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MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

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*   Unaudited
**  Condensed from audited financial statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

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MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

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     The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. The results for the three-month and nine-month periods ended September 29, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

     The following is a summary of inventories by major category:

     The following is a summary of long-term debt:

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     Basic earnings per share are based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the period assuming the issuance of common shares for all dilutive potential common shares outstanding. The following table sets forth the computation of basic and diluted earnings per share:

     The following are the components of comprehensive income (loss):

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The components of accumulated other comprehensive loss, net of related tax are as follows:

     Segment information for the three-month and nine-month periods ended September 29, 2002 and September 30, 2001 was as follows:

     Included in income from operations of the Specialty Minerals segment for the nine months ended September 29, 2002, is a write-down of impaired assets of $0.8 million. In the second quarter of 2001, a restructuring charge of approximately $3.0 million and $0.4 million was included in income from operations for the Specialty Minerals segment and Refractories segment, respectively.

     The following is a schedule of amortization expense related to goodwill by segment:

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     The carrying amount of goodwill by reportable segment as of September 29, 2002 and December 31, 2001 was as follows:

     A reconciliation of the totals reported for the operating segments to the applicable line items in the condensed consolidated financial statements is as follows:

     On February 6, 2002, the Company acquired from J.M. Huber Corporation of Edison, New Jersey a merchant precipitated calcium carbonate plant located in Hermalle-sous-Huy, Belgium. The plant has the capacity to produce approximately 60,000 tons of PCC annually. The Company acquired this plant to accelerate the development of its European coating PCC program. The purchase price was $10.2 million, which included acquisition costs and assumed liabilities. The terms of the acquisition also provide for additional consideration of $1.0 million to be paid if certain volumes of coating PCC are produced and shipped from this facility for any six consecutive months within five years following the acquisition. Approximately $0.1 million of the purchase price was assigned to goodwill. The operations of this entity have been included in the Company's financial statements since the date of its acquisition.

     On April 26, 2002, the Company acquired the assets of Thermo Radiometrie Oy and all of the outstanding shares of Thermo Radiometrie K.K. (collectively, Radiometrie). Radiometrie develops and manufactures a refractory lining monitoring system used to measure and monitor ceramic refractory linings of steel converters and ladles. The purchase price was $1.4 million, which included acquisition costs and assumed liabilities. Approximately $0.1 million of the purchase price was assigned to goodwill. The operations of this entity have been included in the Company's financial statements since the date of its acquisition.

     On September 9, 2002, the Company acquired the business and assets of Polar Minerals Inc. ("Polar"), a privately owned producer of industrial minerals in the midwest United States. The purchase price was $22.5 million. The final appraisal of the business and assets has not been completed as of September 29, 2002. The Company has estimated that approximately $4.7 million of the purchase price will be assigned to goodwill and has included that amount in the financial statements. The operations of this entity have been included in the Company's financial statements since the date of acquisition.

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     Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and other intangible assets with indefinite lives will no longer be amortized, but instead reviewed for impairment at least annually in accordance with the provisions of SFAS No. 142. This statement also required an initial goodwill impairment assessment in the year of adoption. The Company completed the initial impairment analysis. The analysis did not result in an impairment charge.

     The carrying amount of goodwill was $50.1 million and $43.5 million as of September 29, 2002 and December 31, 2001, respectively. The net change in goodwill since January 1, 2002 was primarily attributable to the acquisition of Polar.

     The following table reconciles previously reported net income as if the provisions of SFAS No. 142 had been in effect in 2001:

     Acquired intangible assets subject to amortization as of September 29, 2002 and December 31, 2001 were as follows:

     The weighted average amortization period for acquired intangible assets subject to amortization is approximately 15 years. Estimated amortization expense is $0.4 million for each of the next five years through 2007.

     The Company accounts for impairment of long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes a uniform accounting model for long-lived assets to be disposed of. This Statement also requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. During the first quarter of 2002, the Company recorded a write-down of impaired assets of $750,000 for a precipitated calcium carbonate plant at a paper mill that had ceased operations. Such charge is included in cost of goods sold for the nine months ended September 29, 2002.

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The Board of Directors and Shareholders
Minerals Technologies Inc.:

       We have reviewed the condensed consolidated balance sheet of Minerals Technologies Inc. and subsidiary companies as of September 29, 2002 and the related condensed consolidated statements of income for each of the three-month and nine-month periods ended September 29, 2002 and September 30, 2001, and cash flows for the nine-month periods then ended. These financial statements are the responsibility of the company's management.

       We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

       Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

       As discussed in Note 8 to the condensed consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets."

       We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Minerals Technologies Inc. and subsidiary companies as of December 31, 2001, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 22, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2001 is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

KPMG LLP

 

 

New York, New York
October 17, 2002

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Results of Operations

     Net sales in the third quarter of 2002 increased 9.8% to $192.1 million from $174.9 million in the third quarter of 2001. Foreign exchange had a favorable effect on sales of approximately $1.5 million or 0.9 percentage points of growth.

     Worldwide net sales of PCC, which is used primarily in the manufacturing process of the paper industry, increased 9.0% to $107.6 million from $98.7 million in the third quarter of 2001. Sales volume for PCC used for filling and coating paper increased 10%. This increase was primarily due to the ramp-up of the ten new units of precipitated calcium carbonate capacity that were added in 2001 and increased volume worldwide from several long-standing satellite facilities. These volume increases more than compensated for the closure of several satellite PCC facilities in the United States. A unit represents approximately 30,000 tons of annual PCC production.

     Net sales of the Specialty PCC product line, which is used in non-paper applications, increased 4.2% from the prior year. This increase was attributable primarily to increased volume from the Brookhaven, Mississippi facility. However, this facility is still operating well below capacity levels and the overall profitability of this product line continues to be affected by weak industry conditions and a competitive environment in the calcium supplement market.

     Net sales of Processed Minerals products increased 8.9% in the third quarter to $24.5 million from $22.5 million in the same period the prior year. Approximately 6 percentage points of the sales growth were attributable to the acquisition of Polar Minerals Inc. on September 9, 2002.

     Net sales in the Refractories segment increased 11.7% to $60.0 million as compared with $53.7 million in the prior year. Approximately 9 percentage points of the increase in sales were the result of the acquisition of Rijnstaal B.V., a Netherlands-based producer of cored metal wires used mainly in the steel and foundry industries, in the third quarter of 2001.

     Net sales in the United States in the third quarter of 2002 increased approximately 6% as compared with the third quarter of 2001. The 6% sales increase in the U.S. occurred in both business segments. International sales increased approximately 17% in the third quarter of 2002. This was primarily due to strong sales in Europe in both business segments and to the acquisitions in Belgium and the Netherlands.

     Cost of goods sold was 75.8% of sales compared with 73.7% in the prior year. An increase in cost of goods sold as a percentage of sales occurred in both reporting segments. Cost of goods sold as a percentage of sales for the Specialty Minerals segment increased slightly primarily as a result of the financial effect of the shortened periods over which existing satellite plants at International Paper Company ("IP") mills are depreciated, continued development activities for coating-grade PCC associated with the acquisition of a PCC plant in Belgium and continued weakness in the Specialty PCC product line. Cost of goods sold as a percentage of sales for the Refractories segment increased due to volume losses as a result of slowdowns and closures in high margin integrated steel mill accounts, inventory and production problems at certain facilities in North America, and increased development costs associated with new products and systems.

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     Marketing and administrative costs were approximately 10.1% of sales compared with 10.5% of sales in the prior year. Although the Company's sales and marketing staff increased as a result of the recent acquisitions, these costs were largely offset by the benefits of the prior year's restructuring.

     Income from operations decreased 1.9% to $21.6 million, as compared with $22.1 million for the same period last year. There was no amortization related to goodwill in the third quarter of 2002. Amortization related to goodwill was $0.4 million in the third quarter of 2001. Operating income in the Specialty Minerals segment represented 12.8% of its net sales and increased 9.8% to $16.9 million from $15.4 million in the prior year. The Refractories segment's operating income decreased 29.1% to $4.7 million and was 7.8% of its net sales. This decrease was attributable to the aforementioned decrease in production margin and higher expenses.

     Non-operating deductions decreased due to lower interest rates and lower average borrowings.

     Net income increased 4.6% to $14.2 million from $13.6 million in the prior year. Diluted earnings per share were $0.70 in the third quarter of 2002 as compared with $0.68 in the prior year.

     On September 9, 2002, the Company acquired the business and assets of Polar Minerals Inc. ("Polar"), a privately owned producer of industrial minerals in the Midwest United States. The purchase price was $22.5 million. Polar had sales in 2001 of approximately $24.1 million.

     Several consolidations in the paper industry have taken place in recent years. Such consolidations concentrate purchasing power in the hands of a smaller number of papermakers, enabling them to increase pressure on suppliers. This increased pressure could have an adverse effect on the Company's results of operations in the future. In addition, these consolidations could result in partial or total closure of some paper mills at which the Company operates PCC satellites. In particular, the Company's largest customer, IP, decided during 2000 to reduce production capacity by closing four paper mills at which the Company has satellite PCC plants. These closed mills are located in Mobile, Alabama; Lock Haven, Pennsylvania; Erie, Pennsylvania; and Oswego, New York. Sales to IP represented approximately 10.8% and 11.5% of consolidated net sales for the three-month and nine-month periods ended September 29, 2002, respectively. In addition, during 2000 two paper companies filed for bankruptcy protection and closed their paper mills in Plainwell, Michigan and Anderson, California, at which the Company had satellite PCC plants.

     Excluding the aforementioned plants that have been closed, there are two satellite locations at which contracts with host mills have expired and one location, representing less than one unit of PCC production, at which the host mill has inf