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UNITED STATES [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) For the quarterly period ended July 1, 2007 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) Commission File Number 1-3295 -- MINERALS TECHNOLOGIES INC. 25-1190717 (I.R.S. Employer 405 Lexington Avenue, New York, New York 10174-0002 (212) 878-1800 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 Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act. (Check one): Large accelerated filer [ X ] Accelerated filer [ ] Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). YES 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 July 23, 2007 MINERALS TECHNOLOGIES INC. INDEX TO FORM 10-Q Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements: 3 4 5 6 14 15 22 22 23 24 24 25 25 26 PART 1. FINANCIAL INFORMATION ITEM 1. Financial Statements MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES Three months Ended Six Months Ended July 1, July 2, July 1, July 2, $ 279,475 $ 266,356 $ 553,016 $ 531,058 220,837 210,303 439,463 421,276 58,638 56,053 113,553 109,782 27,010 27,234 54,353 54,902 7,365 7,861 15,053 15,080 24,263 20,958 44,147 39,800 1,750 1,597 4,346 886 22,513 19,361 39,801 38,914 7,316 5,867 12,935 11,788 823 873 1,671 1,774 14,374 12,621 25,195 25,352 -- (51 -- 30 $ 14,374 $ 12,570 $ 25,195 $ 25,382 $ 0.75 $ 0.64 $ 1.32 $ 1.28 -- -- -- -- $ 0.75 $ 0.64 $ 1.32 $ 1.28 $ 0.74 $ 0.63 $ 1.30 $ 1.27 -- -- -- -- $ 0.74 $ 0.63 $ 1.30 $ 1.27 $ 0.05 $ 0.05 $ 0.10 $ 0.10 19,202 19,836 19,133 19,892 19,457 19,994 19,358 20,039 See accompanying Notes to Condensed Consolidated Financial
Statements. 3 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES ASSETS July 1, December 31, $ 86,064 $ 67,929 9,866 8,380 196,884 188,784 125,794 129,894 19,096 16,775 437,704 411,762 644,414 652,797 72,811 68,977 35,455 25,717 38,994 33,871 $ 1,229,378 $ 1,193,124 LIABILITIES AND SHAREHOLDERS' EQUITY $ 52,443 $ 87,644 8,458 2,063 59,397 60,963 56,683 61,393 176,981 212,063 112,201 113,351 135,638 115,153 424,820 440,567 2,841 2,810 285,950 269,101 892,736 867,512 (4,060 (21,248 1,177,467 1,118,175 (372,909 (365,618 804,558 752,557 $ 1,229,378 $ 1,193,124 * Unaudited See accompanying Notes to Condensed Consolidated Financial Statements. 4 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES Six Months Ended July 1, July 2, $ 25,195 $ 25,382 -- 30 25,195 25,352 45,180 41,067 1,830 363 4,278 5,401 (4,188 (2,259 72,295 69,924 -- 513 72,295 70,437 (26,774 (51,800 8,527 2,350 (9,840 (8,135 -- 2,398 -- 330 (28,087 (54,857 7,741 -- (2,509 (2,329 (35,450 (302 (7,291 (19,796 11,922 2,180 560 144 (1,914 (1,986 -- 4,500 (26,941 (17,589 868 1,679 18,135 (330 67,929 51,100 $ 86,064 $ 50,770 $ 4,992 $ 3,693 $ 9,283 $ 12,354 $ -- $ 1,782 See accompanying Notes to Condensed Consolidated Financial
Statements. 5 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES 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 U.S. 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, 2006. In the opinion of management, all adjustments, consisting
solely of normal recurring adjustments necessary for a fair presentation of the
financial information for the periods indicated, have been included. The results
for the three-month and six-month periods ended July 1, 2007 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2007. Note 2. Summary of Significant Accounting Policies Use of Estimates The Company employs accounting policies that are in
accordance with U.S. generally accepted accounting principles and require
management to make estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenue and expenses during the reported period. Significant estimates include
those related to revenue recognition, allowance for doubtful accounts, valuation
of inventories, valuation of long-lived assets, goodwill and other intangible
assets, pension plan assumptions, income tax, valuation allowances, and
litigation and environmental liabilities. Actual results could differ from those
estimates. Income Taxes The Company accounts for uncertain tax positions in
accordance with FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes" ("FIN 48"), an interpretation of FASB Statement No. 109 ("SFAS
109"). The application of income tax law is inherently complex. Laws and
regulations in this area are voluminous and are often ambiguous. As such, we are
required to make many subjective assumptions and judgements regarding our income
tax exposures. Interpretations of and guidance surrounding income tax laws and
regulations change over time. As such, changes in our subjective assumptions and
judgements can materially affect amounts recognized in the consolidated balance
sheets and statements of income. See Note 5 to the condensed consolidated
financial statements, "Income Taxes," for additional detail on our uncertain tax
positions. Note 3. 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: Three months Ended Six Months Ended July 1, July 2, July 1, July 2, $ 14,374 $ 12,621 $ 25,195 $ 25,352 -- (51 -- 30 $ 14,374 $ 12,570 $ 25,195 $ 25,382 19,202 19,836 19,133 19,892 $ 0.75 $ 0.64 $ 1.32 $ 1.28 -- -- -- -- $ 0.75 $ 0.64 $ 1.32 $ 1.28 6 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES Three months Ended Six Months Ended July 1, July 2, July 1, July 2, $ 14,374 $ 12,621 $ 25,195 $ 25,352 -- (51 -- 30 $ 14,374 $ 12,570 $ 25,195 $ 25,382 19,202 19,836 19,133 19,892 255 158 225 147 19,457 19,994 19,358 20,039 $ 0.74 $ 0.63 $ 1.30 $ 1.27 -- -- -- -- $ 0.74 $ 0.63 $ 1.30 $ 1.27 The weighted average diluted common shares outstanding for the six
months ended July 1, 2007 and July 2, 2006 excludes the dilutive effect of
203,567 options and 70,500 options, respectively, as such options had an
exercise price in excess of the average market value of the Company's common
stock during such period. The weighted average diluted common shares outstanding for the six
months ended July 1, 2007 and July 2, 2006 include the dilutive effect of
average unearned compensation as required under SFAS No. 123R. Note 4. Discontinued Operations In April 2006, the Company ceased operation at its
one-unit satellite PCC facility in Hadera, Israel. In the fourth quarter of
2006, the Company liquidated its wholly-owned subsidiary and classified such
business as a discontinued operation. The following table details selected financial
information for the business included within discontinued operations in the
consolidated statements of income: Three months Ended Six Months Ended July 1, July 2, July 1, July 2, $ -- $ 130 $ -- $ 1,468 -- (100 -- 22 $ -- $ (51 $ -- $ 30 Note 5. Income Taxes Effective January 1, 2007, the Company adopted the provisions of FASB
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes."
FIN 48 specifies the way companies are to account for uncertainty in income tax
reporting and prescribes a recognition threshold and measurement attribute for
tax positions taken or expected to be taken in a tax return. As a result of the
adoption of FIN 48, the Company recognized a $1.9 million decrease in the
liability for unrecognized income tax benefits, resulting in an increase to the
January 1, 2007 balance of retained earnings. The following is a reconciliation of opening retained earnings: Ending retained earnings, December 31, 2006 $ 867,512 Adoption of FIN 48 $ 1,943 Opening retained earnings, January 1, 2007 $ 869,455 7 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES As of the date of adoption of FIN 48, the Company had approximately $11.3
million of total unrecognized income tax benefits. Included in this amount were
a total of $5.2 million of unrecognized income tax benefits that if recognized
would affect the Company's effective tax rate. While it is expected that the
amount of unrecognized tax benefits will change in the next 12 months, we do not
expect the change to have a significant impact on the results of operations or
the financial position of the Company. The Company's accounting policy prior to the adoption of FIN 48 and upon
the adoption of FIN 48 was to recognize interest and penalties accrued, relating
to unrecognized income tax benefits as part of its provision for income taxes.
The Company had approximately $2.3 million of interest and penalties accrued as
of January 1, 2007 and approximately $2.6 million accrued as of July 1, 2007.
The Company operates in multiple taxing jurisdictions, both within and
outside the U.S. In certain situations, a taxing authority may challenge
positions that the Company has adopted in its income tax filings. The Company,
with a few exceptions (none of which are material), is no longer subject to U.S.
federal, state, local, and European income tax examinations by tax authorities
for years prior to 2003. Note 6. Inventories The following is a summary of inventories by major
category: (thousands of dollars) July 1, December 31, Raw materials $ 57,066 $ 60,013 Work-in-process 9,554 8,321 Finished goods 35,242 38,911 Packaging and supplies 23,932 22,649 Total inventories $ 125,794 $ 129,894 Note 7. Goodwill and Other Intangible Assets The Company accounts for goodwill and other intangible
assets in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets."
Under SFAS No. 142, goodwill and other intangible assets with indefinite lives
are not amortized, but instead are tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. The carrying amount of goodwill was $72.8 million and
$69.0 million as of July 1, 2007 and December 31, 2006, respectively. The net
change in goodwill since January 1, 2007 was primarily due to the effect of
foreign exchange. Acquired intangible assets subject to amortization as of
July 1, 2007 and December 31, 2006 were as follows: July 1, 2007 December 31, 2006 (millions of dollars) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Patents and trademarks $ 7.4 $ 2.1 $ 7.2 $ 1.8 Customer lists 11.2 1.3 10.0 0.8 Other 0.5 -- 0.3 -- $ 19.1 $ 3.4 $ 17.5 $ 2.6 The weighted average amortization period for acquired
intangible assets subject to amortization is approximately 15 years. Estimated
amortization expense is $1.2 million for each of the next five years through
2011. Included in other assets and deferred charges is an
intangible asset of approximately $6.4 million which represents the non-current
unamortized amount paid to a customer in connection with contract extensions at
eight PCC satellite facilities. In addition, a current portion of $1.8 million
is included in prepaid expenses and other 8 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES current assets. Such amounts will be amortized as a
reduction of sales over the remaining lives of the customer contracts.
Approximately $0.5 million was amortized in the second quarter of 2007.
Estimated amortization as a reduction of sales is as follows: remainder of 2007
- - $0.9 million; 2008 - $1.8 million; 2009 - $1.5 million; 2010 - $1.2 million;
2011 - $0.9 million; with smaller reductions thereafter over the remaining lives
of the contracts. Note 8. Accounting for Impairment of Long-Lived Assets The Company accounts for impairment of long-lived assets
in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 establishes a uniform accounting model for
long-lived assets to be disposed of. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, the Company estimates the undiscounted future cash flows (excluding
interest), resulting from the use of the asset and its ultimate disposition. If
the sum of the undiscounted cash flows (excluding interest) is less than the
carrying value, the Company recognizes an impairment loss, measured as the
amount by which the carrying value exceeds the fair value of the asset,
determined principally using discounted cash flows. There were no charges for
impairment during the first half of 2007. Note 9. Long-Term Debt and Commitments The following is a summary of long-term debt: (thousands of
dollars) July 1, Dec. 31, 50,000 $ 50,000 25,000 25,000 -- 605 4,000 4,000 4,600 4,600 8,000 8,000 8,200 8,200 5,000 5,000 6,950 -- 7,886 8,812 1,023 1,197 120,659 115,414 8,458 2,063 112,201 $113,351 As of July 1, 2007, the Company had $186.5 million of
uncommitted short-term bank credit lines, of which approximately $53 million was
in use. During the first quarter of 2007, the Company entered
into a series of Renminbi ("RMB") denominated loan agreements through two of its
consolidated joint ventures in China with Communication Bank of China, totaling
RMB 60,000,000. During the second quarter, the Company repaid RMB 6,000,000 of
principal related to these loans. The assets of the PCC facilities operated by
these consolidated joint ventures were pledged as collateral for RMB 43,000,000
of the loans. The loan agreements bear a variable interest rate based on the
People's Bank of China 9 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES base rate, and mature between January 29, 2009 and
March 26, 2009. The interest rate on these loans during the first half of 2007
was approximately 6.65%. Note 10. Pension Plans The Company and its subsidiaries have pension plans
covering substantially all eligible employees on a contributory or
non-contributory basis. Components of Net Periodic Benefit Cost The Company and its subsidiaries have pension plans
covering substantially all eligible employees on a contributory or
non-contributory basis. Components of Net Periodic Benefit Cost Pension Benefits Three Months Ended Six Months Ended July 1, 2007 July 2, July 1, 2007 July 2, $ 2.2 $ 2.0 $ 4.6 $ 4.1 2.8 2.4 6.0 5.0 (4.5 (3.7 (9.5 (7.8 0.7 0.1 1.1 0.4 0.8 0.9 1.7 1.7 $ 2.0 $ 1.7 $ 3.9 $ 3.4 Other Benefits Three Months Ended Six Months Ended July 1, 2007 July 2, July 1, 2007 July 2, $ 0.7 $ 0.5 $ 1.4 $ 0.9 0.6 0.5 1.2 1.0 0.1 -- 0.3 -- 0.3 0.2 0.5 0.5 $ 1.7 $ 1.2 $ 3.4 $ 2.4 * Current year amortization amounts are recorded as
increases to accumulated other comprehensive income, totaling $2.1 million, net
of tax, in accordance with the provisions of SFAS No. 158. Employer Contributions The Company expects to contribute $15 million to its
pension plan and $2 million to its other post retirement benefit plans in 2007.
As of July 1, 2007, $11.1 million has been contributed to the pension plans and
approximately $0.8 million has been contributed to the post retirement benefit
plans. 10 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES Note 11. Comprehensive Income (Loss) The following are the components of comprehensive income
(loss): Three Months Ended Six Months Ended July 1, 2007 July 2, 2006 July 1, July 2, $ 14.4 $ 12.6 $ 25.2 $ 25.4 7.8 9.7 15.0 14.7 1.0 -- 2.1 -- -- -- (0.1 0.1 -- 0.1 0.1 -- $ 23.2 $ 22.4 $ 42.3 $ 40.2 The components of accumulated other comprehensive income
(loss) , net of related tax, are as follows: (millions of dollars) July 1, December 31, Foreign currency translation adjustments $ 48.2 $ 33.2 Unrecognized pension costs (52.2 (54.3 Net gain (loss) on cash flow hedges (0.1 (0.1 Accumulated other comprehensive income (loss) $ (4.1 $ (21.2 Note 12. Accounting for Asset Retirement Obligations SFAS No. 143, "Accounting for Asset Retirement
Obligations" establishes the financial accounting and reporting obligations
associated with the retirement of long-lived assets and the associated asset
retirement costs. The Company records asset retirement obligations in which the
Company will be required to retire tangible long-lived assets. These are
primarily related to its PCC satellite facilities and mining operations. The
Company has also adopted the provisions of FASB Interpretation No. 47,
"Accounting for Conditional Asset Retirement Obligations," related to
conditional asset retirement obligations at its facilities. The Company has
recorded asset retirement obligations at all of its facilities except where
there are no legal or contractual obligations. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset. The following is a reconciliation of asset retirement obligations as of
July 1, 2007: (thousands of dollars) Asset retirement liability, December 31, 2006 $ 11,650 Accretion expense 299 Payments made (22 Foreign currency translation 158 Asset retirement liability, July 1, 2007 $ 12,085 Approximately $0.2 million is included in other current
liabilities and $11.9 million is included in other non-current liabilities in
the Condensed Consolidated Balance Sheet as of July 1, 2007. Note 13. Transaction with Former Parent Company Under the terms of certain agreements entered into in
connection with the Company's initial public offering in 1992, Pfizer Inc
("Pfizer") agreed to indemnify the Company against any liability arising from
claims for remediation, as defined in the agreements, of on-site environmental
conditions relating to activities prior to the 11 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES closing of the initial public offering. The Company had
asserted to Pfizer a number of indemnification claims pursuant to those
agreements during the ten-year period following the closing of the initial
public offering. Since the initial public offering, the Company has incurred and
expensed approximately $6 million of environmental claims under these
agreements. On January 20, 2006, Pfizer and the Company agreed to settle those
claims, along with certain other potential environmental liabilities of Pfizer,
in consideration of a payment by Pfizer of $4.5 million. Such payment was
recorded as additional paid-in-capital, net of its related tax effect. Note 14. Non-Operating Income and Deductions Three Months Ended Six Months Ended (thousands of dollars) July 1, 2007 July 2, 2006 July 1, 2007 July 2, 2006 $ 609 $ 264 $ 1,093 $ 779 (2,585 ( 1,700 (5,139 ( 3,264 -- -- -- 1,822 225 83 (104 225 1 ( 244 (196 ( 448 $ (1,750 $ ( 1,597 $ (4,346 $ ( 886 During the first quarter of 2006, the Company recognized
an insurance settlement gain of $1.8 million, net of related deductible, for
property damage sustained at one of our facilities in 2004 as a result of
Hurricane Ivan. Claims submitted to the insurance carrier for damages related to
a combination of replacement costs for fixed assets and reimbursement of
expenses associated with the clean-up and repairs at the facility. The insurance
settlement gain related to the reimbursement of replacement costs for fixed
assets in excess of the net book value of such assets. Note 15. Segment and Related Information Segment information for the three and six-month periods
ended July 1, 2007 was as follows: Three Months Ended Six Months Ended (thousands of dollars) July 1, 2007 July 2, 2006 July 1, 2007 July 2, 2006 $ 188,853 $ 179,494 $ 372,873 $ 360,609 90,622 86,862 180,143 170,449 $ 279,475 $ 266,356 $ 553,016 $ 531,058 Three Months Ended Six Months Ended (thousands of dollars) July 1, 2007 July 2, 2006 July 1, 2007 July 2, 2006 $ 15,741 $ 13,341 $ 28,923 $ 25,463 8,522 7,617 15,224 14,337 $ 24,263 $ 20,958 $ 44,147 $ 39,800 12 MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES The carrying amount of goodwill by reportable segment as
of July 1, 2007 and December 31, 2006 was as follows: July 1, 2007 December 31, 2006 $ 16,786 $ 16,560 56,025 52,417 $ 72,811 $ 68,977 A reconciliation of the totals reported for the
operating segments to the applicable line items in the condensed consolidated
financial statements is as follows: Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, $ 24,263 $ 20,958 $ 44,147 $ 39,800 1,750 1,597 4,346 886 $ 22,513 $ 19,361 $ 39,801 $ 38,914 The Company's sales by product category are as follows: Sales by Product Category Three Months Ended Six Months Ended July 1, July 2, July 1, July 2, $ 133.9 $ 123.6 $ 267.6 $ 250.4 15.6 14.1 30.5 29.2 15.4 16.1 30.2 30.9 22.6 23.5 41.8 45.6 1.4 2.2 2.8 4.5 73.1 66.1 144.7 127.2 17.5 20.8 35.4 43.3 $ 279.5 $ 266.4 $ 553.0 $ 531.1 13 REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders We have reviewed the condensed consolidated balance
sheet of Minerals Technologies Inc. and subsidiary companies as of July 1, 2007
and the related condensed consolidated statements of income for the three-month
and six-month periods ended July 1, 2007 and July 2, 2006, and the related
condensed consolidated statements of cash flows for the six-month periods ended
July 1, 2007 and July 2, 2006. These condensed consolidated financial statements
are the responsibility of the company's management. We conducted our review in accordance with the standards
of the Public Company Accounting Oversight Board (United States). 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 the standards of the Public Company
Accounting Oversight Board (United States), 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 U.S. generally
accepted accounting principles. We have previously audited, in accordance with standards
of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Minerals Technologies Inc. and subsidiary
companies as of December 31, 2006, 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 February 27, 2007, 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, 2006 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived. As discussed in the Notes to Condensed Consolidated
Financial Statements, effective January 1, 2007, the Company adopted FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." KPMG LLP New York, New York 14 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 Six Months Ended July 1, July 2, July 1, July 2, Net sales 100.0 100.0 100.0 100.0 Cost of goods sold 79.0 79.0 79.5 79.3 Marketing and administrative expenses 9.7 10.2 9.8 10.4 Research and development expenses 2.6 2.9 2.7 2.8 Income from operations 8.7 7.9 8.0 7.5 Net income 5.1 4.7 4.6 4.8 Executive Summary Consolidated sales for the second quarter of 2007
increased 5% over the prior year to $279.5 million from $266.4 million. Foreign
exchange had a favorable impact on sales of approximately $6.1 million, or 2
percentage points of growth. Income from operations increased 16% to $24.3
million from $21.0 million in the prior year. Net income increased 14% to $14.4
million from $12.6 million in the prior year. Despite this growth, our profitability in 2007 continues
to be affected negatively by three major, long-term business development
initiatives - the SYNSIL®product line; the European PCC
merchant coating program; and the refractory manufacturing facility in China. The commercial introduction of the SYNSIL®
product line has been more difficult and is taking longer than
anticipated. Although volumes have improved from the prior year
from our coating development program in Europe, these volumes remain
below our expectations. Our refractory manufacturing facility in China began
operation in the third quarter of 2006, and is operating well below
capacity. We are currently assessing all aspects of our business through an
in-depth strategic review. We expect to complete this process before the end of
the year to determine the Company's direction, structure, business portfolios
and technologies for the future in order to improve our financial performance. We face some significant risks and challenges in the
future: Our success depends in part on the performance of the
industries we serve, particularly papermaking and steel making. Some of our
customers may continue to experience consolidations and shutdowns; Consolidations in the paper and steel industries
concentrate purchasing power in the hands of fewer customers, increasing
pricing pressure on suppliers such as Minerals Technologies Inc.; Most of our Paper PCC sales are subject to long-term
contracts that may be terminated pursuant to their terms, or may be renewed
on terms less favorable to us; Our filler-fiber composite technology continues in
development through customer trials, but has yet to be proven on a long-term
commercial scale. We are subject to cost fluctuations on raw materials,
including shipping costs, particularly for magnesia and talc imported from
China; The coating development program in Europe continues to
operate at a significant loss despite improvement in volumes over the prior
year. Although the SYNSIL® Products family
has received favorable reactions from current and potential customers, this
product line is not yet profitable. To date, the introduction of SYNSIL®
technology to customers has progressed more slowly than anticipated,
resulting in overcapacity at our facilities. The commercial viability of
this product line cannot be assured;• The cost of employee benefits, particularly health
coverage, has risen significantly in recent years and continues to do so;
and 15 As we expand our operations abroad we face the inherent
risks of doing business in many foreign countries, including foreign
exchange risk, import and export restrictions, and security concerns. Despite these risks and challenges, we believe there are opportunities
for continued growth open to us, including: Increasing our sales of PCC for paper by further
penetration of the markets for paper filling at both freesheet and
groundwood mills; Increasing our sales of PCC for paper coating,
particularly from our merchant coating PCC facilities in Walsum, Germany and
Hermalle, Belgium; Achieving commercialization of a filler-fiber composite
technology for the paper industry through our continued research and
development activities; Developing new satellite PCC opportunities; Achieving market acceptance of the SYNSIL®
Products family of composite minerals for the glass industry; Continuing our penetration in emerging markets through
our new manufacturing facility in China and our recent acquisition in
Turkey, both within the Refractories segment; and Further increasing market penetration in the Refractories
segment through development of high-performance products and equipment
systems. However, there can be no assurance that we will achieve
success in implementing any one or more of these opportunities. Results of Operations Sales Second Quarter % of Total Growth Second Quarter 2006 % of Total Sales Net Sales $ 156.8 56.1 (2) $ 160.1 60.1 122.7 43.9 15 106.3 39.9 $ 279.5 100.0 5 $ 266.4 100.0 $ 133.9 47.9 8 $ 123.6 46.4 15.6 5.6 11 14.1 5.3 $ 149.5 53.5 9 $ 137.7 51.7 $ 15.4 5.5 (4) $ 16.1 6.1 22.6 8.1 (4) 23.5 8.8 1.4 0.5 (36) 2.2 0.8 $ 39.4 14.1 (6) $ 41.8 15.7 $ 188.9 67.6 5 $ 179.5 67.4 $ 73.1 26.2 11 $ 66.1 24.8 17.5 6.2 (16) 20.8 7.8 $ 90.6 32.4 4 $ 86.9 32.6 $ 279.5 100.0 5 $ 266.4 100.0 Worldwide net sales in the second quarter of 2007
increased 5% from the previous year to $279.5 million. Foreign exchange had a
favorable impact on sales of approximately $6.1 million, or 2 percentage points
of growth. Sales in the Specialty Minerals segment, which includes the PCC and
Processed Minerals product lines, increased 5% to $188.9 million compared with
$179.5 million for the same period in 2006. Sales in the Refractories segment
grew 4% over the previous year to $90.6 million from $86.9 million in the prior
year. Worldwide net sales of PCC, which is primarily used in
the manufacturing process of the paper industry, increased 9% in the
second quarter to $149.5 million from $137.7 million in the prior year. Paper
PCC sales grew 8% to $133.9 million in the second quarter of 2007 from $123.6
million in the prior year due to increased selling 16 prices primarily from the pass-through to our customers of
raw material cost increases, and foreign currency. Total Paper PCC volumes
declined slightly due to weakness in the North American market. Sales of
Specialty PCC increased 11% to $15.6 million from $14.1 million. This was
primarily driven by increased volumes at our facility in the United Kingdom. Net sales of Processed Minerals products decreased 6% in
the second quarter to $39.4 million from $41.8 million in the prior year. Talc
sales decreased 4% to $15.4 million from $16.1 million. GCC products also
decreased 4% to $22.6 million from $23.5 million in the prior year. The
Processed Minerals product line continues to be affected by weakness in the
residential construction markets, as well as the automotive market. SYNSIL®
products sales decreased 36% to $1.4 million from $2.2 million in the
prior year. This decline was due to a reduction in demand from our sampling
facility in Ohio and reduced volumes at our facility in Chester, South Carolina. Net sales in the Refractories segment in the second
quarter of 2007 increased 4% to $90.6 million from $86.9 million in the prior
year. Sales of refractory products and systems to steel and other industrial
applications increased 11% to $73.1 million from $66.1 million in the prior
year. This increase was attributable to the incremental sales from the recent
acquisition in Turkey and to foreign currency. Sales of metallurgical products
within the Refractories segment decreased 16% to $17.5 million as compared with
$20.8 million in the same period last year. The decline in sales was primarily
attributable to lower volumes in North America and Latin America, and to lower
prices as a result of a reduction in the cost of raw materials for this product
line that is passed through to the customers. Net sales in the United States declined 2% to $156.8
million in the second quarter of 2007. International sales in the second quarter
of 2007 increased 15% to $122.7 million, of which foreign currency and the
recent acquisition in Turkey represented 11 percentage points of such growth.
(millions of dollars) Second Second Quarter Growth $ 220.8 $ 210.3 5 $ 27.0 $ 27.2 (1) $ 7.4 $ 7.9 (6) Consolidated cost of goods sold was 79.0% of sales, the
same percentage as in the prior year. In the Specialty Minerals segment,
production margins increased 4% as compared with 5% sales growth. This segment
has been affected by weakness in the Processed Minerals product line, paper
machine and paper mill shutdowns and production losses in our SYNSIL®
product lines, partially offset by the recovery of raw materials and
the benefit of foreign currency. In the Refractories segment, production margins
increased 5%, as compared with 4% sales growth. Marketing and administrative costs decreased 1% in the
second quarter to $27.0 million and represented 9.7% of net sales as compared
with 10.2% of net sales in the prior year. The reduction in marketing and
administrative expenses was primarily attributable to an expense control program
introduced in the first quarter and was achieved despite increased expenses
associated with our acquisition in Turkey, and the impact of foreign currency. Research and development expenses decreased 6% to $7.4
million and represented 2.6% of net sales, compared to 2.9% in the prior year.
This decrease was a result of lower trial activity primarily in the Paper PCC
product line.
(millions of dollars) Second Second Quarter Growth $ 24.3 $ 21.0 16 Income from operations in the second quarter of 2007
increased 16% to $24.3 million from $21.0 million in the prior year. Income from
operations represented 8.7% of net sales in the second quarter of 2007 compared
with 7.9% of net sales in the prior year. Income from operations for the Specialty Minerals
segment increased 18% to $15.7 million and was 8.3% of its net sales as compared
with 7.4% of its net sales in the prior year. Operating income for this segment
was impacted 17 by the aforementioned factors affecting production margin,
and by lower expense levels than in the prior year. Operating income for the
Refractories segment increased 12% to $8.5 million and was 9.4% of its net sales
as compared with 8.8% of its net sales in 2006. The Refractories segment
experienced improved operating income margins in the second quarter due to a
more favorable product mix in the refractory products and systems product line
partially offset by weakness in metallurgical products.
(millions of dollars) Second Second Quarter Growth $ 1.8 $ 1.6 13 The increase in non-operating deductions was due
primarily to increased net interest expense as a result of higher debt levels. (millions of dollars) Second Second Quarter Growth $ 7.3 $ 5.9 24 The effective tax rate increased to 32.5% in the second
quarter of 2007 from 30.3% in the prior year due to a change in the mix of
earnings.
(millions of dollars) Second Quarter Second Quarter Growth $ 14.4 $ 12.6 14 Net income increased 14% in the second quarter of 2007 to $14.4 million.
Earnings per common share, on a diluted basis were $0.74 in the second quarter
of 2007, as compared with $0.63 in the same period last year. Six months ended July 1, 2007 as compared with six months ended July 2, 2006 First Half % of Total Growth First Half 2006 % of Total Sales Net Sales $ 309.6 56.0 (4) $ 321.9 60.6 243.4 44.0 16 209.2 39.4 $ 553.0 100.0 4 $ 531.1 100.0 $ 267.6 48.4 7 $ 250.4 47.1 30.5 5.5 4 29.2 5.5 $ 298.1 53.9 7 $ 279.6 52.6 $ 30.2 5.5 (2) $ 30.9 5.8 41.8 7.6 (8) 45.6 8.6 2.8 0.5 (38) 4.5 0.9 $ 74.8 13.5 (8) $ 81.0 15.3 $ 372.9 67.4 3 $ 360.6 67.9 $ 144.7 26.2 14 $ 127.2 23.9 35.4 6.4 (18) 43.3 8.2 $ 180.1 32.6 6 $ 170.5 32.1 $ 553.0 100.0 4 $ 531.1 100.0 18 Worldwide net sales in the first half of 2007 increased
4% from the previous year to $553.0 million. Foreign exchange had a favorable
impact on sales of approximately $11.5 million or 2 percentage points of growth.
Sales in the Specialty Minerals segment, which includes the PCC and Processed
Minerals product lines, increased 3% to $372.9 million compared with $360.6
million for the same period in 2006. This growth was due to a combination of
higher prices passed through to customers and foreign exchange. Sales in the
Refractories segment grew 6% over the previous year to $180.1 million from
$170.5 million. Worldwide net sales of PCC, which is primarily used in
the manufacturing process of the paper industry, increased 7% in the
first half to $298.1 million from $279.6 million in the prior year. Foreign
exchange had a favorable impact on sales of approximately 3 percentage points of
growth. Paper PCC sales grew 7% to $267.6 million in the first half of 2007 from
$250.4 million in the prior year. This growth was primarily attributable to
higher selling prices passed through to customers from raw material cost
increases and foreign currency which more than offset weakness in the North
American paper market. Sales of Specialty PCC grew 5% to $30.5 million from
$29.2 million in 2006. Net sales of Processed Minerals products decreased 8% in
the first half of 2007 to $74.8 million from $81.0 million in the first half of
2006. Talc sales decreased 2% to $30.2 million from $30.9 million in the prior
year. GCC products decreased 8% to $41.8 million from $45.6 million in the prior
year. This decrease was attributable primarily to the continued weakness in the
residential and construction markets and the automotive market. SYNSIL®
products sales decreased 38% in the first half of 2007 to $2.8 million
from $4.5 million in the previous year. This decline was primarily attributable
to a reduction in commercial demand from the Company's sampling facility in
Ohio. In addition, sales from the Company's two commercial facilities remain
below expectations. Net sales in the Refractories segment in the first half
of 2007 increased 6% to $180.1 million from $170.5 million in the prior year.
Foreign currency had a favorable impact on sales of approximately $3.9 million
or 2 percentage points of growth. Sales of refractory products and systems to
steel and other industrial applications increased 14 percent to $144.7 million
from $127.2 million. This increase was primarily attributable to sales from our
acquisition in Turkey and to foreign currency. Sales of metallurgical products
within the Refractories segment decreased 18 percent to $35.4 million as
compared with $43.3 million in the same period last year. This decrease was due
to lower volumes in all regions of the world, and lower prices resulting from
the reduction in the cost of raw materials for this product that is
traditionally passed through to the customers. Net sales in the United States declined 4% to $309.6
million in the first half of 2007. International sales in the first half of 2007
increased 16% to $243.4 million, due primarily to the recent acquisition and
foreign currency. (millions of dollars) First Half First Half Growth $ 439.5 $ 421.3 4 $ 54.4 $ 54.9 (1) $ 15.1 $ 15.1 -- Cost of goods sold was 79.5% of sales compared with
79.3% of sales in the prior year. In the Specialty Minerals segment, production
margin increased 2% as compared with 3% sales growth. This segment has been
affected by weakness in the Processed Minerals product line, paper machine and
paper mill shutdowns, and production losses in our SYNSIL®
product lines, partially offset by the recovery of raw materials and the benefit
of foreign currency. In the Refractories segment, production margin increased 6%
as compared with the 6% sales growth. Marketing and administrative costs decreased 1% in the
first half to $54.4 million and represented 9.8% of net sales, as compared with
10.3% of net sales in the prior year. The reduction in marketing and
administrative expenses was primarily attributable to a reduction in the
provision for bad debt expenses and to an expense control program initiated in
the first quarter and was achieved despite increased expenses associated with
our acquisition in Turkey, and the impact of foreign currency. Research and development expenses were $15.1 million,
the same as the prior year, and represented 2.7% of net sales as compared with
2.8% of net sales in the prior year. 19
(millions of dollars) First Half First Growth $ 44.1 $ 39.8 11 Income from operations in the first half of 2007
increased 11% to $44.1 million from $39.8 million in the first half of 2006.
Income from operations represented 8.0% of net sales in the first half of 2007
compared with 7.5% in the prior year. Income from operations for the Specialty Minerals
segment increased 13% to $28.9 million from $25.5 million in the prior year, and
was 7.8% of its net sales as compared with 7.1% of its net sales in the prior
year. Operating income for the Refractories segment increased 6% to $15.2
million and was 8.5% of its net sales as compared with 8.4% of its net sales in
2006.
(millions of dollars) First Half First Half Growth $ 4.3 $ 0.9 * *
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
OF THE SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
Identification No.)
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code)
NO _____
NO X
Common Stock, $0.10 par value
19,275,894
Condensed Consolidated
Statements of Income for the three-month and six-month periods ended July
1, 2007 and July 2, 2006 (Unaudited)
Condensed
Consolidated Balance Sheets as of July 1, 2007 (Unaudited)
and December 31, 2006
Condensed Consolidated
Statements of Cash Flows for the six-month periods ended July 1, 2007 and
July 2, 2006 (Unaudited)
Notes to Condensed
Consolidated Financial Statements (Unaudited)
Review Report of
Independent Registered Public Accounting Firm
Item 2.
Management's
Discussion and Analysis of Financial Condition and
Results of Operations
Item 3.
Quantitative and
Qualitative Disclosures about Market Risk
Item 4.
Controls and
Procedures
PART II. OTHER
INFORMATION
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Changes in
Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Item 4.
Submission of
Matters to a Vote of Security Holders
Item 6.
Exhibits
Signature
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in
thousands, except per share data)
2007
2006
2007
2006
Net sales
Cost of goods
sold
Production
margin
Marketing and
administrative expenses
Research and
development expenses
Income from
operations
Non-operating
income (deductions), net
Income before
provision for taxes
on income and
minority interests
Provision for
taxes on income
Minority
interests
Income from
continuing operations
Income (loss)
from discontinued operations, net of tax
)
Net income
Earnings per
share:
Basic:
Income from
continuing operations
Income from
discontinued operations
Basic earnings per share
Diluted:
Income from
continuing operations
Income from
discontinued operations
Diluted earnings per share
Cash dividends
declared per common share
Shares used
in computation of earnings per share:
Basic
Diluted
CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands
of dollars)
2007*
2006**
Current assets:
Cash and cash
equivalents
Short-term
investments, at cost which approximates market
Accounts
receivables, net
Inventories
Prepaid
expenses and other current assets
Total current assets
Property, plant
and equipment, less accumulated depreciation and depletion - July 1, 2007
- $875,131; December 31, 2006 - $826,125
Goodwill
Prepaid pension
costs
Other assets
and deferred charges
Total assets
Current
liabilities:
Short-term debt
Current
maturities of long-term debt
Accounts
payable
Other current
liabilities
Total current liabilities
Long-term debt
Other
non-current liabilities
Total liabilities
Shareholders'
equity:
Common stock
Additional
paid-in capital
Retained
earnings
Accumulated
other comprehensive income (loss)
)
)
Less treasury
stock
)
)
Total shareholders' equity
Total liabilities and
shareholders' equity
** Condensed from audited financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands
of dollars)
2007
2006
Operating
Activities:
Net income
Income from
discontinued operations
Income from
continuing operations
Adjustments to
reconcile net income to net cash
provided by
operating activities:
Depreciation,
depletion and amortization
Tax benefits
related to stock incentive programs
Other non-cash
items
Net changes in
operating activities
)
)
Net cash provided
by continuing operations
Net cash provided
by discontinued operations
Net cash provided
by operating activities
Investing
Activities:
Purchases of
property, plant and equipment
)
)
Proceeds from sale
of short-term investments
Purchases of
short-term investments
)
)
Proceeds from
settlement of insurance claim
Other
Net cash used in
investing activities
)
)
Financing
Activities:
Proceeds from
issuance of long-term debt
Repayment of
long-term debt
)
)
Net
proceeds/(repayment) of short-term debt
)
)
Purchase of common
shares for treasury
)
)
Proceeds from
issuance of stock under option plan
Excess tax
benefits related to stock incentive programs
Cash dividends
paid
)
)
Indemnification
proceeds from former parent company
Net cash used in
financing activities
)
)
Effect of exchange
rate changes on cash and
cash equivalents
Net increase
(decrease) in cash and cash equivalents
)
Cash and cash
equivalents at beginning of period
Cash and cash
equivalents at end of period
Supplemental
disclosure of cash flow information:
Interest paid
Income taxes paid
Non-cash
Financing Activities:
Tax liability on
indemnification proceeds
from former parent
company
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basic EPS
(in thousands, except per share data)
2007
2006
2007
2006
Income from
continuing operations
Income (loss)
from discontinued operations
)
Net income
Weighted average
shares outstanding
Basic earnings
per share from continuing operations
Basic earnings
per share from discontinued operations
Basic earnings per share
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Diluted EPS
(in thousands, except per share data)
2007
2006
2007
2006
Income from
continuing operations
Income (loss)
from discontinued operations
)
Net income
Weighted average
shares outstanding
Dilutive effect
of stock options and stock units
Weighted average shares
outstanding, adjusted
Diluted earnings
per share from continuing operations
Diluted earnings
per share from discontinued operations
Diluted earnings per share
Thousands of
Dollars
2007
2006
2007
2006
Net sales
Income from
operations
)
Income (loss) from
discontinued operations, net of tax
)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2007
2006
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2007
2006
5.53% Series
2006A Senior Notes
Due October 5,
2013
Floating Rate
Series 2006A Senior Notes
Due October 5,
2013
Yen-denominated
Guaranteed Credit Agreement
Due March 31,
2007
Variable/Fixed
Rate Industrial
Development
Revenue Bonds Due 2009
Economic
Development Authority Refunding
Revenue Bonds
Series 1999 Due 2010
Variable/Fixed
Rate Industrial
Development
Revenue Bonds Due August 1, 2012
Variable/Fixed
Rate Industrial
Development
Revenue Bonds Series 1999 Due November 1, 2014
Variable/Fixed
Rate Industrial
Development
Revenue Bonds Due March 31, 2020
Variable Rate
Renminbi Denominated
Loan Agreement
Due 2009
Installment
obligations
Other borrowings
Total
Less: Current
maturities
Long-term debt
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(millions of
dollars)
2006
2006
Service cost
Interest cost
Expected return
on plan assets
)
)
)
)
Amortization*:
Prior service
cost
Recognized net
actuarial loss
Net periodic benefit cost
(millions of
dollars)
2006
2006
Service cost
Interest cost
Amortization*:
Prior service
cost
Recognized net
actuarial loss
Net periodic benefit cost
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(millions of
dollars)
2007
2006
Net income
Other
comprehensive income (loss), net of tax:
Foreign currency
translation adjustments
Pension plan
adjustments
Cash flow hedges:
Net derivative gains (losses)
arising during the period
)
Reclassification adjustment
Comprehensive
income (loss)
2007
2006
)
)
)
)
)
)
)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Interest income
Interest expense
)
)
)
)
Gain on insurance settlement
Foreign exchange gains
(losses)
)
Other deductions
)
)
)
Non-operating
deductions, net
)
)
)
)
Net Sales
Specialty
Minerals
Refractories
Total
Income from Operations
Specialty
Minerals
Refractories
Total
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Goodwill
(thousands of
dollars)
Specialty Minerals
Refractories
Total
Income Before
Provision For Taxes on
Income and Minority
Interests
(thousands of dollars)
2007
2006
2007
2006
Income from
operations for reportable segments
Non-operating
deductions, net
Income before
provision for taxes on income
and minority
interests
(thousands of
dollars)
2007
2006
2007
2006
Paper PCC
Specialty PCC
Talc
Ground Calcium
Carbonate
SYNSIL®
Refractory
Products
Metallurgical
Products
Net Sales
Minerals Technologies Inc.:
July 31, 2007
2007
2006
2007
2006
%
%
%
%
%
%
%
%
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
(millions of dollars)
2007
Sales
U.S
%
%
%
International
%
%
%
Net sales
%
%
%
Paper PCC
%
%
%
Specialty PCC
%
%
%
PCC Products
%
%
%
Talc
%
%
%
Ground Calcium
Carbonate (GCC)
%
%
%
SYNSIL®
%
%
%
Processed Minerals Products
%
%
%
Specialty Minerals Segment
%
%
%
Refractory
Products
%
%
%
Metallurgical
Products
%
%
%
Refractories Segment
%
%
%
Net sales
%
%
%
Operating
Costs and Expenses
Quarter
2007
2006
Cost of goods sold
%
Marketing and administrative
%
Research and development
%
Income from Operations
Quarter
2007
2006
Income from operations
%
Non-Operating Deductions
Quarter
2007
2006
Non-operating deductions, net
%
Provision for
Taxes on Income
Quarter
2007
2006
Provision for taxes on income
%
Net Income
2007
2006
Net income
%
(millions of dollars)
2007
Sales
U.S
%
%
%
International
%
%
%
Net sales
%
%
%
Paper PCC
%
%
%
Specialty PCC
%
%
%
PCC Products
%
%
%
Talc
%
%
%
Ground Calcium
Carbonate
%
%
%
SYNSIL®
%
%
Processed Minerals Products
%
%
%
Specialty Minerals Segment
%
%
%
Refractory
Products
%
%
%
Metallurgical
Products
%
%
%
Refractories Segment
%
%
%
Net Sales
%
%
%
Operating
Costs and Expenses
2007
2006
Cost of goods sold
%
Marketing and administrative
%
Research and development
%
Income from Operations
2007
Half
2006
Income from operations
%
Non-Operating Deductions
2007
2006
Non-operating deductions, net
%
Non-operating deductions increased over the prior year due to an increase in net interest cost of approximately $1.5 million due to increased borrowings. In addition, in the first half of 2006 we recognized an insurance settlement gain of approximately $1.8 million for property damage sustained at one of our facilities which reduced the prior year's non-operating deductions.
Provision for
Taxes on Income (millions of dollars) |
First |
First |
Growth |
||||||||
Provision for taxes on income |
$ |
12.9 |
$ |
11.8 |
9 |
% |
The effective tax rate increased in the first half of 2007 to 32.5% from 30.3% in the prior year. This was due to a change in the mix of earnings.
Net Income (millions of dollars) |
First |
First |
Growth |
|||||||
Net income |
$ |
25.2 |
$ |
25.4 |
(1) |
% |
Net income decreased 1% in the first half of 2007 to $25.2 million. Earnings per common share, on a diluted basis, increased 2% to $1.30 in the second quarter of 2007 as compared with $1.27 in the prior year.
Liquidity and Capital Resources
Cash flows in the first six months of 2007 provided from operations were applied principally to fund capital expenditures, repay debt and repurchase common shares for treasury. Cash provided from operating activities amounted to $72.3 million in the first six months of 2007 as compared with $70.4 million for the same period last year.
We expect to utilize our cash to support the previously mentioned growth strategies.
On October 26, 2005, the Company's Board of Directors authorized the Company's Management Committee, at its discretion, to repurchase up to $75 million in additional shares over the next three-year period. As of July 1, 2007, we repurchased 924,872 shares of our common stock at an average price of $53.53 per share under this program.
20
On July 25, 2007, our Board of Directors declared a regular quarterly dividend on our common stock of $0.05 per share. No dividends will be payable unless declared by the Board and unless funds are legally available for payment thereof.
We have $186.5 million in uncommitted short-term bank credit lines, of which approximately $53 million was in use at July 1, 2007. We anticipate that capital expenditures for all of 2007 will be less than $75 million. We expect to meet our long-term financing requirements from internally generated funds, uncommitted bank credit lines and, where appropriate, project financing of certain satellite plants. The aggregate maturities of long-term debt are as follows: remainder of 2007 - $0.6 million; 2008 - $8.4 million; 2009 - - $5.3 million; 2010 - $5.9 million; 2011 - $1.3 million; thereafter - $99.1 million.
Prospective Information and Factors That May Affect Future Results
The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand companies' future prospects and make informed investment decisions. This report may contain forward-looking statements that set out anticipated results based on management's plans and assumptions. Words such as "expects," "plans," "anticipates," and words and terms of similar substance, used in connection with any discussion of future operating or financial performance identify these forward-looking statements.
Although we believe we have been prudent in our plans and assumptions, we cannot guarantee that the outcomes suggested in any forward-looking statement will be realized. 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 entitled "Cautionary Factors That May Affect Future Results" in Exhibit 99 to this Quarterly Report.
Recently Issued Accounting Standards
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement will apply to all other accounting pronouncements that require fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently completing an analysis of the ultimate impact the new pronouncement will have on its financial statements.
In November 2006, the Emerging Issues Task Force ("EITF") reached a consensus on EITF issue 06-10, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements." Employers will be required to measure the asset associated with collateral-assignment split-dollar life insurance based on the arrangement's terms and to record postretirement benefit liabilities only if the employer will maintain the life insurance policy during the employee's retirement or provide the employee with a death benefit. This consensus is effective for fiscal years beginning after December 15, 2007. The Company is currently evaluating the impact of this consensus on its financial statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." This Statement allows entities to choose to measure financial instruments and certain other items at fair value. This Statement is effective for fiscal periods beginning after November 15, 2006. The Company is currently evaluating the impact of SFAS No. 159 on its financial statements.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
21
On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowance for doubtful accounts, valuation of inventories, valuation of long-lived assets, pension plan assumptions, income taxes, income tax valuation allowances and litigation and environmental liabilities. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that can not readily be determined from other sources. There can be no assurance that actual results will not differ from those estimates.
Income Taxes
The Company accounts for uncertain tax positions in accordance with FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), an interpretation of FASB Statement No. 109 ("SFAS 109"). The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgements regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time. As such, changes in our subjective assumptions and judgements can materially affect amounts recognized in the consolidated balance sheets and statements of income. See Note 5 to the condensed consolidated financial statements, "Income Taxes," for additional detail on our uncertain tax positions.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in market prices and foreign currency and interest rates. We are exposed to market risk because of changes in foreign currency exchange rates as measured against the U.S. dollar. We do not anticipate that near-term changes in exchange rates will have a material impact on our future earnings or cash flows. However, there can be no assurance that a sudden and significant decline in the value of foreign currencies would not have a material adverse effect on our financial condition and results of operations. Approximately 65% of our bank debt bears interest at variable rates; therefore our results of operations would only be affected by interest rate changes to such outstanding bank debt. An immediate 10 percent change in interest rates would not have a material effect on our results of operations over the next fiscal year.
We do not enter into derivatives or other financial instruments for trading or speculative purposes. When appropriate, we enter into derivative financial instruments, such as forward exchange contracts and interest rate swaps, to mitigate the impact of foreign exchange rate movements and interest rate movements on our operating results. The counterparties are major financial institutions. Such forward exchange contracts and interest rate swaps would not subject us to additional risk from exchange rate or interest rate movements because gains and losses on these contracts would offset losses and gains on the assets, liabilities, and transactions being hedged. We have open forward exchange contracts to purchase approximately $5.5 million of foreign currencies as of July 1, 2007. The contracts mature between July 2007 and September 2008. The fair value of these instruments at July 1, 2007 was a liability of $0.1 million.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, and under the supervision and with participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic filings with the Securities and Exchange Commission.
22
Changes in Internal Control Over Financial Reporting
The Company is in the process of implementing a global enterprise resource planning ("ERP") system to manage its business operations. As of July 1, 2007, all of our domestic locations were using the new system. The worldwide implementation is expected to be completed over the next few years and involves changes in systems that include internal controls. Although the transition has proceeded to date without material adverse effects, the possibility exists that our migration to the new ERP system could adversely affect the Company's internal controls over financial reporting and procedures. We are reviewing each system as it is being implemented and the controls affected by the implementation of the new systems, and are making appropriate changes to affected internal controls as we implement the new systems. We believe that the controls as modified are appropriate and functioning effectively.
There was no change in the Company's internal control over financial reporting (other than the ongoing implementation of the ERP system discussed above) during the quarter ended July 1, 2007 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously reported, certain of the Company's subsidiaries are among numerous defendants in a number of cases seeking damages for exposure to silica or to asbestos containing materials. The Company currently has 326 pending silica cases and 26 pending asbestos cases. To date, 1138 silica cases and 1 asbestos case have been dismissed, of which 486 silica cases were dismissed in the second quarter of 2007. One new asbestos case was filed in the second quarter of 2007. Most of these claims do not provide adequate information to assess their merits, the likelihood that the Company will be found liable, or the magnitude of such liability, if any. Additional claims of this nature may be made against the Company or its subsidiaries. At this time management anticipates that the amount of the Company's liability, if any, and the cost of defending such claims, will not have a material effect on its financial position or results of operations.
The Company has not settled any silica or asbestos lawsuits to date. We are unable to state an amount or range of amounts claimed in any of the lawsuits because state court pleading practices do not require identifying the amount of the claimed damage. The aggregate cost to the Company for the legal defense of these cases in 2006 was $0.1 million. Costs for the legal defense of these cases in the first half of 2007 were $34,400. To date, the Company has not been liable to plaintiffs in any of these lawsuits and we do not expect to pay any settlements or jury verdicts in these lawsuits.
Environmental Matters
As previously reported, on April 9, 2003, the Connecticut Department of Environmental Protection ("DEP") issued an administrative consent order relating to our Canaan, Connecticut, plant where both our Refractories segment and Specialty Minerals segment have operations. We agreed to the order, which includes provisions requiring investigation and remediation of contamination associated with historic use of polychlorinated biphenyls (PCBs) at a portion of the site. The following is the present status of the remediation efforts:
• |
Building Decontamination. We have completed the investigation of building contamination and submitted a report characterizing the contamination. We are awaiting review and approval of this report by the regulators. Based on the results of this investigation, we believe that the contamination may be adequately addressed by means of encapsulation through painting of exposed surfaces, pursuant to the Environmental Protection Agency's ("EPA") regulations and have accrued such liabilities as discussed below. However, this conclusion remains uncertain pending completion of the phased remediation decision process required by the regulations. |
23
• |
Groundwater. We are still conducting investigations of potential groundwater contamination. To date, the results of investigation indicate that there is some oil contamination of the groundwater. We are conducting further investigations of the groundwater. |
• |
Soil. We have completed the investigation of soil contamination and submitted a report characterizing contamination to the regulators. Based on the results of this investigation, we believe that the contamination may be left in place and monitored, pursuant to a site-specific risk assessment, which is underway. However, this conclusion is subject to completion of a phased remediation decision process required by applicable regulations. |
We believe that the most likely form of remediation will be to leave existing contamination in place, encapsulate it, and monitor the effectiveness of the encapsulation.
We estimate that the cost of the likely remediation above would approximate $200,000, and that amount has been recorded as a liability on our books and records.
The Company is evaluating options for upgrading the wastewater treatment facilities at its Adams, Massachusetts, plant. This work is being undertaken pursuant to an administrative consent order issued by the Massachusetts Department of Environmental Protection on June 18, 2002. The order required payment of a civil fine in the amount of $18,500, the investigation of options for ensuring that the facility's wastewater treatment ponds will not result in discharge to groundwater, and closure of a historic lime solids disposal area. The Company informed Massachusetts Department of Environmental Protection of proposed improvements to the wastewater treatment system on June 29, 2007, and is committed to implementing the improvements by June 1, 2012. Preliminary engineering reviews indicate that the estimated cost of these upgrades to operate this facility beyond 2012 may be between $6 million and $8 million. The Company estimates that remediation costs would approximate $350,000, which has been accrued as of July 1, 2007.
The Company and its subsidiaries are not party to any other material pending legal proceedings, other than routine litigation incidental to their businesses.
ITEM 1A. Risk Factors
There have been no material changes to our risk factors during the second quarter since those reported in our Quarterly Report on Form 10-Q for the quarter ended April 1, 2007, and in our 2006 Annual Report on Form 10-K. For a description of Risk Factors, see Exhibit 99 attached to this report.
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of the Publicly Announced Program |
Dollar Value of Shares that May Yet be Purchased Under the Program |
||||||
April 2 - April 29 |
-- |
$ |
-- |
915,172 |
$ |
26,099,241 |
||||
April 30 - May 27 |
-- |
$ |
-- |
915,172 |
$ |
26,099,241 |
||||
May 28 - July 1 |
9,700 |
$ |
62.31 |
924,872 |
$ |
25,494,867 |
||||
Total |
9,700 |
$ |
62.31 |
|||||||
On October 26, 2005, the Company's Board of Directors authorized the Company's Management Committee, at its discretion, to repurchase up to $75 million in additional shares over the next three-year period. As of July 1, 2007, 924,872 shares were repurchased under this program at an average price of approximately $53.53 per share.
24
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 23, 2007, the following two items were submitted to a vote of the stockholders of the Company:
Votes regarding the election of two directors were as follows: |
Term Expiring in 2010 |
Votes For |
Votes Withheld |
Joseph C. Muscari |
17,045,733 |
618,335 |
William C. Stivers |
16,984,125 |
679,943 |
2. |
Votes regarding ratification of the appointment of KPMG LLP as the independent registered public accounting firm of the Company for the 2007 fiscal year were as follows: |
17,590,726 |
votes for approval votes against abstentions |
ITEM 6. Exhibits
Exhibit No. |
Exhibit Title |
|||
15 |
Letter Regarding Unaudited Interim Financial Information. |
|||
31.1 |
Rule 13a-14(a)/15d-14(a) Certification executed by the Company's principal executive officer. |
|||
31.2 |
Rule 13a-14(a)/15d-14(a) Certification executed by the Company's principal financial officer. |
|||
32 |
Section 1350 Certifications. |
|||
99 |
Statement of Cautionary Factors That May Affect Future Results. |
25
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/John A. Sorel
John A. Sorel Senior Vice President-Finance and Chief Financial Officer (principal financial officer)
July 31, 2007
26
EXHIBIT 15
ACCOUNTANTS' ACKNOWLEDGEMENT
Board of Directors
Minerals Technologies Inc.:
Re: Registration Statement Nos. 33-59080, 333-62739 and 333-138245
With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated July 31, 2007, related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an independent registered public accounting firm or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.
KPMG LLP
New York, New York
July 31, 2007
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Joseph C. Muscari, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Minerals Technologies Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 31, 2007 |
By: |
/s/Joseph C. Muscari |
Joseph C. Muscari | ||
Chairman and Chief Executive Officer | ||
(principal executive officer) |
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, John A. Sorel, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of Minerals Technologies Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 31, 2007 |
By: |
/s/John A. Sorel |
John A. Sorel | ||
Senior Vice President-Finance and | ||
Chief Financial Officer | ||
(principal financial officer) |
EXHIBIT 32
SECTION 1350 CERTIFICATIONS
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18, United States Code), each of the undersigned officers of Minerals Technologies Inc., a Delaware corporation (the "Company"), does hereby certify that:
The Quarterly Report on Form 10-Q for the quarter ended July 1, 2007 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: July 31, 2007 |
By: |
/s/Joseph C. Muscari |
Joseph C. Muscari | ||
Chairman and Chief Executive Officer | ||
(principal executive officer) | ||
Date: July 31, 2007 |
By: |
/s/John A. Sorel |
John A. Sorel | ||
Senior Vice President-Finance and | ||
Chief Financial Officer | ||
(principal financial officer) |
The foregoing certification is being furnished solely pursuant to Exchange Act Rule 13a-14(b); is not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section; and is not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934.
EXHIBIT 99
RISK FACTORS
The disclosure and analysis set forth in this report contains certain forward-looking statements, particularly statements relating to future actions, future 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 and 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 the use of words such as "expects," "plans," "anticipates," 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 risks, uncertainties and potentially inaccurate assumptions.
• |
Growth Rate |
Sales and income growth of the Company depends upon a number of uncertain events, including the outcome of the Company's strategies of increasing its penetration into geographic markets such as Asia 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 per ton of paper produced; developing, introducing and selling new product technologies, such as the SYNSIL® Products family for the glass industry and filler-fiber composite technology for the paper industry; and acquisitions. Difficulties, delays or failure of any of these strategies could affect the future growth rate of the Company. |
|
• |
Contract Renewals |
Generally, the Company's sales of PCC are pursuant to long-term evergreen agreements, initially ten years in length, with paper mills where 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 plant. However, failure of a number of the Company's customers to renew or extend existing agreements on terms as favorable to the Company as those currently in effect could have a substantial adverse effect on the Company's results of operations, and could also result in impairment of the assets associated with the PCC plant. |
|
• |
Consolidation in Customer Industries, Principally Paper and Steel |
Several consolidations in the paper industry have taken place in recent years. These consolidations could result in partial or total closure of some paper mills where the Company operates PCC satellites. Such closures would reduce the Company's sales of PCC, except to the extent that they resulted in shifting paper production and associated purchases of PCC to another location served by the Company. Similarly, following a string of bankruptcies, consolidations have occurred in the steel industry. Such consolidations in the two major industries we serve concentrate purchasing power in the hands of a smaller number of papermakers and steel manufacturers, enabling them to increase pressure on suppliers, such as the Company. This increased pressure could have an adverse effect on the Company's results of operations in the future. |
|
• |
Litigation; Environmental Exposures |
The Company's operations are subject to international, federal, state and local governmental, tax and other laws and regulations, and potentially to claims for various legal, environmental and tax matters. The Company is currently a party in various litigation matters. 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. |
In addition, future events, such as changes in or modifications or interpretations of existing laws and regulations, or enforcement polices, 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. |
||
• |
New Products | |
The Company is engaged in a continuous effort to develop new products and processes in all of its product lines. Difficulties, delays or failures in the development, testing, production, marketing or sale of such new products could cause actual results of operations to differ materially from our expected results. |
||
• |
Competition; Protection of Intellectual Property | |
The Company's ability to compete is 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 increased risks of doing business abroad, including inflation, fluctuation in interest rates and currency exchange rates, changes in applicable laws and regulatory requirements, export and import restrictions, tariffs, nationalization, expropriation, limits on repatriation of funds, civil unrest, terrorism, 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 the PCC product line, magnesia for Refractory operations and talc ore and silica sand and dolomite for the Processed Minerals product line, and on having adequate access to 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. |
||
• |
Cyclical Nature of Customers' Businesses | |
The majority of the Company's sales are to customers in two industries, paper manufacturing and steel manufacturing, which have historically been cyclical. The Company's exposure to variations in its customers' businesses 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. Also, the Company has structured some of its long-term satellite PCC contracts to provide a degree of protection against declines in the quantity of product purchased, since the price per ton of PCC generally rises as the number of tons purchased declines. In addition, many of the Company's product lines lower its customers' costs of production 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 that the Company serves, or in the worldwide economy, could cause actual results of operations to differ materially from historical and expected results. |