SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-3295
--
MINERALS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1190717
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
405 Lexington Avenue, New York, New York 10174-1901
(Address of principal executive offices, including zip code)
(212) 878-1800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
____ _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT October 24, 1999
Common Stock, $0.10 par value 21,149,684
MINERALS TECHNOLOGIES INC.
INDEX TO FORM 10-Q
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements:
Condensed Consolidated Statement of Income for the
three-month and nine-month periods ended September 26, 1999
and September 27, 1998 3
Condensed Consolidated Balance Sheet as of
September 26, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Cash Flows for the
nine-month periods ended September 26, 1999 and
September 27, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Independent Auditors' Report 9
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3.
Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings 14
Item 6.
Exhibits and Reports on Form 8-K 14
Signature 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
(thousands of dollars, 1999 1998 1999 1998
except per share data) ---- ---- ---- ----
Net sales $159,807 $154,119 $467,220 $453,973
Operating costs and expenses:
Cost of goods sold 110,248 104,670 322,581 311,199
Marketing, distribution and
administrative expenses 18,347 19,513 55,961 58,196
Research and development
expenses 6,001 5,143 18,176 15,302
------- ------- ------- -------
Income from operations 25,211 24,793 70,502 69,276
Non-operating deductions, net 1,892 1,289 3,679 5,115
------- ------- ------- -------
Income before provision for
taxes on income and minority
interests 23,319 23,504 66,823 64,161
Provision for taxes on income 7,311 7,270 20,956 20,518
Minority interests 100 783 506 734
------- ------- ------- -------
Net income $ 15,908 $ 15,451 $ 45,361 $ 42,909
======= ======= ======= =======
Earnings per share:
Basic $ 0.75 $ 0.70 $ 2.11 $ 1.92
Diluted $ 0.71 $ 0.68 $ 2.03 $ 1.86
Cash dividends declared per
common share $ 0.025 $ 0.025 $ 0.075 $ 0.075
Shares used in the computation
of earnings per share:
Basic 21,349 22,211 21,518 22,406
Diluted 22,281 22,814 22,351 23,076
See accompanying Notes to Condensed Consolidated Financial Statements.
3
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(thousands of dollars) Sept. 26, Dec. 31,
1999* 1998**
---- ----
Current assets:
Cash and cash equivalents $ 16,441 $ 20,697
Accounts receivable, net 126,368 110,192
Inventories 60,069 63,657
Other current assets 14,595 16,284
-------- --------
Total current assets 217,473 210,830
Property, plant and equipment, less
accumulated depreciation and depletion
Sept. 26, 1999 - $419,696;
Dec. 31, 1998 - $381,690 519,973 524,529
Other assets and deferred charges 26,062 25,553
-------- --------
Total assets $763,508 $760,912
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 13,458 $ 13,511
Accounts payable 40,892 32,084
Other current liabilities 61,347 52,343
-------- --------
Total current liabilities 115,697 97,938
Long-term debt 74,831 88,167
Other noncurrent liabilities 89,395 85,644
-------- --------
Total liabilities 279,923 271,749
-------- --------
Shareholders' equity:
Common stock 2,569 2,553
Additional paid-in capital 149,219 144,088
Retained earnings 510,792 467,257
Accumulated other comprehensive loss (26,581) (9,612)
-------- --------
635,999 604,286
Less treasury stock 152,414 115,123
-------- --------
Total shareholders' equity 483,585 489,163
-------- --------
Total liabilities and shareholders'
equity $763,508 $760,912
======= =======
* Unaudited
** Condensed from audited financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.
4
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
(thousands of dollars) Sept. 26, Sept. 27,
1999 1998
---- ----
OPERATING ACTIVITIES
Net income $ 45,361 $ 42,909
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 42,926 40,132
Other non-cash items 3,897 6,884
Net changes in operating assets and liabilities 947 3,177
-------- --------
Net cash provided by operating activities 93,131 93,102
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment ( 52,023) (58,366)
Acquisition of business -- (34,130)
Proceeds from disposition of business -- 32,357
Other investing activities, net (854) (336)
-------- --------
Net cash used in investing activities (52,877) (60,475)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of short-term and long-term debt 28,898 599
Repayment of debt (42,253) (14,125)
Purchase of common shares for treasury (37,291) (29,169)
Dividends paid (1,613) (1,690)
Proceeds from issuance of common stock 5,147 3,613
Equity and debt proceeds from minority interests 1,900 --
Other (213) --
-------- --------
Net cash used in financing activities (45,425) (40,772)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents 915 (2,077)
--------- --------
Net decrease in cash and cash equivalents (4,256) (10,222)
Cash and cash equivalents at beginning of period 20,697 41,525
--------- --------
Cash and cash equivalents at end of period $ 16,441 $ 31,303
========= ========
Interest paid $ 5,030 $ 5,834
======== ========
Income taxes paid $ 9,499 $ 9,887
========= ========
See accompanying Notes to Condensed Consolidated Financial Statements.
5
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by management in accordance with the rules and regulations of the
United States Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. Therefore, these financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. In the opinion of management, all adjustments, consisting
solely of normal recurring adjustments necessary for a fair presentation of the
financial information for the periods indicated, have been included. The
results for the three-month and nine-month periods ended September 26, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
Note 2 -- INVENTORIES
The following is a summary of inventories by major category:
(thousands of dollars) September 26, December 31,
1999 1998
---- ----
Raw materials $20,843 $21,681
Work in process 4,518 5,483
Finished goods 17,636 19,650
Packaging and supplies 17,072 16,843
------- -------
Total inventories $60,069 $63,657
======= =======
Note 3 -- LONG-TERM DEBT AND COMMITMENTS
The following is a summary of long-term debt:
September 26, December 31,
(thousands of dollars) 1999 1998
---- ----
7.75% Economic Development
Revenue Bonds Series 1990 Due 2010 $ -- $ 4,600
Variable/Fixed Rate Industrial
Development Revenue Bonds Due 2009 4,000 4,000
Variable/Fixed Rate Industrial
Development Revenue Bonds Due
April 1, 2012 7,545 7,545
Variable/Fixed Rate Industrial
Development Revenue Bonds Due
August 1, 2012 8,000 8,000
Economic Development Authority Refunding
Revenue Bonds Series 1999 Due 2010 4,600 --
6.04% Guarantied Senior Notes
Due June 11, 2000 13,000 26,000
7.49% Guaranteed Senior Notes
Due July 24, 2006 50,000 50,000
Other borrowings 1,144 1,533
------- ------
88,289 101,678
Less: Current maturities 13,458 13,511
------ ------
Long-term debt $74,831 $88,167
====== ======
6
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 -- EARNINGS PER SHARE (EPS)
Basic earnings per share are based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share are
based upon the weighted average number of common shares outstanding during the
period assuming the issuance of common shares for all dilutive potential common
shares outstanding. The following table sets forth the computation of basic and
diluted earnings per share:
BASIC EPS Three Months Ended Nine Months Ended
(in thousands, ------------------ -----------------
except per share data) Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1999 1998 1999 1998
---- ---- ---- ----
Net income $15,908 $15,451 $45,361 $42,909
------ ------ ------ ------
Weighted average shares
outstanding 21,349 22,211 21,518 22,406
------ ------ ------ ------
Basic earnings per share $ 0.75 $ 0.70 $ 2.11 $ 1.92
====== ====== ====== ======
DILUTED EPS
Net income $15,908 $15,451 $45,361 $42,909
------ ------ ------ ------
Weighted average shares
outstanding 21,349 22,211 21,518 22,406
Dilutive effect of
stock options 932 603 833 670
------ ------ ------ ------
Weighted average shares
outstanding, adjusted 22,281 22,814 22,351 23,076
------ ------ ------ ------
Diluted earnings per share $ 0.71 $ 0.68 $ 2.03 $ 1.86
====== ====== ====== ======
Note 5 -- COMPREHENSIVE INCOME (LOSS)
The following are the components of comprehensive income:
Three Months Ended Nine Months Ended
------------------ -----------------
(thousands of dollars) Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1999 1998 1999 1998
---- ---- ---- ----
Net income $15,908 $15,451 $45,361 42,909
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments 5,450 5,899 (16,883) (666)
Unrealized holding gains
(losses), net of
reclassification adjustments -- (47) (86) (45)
------ ------ ------ ------
Comprehensive income $21,358 $21,303 $28,392 $42,198
====== ====== ====== ======
The components of accumulated other comprehensive loss, net of related tax are
as follows:
Sept. 26, Dec. 31,
1999 1998
---- ----
Foreign currency translation adjustments $(25,580) $(8,697)
Minimum pension liability adjustments (1,001) (1,001)
Unrealized holding gains -- 86
------ ------
Accumulated other comprehensive loss $(26,581) $(9,612)
======= ======
7
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The change in unrealized holding gains for the nine months ended September
26, 1999 includes reclassification adjustments of $174,000 for gains realized in
income from the sale of securities.
Note 6 -- SEGMENT AND RELATED INFORMATION
Segment information for the three-month and nine-month periods ended
September 26, 1999 and September 27, 1998 was as follows:
(thousands of dollars) NET SALES
-----------------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1999 1998 1999 1998
--------- --------- --------- ---------
Specialty Minerals Segment $115,380 $108,940 $339,466 $315,047
Refractories Segment 44,427 45,179 127,754 138,926
------- ------- ------- -------
Total $159,807 $154,119 $467,220 $453,973
======= ======= ======= =======
(thousands of dollars) INCOME FROM OPERATIONS
-----------------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1999 1998 1999 1998
--------- --------- --------- ---------
Specialty Minerals Segment $18,388 $18,021 $51,372 $48,102
Refractories Segment 6,823 7,472 19,130 21,874
------ ------ ------ ------
Total $25,211 $25,493 $70,502 $69,976
====== ====== ====== ======
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is as follows:
(thousands of dollars)
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1999 1998 1999 1998
--------- --------- --------- ---------
INCOME BEFORE PROVISION
FOR TAXES ON INCOME
AND MINORITY INTERESTS
Income from operations
for reportable segments $25,211 $25,493 $70,502 $69,976
Unallocated corporate
expenses -- (700) -- (700)
------ ------ ------ ------
Consolidated income
from operations 25,211 24,793 70,502 69,276
Non-operating deductions, net (1,892) (1,289) (3,679) (5,115)
------ ------ ------ ------
Income before provision for
taxes on income and
minority interests $23,319 $23,504 $66,823 $64,161
====== ====== ====== ======
8
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Minerals Technologies Inc.:
We have reviewed the condensed consolidated balance sheet of Minerals
Technologies Inc. and subsidiary companies as of September 26, 1999 and the
related condensed consolidated statements of income for each of the three-month
and nine-month periods ended September 26, 1999 and September 27, 1998, and cash
flows for the nine-month periods then ended. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Minerals Technologies Inc. and
subsidiary companies as of December 31, 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated January 19, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998 is fairly presented, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
KPMG LLP
New York, New York
November 5, 1999
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Income and Expense Items
As a Percentage of Net Sales
----------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 26, Sept. 27, Sept. 26, Sept. 27,
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 69.0 67.9 69.0 68.5
Marketing, distribution and
administrative expenses 11.5 12.7 12.0 12.8
Research and development expenses 3.7 3.3 3.9 3.4
---- ---- ---- ----
Income from operations 15.8 16.1 15.1 15.3
Net income 10.0% 10.0% 9.7% 9.5%
==== ==== ==== ====
RESULTS OF OPERATIONS
Three Months Ended September 26, 1999 as Compared with Three Months Ended
- -------------------------------------------------------------------------
September 27, 1998
- ------------------
Net sales in the third quarter of 1999 increased 3.7% to $159.8 million
from $154.1 million in the third quarter of 1998.
Net sales in the Specialty Minerals segment, which includes the
Precipitated Calcium Carbonate ("PCC") and Processed Minerals product lines,
grew 6.0% in the third quarter of 1999 to $115.4 million.
Worldwide net sales of PCC grew 7.4% to $95.8 million from $89.2 million in
the third quarter of 1998. This sales growth was primarily attributable to the
commencement of operations at two new satellite PCC plants in 1999, increased
sales from four satellite plants that commenced operations during the first nine
months of 1998, and to the growth in the specialty PCC product line. The new
satellite plants are located at Courtland, Alabama and Dagang, China.
In the third quarter of 1999, the average price per ton of PCC sold by the
Company's satellite PCC plants was approximately the same as in the second
quarter of 1999 but was approximately 7% lower than the average selling price
per ton in the third quarter of 1998. Over half of the decline was due to the
commencement of operations at two new large PCC satellite facilities in 1999 and
to ramp-ups of volume at several other satellite facilities. Approximately 20%
of the decline was related to foreign exchange. Other factors, such as
price adjustments associated with contract extensions, accounted for the rest.
In the third quarter, the Company announced that it has secured an
agreement with Sociedade de Portugesa de Papel, S.A. - Soporcel, to provide PCC
to a new 400,000 ton paper machine in Figueira da Foz, Portugal. This
satellite, which will be in operation by the second quarter of 2000, is
equivalent to approximately three satellite units. (A satellite unit is
equivalent to annual production capacity of between 25,000 and 35,000 tons of
PCC.) The Company now operates 55 satellite PCC plants around the world.
In October 1999, the Company announced that its majority-owned joint
venture has signed an agreement with a major Japanese paper manufacturer for the
construction of its initial PCC satellite plant in Japan. This satellite, which
will be in operation in the second quarter of 2000, will be equivalent to
approximately two satellite units.
Net sales of Processed Minerals products decreased 0.5% in the third
quarter to $19.6 million compared to the same period in 1998. The sales decline
in Processed Minerals was primarily due to a decline in sales of talc products.
Net sales in the Refractories segment were $44.4 million for the third
quarter of 1999, a 1.8% decrease compared to the same period last year. The
sales decline was due primarily to unfavorable economic conditions in the
worldwide steel industry.
Net sales in the United States in the third quarter of 1999 increased
approximately 2.6%. Foreign sales increased approximately 5.9% in the third
quarter of 1999.
Income from operations was $25.2 million, an increase of 1.6% from $24.8
million in the third quarter of 1998. Income from operations in the Specialty
Minerals segment was $18.4 million, a 2.2% increase over the third quarter in
the prior year. Income from operations in the Refractories segment decreased
9.3% in the third quarter. The decrease in operating income of the Refractories
segment was primarily attributable to the worldwide downturn in the steel
industry that began late in the third quarter of 1998.
10
Net non-operating deductions increased primarily as a result of foreign
exchange losses in 1999 as compared to foreign exchange gains in the same period
of 1998.
Net income increased 2.6% to $15.9 million from $15.5 million in the prior
year. Diluted earnings per common share increased 4% to $0.71 in the third
quarter of 1999, compared to $0.68 in the prior year.
Nine Months Ended September 26, 1999 as Compared with Nine Months Ended
- -----------------------------------------------------------------------
September 27, 1998
- ------------------
Net sales for the first nine months of 1999 increased 2.9% to $467.2
million from $454.0 million in 1998.
Net sales in the Specialty Minerals segment increased 7.8% in the first
nine months of 1999 to $339.5 million. Worldwide net sales in the PCC product
line grew 10.6% to $281.2 million for the first nine months of 1999. Net sales
in the Processed Minerals product line declined 4.1% in the first nine months of
1999. Excluding the divested Midwest limestone business, which was sold in
April 1998, the sales decline was 1.5%.
Net sales in the Refractories segment decreased 8.0% to $127.8 million.
This decrease was due to the unfavorable economic conditions in the worldwide
steel industry.
Income from operations rose 1.7% to $70.5 million in the first nine months
of 1999 from $69.3 million in the previous year. Income from operations in the
Specialty Minerals segment increased 6.8% in the first nine months of 1999 to
$51.4 million. Income from operations in the Refractories segment declined
12.8% for the first nine months of 1999. This decline was due to the
aforementioned weakness in the worldwide steel industry.
Non-operating deductions decreased primarily as a result of a decrease in
foreign exchange losses in 1999 as compared to the same period in 1998.
Net income increased 5.8% to $45.4 million from $42.9 million in 1998.
Diluted earnings per common share increased 9% to $2.03 as compared with $1.86
for the first nine months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position remained strong in the first nine months
of 1999. Cash flows were provided from operations and were applied principally
to fund capital expenditures, to repurchase common shares for treasury and to
remit the required principal payment of $13 million under the Company's
Guarantied Senior Notes due June 11, 2000. Cash provided from operating
activities amounted to $93.1 million in the first nine months of 1999.
On February 26, 1998, the Company's Board of Directors authorized a $150
million program to repurchase Company stock on the open market from time to
time. As of October 24, 1999, the Company had repurchased approximately 1.7
million shares under this program at an average price of approximately $48 per
share.
The Company has available approximately $110 million in uncommitted, short-
term bank credit lines, none of which were in use at September 26, 1999. The
Company anticipates that capital expenditures for all of 1999 will be between
$80-$90 million. The capital expenditures will principally be related to
construction of satellite PCC plants, expansion projects at existing satellite
PCC plants, a merchant manufacturing facility in Brookhaven, Mississippi for the
production of specialty PCC, and other opportunities that meet the strategic
growth objectives of the Company. The Company expects to meet such requirements
from internally generated funds, the aforementioned uncommitted bank credit
lines and, where appropriate, project financing of certain satellite plants.
PROSPECTIVE INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand companies'
future prospects and make informed investment decisions. This report may
contain forward-looking statements that set out anticipated results based on
management's plans and assumptions. Words such as "anticipate," "estimate,"
"expects," and "projects," and words and terms of similar substance used in
connection with any discussion of future operating or financial performance,
identify these forward-looking statements.
The Company cannot guarantee that the outcomes suggested in any forward-
looking statement will be realized, although it believes it has been prudent in
its plans and assumptions. Achievement of future results is subject to risks,
uncertainties and inaccurate assumptions. Should known or unknown risks or
uncertainties materialize, or should underlying assumptions prove inaccurate,
actual results could vary materially from those anticipated, estimated or
projected. Investors should bear this in mind as they consider forward-looking
statements and should refer to the discussion of certain
11
risks, uncertainties and assumptions under the heading "Cautionary Factors That
May Affect Future Results" in Exhibit 99 to this Quarterly Report on Form 10-Q.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The statement, as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
will adopt SFAS 133 by January 1, 2001. Adoption of SFAS 133 is not expected to
have a material effect on the consolidated financial statements.
YEAR 2000
The "year 2000 issue" arises because many computer programs and
electronically controlled devices denote years using only the last two digits.
Because these programs and devices may fail to recognize the year 2000
correctly, calculations or other tasks that involve the years 2000 and beyond
may cause the programs to produce erroneous results or to fail altogether. Like
other companies, the Company uses operating systems, applications and
electronically controlled devices that were produced by many different vendors
at different times, and many of which were not originally designed to be year
2000 compatible.
The Company's State of Readiness
--------------------------------
Information Technology
The Company has completed its assessment of its exposure to year 2000-
related risks arising from information technology, and is engaged in remediation
of the areas of exposure it has identified.
In 1996, the Company began a project to install new computer hardware and
software systems to improve the capability of its technology, to harmonize the
various information technology platforms in use, and to centralize certain
financial functions. The project encompasses corporate financial and accounting
functions as well as manufacturing and costing, procurement, planning and
scheduling of production and maintenance, and customer order management.
The Company has completed all systems implementation and testing to ensure
that its financial and operating systems are year 2000 ready in its operations
throughout North America.
Outside of the United States, preparations for the year 2000 are being
carried out by the relevant business units on a decentralized basis.
Implementation and testing of information technology systems has been
substantially accomplished, with a small number of European locations expected
to complete this process by year-end.
The Company's exposures to the year 2000 issue other than in the area of
information technology arise mostly with respect to process control systems and
instrumentation at the Company's manufacturing locations and in equipment used
at customer locations. Telephone and e-mail systems, operating systems and
applications in free-standing personal computers, local area networks, and site
services such as electronic security systems and elevators may also be affected.
A failure of these systems which interrupts the Company's ability to supply
products to its customers could have a material adverse impact on its results of
operations. These issues are being addressed by the individual business units,
by obtaining from vendors and service providers either necessary modifications
to the software or assurance that the system will not be disrupted by the year
2000 issue. This process is substantially complete.
Third Parties
The Company's divisions have communicated with their principal customers
and vendors to inquire about their year 2000 readiness. No such customer or
vendor has indicated that it expects an interruption of a type that would have,
in the Company's opinion, a material adverse effect on the Company's results of
operations. However, because so many firms are exposed to the risk of failure
not only of their own systems, but of the systems of other firms, the ultimate
effect of the year 2000 issue is subject to a very high degree of uncertainty.
Costs
-----
The Company expects that it will spend approximately $16-19 million,
cumulatively, before January 1, 2000 for new computer hardware and software,
other information technology upgrades and replacements, and upgrades and
replacements to non-IT systems worldwide. These expenditures, which include
both internal and external costs, will provide benefits to the Company which
include, but are not limited to, the achievement of year 2000 readiness. Of
this amount approximately
12
$16 million had been expended as of September 26, 1999. These expenditures will
be capitalized or expensed in accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which the Company has adopted, and other related pronouncements.
The Company will finance these expenditures solely from working capital,
and does not expect the total cost associated with its plans to address the year
2000 issue to have a material effect on its financial position or results of
operations.
None of the Company's other significant information technology projects
have been delayed due to the implementation of year 2000 solutions.
Risks of the Year 2000 Issue
----------------------------
Like other companies, the Company relies on its customers for revenues, on
its suppliers for raw materials and on its other vendors for products and
services of all kinds. These third parties all face the year 2000 issue. An
interruption in the ability of any of them to provide goods or services, or to
pay for goods or services provided to them, or an interruption in the business
operations of customers causing a decline in demand for the Company's products,
could have a material adverse effect on the Company. In particular, each of the
Company's satellite PCC plants relies on one customer for most or all of its
business, and in many cases for raw materials as well, so that a shutdown of a
host paper mill's operation could also cause the satellite PCC plant to shut
down. The Company believes that the most reasonably likely worst-case scenario
caused by the transition to the year 2000 would involve interruption of its
ability to obtain raw materials or to conduct manufacturing operations at
multiple manufacturing sites simultaneously.
Contingency Plan
----------------
Based upon the risks described above, the Company has prepared a
contingency plan to mitigate the effects of an interruption of its ability to
obtain raw materials or to conduct manufacturing operations at multiple
manufacturing locations. The components of this plan were generated by the
individual sites, taking into consideration their particular conditions, such as
customer relationships and the availability of alternate sources of supply.
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 Exhibit 99 to this Quarterly Report on Form 10-Q.
ADOPTION OF A COMMON EUROPEAN CURRENCY
On January 1, 1999, eleven European countries adopted the euro as their
common currency. From that date until January 1, 2002, debtors and creditors
may choose to pay or be paid in euros or in the former national currencies. On
and after January 1, 2002, the former national currencies will cease to be legal
tender.
The Company's information technology systems are now able to convert among
the former national currencies and the euro, and process transactions and
balances in euros, as required. The financial institutions with which the
Company does business are capable of receiving deposits and making payments both
in euros and in the former national currencies. The Company does not expect
that adapting its information technology systems to the euro will have a
material impact on its financial condition or results of operations. The
Company is also reviewing contracts with customers and vendors calling for
payments in currencies that are to be replaced by the euro, and intends to
complete in a timely way any required changes to those contracts.
Adoption of the euro is likely to have competitive effects in Europe, as
prices that had been stated in different national currencies become directly
comparable to one another. In addition, the adoption of a common monetary
policy by the countries adopting the euro can be expected to have an effect on
the economy of the region. These competitive and economic effects had no
material impact on the Company's financial condition or results of operations in
the third quarter, and the Company does not expect any such material impact to
occur. There can be no assurance, however, that the transition to the euro will
not have a material effect on the Company's business in Europe in the future.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
-----------
The Company is exposed to various market risks, including the potential
loss arising from adverse changes in foreign currency exchange rates. The
Company does not enter into derivatives or other financial instruments for
trading or speculative purposes. When appropriate, the Company enters into
derivative financial instruments, such as forward exchange contracts, to
mitigate the impact of foreign exchange rate movements on the Company's
operating results. The counterparties are major financial institutions. Such
forward exchange contracts would not subject the Company to additional risk from
exchange rate movements because gains and losses on these contracts would offset
losses and gains on the assets, liabilities and transactions being hedged.
There were no open forward exchange contracts outstanding at September 26, 1999
or September 27, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about October 5, 1999, the Company was notified by the U.S.
Department of Justice that it had received an enforcement referral from the U.S.
Environmental Protection Agency regarding alleged violations by the Company's
subsidiary Barretts Minerals Inc. ("BMI") of a state-issued permit regulating
pit dewatering and storm water discharge at BMI's talc mine in Barretts,
Montana. The threatened federal enforcement action would duplicate in part a
state enforcement action that was resolved in May 1999 through settlement and
payment of a civil penalty of $14,000. The Department of Justice has proposed
to enter into prefiling negotiations with BMI, and as of November 5, 1999, no
complaint had been filed. There can be no assurance that the amount of monetary
penalty or the cost of other relief sought by the Department of Justice in any
such complaint, if filed, would not be substantially in excess of the amount for
which the previous state enforcement action was settled. The Company has
received no indication of the amount of any monetary penalty or the nature of
any other relief intended to be sought.
On August 2, 1999, the Company, without admitting any wrongdoing, entered
into a confidential settlement agreement with the plaintiff, Eaton Corporation,
in a lawsuit captioned EATON CORPORATION V. PFIZER INC, MINERALS TECHNOLOGIES
INC. AND SPECIALTY MINERALS INC. which was filed on July 31, 1996. The suit
alleged that certain materials sold to Eaton for use in truck transmissions were
defective, necessitating repairs for which Eaton sought reimbursement. The
Company's insurance covered a substantial portion of the settlement and there
was no material impact on the Company's results of operations or financial
position as a result of this settlement.
The Company and its subsidiaries are not party to any other material
pending legal proceedings, other than ordinary routine litigation incidental to
their businesses.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
4 - Rights Agreement, executed effective as of September 13, 1999 (the
"Rights Agreement"), between Minerals Technologies Inc. and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, including
as Exhibit B the forms of Rights Certificate and of Election to
Exercise (incorporated by reference to Exhibit No. 4 to the Company's
current report on Form 8-K filed September 3, 1999).
10 - Employee Protection Program, as amended August 27, 1999.
15 - Accountants' Acknowledgment (Part I Data).
27 - Financial Data Schedule for the nine months ended September 26, 1999.
99 - Statement of Cautionary Factors That May Affect Future Results.
b) Report on Form 8-K filed September 3, 1999.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Minerals Technologies Inc.
By: /s/ Neil M. Bardach
-------------------
Neil M. Bardach
Vice President-Finance and
Chief Financial Officer; Treasurer
(principal financial officer)
November 8, 1999
15