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Minerals Technologies 10-K 2009
UNITED STATES SECURITIES AND EXCHANGE COMMISSION

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission file number 1-3295

MINERALS TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

 

25-1190717
(I.R.S. Employer
Identification Number)

The Chrysler Building
405 Lexington Avenue
New York, New York

(Address of principal executive office)

 

10174-0002
(Zip Code)

(212) 878-1800
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange
on which registered

Common Stock, $.10 par value

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

     Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [X]     No [  ]

     Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes [  ]     No [X]

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]     No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of " large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [X]

Accelerated Filer [  ]

Non- accelerated Filer [  ]

Smaller Reporting Company [  ]

(Do not check if smaller reporting company)

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [  ]     No [X]

     The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price at which the stock was sold as of June 30, 2008, was approximately $847 million. Solely for the purposes of this calculation, shares of common stock held by officers, directors and beneficial owners of 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     As of February 6, 2009, the Registrant had outstanding 18,692,557 shares of common stock, all of one class.

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement dated April 6, 2009

Part III


 

 

MINERALS TECHNOLOGIES INC.
2008 FORM 10-K ANNUAL REPORT
Table of Contents

    Page
 

PART I

 
Item 1. Business 1
     
Item 1A. Risk Factors 6
     
Item 1B. Unresolved Staff Comments 8
     
Item 2. Properties 8
     
Item 3. Legal Proceedings 10
     
Item 4. Submission of Matters to a Vote of Security Holders 11
     
 

PART II

 
     
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 11
     
Item 6. Selected Financial Data 15
     
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
16
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
     
Item 8. Financial Statements and Supplementary Data 28
     
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
28
     
Item 9A. Controls and Procedures 28
     
Item 9B. Other Information 28
     
 

PART III

 
     
Item 10. Directors, Executive Officers and Corporate Governance 29
     
Item 11. Executive Compensation 30
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
30
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 30
     
Item 14. Principal Accountant Fees and Services 30
     
 

PART IV

 
     
Item 15. Exhibits and Financial Statement Schedules 31
     
Signatures   33

 


 

PART I

Item 1.   Business

     Minerals Technologies Inc. (the "Company") is a resource- and technology-based company that develops, produces and markets worldwide a broad range of specialty mineral, mineral-based and synthetic mineral products and supporting systems and services. The Company has two reportable segments: Specialty Minerals and Refractories. The Specialty Minerals segment produces and sells the synthetic mineral product precipitated calcium carbonate ("PCC") and processed mineral product quicklime ("lime"), and mines mineral ores then processes and sells natural mineral products, primarily limestone and talc. This segment's products are used principally in the paper, building materials, paint and coatings, glass, ceramic, polymer, food, automotive and pharmaceutical industries. The Refractories segment produces and markets monolithic and shaped refractory materials and specialty products, services and application and measurement equipment, and calcium metal and metallurgical wire products. Refractories segment products are primarily used in high-temperature applications in the steel, non-ferrous metal and glass industries.

     The Company maintains a research and development focus. The Company's research and development capability for developing and introducing technologically advanced new products has enabled the Company to anticipate and satisfy changing customer requirements, creating market opportunities through new product development and product application innovations.

Specialty Minerals Segment

PCC Products and Markets

     The Company's PCC product line net sales were $605.7 million, $602.6 million and $557.0 million for the years ended December 31, 2008, 2007 and 2006, respectively. The Company's sales of PCC have been, and are expected to continue to be, made primarily to the printing and writing papers segment of the paper industry. The Company also produces PCC for sale to companies in the polymer, food and pharmaceutical industries. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

PCC Products - Paper

     In the paper industry, the Company's PCC is used:

As a filler in the production of coated and uncoated wood-free printing and writing papers, such as office papers;

As a filler for coated and uncoated groundwood (wood-containing) paper such as magazine and catalog papers; and

As a coating pigment for both wood-free and groundwood papers.

     The Company's Paper PCC product line net sales were $547.2 million, $542.0 million and $500.6 million for the years ended December 31, 2008, 2007 and 2006, respectively.

     Approximately 44% of the Company's sales consists of PCC sold to papermakers at "satellite" PCC plants. A satellite PCC plant is a PCC manufacturing facility located at a paper mill, thereby eliminating costs of transporting PCC from remote production sites to the paper mill. The Company believes the competitive advantages offered by improved economics and superior optical characteristics of paper produced with PCC manufactured by the Company's satellite PCC plants resulted in substantial growth in the number of the Company's satellite PCC plants since the first such plant was built in 1986. For information with respect to the locations of the Company's PCC plants as of December 31, 2008, see Item 2, "Properties," below.

     The Company ®manufactures several customized PCC product forms using proprietary processes. Each product form is designed to provide optimum balance of paper properties including brightness, opacity, bulk, strength and improved printability. The Company's research and development and technical service staffs focus on expanding sales from its existing and potential new satellite PCC plants as well as developing new technologies for new applications. These technologies include, among others, acid-tolerant ("AT®") PCC, which allows PCC to be introduced to the large wood-containing segment of the printing and writing paper market, and OPACARB® PCC, a family of products for paper coating.

     The Company owns, staffs, operates and maintains all of its satellite PCC facilities, and owns or licenses the related technology. Generally, the Company and its paper mill customers enter into long-term evergreen agreements, initially ten years in length, pursuant to which the Company supplies substantially all of the customer's precipitated calcium carbonate filler

 

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 requirements. The Company is generally permitted to sell to third-parties PCC produced at a satellite plant in excess of the host paper mill's requirement.

    The Company also sells a range of PCC products to paper manufacturers from production sites not associated with paper mills. These merchant facilities are located at Adams, Massachusetts; Lifford, England; and Walsum, Germany.

PCC Markets - Paper

     Uncoated Wood-Free Printing and Writing Papers - North America. Beginning in the mid-1980's, as a result of a concentrated research and development effort, the Company's satellite PCC plants facilitated the conversion of a substantial percentage of North American uncoated wood-free printing and writing paper producers to lower-cost alkaline papermaking technology. The Company estimates that during 2008, more than 90% of North American uncoated wood-free paper was produced employing alkaline technology. Presently, the Company owns and operates 19 commercial satellite PCC plants located at paper mills that produce uncoated wood-free printing and writing papers in North America.

     Uncoated Wood-Free Printing and Writing Papers - Outside North America. The Company estimates the amount of uncoated wood-free printing and writing papers produced outside of North America at facilities that can be served by satellite and merchant PCC plants is more than twice as large (measured in tons of paper produced) as the North American uncoated wood-free paper market currently served by the Company. The Company believes that the superior brightness, opacity and bulking characteristics offered by its PCC products allow it to compete with suppliers of ground limestone and other filler products outside of North America. Presently, the Company owns and operates 24 commercial satellite PCC plants located at paper mills that produce uncoated wood-free printing and writing papers outside of North America.

     Uncoated Groundwood Paper. The uncoated groundwood paper market, including newsprint, represents approximately 35% of worldwide paper production. Paper mills producing wood-containing paper still generally employ acid papermaking technology. The conversion to alkaline technology by these mills has been hampered by the tendency of wood-containing papers to darken in an alkaline environment. In an attempt to introduce PCC to the wood-containing segments of the paper industry, the Company has developed and patented a system for the manufacture of high-quality groundwood paper in an acidic environment using PCC (AT® PCC). Furthermore, as groundwood or wood-containing paper mills use larger quantities of recycled fiber, there is a trend toward the use of neutral papermaking technology in this segment for which the Company presently supplies traditional PCC chemistries. The Company now supplies PCC to approximately 27 paper machines at about 14 groundwood paper mills around the world and licenses its technology to a ground calcium carbonate producer to help accelerate the conversion from acid to alkaline papermaking.

     Coated Paper. The Company continues to pursue satellite PCC opportunities in coated paper markets where our products provide unique performance and/or cost reduction benefits to papermakers and printers. Our Opacarb product line is designed to create value to the paper maker and can be used alone or in combination with other coating pigments. PCC coating products are produced at 10 of the Company's PCC plants worldwide.

Specialty PCC Products and Markets

     The Company also produces and sells a full range of dry PCC products on a merchant basis for non-paper applications. The Company's Specialty PCC product line net sales were $58.5 million, $60.6 million and $56.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. The Company sells surface-treated and untreated grades of PCC to the polymer industry for use in automotive and construction applications, and to the adhesives and printing inks industries. The Company's PCC is also used by the food and pharmaceutical industries as a source of bio-available calcium in tablets and foodstuffs, as a buffering agent in tablets, and as a mild abrasive in toothpaste. The Company produces PCC for specialty applications from production sites at Adams, Massachusetts and Lifford, England.

Processed Minerals - Products and Markets

     The Company mines and processes natural mineral products, primarily limestone and talc. The Company also manufactures lime, a limestone-based product. The Company's net sales of processed mineral products were $110.7 million, $114.0 million and $118.6 million for the years ended December 31, 2008, 2007 and 2006, respectively. Net sales of talc products were $35.9 million, $37.3 million and $38.9 million for the years ended December 31, 2008, 2007 and 2006, respectively. Net sales of ground calcium carbonate ("GCC") products, which are principally lime and limestone, were $74.8 million, $76.7 million and $79.7 million for the years ended December 31, 2008, 2007 and 2006, respectively. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 

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     Lime produced at the Company's Adams, Massachusetts, and Lifford, United Kingdom, facilities is used primarily as a raw material for the manufacture of PCC at these sites and at some satellite PCC plants, and is sold commercially to various chemical and other industries.

     The Company mines and processes GCC products at its reserves in the eastern and western parts of the United States. GCC is used and sold in the construction, automotive and consumer markets.

     The Company mines, beneficiates and processes talc at its Barretts site, located near Dillon, Montana. Talc is sold worldwide in finely ground form for ceramic applications and in North America for paint and coatings and polymer applications. Because of the exceptional chemical purity of the Barretts ore, a significant portion of worldwide automotive catalytic converter ceramic substrates contain the Company's Barretts talc.

     The Company's natural mineral products are supported by the Company's limestone reserves located in the western and eastern parts of the United States, and talc reserves located in Montana. The Company estimates these reserves, at current usage levels, to be in excess of 30 years at its limestone production facilities and in excess of 20 years at its talc production facility.

Refractories Segment

Refractory Products and Markets

     Refractories Products

     The Company offers a broad range of monolithic and pre-cast refractory products and related systems and services. The Company's Refractory segment net sales were $395.8 million, $361.1 million and $347.9 million for the years ended December 31, 2008, 2007 and 2006, respectively. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

     Refractory product sales are often supported by Company-supplied proprietary application equipment and on-site technical service support. The Company's proprietary application equipment is used to apply refractory materials to the walls of steel-making furnaces and other high temperature vessels to maintain and extend their useful life. Net sales of refractory products, including those for non-ferrous applications, were $320.8 million, $290.5 million and $264.6 million for the years ended December 31, 2008, 2007 and 2006. The Company's proprietary application system, such as its MINSCAN®, allow for remote-controlled application of the Company's refractory products in steel-making furnaces, as well as in steel ladles and blast furnaces. Since the steel-making industry is characterized by intense price competition, which results in a continuing emphasis on increased productivity, these application systems and the technologically advanced refractory materials developed in the Company's research laboratories have been well accepted by the Company's customers. These products allow steel makers to improve their performance through, among other things, the application of monolithic refractories to furnace linings while the furnace is at operating temperature, thereby eliminating the need for furnace cool-down periods and steel-production interruption. The result is a lower overall cost for steel produced by steel makers.

     The Company's experienced technical service staff and advanced application equipment provide customers assurance that they will achieve their desired productivity objectives. The Company's technicians are also able to conduct laser measurement of refractory wear, sometimes in conjunction with robotic application tools, to improve refractory performance at many customer locations. The Company believes that these services, together with its refractory product offerings, provide it with a strategic marketing advantage.

     Over the past several years the Refractories segment has continued to increase its growth due to its ability to reformulate its products and application technology to maintain its competitive advantage in the market place. Some of the new products the Company has introduced in the past few years include:

HOTCRETE®: High durability shotcrete products for applications of high temperatures in ferrous applications such as steel ladles;

FASTFIRE®: High durability castable and shotcrete products in the non-ferrous and ferrous industries with the added benefit of rapid dry-out capabilities;

OPTIFORM®: A system of products and equipment for the rapid continuous casting of refractories for applications such as steel ladle safety linings;

ENDURATEQ®: A high durability refractory shape for glass contact applications such as plungers and orifice rings; and

DECTEQ™: A system for the automatic control of electrical power feeding electrodes used in electric arc steel making furnaces.

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     The Company has also expanded its refractories business through selective acquisitions over the past several years. These acquisitions have increased both the breadth of the product lines and markets served by the Refractories segment.

     Refractories Markets

     The principal market for the Company's refractory products is the steel industry. Management believes that certain trends in the steel industry will continue to provide growth opportunities for the Company. These trends include rapid growth and quality improvements in select geographic regions (e.g., China, Eastern Europe and India) the development of improved manufacturing processes such as thin-slab casting, the trend in North America to shift production from integrated mills to electric arc furnaces (mini-mills) and the ever-increasing need for improved productivity and longer lasting refractories.

     The Company sells its refractory products in the following markets:

     Steel Furnace. The Company sells gunnable monolithic refractory products and application systems to users of basic oxygen furnaces and electric furnaces for application on furnace walls to prolong the life of furnace linings.

     Other Iron and Steel. The Company sells monolithic refractory materials and pre-cast refractory shapes for iron and steel ladles, vacuum degassers, continuous casting tundishes, blast furnaces and reheating furnaces. The Company offers a full line of materials to satisfy most continuous casting refractory applications. This full line consists of gunnable materials, refractory shapes and permanent linings.

     Industrial Refractory Systems. The Company sells refractory shapes and linings to non-steel refractories consuming industries including glass, cement, aluminum and petrochemicals, power generation and other non-steel industries. The Company also produces a specialized line of carbon composites and pyrolitic graphite primarily sold under the PYROID® trademark, primarily to the aerospace and electronics industries.

Metallurgical Products and Markets

     The Company produces a number of other technologically advanced products for the steel industry, including calcium metal, metallurgical wire products and a number of metal treatment specialty products. Net sales of metallurgical products were $75.0 million, $70.6 million and $83.3 million for the years ended December 31, 2008, 2007 and 2006. The Company manufactures calcium metal at its Canaan, Connecticut, facility and purchases calcium in international markets. Calcium metal is used in the manufacture of the Company's PFERROCAL® solid-core calcium wire, and is also sold for use in the manufacture of batteries and magnets. The Company sells metallurgical wire products and associated wire-injection equipment for use in the production of high-quality steel. These metallurgical wire products are injected into molten steel to improve castability and reduce imperfections. The steel produced is used for high-pressure pipeline and other premium-grade steel applications.

Marketing and Sales

     The Company relies principally on its worldwide direct sales force to market its products. The direct sales force is augmented by technical service teams that are familiar with the industries to which the Company markets its products, and by several regional distributors. The Company's sales force works closely with the Company's technical service staff to solve technical and other issues faced by the Company's customers. The Company's technical service staff assists paper producers in ongoing evaluations of the use of PCC for paper coating and filling applications. In the Refractory segment, the Company's technical service personnel advise on the use of refractory materials, and, in many cases pursuant to service agreements, apply the refractory materials to the customers' furnaces and other vessels. Continued use of skilled technical service teams is an important component of the Company's business strategy.

     The Company works closely with its customers to ensure that their requirements are satisfied, and it often trains and supports customer personnel in the use of the Company's products. The Company conducts domestic marketing and sales from Bethlehem, Pennsylvania, and from regional sales offices in the eastern and western United States. The Company's international marketing efforts are directed from regional centers located in Brussels, Belgium; Sao Jose Dos Campos, Brazil; and Shanghai, China. The Company believes its processed minerals are at regional locations that satisfy the stringent delivery requirements of the industries they serve. The Company also believes that its worldwide network of sales personnel and manufacturing sites facilitates the continued international expansion.

 

 

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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 and alumina for its Refractory operations, and on having adequate access to ore reserves at its mining operations.

     The Company uses lime in the production of PCC and is a significant purchaser of lime worldwide. Generally, lime is purchased under long-term supply contracts from unaffiliated suppliers located in close geographic proximity to the Company's PCC plants.

     The principal raw materials used in the Company's monolithic refractory products are refractory-grade magnesia and various forms of aluminasilicates. The Company also purchases calcium metal, calcium silicide, graphite, calcium carbide and various alloys for use in the production of metallurgical wire products and uses lime and aluminum in the production of calcium metal. The Company purchases a significant portion of its magnesia requirements from sources in China. High demand for bulk raw materials from China has caused price increases of some key raw materials which ultimately could affect the Company's sales to its customers. In addition, higher transportation costs have also increased the delivered cost of raw materials imported from China to North America and Europe. We continue to rely on China for the majority of our magnesium oxide and may be subject to uncertainty in availability and cost.

Competition

     The Company is continually engaged in efforts to develop new products and technologies and refine existing products and technologies in order to remain competitive and to position itself as a market leader.

     With respect to its PCC products, the Company competes for sales to the paper industry with other minerals, such as GCC and kaolin, based in large part upon technological know-how, patents and processes that allow the Company to deliver PCC that it believes imparts gloss, brightness, opacity and other properties to paper on an economical basis. The Company is the leading manufacturer and supplier of PCC to the paper industry.

     The Company competes in sales of its limestone and talc based primarily upon quality, price, and geographic location.

     With respect to the Company's refractory products, competitive conditions vary by geographic region. Competition is based upon the performance characteristics of the product (including strength, consistency and ease of application), price, and the availability of technical support.

Research and Development

     Many of the Company's product lines are technologically advanced. Our expertise in inorganic chemistry, crystallography and structural analysis, fine particle technology and other aspects of materials science apply to and support all of our product lines, the Company's business strategy for continued growth in sales and profitability depends, to a large extent, on the continued success of its research and development activities. Among the significant achievements of the Company's research and development efforts have been: the satellite PCC plant concept; PCC crystal morphologies for paper coating; AT® PCC for wood-containing papers; the development of FASTFIRE® and OPTIFORM® shotcrete refractory products; LACAM® laser-based refractory measurement systems; and the MINSCAN® and HOTCRETE® application systems and EMforce® for the Processed Minerals and Specialty PCC product lines.

     Going forward, the Company will continue to develop its filler-fiber composite material, which would increase filler levels in uncoated freesheet paper to upwards of 30%. This product remains in development and is now in large-scale trials with customers. The Company will also continue to reformulate its refractory materials to be more competitive, and will also continue development of unique calcium carbonates for use in novel biopolymers.

     For the years ended December 31, 2008, 2007 and 2006, the Company spent approximately $23.1 million, $26.3 million and $27.8 million, respectively, on research and development. The Company's research and development spending for 2008 was approximately 2.1% of net sales.

     The Company maintains its primary research facilities in Bethlehem and Easton, Pennsylvania. It also has research and development facilities in China, Finland, Germany, Ireland, Japan and Turkey. Approximately 91 employees worldwide are engaged in research and development. In addition, the Company has access to some of the world's most advanced papermaking and paper coating pilot facilities.

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Patents and Trademarks

     The Company owns or has the right to use approximately 339 patents and approximately 785 trademarks related to its business. The Company believes that its rights under its existing patents, patent applications and trademarks are of value to its operations, but no one patent, application or trademark is material to the conduct of the Company's business as a whole.

Insurance

     The Company maintains liability and property insurance and insurance for business interruption in the event of damage to its production facilities and certain other insurance covering risks associated with its business. The Company believes such insurance is adequate for the operation of its business. There is no assurance that in the future the Company will be able to maintain the coverage currently in place or that the premiums will not increase substantially.

Employees

     At December 31, 2008, the Company employed 2,522 persons, of whom 1,250 were employed outside of the United States.

Environmental, Health and Safety Matters

     The Company's operations are subject to federal, state, local and foreign laws and regulations relating to the environment and health and safety. Certain of the Company's operations involve and have involved the use and release of substances that have been and are classified as toxic or hazardous within the meaning of these laws and regulations. Environmental operating permits are, or may be, required for certain of the Company's operations and such permits are subject to modification, renewal and revocation. The Company regularly monitors and reviews its operations, procedures and policies for compliance with these laws and regulations. The Company believes its operations are in substantial compliance with these laws and regulations and that there are no violations that would have a material effect on the Company. Despite these compliance efforts, some risk of environmental and other damage is inherent in the Company's operations, as it is with other companies engaged in similar businesses, and there can be no assurance that material violations will not occur in the future. The cost of compliance with these laws and regulations is not expected to have a material adverse effect on the Company. The Company obtained indemnification for certain potential environmental, health and safety liabilities under agreements entered into between the Company and Pfizer Inc ("Pfizer") or Quigley Company, Inc., a wholly-owned subsidiary of Pfizer, in connection with the initial public offering of the Company in 1992. See "Certain Relationships and Related Transactions" in Item 13.

Available Information

     The Company maintains an internet website located at http://www.mineralstech.com. It makes its reports on Forms 10-K, 10-Q and 8-K, and amendments to those reports, as well as its Proxy Statement and filings under Section 16 of the Securities Exchange Act of 1934, available free of charge through the Investor Relations page of its website, as soon as reasonably practicable after they are filed with the Securities and Exchange Commission ("SEC"). Investors may access these reports through the Company's website by navigating to "Investor Relations" and then to "SEC Filings."

Item 1A.   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

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 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.

Declining General Economic, Business, or Industry Conditions
 

Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market and a declining real estate market in the U.S. have contributed to increased volatility and diminished expectations for the global economy and expectations of slower global economic growth going forward. These factors, combined with volatile raw material prices, declining global business, declining consumer confidence and increased unemployment, have precipitated an economic slowdown and a recession. If the economic climate in the U.S. or abroad continues to deteriorate, customers or potential customers could reduce or delay their growth and investments, which could impact the Company's global business, its ability to collect customer receivables, its worldwide pension assets and ultimately decrease the Company's net revenue and profitability.

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 products such as filler-fiber composite materials 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.

7


 

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, and magnesia and alumina for its Refractory operations and on having adequate access to ore reserves of appropriate quality 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 industries which have historically been cyclical paper, steel and construction. The Company's exposure to variations in its customers' businesses has been reduced 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. In addition, our Processed Minerals and Specialty PCC product lines are impacted by the domestic building and construction markets. The residential component of this market is experiencing a significant slowdown which could adversely impact growth. 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.

Item 1B.   Unresolved Staff Comments

     None.

Item 2.   Properties

     Set forth below is the location of, and the main customer served by, each of the Company's 52 satellite PCC plants as of December 31, 2008. Generally, the land on which each satellite PCC plant is located is leased at a nominal amount by the Company from the host paper mill pursuant to a lease, the term of which generally runs concurrently with the term of the PCC production and sale agreement between the Company and the host paper mill.

Location

Principal Customer

United States

 

Alabama, Courtland

International Paper Company

Alabama, Jackson

Boise Inc.

Alabama, Selma

International Paper Company

Arkansas, Ashdown

Domtar Inc.

Florida, Pensacola

Georgia-Pacific Corporation (Koch Industries)

Kentucky, Wickliffe

NewPage Corporation

Louisiana, Port Hudson

Georgia-Pacific Corporation (Koch Industries)

Maine, Jay

Verso Paper Holdings LLC

Maine, Madison

Madison Paper Industries

Maine, Millinocket

Katahdin Paper Company LLC

Michigan, Quinnesec

Verso Paper Holdings LLC

Minnesota, Cloquet

Sappi Ltd.

Minnesota, International Falls

Boise Inc.

New York, Ticonderoga

International Paper Company

North Carolina, Plymouth

Domtar Inc.

Ohio, Chillicothe

P.H. Glatfelter Co.

Ohio, West Carrollton

Appleton Papers Inc.

South Carolina, Eastover

International Paper Company

Virginia, Franklin

International Paper Company

Washington, Camas

Georgia-Pacific Corporation (Koch Industries)

Washington, Longview

Weyerhaeuser Company

8


 

Location

Principal Customer

Washington, Wallula

Boise Inc.

Wisconsin, Kimberly

Appleton Coated

Wisconsin, Park Falls

Flambeau River Papers LLC

Wisconsin, Wisconsin Rapids

New Page Corporation

   

International

 

Brazil, Guaiba

Aracruz Celulose S.A.

Brazil, Jacarei

Ahlstrom-VCP Industria de Papeis Especialis Ltda.

Brazil, Luiz Antonio

International Paper do Brasil Ltda.

Brazil, Mucuri

Suzano Papel e Celulose S. A.

Brazil, Suzano

Suzano Papel e Celulose S. A.

Canada, St. Jerome, Quebec

Cascades Fine Papers Group Inc.

Canada, Windsor, Quebec

Domtar Inc.

China, Dagang 1

Gold East Paper (Jiangsu) Company Ltd.

China, Zhenjiang 1

Gold East Paper (Jiangsu) Company Ltd.

China, Suzhou1

Gold HuaSheng Paper Company Ltd.

Finland, Äänekoski

M-real Corporation

Finland, Anjalankoski

Myllykoski Paper Oy

Finland, Tervakoski

Trierenberg Holding

France, Alizay

M-real Corporation

France, Docelles

UPM Corporation

France, Saillat Sur Vienne

International Paper Company

Germany, Schongau

UPM Corporation

Indonesia, Perawang1

PT Indah Kiat Pulp and Paper Corporation

Japan, Shiraoi1

Nippon Paper Group Inc.

Malaysia, Sipitang

Sabah Forest Industries Sdn. Bhd.

Mexico, Chihuahua

Copamex, S.A. de C.V.

Poland, Kwidzyn

International Paper - Kwidzyn, S.A

Portugal, Figueira da Foz1

Soporcel - Sociedade Portuguesa de Papel, S.A.

Slovakia, Ruzomberok

Mondi Business Paper SCP

South Africa, Merebank1

Mondi Paper Company Ltd.

Thailand, Namphong

Phoenix Pulp & Paper Public Co. Ltd.

Thailand, Tha Toom1

Advance Agro Public Co. Ltd.

1These plants are owned through joint ventures.

     The Company also owned at December 31, 2008, 9 plants engaged in the mining, processing and/or production of lime, limestone, precipitated calcium carbonate and talc, and owned or leased approximately 20 refractory manufacturing facilities worldwide. The Company's corporate headquarters, sales offices, research laboratories, plants and other facilities are owned by the Company except as otherwise noted. Set forth below is certain information relating to the Company's plants and office and research facilities:

Location

Facility

Product Line

United States

   

Arizona, Pima County

Plant; Quarry1

Limestone

California, Lucerne Valley

Plant; Quarry

Limestone

Connecticut, Canaan

Plant; Quarry

Limestone, Metallurgical Wire/Calcium

Indiana, Mt. Vernon

Plant4

Talc/Limestone

Indiana, Portage

Plant

Refractories/Shapes

Louisiana, Baton Rouge

Plant

Monolithic Refractories

Massachusetts, Adams

Plant; Quarry

Limestone, Lime, PCC

Montana, Dillon

Plant; Quarry

Talc

New Jersey, Old Bridge

Plant

Monolithic Refractories

New York, New York

Headquarters2

All Company Products

Ohio, Bryan

Plant

Monolithic Refractories

Ohio, Dover

Plant

Monolithic Refractories/Shapes

Pennsylvania, Bethlehem

Administrative Office; Research laboratories; Sales Offices PCC, Lime, Limestone, Talc

Pennsylvania, Easton

Administrative Office; Research laboratories; Plant; Sales Offices All Company Products

9


 

Location

Facility

Product Line

Pennsylvania, Slippery Rock

Plant; Sales Offices Monolithic Refractories/Shapes

Texas, Bay City

Plant

Talc
     

International

   
Australia, Carlingford Sales Office2 Monolithic Refractories
Belgium, Brussels Sales Office2/Administrative Office Monolithic Refractories/PCC
Brazil, Sao Jose dos Campos Sales Office 2PCC/Monolithic Refractories
China, Shanghai Administrative Office/Sales Office PCC/Monolithic Refractories
China, Suzhou Plant/Sales Office/Research laboratories Monolithic Refractories/PCC
Finland, Kaarina Research Laboratory 2PCC
Germany, Moers Plant/Sales Office/Research laboratories Laser Scanning Instrumentation/ Probes/Monolithic Refractories
Germany, Walsum Plant PCC
Holland, Hengelo Plant/Sales Office Metallurgical Wire
India, Mumbai Sales Office Monolithic Refractories/

Metallurgical Wire

Ireland, Cork Plant; Administrative Office/ Monolithic Refractories
Italy, Brescia Sales Office; Plant Monolithic Refractories/Shapes
Japan, Gamagori Plant/Research laboratories Monolithic Refractories/Shapes, Calcium
Japan, Tokyo Sales Office Monolithic Refractories
Mexico, Gomez Palacio Plant2/Sales Office Monolithic Refractories
Singapore Sales Office2 PCC
Spain, Santander Plant/Sales Office2 Monolithic Refractories
South Africa, Pietermaritzburg Plant/Sales Office Monolithic Refractories
South Korea, Seoul Sales Office2 Monolithic Refractories
South Korea, Yangsan Plant3 Monolithic Refractories
Turkey, Gebze a Plant/Research Laboratories Monolithic Refractories/Shapes/ Application Equipment
Turkey, Istanbul Administrative Office/Sales Office Monolithic Refractories
Turkey, Kutahya Plant Monolithic Refractories/Shapes
United Kingdom, Lifford Plant PCC, Lime
United Kingdom, Rotherham Plant/Sales Office Monolithic Refractories/Shapes

1 This plant is leased to another company.
2
Leased by the Company. The facilities in Cork, Ireland, are operated pursuant to a 99-year lease, the term of which commenced in 1963. The Company's headquarters in New York, New York, are held under a lease which expires in 2010.
3
This plant is owned through a joint venture.
4
This plant is held for sale and are included in discontinued operations.

     The Company believes that its facilities, which are of varying ages and are of different construction types, have been satisfactorily maintained, are in good condition, are suitable for the Company's operations and generally provide sufficient capacity to meet the Company's production requirements. Based on past loss experience, the Company believes it is adequately insured with respect to these assets and for liabilities which are likely to arise from its operations.

Item 3.   Legal Proceedings

     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 has 307 pending silica cases and 26 pending asbestos cases. To date, 1,158 silica cases and 2 asbestos cases have been dismissed. One new asbestos case was filed in the fourth quarter of 2008. 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 since inception was approximately $0.1 million, the majority of which has been reimbursed by Pfizer Inc pursuant to the terms of certain agreements entered into in connection with the Company's initial public offering in 1992. During 2008, agreement was reached with Pfizer for

 

 

10


 

reimbursement by Pfizer of past costs of defense, and direct payment of such costs going forward, to the extent these cases allege exposure to product sold prior to the formation of the Company. During the fourth quarter of 2008 Pfizer reimbursed the Company in the amount of $0.1 million for past defense costs. Our experience has been that the Company is not liable to plaintiffs in any of these lawsuits and the Company does not expect to pay any settlements or jury verdicts in these lawsuits.

Environmental Matters

     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.

Groundwater. We have completed investigations of potential groundwater contamination and have submitted a report on the investigations finding that there is no PCB contamination, but some oil contamination of the groundwater. We expect the regulators to require confirmatory long term groundwater monitoring at the site.

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 $400,000, 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 the 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 the remaining remediation costs would approximate $400,000, which has been accrued as of December 31, 2008.

     The Company and its subsidiaries are not party to any other material pending legal proceedings, other than routine litigation incidental to their businesses.

Item 4.   Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of security holders during the fourth quarter of 2008.

 

PART II

Item 5.   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Securities

     The Company's common stock is traded on the New York Stock Exchange under the symbol "MTX."

11


 

     Information on market prices and dividends is set forth below:

2008 Quarters

First

 

Second

 

Third

 

Fourth

Market Price Range Per Share of Common Stock

                     

High

$

64.74

 

$

72.42

 

$

68.38

 

$

59.36

Low

 

52.29

   

62.80

   

60.73

   

37.89

Close

 

61.72

   

64.65

   

61.62

   

40.90

                       

Dividends paid per common share

$

0.05

 

$

0.05

 

$

0.05

 

$

0.05

2007 Quarters

First

 

Second

 

Third

 

Fourth

Market Price Range Per Share of Common Stock

                     

High

$

64.00

 

$

68.39

 

$

70.64

 

$

70.91

Low

 

56.80

   

62.58

   

63.07

   

63.62

Close

 

62.16

   

66.95

   

67.00

   

66.95

                       

Dividends paid per common share

$

0.05

 

$

0.05

 

$

0.05

 

$

0.05

Equity Compensation Plan Information

Plan Category

 

Number of securities to be issued upon exercise of outstanding options

 

Weighted average exercise price of outstanding options

 

Number of securities remaining available for future issuance

             
Equity compensation plans approved by security holders  

661,781

 

$

55.14

 

435,850

             
Equity compensation plans not approved by security holders  

--

   

--

 

--

            Total

 

661,781

 

$

55.14

 

435,850

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

September 29 - October 26  

34,000

 

$

53.25

 

570,274

$

39,366,824

October 27 - November 23  

39,200

 

$

49.14

 

609,474

$

37,440,619

November 24 - December 31

 

6,200

 

$

44.45

 

615,674

$

37,165,023

            Total

 

79,400

 

$

50.53

       

     On October 26, 2005, the Company's Board of Directors authorized the Company's management, at its discretion, to repurchase up to $75 million in additional shares over the next three-year period. As of December 31, 2008, the Company repurchased 1,307,598 shares under this program at an average price of approximately $57.36 per share. This program was completed in February 2008.

     On October 24, 2007, the Company's Board of Directors authorized the Company's management to repurchase, at its discretion, up to $75 million of additional shares over the next two-year period. As of December 31, 2008, 615,674 shares have been purchased under this program at an average price of approximately $61.45 per share.

 

12


 

     On January 28, 2009, the Company's Board of Directors declared a regular quarterly dividend on its common stock of $0.05 per share. No dividend will be payable unless declared by the Board and unless funds are legally available for payment thereof.

     On February 6, 2009, the last reported sales price on the NYSE was $37.66 per share. As of February 6, 2009, there were approximately 194 holders of record of the common stock.

     The following graph compares the cumulative 5-year total return provided shareholders on Minerals Technologies Inc.'s common stock relative to the cumulative total returns of the S&P 500 index and the S&P MidCap 400 Materials Sector index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indices on 12/31/2003 and its relative performance is tracked through 12/31/2008.

     

     The stock price performance included in this graph is not necessarily indicative of future stock price performance.

 

 

13


 

     The following graph compares the cumulative 2-year total return provided shareholders of Minerals Technologies Inc.'s common stock relative to the cumulative total returns of the S & P 500 index and the S&P MidCap 400 Materials Sector index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indices on 12/31/2006 and its relative performance is tracked through 12/31/08.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

 

 

14


Item 6.   Selected Financial Data

Dollars in Millions, Except Per Share Data                              
Income Statement Data:

2008

 

2007

 

2006

 

2005

 

2004

 
Net sales

$

1,112.2

 

$

1,077.7

 

$

1,023.5

 

$

956.8

 

$

889.7

 
Cost of goods sold  

891.7

   

845.1

   

798.7

   

744.0

   

676.3

 
  Production margin  

220.5

   

232.6

   

224.8

   

212.8

   

213.4

 
                               
Marketing and administrative expenses  

101.8

   

104.6

   

104.6

   

98.1

   

93.0

 
Research and development expenses  

23.1

   

26.3

   

27.8

   

27.0

   

26.9

 
Impairment of assets  

0.2

   

94.1

   

--

   

0.3

   

--

 
Restructuring and other costs  

13.4

   

16.0

   

--

   

--

   

1.1

 
Acquisition termination costs  

--

   

--

   

--

   

--

   

1.0

 
  Income (loss) from operations  

82.0

   

(8.5

)  

92.4

   

87.4

   

91.4

 
Non-operating income (deductions), net  

0.3

   

(3.0

)  

(5.9

)  

(3.9

)  

(4.5

)
Income (loss) before provision for taxes

82.3

(11.5

)

86.5

83.5

86.9

on income, minority interests and
     discontinued operations
Provision for taxes on income  

24.1

   

11.3

   

27.0

   

25.1

   

25.1

 
Minority interests  

3.2

   

2.9

   

3.4

   

1.7

   

1.7

 
  Income (loss) from continuing operations  

55.0

   

(25.7

)  

56.1

   

56.7

   

60.1

 
  Income (loss) from discontinued operations, net of tax  

10.3

   

(37.8

)  

(6.1

)  

(3.4

)  

(1.5

)
                                 
  Net income (loss)

$

65.3

 

$

(63.5

)

$

50.0

 

$

53.3

 

$

58.6

 
                               
Earnings Per Share                  
                             
Basic:                            
Earnings (loss) per share from continuing operations

$

2.91

 

$

(1.34

)

$

2.86

 

$

2.78

 

$

2.93

 
Earnings (loss) per share from discontinued operations  

0.54

   

(1.97

)  

(0.31

)  

(0.16

)  

(0.08

)
                               
     Basic earnings (loss) per share

$

3.45

 

$

(3.31

)

$

2.55

 

$

2.62

 

$

2.85

 
                             
Diluted:                            
Earnings (loss) per share from continuing operations

$

2.90

 

$

(1.34

)

$

2.84

 

$

2.75

 

$

2.89

 
Earnings (loss) per share from discontinued operations  

0.54

   

(1.97

)  

(0.31

)  

(0.16

)  

(0.07

)
                               
     Diluted earnings (loss) per share

$

3.44

  $

(3.31

)

$

2.53

 

$

2.59

 

$

2.82

 
Weighted average number of common shares outstanding:                            
       Basic  

18,893

   

19,190

   

19,600

   

20,345

   

20,530

       Diluted  

18,983

   

19,190

   

19,738

   

20,567

   

20,769

Dividends declared per common share

$

0.20

 

$

0.20

 

$

0.20

 

$

0.20

 

$

0.20

                             
Balance Sheet Data:                            
Working capital

$

380.7

 

$

306.2

 

$

199.7

 

$

145.9

 

$

242.8

Total assets  

1,067.6

   

1,128.9

   

1,193.1

   

1,156.3

   

1,154.9

Long-term debt  

97.2

   

111.0

   

113.4

   

40.3

   

94.8

Total debt  

116.2

   

127.7

   

203.1

   

156.9

   

128.7

Total shareholders' equity  

711.6

   

751.2

   

752.6

   

771.2

   

799.3

15


 

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

Income and Expense Items as a Percentage of Net Sales

Year Ended December 31,

2008

 

2007

 

2006

Net sales

100.0 

%  

100.0 

%  

100.0

%

Cost of goods sold

80.2

   

78.4 

   

78.1 

 
 

Production margin

19.8

   

21.6

   

21.9

 

Marketing and administrative expenses

9.1

   

9.7 

   

10.2 

 

Research and development expenses

2.1

   

2.4 

   

2.7 

 

Impairment of assets

--

   

8.8 

   

-- 

 

Restructuring charges

1.2

   

1.5 

   

-- 

 
  Income (loss) from operations

7.4

   

(0.8)

   

9.0 

 
  Income (loss) before provision for taxes on income,                
  minority interests and discontinued operations

7.4

   

(1.1)

   

8.5 

 
Provision for taxes on income

2.2

   

1.0 

   

2.7 

 
Minority interests

0.3

   

0.3 

   

0.3 

 
  Income (loss) from continuing operations

4.9

   

(2.4)

   

5.5 

 
  Income (loss) from discontinued operations

1.0

   

(3.5)

   

(0.6)

 
                 
       Net income (loss)

5.9

%  

(5.9)

%  

4.9 

%

Executive Summary

     The Company reported earnings per share of $3.44 in 2008, the highest in its history, as compared with a loss of $3.31 per share in 2007 when the Company initiated a major restructuring program. During the first three quarters of 2008, the Company achieved an excellent earnings performance due to the realization of savings from the restructuring program undertaken in 2007, increased selling prices to mitigate the effect of escalating raw materials and energy costs, the favorable effect of foreign exchange and manufacturing cost savings. In the fourth quarter of 2008, however, the precipitous downturn in the steel, paper, construction and automotive end markets resulted in a significant drop in demand for the Company's products. As a result, earnings per share for the fourth quarter decreased 64 percent from the fourth quarter of 2007 and 69 percent from the third quarter of 2008.

     In response to the downturn in business activity, the Company established incremental procedures to generate and conserve its cash and reduce costs by suspending its stock buyback program, curtailing production through shortened work weeks, and by continuing its intensive expense control and procurement initiatives. In addition, the Company reallocated its asset portfolio in its pension plan to preserve capital and reduce exposure to market risk. The Company also implemented an additional restructuring program to reduce its workforce by approximately 14% through both layoffs and permanent reductions. Severance related costs associated with this workforce reduction were approximately $3.9 million.

     Worldwide net sales for 2008 were $1.112 billion, a three-percent increase over 2007 sales of $1.078 billion. Foreign exchange had a favorable impact on sales of $25 million, or 2 percentage points of growth. Income from operations were $82.0 million in 2008 as compared with a loss of $8.5 million in the prior year. Included in income from operations in 2008 were restructuring and impairment charges of $13.6 million. Included in the operating loss of the prior year were restructuring costs of $16.0 million and impairment of assets charges of $94.1 million.

    Income from continuing operations was $55.0 million as compared with a loss of $25.7 million in the prior year due to the restructuring charges. Income from discontinued operations was $10.3 million in 2008, due primarily to gains from the sale of four idle facilities previously written down. In 2007, we had a loss from discontinued operations of $37.8 million primarily due to restructuring and impairment charges. Net income was $65.3 million as compared with a loss of $63.5 million in the prior year.

     The Company's balance sheet at December 31, 2008 continues to be very strong. Cash, cash equivalents and short-term investments at December 31, 2008 was over $190 million. In addition, we have available lines of credit of $156 million, our debt to equity ratio was very low at 14%, and our current ratio was 3.5. Our cashflows from operations were in excess of $134 million in 2008.

 

16


 

    We are facing unprecedented uncertainty in the economic environment as a result of the global financial crisis. However, as a result of the initiatives we undertook in 2007 to restructure and realign our business, and due to our strong balance sheet, the Company believes it is in a strong position to manage through these difficult and uncertain times.

     However, we face some significant risks and challenges in the future:

 •

Our global business could continue to be adversely affected by decreases in economic activity. U.S. steel production is at its lowest levels since the mid 1980's at 1.2 million tons per week. Housing starts are at 24 year lows with the December 2008 annualized rate at 550,000 units and the full year 2008 rate at 900,000 units, as compared to 2.1 million units in 2005. In the automotive industry, light vehicle sales were down 18% in 2008 and 35% in the fourth quarter of 2008. In the Paper industry, production levels within the North American and European uncoated freesheet markets, our most significant market areas, continued to contract to adjust to reduced demand.

 •

The ongoing tightening of credit in the financial markets could adversely affect the ability of our customers or our suppliers to obtain financing.

 •

The uncertainty in the global economy may also continue to impact our pension costs. Changes in the fair market value of our pension assets, rates of return on assets, and discount rates could have a significant impact on our net periodic pension costs and well as our funding requirements.

 •

Our success depends in part on the performance of the industries we serve, particularly paper, steel, construction and automotive. Some of our customers may experience further consolidations and shutdowns or may face increased liquidity issues, which could deteriorate the aging of our accounts receivable, increase our bad debt exposure and possibly trigger impairment of assets.

 •

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 volatility in pricing and supply availability of our key raw materials used in our Paper PCC product line and Refractory product line. Our ability to recover increased costs is uncertain and may become more difficult in this economic environment.

 •

We continue to rely on China for the majority of our supply of magnesium oxide in the Refractories segment and may be subject to uncertainty in availability and cost.

 •

The performance of our Processed Minerals and Specialty PCC product lines are subject to fluctuations in energy costs.

 •

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.

     During the third quarter of 2008, Katahdin Paper Company shut down indefinitely one of its paper machines in Millinocket, Maine, due to increased energy costs. The Company's satellite PCC facility has also shutdown indefinitely in conjunction with the paper machine shut down. Katahdin Paper Company is currently evaluating the possibility of installing a biomass boiler. If the Millinocket mill does not resume operations, the Company would incur an impairment of assets charge of approximately $7.0 million.

     The Company will continue to focus on innovation and new product development and other opportunities for continued growth as follows:

 •

Development of the filler-fiber composite program, which continues to undergo large-scale paper machine trials, to increase the fill-rate for uncoated freesheet paper.

 •

Increasing our sales of PCC for paper by further penetration of the markets for paper filling at both freesheet and groundwood mills, particularly in emerging markets.

 •

Further expansion of the Company's PCC coating product line using the satellite model.

 •

Leverage the Company's expertise in crystal engineering, especially in helping papermakers customize PCC morphologies for specific paper applications.

 •

Development of unique calcium carbonates used in the manufacture of novel biopolymers, a new market opportunity.

 •

Rapid deployment of value-added formulations of refractory materials that not only reduce costs but improve performance.

 •

Continuing our penetration in emerging markets through our manufacturing facilities in China and Turkey, both within the Refractories segment.

17


     However, there can be no assurance that we will achieve success in implementing any one or more of these opportunities.

Results of Operations

Sales

(Dollars in millions)

Net Sales

 

2008

 

% of Total Sales

   

Growth

     

2007

 

% of Total Sales

   

Growth

     

2006

 

% of Total Sales

 
U.S.

$

587.5

 

52.8

%

 

%   $

581.9

 

54.0

%  

(2)

%  

$

592.6

 

57.9

%
International  

524.7

 

47.2

%

 

%    

495.8

 

46.0

%  

15 

%    

430.9

 

42.1

%
  Net sales

$

1,112.2

 

100.0

%

 

%   $

1,077.7

 

100.0

%  

%  

$

1,023.5

 

100.0

%
Paper PCC

$

547.2

 

49.2

%

 

%   $

542.0

 

50.3

%  

%  

$

500.6

 

48.9

%
Specialty PCC  

58.5

 

5.3

%

 

(3)

%    

60.6

 

5.6

%  

%    

56.4

 

5.5

%
    PCC Products

$

605.7

 

54.5

%

 

%   $

602.6

 

55.9

%  

%  

$

557.0

 

54.4

%
Talc

$

35.9

 

3.2

%

 

(4)

%   $

37.3

 

3.5

%  

(4)

%  

$

38.9

 

3.8

%
GCC  

74.8

 

6.7

%

 

(2)

%    

76.7

 

7.1

%  

(4)

%    

79.7

 

7.8

%
  Processed Minerals Products

$

110.7

 

9.9

%

 

(3)

%   $

114.0

 

10.6

%  

(4)

%  

$

118.6

 

11.6

%
                                               
  Specialty Minerals Segment

$

716.4

 

64.4

%

 

-- 

%   $

716.6

 

66.5

%  

%  

$

675.6

 

66.0

%
Refractory Products

$

320.8

 

28.9

%

 

10 

%   $

290.5

 

27.0

%  

10 

%  

$

264.6

 

25.9

%
Metallurgical Products  

75.0

 

6.7

%

 

%    

70.6

 

6.5

%  

(15)

%    

83.3

 

8.1

%
  Refractories Segment

$

395.8

 

35.6

%

 

10 

%   $

361.1

 

33.5

%  

%  

$

347.9

 

34.0

%
  Net sales

$

1,112.2

 

100.0

%

 

%   $

1,077.7

 

100.0

%  

%  

$

1,023.5

 

100.0

%

     Worldwide net sales in 2008 increased 3% from the previous year to $1.112 billion. Foreign exchange had a favorable impact on sales of $25.0 million or 2 percentage points of growth. Sales in the Specialty Minerals segment, which includes the PCC and Processed Minerals product lines, decreased slightly to $716.4 million compared with $716.6 million for the same period in 2007. Sales in the Refractories segment grew 10% over the previous year to $395.8 million. In 2007, worldwide net sales increased 5% to $1.078 billion from $1.024 billion in the prior year. Specialty Minerals segment sales increased approximately 6% and Refractories segment sales increased approximately 4% in 2007.

     Worldwide net sales of PCC, which is primarily used in the manufacturing process of the paper industry, increased 1% to $605.7 million from $602.6 million in the prior year. Foreign exchange had a favorable impact on sales of approximately $15.6 million or 3 percentage points of growth. Worldwide net sales of Paper PCC increased 1% to $547.2 million from $542.0 million in the prior year. In the fourth quarter of 2008, production levels within the North American and European uncoated free sheet markets, our most significant market areas, continued to contract to adjust to reduced demand and inventories in reaction to the global economic crisis. Compared to the fourth quarter of last year, we saw additional machine shutdowns and paper mill closures, which could only be partially offset by increased volumes from our new facilities in Thailand and Brazil. As a result, volume declines of 10% occurred in the fourth quarter which resulted in full year Paper PCC sales volumes declining by 4% from the prior year. Volume declines partially offset increased selling prices from the pass through of raw material cost increases and foreign exchange, resulting in 1% sales growth. Sales of Specialty PCC declined 3% to $58.5 million from $60.6 million in 2007. This decrease was primarily attributable to lower volumes.

     Worldwide net sales of PCC increased 8% in 2007 to $602.6 million from $557.0 million in the prior year. Net sales of Paper PCC increased 8% to $542.0 million while Paper PCC volumes grew slightly. In 2007, sales growth was attributable to increased selling prices from the pass through of raw material cost increases and to foreign currency. Sales of Specialty PCC grew 7% in 2007 to $60.6 million from $56.4 million in the prior year. This increase was primarily attributable to improved volumes, particularly in Europe, and to favorable effects of foreign exchange.

     Net sales of Processed Minerals products in 2008 decreased 3% to $110.7 million from $114.0 million in 2007. GCC products and talc products decreased 2% and 4% to $74.8 million and $35.9 million, respectively. The decrease in the Processed Minerals product line was attributable to further weakness in the residential and commercial construction markets as well as the automotive market. As a result, volumes have declined 8% from the prior year.

     Net sales of Processed Minerals products in 2007 decreased 4% to $114.0 million from $118.6 million in 2006. This decrease was primarily attributable to weakness in the residential construction and automotive markets.

18


     Net sales in the Refractories segment in 2008 increased 10% to $395.8 million from $361.1 million in the prior year. This segment was positively affected by increased selling prices necessitated by significant raw material increases, which more than offset volume declines, and to the favorable effects of foreign exchange of $9.4 million or 3 percentage points of growth. Sales of refractory products and systems to steel and other industrial applications increased 10% to $320.8 million in 2008 from $290.5 million in the prior year. Volume declined 7% for the full year but were down 27% during the fourth quarter of 2008. Sales of metallurgical products within the Refractories segment increased 6% to $75.0 million from $70.6 million in 2007. This increase was primarily attributable to slightly higher volumes and favorable product mix, particularly in North America.

     Net sales in the Refractories segment in 2007 increased 4% to $361.1 million from $347.9 million in the prior year. Sales of refractory products and systems increased 10% to $290.5 million in 2007 from $264.6 million in the prior year. This growth was attributable to foreign currency and the Turkish acquisition. Sales of metallurgical products decreased 15% in 2007 to $70.6 million from $83.3 million in the prior year. This decline was due to volumes in all regions of the world and lower prices resulting from reduction in the cost of raw materials for this product that is traditionally passed through to the customers.

     Net sales in the United States increased approximately 1% to $587.5 million in 2008 and represented approximately 52.8% of consolidated net sales. International sales increased approximately 6% to $524.7 million, due primarily to foreign currency.

Operating Costs and Expenses
(Dollars in millions)
 

2008

     

Growth

     

2007

     

Growth

     

2006

 

Cost of goods sold

$

891.7

     

%  

$

845.1

     

%  

$

798.7

 

Marketing and administrative

$

101.8

     

(3)

%  

$

104.6

     

-- 

%  

$

104.6

 

Research and development

$

23.1

     

(13)

%  

$

26.3

     

(5)

%  

$

27.8

 

Impairment of assets

$

0.2

     

%  

$

94.1

     

%  

$

--

 

Restructuring charges

$

13.4

     

(17)

%  

$

16.0

     

%  

$

--

 

*     Percentage not meaningful

     Cost of goods sold in 2008 was 80.2% of sales compared with 78.4% in the prior year. Our cost of goods sold grew 6% compared with 3% sales growth resulting in a 5% decrease in production margin. In the Specialty Minerals segment, the production margin decreased 9% as compared with a relatively flat sales growth. This segment has been affected by increased raw materials and energy costs, lower volumes in the Processed Minerals product line and the Paper PCC product line and price concessions in the Paper PCC product line. This was partially offset by the recovery of raw material costs through price increases, the benefits of the restructuring program, manufacturing cost savings initiatives and foreign exchange. In the Refractories segment, the production margin increased 1% as compared with 10% sales growth. This segment has been affected by increased raw material costs and lower volumes, partially offset by price increases, the benefits of the restructuring program, and foreign exchange.

     Cost of goods sold in 2007 was 78.4% of sales compared with 78.1% in the prior year. Our cost of goods sold grew 6%, compared with 5% sales growth resulting in a 3% increase in production margin. In the Specialty Minerals segment, the production margin increased 5% as compared with 6% sales growth. This segment has been affected by reduced demand in the Processed Minerals product line and paper machine and paper mill shutdowns, which were partially offset by the recovery of raw material costs and the benefit of foreign currency. In the Refractories segment, the production margin increased 1% as compared with 4% sales growth. This segment has been affected by lower margins in the metallurgical product line.

     Marketing and administrative costs were $101.8 million in 2008, a decline of 3% as compared to the prior year, and represented 9.1% of net sales as compared with 9.7% in the prior year. This reduction was due to the benefits of the restructuring program and other cost saving initiatives. In 2007, marketing and administrative expenses were the same as the prior year.

     Research and development expenses decreased 13% in 2008 to $23.1 million and represented 2.1% of net sales. This decline was due to cost savings from the restructuring program as the Company realigned its research and development structure to effectively bring new developments to market faster. In 2007, research and development expenses decreased 5% to $26.3 million and represented 2.4% of net sales.

     The Company recorded restructuring charges of $13.4 million in 2008. Approximately $6.8 million related to a SFAS No. 88 pension settlement loss in our defined benefit plan in the United States. The remainder of the charges relate to additional provisions for severance and other employee benefits as part of our restructuring program initiated in 2007, and to an additional restructuring program initiated in the fourth quarter of 2008 resulting in charges of $3.9 million.

19


 

     In 2007, the Company initiated a plan to realign its operations as a result of an in-depth strategic review of all of its operations. This realignment resulted in impairment of assets charges and restructuring charges in 2007 as follows:

Impairment of assets charges:

Paper PCC

$

65.3

 
Specialty PCC  

12.7

 
  Total PCC  

78.0

 
Processed Minerals

1.3

 
     Specialty Minerals Segment  

79.3

 
  Refractories Segment  

14.8

 
 

$

94.1

 

     Restructuring and other costs:

Severance and other employee benefits

$

13.5

 
Contract termination costs

1.8

 
Other exit costs  

0.7

 
 

$

16.0

 

     The restructuring program resulted in a reduction of over 200 employees.

Income (Loss) from Operations
(Dollars in millions)
 

2008

   

Growth

   

2007

   

Growth

   

2006

 
                                   

Income (loss) from operations

$

82.0

   

*

%  

$

(8.5)

   

(109)

%  

$

92.4

 

     The Company recorded income from operations in 2008 of $82.0 million as compared with a loss from operations of $8.5 million in the prior year. Included in the 2008 income from operations was a restructuring charge of $13.4 million and impairment of assets charge of $0.2 million. The loss in the prior year was primarily attributable to the aforementioned impairment of assets charges and restructuring and other exit costs.

     The Specialty Minerals segment recorded income from operations in 2008 of $57.0 million as compared with a loss from operations of $20.0 million in 2007. Included in the prior year loss from operations was an impairment of assets charge of $79.3 million and restructuring and other exit costs of $11.3 million.

     The Refractories segment recorded income from operations of $26.3 million in 2008 as compared with $11.5 million in the prior year. Included in income from operations in 2008 was a restructuring charge of $5.7 million. Included in income from operations in 2007 was an impairment of assets charge of $14.8 million and restructuring and other exit costs of $4.7 million.

     In 2007, the Specialty Minerals segment recorded a loss from operations of $20.0 million as compared with income of $60.5 million in 2006. The Refractories segment recorded operating income in 2007 of $11.5 million as compared with $31.9 million in the previous year.

Non-Operating Income (Deductions)
(Dollars in millions)
 

2008

   

Growth

   

2007

   

Growth

   

2006

 
                                   

Non-operating income (deductions), net

$

0.3

   

*

%  

$

(3.0)

   

(49)

%  

$

(5.9)

 

     The Company recorded non-operating income of $0.3 million in 2008 as compared with non-operating deductions of $3.0 million in the prior year. This increase was primarily attributable to lower interest expense due to lower interest rates and debt levels, higher interest income generated in connection with increased cash on hand and foreign exchange gains.

     Non-operating deductions decreased 49% in 2007 to $3.0 million from the prior year. This decrease was primarily attributable to an insurance recovery gain of approximately $3.0 million in 2007, $1.2 million above the prior year. Additionally, the Company recorded higher interest income of $1.3 over the prior year as a result of an increase in cash, and cash equivalents in 2007.

20


 

Provision for Taxes on Income
(Dollars in millions)
 

2008

   

Growth

   

2007

   

Growth

   

2006

 
                                   

Provision for taxes on income

$

24.1

   

114

%

 

$

11.3

   

(58)

%  

$

27.0

 

     The effective tax rate in 2008 was 29.3%. In 2007, the Company recorded a provision for income tax of $11.3 million on a loss before taxes of $11.5 million. This was primarily attributable to the restructuring and impairment losses recorded in certain jurisdictions in which we were unable to record a tax benefit.

Minority Interests
(Dollars in millions)
 

2008

   

Growth

   

2007

   

Growth

   

2006

 
                                   

Minority interests

$

3.2

   

10

%  

$

2.9

   

(15)

%  

$

3.4

 

     The increase in the provision for minority interests is attributable to improved profitability in our joint ventures.

     The decrease in the provision for minority interest in 2007 was primarily related to a reduction in profitability from our consolidated joint ventures in China.

Income (Loss) from Continuing Operations
(Dollars in millions)
 

2008

   

Growth

   

2007

   

Growth

   

2006

 
                                   

Income (loss) from continuing operations

$

55.0

   

*

%  

$

(25.7)

   

(146)

%  

$

56.1

 

     The Company recognized income from continuing operations of $55.0 million in 2008 as compared with a loss of $25.7 million in 2007. The loss in 2007 was due to the restructuring and impairment of assets charges.

     Income from continuing operations was $56.1 million in 2006.

Income (loss) from Discontinued Operations
(Dollars in millions)
 

2008

   

Growth

   

2007

   

Growth

   

2006

 
                                   

Income (loss) from discontinued operations

$

10.3

   

*

%  

$

(37.8)

   

(82)

%  

$

(6.2)

 

*  Percentage not meaningful

      The Company recognized income from discontinued operations in 2008 of $10.3 million as compared with a loss of $37.8 million in the prior year. Included in the 2008 income from discontinued operations was a pre-tax gain on sale of idle facilities previously written down of $13.9 million. In 2007, the loss from discontinued operations included pre-tax impairment of asset charges of $46.9 million and restructuring and other exit costs of $2.3 million. In 2006, the loss from discontinued operations included foreign currency translation losses of $1.6 million recognized upon liquidation of the Company's investment in Israel.

    In 2007, the Company reflected in discontinued operations its Synsil® product line and its two plants in the Midwest that process imported ores. In 2006, the Company liquidated its wholly-owned subsidiary in Hadera, Israel, and classified such business as discontinued operations.

Net Income (Loss)
(Dollars in millions)
 

2008

   

Growth

   

2007

   

Growth

   

2006

 
                                   

Net income (loss)

$

65.3

   

*

%  

$

(63.5)

   

(227)

%  

$

50.0

 

     The Company recorded net income of $65.3 million in 2008 as compared with a net loss of $63.5 million in 2007. The loss in 2007 was attributable to impairment of assets and restructuring charges in both continuing operations and discontinued operations.

     The Company recorded net income of $50.0 million in 2006.

21


Outlook

     Looking forward, we remain concerned about the current state of the global economy and the impact it will have on our product lines. U.S. and global economic conditions worsened significantly in the last quarter of 2008. The stress caused to international credit markets, initially driven in large part by the devaluation of risky U.S. sub-prime debt, led to a dramatic tightening in liquidity. The U.S. and foreign governments have responded with several initiatives to alleviate the strain on the financial markets. While these programs have had some positive effects on financial systems, credit remains tight and economic conditions in the U.S. and globally have continued to deteriorate. Both industrial production and consumer spending have fallen sharply in the last half of 2008. As a result, we are presently experiencing weakness in all of the industries we serve -- paper, steel, construction and automotive. Steel production worldwide experienced steep declines in the fourth quarter of 2008 and there were several paper machine shutdowns that affected our satellite PCC product line as the paper industry continues to consolidate and rationalize capacity. In addition, there is further deterioration in the residential and commercial construction and automotive markets, which is affecting our Processed Minerals product line. There is no clear indication as to when global economic conditions will improve.

     However, as a result of the realigning and restructuring of our operations in 2007, we strengthened the basic foundation of our businesses. Therefore, we are in a better position to effectively manage through these difficult economic times.

     The Company initiated the following actions in response to the uncertainties in the global economy:

Intensified monitoring and review processes around customers, suppliers and banking partners.

Established additional cash conservation strategies.

Suspended stock buyback program.

Reallocated our pension assets to conserve value.

Shortened work weeks.

Significantly reduced overtime.

Continued our intensive expense control initiatives.

Initiated an additional restructuring program with both permanent reductions and layoffs.

     In 2009, we plan to focus on the following growth strategies:

Continue development and potential commercial introduction of filler-fiber composite technology for the paper industry to increase the fill-rates of uncoated freesheet paper.

Increase market penetration of PCC for paper filling at both freesheet and groundwood mills, particularly in emerging markets.

Further expansion of the Company's PCC coating product line using the satellite model.

Emphasize higher value specialty products and application systems to increase market penetration in the Refractories segment.

Expand regionally into emerging markets, particularly to China and Eastern Europe.

Development of unique calcium carbonates used in the manufacture of biopolymers, a new market opportunity.

Continue to improve our cost competitiveness in all product lines.

Explore selective acquisitions to complement our existing businesses.

     However, there can be no assurances that we will achieve success in implementing any one or more of these strategies.

     As we continue to expand our operations overseas, we face the inherent risks of doing business abroad, including inflation, fluctuations 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. Some of our operations are located in areas that have experienced political or economic instability, including Indonesia, Brazil, Thailand, China and South Africa. In addition, our performance depends to some extent on that of the industries we serve, particularly the paper manufacturing, steel manufacturing, and construction industries.

     Our sales of PCC are predominantly pursuant to long-term evergreen contracts, initially about ten years in length, with paper companies at whose mills we operate satellite PCC plants. The terms of many of these agreements have been extended, generally in connection with an expansion of the satellite PCC plant. Failure of a number of our customers to renew existing

22


 

agreements on terms as favorable to us as those currently in effect could cause our future sales growth rate to differ materially from our historical growth rate and, if not renewed, could also result in impairment of the assets associated with the PCC plant.

Liquidity and Capital Resources

     Cash flows provided from operations in 2008 were used principally to fund $31.0 million of capital expenditures, to repay long-term debt of $17.1 million and to repurchase $45.3 million of common shares for treasury. Cash provided from operating activities totaled $134.2 million in 2008 as compared with $179.7 million in 2007. The decrease in cash from operating activities was primarily due to an increase in working capital and a decrease in pension funding, as compared to the prior year. This increase primarily relates to increased inventory levels as compared with December 2007. Early in 2008, the Company accelerated purchases of higher priced raw materials imported from China to avoid potential supply interruptions. Additionally, lower volumes in the fourth quarter of 2008 affected inventory balances at December 31, 2008. As a result, days of inventory on hand increased to 88 days from 71 days in the prior year. Included in cash flow from operations was pension plan funding of approximately $3.2 million, $24.1 million and $22.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.

     As a result of the market decline, the Company reallocated its asset portfolio in its pension plan to fixed income securities to prevent potential further declines in pension assets. The Company's pension plans are over 95% funded, and presently there are no minimum funding requirements necessary. The Company expects its net periodic pension expense to increase significantly in 2009 as a result of a lower asset base and amortization of unrealized losses on its investment assets due to market conditions.

     On October 26, 2005, our Company's Board of Directors authorized the Company's management, at its discretion, to repurchase up to $75 million in additional shares over the next three-year period. The Company completed this program in February 2008 and repurchased 1,307,598 shares under this program at an average price of approximately $57.36 per share.

     On October 24, 2007, the Company's Board of Directors authorized the Company's management to repurchase, at its discretion, up to $75 million of additional shares over the next two-year period. As of December 31, 2008, 615,674 shares have been repurchased under this program at an average price of a proximately $61.45 per share.

     On January 28, 2009, our Board of Directors declared a regular quarterly dividend on our common stock of $0.05 per share. No dividend will be payable unless declared by the Board and unless funds are legally available for payment.

     We have $169.8 million in uncommitted short-term bank credit lines, of which $13.4 million was in use at December 31, 2008. At the present time, we have no indication that the financial institutions would be unable to commit to these lines of credit should the need arise. We anticipate that capital expenditures for 2009 should approximate $60 million, principally related to the construction of PCC plants and other opportunities that meet our strategic growth objectives. We expect to meet our other 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: 2009 - $4.0 million; 2010 - $4.6 million; 2011 - $-- million; 2012 - $8.0 million; 2013 - $-- million; thereafter - $84.6 million.

     The Company's debt to capital ratio is 14%, which is well below the financial covenant ratio in its debt agreements.

     The Company has contingent obligations associated with unrecognized tax benefits, including interest and penalties, of approximately $10.9 million.

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.

     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-term assets, goodwill and other intangible assets, pension plan assumptions, income taxes, asset retirement obligations, income tax valuation allowances, stock-based compensation, 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.

 

23


     We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements:

 •

Revenue recognition: Revenue from sale of products is recognized at the time the goods are shipped and title passes to the customer. In most of our PCC contracts, the price per ton is based upon the total number of tons sold to the customer during the year. Under those contracts, the price billed to the customer for shipments during the year is based on periodic estimates of the total annual volume that will be sold to the customer. Revenues are adjusted at the end of each year to reflect the actual volume sold. There were no significant revenue adjustments in the fourth quarter of 2008 and 2007, respectively. We have consignment arrangements with certain customers in our Refractories segment. Revenues for these transactions are recorded when the consigned products are consumed by the customer. Revenues from sales of equipment are recorded upon completion of installation and receipt of customer acceptance. Revenues from services are recorded when the services are performed.

 •

Allowance for doubtful accounts: Substantially all of our accounts receivable are due from companies in the paper, construction and steel industries. Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Such allowance is established through a charge to the provision for bad debt expenses. We recorded bad debt expenses (recoveries) of $0.2 million, $(0.1) million and $0.4 million in 2008, 2007 and 2006, respectively. In addition to specific allowances established for bankrupt customers, we also analyze the collection history and financial condition of our other customers considering current industry conditions and determine whether an allowance needs to be established or adjusted.

 •

Property, plant and equipment, goodwill, intangible and other long-lived assets: Property, plant and equipment are depreciated over their useful lives. Useful lives are based on management's estimates of the period that the assets can generate revenue, which does not necessarily coincide with the remaining term of a customer's contractual obligation to purchase products made using those assets. Our sales of PCC are predominately pursuant to long-term evergreen contracts, initially ten years in length, with paper mills at which we operate satellite PCC plants. The terms of many of these agreements have been extended, often in connection with an expansion of the satellite PCC plant. Failure of a PCC customer to renew an agreement or continue to purchase PCC from our facility could result in an impairment of assets or accelerated depreciation at such facility.

 •

Valuation of long-lived assets, goodwill and other intangible assets: We assess the possible impairment of long-lived assets and identifiable amortizable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill and other intangible assets with indefinite lives are reviewed for impairment at least annually in accordance with the provisions of SFAS No. 142. Factors we consider important that could trigger an impairment review include the following:

significant under-performance relative to historical or projected future operating results;

significant changes in the manner of use of the acquired assets or the strategy for the overall business;

significant negative industry or economic trends;

market capitalization below invested capital.

     When we determine that the carrying value of intangibles, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we principally measure any impairment by our ability to recover the carrying amount of the assets from expected future operating cash flow on a discounted basis. Net intangible assets, long-lived assets, and goodwill amounted to $507.7 million as of December 31, 2008.

      The Company conducts its goodwill impairment testing in accordance with SFAS 142 for each Reporting Unit as of the beginning of the fourth quarter with the assistance of valuation experts. SFAS 142 specifies a two-step process for testing of goodwill impairment and measuring the magnitude of any impairment. Step One involves a) developing the fair value of total invested capital of each Reporting Unit in which goodwill is assigned; and b) comparing the fair value of total invested capital for each Reporting Unit to its carrying amount, to determine if there is goodwill impairment. Should the carrying amount for a Reporting Unit exceed its fair value, then the Step One test is failed, and the magnitude of any goodwill impairment is determined under Step Two. The Step Two used to measure the amount of impairment loss, compares the implied fair value of Reporting Unit goodwill with the carrying amount of goodwill.

     The Company has three reporting units, PCC, Processed Minerals and Refractories. The Company performs its valuation utilizing two approaches to analyze and estimate value. These are the income approach and the market approach. The income approach incorporates the discounted cash flow method and focuses on the expected cash flow of the Reporting Unit. A number of assumptions and estimates are involved in the application of the income approach to forecast operating cash flows, including sales volumes and prices, cost of sales, working capital, capital spending and discount rates. We assumed minimal sales growth for 2009. Our sales growth assumptions longer term ranged from 5% to 8%, which is consistent with our historical trends. We also utilized a discount rate of 11% for each reporting unit and, in addition, incorporated a company specific risk premium of 4% to adjust for the recent economic conditions. The market approach utilizes two methodologies, the Guideline Company Method and the Similar Transactions Method. The

24


 

Guideline Company Method focuses on comparing the Reporting Units' risk profile and growth prospects to selected similar publicly-traded companies. The Similar Transactions Method considers prices paid in recent transactions in the Reporting Unit's industry or related industries.

     In 2008, the estimated fair value of each Reporting Unit was in excess of each respective carrying value, resulting in no impairment of goodwill.

     The impairment testing involves the use of accounting estimates and assumptions, changes which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions.

 •

Accounting for income taxes: As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating current tax expense together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the Consolidated Statements of Operations.

 

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 judgments 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 judgments can materially affect amounts recognized in the consolidated balance sheets and statements of operations. See Note 5 to the condensed consolidated financial statements, "Income Taxes," for additional detail on our uncertain tax positions.

 •

Pension Benefits: We sponsor pension and other retirement plans in various forms covering the majority of employees who meet eligibility requirements. Several statistical and actuarial models which attempt to estimate future events are used in calculating the expense and liability related to the plans. These models include assumptions about the discount rate, expected return on plan assets and rate of future compensation increases as determined by us, within certain guidelines. Our assumptions reflect our historical experience and management's best judgment regarding future expectations. In addition, our actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate these assumptions. The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants, among other things. Differences from these assumptions may result in a significant impact to the amount of pension expense/liability recorded by us follows:

     A one percentage point change in our major assumptions would have the following effects.

Effect on Expense

(millions of dollars)

 

Discount Rate

     

Salary
Scale

     

Return on Asset

 
                       

1% increase

$

(2.7)

   

$

0.4 

   

$

(1.6)

 

1% decrease

$

2.8 

   

$

(0.4)

   

$

1.6 

 

Effect on Projected Benefit Obligation

(millions of dollars)

 

Discount Rate

     

Salary
Scale

 

1% increase

$

(21.9)

   

$

1.9 

 

1% decrease

$

21.9 

   

$

(1.9)

 

 •

Asset Retirement Obligations: We currently record the obligation for estimated asset retirement costs at a fair value in the period incurred. Factors such as expected costs and expected timing of settlement can affect the fair value of the obligations. A revision to the estimated costs or expected timing of settlement could result in an increase or decrease in the total obligation which would change the amount of amortization and accretion expense recognized in earnings over time.

A one-percent increase or decrease in the discount rate would change the total obligation by approximately $0.1 million.

26


 

A one-percent increase or decrease in the inflation rate would change the total obligation by approximately $0.3 million.

   
 •

The Company's accounts for stock-based compensation expense under the provisions of SFAS No. 123R.

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options on their date of grant. This model is based upon assumptions relating to the volatility of the stock price, the life of the option, risk-free interest rate and dividend yield. Of these, stock price volatility and option life require greater levels of judgment and are therefore critical accounting estimates.

We used a stock price volatility assumption based upon the historical and implied volatility of the Company's stock. We believe this is a good indicator of future, actual and implied volatilities. For stock options granted in the period ended December 31, 2008, the Company used a volatility assumption of 25.20%.

The expected life calculation was based upon the observed and expected time to post-vesting forfeiture and exercise. For stock options granted during the fiscal year ended December 31, 2007, the Company used a 6.3 year life assumption.

The Company believes the above critical estimates are based upon outcomes most likely to occur, however, were we to simultaneously increase or decrease the option life by one year and the volatility by 100 basis points, recognized compensation expense would have changed approximately $0.1 million in either direction for the year ended December 31, 2008.

     For a detailed discussion on the application of these and other accounting policies, see "Summary of Significant Accounting Policies" in the "Notes to the Consolidated Financial Statements" in Item 15 of this report, beginning on page F-6. This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.

Prospective Information and Factors That May Affect Future Results

     The SEC 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 our 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.

     We cannot guarantee that the outcomes suggested in any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and the accuracy of 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 in Item 1A, "Risk Factors."

Inflation

     Historically, inflation has not had a material adverse effect on us. However, in recent years both business segments have been affected by rapidly rising raw material and energy costs. The Company and its customers will typically negotiate reasonable price adjustments in order to recover a portion of these rapidly escalating costs. As the contracts pursuant to which we construct and operate our satellite PCC plants generally adjust pricing to reflect increases in costs resulting from inflation, there is a time lag before such price adjustments can be implemented.

Cyclical Nature of Customers' Businesses

     The bulk of our sales are to customers in the paper manufacturing, steel manufacturing and construction industries, which have historically been cyclical. The pricing structure of some of our long-term PCC contracts makes our PCC business less sensitive to declines in the quantity of product purchased. However, we cannot predict the economic outlook in the countries in which we do business, nor in the key industries we serve.

26


 

Recently Issued Accounting Standards

     In December 2008, The FASB issued FSP FAS 132(R) - 1, "Employer's Disclosure about Postretirement Benefit Plan Assets" which will require more detailed disclosures about employers' pension plan assets. New disclosure requirement will require additional information regarding investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. This new standard amends disclosure requirements only for periods ended after December 15, 2009.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, "Disclosures About Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133." This statement amends the disclosure requirements under SFAS 133 and requires companies with derivative instruments to provide enhanced disclosures that would enable financial statement users to understand how derivative instruments affect a company's financial position, financial performance and cash flows. This statement is effective for fiscal years beginning on or after November 15, 2008, with early adoption encouraged. The Company will adopt this pronouncement as of January 1, 2009.

     In February 2008, the FASB issued FSP FAS 157-1, "Application of FASB No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" and FSP FAS 157-2, "Effective Date of FASB Statement No. 157." FSP 157-1 excludes fair measurements for purposes of lease classification or measurement under FASB Statement 13 from the fair value measurement under FASB Statement 157. FSP 157-2 defers the effective date of Statement 157 for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), "Business Combinations" ("Statement No. 141(R)"). Statement No. 141(R) changes the requirements for an acquirer's recognition and measurement of the assets acquired and the liabilities assumed in a business combination. Statement No. 141(R) is effective for annual periods beginning after December 15, 2008 and should be applied prospectively for all business combinations entered into after the date of adoption.

     In December 2007, the FASB issued Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51" ("Statement No. 160"). Statement No. 160 requires (i) that noncontrolling (minority) interests be reported as a component of shareholders' equity, (ii) that net income attributable to the parent and to the noncontrolling interest be separately identified in the consolidated statement of operations, (iii) that changes in a parent's ownership interest while the parent retains its controlling interest be accounted for as equity transactions, (iv) that any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value, and (v) that sufficient disclosures are provided that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. Statement No. 160 is effective for annual periods beginning after December 15, 2008 and should be applied prospectively. However, the presentation and disclosure requirements of the statement shall be applied retrospectively for all periods presented. The adoption of the provisions of Statement No. 160 is not anticipated to materially impact the Company's consolidated financial position and results of operations.

Item 7A.  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 change in the value of foreign currencies would not have a material adverse effect on our financial condition and results of operations. Approximately 55% of our bank debt bears interest at variable rates; therefore our results of operations would only be affected by interest rate changes to such bank debt outstanding. An immediate 10% 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 had open forward exchange contracts to purchase approximately $6.4 million and $5.3 million of foreign currencies as of December 31, 2008 and 2007, respectively. These contracts mature between January and July of 2009. The fair value of these instruments at December 31, 2008 and December 31, 2007 was a liability of $0.4 million and $0.1 million, respectively.

27


     In 2008, the Company entered into forward contracts to purchase 30 million Euros as a hedge of its net investment in Europe. These contracts mature in October 2013. The fair value of these instruments at December 31, 2008 was an asset of $2.1 million.

 

Item 8.   Financial Statements and Supplementary Data

     The financial information required by Item 8 is contained in Item 15 of Part IV of this report.

 

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A.  Controls and Procedures

Disclosure Controls and Procedures

     The Company's management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a -15. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures (as defined in Rules 13(a)-15(b) under the Securities Exchange Act of 1934) were effective in ensuring that material information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported on a timely basis.

     Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of management's assessment of the design and operating effectiveness of our internal controls as part of this report. Management's report is included in our consolidated financial statements beginning on page F-1 of this report under the caption entitled "Management's Report on Internal Control Over Financial Reporting."

     The Company is in the process of implementing a global enterprise resource planning ("ERP") system to manage our business operations. As of December 31, 2008, all of our domestic locations were using the new systems. 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 the migration to the new ERP system could adversely affect the Company's disclosure controls and procedures or our results of operations in future periods. 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.    

Changes in Internal Control Over Financial Reporting

     There was no change in the Company's internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

Item 9B.  Other Information

     None.

28


 

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

     Set forth below are the names and ages of all Executive Officers of the Registrant indicating all positions and offices with the Registrant held by each such person, and each such person's principal occupations or employment during the past five years.

Name

Age

  Position
       
Joseph C. Muscari

62

  Chairman of the Board and Chief Executive Officer
D. Randy Harrison

57

  Senior Vice President, Organization and Human Resources
D.J. Monagle, III

46

  Senior Vice President and Managing Director, Paper PCC
John A. Sorel

61

  Senior Vice President, Finance, and Chief Financial Officer
William J.S. Wilkins

52

  Senior Vice President and Managing Director, Minteq International
Michael A. Cipolla

51

  Vice President, Corporate Controller and Chief Accounting Officer
Douglas T. Dietrich

39

  Vice President, Corporate Development and Treasury
Kirk G. Forrest

57

  Vice President, General Counsel and Secretary
William A. Kromberg

63

  Vice President, Taxes
Douglas W. Mayger

51

  Vice President and Managing Director, Performance Minerals

     Joseph C. Muscari was elected Chairman of the Board and Chief Executive Officer effective March 1, 2007. Prior to that he was Executive Vice President and Chief Financial Officer of Alcoa Inc. He has served as a member of the Board of Directors since 2005.

     D. Randy Harrison was elected Senior Vice President, Organization and Human Resources effective January 1, 2008. Prior to that he had been Vice President and Managing Director, Performance Minerals since January 2002.

     D.J. Monagle, III was elected Senior Vice President and Managing Director, Paper PCC, effective October 1, 2008. Prior to that he had been appointed to Vice President and Managing Director - Performance Minerals, in November 2007. He joined the Company in January of 2003 and held positions of increasing responsibility including Vice President, Americas, Paper PCC and Global Marketing Director, Paper PCC.

     John A. Sorel was elected Senior Vice President, Finance and Chief Financial Officer in November 2002. Prior to that time he was elected Senior Vice President, Corporate Development and Finance on January 1, 2002 and prior to 2002 he held positions of increasing authority with the Company, most recently Vice President and Managing Director, Paper PCC.

     William J.S. Wilkins was elected Senior Vice President and Managing Director, Minteq International in November 2007. He joined the Company in June 2007 as Vice President, Global Supply Chain and Logistics. Prior to that he had founded Management Services, a consulting firm. Before starting his consultancy, he was President and Chief Executive Officer of Sermatech International Inc.; Vice President and Chief Financial Officer of the Teleflex Aerospace Group; and head of finance and administration at Howmet Castings, a business unit of Alcoa, which he joined in 1994.

     Michael A. Cipolla was elected Vice President, Corporate Controller and Chief Accounting Officer in July 2003. Prior to that he served as Corporate Controller and Chief Accounting Officer of the Company since 1998. From 1992 to 1998 he served as Assistant Corporate Controller.

     Douglas T. Dietrich was elected Vice President, Corporate Development and Treasury effective August 2007. Prior to that he had been Vice President, Alcoa Wheel Products since 2006 and President, Latin America Extrusions and Global Rod and Bar Products since 2002.

     Kirk G. Forrest was elected Vice President, General Counsel and Secretary effective January 26, 2005. Prior to that, Mr. Forrest had been Vice President and General Counsel at SAM'S CLUB, and a Corporate Vice President of its parent company, Wal-Mart Stores, Inc. and Associate General Counsel at The Williams Companies, which he joined in 1998.

     William A. Kromberg has served as Vice President, Taxes of the Company since 1993.

     Doug Mayger was elected Vice President and Managing Director, Performance Minerals which encompasses the Processed Minerals product line and the Specialty PCC product line, effective October 1, 2008. Prior to that he was General Manager- Carbonates West, Performance Minerals and Business Manager - Western Region. Prior to joining the Company as plant manager in Lucerne Valley in 2002, he served as Vice President of Operations for Aggregate Industries.

29


     The information concerning the Company's Board of Directors required by this item is incorporated herein by reference to the Company's Proxy Statement, under the caption "Committees of the Board of Directors."

     The information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 required by this Item is incorporated herein by reference to the Company's Proxy Statement, under the caption "Section 16(a) Beneficial Ownership Reporting Compliance."

     The Board has established a code of ethics for the Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer entitled "Code of Ethics for the Senior Financial Officers," which is available on our website, www.mineralstech.com, under the links entitled "Corporate Responsibility, Corporate Governance and Policies and Charters."

Item 11.  Executive Compensation

     The information appearing in the Company's Proxy Statement under the caption "Compensation of Executive Officers" is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The information appearing in the Company's Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters as of January 31, 2008" is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

     The information appearing in the Company's Proxy Statement under the caption "Certain Relationships and Related Transactions" is incorporated herein by reference.

     Under the terms of certain agreements entered into in connection with the Company's initial public offering in 1992, Pfizer Inc ("Pfizer") and its wholly-owned subsidiary Quigley Company, Inc. ("Quigley") agreed to indemnify the company against certain liabilities being retained by Pfizer and its subsidiaries including, but not limited to, pending lawsuits and claims, and any lawsuits or claims brought at any time in the future alleging damages or injury from the use, handling of or exposure to any product sold by Pfizer's specialty minerals business prior to the closing of the initial public offering. During 2008, agreement was reached with Pfizer providing for reimbursement by Pfizer of past costs of defense, and direct payment of such costs going forward, for cases alleging damages from exposure to product sold prior to the formation of the Company. During the fourth quarter, Pfizer reimbursed the Company in the amount of $0.1 million for past defense costs.

     Pfizer and Quigley also agreed to indemnify the Company against any liability arising from claims for remediation, as defined in the Agreement, of on-site environmental conditions relating to activities prior to the closing of the initial public offering. Further, Pfizer and Quigley agreed to indemnify the Company for 50% of the liabilities in excess of $1 million up to $10 million in liabilities that may have arisen or accrued within ten years after the closing of the initial public offering with respect to such remediation of on-site conditions. The Company is responsible for the first $1 million of such liabilities, 50% of all such liabilities in excess of $1 million up to $10 million, and all such liabilities in excess of $10 million. The Company had asserted to Pfizer and Quigley a number of indemnification claims pursuant to this agreement during the ten-year period following the closing of the initial public offering. On January 30, 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.

     The Board has established Corporate Governance principles which include guidelines for determining Director independence, which is available on our website, www.mineralstech.com, under the links entitled "Corporate Responsibility, Corporate Governance and Policies and Charters."

Item 14.  Principal Accountant Fees and Services

     The information appearing in the Company's Proxy Statement under the caption "Principal Accountant Fees and Services" is incorporated herein by reference.

 

30


 

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)  The following documents are filed as part of this report:

1.

Financial Statements. The following Consolidated Financial Statements of Mineral Technologies Inc. and subsidiary companies and Reports of Independent Registered Public Accounting Firm are set forth on pages F-2 to F-35.

 

Consolidated Balance Sheets as of December 31, 2008 and 2007

 

Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006

 

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006

 

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2008, 2007 and 2006

 

Notes to the Consolidated Financial Statements

 

Reports of Independent Registered Public Accounting Firm

 

Management's Report on Internal Control Over Financial Reporting

2.

Financial Statement Schedule. The following financial statement schedule is filed as part of this report:

     

Page

 

Schedule II -

Valuation and Qualifying Accounts

S-1

     All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable and, therefore, have been omitted.

3.

Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this report.

 

3.1

-

Restated Certificate of Incorporation of the Company (1)

 

3.2

-

By-Laws of the Company as amended and restated effective May 25, 2005 (5)

 

3.3

-

Certificate of Designations authorizing issuance and establishing designations, preferences and rights of Series A Junior Preferred Stock of the Company (1)

 

4   

-

Rights Agreement, executed effective as of September 13, 1999 (the "Rights Agreement"), between Minerals Technologies Inc. and Chase Mellon Shareholders Services L.L.C., as Rights Agents, including as Exhibit B the forms of Rights Certificate and of Election to Exercise (6)

 

4.1

-

Specimen Certificate of Common Stock (1)

 

10.1

-

Asset Purchase Agreement, dated as of September 28, 1992, by and between Specialty Refractories Inc. and Quigley Company Inc. (2)

 

10.1(a)

-

Agreement dated October 22, 1992 between Specialty Refractories Inc. and Quigley Company Inc., amending Exhibit 10.1 (3)

 

10.1(b)

-

Letter Agreement dated October 29, 1992 between Specialty Refractories Inc. and Quigley Company Inc., amending Exhibit 10.1 (3)

 

10.2

-

Reorganization Agreement, dated as of September 28, 1992, by and between the Company and Pfizer Inc (2)

 

10.3

-

Asset Contribution Agreement, dated as of September 28, 1992, by and between Pfizer Inc and Specialty Minerals Inc. (2)

 

10.4

-

Asset Contribution Agreement, dated as of September 28, 1992, by and between Pfizer Inc and Barretts Minerals Inc. (2)

 

10.4(a)

-

Agreement dated October 22, 1992 between Pfizer Inc, Barretts Minerals Inc. and Specialty Minerals Inc., amending Exhibits 10.3 and 10.4 (3)

 

10.5

-

Form of Employment Agreement (4), together with schedule relating to executed Employment Agreements (6) (+)

 

10.6

-

Form of Severance Agreement, together with schedule relating to executed Severance Agreements (7) (+)

 

10.7

-

Company Employee Protection Plan, as amended August 27, 1999 (6) (+)

 

10.8

-

Company Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors, as amended and restated effective January 1, 2008 (12)(+)

 

10.9

-

2001 Stock Award and Incentive Plan of the Company, as amended and restated as of December 20, 2005 (7) (+)

 

10.10

-

Company Retirement Plan, as amended and restated effective as of January 1, 2006 (4) (+)

 

10.10(a)

-

First Amendment to the Company's Retirement Plan, effective as of January 1, 2008 (11) (+)

 

10.11

-

Company Nonfunded Supplemental Retirement Plan, as amended effective April 24, 2003 (8) (+)

 

10.12

-

Company Savings and Investment Plan, as amended and restated as of September 14, 2007 (11) (+)

 

10.13

-

Company Nonfunded Deferred Compensation and Supplemental Savings Plan, as amended effective April 24, 2003 (8) (+)

31


 

10.14

-

Company Health and Welfare Plan, effective as of April 1, 2003 and amended and restated as of January 1, 2006 (4)(+)

 

10.15

-

Grantor Trust Agreement, as amended and restated as of December 23, 2005, between the Company and The Bank of New York, as Trustee (7)(+)

 

10.16

-

Note Purchase Agreement, dated as of October 5, 2006, among the Company, Metropolitan Life Insurance Company and MetLife Insurance Company of Connecticut with respect to the Company's issuance of $75,000,000 in aggregate principal amount of senior unsecured notes due October 5, 2013 (9)

 

10.17

-

Indenture, dated July 22, 1963, between the Cork Harbour Commissioners and Roofchrome Limited (2)

 

10.18

-

Agreement of Lease, dated as of May 24, 1993, between the Company and Cooke Properties Inc. (1)

 

10.19

-

Employment Agreement, dated November 27, 2006, between the Company and Joseph C. Muscari (10)

 

21.1

-

Subsidiaries of the Company (*)

 

23.1

-

Consent of Independent Registered Public Accounting Firm (*)

 

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 Certification (*)

 

(1)

Incorporated by reference to the exhibit so designated filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

 

(2)

Incorporated by reference to the exhibit so designated filed with the Company's Registration Statement on Form S-1 (Registration No. 33-51292), originally filed on August 25, 1992.

 

(3)

Incorporated by reference to the exhibit so designated filed with the Company's Registration Statement on Form S-1 (Registration No. 33-59510), originally filed on March 15, 1993.

 

(4)

Incorporated by reference to the exhibit so designated filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

 

(5)

Incorporated by reference to the exhibit so designated filed with the Company's current Report on Form 8-K filed on May 27, 2005.

 

(6)

Incorporated by reference to the exhibit so designated filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

 

(7)

Incorporated by reference to the exhibit so designated filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2005.

 

(8)

Incorporated by reference to the exhibit so designated filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2003.

 

(9)

Incorporated by reference to the exhibit 10.1 filed with the Company's Current Report on Form 8-K filed on October 11, 2006.

 

(10)

Incorporated by reference to exhibit 10.1 filed with the Company's Current Report on Form 8-K/A filed on December 1, 2006.

 

(11)

Incorporated by reference to the exhibit so designated filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

 

(12)

Incorporated by reference to the exhibit so designated filed with the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2008.

 

(*)

Filed herewith.

 

(+)

Management contract or compensatory plan or arrangement required to be filed pursuant to Item 601 of Regulation S-K.

32


 

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

By:

/s/Joseph C. Muscari

 

Joseph C. Muscari

 

Chairman of the Board and Chief Executive Officer

 

February 25, 2009

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

SIGNATURE

 

TITLE

DATE

       

/s/ Joseph C. Muscari

Chairman of the Board and Chief Executive Officer

February 25, 2009

 

Joseph C. Muscari

 

(principal executive officer)

 
       
       
       
       
       
       

/s/ John A. Sorel

Senior Vice President-Finance and

February 25, 2009

 

John A. Sorel

 

Chief Financial Officer (principal financial officer)

 
       
       
       
       
       
       

/s/ Michael A. Cipolla

Vice President - Controller and

February 25, 2009

 

Michael A. Cipolla

 

Chief Accounting Officer (principal accounting officer)

 
       
       
       
       
       
       
       
       

 

 

 

33


 

SIGNATURE

 

TITLE

DATE

       

/s/ Paula H.J. Cholmondeley

Director

February 25, 2009

Paula H. J. Cholmondeley

     
       
       
       

/s/ Duane R. Dunham

Director

February 25, 2009

Duane R. Dunham

     
       
       
       

/s/ Steven J. Golub

Director

February 25, 2009

Steven J. Golub

     
       
       

/s/ Kristina M. Johnson

Director

February 25, 2009

Kristina M. Johnson

     
       
       

/s/ Michael F. Pasquale

Director

February 25, 2009

Michael F. Pasquale

     
       
       
       

/s/ John T. Reid

Director

February 25, 2009

John T. Reid

     
       
       
       

/s/ William C. Stivers

William C. Stivers

 

Director

February 25, 2009

       
       
       
       

 

 

 

 

 

 

 

34


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES

_______________________________________

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements:     Page
       
     Consolidated Balance Sheets as of December 31, 2008 and 2007   F-2
       
  Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006   F-3
       
  Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006   F-4
       
  Consolidated Statements of Shareholders' Equity for the years ended December 31, 2008, 2007 and 2006   F-5
       
  Notes to Consolidated Financial Statements   F-6
       
  Reports of Independent Registered Public Accounting Firm   F-34
       
  Management's Report on Internal Control Over Financial Reporting   F-36

 

 

 

 

 

F-1

 

 


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(thousands of dollars)

       

December 31,

 

2008

 

2007

 
         

Assets

 

     

 

   
Current assets:              
     Cash and cash equivalents

$

181,876

   

$

128,985

 
  Short-term investments, at cost which approximates market  

9,258

     

9,697

 
  Accounts receivable, less allowance for doubtful accounts:              
           2008 - $2,600; 2007 - $3,223  

163,475

     

180,868

 
    Inventories  

133,983

     

103,373

 
  Prepaid expenses and other current assets  

23,281

     

22,773

 
  Assets held for disposal  

19,674

     

27,614

 
  Total current assets  

531,547

     

473,310

 
                 
  Property, plant and equipment, less accumulated depreciation and depletion  

429,593

     

489,386

 
  Goodwill  

66,414

     

71,964

 
  Prepaid pension costs  

483

     

53,667

 
  Other assets and deferred charges  

39,583

     

40,566

 
  Total assets

$

1,067,620

   

$

1,128,893

 
                 
 

Liabilities and Shareholders' Equity

 

     

 

   
Current liabilities:              
  Short-term debt

$

14,984

   

$

9,518

 
  Current maturities of long-term debt  

4,000

     

7,210

 
  Accounts payable  

67,393

     

66,084

 
  Income taxes payable  

--

     

3,826

 
  Accrued compensation and related items  

27,100

     

26,714

 
  Restructuring liabilities  

6,840

     

14,479

 
  Other current liabilities  

29,802

     

34,517

 
  Liabilities of assets held for disposal  

734

     

4,801

 
  Total current liabilities  

150,853

     

167,149

 
                 
Long-term debt  

97,221

     

111,006

 
Accrued pension and postretirement benefits  

51,922

     

42,412

 
Deferred taxes on income  

--

     

2,539

 
Other non-current liabilities  

56,040

     

54,614

 
  Total liabilities  

356,036

     

377,720

 
                 
Commitments and contingent liabilities (Notes 19 and 20)              
                 
Shareholders' equity:              
  Preferred stock, without par value; 1,000,000 shares authorized; none issued  

--

     

--

 
  Common stock at par, $0.10 par value; 100,000,000 shares authorized;              
  issued 28,832,875 shares in 2008 and 28,539,812 shares in 2007  

2,883

     

2,854

 
  Additional paid-in capital  

312,972

     

294,367

 
  Retained earnings  

863,601

     

802,096

 
  Accumulated other comprehensive income (loss)  

(31,634

)    

45,365

 
  Less common stock held in treasury, at cost; 10,141,073              
  shares in 2008 and 9,449,673 shares in 2007  

(436,238

)    

(393,509

)
  Total shareholders' equity  

711,584

     

751,173

 
                 
  Total liabilities and shareholders' equity

$

1,067,620

   

$

1,128,893

 

 

See Notes to Consolidated Financial Statements, which are an integral part of these statements.

 

F-2


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of dollars, except per share data)

 

Year Ended December 31,

                                                                       

 

2008

 

 

 

2007

   

 

2006

 
Net sales

$

1,112,212

   

$

1,077,721

   

$

1,023,544

 
Cost of goods sold  

891,738

     

845,136

     

798,730

 
  Production margin  

220,474

     

232,585

     

224,814

 
                       
Marketing and administrative expenses  

101,857

     

104,649

     

104,633

 
Research and development expenses  

23,052

     

26,348

     

27,753

 
Impairment of assets  

209

     

94,070

     

--

 
Restructuring and other costs  

13,365

     

16,017

     

--

 
                       
  Income (loss) from operations  

81,991

     

(8,499

)    

92,428

 
                       
    Interest income  

4,905

     

3,083

     

1,762

 
  Interest expense  

(5,181

)    

(8,701

)    

(8,319

)
  Foreign exchange gains (losses)  

1,694

     

513

     

(268

)
  Other income (deductions)  

(1,142

)    

2,105

     

955

 
Non-operating income (deductions), net  

276

     

(3,000

)    

(5,870

)
                       
  Income (loss) before provision for                      
taxes on income, minority interests and discontinued operations

82,267

(11,499

)

86,558

Provision for taxes on income  

24,079

     

11,266

     

26,992

 
Minority interests  

3,183

     

2,904

     

3,441

 
  Income (loss) from continuing operations  

55,005

     

(25,669

)    

56,125

 
Income (loss) from discontinued operations, net of tax  

10,282

     

(37,845

)    

(6,174

)
  Net income (loss)

$

65,287

   

$

(63,514

)  

$

49,951

 
                       
                       
Earnings per share:                      
Basic:                      
  Income (loss) from continuing operations

$

2.91

   

$

(1.34

)  

$

2.86

 
  Income (loss) from discontinued operations  

0.54

     

(1.97

)    

(0.31

)
      Basic earnings (loss) per share

$

3.45

   

$

(3.31

)  

$

2.55

 
                       
Diluted:                      
  Income (loss) from continuing operations

$

2.90

   

$

(1.34

)  

$

2.84

 
  Income (loss) from discontinued operations  

0.54

     

(1.97

)    

(0.31

)
      Diluted earnings (loss) per share

$

3.44

   

$

(3.31

)  

$

2.53

 
                       

 

 

See Notes to Consolidated Financial Statements, which are an integral part of these statements.

 

F-3


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)

   

Year Ended December 31,

   

 

2008

     

2007

     

2006

 
Operating Activities                      
Net income (loss)

$

65,287

   

$

(63,514

)  

$

49,951

 
Income (loss) from discontinued operations  

10,282

     

(37,845

)    

(6,174

)
Income (loss) from continuing operations  

55,005

     

(25,669

)    

56,125

 
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by operating activities:
                     
  Depreciation, depletion and amortization  

80,146

     

84,565

     

80,535

 
  Impairment of assets  

209

     

94,070

     

--

 
  Pension settlement loss and amortization  

11,293

     

5,604

     

4,592

 
  Loss on disposal of property, plant and equipment  

989

     

1,639

     

839

 
  Deferred income taxes  

(3,001

)    

(15,148

)    

4,345

 
  Provisions for bad debts  

159

     

(49

)    

377

 
  Stock-based compensation  

4,952

     

4,196

     

4,015

 
  Other  

3,184

     

2,729

     

3,475

 
Changes in operating assets and liabilities, net of effects of acquisitions:                      
   Accounts receivable  

9,060

     

15,281

     

5,148

 
  Inventories  

(35,595

)    

15,223

     

(2,744

)
  Prepaid expenses and other current assets  

254

     

(923

)    

2,951

 
  Pension plan funding  

(3,180

)    

(24,050

)    

(22,348

)
  Accounts payable  

3,959

     

4,049

     

(6,268

)
  Restructuring liabilities  

(7,639

)    

14,479

     

--

 
  Income taxes payable  

4,333

     

3,956

     

3,040

 
  Tax benefits related to stock incentive programs  

1,696

     

2,649

     

590

 
  Other  

4,295

     

(1,377

)    

4,293

 
Net cash provided by continuing operations  

130,119

     

181,224

     

138,965

 
Net cash provided by (used in) discontinued operations  

4,092

     

(1,533

)    

(3,366

)
Net cash provided by operations  

134,211

     

179,691

     

135,599

 
Investing Activities                      
Purchases of property, plant and equipment q  

(31,027

)    

(46,072

)    

(57,426

)
Purchases of short-term investments  

(10,007

)    

(14,798

)    

(12,590

)
Proceeds from sales of short-term investments  

6,654

     

14,147

     

6,440

 
Proceeds from disposal of property, plant and equipment  

609

     

354

     

675

 
Proceeds from insurance settlement  

--

     

3,000

     

2,398

 
Acquisition of businesses, net of cash acquired  

--

     

--

     

(32,416

)
Net cash used in investing activities - continuing operations  

(33,771

)    

(43,369

)    

(92,919

)
Net cash provided by (used in) investing activities - discontinued operations  

14,978

     

(3,376

)    

(27,733

)
Net cash used in investing activities  

(18,793

)    

(46,745

)    

(120,652

)
Financing Activities                      
Proceeds from issuance of long-term debt  

--

     

7,741

     

75,000

 
Repayment of long-term debt  

(17,114

)    

(5,411

)    

(53,754

)
Net proceeds from issuance (repayment) of short-term debt  

4,840

     

(78,206

)    

24,797

 
Purchase of common shares for treasury  

(45,281

)    

(25,339

)    

(53,372

)
Cash dividends paid  

(3,782

)    

(3,845

)    

(3,911

)
Proceeds from issuance of stock under option plan  

11,538

     

17,953

     

3,741

 
Excess tax benefits related to stock incentive programs  

610

     

889

     

152

 
Indemnification proceeds from former parent company  

--

     

--

     

4,500

 
Debt issuance costs  

--

     

--

     

(190

)
Net cash used in financing activities  

(49,189

)    

(86,218

)    

(3,037

)
Effect of exchange rate changes on cash and cash equivalents  

(13,338

)    

14,328

     

4,919

 
Net increase in cash and cash equivalents  

52,891

     

61,056

     

16,829

 
Cash and cash equivalents at beginning of year  

128,985

     

67,929

     

51,100

 
Cash and cash equivalents at end of year

$

181,876

   

$

128,985

   

$

67,929

 
Non-cash Investing and Financing Activities:                      
Tax liability on indemnification proceeds from former parent company

$

--

   

$

--

   

$

1,782

 
Treasury stock purchases settled after year-end

$

--

   

$

2,552

   

$

--

 

 

See Notes to Consolidated Financial Statements, which are an integral part of these statements.

 

F-4


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

 

Common Stock Par Value

 

Additional
Paid-in Capital

 

Deferred
Compensation

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Treasury
Stock at Cost

 

Total

Balance as of January 1, 2006

$

2,800

   

$

261,159

   

$

(3,263

)  

$

828,591

   

$

(5,879

)  

$

(312,246

)  

$

771,162

 
Comprehensive Income:                                                      
Net income  

--

     

--

     

--

     

49,951

     

--

     

--

     

49,951

 
Currency translation adjustment  

--

     

--

     

--

     

--

     

35,924

     

--

     

35,924

 
Additional minimum liability  

--

     

--

     

--

     

--

     

2,988

     

--

     

2,988

 
                                                       
Cash flow hedge:                                                      
Net derivative losses arising during the year  

--

     

--

     

--

     

--

     

(62

)    

--

     

(62

)
Reclassification adjustment  

--

     

--

     

--

     

--

     

124

     

--

     

124

 
     Total comprehensive income  

--

     

--

     

--

     

49,951

     

38,974

     

--

     

88,925

 
Dividends declared  

--

     

--

     

--

     

(3,911

)    

--

     

--

     

(3,911

)
Opening retained earnings adjustment due                                                      
     to adoption of EITF 04-06  

--

     

--

     

--

     

(7,119

)    

--

     

--

     

(7,119

)
Employee Benefit transactions  

10

     

3,731

     

--

     

--

     

--

     

--

     

3,741

 
Income tax benefit arising from employee                                                      
     stock option plans  

--

     

741

     

--

     

--

     

--

     

--

     

741

 
Reclassification of unearned compensation  

--

     

(3,263

)    

3,263

     

--

     

--

     

--

     

--

 
Amortization of restricted stock  

--

     

1,679

     

--

     

--

     

--

     

--

     

1,679

 
Indemnity proceeds, net of tax  

--

     

2,718

     

--

     

--

     

--

     

--

     

2,718

 
Adjustment to initially apply SFAS 158,                                                      
     net of tax  

--

     

--

     

--

     

--

     

(54,343

)    

--

     

(54,343

)
Stock option expenses  

--

     

2,336

     

--

     

--

     

--

     

--

     

2,336

 
Purchase of common stock for treasury                                          

(53,372

)    

(53,372

)
Balance as of December 31, 2006  

2,810

     

269,101

     

--

     

867,512

     

(21,248

)    

(365,618

)    

752,557

 
Comprehensive Income (loss):                                                      
Net income (loss)  

--

     

--

     

--

     

(63,514

)    

--

     

--

     

(63,514

)
Currency translation adjustment  

--

     

--

     

--

     

--

     

48,488

     

--

     

48,488

 
Unamortized gains and prior service cost  

--

     

--

     

--

     

--

     

18,106

     

--

     

18,106

 
                                                       
Cash flow hedge:                                                      
Net derivative losses arising during the year  

--

     

--

     

--

     

--

     

(43

)    

--

     

(43

)
Reclassification adjustment  

--

     

--

     

--

     

--

     

62

     

--

     

62

 
     Total comprehensive income (loss)  

--

     

--

     

--

     

(63,514

)    

66,613

     

--

     

3,099

 
Dividends declared  

--

     

--

     

--

     

(3,845

)    

--

     

--

     

(3,845

)
Opening retained earnings adjustment due  

--

     

--

     

--

     

--

     

--

     

--

     

--

 
     to adoption of FIN 48 (Note 5)  

--

     

--

     

--

     

1,943

     

--

     

--

     

1,943

 
Employee benefit transactions  

44

     

17,909

     

--

     

--

     

--

     

--

     

17,953

 
Income tax benefit arising from employee                                                      
     stock option plans  

--

     

3,161

     

--

     

--

     

--

     

--

     

3,161

 
Amortization of restricted stock  

--

     

1,813

     

--

     

--

     

--

     

--

     

1,813

 
Stock option expenses  

--

     

2,383

     

--

     

--

     

--

     

--

     

2,383

 
Purchase of common stock for treasury  

--

     

--

     

--

     

--

     

--

     

(27,891

)    

(27,891

)
Balance as of December 31, 2007  

2,854

   

$

294,367

   

$

--

   

$

802,096

   

$

45,365

   

$

(393,509

)  

$

751,173

 
Comprehensive Income (loss):                                                      
Net income (loss)  

--

     

--

     

--

     

65,287

     

--

     

--

     

65,287

 
Currency translation adjustment  

--

     

--

     

--

     

--

     

(49,417

)    

--

     

(49,417

)
Unamortized losses and prior service cost  

--

     

--

     

--

     

--

     

(28,751

)    

--

     

(28,751

)
Cash flow hedge:                                                      
Net derivative gains arising during the year  

--

     

--

     

--

     

--

     

1,126

     

--

     

1,126

 
Reclassification adjustment  

--

     

--

     

--

     

--

     

43

     

--

     

43

 
     Total comprehensive income (loss)  

--

     

--

     

--

     

65,287

     

(76,999

)    

--

     

(11,712

)
Dividends declared  

--

     

--

     

--

     

(3,782

)    

--

     

--

     

(3,782)

 
Employee benefit transactions  

29

     

11,509

     

--

                             

11,538

 
Income tax benefit arising from employee                                                      
     stock option plans  

--

     

2,143

     

--

     

--

     

--

     

--

     

2,143

 
Amortization of restricted stock  

--

     

2,994

     

--

     

--

     

--

     

--

     

2,994

 
Stock option expenses  

--

     

1,959

     

--

     

--

     

--

     

--

     

1,959

 
Purchase of common stock for treasury  

--

     

--

     

--

     

--

     

--

     

(42,729

)    

(42,729

)
Balance as of December 31, 2008

$

2,883

   

$

312,972

   

$

--

   

$

863,601

   

$

(31,634

)  

$

(436,238

)  

$

711,584

 

See Notes to Consolidated Financial Statements, which are an integral part of these statements.

 

F-5


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Summary of Significant Accounting Policies

     Basis of Presentation

     The accompanying consolidated financial statements include the accounts of Minerals Technologies Inc. (the "Company") and its wholly and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

     Certain reclassifications were made to prior year amounts to conform with the current year presentation. See Note 4, "Discontinued Operations" for further information.

     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.

     Business

     The Company is a resource- and technology-based company that develops, produces and markets on a worldwide basis a broad range of specialty mineral, mineral-based products and related systems and technologies. The Company's products are used in the manufacturing processes of the paper and steel industries, as well as by the building materials, polymers, ceramics, paints and coatings, and other manufacturing industries.

     Cash Equivalents and Short-term Investments

     The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents were $4.7 million at December 31, 2007. Short-term investments consist of financial instruments with original maturities beyond three months, but less than twelve months. Short-term investments amounted to $9.3 million and $9.7 million at December 31, 2008 and 2007, respectively.

     Trade Accounts Receivable

     Trade accounts receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience and specific allowances for bankrupt customers. The Company also analyzes the collection history and financial condition of its other customers, considering current industry conditions and determines whether an allowance needs to be established. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days based on payment terms are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

     Inventories

     Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

     Additionally, as required by SFAS No. 151, "Inventory Costs - an Amendment of ARB No. 43, Chapter 4," items such as idle facility expense, excessive spoilage, freight handling costs and re-handling costs are recognized as current period charges. The allocation of fixed production overheads to the costs of conversion are based upon the normal capacity of the production facility. Fixed overhead costs associated with idle capacity are expensed as incurred.

     Property, Plant and Equipment

     Property, plant and equipment are recorded at cost. Significant improvements are capitalized, while maintenance and repair expenditures are charged to operations as incurred. The Company capitalizes interest cost as a component of construction in progress. In general, the straight-line method of depreciation is used for financial reporting purposes and accelerated methods are used for U.S. and certain foreign tax reporting purposes. The annual rates of depreciation are 3% - 6.67% for buildings, 6.67% - 12.5% for machinery and equipment, 8% - 12.5% for furniture and fixtures and 12.5% - 25% for computer equipment and software-related assets. The estimated useful lives of our PCC production facilities and machinery and equipment pertaining to our natural stone mining and processing plants and our chemical plants are 15 years.

     Property, plant and equipment are depreciated over their useful lives. Useful lives are based on management's estimates of the period that the assets can generate revenue, which does not necessarily coincide with the remaining term of a customer's contractual obligation to purchase products made using those assets. The Company's sales of PCC are predominantly

F-6


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS

pursuant to long-term evergreen contracts, initially ten years in length, with paper mills at which the Company operates satellite PCC plants. The terms of many of these agreements have been extended, often in connection with an expansion of the satellite PCC plant. Failure of a PCC customer to renew an agreement or continue to purchase PCC from a Company facility could result in an impairment of assets charge or accelerated depreciation at such facility.

     Depletion of mineral reserves is determined on a unit-of-extraction basis for financial reporting purposes, based upon proven and probable reserves, and on a percentage depletion basis of tax purposes.

     Stripping Costs Incurred During Production

     The Company accounts for stripping costs in accordance with the consensus of Emerging Issues Task Force ("EITF") Issue No. 04-06, "Accounting for Stripping Costs Incurred During Production in the Mining Industry." Stripping costs are those costs incurred for the removal of waste materials for the purpose of accessing ore body that will be produced commercially. Stripping costs incurred during the production phase of a mine are variable costs that are included in the costs of inventory produced during the period that the stripping costs are incurred.

     Accounting for the 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," and EITF 04-3, "Mining Assets: Impairment and Business Combinations." 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.

     Goodwill and Other Intangible Assets

     Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. The Company accounts for goodwill and other intangible assets under 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 tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated lives to the estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

     The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the fair value for the reporting unit is compared to its book value including goodwill. In the case that the fair value of the reporting unit is less than book value, a second step is performed which compares the fair value of the reporting unit's goodwill to the book value of the goodwill. The fair value for the goodwill is determined based on the difference between the fair values of the reporting unit and the net fair values of the identifiable assets and liabilities of such reporting unit. If the fair value of the goodwill is less than the book value, the difference is recognized as an impairment.

     Accounting for Asset Retirement Obligations

     The Company accounts for asset retirement obligations in accordance with SFAS No. 143, "Accounting for Asset Retirement Obligations" and under the provisions of FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations." SFAS No. 143 establishes the financial accounting and reporting for obligations associated with the retirement of long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. FASB Interpretation No. 47 includes legal obligations to perform asset retirement activities where timing or method of settlement are conditional on future events.

     Fair Value of Financial Instruments

     The recorded amounts of cash and cash equivalents, receivables, short-term borrowings, accounts payable, accrued interest, and variable-rate long-term debt approximate fair value because of the short maturity of those instruments or the variable nature of underlying interest rates. Short-term investments are recorded at cost, which approximates fair market value.

F-7


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS

     Derivative Financial Instruments

     The Company accounts for derivative financial instruments which are used to hedge certain foreign exchange risk in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." See Note 13 for a full description of the Company's hedging activities and related accounting policies.

     Revenue Recognition

     Revenue from sale of products is recognized at the time the goods are shipped and title passes to the customer. In most of the Company's PCC contracts, the price per ton is based upon the total number of tons sold to the customer during the year. Under those contracts the price billed to the customer for shipments during the year is based on periodic estimates of the total annual volume that will be sold to such customer. Revenues are adjusted at the end of each year to reflect the actual volume sold. The Company also has consignment arrangements with certain customers in our Refractories segment. Revenues for these transactions are recorded when the consigned products are consumed by the customer.

     Revenues from sales of equipment are recorded upon completion of installation and receipt of customer acceptance. Revenues from services are recorded when the services have been performed.

     Foreign Currency

     The assets and liabilities of the Company's international subsidiaries are translated into U.S. dollars using exchange rates at the respective balance sheet date. The resulting translation adjustments are recorded in accumulated other comprehensive income (loss) in shareholders' equity. Income statement items are generally translated at monthly average exchange rates prevailing during the period. International subsidiaries operating in highly inflationary economies translate non-monetary assets at historical rates, while net monetary assets are translated at current rates, with the resulting translation adjustments included in net income. At December 31, 2008, the Company had no international subsidiaries operating in highly inflationary economies.

     Income Taxes

     Income taxes are provided for based on the asset and liability method of accounting pursuant to SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

     The Company operates in multiple taxing jurisdictions, both within the U.S. 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 regularly assesses its tax position for such transactions and includes reserves for those differences in position. The reserves are utilized or reversed once the statute of limitations has expired or the matter is otherwise resolved.

     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 operations. The Company's accounting policy is to recognize interest and penalties as part of its provision for income taxes. See Note 5 to the consolidated financial statements, "Income Taxes," for additional detail on our uncertain tax positions.

     The accompanying financial statements generally do not include a provision for U.S. income taxes on international subsidiaries' unremitted earnings, which are expected to be permanently reinvested overseas.

     Research and Development Expenses
     Research and development expenses are expensed as incurred.

     Accounting for Stock-Based Compensation
     The Company accounts for share-based compensation in accordance with SFAS No. 123R, "Share-Based Payment." Under the provisions of SFAS No. 123R, the Company recognizes compensation expense for share-based awards based upon the grant date fair value over the vesting period.

F-8


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS

     Pension and Post-retirement Benefits
     The Company has defined benefit pension plans covering the majority of its employees. The benefits are generally based on years of service and an employee's modified career earnings.

     The Company also provides post-retirement healthcare benefits for the majority of its retirees and employees in the United States. The Company measures the costs of its obligation based on its best estimate. The net periodic costs are recognized as employees render the services necessary to earn the post-retirement benefits.

     Environmental
     Expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and which do not contribute to current or future revenue generation are expensed. Liabilities are recorded when it is probable the Company will be obligated to pay amounts for environmental site evaluation, remediation or related costs, and such amounts can be reasonably estimated.

     Earnings Per Share
     Basic earnings per share have been computed based upon the weighted average number of common shares outstanding during the period.

     Diluted earnings per share have been computed based upon the weighted average number of common shares outstanding during the period assuming the issuance of common shares for all potentially dilutive common shares outstanding.

Note 2.   Stock-Based Compensation

     The Company has a 2001 Stock Award and Incentive Plan (the "Plan"), which provides for grants of incentive and non-qualified stock options, restricted stock, stock appreciation rights, stock awards or performance unit awards. The Plan is administered by the Compensation Committee of the Board of Directors. Stock options granted under the Plan generally have a ten year term. The exercise price for stock options are at prices at or above the fair market value of the common stock on the date of the grant, and each award of stock options will vest ratably over a specified period, generally three years.

     The Company accounts for stock-based compensation under the fair value recognition provisions of SFAS No. 123R, "Share-Based Payments." Stock-based compensation expense is recognized in the consolidated financial statements for stock options based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R.

     Net income (loss) for years ended 2008, 2007 and 2006 include $2.0 million, $2.4 million and $2.3 million pretax compensation costs, respectively, related to stock option expense as a component of marketing and administrative expenses.  All stock option expense is recognized in the consolidated statements of operations. The related tax benefit included in the statement of operations on the non-qualified stock options is $0.7 million, $0.6 million and $0.5 million for 2008, 2007 and 2006, respectively.

      As required under SFAS No. 123R, the benefits of tax deductions in excess of the tax benefit of compensation costs recognized or would have been recognized under SFAS No. 123 for those options are classified as financing inflows on the consolidated statement of cash flows.

Stock Options

     The fair value of options granted is estimated on the date of grant using the Black-Scholes valuation model. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of grant based on the Company's historical experience and future expectations. The forfeiture rate assumption used for the period ended December 31, 2008 was approximately 8.8%.

     The weighted average grant date fair value for stock options granted during the years ended December 31, 2008, 2007 and 2006 was $19.11, $21.61and $18.97, respectively. The weighted average grant date fair value for stock options vested during 2008, 2007 and 2006 was $21.12, $20.83 and $20.83, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2008, 2007 and 2006 was $5.9 million, $9.4 and $1.8 million, respectively.

F-9


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS

      The fair value for stock awards was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted average assumptions for the years ended December 31, 2008, 2007 and 2006:

2008

2007

2006

Expected life (years)

 

6.3

     

6.5

     

6.4

 

Interest rate

 

2.50

%    

4.50

%    

4.63

%

Volatility

 

25.20

%    

25.10

%    

24.78

%

Expected dividend yield

 

0.34

%    

0.26

%    

0.37

%

     The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, based upon contractual terms, vesting schedules, and expectations of future employee behavior. The expected stock-price volatility is based upon the historical and implied volatility of the Company's stock. The interest rate is based upon the implied yield on U.S. Treasury bills with an equivalent remaining term. Estimated dividend yield is based upon historical dividends paid by the Company.

     The following table summarizes stock option activity for the year ended December 31, 2008:

   

Shares

       

Weighted Average Exercise Price Per Share

 

Weighted Average Remaining Contractual Life (Years)

   

Aggregate Intrinsic Value (in thousands)

Balance January 1, 2007 77  

839,715

     

$

50.51

         
Granted  

112,300

       

67.47

         
Exercised  

(261,460

)      

43.97

         
Canceled  

(28,774

)      

57.90

         
Balance December 31, 2008

661,781

55.14

5.93

$

188

Exercisable, December 31, 2008  

436,591

     

$

51.40

 

3.00

 

$

188

     The aggregate intrinsic value above is calculated before applicable income taxes, based on the Company's closing stock price of $40.90 as of the last business day of the period ended December 31, 2008 had all options been exercised on that date. The weighted average intrinsic value of the options exercised during 2008, 2007 and 2006 was $22.47, $21.70 and $17.48 per share, respectively. As of December 31, 2008, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $2.3 million, which is expected to be recognized over a weighted average period of approximately three years.

     The Company issues new shares of common stock upon the exercise of stock options.

     Non-vested stock option activity for the year ended December 31, 2008 is as follows:

   

Shares

   

Weighted Average Exercise Price Per Share

 
Nonvested options outstanding at December 31, 2007  

235,928

 

$

58.98

 
Options granted  

112,300

   

64.47

 
Options vested  

(97,069

)  

57.36

 
Options forfeited  

(25,969

)  

59.25

 
Nonvested options outstanding, December 31, 2008  

225,190

 

$

62.38

 

 

 

F-10


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS

     The following table summarizes additional information concerning options outstanding at December 31, 2008:

Options Outstanding

 

Options Exercisable

Range of
Exercise Prices

 

Number Outstanding at 12/31/08

 

Weighted Average Remaining Contractual Term (Years)

 

Weighted Average Exercise Price

 

Number Exercisable at 12/31/08

 

Weighted Average Exercise Price

$

34.825

-

$

44.156

 

58,453

 

1.0

 

$

37.71

 

58,453

 

$

37.71

$

46.625

-

$

54.225

 

316,195

 

4.7

 

$

51.71

 

305,498

 

$

51.62

$

55.870

-

$

69.315

 

287,133

 

8.3

 

$

62.46

 

72,640

 

$

61.49

$

34.825

-

$

69.315

 

661,781

 

5.9

 

$

55.14

 

436,591

 

$

51.40

Restricted Stock

     The Company has granted certain corporate officers rights to receive shares of the Company's common stock under the Company's 2001 Stock Award and Incentive Plan (the "Plan"). The rights will be deferred for a specified number of years of service, subject to restrictions on transfer and other conditions. Under the provisions of SFAS No. 123R, compensation expense for these shares is recognized over the vesting period. The Company granted 68,600 shares, 87,650 shares and 50,300 shares for the periods ended December 31, 2008, 2007 and 2006, respectively. The fair value was determined based on the market value of unrestricted shares. The discount for the restriction was not significant. As of December 31, 2008, there was unrecognized stock-based compensation related to restricted stock of $5.3 million, which will be recognized over approximately the next three years. The compensation expense amortized with respect to all units was approximately $3.6 million, $2.8 million and $1.7 million for the periods ended December 31, 2008, 2007 and 2006, respectively. In addition, the Company recorded reversals of $0.6 million and $1.0 million for periods ended December 31, 2008 and December 31, 2007, respectively, related to restricted stock forfeitures. Such costs and reversals are included in marketing and administrative expenses. There were 28,267 restricted stock shares that vested as of December 31, 2008.

     The following table summarizes the restricted stock activity for the Plan:

       

Shares

     

Weighted Average Grant Date Fair Value

 
Unvested balance at December 31, 2007      

133,533

   

$

58.98

 
Granted      

68,600

   

$

64.06

 
Vested      

(28,267

)  

$

56.45

 
Canceled      

(12,572

)  

$

58.30

 
Unvested balance at December 31, 2008      

161,294

   

$

61.63

 

Note 3.   Earnings Per Share (EPS)

(thousand of dollars, except per share amounts)  

2008

     

2007

     

2006

 
Basic EPS                      
Income (loss) from continuing operations

$

55,005

   

$

(25,669

)  

$

56,125

 
Income (loss) from discontinued operations  

10,282

     

(37,845

)    

(6,174

)
  Net income (loss)

$

65,287

   

$

(63,514

)  

$

49,951

 
Weighted average shares outstanding  

18,893

     

19,190

     

19,600

 
                       
Basic earnings (loss) per share from continuing operations

$

2.91

   

$

(1.34

)  

$

2.86

 
Basic earnings (loss) per share from discontinued operations  

0.54

     

(1.97

)    

(0.31

)
  Basic earnings (loss) per share

$

3.45

   

$

(3.31

)  

$

2.55

 

F-11


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES OF CONSOLIDATED FINANCIAL STATEMENTS

Diluted EPS  

2008

     

2007

     

2006

 
Income (loss) from continuing operations

$

55,005

   

$

(25,669

)  

$

56,125

 
Income (loss) from discontinued operations  

10,282

     

(37,845

)    

(6,174

)
  Net income (loss)

$

65,287

   

$

(63,514

)  

$

49,951