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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.
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William C. Steere, Jr. Director March 15, 1999
26
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
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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,
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1998 1997
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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
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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
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Total assets $760,912 $741,407
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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
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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
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Total liabilities 271,749 274,410
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Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, without par value;
1,000,000 shares autho