SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) - -- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 28, 1999 OR - -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-3295 -- MINERALS TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) DELAWARE 25-1190717 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 405 Lexington Avenue, New York, New York 10174-1901 (Address of principal executive offices, including zip code) (212) 878-1800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT April 23, 1999 Common Stock, $.10 par value 21,566,602
MINERALS TECHNOLOGIES INC. INDEX TO FORM 10-Q Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Statement of Income for the three-month periods ended March 28, 1999 and March 29, 1998 3 Condensed Consolidated Balance Sheet as of March 28, 1999 and December 31, 1998 4 Condensed Consolidated Statement of Cash Flows for the three-month periods ended March 28, 1999 and March 29, 1998 5 Notes to Condensed Consolidated Financial Statements 6 Independent Auditors' Report 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 14 Signature 15 2
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) THREE MONTHS ENDED ----------------------------- MARCH 28, MARCH 29, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 --------- --------- Net sales $ 148,576 $ 144,102 Operating costs and expenses: Cost of goods sold 103,227 99,273 Marketing, distribution and administrative expenses 18,359 18,854 Research and development expenses 5,952 4,877 --------- --------- Income from operations 21,038 21,098 Non-operating deductions, net 1,277 1,309 --------- --------- Income before provision for taxes on income and minority interests 19,761 19,789 Provision for taxes on income 6,228 6,428 Minority interests (198) 560 --------- --------- Net income $ 13,731 $ 12,801 ========= ========= Earnings per share: Basic $ 0.63 $ 0.57 Diluted $ 0.62 $ 0.55 Cash dividends declared per common share $ 0.025 $ 0.025 Shares used in the computation of earnings per share Basic 21,697 22,548 Diluted 22,304 23,215 See accompanying Notes to Condensed Consolidated Financial Statements. 3
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEET ASSETS (THOUSANDS OF DOLLARS) MARCH 28, DECEMBER 31, 1999* 1998** --------- ------------ Current assets: Cash and cash equivalents $ 16,223 $ 20,697 Accounts receivable, net 116,171 110,192 Inventories 59,093 63,657 Other current assets 15,261 16,284 --------- --------- Total current assets 206,748 210,830 Property, plant and equipment, less accumulated depreciation and depletion March 28, 1999-$390,352; Dec. 31, 1998-$381,690 514,007 524,529 Other assets and deferred charges 27,958 25,553 --------- --------- Total assets $ 748,713 $ 760,912 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 13,472 $ 13,511 Accounts payable 32,718 32,084 Other current liabilities 57,959 52,343 --------- --------- Total current liabilities 104,149 97,938 Long-term debt 88,090 88,167 Other non-current liabilities 87,455 85,644 --------- --------- Total liabilities 279,694 271,749 --------- --------- Shareholders' equity: Common stock 2,556 2,553 Additional paid-in capital 144,853 144,088 Retained earnings 480,450 467,257 Accumulated other comprehensive loss (31,467) (9,612) --------- --------- 596,392 604,286 Less treasury stock 127,373 115,123 --------- --------- Total shareholders' equity 469,019 489,163 --------- --------- Total liabilities and shareholders' equity $ 748,713 $ 760,912 ========= ========= * Unaudited ** Condensed from audited financial statements. See accompanying Notes to Condensed Consolidated Financial Statements. 4
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) THREE MONTHS ENDED ----------------------- (THOUSANDS OF DOLLARS) MARCH 28, MARCH 29, 1999 1998 --------- --------- OPERATING ACTIVITIES Net income $ 13,731 $ 12,801 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 14,050 13,209 Other non-cash items 1,991 2,922 Net changes in operating assets and liabilities (3,004) (5,594) -------- -------- Net cash provided by operating activities 26,768 23,338 -------- -------- INVESTING ACTIVITIES Purchases of property, plant and equipment (17,284) (18,655) Other investing activities, net (788) 374 -------- -------- Net cash used in investing activities (18,072) (18,281) -------- -------- FINANCING ACTIVITIES Proceeds from issuance of short-term and long-term debt 4,600 273 Repayment of debt (4,600) (551) Purchase of common shares for treasury (12,250) (5,128) Other financing activities, net 227 1,521 -------- -------- Net cash used in financing activities (12,023) (3,885) -------- -------- Effect of exchange rate changes on cash and cash equivalents (1,147) (449) -------- -------- Net increase (decrease) in cash and cash equivalents (4,474) 723 Cash and cash equivalents at beginning of period 20,697 41,525 -------- -------- Cash and cash equivalents at end of period $ 16,223 $ 42,248 ======== ======== Interest paid $ 2,202 $ 2,235 ======== ======== Income taxes paid $ 763 $ 3,381 ======== ======== See accompanying Notes to Condensed Consolidated Financial Statements. 5
MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. The results for the three-month period ended March 28, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. NOTE 2 -- INVENTORIES The following is a summary of inventories by major category: (THOUSANDS OF DOLLARS) MARCH 28, DECEMBER 31, 1999 1998 --------- ------------ Raw materials $ 17,030 $ 21,681 Work in process 5,517 5,483 Finished goods 20,169 19,650 Packaging and supplies 16,377 16,843 -------- -------- Total inventories $ 59,093 $ 63,657 ======== ======== NOTE 3 -- LONG-TERM DEBT AND COMMITMENTS The following is a summary of long-term debt: MARCH 28, DECEMBER 31, (THOUSANDS OF DOLLARS) 1999 1998 --------- ------------ 7.75% Economic Development Revenue Bonds Series 1990 Due 2010 $ -- $ 4,600 Variable/Fixed Rate Industrial Development Revenue Bonds Due 2009 4,000 4,000 Variable/Fixed Rate Industrial Development Revenue Bonds Due April 1, 2012 7,545 7,545 Variable/Fixed Rate Industrial Development Revenue Bonds Due August 1, 2012 8,000 8,000 Economic Development Authority Refunding Revenue Bonds Series 1999 Due 2010 4,600 -- 6.04% Guarantied Senior Notes Due June 11, 2000 26,000 26,000 7.49% Guaranteed Senior Notes Due July 24, 2006 50,000 50,000 Other borrowings 1,417 1,533 -------- --------- 101,562 101,678 Less: Current maturities 13,472 13,511 -------- --------- Long-term debt $ 88,090 $ 88,167 ======== ========= 6
NOTE 4 -- EARNINGS PER SHARE (EPS) Basic earnings per share are based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the period assuming the issuance of common shares for all dilutive potential common shares outstanding. The following table sets forth the computation of basic and diluted earnings per share: BASIC EPS MARCH 28, MARCH 29, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 --------- --------- Net income $ 13,731 $ 12,801 -------- -------- Weighted average shares outstanding 21,697 22,548 -------- -------- Basic earnings per share $ 0.63 $ 0.57 ======== ======== DILUTED EPS Net income $ 13,731 $ 12,801 -------- -------- Weighted average shares outstanding 21,697 22,548 Dilutive effect of stock options 607 667 -------- -------- Weighted average shares outstanding, adjusted 22,304 23,215 -------- -------- Diluted earnings per share $ 0.62 $ 0.55 ======== ======== NOTE 5 -- COMPREHENSIVE INCOME (LOSS) The following are the components of comprehensive income (loss): THREE MONTHS ENDED --------------------- (THOUSANDS OF DOLLARS) MARCH 28, MARCH 29, 1999 1998 ---------- --------- Net income $ 13,731 $ 12,801 Other comprehensive income, net of tax: Foreign currency translation adjustments (21,769) (962) Unrealized holding gains (losses), net of reclassification adjustments (86) 46 ------- ------- Comprehensive income (loss) $ (8,124) $ 11,885 ======= ======= The components of accumulated other comprehensive loss, net of related tax are as follows: MARCH 28, DECEMBER 31, 1999 1998 --------- ------------ Foreign currency translation adjustments $(30,466) $(8,697) Minimum pension liability adjustments (1,001) (1,001) Unrealized holding gains -- 86 ------ ----- Accumulated other comprehensive loss $(31,467) $(9,612) ====== ===== The change in unrealized holding gains for the three months ended March 28, 1999 includes reclassification adjustments of $174,000 for gains realized in income from the sale of the securities. Foreign currency translation losses increased for the three months ended March 28, 1999 as a result of the stronger U.S. Dollar against the Latin American, European and Asian currencies since December 31, 1998. 7
MINERALS TECHNOLOGIES AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 -- SEGMENT AND RELATED INFORMATION Segment information for the three months ended March 28, 1999 and March 29, 1998 was as follows: (THOUSANDS OF DOLLARS) THREE MONTHS ENDED MARCH 28, 1999 --------------------------------- SPECIALTY MINERALS REFRACTORIES TOTAL Net sales $107,789 $40,787 $148,576 Income from operations $ 15,561 $ 5,477 $ 21,038 THREE MONTHS ENDED MARCH 29, 1998 --------------------------------- SPECIALTY MINERALS REFRACTORIES TOTAL Net sales $ 98,304 $45,798 $144,102 Income from operations $ 14,737 $ 6,361 $ 21,098 A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements is as follows: (THOUSANDS OF DOLLARS) THREE MONTHS ENDED THREE MONTHS ENDED INCOME BEFORE PROVISION MARCH 28, 1999 MARCH 29, 1998 FOR TAXES ON INCOME AND ------------------ ------------------ MINORITY INTERESTS Income from operations for reportable segments $21,038 $21,098 Non-operating deductions 1,277 1,309 ------ ------ Income before provision for taxes on income and minority interests $19,761 $19,789 ======= ====== 8
INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Minerals Technologies Inc.: We have reviewed the condensed consolidated balance sheet of Minerals Technologies Inc. and subsidiary companies as of March 28, 1999 and the related condensed consolidated statements of income and cash flows for the three-month periods ended March 28, 1999 and March 29, 1998. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Minerals Technologies Inc. and subsidiary companies as of December 31, 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 19, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1998 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP New York, New York April 30, 1999 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME AND EXPENSE ITEMS AS A PERCENTAGE OF NET SALES ---------------------------- THREE MONTHS ENDED ------------------ MARCH 28, MARCH 29, 1999 1998 --------- --------- Net sales 100.0% 100.0% Cost of goods sold 69.5 68.9 Marketing, distribution and administrative expenses 12.3 13.1 Research and development expenses 4.0 3.4 ---- ---- Income from operations 14.2 14.6 Net income 9.2% 8.9% ==== ==== RESULTS OF OPERATIONS Three Months Ended March 28, 1999 as Compared With Three Months Ended - --------------------------------------------------------------------- March 29, 1998 - -------------- Net sales in the first quarter of 1999 increased 3.1% to $148.6 million from $144.1 million in the first quarter of 1998. Net sales in the Specialty Minerals segment, which includes the Precipitated Calcium Carbonate ("PCC") and Processed Minerals product lines, grew 9.7% in the first quarter of 1999 to $107.8 million. Net sales in the Refractories segment declined 10.9% in the first quarter of 1999. Worldwide net sales of PCC grew 12.7% to $89.6 million from $79.5 million in the first quarter of 1998. This sales growth was primarily attributable to the commencement of operations at five new satellite PCC plants since January 1998 and to sales from the acquisition in April 1998 of a PCC business in the United Kingdom. The new satellite plants are located at Courtland, Alabama; Docelles, France; Schongau, Germany; Pensacola, Florida; and Madison, Maine. Net sales of Processed Minerals products decreased 3.2%, to $18.2 million from $18.8 million in the prior year. The sales decline in Processed Minerals was primarily due to the usage of a significant portion of the Company's lime for the production of PCC instead of for sales to third parties. Net sales in the Refractories segment were $40.8 million as compared to $45.8 million in the prior year. The sales decline was due primarily to unfavorable economic conditions in the worldwide steel industry. Net sales in the United States in the first quarter of 1999 increased approximately 1%. Foreign sales increased approximately 9% in the first quarter of 1999. This increase was due to the international expansion of the Company's PCC product line. Income from operations was $21.0 million, approximately the same as in the first quarter of 1998. Operating income was negatively affected by lower profits in the Refractories segment, higher research and development spending, and operating losses in the Company's consolidated joint ventures. The provision for minority interests in the first quarter of 1999 decreased by aproximately $0.8 million. In 1999, the provision for minority interests reflected the minority partners' share of losses incurred in the consolidated joint ventures. In 1998, such joint ventures operated profitably. Net income increased 7.0% to $13.7 million from $12.8 million in the prior year. Diluted earnings per share were $0.62 in the first quarter of 1999 as compared to $0.55 in the prior year. LIQUIDITY AND CAPITAL RESOURCES The Company's financial position remained strong in the first quarter of 1999. Cash flows in the first quarter of 1999 were provided from operations and were applied principally to fund capital expenditures and the repurchase of common shares for treasury. Cash provided from operating activities amounted to $26.8 million in the first quarter of 1999 as compared to $23.3 million in the prior year. 10
On February 26, 1998, the Company's Board of Directors authorized a $150 million program to repurchase Company stock on the open market from time to time. As of April 9, 1999, the Company had repurchased 1,204,000 shares under this program at an average price of approximately $47 per share. The Company has available approximately $110 million in uncommitted, short-term bank credit lines, none of which were in use at March 28, 1999. The Company anticipates that capital expenditures for all of 1999 will be approximately $90 million, principally for construction of satellite PCC plants, expansion projects at existing satellite PCC plants, a merchant manufacturing facility in Brookhaven, Mississippi for the production of specialty PCC, and other opportunities which meet the strategic growth objectives of the Company. The Company expects to meet such requirements from internally generated funds, the aforementioned uncommitted bank credit lines and, where appropriate, project financing of certain satellite plants. PROSPECTIVE INFORMATION AND FACTORS THAT MAY AFFECT FUTURE RESULTS The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand the companies' future prospects and make informed investment decisions. This report may contain forward-looking statements that set out anticipated results based on management's plans and assumptions. Words such as "anticipate," "estimate," "expects," and "projects," and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify these forward-looking statements. The Company cannot guarantee that the outcomes suggested in any forward-looking statement will be realized, although it believes it has been prudent in its plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and should refer to the discussion of certain risks, uncertainties and assumptions under the heading "Cautionary Factors That May Affect Future Results" in Item 1 of the Company's Annual Report on Form 10-K for 1998. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The statement 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 years 2000 and beyond may cause the programs to produce erroneous results or to fail altogether. Like other companies, the Company uses operating systems, applications and electronically controlled devices that were produced by many different vendors at different times, and many of which were not originally designed to be year 2000 compatible. THE COMPANY'S STATE OF READINESS Information Technology ---------------------- The Company has completed its assessment of its exposure to year 2000-related risks arising from information technology, and is engaged in remediation of the areas of exposure it has identified. In 1996, the Company began a project to install new computer hardware and software systems to improve the capability of its technology to harmonize the various information technology platforms in use, and to centralize certain financial functions. The project encompasses corporate financial and accounting functions as well as manufacturing and costing, procurement, planning and scheduling of production and maintenance, and customer order management. The Company has acquired substantially all of the hardware and software required to implement this project, and is currently bringing the majority of its domestic business locations on to the new systems sequentially. This process is substantially complete, and the Company expects the new systems to be operational in all affected U.S. locations no later than the third quarter of 1999. Other U.S. manufacturing locations are currently year 2000 compatible, with the exception of three locations which are serviced by an information technology system which is in the remediation phase. This phase is substantially complete, and is scheduled to be completed no later than the second quarter of 1999. 11
Outside of the United States, preparations for the year 2000 are being carried out by the relevant business units on a decentralized basis. Information technology systems have been evaluated and are in the process of being remediated or replaced as required. The Company expects this process to be completed by all non-U.S. locations no later than the third quarter of 1999. Non-Information Technology -------------------------- The Company's exposures to the year 2000 issue other than in the area of information technology arise mostly with respect to process control systems and instrumentation at the Company's manufacturing locations and in equipment used at customer locations. Telephone and e-mail systems, operating systems and applications in free-standing personal computers, local area networks, and site services such as electronic security systems and elevators may also be affected. A failure of these systems which interrupts the Company's ability to supply products to its customers could have a material adverse impact on its results of operations. These issues are being addressed by the individual business units, by obtaining from vendors and service providers either necessary modifications to the software or assurance that the system will not be disrupted by the year 2000 issue. This process is substantially complete, and is expected to be completed no later than the third quarter of 1999. Third Parties ------------- The Company's divisions are communicating with their principal customers and vendors to inquire about their year 2000 readiness. This project is substantially complete, and we expect it to be completed no later than the third quarter of 1999. The Company has received responses from a substantial number of those customers and vendors an interruption in the operations of which would have, in the Company's opinion, a material adverse effect on the Company's results of operations. No such customer or vendor has indicated that it expects such an interruption to occur. However, because so many firms are exposed to the risk of failure not only of their own systems, but of the systems of other firms, the ultimate effect of the year 2000 issue is subject to a very high degree of uncertainty. COSTS The Company expects to spend approximately $16-19 million before January 1, 2000, for new computer hardware and software, other information technology upgrades and replacements, and upgrades and replacements to non-IT systems worldwide. These expenditures, which include both internal and external costs, will provide benefits to the Company which include, but are not limited to, the achievement of year 2000 readiness. Of this amount approximately $14 million had been expended as of March 28, 1999. These expenditures will be capitalized or expensed in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which the Company has adopted. 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 effect on its financial position or results of operations. None of the Company's other information technology projects has been delayed due to the implementation of year 2000 solutions. RISKS OF THE YEAR 2000 ISSUE Like other companies, the Company relies on its customers for revenues, on its suppliers for raw materials and on its other vendors for products and services of all kinds. These third parties all face the year 2000 issue. An interruption in the ability of any of them to provide goods or services, or to pay for goods or services provided to them, or an interruption in the business operations of customers causing a decline in demand for the Company's products could have a material adverse effect on the Company. In particular, each of the Company's satellite PCC plants relies on one customer for most or all of its business, and in many cases for raw materials as well, so that a shutdown of a host paper mill's operation could also cause the satellite PCC plant to shut down. The Company believes that the most reasonably likely worst-case scenario caused by the transition to the year 2000 would involve interruption of its ability to obtain raw materials or to conduct manufacturing operations at multiple manufacturing sites simultaneously. CONTINGENCY PLAN Based upon the risks described above, the Company is currently engaged in preparing a contingency plan to mitigate the effects of an interruption of its ability to obtain raw materials or to conduct manufacturing operations at multiple manufacturing locations. The components of this plan are being generated by the individual sites, taking into consideration their particular conditions, such as customer relationships and the availability of alternate sources of supply. We expect that the Company's 12
contingency plan, which will be the aggregate of these individual plans, will be completed by the third quarter of 1999. The statements in this section regarding the effect of the year 2000 and the Company's responses to it are forward-looking statements. They are based on assumptions that the Company believes to be reasonable in light of its current knowledge and experience. A number of contingencies could cause actual results to differ materially from those described in forward-looking statements made by or on behalf of the Company. Please see "Cautionary Factors That May Affect Future Results" in Item 1 of the Company's Annual Report on Form 10-K for 1998. ADOPTION OF A COMMON EUROPEAN CURRENCY On January 1, 1999, eleven European countries adopted the euro as their common currency. From that date until January 1, 2002, debtors and creditors may choose to pay or be paid in euros or in the former national currencies. On and after January 1, 2002, the former national currencies will cease to be legal tender. 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 by 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk ----------- The Company is exposed to various market risks, including the potential loss arising from adverse changes in foreign currency exchange rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes. When appropriate, the Company enters into derivative financial instruments, such as forward exchange contracts, to mitigate the impact of foreign exchange rate movements on the Company's operating results. The counterparties are major financial institutions. Such forward exchange contracts would not subject the Company to additional risk from exchange rate movements because gains and losses on these contracts would offset losses and gains on the assets, liabilities and transactions being hedged. There were no open forward exchange contracts outstanding at March 28,1999 or March 29,1998. PART II. OTHER INFORMATION ITEM 1. 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 now 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 material pending legal proceedings, other than ordinary routine litigation incidental to their businesses. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 10.1- Company Retirement Annuity Plan, as amended and restated effective February 26, 1998 with certain earlier effective dates 10.2- Company Nonfunded Supplemental Retirement Plan, as amended January 28, 1999 10.3- Company Savings and Investment Plan, as amended and restated effective as of April 22, 1999, with certain earlier effective dates 10.4- Company Nonfunded Deferred Compensation and Supplemental Savings Plan, as amended January 28, 1999 10.5- Company Stock and Incentive Plan, as amended and restated as of January 28, 1999 10.6- Company Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors, as amended February 26, 1998 15- Accountants' Acknowledgment (Part I Data) 27.1- Financial Data Schedule for the three months ended March 28, 1999 b) No reports on Form 8-K were filed during the first quarter of 1999. 14
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Minerals Technologies Inc. By: /s/ Neil M. Bardach ------------------------------ Neil M. Bardach Vice President-Finance and Chief Financial Officer; Treasurer (principal financial officer) May 7, 1999 15