive in toothpaste. The Company also sells PCC on a merchant
basis to the paints and coatings industry.
The Company's PCC product line net sales were $349.5 million, $299.9
million, $263.1 million for the years ended December 31, 1998, 1997 and
1996, respectively. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
KEY MARKETS
The principal market for the Company's satellite PCC products is the
paper industry. The Company also produces PCC on a merchant basis for sale
to companies in the polymers, food and pharmaceutical and paints and
coatings industries.
Sales of PCC to the paper industry have accounted for a steadily
increasing percentage of the Company's total sales in the past five years,
a trend the Company expects to continue. The Company's sales of PCC have
been and are expected to continue to be made to the printing and writing
papers segment of the paper industry. The Company's products are currently
used primarily by paper mills producing uncoated wood-free paper.
NORTH AMERICAN WOOD-FREE PRINTING AND WRITING PAPERS. In the
mid-1980's, North American producers of uncoated wood-free paper
encountered significant increases in the costs of wood fiber and other
materials. In response, these paper producers sought to convert their
paper production to lower-cost alkaline-based technologies, thereby
resulting in significant cost savings. Ground chalk has historically been
used by European alkaline-based paper producers as a low-cost substitute
for wood fiber. In North America, however, the use of ground chalk is not
practical as there is no naturally occurring chalk.
PCC must compete with other fillers, such as ground limestone and
clay. PCC costs more to produce than ground limestone or clay since the
production process is inherently more complex. Limestone is mined, crushed
and ground; clay is mined, ground and perhaps calcined. PCC is manufactured
via a chemical process which takes lime (which itself is produced by
calcining a mined product, limestone), dissolves it, combines it with
carbon dioxide and separates the final product. Drying and transportation
can add over $100 per ton to the product cost. If shipped wet, additional
freight costs are incurred. In many cases this added cost makes PCC from
merchant plants uncompetitive with other fillers.
2
In response to these conditions and as a result of a concentrated
research and development effort, the Company developed the satellite PCC
plant concept. The Company's satellite PCC plants have facilitated the
conversion of a substantial percentage of the North American uncoated
wood-free printing and writing paper producers to alkaline papermaking. The
Company estimates that during 1998, more than 80% of North American
wood-free paper was produced employing alkaline technology.
Presently, the Company owns and operates 35 commercial satellite PCC
plants located at paper mills that produce wood-free printing and writing
papers in North America. Based upon its experience, the Company
anticipates that the aggregate volume of PCC used by these 35 paper mills
will increase. The Company also estimates that a few additional North
American paper mills producing wood-free paper are both suitable for
conversion to the more economical and, in the Company's view, more
ecologically sound, alkaline method and large enough to support a satellite
PCC plant.
The Company is also placing increased emphasis on the use of PCC to
coat paper. PCC increases gloss and printability of the sheet while
decreasing paper's cost per ton. The coating market is large and the
Company believes it will continue to grow at a higher average growth rate
than the uncoated market, and therefore provides a substantial market
opportunity for the Company. PCC coating products are produced at
approximately ten satellite PCC plants.
WORLDWIDE WOOD-CONTAINING PRINTING AND WRITING PAPERS. To date, the
Company's PCC products have primarily been used in wood-free alkaline
papermaking processes. The groundwood paper market, which the Company is
beginning to penetrate, represents nearly half of worldwide paper
production. The wood-containing segments of the paper industry still
generally employ acid papermaking technology. The conversion to alkaline
technology by these segments has been hampered by the phenomenon of
alkaline darkening, the tendency of wood-containing papers to darken in an
alkaline environment. In an attempt to introduce PCC to the wood-containing
segments of the paper industry, the Company has developed and patented a
process for the manufacture of an acid-tolerant form of PCC (AT-TM-PCC)
that provides high-brightness, high-quality groundwood paper produced
in an acid environment. The Company now supplies PCC to six groundwood
paper mills, pursuant to long-term contracts.
The Company believes PCC filler levels for uncoated wood-containing
paper generally will be less than those for uncoated wood-free paper. There
can be no assurance as to the number of producers of wood-containing paper
that will contract with the Company to purchase AT-TM- PCC.
INTERNATIONAL WOOD-FREE PRINTING AND WRITING PAPERS. The Company
estimates the production of uncoated wood-free printing and writing papers
outside of North America that can be served by its satellite PCC operations
is approximately the same size (measured in tons of paper produced) as the
North American uncoated wood-free paper market currently served by the
Company. A number of factors have influenced the acceptance of the
Company's satellite PCC technology in foreign markets. Although European
wood-free paper producers predominantly use alkaline papermaking processes,
PCC, although growing in use, is not the prevalent filler in this market.
Ground limestone is readily available in Europe and commonly used as a
low-cost filler product in alkaline systems. In addition, supplies of lime
suitable for the manufacture of PCC generally are more expensive than such
lime in North America. However, the Company believes that the superior
brightness and opacity characteristics offered by its PCC products should
allow it to compete with suppliers of ground limestone and other filler
products in this market. In Latin America and Asia supplies of lime
suitable for PCC production are generally readily available.
PROCESSED MINERAL PRODUCTS AND MARKETS
The Company mines and processes natural mineral products, limestone
and talc, and manufactures lime, a mineral-based product.
Limestone and talc are mined, crushed, screened and beneficiated and,
on occasion, subjected to surface chemical modification.
Lime, a mineral-based product, is used as a raw material for the
manufacture of PCC at the Company's Adams, Massachusetts facility, and sold
commercially to the steel and chemical industries.
In April 1998, the Company divested its Midwest limestone business in
Port Inland, Michigan. Net sales of the Midwest limestone business in 1997
were $20.8 million. Net sales from this facility in 1998, prior to the
divestiture, were $1.6 million. This was the Company's only business unit
competing for sales of limestone aggregate, a commodity business.
References to ongoing operations exclude the results from this facility.
3
Talc is mined, beneficiated and processed at the Company's Barretts
site, located near Dillon, Montana, and is sold worldwide in finely ground
form for paints and coatings, ceramics and polymers applications. Because
of the exceptional chemical purity of the Barretts ore, virtually all of
the automotive catalytic converter ceramic substrates manufactured in the
United States, Japan and Western Europe utilize the Company's Barretts
talc.
The Company's net sales of processed mineral products from ongoing
operations were $77.9 million, $82.4 million and $79.1 million for the
years ended December 31, 1998, 1997 and 1996, respectively. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's natural mineral products are supported by the Company's
limestone reserves, which the Company believes are strategically located in
the western and eastern parts of the United States, and talc reserves,
which the Company believes are of outstanding quality. The Company
estimates these reserves, at current usage levels, to be from 40 to over 70
years at its limestone production facilities and in excess of 40 years at
its talc production facilities.
REFRACTORIES SEGMENT
REFRACTORY PRODUCTS AND MARKETS
REFRACTORY PRODUCTS.
The Company offers a broad range of monolithic refractory products as
well as pre-cast monolithic refractory shapes. Product sales are usually
combined with Company-supplied proprietary applications equipment and
on-site technical services support. The Company's proprietary applications
equipment is used to apply refractory materials to the walls of steel-
making furnaces and other high temperature vessels to maintain and extend
their lives. Robotic-type shooters, including the Company's proprietary
SEQUAD-RT- sprayer, allow for remote-controlled applications in steel-
making furnaces, as well as in steel ladles and blast furnaces. Since the
steel-making industry is characterized by intense price competition, which
results in a continuing emphasis by steel mills on increased productivity,
the SEQUAD-RT- sprayer and the related technologically advanced blast
furnace maintenance materials developed in the Company's research
laboratories have been well accepted by the Company's customers. These
products allow steel makers to improve their performance through, among
other things, the application of monolithic refractories to furnace linings
while the furnace is at operating temperature, thereby eliminating the need
for furnace cool-down periods and steel-production interruption. This also
results in a lower overall refractory cost to steel makers per ton of steel
produced. The Company's experienced technical service staff and advanced
applications equipment provide greater assurance that the desired
productivity objectives of customers are achieved. In addition, laser
measurement of refractory wear is conducted by the Company's technicians in
certain plants. The Company believes that these services, together with its
refractory product offerings, provide the Company with a strategic
marketing advantage.
The patented KILNTEQ-RT- refractory technology system is a new concept
for lining the interior of lime and cement kilns. The KILNTEQ-RT- system
calls for lining the huge, tube-like kilns with refractory material in a
polygonal shape. This shape, rather than the circular linings now
generally used, is believed to increase raw material throughput and to
decrease energy use.
The Company's refractory products are sold in the following three
product groups:
STEEL FURNACE REFRACTORIES. The Company sells gunnable monolithic
refractory products to users of basic oxygen furnaces and electric furnaces
for application on furnace walls to prolong the life of furnace linings.
SPECIALTY PRODUCTS FOR IRON AND STEEL. The Company sells monolithic
refractory materials and pre-cast refractory shapes for iron and steel
ladles, vacuum degassers, continuous casting tundishes, blast furnaces and
reheating furnaces. The Company is one of the few monolithic refractory
companies offering a full line of materials to satisfy all continuous
casting refractory applications. This full line consists of gunnable,
sprayable, trowellable and vibratable materials as well as refractory
shapes and permanent linings.
The Company uses proprietary processes to produce a number of products
that are technologically enhanced. These include calcium metal,
metallurgical wire and a number of metal treatment specialties. The Company
manufactures calcium metal at its Canaan, Connecticut facility and
purchases calcium in international markets. Calcium metal is used in the
manufacture of batteries and magnets. The Company sells metallurgical wires
and fluxes for use in the production of steel. The Company's metallurgical
wires are injected into molten steel to reduce imperfections. The steel
produced is used for high-pressure pipeline and other premium-grade steel
applications. The Company's fluxes are mineral products used to help purify
steel.
4
NON-STEEL REFRACTORY PRODUCTS. This product line encompasses
refractory shapes and linings and pyrolytic graphite products that are sold
to the glass, cement, aluminum, petrochemical and other non-steel
industries.
The Company's refractory net sales were $180.2 million, $199.2 million
and $196.7 million for the years ended December 31, 1998, 1997 and 1996,
respectively. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
KEY MARKETS
The principal market for the Company's refractory products is the
steel industry. Raw steel production on a worldwide basis has shown only
modest growth in the past ten years. However, management believes that
certain trends in the steel-making industry will continue to provide growth
opportunities for the Company. These trends include the development of
improved manufacturing processes such as continuous casting, the need of
steel producers for increased productivity and higher grade refractories,
as well as a modest shift toward electric steel making.
The use of the continuous casting method, measured in tons of steel
cast on a worldwide basis, has more than doubled in the past ten years. The
need for high quality refractory products for this process has generated
new market opportunities for the Company's refractory products. Product
offerings for continuous casting include advanced maintenance coatings and
original linings for tundishes and robotic applications equipment. The
Company believes that the trend toward electric steel-making mini-mills and
away from integrated steel mills has facilitated the acceptance of new
refractory products and technologies. Mini-mills require a broad line of
refractory products and certain metallurgical products that are also
produced by the Company.
MARKETING AND SALES
The Company principally relies on its worldwide direct sales force to
market its products. The direct sales force is augmented by worldwide
technical service teams, which are familiar with the industries to which
the Company markets its products, and several regional distributors. The
Company's sales force works closely with the Company's technical service
staff to solve technical and other issues faced by the Company's customers.
The Company's technical service staff assists North American paper
producers in their conversion to alkaline papermaking and provides post-
conversion assistance to customers. In addition, the Company's technical
service personnel advise with respect to the use of monolithic refractory
materials and, in many cases, apply the refractory materials to the
customers' furnaces and other vessels pursuant to service agreements.
Continued use of skilled technical service teams is an important component
of the Company's business strategy.
The Company works closely with its customers to ensure that the
customers' requirements are satisfied and often trains and supports
customer personnel in the use of the Company's products. The Company
conducts domestic marketing and sales from its headquarters in New York and
from regional sales offices in the eastern and western United States. The
Company's international marketing effort is directed from Brussels,
Belgium; Tokyo, Japan; and Singapore. The Company believes its refractory
manufacturing facilities are strategically located to satisfy the stringent
delivery requirements of the steel industry. The Company also believes that
its worldwide network of sales personnel and manufacturing facilities
facilitates the international expansion of its satellite PCC operations.
RAW MATERIALS
The Company uses lime in the production of PCC, and is a significant
purchaser of lime in North America. Generally, lime is purchased from
unaffiliated suppliers located in close geographic proximity to the
Company's satellite PCC plants, pursuant to long-term contracts, and to a
lesser extent, supplied by the Company from its Adams, Massachusetts
facility. If there were to be an interruption in the supply of lime from
any particular lime supplier to the Company, the Company believes that
alternative sources of lime would be available at effectively the same cost
to the Company. In Europe, supplies of lime suitable for the manufacture
of PCC are generally available.
The principal raw materials used in the Company's monolithic
refractories products are refractory-grade magnesia and various forms of
aluminosilicates. The Company also purchases calcium metal, calcium
silicide, graphite, calcium carbide and various alloys for use in the
production of metallurgical wires and uses lime and aluminum in the
production of calcium metal. The Company purchases a significant portion of
its magnesite requirements from sources in the People's Republic of China.
The Company believes that it could obtain adequate supplies from
alternate sources in the event of supply interruptions of its raw material
requirements.
5
COMPETITION
The Company is continually engaged in efforts to develop new products
and technologies and refine existing products and technologies in order to
remain competitive and, in certain circumstances, to position itself as a
market leader.
With respect to its PCC products, the Company competes for sales to
the paper industry based in large part upon technological know-how, patents
and processes that allow the Company to deliver PCC that the Company
believes imparts superior brightness and opacity properties to paper on an
economical basis. The Company is the leading manufacturer and supplier of
PCC to the North American paper industry. It competes with certain
companies both in North America and abroad that sell PCC or offer
alternative products for use in paper filling and coating applications.
Competition with respect to the Company's PCC sales is based upon
availability of materials, price, and optical characteristics such as
brightness, opacity and paper strength.
With respect to the Company's refractory products, competitive
conditions vary by geographic region. Competition is based upon the
performance characteristics of the product (including strength, quality and
consistency and ease of application), price, and the availability of
technical support. The Company competes with different companies in
different geographic areas and in separate aspects of its product line.
The Company competes in sales of its limestone and talc based
primarily upon product quality, price, and the geographic location of the
purchaser.
RESEARCH AND DEVELOPMENT
Many of the Company's product lines are technology-based, and the
Company's business strategy for continued growth in sales and profitability
depends, to a large extent, on the continued success of its research and
development activities. Among the significant achievements of the Company's
research and development effort have been the satellite PCC plant concept,
acid-tolerant PCC, production of PCC crystal morphologies for coating
paper, the SEQUAD-RT- sprayer, the KILNTEQ-RT- system, and numerous new
refractory products.
The Company maintains its main research facilities in Bethlehem and
Easton, Pennsylvania, with more than 170 employees engaged in research and
development. It also has smaller research and development facilities in
Finland, Ireland and Japan. Expertise in inorganic chemistry,
crystallography and structural analysis, fine particle technology and other
aspects of materials science applies to and supports all of the Company's
product lines.
For the years ended December 31, 1998, 1997 and 1996, the Company
expended approximately $21.0 million, $20.4 million, and $19.7 million,
respectively, on research and development. The Company believes, based upon
its review of publicly available information regarding the reported
research and development spending of certain of its competitors, that its
investment in research and development as a percentage of net sales exceeds
comparable industry norms. The Company's research and development spending
for 1998 approximated 3.4% of net sales.
PATENTS AND TRADEMARKS
The Company owns or has the right to use approximately 400 patents and
approximately 800 trademarks related to its business. The Company believes
that its rights under its existing patents, patent applications and
trademarks are of value to its operations, but no one patent, application
or trademark is material to the conduct of the Company's business as a
whole.
INSURANCE
The Company maintains liability and property insurance and insurance
for business interruption in the event of damage to its production
facilities and certain other insurance covering risks associated with its
business. The Company believes such insurance is adequate for the operation
of its business. From time to time various types of insurance for companies
in the specialty minerals business have been very expensive or, in some
cases, unavailable. There is no assurance that in the future the Company
will be able to maintain the coverage initially obtained or that the
premiums therefore will not increase substantially.
6
EMPLOYEES
At December 31, 1998, the Company employed approximately 2,260
persons, of whom approximately 700 were employed by the Company outside the
United States. The Company believes its relationships with its employees
are good.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company's operations are subject to federal, state, local and
foreign laws and regulations relating to the environment and health and
safety. Certain of the Company's operations involve and have involved the
use and release of substances that are classified as toxic or hazardous
substances within the meaning of these laws and regulations. Environmental
operating permits are, or may be, required for certain of the Company's
operations and such permits are subject to modification, renewal and
revocation. The Company regularly monitors and reviews its operations,
procedures and policies for compliance with these laws and regulations. The
Company believes its operations are in substantial compliance with these
laws and regulations and that there are no violations which should have a
material effect on the Company. Despite these compliance efforts, some risk
of environmental and other damage is inherent in the operation of the
business of the Company, as it is with other companies engaged in similar
businesses, and there can be no assurance that material damage will not
occur in the future. The cost of compliance with these laws and regulations
is not expected to have a material adverse effect on the Company. However,
future events, such as changes in or modifications of interpretations of
existing laws and regulations or enforcement policies or further
investigation or evaluation of the potential health hazards of certain
products may give rise to additional compliance and other costs that could
have a material adverse effect on the Company. The Company has a right of
indemnification for certain potential environmental, health and safety
liabilities under agreements entered into between the Company and Pfizer
Inc ("Pfizer") or Quigley Company, Inc. ("Quigley"), a wholly-owned
subsidiary of Pfizer, in connection with the reorganization. See "Certain
Relationships and Related Transactions" in Item 13.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
The disclosure and analysis set forth in this report contains certain
forward-looking statements, particularly statements relating to future
actions, performance or results of current and anticipated products, sales
efforts, expenditures, and financial results. From time to time, the
Company also provides forward-looking statements in other publicly-released
materials, both written and oral. Forward-looking statements provide
current expectations or forecasts of future events such as new products,
revenues and financial performance, and are not limited to describing
historical or current facts. They can be identified by their use of words
such as "plans," "expects," "anticipated," "will" and other words and
phrases of similar meaning.
Forward-looking statements are necessarily based on assumptions,
estimates and limited information available at the time they are made. A
broad variety of risks and uncertainties, both known and unknown, as well
as the inaccuracy of assumptions and estimates, can affect the realization
of the expectations or forecasts in these statements. Consequently, no
forward-looking statement can be guaranteed. Actual future results may
vary materially.
The Company undertakes no obligation to update any forward-looking
statements. Investors should refer to the Company's subsequent filings
under the Securities Exchange Act of 1934 for further disclosures.
As permitted by the Private Securities Litigation Reform Act of 1995,
the Company is providing the following cautionary statements which identify
factors that could cause the Company's actual results to differ
materially from historical and expected results. It is not possible to
foresee or identify all such factors. Investors should not consider this
list an exhaustive statement of all potential risks, uncertainties and
inaccurate assumptions.
- - HISTORICAL GROWTH RATE
Continuance of the historical growth rate of the Company depends upon
a number of uncertain events, including the outcome of the Company's
strategies of increasing its penetration into geographical markets
such as Asia, Latin America and Europe; increasing its penetration
into product markets such as the market for paper coating pigments
and the market for groundwood paper pigments; increasing sales to
existing PCC customers by increasing the amount of PCC used in each
ton of paper produced; and developing, introducing and selling new
products. Difficulties, delays or failures of any of these
strategies could cause the future growth rate of the Company to
differ materially from its historical growth rate.
7
- - CONTRACT RENEWALS
The Company's sales of PCC are predominantly pursuant to long-term
agreements, generally ten years in length, with paper mills at which
the Company operates satellite PCC plants. The terms of many of
these agreements have been extended, often in connection with an
expansion of the satellite PCC plant. To date, the Company's
experience with extensions and renewals of its satellite PCC
agreements has been favorable. There is no assurance, however, that
this will continue to be the case. Failure of a number of the
Company's customers to renew existing agreements could cause the
future growth rate of the Company to differ materially from its
historical growth rate, and could have a substantial adverse effect
on the Company's results of operations.
- - LITIGATION; ENVIRONMENTAL EXPOSURES
The Company's operations are subject to international, federal, state
and local environmental, tax and other laws and regulations, and
potentially to claims for various legal, environmental and tax
matters. The Company is currently a party to various litigation
matters, including the Eaton litigation which has previously been
disclosed in the Management's Discussion and Analysis sections of the
Company's most recent filings under the Securities Exchange Act of
1934. While the Company carries liability insurance which it
believes to be appropriate to its businesses, and has provided
reserves for such matters which it believes to be adequate, an
unanticipated liability arising out of such a litigation matter or a
tax or environmental proceeding could have a material adverse effect
on the Company's financial condition or results of operations.
- - NEW PRODUCTS
The Company is engaged in a continuous effort to develop new products
in all of its product lines. Difficulties, delays or failures in
the development, testing, production, marketing or sale of such new
products could cause its actual results of operations to differ
materially from expected results.
- - COMPETITION; PROTECTION OF INTELLECTUAL PROPERTY
Particularly in its PCC and Refractory product lines, the Company
competes based in part upon proprietary knowledge, both patented and
unpatented. The Company's ability to achieve anticipated results
depends in part on its ability to defend its intellectual property
against inappropriate disclosure as well as against infringement. In
addition, development by the Company's competitors of new products or
technologies that are more effective or less expensive than those the
Company offers could have a material adverse effect on the Company's
financial condition or results of operations.
- - RISKS OF DOING BUSINESS ABROAD
As the Company expands its operations overseas, it faces the
increased risks of doing business abroad, including inflation,
fluctuations in interest rates and currency exchange rates,
nationalization, expropriation, limits on repatriation of funds,
unstable governments and legal systems, and other factors. Adverse
developments in any of these areas could cause actual results to
differ materially from historical and expected results.
- - AVAILABILITY OF RAW MATERIALS
The Company's ability to achieve anticipated results depends in part
on having an adequate supply of raw materials for its manufacturing
operations, particularly lime and carbon dioxide for PCC operations
and magnesia for refractory operations, and on having adequate access
to the ore reserves at its mining operations. Unanticipated changes
in the costs or availability of such raw materials, or in the
Company's ability to have access to its ore reserves, could adversely
affect the Company's results of operations.
- - YEAR 2000
The Company faces the risk that the transition to the year 2000 may
cause its own systems and equipment, or the systems and equipment of
other firms, to fail unexpectedly. The Company is taking steps to
study and reduce this risk, as outlined in the Management's
Discussion and Analysis section of this report. However, failure of
the Company's efforts to repair or replace its information technology
systems according to schedule; failure to identify a mission-
critical, non-year 2000-compatible item of software or embedded
control; failure of a significant vendor or customer to provide the
Company with goods or services or to purchase or pay for goods or
services, because of year 2000-related breakdowns; or widespread year
2000-related disruption of the electrical, banking,
telecommunications or transportation systems or of the economy in
general, could adversely affect the Company's financial position or
results of operations.
8
- - CYCLICAL NATURE OF CUSTOMERS' BUSINESS
The bulk of the Company's sales are to customers in two industries,
paper and steel, which have historically been cyclical. The
Company's exposure to variations in its customers' business has been
reduced in recent years by the growth in the number of plants it
operates; by the diversification of its portfolio of products and
services; and by its geographic expansion, since economic problems
are usually not equally felt in all parts of the world. In addition,
the structure of some of the Company's long-term contracts gives it a
degree of protection against declines in the quantity of product
purchased, since the price per ton rises as the number of tons
purchased declines. In addition, many of the Company's product lines
lower its customers' cost of product or increase their productivity,
which should encourage them to use its products. However, a
sustained economic downturn in one or more of the industries or
geographic regions which the Company serves, or in the worldwide
economy, could cause actual results of operations to differ
materially from historical and expected results.
- - ADOPTION OF A COMMON EUROPEAN CURRENCY
On January 1, 1999, eleven European countries adopted the euro as
their common currency. Adoption of the euro will require changes
both to the Company's financial reporting systems and to commercial
arrangements with third parties, including customers, suppliers and
financial institutions. In addition, adoption of a single currency
and a common monetary policy by the countries adopting the euro can
be expected to have effects on competition in Europe and on the
overall economy of the region. A failure on the Company's part to
identify or to correct systems or agreements which require
modification, or effects on the competition or the general economy of
the region, could adversely affect its financial position or results
of operations.
ITEM 2. PROPERTIES
Set forth below is the location of, and customer served by, each of
the Company's satellite PCC plants at December 31, 1998. Generally, the
land on which each satellite PCC plant is located is leased at a nominal
amount by the Company from the host paper mill pursuant to a lease, the
term of which runs concurrently with the term of the PCC production and
sale agreement between the Company and the host paper mill.
LOCATION CUSTOMER
- -------- --------
Alabama, Jackson Boise Cascade Corporation
Alabama, Mobile International Paper Company
Alabama, Selma International Paper Company
Arkansas, Ashdown Georgia-Pacific Corporation
Brazil, Jacarei Votorantim Celulose e Papel
Brazil, Luiz Antonio Votorantim Celulose e Papel
Brazil, Suzano Cia Suzano de Papel e Celulose
California, Anderson Shasta Acquisition, Inc.
Canada, Cornwall, Ontario Bowater, Inc.
Canada, Dryden, Ontario Weyerhauser Canada Inc.
Canada, St. Jerome, Quebec Rolland Paper Inc.
Canada, Windsor, Quebec Domtar Inc.
Finland, Aanekoski1 Metsa-Serla Group
Finland, Anjalankoski1 Myllykoski Paper Oy
Finland, Lappeenranta1,2 Enzo-Gutzeit Group
Finland, Tervakoski1 Enzo-Gutzeit Group
Florida, Pensacola Champion International Corporation
France, Docelles UPM Kymmene Corporation
France, Saillat Sur Vienne Aussedat Rey (a subsidiary of
International Paper Company)
Germany, Schongau Haindl Papier Gmbh
Indonesia, Perawang1 PT Indah Kiat Pulp and Paper Corporation
Israel, Hadera American Israeli Paper Mills, Ltd.
Kentucky, Wickliffe Westvaco Corporation
Louisiana, Port Hudson Georgia-Pacific Corporation
Maine, Jay International Paper Company
Maine, Madison Madison Paper Industries
Mexico, Chihuahua Corporativo Copamex, S.A. de C.V.
Michigan, Plainwell Plainwell Paper Company
Michigan, Quinnesec Champion International Corporation
Minnesota, Cloquet Potlatch Corporation
9
Minnesota, International Falls Boise Cascade Corporation
New York, Oswego International Paper Company
New York, Ticonderoga International Paper Company
North Carolina, Plymouth Weyerhaeuser Company
Ohio, Chillicothe The Mead Corporation
Ohio, West Carrollton Appleton Papers Inc.
Pennsylvania, Erie International Paper Company
Pennsylvania, Lock Haven International Paper Company
Poland, Kwidzyn International Paper Company
Portugal, Figueira da Foz1 Soporcel - Sociedade Portuguesa de
Celulose, S.A.
Slovakia, Ruzomberok Severoslovenske Cululozky a Papierne
s.p.
South Carolina, Eastover Union Camp Corporation
South Africa, Merebank1 Mondi Paper Company Ltd.
Tennessee, Kingsport Willamette Industries Inc.
Texas, Pasadena Pasadena Paper Company LP
Thailand, Tha Toom1 Advance Agro Public Co. Ltd.
Virginia, Franklin Union Camp Corporation
Washington, Camas James River Corporation
Washington, Longview Weyerhaeuser Company
Washington, Wallula Boise Cascade Corporation
Wisconsin, Kimberly Repap Wisconsin Inc. (a subsidiary of
Repap Enterprises Corp., Inc.)
Wisconsin, Park Falls Cross Pointe Paper Corporation
Wisconsin, Wisconsin Rapids Consolidated Papers, Inc.
1 These plants are owned through joint ventures.
2 This PCC plant is not located on-site at the paper mill.
The Company also owned at December 31, 1998 six plants engaged in the
mining, processing and/or production of lime, limestone, precipitated
calcium carbonate, and talc and directly or indirectly owns or leases
approximately 15 refractory manufacturing facilities worldwide. The
Company's corporate headquarters, sales offices, research laboratories,
plants and other facilities are owned by the Company except as otherwise
noted. Set forth below is certain information relating to the Company's
plants and office and research facilities.
LOCATION FACILITY PRODUCT LINE
-------- -------- ------------
UNITED STATES
Arizona, Pima County Plant; Quarry4 Limestone
California, Los Angeles Sales Office1 PCC, Lime, Limestone,
Talc
California,
Lucerne Valley Plant; Quarry Limestone
Connecticut, Canaan Plant; Quarry Limestone, Metallurgical
Wire/Calcium
Indiana, Highland Plant Monolithic Refractories
Massachusetts, Adams Plant; Quarry Limestone, Lime, PCC
Montana, Dillon Plant; Quarry Talc
New Jersey, Old Bridge Plant Monolithic
Refractories/Shapes
New York, New York Headquarters1; All Company Products
Sales Offices1
Ohio, Bryan Plant Monolithic Refractories
Ohio, Dover Plant Refractories
Pennsylvania, Bethlehem Research PCC, Lime,Limestone,
Laboratories; Talc, Pyrolytic Graphite
Sales Offices
Pennsylvania, Easton Research PCC, Lime, Limestone,
Laboratories; Talc, Pyrolytic
Plant Graphite, Refractories,
Metallurgical
Wire
Pennsylvania, Slippery Rock Plant Refractory Shapes
10
INTERNATIONAL
Australia, Carlingford Sales Office1 Monolithic Refractories
Belgium, Brussels Sales Office1 Monolithic
Refractories/PCC
Brazil, Belo Horizonte Sales Office1 Monolithic Refractories
Brazil, Sao Paulo Sales Office1 PCC
Brazil, Volta Redonda Sales Office1 Monolithic Refractories
Canada, Lachine Plant Refractory Shapes
China, Huzhou Plant2 Monolithic Refractories
Germany, Duisburg Sales Office Monolithic Refractories
Ireland, Cork Plant; Sales Monolithic Refractories/
Office1 Metallurgical Wire
Italy, Brescia Sales Office; Monolithic Refractories/
Plant Shapes
Japan, Gamagori Plant Monolithic Refractories/
Shapes, Calcium
Japan, Tokyo Sales Office1 Monolithic Refractories/
Shapes, Calcium, PCC,
Talc
Mexico, Gomez Palacio Plant1 Monolithic Refractories
Singapore. Sales Office1 PCC
Spain, Santander Sales Office1 Monolithic Refractories
South Africa,
Pietermaritzburg Plant Monolithic Refractories
South Korea, Yangsan Plant3 Monolithic Refractories
South Korea, Seoul Sales Office1 Monolithic Refractories
United Kingdom,
Lifford Plant PCC, Lime
United Kingdom,
Rotherham Plant Monolithic Refractories/
Shapes
1 Leased by the Company. The facilities in Cork, Ireland are operated
pursuant to a 99-year lease, the term of which commenced in 1963.
The Company's headquarters and sales offices in New York, New York
are held under a lease which expires in 2010.
2 This plant is leased through a joint venture.
3 This plant is owned through a joint venture.
4 This plant is leased to another company.
The Company believes that its facilities, which are of varying ages
and are of different construction types, have been satisfactorily
maintained, are in good condition, are suitable for the Company's
operations and generally provide sufficient capacity to meet the Company's
production requirements. Based on past loss experience, the Company
believes it is adequately insured in respect of these assets, and for
liabilities which are likely to arise from its operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiary Specialty Minerals Inc. are defendants
in a lawsuit captioned EATON CORPORATION V. PFIZER INC, MINERALS
TECHNOLOGIES INC. AND SPECIALTY MINERALS INC. which was filed on July 31,
1996 and is pending in the U.S. District Court for the Western District of
Michigan. The suit alleges that certain materials sold to Eaton for use in
truck transmissions were defective, necessitating repairs for which Eaton
seeks reimbursement. The amount of damages claimed by Eaton is
approximately $20 million plus interest. The Company believes it has
insurance coverage for a substantial portion of the alleged damages, if it
should be held liable. While all litigation contains an element of
uncertainty, the Company and Specialty Minerals Inc. believe that they have
valid defenses to the claims asserted by Eaton in this lawsuit, are
continuing to vigorously defend all such claims, and believe that the
outcome of this matter will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
The Company and its subsidiaries are not party to any other pending
legal proceedings, other than ordinary routine litigation incidental to
their businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of all Executive Officers of
the Registrant indicating all positions and offices with the Registrant
held by each such person, and each such person's principal occupations or
employment during the past five years.
NAME AGE POSITION
- ---- --- --------
Jean-Paul Valles 62 Chairman of the Board and Chief
Executive Officer
Paul R. Saueracker 57 Vice President of the Company and
President, Specialty Minerals Inc.
Anton Dulski 57 Vice President of the Company and
President, MINTEQ International Inc.
S. Garrett Gray 60 Vice President, General Counsel and
Secretary
Neil M. Bardach 50 Vice President, Finance and Chief
Financial Officer; Treasurer
(effective February 1, 1999)
Howard R. Crabtree 54 Vice President, Organization & Human
Resources
William A. Kromberg 53 Vice President, Taxes
Michael A. Cipolla 41 Controller
Stephen E. Hluchan 56 Treasurer (retired, effective
February 1, 1999)
Jean-Paul Valles, Ph.D., has served as Chairman of the Board and a
director of the Company since April 1989. He was elected Chief Executive
Officer of the Company in August 1992. Until the completion of the initial
public offering, Dr. Valles served as a Vice-Chairman of Pfizer, a position
he had held since March 1992. At Pfizer, Dr. Valles had been responsible
for a number of Pfizer's businesses, including, since 1989, the operations
that comprise the Company, and had served in a number of other executive
positions, including Executive Vice President from 1991 to 1992. Dr.
Valles continues to serve as a director of Pfizer. In addition, he is a
director of Junior Achievement of New York, Inc. and of The New York
Chapter of the French-American Chamber of Commerce in the U.S., Inc., and a
member of the American Economic Association and the Financial Executives
Institute.
Paul R. Saueracker has served as Vice President of the Company and
President of Specialty Minerals Inc. since February 1994. Prior to that
time, he had been Executive Vice President of Specialty Minerals Inc. since
October 1993. Since 1989, he served as Vice President of Marketing and
Sales of Specialty Minerals Inc. Mr. Saueracker is a former President of
the Pulverized Limestone Division of the National Stone Association and a
member of the Technical Association of the Pulp and Paper Industry and the
Paper Industry Management Association. He is also a member of the Board of
Trustees of the Institute of Paper Science and Technology in Atlanta,
Georgia.
Anton Dulski has served as Vice President of the Company and
President of Minteq International Inc. since January 1, 1996. Previously,
he served as Senior Vice President of Minteq with responsibility for
European operations from 1993 to 1995 and; as Vice President of Minteq with
responsibility for sales and marketing in Europe from 1992 to 1993.
S. Garrett Gray has served as Vice President and Secretary of the
Company since April 1989. In August 1992, Mr. Gray was appointed General
Counsel of the Company.
Neil M. Bardach has served as Vice President-Finance and Chief
Financial Officer of the Company since August 1998. Prior to that time, Mr.
Bardach was Chief Financial Officer of The Genlyte Group Incorporated, a
publicly traded manufacturer of lighting fixtures, since July 1994, and
held various positions with Anacomp, Inc. from 1983 to 1994.
Howard R. Crabtree was appointed Vice President-Organization & Human
Resources of the Company in January 1997, having served as Vice President-
Human Resources since August 1992.
William A. Kromberg has served as Vice President-Taxes of the Company
since February 1993. From May 1989 to that time, he was Vice President-
Taxes of Culbro Corporation, a distributor and manufacturer of consumer and
industrial products.
Michael A. Cipolla has served as Controller of the Company since
April 1, 1998. From December 1992 to March 1998 he served as Assistant
Corporate Controller of the Company. Prior to joining the Company, Mr.
Cipolla was with KPMG LLP from 1983; and served as a Senior Manager from
1987.
Stephen E. Hluchan served as Treasurer of the Company from August
1992 through January 1999.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NYSE under the symbol
"MTX".
Information on market prices and dividends is set forth below:
1998 QUARTERS FIRST SECOND THIRD FOURTH
------------- ----- ------ ------ -------
Market Price Range Per
Share of Common Stock
High $52 5/16 $55 9/16 $54 $51 1/4
Low 40 15/16 48 3/8 35 7/8 36
Close 49 15/16 51 3/4 39 1/4 40 15/16
Dividends paid per
common share $.025 $.025 $.025 $.025
1997 QUARTERS FIRST SECOND THIRD FOURTH
------------- ----- ------ ----- ------
Market Price Range Per
Share of Common Stock
High $42 7/8 $40 7/8 $44 15/16 $46 1/8
Low 34 32 1/8 36 1/8 39 1/2
Close 34 1/4 37 1/4 44 3/4 45 7/16
Dividends paid per
common share $.025 $.025 $.025 $.025
On March 3, 1999, the last reported sale price on the NYSE was
$43 5/16 per share. As of March 3, 1999, there were approximately
294 holders of record of the common stock.
On January 28, 1999, the Company's Board of Directors declared a
quarterly dividend on its common stock of $.025 per share in respect of the
quarter ended December 31, 1998. Subject to satisfactory financial results
and declaration by the Board, the Company currently intends to pay
quarterly cash dividends on its common stock of at least $.025 per share.
Although the Company believes its historical earnings indicate that this
dividend policy is appropriate, it will be reviewed by the Board from time
to time in light of the Company's financial condition, results of
operations, current and anticipated capital requirements, contractual
restrictions and other factors deemed relevant by the Board. No dividend
will be payable unless declared by the Board and unless funds are legally
available for payment thereof.
On February 26, 1998, the Company's Board of Directors authorized a
$150 million stock repurchase program. The stock will be purchased on the
open market from time to time. As of January 19, 1999, the Company had
repurchased approximately 909,000 shares under this program, at an average
price of approximately $47 per share.
13
ITEM 6. SELECTED FINANCIAL DATA
THOUSANDS, EXCEPT
PER SHARE DATA 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Net sales $609,193 $602,335 $555,988 $524,451 $472,637
Cost of goods sold 416,558 424,612 396,345 375,655 335,327
Marketing,
distribution and
administrative
expenses 79,150 77,104 72,485 70,464 66,533
Research and
development expense 21,038 20,391 19,740 19,658 18,187
------ ------ ------ ------ ------
Income from
operations 92,447 80,228 67,418 58,674 52,590
Net income 57,224 50,312 43,097 39,529 33,346
EARNINGS PER SHARE:
Basic earnings
per share $ 2.57 $ 2.23 $ 1.91 $ 1.75 $ 1.48
====== ====== ====== ====== ======
Diluted earnings
per share $2.50 $ 2.18 $ 1.86 $ 1.72 $ 1.46
===== ====== ====== ====== ======
Weighted average
number of common
shares outstanding
Basic 22,281 22,558 22,621 22,633 22,603
Diluted 22,926 23,113 23,132 23,001 22,805
Dividends declared
per common share $ 0.10 $ 0.10 $ 0.10 $ 0.10 $ 0.10
BALANCE SHEET DATA:
Working capital $112,892 $132,364 $115,540 $86,746 $135,844
Total assets 760,912 741,407 713,861 649,144 588,124
Long-term debt 88,167 101,571 104,900 67,927 83,031
Total debt 101,678 115,560 130,239 95,817 83,031
Total shareholders'
equity 489,163 466,997 448,250 416,153 381,098
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INCOME AND EXPENSE ITEMS AS
A PERCENTAGE OF NET SALES
YEAR ENDED DECEMBER 31, 1998 1997 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 68.4 70.5 71.3
Marketing, distribution and
administrative expenses 13.0 12.8 13.0
Research and development expenses 3.4 3.4 3.6
---- ---- ----
Income from operations 15.2 13.3 12.1
Net income 9.4% 8.4% 7.8%
==== ==== ====
OVERVIEW OF 1998 AND OUTLOOK
In 1998, the Company adhered to its strategy of expanding its
Precipitated Calcium Carbonate (PCC) product line within the Specialty
Minerals segment. The Company commenced operations at four new satellite
PCC plants in three different countries and signed agreements for
construction of two large satellite plants, one in China and one in the
United States. Together, the plants under construction have production
capacity equivalent to approximately nine "satellite units" and are
scheduled to begin operations in the first half of 1999. (A satellite unit
is equivalent to annual production capacity of between 25,000 and 35,000
tons of PCC.) The Company also contracted for the addition of a large PCC
coating facility at an existing satellite plant in Finland and acquired a
PCC business in the United Kingdom. The patented acid-tolerant PCC
technology continues to show growth and the groundwood sector of the
worldwide paper industry continues to show widespread interest in this
product. In addition, the Company expanded several satellite plants at
various locations around the world. As a result, sales of PCC as a
percentage of the Company's total net sales, which were 37.4% in 1992, had
risen to 57.4% by 1998. The Company expects this trend to continue as
volume growth of PCC continues to outpace growth in the Processed Minerals
product line and the Refractories segment.
The Company now operates or has under construction 55 satellite PCC
plants in 15 countries worldwide. The Company is optimistic that volume
growth will continue in 1999. The Company expects additional expansions at
existing satellite PCC plants to occur in 1999 and also expects to sign
contracts for additional satellite PCC plants.
In 1999, the Company plans to continue its focus on the following
growth strategies for the PCC product line:
- - Continued efforts to increase market penetration in North America,
Europe, Latin America, and the Pacific Rim.
- - Continued expansions of the capacity of existing satellite PCC plants in
response to increased demand, which is resulting from either increased
PCC filler levels in paper or the installation of new paper machines.
- - Continued research and development and marketing efforts of acid-
tolerant PCC, coating PCC and other products.
However, there can be no assurance that the Company will achieve
success in implementing any one or more of these strategies.
The Company's sales of PCC are predominantly pursuant to long-term
agreements, generally ten years in length, with paper mills at which the
Company operates satellite PCC plants. The terms of many of these
agreements have been extended, often in connection with an expansion of the
satellite PCC plant. To date, the Company's experience with extensions and
renewals of its satellite PCC agreements has been favorable. There is no
assurance, however, that these contracts will be renewed prior to their
respective expiration dates.
The Company will continue to emphasize specialty products in its
Refractories segment product lines and to commercialize products, processes
and equipment through research and development efforts.
As the Company continues to expand its operations overseas, it faces
the inherent risks of doing business abroad, including exchange rate
fluctuations, nationalization, expropriation, limits on repatriation of
funds and other factors. In addition, the Company's performance depends to
some extent on that of the industries it serves, particularly the paper,
steel and construction industries.
15
RESULTS OF OPERATIONS
NET SALES
DOLLARS IN MILLIONS 1998 GROWTH 1997 GROWTH 1996
------ ------ ------ ------ ------
Net sales $609.2 1.1% $602.3 8.3% $556.0
Worldwide net sales in 1998 increased 1.1% over the previous year to
$609.2 million. The stronger U.S. dollar had an unfavorable impact of
approximately $12 million (or 2 percentage points) on sales growth. Sales
in the Specialty Minerals segment, which includes the PCC and Processed
Minerals product lines, grew 6.4% while sales in the Refractories segment
declined 9.5%. In 1997, worldwide net sales increased 8.3% over the prior
year to $602.3 million. The Specialty Minerals segment sales increased
12.2% and the Refractories segment sales increased 1.3% in 1997.
Worldwide net sales of PCC in 1998 increased 16.5% to $349.5 million
from $299.9 million in the prior year. This increase was primarily
attributable to the commencement of operations at four new satellite PCC
plants in 1998 and to the acquisition of a PCC business in the United
Kingdom. In addition, a full year of operations at several satellite PCC
plants that began operations in 1997 and volume increases from the
Company's long-standing satellite PCC plants also contributed to the sales
growth. Foreign exchange had an unfavorable impact of approximately $5
million on sales growth. PCC sales in 1997 increased 14.0% to $299.9
million from $263.1 million in 1996. This growth was primarily
attributable to the start-up of operations at five new satellite plants
that began operations in 1997 and volume increases generated by the
Company's long-standing satellite PCC plants.
Net sales of Processed Minerals decreased 23.0% in 1998. In April
1998, the Company divested its Midwest limestone business in Port Inland,
Michigan. References to ongoing operations exclude the results from this
facility. Net sales from the Midwest limestone business in 1997 were $20.8
million. Net sales from this facility in 1998, prior to the divestiture,
were $1.6 million. Net sales of Processed Mineral products from ongoing
operations decreased 5.5% to $77.9 million from $82.4 million in 1997. This
decrease was due largely to the refocus of the talc product line on higher
margin customers and products and to the use of the Company's lime to
produce PCC instead of selling the lime to third parties. Net sales of
Processed Minerals in 1997 rose 7.3%. This growth was primarily
attributable to higher volumes.
In 1998, sales of pyrolytic graphite products, previously reported in
the Processed Minerals product line, were reported in the Refractories
segment. Prior year's sales have been reclassified to reflect this change.
Net sales in the Refractories segment in 1998 decreased 9.5% to $180.2
million from $199.2 million in the prior year. Excluding the impact of
foreign exchange, the sales decrease was approximately 6.0%. In the second
half of 1998, the economic conditions in the worldwide steel industry
deteriorated, which had a negative effect on the Refractories segment
sales. In both 1998 and 1997, strategic replacement of commodity products
with specialty products and systems increased the profitability of this
product line. In 1997, net sales in the Refractories segment increased
1.3% from the prior year.
Net sales from ongoing operations in the United States in 1998
increased 4.2%. This increase was attributable to the growth in the PCC
product line. Foreign sales in 1998 increased 5.1%, primarily as a result
of the continued international expansion of the Company's PCC product line.
In 1997, domestic net sales were 8.2% higher than in the prior year as a
result of increased sales in the Specialty Minerals segment. Foreign sales
were approximately 8.6% greater than in the prior year, primarily due to
growth in the PCC product line.
OPERATING COSTS
AND EXPENSES
DOLLARS IN MILLIONS 1998 GROWTH 1997 GROWTH 1996
- ------------------- ------ ------ ------ ------ ------
Cost of goods sold $416.6 (1.9%) $424.6 7.1% $396.3
Marketing, distribution
and administrative $79.2 2.7% $77.1 6.4% $72.5
Research and
development $21.0 3.2% $20.4 3.3% $19.7
Cost of goods sold was 68.4% of sales. This ratio was lower than the
prior year and was primarily attributable to improved profitability in the
Refractories segment and the Processed Minerals product lines within the
Specialty Minerals segment. Cost of goods sold in 1997 was 70.5% of
sales, which was lower than the prior year. This was attributable to the
improved profitability of the Refractories segment.
Marketing, distribution and administrative costs increased 2.7% to
$79.2 million and were 13.0% of sales. In 1997, marketing, distribution and
administrative costs increased 6.4% to $77.1 million and were 12.8% of
sales.
Research and development expenses during 1998 increased 3.2% to $21.0
million and represented 3.4% of sales, comparable to the 1997 ratio. In
1997 and 1996 research and development spending was $20.4 million and $19.7
million, respectively.
16
INCOME FROM OPERATIONS
DOLLARS IN MILLIONS 1998 GROWTH 1997 GROWTH 1996
- ------------------- ------ ------ ------ ------ ------
Income from operations $92.4 15.2% $80.2 19.0% $67.4
Income from operations in 1998 increased 15.2% to $92.4 million from
$80.2 million in 1997. This increase was due primarily to improved
profitability in both the Specialty Minerals segment and the Refractories
segment and to solid growth in the PCC product line within the Specialty
Minerals segment. The Specialty Minerals segment's improved profitability
was primarily due to the turnaround in the Processed Minerals product line.
The Refractories segment's improved profitability was due to the continued
emphasis on new higher margin specialty products and delivery systems.
However, the recent downturn in the worldwide steel industry has negatively
affected the sales and profitability of the Refractories segment. In 1997,
income from operations rose 19.0% to $80.2 million from $67.4 million in
1996. This increase was due primarily to solid growth in the PCC product
line within the Specialty Minerals segment, and to improved profitability
in the Refractories segment. Operating profits were negatively impacted by
startup costs associated with the five new satellite PCC plants and some
weakness in the Processed Minerals product line, specifically in talc
products.
NON-OPERATING DEDUCTIONS
DOLLARS IN MILLIONS 1998 GROWTH 1997 GROWTH 1996
- ------------------- ------ ------ ------ ------ ------
Non-operating
deductions, net $(6.1) (24.1)% $(8.0) 67.7% $(4.8)
Non-operating deductions in 1998 decreased from the prior year due to
lower net interest expense and lower foreign exchange losses. Gross
interest expense decreased 14.0% from the prior year to $7.0 million. Non-
operating deductions in 1997 increased from 1996 due to foreign exchange
losses and higher net interest expense which resulted from a reduction in
capitalized interest costs. These deductions were partially offset by
higher interest income. Gross interest expense in 1997 decreased 2.6% from
the prior year to $8.2 million. The foreign exchange losses were
approximately $1.7 million in 1997 and occurred primarily in the joint
ventures in Thailand, Indonesia and Korea.
PROVISION FOR TAXES ON INCOME
DOLLARS IN MILLIONS 1998 GROWTH 1997 GROWTH 1996
- ------------------- ------ ------ ------ ------ ------
Provision for taxes on income $27.4 18.4% $23.1 18.6% $19.5
The effective tax rate decreased to 31.7% in 1998 compared to 32.0%
in 1997. This decrease was due to lower state and local taxes and
utilization of foreign tax credits. The effective tax rate was 31.1%
in 1996.
MINORITY INTERESTS
DOLLARS IN MILLIONS 1998 GROWTH 1997 GROWTH 1996
- ------------------- ------ ------ ------ ------ ------
Minority interests $1.8 N.A. $(1.2) N.A. $ --
In 1998, the consolidated joint ventures reflected increased profits
as compared to the prior year, and foreign exchange losses had less of an
effect on joint venture profits in 1998 as compared to 1997.
NET INCOME
DOLLARS IN MILLIONS 1998 GROWTH 1997 GROWTH 1996
- ------------------- ------ ------ ------ ------ ------
Net income $57.2 13.7% $50.3 16.7% $43.1
Net income increased 13.7% in 1998 to $57.2 million. In 1997, net
income increased 16.7% to $50.3 million. Earnings per common share, on a
diluted basis, increased 14.7% to $2.50 in 1998 as compared to $2.18 in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong during 1998. Cash
flows in 1998 were provided from operations and the sale of the Midwest
limestone business. The cash was applied principally to fund approximately
$82.5 million of capital expenditures, acquire a specialty PCC business,
repurchase $42.6 million of common shares for treasury, and remit the
required per annum principal payment of $13 million under the Company's
Guarantied Senior Notes due June 11, 2000. Cash provided from operating
activities was the primary source of liquidity and amounted to $117.0
million in 1998, $120.6 million in 1997 and $69.9 million in 1996.
The Variable/Fixed Rate Industrial Development Revenue Bonds due April
1, 2012 are tax-exempt 15-year instruments and were issued on April 1, 1997
to finance the construction of a PCC plant in Jackson, Alabama. The bonds
bear interest at either a variable rate or fixed rate, at the option of the
Company. Interest is payable semi-annually under the fixed rate option and
17
monthly under the variable rate option. The Company has selected the
variable rate option on these borrowings and the average interest rate for
the year ending December 31, 1998 was approximately 3.7%.
On August 4, 1997, the Company redeemed $1,455,000 of the
Variable/Fixed Rate Industrial Development Revenue Bonds due April 1, 2012.
This represented the unused portion of the original bond issuance proceeds
received on April 1, 1997 to finance the construction of a PCC plant in
Jackson, Alabama.
The Variable/Fixed Rate Industrial Development Revenue Bonds due
August 1, 2012 are tax-exempt 15-year instruments that were issued on
August 1, 1997 to finance the construction of a PCC plant in Courtland,
Alabama. The bonds bear interest at either a variable rate or fixed rate,
at the option of the Company. Interest is payable semi-annually under the
fixed rate option and monthly under the variable rate option. The Company
has selected the variable rate option on these borrowings and the average
interest rate for the year ending December 31, 1998 was approximately 3.7%.
On February 26, 1998, the Company's Board of Directors authorized a
$150 million stock repurchase program. The stock will be purchased on the
open market from time to time. As of January 19, 1999, the Company had
repurchased approximately 909,000 shares under this program, at an average
price of approximately $47 per share.
On April 28, 1998, the Company sold its limestone operation in Port
Inland, Michigan, to Oglebay Norton Company for approximately $34 million,
which approximated its net book value. This high volume commodity
operation no longer complemented the Company's long-term strategic vision.
On April 30, 1998, the Company acquired for approximately $34 million
a PCC manufacturing facility located near Birmingham in Kings Norton,
England, from Rhodia Limited, a specialty chemicals company. This
acquisition allows the Company to establish a base for its specialty PCC
business in Europe. This facility produces specialty PCC products for food
and pharmaceutical applications, as well as for use in plastics, sealants
and coatings, and paper.
The Company has approximately $110 million in uncommitted,
short-term bank credit lines, none of which were in use at December 31,
1998 or December 31, 1997. The Company anticipates that capital
expenditures for 1999 will be approximately $90 million, principally
related to the construction of satellite PCC plants, expansion projects at
existing satellite PCC plants and other opportunities that meet the
strategic growth objectives of the Company. The Company expects to meet
its long-term financing requirements from internally generated funds, the
aforementioned uncommitted bank credit lines and, where appropriate,
project financing of certain satellite plants.
PROSPECTIVE INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The Securities and Exchange Commission encourages companies to
disclose forward-looking information so that investors can better
understand a company's future prospects and make informed investment
decisions. This annual report contains such forward-looking statements
that set out anticipated results based on management's plans and
assumptions. Words such as "anticipate," "estimate," "expects,"
"projects," and words and terms of similar substance used in connection
with any discussion of future operating or financial performance identify
these forward-looking statements.
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. Discussion of certain risks,
uncertainties and assumptions follow and are discussed under the heading
entitled "Cautionary Factors That May Affect Future Results" in Item 1.
INFLATION
Historically, inflation has not had a material adverse impact on the
Company. The contracts pursuant to which the Company constructs and
operates its satellite PCC plants generally adjust pricing to reflect
increases in costs resulting from inflation.
CYCLICAL NATURE OF CUSTOMERS' BUSINESSES
The bulk of the Company's sales are to customers in the paper and
steel industries, which have historically been cyclical. Both industries
encountered difficulties in 1998, which in most markets have been more
price-driven than volume-driven. 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. For this reason, and because of the
geographical diversification of our business, the Company's operating
results to date have not been materially affected by the difficult economic
environment. However, we cannot predict the economic outlook in the
countries in which we do business, nor in the key industries we serve.
There can be no assurance that a
18
recession, in some markets or worldwide, would not have a significant
negative impact on the Company's financial position or results of
operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which revised employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. The statement is effective for fiscal years
beginning after December 15, 1997. The adoption of this statement has no
impact on the consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The
statement is effective for fiscal years beginning after December 15, 1998.
Earlier application is encouraged in fiscal years for which annual
financial statements have not been issued. The statement defines which
costs of computer software developed or obtained for internal use are
capitalized and which costs are expensed. The Company adopted SOP 98-1 in
1998. The adoption of SOP 98-1 did not materially affect the consolidated
financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities." The statement is effective for fiscal years
beginning after December 15, 1998. The statement requires costs of start-
up activities and organization costs to be expensed as incurred. The
Company will adopt SOP 98-5 for calendar year 1999. The adoption of SOP
98-5 will not materially affect the consolidated financial statements.
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, 1999. The Company will adopt SFAS 133 by January 1, 2000.
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 year 2000 may
cause them 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.
In 1996, the Company began the installation of new computer hardware
and software to improve the capability of the Company's information
systems, 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 much of the hardware and software required to
implement this project, and is currently bringing its domestic business
locations on to the new systems sequentially. This is proceeding according
to schedule, 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 ready, with the
exception of three locations which are serviced by an information
technology system which is in the process of being upgraded. This upgrade
is scheduled to be completed no later than the second quarter of 1999.
Other preparations for the year 2000 are being carried out by the
relevant business units on a decentralized basis. Information technology
systems outside the United States are in the process of being evaluated and
repaired 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.
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
interrupted 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
19
either necessary modifications to the software or assurance that the system
will not be disrupted by the year 2000 issue. This process is expected
to be completed no later than the third quarter of 1999.
The Company expects to spend approximately $15-17 million, including
internal costs, 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
will provide benefits to the Company which include but are not limited
to the achievement of year 2000 readiness. Of this amount approximately
$13 million had been expended as of December 31, 1998. 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.
The Company expects to 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 adverse impact on its
financial position or results of operations.
None of the Company's other information technology projects have been
delayed due to the implementation of year 2000 solutions.
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 turn. 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 the host paper
mill's operation would also cause the satellite PCC plant to shut down.
The Company's divisions are communicating with their principal
customers and vendors about their year 2000 readiness, and expect this
process to be completed no later than the third quarter of 1999. None of
the responses received to date suggests that any significant customer or
vendor expects the year 2000 issue to cause an interruption in its
operations, which would have a material adverse impact on the Company.
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.
The Company believes that its preparations currently under way are
adequate to assess and manage the risks presented by the year 2000 issue,
and does not have a formal contingency plan at this time.
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.
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 is currently reviewing its information technology systems
and upgrading them as necessary to ensure that it will be able to convert
among the former national currencies and the euro, and process transactions
and balances in euros, as required. The Company has sought and received
assurances from the financial institutions with which it does business that
they 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 throughout the countries adopting the euro can be expected
to have an effect on the economy of the region. These competitive and
economic effects cannot be predicted with certainty, and there can be no
assurance that they will not have a material effect on the Company's
business in Europe.
20
ITEM 7A. 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 December 31, 1998 or December 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14
of Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's Board of Directors required
by this Item is incorporated herein by reference to the Company's Proxy
Statement.
The information concerning the Company's Executive Officers required
by this Item is incorporated herein by reference to the Section in Part I
under the caption "Executive Officers of the Registrant."
The information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this Item is incorporated
herein by reference to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Company's Proxy Statement under the
caption "Compensation of Executive Officers," excluding the information
under the captions "Performance Graph" and "Report of the Compensation and
Nominating Committee on Executive Compensation," is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Security Ownership of
Certain Beneficial Owners and Management as of February 1, 1999" set forth
in the Company's Proxy Statement is incorporated herein by reference.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Certain Relationships
and Related Transactions" set forth in the Company's Proxy Statement is
incorporated herein by reference.
Under the terms of certain agreements entered into in connection with
the reorganization, Pfizer Inc. ("Pfizer") and its wholly-owned subsidiary
Quigley Company, Inc. ("Quigley") agreed to indemnify the Company against
certain liabilities being retained by Pfizer and its subsidiaries
including, but not limited to, pending lawsuits and claims, and any
lawsuits or claims brought at any time in the future alleging damages or
injury from the use, handling of or exposure to any product sold by
Pfizer's specialty minerals business prior to the closing of the initial
public offering in October 1992.
Pfizer and Quigley also agreed to indemnify the Company against any
liability arising from on-site remedial waste site claims and for other
claims that may be made in the future with respect to waste disposed of
prior to the closing of the initial public offering. Further, Pfizer and
Quigley agreed to indemnify the Company for 50% of the liabilities in
excess of $1 million up to $10 million that may arise or accrue within ten
years after the closing of the initial public offering with respect to
remediation of on-site conditions existing at the time of the closing of
the initial public offering. The Company will be responsible for the first
$1 million of such liabilities, 50% of all such liabilities in excess of $1
million up to $10 million, and all such liabilities in excess of $10
million.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Minerals Technologies Inc. and Independent
Auditors' Report are set forth on pages F-2 to F-20.
Consolidated Balance Sheet as of December 31, 1998 and 1997
Consolidated Statement of Income for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedule. The following financial statement
schedule is filed as part of this Report:
Page
----
Schedule II - Valuation and Qualifying Accounts S - 1
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
3. Exhibits. The following exhibits are filed as part of or
incorporated by reference into this Report.
3.1 - Restated Certificate of Incorporation of the Company (1)
3.2 - Restated By-Laws of the Company (2)
3.3 - Certificate of Designations authorizing issuance and
establishing designations, preferences and rights of
Series A Junior Preferred Stock of the Company
4.1 - Specimen Certificate of Common Stock (1)
10.1 - Asset Purchase Agreement, dated as of September 28, 1992,
by and between Specialty Refractories Inc. and
Quigley Company Inc. (3)
10.1(a) - Agreement dated October 22, 1992 between Specialty
Refractories Inc. and Quigley Company Inc., amending
Exhibit 10.1 (4)
22
10.1(b) - Letter Agreement dated October 29, 1992 between
Specialty Refractories Inc. and Quigley Company Inc.,
amending Exhibit 10.1 (4)
10.2 - Reorganization Agreement, dated as of September 28,
1992, by and between the Company and Pfizer Inc (3)
10.2(a) - Letter Agreement dated October 29, 1992 between the
Company and Pfizer Inc, amending Exhibit 10.2 (4)
10.3 - Asset Contribution Agreement, dated as of September 28,
1992, by and between Pfizer Inc and Specialty Minerals
Inc. (3)
10.4 - Asset Contribution Agreement, dated as of September 28,
1992, by and between Pfizer Inc and Barretts Minerals Inc.
(3)
10.4(a) - Agreement dated October 22, 1992 between Pfizer
Inc, Barretts Minerals Inc. and Specialty Minerals
Inc., amending Exhibits 10.3 and 10.4 (4)
10.5 - Form of Employment Agreement (1), together with
schedule relating to executed Employment Agreements
(2)
10.6 - Form of Severance Agreement (5), together with
schedule relating to executed Severance Agreements (2)
10.7 - Company Employee Protection Plan, as amended August
25, 1994 (5)
10.8 - Company Nonfunded Deferred Compensation and Unit
Award Plan for Non-Employee Directors, as amended
January 25, 1996 (6)
10.9 - Company Stock and Incentive Plan, as amended and restated
as of August 28, 1998 (7)
10.10 - Company Retirement Annuity Plan, as amended May 25, 1995
(6)
10.11 - Company Nonfunded Supplemental Retirement Plan, as amended
October 27, 1994 (8)
10.12 - Company Savings and Investment Plan, as amended December
19, 1994 (9)
10.13 - Company Nonfunded Deferred Compensation and Supplemental
Savings Plan, as amended October 27, 1994 (8)
10.14 - Rights Agreement, dated as of October 26, 1992, by
and between the Company and Chemical Bank, as Rights
Agent (1)
10.14 (a) - First Amendment of Rights Agreement, dated as of November
2, 1998 by and between the Company and Chase Mellon
Shareholder Services L.L.C., amending Rights Agreement,
dated as of October 26, 1992. (2)
10.15 - Grantor Trust Agreement, dated as of December 29, 1994,
between the Company and The Bank of New York, as Trustee (8)
10.16 - Note Purchase Agreement, dated as of June 28, 1993,
between the Company and Metropolitan Life Insurance
Company with respect to the Company's issuance of
$65,000,000 in aggregate principal amount of its 6.04%
Guarantied Senior Notes Due June 11, 2000;together with
a schedule regarding other contracts substantially
identical in all material respects to the foregoing (10)
10.17 - Note Purchase Agreement, dated as of July 24, 1996,
between the Company and Metropolitan Life Insurance
Company with respect to the Company's issuance
of $50,000,000 in aggregate principal amount of its
7.49% Guaranteed Senior Notes due July 24, 2006 (11)
10.18 - Indenture, dated July 22, 1963, between the Cork
Harbour Commissioners and Roofchrome Limited (3)
10.19 - Agreement of Lease, dated as of May 24, 1993, between the
Company and Cooke Properties Inc (10)
10.20 - Sale of Business Agreement, dated 5 April 1998 among
Minteq U.K. Limited, Specialty Minerals Inc.,
John & E. Sturge Limited and Rhodia Limited. (12)
10.21 - Asset Sale Agreement, dated as of April 27, 1998 between
Specialty Minerals (Michigan) Inc. and Oglebay Norton
Limestone Company. (12)
21.1 - Subsidiaries of the Company
23.1 - Report and Consent of Independent Auditors
27 - Financial Data Schedule
(1) Incorporated by reference to exhibit so designated filed with the
Company's Annual Report on Form 10-K for the year ended December
31, 1997.
(2) Incorporated by reference to the exhibit so designated filed with
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 27, 1998.
(3) Incorporated by reference to the exhibit so designated filed
with the Company's Registration Statement on Form S-1
(Registration No. 33-51292), originally filed on August 25,
1992.
(4) Incorporated by reference to the exhibit so designated filed
with the Company's Registration Statement on Form S-1
(Registration No. 33-59510), originally filed on March 15,
1993.
23
(5) Incorporated by reference to the exhibit so designated filed
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
(6) Incorporated by reference to the exhibit so designated filed
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
(7) Incorporated by reference to the exhibit so designated filed
with the Company's Registration Statement on Form S-8 (Registration
No. 333-62739), originally filed September 2, 1998.
(8) Incorporated by reference to the exhibit so designated filed
with the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
(9) Incorporated by reference to the exhibit so designated filed
with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 29, 1997.
(10) Incorporated by reference to the exhibit so designated filed
with the Company's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1993.
(11) Incorporated by reference to the exhibit so designated filed
with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
(12) Incorporated by reference to the exhibit so designated filed
with the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1998.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fourth quarter of 1998.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Minerals Technologies Inc.
By: /s/ Jean-Paul Valles
----------------------------
Jean-Paul Valles
Chairman of the Board
and Chief Executive Officer
March 15, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Jean-Paul Valles
- -------------------
Jean-Paul Valles Chairman of the Board March 15, 1999
and Chief Executive Officer
(principal executive officer)
and Director
/s/Neil M. Bardach
- ------------------
Neil M. Bardach Vice President-Finance March 15, 1999
and Chief Financial Officer;
Treasurer (principal
financial officer)
/s/ Michael A. Cipolla
- ----------------------
Michael A. Cipolla Controller and Chief March 15, 1999
Accounting Officer
(principal accounting
officer)
25
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John B. Curcio
- -----------------
John B. Curcio Director March 15, 1999
/s/Steven J. Golub
- ------------------
Steven J. Golub Director March 15, 1999
/s/William L. Lurie
- -------------------
William L. Lurie Director March 15, 1999
/s/Paul M. Meister
- ------------------
Paul M. Meister Director March 15, 1999
/s/Michael F. Pasquale
- ----------------------
Michael F. Pasquale Director March 15, 1999
/s/William C. Steere, Jr.
- -------------------------
William C. Steere, Jr. Director March 15, 1999
26
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
--------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Audited Financial Statements:
Consolidated Balance Sheet as of December 31, 1998 and 1997 F-2
Consolidated Statement of Income for the years ended December
31, 1998, 1997 and 1996 F-3
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6
Independent Auditors' Report F-20
F-1
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(thousands of dollars)
DECEMBER 31,
------------
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $20,697 $41,525
Accounts receivable, less allowance
for doubtful accounts:
1998--$3,720; 1997--$3,266 110,192 108,146
Inventories 63,657 61,166
Other current assets 16,284 15,745
------ ------
Total current assets 210,830 226,582
Property, plant and equipment,
less accumulated depreciation and depletion 524,529 500,731
Other assets and deferred charges 25,553 14,094
------ ------
Total assets $760,912 $741,407
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ -- $501
Current maturities of long-term debt 13,511 13,488
Accounts payable 32,084 33,163
Income taxes payable 17,081 11,101
Accrued compensation and related items 14,329 15,923
Other current liabilities 20,933 20,042
------ ------
Total current liabilities 97,938 94,218
Long-term debt 88,167 101,571
Accrued postretirement benefits 19,376 19,746
Deferred taxes on income 46,316 44,664
Other noncurrent liabilities 19,952 14,211
------ ------
Total liabilities 271,749 274,410
======= =======
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, without par value;
1,000,000 shares authorized; none issued -- --
Common stock at par, $0.10 par value;
100,000,000 shares authorized;
issued 25,534,391 shares in 1998 and
25,370,402 shares in 1997 2,553 2,537
Additional paid-in capital 144,088 139,113
Retained earnings 467,257 412,264
Accumulated other comprehensive loss (9,612) (14,344)
------- -------
604,286 539,570
Less common stock held in treasury, at cost;
3,720,717 shares in 1998 and 2,830,017
shares in 1997 115,123 72,573
------- ------
Total shareholders' equity 489,163 466,997
------- -------
Total liabilities and shareholders' equity $760,912 $741,407
======== ========
See Notes to Consolidated Financial Statements which are an integral
part of these statements.
F-2
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(thousands of dollars, except per share data)
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
-------- -------- ---------
Net sales $609,193 $602,335 $555,988
Operating costs and expenses:
Cost of goods sold 416,558 424,612 396,345
Marketing, distribution and
administrative expenses 79,150 77,104 72,485
Research and development expenses 21,038 20,391 19,740
------ ------ ------
Income from operations 92,447 80,228 67,418
------ ------ ------
Interest income 2,146 1,765 966
Interest expense (5,918) (7,208) (5,899)
Other income (deductions) (2,333) (2,597) 139
------- ------- -------
Non-operating deductions, net (6,105) (8,040) (4,794)
------- ------- -------
Income before provision for taxes on
income and minority interests 86,342 72,188 62,624
Provision for taxes on income 27,360 23,104 19,488
Minority interests 1,758 (1,228) 39
------- ------- ------
Net income $57,224 $50,312 $43,097
======= ======= ======
Basic earnings per share $2.57 $2.23 $1.91
======= ======= ======
Diluted earnings per share $2.50 $2.18 $1.86
======= ======= ======
See Notes to Consolidated Financial Statements which are an integral
part of these statements.
F-3
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(thousands of dollars)
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- ------- -------
OPERATING ACTIVITIES
Net income $57,224 $50,312 $43,097
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 53,084 52,936 46,183
Loss on disposal of property, plant and
equipment 1,650 947 786
Deferred income taxes 1,212 3,689 3,361
Other 2,304 (681) (1,500)
Changes in operating assets and liabilities,
net of effects of acquisition and
disposition:
Accounts receivable (184) (11,195) (4,699)
Inventories (1,744) 7,512 (6,977)
Other current assets (699) (1,802) (7,672)
Accounts payable and accrued
liabilities (3,442) 14,506 (2,744)
Income taxes payable 6,699 4,564 (269)
Other 850 (174) 382
------- ------ -------
Net cash provided by operating
activities 116,954 120,614 69,948
------- ------- ------
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (82,450) (77,331) (97,308)
Proceeds from disposal of property, plant
and equipment 556 3,916 1,073
Acquisition of business (34,130) -- --
Proceeds from disposition of business 32,357 -- --
Other investing activities (1,954) -- --
------- ------- -------
Net cash used in investing activities (85,621) (73,415) (96,235)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuance of short-term and
long-term debt 743 20,089 111,659
Repayment of short-term and
long-term debt (14,380) (34,679) (77,237)
Purchase of common shares for treasury (42,550) (6,688) (5,885)
Cash dividends paid (2,231) (2,258) (2,262)
Proceeds from issuance of stock under
option plan 4,091 2,436 2,466
Equity and debt proceeds from minority
interests 2,405 3,214 2,500
------- ------- -------
Net cash (used in)/provided by
financing activities (51,922) (17,886) 31,241
------- ------- -------
Effect of exchange rate changes on cash
and cash equivalents (239) (3,234) (826)
Net increase (decrease) in cash and
cash equivalents (20,828) 26,079 4,128
Cash and cash equivalents at beginning
of year 41,525 15,446 11,318
------- ------ ------
Cash and cash equivalents at
end of year $20,697 $41,525 $15,446
======= ======= =======
See Notes to Consolidated Financial Statements which are an integral
part of these statements.
F-4
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Common Stock Additional
------------ Paid-in Retained
Shares Par Value Capital Earnings
------ --------- ---------- --------
Balance as of
January 1, 1996 25,153 $2,515 $133,221 $323,375
------ ------ -------- --------
Comprehensive income:
Net income -- -- -- 43,097
Currency translation
adjustment -- -- -- --
Unrealized holding
gains, net of tax -- -- -- --
------ ------ -------- --------
Total comprehensive
income -- -- -- 43,097
------ ------ -------- --------
Dividends declared -- -- -- (2,262)
Employee benefit
transactions 107 11 2,455 --
Purchase of
common stock -- -- -- --
------ ------ -------- --------
Balance as of
December 31, 1996 25,260 2,526 135,676 364,210
------ ------ --------- -------
Comprehensive income:
Net income -- -- -- 50,312
Currency translation
adjustment -- -- -- --
Unrealized holding
losses, net of tax -- -- -- --
Minimum pension
liability adjustment -- -- -- --
------ ------ --------- -------
Total comprehensive
income -- -- -- 50,312
------ ------ ---------- -------
Dividends declared -- -- -- (2,258)
Employee benefit
transactions 110 11 2,837 --
Income tax benefit
arising from employee
stock option plans -- -- 600 --
Purchase of
common stock -- -- -- --
------ ------ ---------- -------
Balance as of
December 31, 1997 25,370 2,537 139,113 412,264
------ ------ ---------- --------
Comprehensive income:
Net income -- -- -- 57,224
Currency translation
adjustment -- -- -- --
Unrealized holding
losses, net of tax -- -- -- --
------ ------ ---------- --------
Total comprehensive
income -- -- -- 57,224
------ ------ ---------- --------
Dividends declared -- -- -- (2,231)
Employee benefit
transactions 164 16 4,075 --
Income tax benefit
arising from employee
stock option plans -- -- 900 --
Purchase of
common stock -- -- -- --
------ ------ ---------- --------
Balance as of
December 31, 1998 25,534 $2,553 $144,088 $467,257
====== ====== ========== =========
(Table continues...)
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands)
Accumulated
Other Treasury Stock
Comprehensive -----------------
Income (Loss) Shares Cost Total
------------- --------- --------- --------
Balance as of
January 1, 1996 $17,042 (2,500) $(60,000) $416,153
------- ------ -------- --------
Comprehensive income:
Net income -- -- -- 43,097
Currency translation
adjustment (5,371) -- -- (5,371)
Unrealized holding
gains, net of tax 52 -- -- 52
------- ------ --------- --------
Total comprehensive
income (5,319) -- -- 37,778
------- ------ --------- --------
Dividends declared -- -- -- (2,262)
Employee benefit
transactions -- -- -- 2,466
Purchase of
common stock -- (160) (5,885) (5,885)
------- ------ --------- --------
Balance as of
December 31, 1996 11,723 (2,660) (65,885) 448,250
------- ------ --------- --------
Comprehensive income:
Net income -- -- -- 50,312
Currency translation
adjustment (25,016) -- -- (25,016)
Unrealized holding
losses, net of tax (50) -- -- (50)
Minimum pension
liability adjustment (1,001) -- -- (1,001)
------- ------ --------- --------
Total comprehensive
income (26,067) -- -- 24,245
------- ------ --------- --------
Dividends declared -- -- -- (2,258)
Employee benefit
transactions -- -- -- 2,848
Income tax benefit
arising from employee
stock option plans -- -- -- 600
Purchase of common stock -- (170) (6,688) (6,688)
------ ------ --------- --------
Balance as of
December 31, 1997 (14,344) (2,830) (72,573) 466,997
------- ------ --------- --------
Comprehensive income:
Net income -- -- -- 57,224
Currency translation
adjustment 4,759 -- -- 4,759
Unrealized holding
losses, net of tax (27) -- -- (27)
------- ------ --------- --------
Total comprehensive
income 4,732 -- -- 61,956
------- ------ --------- --------
Dividends declared -- -- -- (2,231)
Employee benefit
transactions -- -- -- 4,091
Income tax benefit
arising from employee
stock option plans -- -- -- 900
Purchase of
common stock -- (891) (42,550) (42,550)
------- ------ --------- --------
Balance as of
December 31, 1998 $(9,612) (3,721) $(115,123) $489,163
======= ====== ========= ========
See Notes to Consolidated Financial Statements which are an integral part
of these statements.
F-5
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include
the accounts of Minerals Technologies Inc. (the "Company")
and its wholly and majority owned subsidiaries. All
intercompany balances and transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The Company employs accounting policies that are in accordance with
generally accepted accounting principles in the United States and require
management to make estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent liabilities at
the date of the financial statements. Actual results could differ from
those estimates.
BUSINESS
The Company is a resource- and technology-based company that develops,
produces and markets on a worldwide basis a broad range of specialty
mineral, mineral-based and synthetic mineral products. The Company's
products are used in manufacturing processes of the paper and steel
industries, as well as by the building materials, polymers, ceramics, paints
and coatings, glass and other manufacturing industries.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities
of three months or less at the date of purchase to be cash equivalents.
Cash equivalents amounted to $4.1 million and $8.6 million at December 31,
1998 and 1997, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Significant
improvements are capitalized. In general, the straight-line method of
depreciation is used for financial reporting purposes and accelerated
methods are used for U.S. and certain foreign tax reporting purposes.
The annual rates of depreciation are 4%-8% for buildings, 8%-12% for
machinery and equipment and 8%-12% for furniture and fixtures.
Depletion of the mineral and quarry properties is provided
on a unit-of-extraction basis as the related materials are mined for
financial reporting purposes and on a percentage depletion basis for tax
purposes.
Mining costs associated with waste gravel and rock removal
in excess of the expected average life of mine stripping ratio are deferred.
These costs are charged to production on a unit-of-production basis when
the ratio of waste to ore mined is less than the average life of mine
stripping ratio.
GOODWILL
Goodwill represents the excess of purchase price and related costs
over the value assigned to the net tangible assets of businesses acquired.
Goodwill is amortized on a straight-line basis over 25 years. Periodically,
the Company reviews the recoverability of goodwill. The measurement of
possible impairment is based primarily on the ability to recover the balance
of the goodwill from expected future operating cash flows on an undiscounted
basis. In management's opinion, no material impairment existed at
December 31, 1998.
FOREIGN CURRENCY
The assets and liabilities of most of the Company's international
subsidiaries are translated into U.S. dollars using current exchange rates
at the respective balance sheet date. The resulting translation adjustments
are recorded in the currency translation adjustment account in shareholders'
equity. Income statement items are generally translated at average exchange
rates prevailing during the period. Other foreign currency gains and losses
are included in net income.
International subsidiaries operating in highly inflationary economies
translate non-monetary assets at historical rates, while net monetary assets
are translated at current rates, with the resulting translation adjustments
included in net income.
F-6
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Income taxes are provided for based on the asset and liability method
of accounting pursuant to Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
The accompanying financial statements generally do not include a
provision for U.S. income taxes on international subsidiaries' unremitted
earnings which, for the most part, are expected to be reinvested overseas.
STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation"
("SFAS 123"), which requires expanded disclosures of stock-
based compensation arrangements with employees. SFAS No. 123
establishes an alternative method of accounting for stock-
based compensation awarded to employees which provides for
the recognition of compensation cost to be measured based on
the fair value of the equity instrument awarded. The
Company, however, has elected to continue to recognize
compensation cost based on the intrinsic value of the equity
instrument awarded as promulgated in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has disclosed below under "Capital
Stock -- Stock and Incentive Plan" the pro forma effect of
the fair value method on net income and earnings per share.
POSTRETIREMENT BENEFITS
The Company accrues the cost of postretirement benefits
during the employee's active working career as required by
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106").
EARNINGS PER SHARE
Basic earnings per share have been computed based upon the weighted
average number of common shares outstanding during the period.
Diluted earnings per share have been computed based upon
the weighted average number of common shares outstanding during the period
assuming the issuance of common shares for all dilutive potential common
shares outstanding.
INCOME TAXES
Income before provision for taxes, by domestic and foreign
source is as follows:
THOUSANDS OF DOLLARS 1998 1997 1996
---- ---- ----
Domestic $59,428 $48,746 $47,410
Foreign 26,914 23,442 15,214
------- ------- -------
Total income before provision
for income taxes $86,342 $72,188 $62,624
======= ======= =======
F-7
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for taxes on income consists of the following:
THOUSANDS OF DOLLARS 1998 1997 1996
---- ---- ----
DOMESTIC
Taxes currently payable
Federal $15,714 $7,862 $7,845
State and local 3,084 2,938 3,593
Deferred income taxes (524) 4,634 3,291
------- ------ ------
Domestic tax provision 18,274 15,434 14,729
------- ------ ------
FOREIGN
Taxes currently payable 7,350 8,615 4,689
Deferred income taxes 1,736 (945) 70
------- ------ ------
Foreign tax provision 9,086 7,670 4,759
------- ------ ------
Total tax provision $27,360 $23,104 $19,488
======= ======= =======
The provision for taxes on income shown in the previous table
is classified based on the location of the taxing authority,
regardless of the location in which the taxable income is
generated.
The major elements contributing to the difference between the
U.S. federal statutory tax rate and the consolidated
effective tax rate are as follows:
PERCENTAGES 1998 1997 1996
---- ---- ----
U.S. statutory tax rate 35.0% 35.0% 35.0%
Depletion (3.5) (3.7) (5.5)
Difference between tax provided on foreign
earnings and the U.S. statutory rate (0.4) (0.8) (0.9)
State and local taxes 2.0 2.9 3.9
Tax credits (2.2) (0.8) (2.4)
Other 0.8 (0.6) 1.0
---- ---- ----
Consolidated effective tax rate 31.7% 32.0% 31.1%
==== ==== ====
The Company believes that its accrued liabilities are
sufficient to cover its U.S. and foreign tax contingencies.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities are presented below:
THOUSANDS OF DOLLARS 1998 1997
---- ----
Deferred tax assets:
Pension and postretirement benefits cost
reported for financial statement purposes
in excess of amounts deductible for
tax purposes $7,245 $7,196
State and local taxes 2,594 2,789
Accrued expenses 2,812 3,121
Alternative minimum tax - 3,686
Other 3,749 2,060
------ ------
Total deferred tax assets 16,400 18,852
------ ------
Deferred tax liabilities:
Plant and equipment, principally
due to differences in depreciation 60,956 61,093
Other 1,760 2,423
------ ------
Total deferred tax liabilities 62,716 63,516
------ ------
Net deferred tax liability $46,316 $44,664
======= =======
F-8
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A valuation allowance for deferred tax assets has not been
recorded since management believes it is more likely than not
that the existing net deductible temporary differences will
reverse during periods in which the Company generates net
taxable income.
Net cash paid for income taxes was $18.3 million, $14.2
million and $15.4 million for the years ended December 31,
1998, 1997 and 1996, respectively.
FOREIGN OPERATIONS
The Company has not provided for U.S. federal and foreign
withholding taxes on $69.0 million of foreign subsidiaries'
undistributed earnings as of December 31, 1998 because such
earnings, for the most part, are intended to be reinvested
overseas. To the extent the parent company has received
foreign earnings as dividends, the foreign taxes paid on
those earnings have generated tax credits which have
substantially offset related U.S. income taxes. On
repatriation, certain foreign countries impose withholding
taxes. The amount of withholding tax that would be payable
on remittance of the entire amount of undistributed earnings
would approximate $2.0 million.
Net foreign currency exchange gains (losses), included in
other income (deductions) in the Consolidated Statement of
Income, were $(932,000), $(1,721,000) and $296,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
INVENTORIES
The following is a summary of inventories by major category:
THOUSANDS OF DOLLARS 1998 1997
---- ----
Raw materials $21,681 $19,605
Work in process 5,483 5,858
Finished goods 19,650 19,812
Packaging and supplies 16,843 15,891
------- -------
Total inventories $63,657 $61,166
======= =======
PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment and
accumulated depreciation and depletion are presented below:
THOUSANDS OF DOLLARS 1998 1997
---- ----
Land $21,224 $22,697
Quarries/mining properties 19,256 24,148
Buildings 118,223 107,865
Machinery and equipment 642,767 598,190
Construction in progress 52,709 47,594
Furniture and fixtures
and other 52,040 49,775
------- -------
906,219 850,269
======= =======
Less: Accumulated depreciation
and depletion 381,690 349,538
------- -------
$524,529 $500,731
======= =======
F-9
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACQUISITION AND DIVESTITURE
On April 30, 1998 the Company acquired, for approximately
$34 million in cash, a precipitated calcium carbonate (PCC)
manufacturing facility in the United Kingdom from Rhodia
Limited. This acquisition allows the Company to establish a
base for its specialty PCC business in Europe. The
transaction was accounted for as a purchase. The purchase
price exceeded the fair value of net assets acquired by
approximately $8 million, which is being amortized on a
straight-line basis over 25 years.
On April 28, 1998 the Company sold its limestone
operation in Port Inland, Michigan, to Oglebay Norton Company
for cash and receivables approximating $34 million. The sales
price approximated the net book value of the assets.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The following methods and assumptions were used to estimate
the fair value of each class of financial instrument:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND PAYABLE, AND ACCRUED
LIABLILITIES:
The carrying amounts approximate fair value because of the short
maturity of these instruments.
AVAILABLE-FOR-SALE SECURITIES:
The available-for-sale securities are presented in accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
The fair values are based on quoted market prices and are as follows:
1998 1997 1996
----------------- ----------------- ------------------
THOUSANDS MARKET GROSS MARKET GROSS MARKET GROSS
OF DOLLARS VALUE UNREALIZED VALUE UNREALIZED VALUE UNREALIZED
HOLDING HOLDING HOLDING
GAINS GAINS GAINS
------ ---------- ------ ---------- ------ ----------
Common Stock $389 $174 $424 $230 $558 $340
The unrealized holding gains, net of taxes, were $86,000,
$113,000 and $163,000, respectively, at December 31, 1998,
1997 and 1996 and are included in accumulated other
comprehensive loss in the statement of shareholders' equity.
SHORT-TERM DEBT AND LIABILITIES:
The carrying amounts of short-term debt and other liabilities
approximate fair value because of the short maturity of these
instruments.
LONG-TERM DEBT:
The fair value of the long-term debt of the Company is
estimated based on the quoted market prices for that debt or
similar debt which approximates the carrying amount.
FORWARD EXCHANGE CONTRACTS:
The fair value of forward exchange contracts (used for
hedging purposes) is estimated by obtaining quotes from
brokers.
When appropriate, the Company enters into forward exchange
contracts to mitigate the impact of foreign exchange rate
movements on the Company's operating results. It does not
engage in speculation. Such foreign 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 December 31, 1998 or
December 31, 1997.
CREDIT RISK:
Substantially all of the Company's accounts receivable are
due from companies in the paper, construction and steel
industries. Credit risk results from the possibility that a
loss may occur from the failure of another party to perform
according to the terms of the contract. The Company regularly
monitors the credit risk exposures and takes steps to
mitigate the likelihood of these exposures resulting in
actual loss. The Company's extension of credit is based on
an evaluation of the customer's financial condition and
collateral is generally not required. Credit losses are
provided for in the financial statements and consistently
have been within management's expectations.
F-10
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LONG-TERM DEBT AND COMMITMENTS
The following is a summary of long-term debt:
THOUSANDS OF DOLLARS 1998 1997
---- ----
7.75% Economic Development Revenue
Bonds Series 1990 Due 2010 (secured) $4,600 $4,600
Variable/Fixed Rate Industrial
Development Revenue Bonds Due 2009 4,000 4,000
Variable/Fixed Rate Industrial
Development Revenue Bonds Due April 1, 2012 7,545 7,545
Variable/Fixed Rate Industrial
Development Revenue Bonds Due August 1, 2012 8,000 8,000
6.04% Guarantied Senior Notes Due June 11, 2000 26,000 39,000
7.49% Guaranteed Senior Notes Due July 24, 2006 50,000 50,000
Other borrowings 1,533 1,914
------ ------
101,678 115,059
Less: Current maturities 13,511 13,488
------ ------
Long-term debt $88,167 $101,571
======= ========
The 7.75% Economic Development Revenue Bonds Due 2010 are
tax-exempt, 20-year instruments issued to finance a PCC plant
in Eastover, South Carolina. The bonds are dated September 1,
1990. They are currently subject to redemption at face value
at the option of the issuer and to redemption at the option
of the holder in the event of a downgrade in the rating of
the bonds below "A." Pfizer Inc is a guarantor of these bonds.
The Variable/Fixed Rate Industrial Development Revenue Bonds
Due 2009 are tax-exempt 15-year instruments issued to finance
the expansion of a PCC plant in Selma, Alabama. The bonds
are dated November 1, 1994, and provide for an optional put
by the holder (during the Variable Rate Period) and a
mandatory call by the issuer. The bonds bear interest at
either a variable rate or fixed rate, at the option of the
Company. Interest is payable semi-annually under the fixed
rate option and monthly under the variable rate option. The
Company has selected the variable rate option on these
borrowings and the average interest rate was approximately
3.7% for the year ending December 31, 1998.
The Variable/Fixed Rate Industrial Development Revenue Bonds
due April 1, 2012 are tax-exempt 15-year instruments and were
issued on April 1, 1997 to finance the construction of a PCC
plant in Jackson, Alabama. The bonds bear interest at either
a variable rate or fixed rate, at the option of the Company.
Interest is payable semi-annually under the fixed rate option
and monthly under the variable rate option. The Company has
selected the variable rate option on these borrowings and the
average interest rate was approximately 3.7% for the year
ending December 31, 1998.
On August 4, 1997, the Company redeemed $1,455,000 of the
Variable/Fixed Rate Industrial Development Revenue Bonds due
April 1, 2012. This represented the unused portion of the
original bond issuance proceeds received on April 1, 1997 to
finance the construction of a PCC plant in Jackson, Alabama.
The Variable/Fixed Rate Industrial Development Revenue Bonds
due August 1, 2012 are tax-exempt 15-year instruments that
were issued on August 1, 1997 to finance the construction of
a PCC plant in Courtland, Alabama. The bonds bear interest
at either a variable rate or fixed rate, at the option of the
Company. Interest is payable semi-annually under the fixed
rate option and monthly under the variable rate option. The
Company has selected the variable rate option on these
borrowings and the average interest rate was approximately
3.7% for the year ending December 31, 1998.
On June 28, 1993, through a private placement, the Company
issued $65 million of 6.04% Guarantied Senior Notes (the
"Notes") due June 11, 2000. The proceeds from the sale of
the Notes were used to finance the purchase of 2.5 million
shares of treasury stock, and for other corporate purposes.
Interest on the Notes is payable semi-annually.
On July 24, 1996, through a private placement, the Company
issued $50 million of 7.49% Guaranteed Senior Notes due July
24, 2006. The proceeds from the sale of the notes were used
to refinance a portion of the short-term commercial bank debt
outstanding. These notes rank pari passu with the Company's
other unsecured senior obligations. No required principal
payments are due until July 24, 2006. Interest on the notes
is payable semi-annually.
F-11
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate maturities of long-term debt are as follows:
1999 - $13.5 million; 2000 - $13.5 million; 2001 - $0.5
million; 2002 - $-- million; 2003 - $-- million; thereafter -
$74.2 million.
The Company has approximately $110 million in uncommitted,
short-term bank credit lines. There were no borrowings on
these credit lines on December 31, 1998 and December 31,
1997.
During 1998, 1997 and 1996, respectively, the Company
incurred interest costs of $7,047,000, $8,198,000 and
$8,417,000 including $1,129,000, $990,000 and $2,518,000,
respectively, which were capitalized. Interest paid
approximated the incurred interest costs.
BENEFIT PLANS
PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company and its subsidiaries have pension plans
covering substantially all eligible employees on a
contributory or non-contributory basis.
The funded status of the Company's pension plans and other
postretirement benefit plans at December 31, 1998 and 1997 is
as follows:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
MILLIONS OF DOLLARS 1998 1997 1998 1997
---- ---- ---- ----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation
at beginning of year $80.4 $71.6 $14.0 $12.2
Service cost 4.8 4.1 0.9 0.8
Interest cost 5.7 5.2 1.0 0.9
Amendments 4.0 -- -- --
Actuarial gain 7.4 4.9 1.5 0.4
Benefits paid (10.4) (4.6) (0.6) (0.3)
Other 0.8 (0.8) -- --
---- ---- ---- ----
Benefit obligation
at end of year $92.7 $80.4 $16.8 $14.0
===== ===== ===== =====
CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year $84.6 $70.4 $ -- $ --
Actual return on
plan assets 13.2 12.6 -- --
Employer contribution 3.9 5.7 0.6 0.3
Plan participants'
contributions 0.7 0.7 -- --
Benefits paid (10.4) (4.6) (0.6) (0.3)
Other -- (0.2) -- --
----- ----- ----- -----
Fair value of plan assets
at end of year $92.0 $84.6 $ -- $ --
===== ===== ===== =====
Funded status $(0.7) $4.2 $(16.8) $(14.0)
Unrecognized transition
amount 2.3 3.3 -- --
Unrecognized net
actuarial loss (4.0) (6.3) 2.8 1.4
Unrecognized prior
service cost 6.5 2.9 (5.4) (7.1)
----- ----- ----- -----
Prepaid (accrued)
benefit cost $4.1 $4.1 $(19.4) $(19.7)
==== ==== ====== ======
Amounts recognized in the
consolidated balance sheet
consist of:
Prepaid benefit cost $10.5 $9.5 $ -- $ --
Accrued benefit liabilities (9.4) (7.3) (19.4) (19.7)
Intangible asset 2.0 0.9 -- --
Accumulated other
comprehensive loss 1.0 1.0 -- --
---- ---- ---- ----
Net amount recognized $4.1 $4.1 $(19.4) $(19.7)
==== ==== ====== ======
F-12
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average assumptions used in the accounting for the
pension benefit plans and other benefit plans as of December 31
are as follows:
1998 1997
---- ----
Discount rate 6.75% 7.25%
Expected return on plan assets 9.00% 9.25%
Rate of compensation increase 4.00% 4.25%
For measurement purposes, a health care cost trend rate of
approximately 9.8% for pre-age-65 benefits and 8.1% trend for post-age-65
benefits were used. These trend rates were assumed to decrease gradually to
5.3% for 2005 and remain at that level thereafter.
The components of net periodic benefit costs are as follows:
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
MILLIONS OF DOLLARS 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---
Service cost $4.8 $4.1 $4.6 $0.9 $0.8 $0.8
Interest cost 5.7 5.2 5.0 1.0 0.9 0.8
Expected return on
plan assets (7.3) (6.2) (5.3) -- -- --
Amortization of
transition amount 0.7 0.7 0.7 -- -- --
Amortization of prior
service cost 0.4 0.2 0.4 (1.7) (1.7) (1.7)
Recognized net
actuarial gain (0.6) -- -- -- -- --
---- ---- ---- ---- ---- ----
Net periodic benefit cost $3.7 $4.0 $5.4 $0.2 $-- $(0.1)
==== ==== ==== ==== === =====
Benefits under defined benefit plans are generally based on
years of service and the employee's career earnings. Employees
become fully vested after five years.
The Company's funding policy for U.S. plans generally is to
contribute annually into trust funds at a rate that is intended to
remain at a level percentage of compensation for covered employees.
The funding policy for the international plans conforms to local
governmental and tax requirements. The plans' assets are invested
primarily in stocks and bonds.
The Company provides postretirement health care and life
insurance benefits for substantially all of its U.S. retired
employees. Employees are generally eligible for benefits upon
retirement and completion of a specified number of years of
creditable service. The Company does not pre-fund these benefits
and has the right to modify or terminate the plan in the future.
Assumed health care cost trend rates could have a significant
effect on amounts reported for the health care plans. A
one-percentage-point change in assumed health care cost trend
rates would have the following effects:
1-Percentage-Point 1-Percentage-Point
Increase Decrease
------------------ ------------------
Effect on total
service and interest
cost components $4,000 $(5,000)
Effect on postretirement
benefit obligation $60,000 $(70,000)
SAVINGS AND INVESTMENT PLANS
The Company maintains a voluntary Savings and Investment
Plan for most non-union employees in the U.S. Within prescribed
limits, the Company bases its contribution to the Plan on
employee contributions. The Company's contributions amounted
to $3.1 million, $3.1 million and $3.0 million for the years
ended December 31, 1998, 1997 and 1996, respectively.
LEASES
Rent expense amounted to approximately $3.4 million,
$4.2 million and $4.2 million for the years ended December 31,
1998, 1997 and 1996, respectively. Total future minimum rental
commitments under all noncancelable leases for the years 1999
through 2003 and thereafter are approximately $1.5 million,
$1.5 million, $1.4 million, $1.3 million, $1.3 million and
$11.5 million, respectively.
In 1997, the Company entered into a long-term direct financing
lease of its Pima County, Arizona, limestone facility with another
company. Total future minimum payments to be received under
direct financing leases for the years 1999 through 2003 and
thereafter are approximately $0.2 million, $0.2 million, $0.2 million,
0.2 million, $0.2 million and $3.1 million, respectively.
F-13
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LITIGATION
Under the terms of certain agreements entered into in
connection with the reorganization prior to the initial public
offering of the Company's common stock in October 1992, Pfizer
and its wholly owned subsidiary, Quigley Company, Inc. ("Quigley")
agreed to indemnify the Company against certain liabilities being
retained by Pfizer and its subsidiaries including, but not limited
to, pending lawsuits and claims and any lawsuits or claims brought
at any time in the future alleging damages or injury from the use,
handling of or exposure to any product sold by Pfizer's specialty
minerals business prior to the closing of the initial public offering.
Pfizer and Quigley also agreed to indemnify the Company against
any liability arising from on-site remedial waste site claims and for
other claims that may be made in the future with respect to wastes
disposed of prior to the closing of the initial public offering.
Further, Pfizer and Quigley agreed to indemnify the Company for 50% of
the liabilities in excess of $1 million up to $10 million that may arise
or accrue within ten years after the closing of the initial public
offering with respect to remediation of on-site conditions existing
at the time of the closing of the initial public offering. The Company
will be responsible for the first $1 million of such liabilities, 50%
of such liabilities in excess of $1 million up to $10 million, and all
such liabilities in excess of $10 million.
The transfer by Quigley of certain real property in New Jersey to
the Company pursuant to the reorganization, including the former Quigley
facility in Old Bridge, triggered certain obligations under the New
Jersey Environmental Cleanup Responsibility Act ("ECRA"). Quigley
retained liability for compliance with ECRA including the assessment
and, if necessary, remediation of the Old Bridge property. Quigley's
obligations under ECRA are embodied in an Administrative Consent Order
with the New Jersey Department of Environmental Protection and Energy
("NJDEPE") that requires Quigley to perform any necessary remediation
and to provide financial assurance of its ability to cover the costs
of remediation as estimated by NJDEPE with no obligation to the Company.
The Company and its subsidiary, Specialty Minerals Inc., are
defendants in a lawsuit, captioned EATON CORPORATION V. PFIZER INC,
MINERALS TECHNOLOGIES INC. AND SPECIALTY MINERALS INC. which was filed
on July 31, 1996 and is pending in the U.S. District Court for the
Western District of Michigan. The suit alleges that certain materials
sold to Eaton for use in truck transmissions were defective,
necessitating repairs for which Eaton seeks reimbursement. The amount
of damages claimed by Eaton is approximately $20 million plus interest.
The Company believes it has insurance coverage for a substantial
portion of the alleged damages, if it should be held liable. While
all litigation contains an element of uncertainty, the Company and
Specialty Minerals Inc. believe that they have valid defenses to the
claims asserted by Eaton in this lawsuit, are continuing to vigorously
defend all such claims, and believe that the outcome of this matter
will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
The Company and its subsidiaries are not party to any other
pending legal proceedings, other than ordinary routine litigation
that is incidental to their businesses.
CAPITAL STOCK
The Company's authorized capital stock consists of 100
million shares of common stock, par value $.10 per share, of
which 21,813,674 shares and 22,540,385 shares were outstanding
at December 31, 1998 and 1997, respectively, and 1,000,000 shares
of preferred stock, none of which were issued and outstanding.
CASH DIVIDENDS
Cash dividends of $2.2 million or $.10 per common share were
paid during 1998. In January 1999, a cash dividend of approximately
$545,000 or $ .025 per share, was declared, payable in the first
quarter of 1999.
F-14
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PREFERRED STOCK PURCHASE RIGHTS
Under the Company's Preferred Stock Purchase Rights Plan,
each share of the Company's common stock carries with it one
preferred stock purchase right. Subject to the terms and conditions
set forth in the plan, the rights will become exercisable if a
person or group acquires beneficial ownership of 15% or more of the
Company's common stock or announces a tender or exchange offer which
would result in the acquisition of 30% or more thereof. If the rights
become exercisable, separate certificates evidencing the rights will
be distributed, and each right will entitle the holder to purchase
from the Company a new series of preferred stock, designated as
Series A Junior Preferred Stock, at a predefined price. The rights
also entitle the holder to purchase shares in a change-of-control
situation. The preferred stock, in addition to a preferred dividend
and liquidation right, will entitle the holder to vote on a pro rata
basis with the Company's common stock.
The rights are redeemable by the Company at a fixed price until
10 days, or longer as determined by the Board, after certain defined
events or at any time prior to the expiration of the rights on
October 26, 2002 if such events do not occur.
STOCK AND INCENTIVE PLAN
The Company has adopted a Stock and Incentive Plan (the "Plan")
which provides for grants of incentive and non-qualified stock
options, stock appreciation rights, stock awards or performance
unit awards. The Plan is administered by the Compensation and
Nominating Committee of the Board of Directors. Stock options granted
under the Plan have a term not in excess of ten years. The exercise
price for stock options will not be less than the fair market value
of the common stock on the date of the grant, and each award of stock
options will vest ratably over a specified period, generally three years.
In 1998, the Shareholders approved an amendment to the Plan to
increase the number of shares of common stock available under the
Plan by an additional 1.5 million.
The following table summarizes stock option activity for the Plan:
UNDER OPTION
----------------------------
SHARES WEIGHTED AVERAGE
AVAILABLE EXERCISE PRICE
FOR GRANT SHARES PER SHARE ($)
--------- --------- -----------------
Balance January 1, 1996 1,890,933 1,067,649 $22.83
Granted (804,111) 804,111 30.625
Exercised -- (108,911) 22.90
Canceled 15,069 (15,069) 30.06
--------- --------- -------
Balance December 31, 1996 1,101,891 1,747,780 26.36
Exercised -- (96,290) 24.38
Canceled 23,473 (23,473) 30.35
--------- --------- -------
Balance December 31, 1997 1,125,364 1,628,017 26.41
Authorized 1,500,000 -- --
Granted (22,500) 22,500 45.86
Exercised -- (162,835) 25.17
Canceled 27,451 (27,451) 30.48
--------- --------- -------
Balance December 31, 1998 2,630,315 1,460,231 $26.77
========= ========= =======
In 1996, the Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock Based Compensation." There
were 22,500 stock options granted in 1998 and no stock options
granted in 1997. The weighted-average fair value per option at
the date of grant for options granted during 1998 was $15.47 and
in 1996 it was $9.64. The fair value was estimated using the
Black-Scholes option pricing model, modified for dividends, and
the following weighted-average assumptions:
1998 1996
---- ----
Expected life (years) 5 5
Interest rate 5.03% 6.20%
Volatility 28.10% 21.53%
Expected dividend yield 0.22% 0.33%
F-15
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma net income and earnings per share reflecting
compensation cost for the fair value of stock options awarded
in 1998 and 1996 were as follows:
(MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
- -------------------------- ---- ---- ----
Net income As reported $57.2 $50.3 $43.1
Pro forma $55.5 $48.8 $41.6
Basic earnings per share As reported $2.57 $2.23 $1.91
Pro forma $2.49 $2.16 $1.84
Diluted earnings per share As reported $2.50 $2.18 $1.86
Pro forma $2.42 $2.11 $1.80
The amounts disclosed may not be representative of the
effects on reported net income for future years.
The following table summarizes information concerning
Plan options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------ -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/98 TERM (YEARS) PRICE AT 12/31/98 PRICE
- -------- ----------- ------------ --------- ----------- ---------
$22.625-29.75 767,484 4.2 $22.84 767,484 $22.84
$30.625-52.375 692,747 7.1 $31.11 446,831 $30.625
EARNINGS PER SHARE (EPS)
BASIC EPS 1998 1997 1996
---- ---- ----
Net income $57,224 $50,312 $43,097
------- ------- -------
Weighted average shares outstanding 22,281 22,558 22,621
------- ------- -------
Basic earnings per share $2.57 $2.23 $1.91
======= ======= =======
DILUTED EPS 1998 1997 1996
---- ---- ----
Net income $57,224 $50,312 $43,097
------- ------- -------
Weighted average shares outstanding 22,281 22,558 22,621
Dilutive effect of stock options 645 555 511
------- ------- -------
Weighted average shares outstanding,
adjusted 22,926 23,113 23,132
------- ------- -------
Diluted earnings per share $2.50 $2.18 $1.86
======= ======= =======
F-16
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPREHENSIVE INCOME
The following table reflects the accumulated balances of other
comprehensive income (loss) (in millions):
ACCUMULATED
CURRENCY MINIMUM UNREALIZED OTHER
TRANSLATION PENSION HOLDING COMPREHENSIVE
ADJUSTMENT LIABILITY GAINS INCOME (LOSS)
----------- --------- ---------- -------------
Balance at
January 1, 1996 $16.9 $-- $0.1 $17.0
Current year change (5.4) -- 0.1 (5.3)
----- ----- ----- -----
Balance at
December 31, 1996 11.5 -- 0.2 11.7
Current year change (25.0) (1.0) (0.1) (26.1)
----- ----- ----- -----
Balance at
December 31, 1997 (13.5) (1.0) 0.1 (14.4)
Current year change 4.8 -- -- 4.8
----- ----- ----- -----
Balance at
December 31, 1998 $(8.7) $(1.0) $0.1 $(9.6)
===== ===== ===== =====
The tax expense (benefit) associated with items included in
other comprehensive income (loss) were $(0.5) million, $(1.0) million
and $(0.5) million for 1998, 1997 and 1996, respectively.
SEGMENT AND RELATED INFORMATION
SFAS No. 131, "Disclosures about Segments of Enterprise and
Related Information," established standards for reporting information
about operating segments in annual financial statements and required
selected information about operating segments in interim financial
reports issued to stockholders. It also established standards for
related disclosures about products and services, and geographic areas.
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company's
operating segments are strategic business units that offer
different products and serve different markets. They are managed
separately and require different technology and marketing strategies.
The Company has two operating segments: Specialty Minerals
and Refractories. The Specialty Minerals segment produces and
sells precipitated calcium carbonate and lime, and mines, processes
and sells the natural mineral products limestone and talc. This
segment's products are used principally in the paper, building
materials, paints and coatings, glass, ceramic, polymers, food, and
pharmaceutical industries. The Refractories segment produces and
markets monolithic and shaped refractory materials and services used
primarily by the steel, cement and glass industries.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates performance based on operating income of the
respective business units. Depreciation expense related to corporate
assets are allocated to the business segments and are included in
income from operations. However, such corporate depreciable assets
are not included in the segment assets. Intersegment sales and
transfers are not significant.
F-17
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segment information for the years ended December 31, 1998,
1997 and 1996 was as follows (in millions):
1998
SPECIALTY MINERALS REFRACTORIES TOTAL
Net sales $429.0 $180.2 $609.2
Income from operations $66.2 $26.9 $93.1
Depreciation, depletion
and amortization $45.3 $7.8 $53.1
Segment assets $562.7 $167.5 $730.2
Capital expenditures $63.1 $9.4 $72.5
1997
SPECIALTY MINERALS REFRACTORIES TOTAL
Net sales $403.1 $199.2 $602.3
Income from operations $54.7 $25.5 $80.2
Depreciation, depletion
and amortization $44.3 $8.6 $52.9
Segment assets $537.3 $170.1 $707.4
Capital expenditures $66.6 $8.2 $74.8
1996
SPECIALTY MINERALS REFRACTORIES TOTAL
Net sales $359.3 $196.7 $556.0
Income from operations $50.3 $17.1 $67.4
Depreciation, depletion
and amortization $37.8 $8.4 $46.2
Segment assets $512.6 $188.0 $700.6
Capital expenditures $85.1 $11.0 $96.1
A reconciliation of the totals reported for the operating
segments to the applicable line items in the consolidated financial
statements is as follows (in millions):
1998 1997 1996
---- ---- ----
INCOME BEFORE PROVISION FOR TAXES
ON INCOME AND MINORITY INTERESTS
Income from operations for reportable segmentS $93.1 $80.2 $67.4
Unallocated corporate expenses (0.7) - -
----- ----- -----
Consolidated income from operations 92.4 80.2 67.4
Interest income 2.1 1.8 1.0
Interest expense (5.9) (7.2) (5.9)
Other income (deductions) (2.3) (2.6) 0.1
----- ----- -----
Income before provision fortaxes on income
and minority interests $86.3 $72.2 $62.6
----- ----- -----
TOTAL ASSETS 1998 1997 1996
---- ---- ----
Total segment assets $730.2 $707.4 $700.6
Corporate assets 30.7 34.0 13.3
----- ----- -----
Consolidated total assets $760.9 $741.4 $713.9
====== ====== ======
1998 1997 1996
---- ---- ----
CAPITAL EXPENDITURES
Total segment capital expenditures $72.5 $74.8 $96.1
Corporate capital expenditures 10.0 2.5 1.2
----- ----- -----
Consolidated total capital expenditures $82.5 $77.3 $97.3
===== ===== =====
F-18
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial information relating to the Company's operations
by geographic area was as follows (in millions):
1998 1997 1996
---- ---- ----
NET SALES
United States $411.7 $414.4 $383.0
------ ------ ------
Canada/Latin America 59.4 59.9 52.3
Europe/Africa 103.7 83.4 76.6
Asia 34.4 44.6 44.1
------ ------ ------
Total International 197.5 187.9 173.0
----- ----- -----
Consolidated total net sales $609.2 $602.3 $556.0
====== ====== ======
Net sales are attributed to countries and geographic areas
based on the location of the legal entity. No individual foreign
country represents more than 10% of consolidated net sales or
consolidated long-lived assets.
1998 1997 1996
---- ---- ----
LONG-LIVED ASSETS
United States $349.9 $367.6 $365.5
------ ------ ------
Canada/Latin America 34.7 37.9 41.8
Europe/Africa 108.3 72.1 61.8
Asia 31.6 23.1 32.0
------ ------ ------
Total International 174.6 133.1 135.6
------ ------ ------
Consolidated totallong-lived assets $524.5 $500.7 $501.1
====== ====== ======
QUARTERLY FINANCIAL DATA (UNAUDITED)
THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
1998 QUARTERS FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net sales $144,102 $155,752 $154,119 $155,220
Gross profit 44,829 48,496 49,449 49,861
Net income 12,801 14,657 15,451 14,315
Earnings per share:
Basic 0.57 0.65 0.70 0.65
Diluted 0.55 0.63 0.68 0.64
Market Price Range Per Share
of Common Stock
High 52 5/16 55 9/16 54 51 1/4
Low 40 15/16 48 3/8 35 7/8 36
Close 49 15/16 51 3/4 39 1/4 40 15/16
Dividends paid per common share $.025 $.025 $.025 $.025
THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
1997 QUARTERS FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net sales $137,626 $151,765 $155,012 $157,932
Gross profit 40,525 44,365 46,424 46,409
Net income 10,568 12,361 13,713 13,670
Earnings per share:
Basic 0.47 0.55 0.61 0.61
Diluted 0.46 0.54 0.59 0.59
Market Price Range Per Share
of Common Stock
High 42 7/8 40 7/8 44 15/16 46 1/8
Low 34 32 1/8 36 1/8 39 1/2
Close 34 1/4 37 1/4 44 3/4 45 7/16
Dividends paid per common share $.025 $.025 $.025 $.025
F-19
INDEPENDENT AUDITORS' REPORT
- ----------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
MINERALS TECHNOLOGIES INC.:
We have audited the accompanying consolidated balance sheet
of Minerals Technologies Inc. and subsidiary companies as of
December 31, 1998 and 1997 and the related consolidated statements
of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Minerals Technologies Inc. and subsidiary companies as of
December 31, 1998 and 1997 and the results of their operations and
their cash flows for each of the years in the three-year period ended
December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
New York, New York
January 19, 1999
F-20
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS AND SYSTEM OF
INTERNAL CONTROL
- ----------------------------------------------------------------------
The consolidated financial statements and all related financial
information herein are the responsibility of the Company's management.
The financial statements, which include amounts based on judgments,
have been prepared in accordance with generally accepted accounting
principles. Other financial information in the annual report is
consistent with that in the financial statements.
The Company maintains a system of internal control over financial
reporting which it believes provides reasonable assurance that
transactions are executed in accordance with management's authorization
and are properly recorded, that assets are safeguarded, and that
accountability for assets is maintained. Even an effective internal
control system, no matter how well designed, has inherent limitations
and, therefore, can provide only reasonable assurance with respect to
financial statement preparation. The system of internal control is
characterized by a control-oriented environment within the Company which
includes written policies and procedures, careful selection and training
of personnel, and audits by a professional staff of internal auditors.
The Company's independent accountants have audited and reported on
the Company's consolidated financial statements. Their audits were
performed in accordance with generally accepted auditing standards.
The Audit Committee of the Board of Directors is composed solely
of outside directors. The Audit Committee meets periodically with our
independent auditors, internal auditors and management to review
accounting, auditing, internal control and financial reporting matters.
Recommendations made by the independent auditors and the Company's
internal auditors are considered and appropriate action is taken with
respect to these recommendations. Both our independent auditors and
internal auditors have free access to the Audit Committee.
JEAN-PAUL VALLES
Chairman of the Board and Chief Executive Officer
NEIL M. BARDACH
Vice President, Finance and Chief Financial Officer
MICHAEL A. CIPOLLA
Controller and Chief Accounting Officer
January 19, 1999
F-21
MINERALS TECHNOLOGIES INC. & SUBSIDIARY COMPANIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(thousands of dollars)
ADDITIONS
CHARGED
BALANCE AT TO COST, BALANCE AT
BEGINNING PROVISION AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(a)(b) PERIOD
- ----------- ---------- ------------ ---------------- ----------
YEAR ENDED
DECEMBER 31, 1998
Valuation and
qualifying accounts
deducted from
assets to which
they apply
Allowance for
doubtful accounts $3,266 $507 $53 $3,720
====== ==== === ======
YEAR ENDED
DECEMBER 31, 1997
Valuation and
qualifying accounts
deducted from
assets to which
they apply
Allowance for
doubtful accounts $2,497 $1,554 $785 $3,266
====== ====== ==== ======
YEAR ENDED
DECEMBER 31, 1996
Valuation and
qualifying accounts
deducted from
assets to which
they apply
Allowance for
doubtful accounts $3,088 $79 $670 $2,497
====== === ==== ======
(a)Includes impact of translation of foreign currencies.
(b)Uncollectible accounts charged against allowances for doubtful accounts,
net of recoveries.
S-1