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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

 

For the quarterly period ended June 29, 2003

or

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

COMMISSION FILE NUMBER 1-3295

--

MINERALS TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

DELAWARE

25-1190717

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

405 Lexington Avenue, New York, New York 10174-1901
(Address of principal executive offices, including zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES X      

NO _____

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

CLASS
Common Stock, $0.10 par value

OUTSTANDING AT July 29, 2003
20,115,934

 


 

 

MINERALS TECHNOLOGIES INC.

 

INDEX TO FORM 10-Q

 

Page No.

PART I.    FINANCIAL INFORMATION

 
   

Item 1.

 

                   Financial Statements:

 
   

                        Condensed Consolidated Statement of Income for
                        the three-month and six-month periods ended
                        June 29, 2003 and June 30, 2002

3

   

                        Condensed Consolidated Balance Sheet as of 
                        June 29, 2003 and December 31, 2002

4

   

                        Condensed Consolidated Statement of 
                        Cash Flows for the six-month periods ended
                        June 29, 2003 and June 30, 2002

5

   

                        Notes to Condensed Consolidated 
                        Financial Statements

6

   

                   Independent Auditors' Review Report

13

   
   

Item 2.

 

                   Management's Discussion and Analysis of 
                   Financial Condition and Results of Operations

14

   
   

Item 3.

 

                   Quantitative and Qualitative Disclosures
                   about Market Risk

18

   
   

Item 4.

 

                   Controls and Procedures

19

   
   
   

PART II. OTHER INFORMATION

 
   

Item 1.

 

                   Legal Proceedings

19

   
   

Item 6.

 

                   Exhibits and Reports on Form 8-K

19

   
   

Signature

20

 


 

PART 1.  FINANCIAL INFORMATION

 

 

ITEM 1.  Financial Statements

 

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

 

Three Months Ended


Six Months Ended


(in thousands, except per share data)

June 29,
2003  

June 30,
2002
  

June 29,
2003  

June 30,
2002  

Net sales

$202,374

$186,828

$403,824 

$365,828

Operating costs and expenses:

       

       Cost of goods sold

152,378

140,662

304,061 

274,086

       Marketing and administrative
       expenses

21,862

19,357

42,999 

37,793

       Research and development
       expenses

  6,535

  5,825

  12,620 

  11,529

Income from operations

21,599

20,984

44,144 

42,420

Non-operating deductions, net

   1,441

  1,021

  2,468 

  2,959

Income before provision for 
taxes on income and minority interests

20,158

19,963

41,676 

39,461

Provision for taxes on income

5,494

5,599

11,628 

11,234

Minority interests

   381

   367

     848 

     687

Income before cumulative effect
of accounting change

14,283

  13,997

29,200 

  27,540

Cumulative effect of accounting
 change

      --

      --

  3,433 

      --

Net income

$ 14,283
======

$ 13,997
======

$ 25,767 
====== 

$ 27,540
======

Earnings per share:

       

      Basic:

       

         Before cumulative effect of
         accounting change

$   0.71

$   0.68

$   1.45 

$   1.36

         Cumulative effect of 
           accounting change

     --

     --

   (0.17)

     --

              Basic earnings per share

$   0.71
=====

$   0.68
=====

$   1.28 
===== 

$   1.36
=====

      Diluted:

       

         Before cumulative effect of 
         accounting change

$   0.70

$   0.67

$   1.44 

$   1.33

         Cumulative effect of 
         accounting change

     --

     --

 (0.17)

     --

              Diluted earnings
              per share

$   0.70
====

$   0.67
=====

$   1.27 
==== 

$   1.33
====

         

Cash dividends declared per common share

$ 0.025

$ 0.025

$ 0.050 

$ 0.050

         

Shares used in computation of earnings per share:

       

      Basic

20,094

20,457

20,105 

20,221

      Diluted

20,335

20,973

20,279 

20,768

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

 

3


 

 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEET

 

ASSETS

(thousands of dollars)

June 29,
2003* 


December 31,
2002**


 

Current assets

   

   Cash and cash equivalents

$  45,771 

$  31,762 

   Accounts receivable, net

148,299 

129,608 

   Inventories

82,065 

82,909 

   Prepaid expenses and other current assets

 50,958 

 46,686 

      Total current assets

327,093 

290,965 

     

Property, plant and equipment, less accumulated
depreciation and depletion - June 29, 2003 - $622,094;
December 31, 2002 - $578,580

556,300 

537,424 

Goodwill

51,721 

51,291 

Other assets and deferred charges

 33,042 

 20,197 

      Total assets

$968,156 
====== 

$899,877 
====== 

     

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

   

   Short-term debt

$  30,000

$  30,000 

   Current maturities of long-term debt

2,503

1,331 

   Accounts payable

38,701

37,435 

   Other current liabilities

 62,310

 55,171 

      Total current liabilities

133,514

123,937 

     

Long-term debt

99,037

89,020 

Other non-current liabilities

 99,703

 92,763 

      Total liabilities

332,254

305,720 

     

Shareholders' equity:

   

   Common stock

2,701

2,694 

   Additional paid-in capital

192,318

190,144 

   Retained earnings

703,502

678,740 

   Accumulated other comprehensive loss

 (15,516)

(35,034)

 

883,005

836,544 

     

   Less treasury stock

247,103 

242,387 

      Total shareholders' equity

635,902 

594,157 

     

      Total liabilities and 
      shareholders' equity

$968,156 
====== 

$899,877 
====== 

* Unaudited
** Condensed from audited financial statements.

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4


 

 

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

(Unaudited)

 

 

Six Months Ended


(thousands of dollars)

June 29,
2003   

June 30,
2002
   

Operating Activities:

   
     

Net income

$  25,767 

$  27,540 

Adjustments to reconcile net income to net cash
   provided by operating activities:

   

      Cumulative effect of accounting change

3,433 

-- 

      Depreciation, depletion and amortization

34,373 

33,453 

      Write-down of impaired assets

-- 

750 

      Other non-cash items

3,817 

5,019 

      Net changes in operating assets and liabilities

(24,818)

(12,105)

Net cash provided by operating activities

  42,572 

  54,657 

     
     

Investing Activities:

   
     

Purchases of property, plant and equipment

(26,385)

(18,294)

Acquisition of businesses

-- 

(11,600)

Other

   751 

  -- 

Net cash used in investing activities

(25,634)

(29,894)

     

Financing Activities:

   
     

Proceeds from issuance of short-term debt

5,318 

68,919 

Repayment of debt

(5,565)

(110,635)

Purchase of common shares for treasury

(4,716)

(5,553)

Proceeds from issuance of stock under option plan

2,180 

28,958 

Cash dividends paid

 (1,004)

  (1,019)

Net cash used in financing activities

 (3,787)

(19,330)

     

Effect of exchange rate changes on cash and
      cash equivalents

   858 

   777 

     

Net increase in cash and cash equivalents

14,009 

6,210 

Cash and cash equivalents at beginning of period

 31,762 

 13,046 

Cash and cash equivalents at end of period

$ 45,771 

$  19,256 

     

Supplemental disclosure of cash flow information:

   

Interest paid

$   3,152 
====== 

$   3,283 
====== 

     

Income taxes paid

$   7,111 
====== 

$   8,891 
====== 

     

Non-cash investing and financing activities:

   

Property, plant and equipment acquired by
      incurring installation obligations

$ 11,368 
====== 

$         -- 
====== 

Property, plant and equipment additions related to
      asset retirement obligations

$   6,762 
====== 

$         -- 
====== 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1 -- Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with the rules and regulations of the United States Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. The results for the three-month and six-month periods ended June 29, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

Note 2 -- Summary of Significant Accounting Policies

     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 4%-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.

     Property, plant and equipment are amortized 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 pursuant to long-term 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. The Company also continues to supply PCC to two locations at which the PCC contracts have expired. Failure of a PCC customer to renew an agreement or continue to purchase PCC from the Company facility could result in an impairment of assets charge at such facility.

     In the third quarter of 2002, the Company reduced the useful lives of satellite PCC plants at International Paper Company's ("IP") mills due to an increased risk that some or all of these PCC contracts would not be renewed. As a result of this change, the Company also reviewed the useful lives of the assets at its remaining satellite PCC facilities and other plants. During the first quarter of 2003, the Company revised the estimated useful lives of machinery and equipment pertaining to its natural stone mining and processing plants and chemical processing plants from 12.5 years (8%) to 15 years (6.67%) and reduced the useful lives of buildings at certain satellite PCC facilities from 25 years (4%) to 15 years (6.67%). The Company also reduced the estimated useful lives of certain software-related assets due to implementation of a new global enterprise resource planning system. During the second quarter of 2003, the Company reached an agreement with IP that extended eight PCC supply contracts and therefore extended the useful lives of the satellite PCC plants at those IP mills. The net effect of the changes in estimated useful lives was an increase to diluted earnings per share of $0.01 in the second quarter of 2003 and there was a minimal effect for the first half of 2003.

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

     Mining costs associated with waste gravel and rock removal in excess of the expected average life of mine stripping ratio are deferred. These costs are charged to production on a unit-of-production basis when the ratio of waste to ore mined is less than the average life of mine stripping ratio.

 

 

6


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

     Accounting for Stock-Based Compensation

     In December 2002, The FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123." This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation, and requires additional disclosures in interim and annual financial statements. The disclosure in interim periods requires pro forma net income and net income per share as if the Company adopted the fair value method of accounting for stock-based awards. The fair value of stock-based awards to employees was calculated using the Black-Scholes option-pricing model, modified for dividends. Pro forma net income and earnings per share reflecting compensation cost for the fair value of stock options were as follows:

 

Three Months Ended


Six Months Ended


(millions of dollars, except per share amounts)

June 29,
2003  

June 30,
2002
  

June 29,
2003  

June 30,
2002
  

Income before cumulative effect of 
accounting change, as reported

$ 14.3

$  14.0

$  29.2

$  27.5

Deduct: Total stock-based employee
compensation expense determined 
under fair value based method 
for all awards, net of related tax effects

    0.5

     0.6

    0.9

     1.1

Pro forma income before cumulative effect
of accounting change

13.8

13.4

28.3

26.4

Cumulative effect of accounting change

     --

     --

    3.4

     --

     Pro forma net income

$  13.8
====

$  13.4
====

$  24.9
====

$  26.4
====

     Net income, as reported

$  14.3
====

$  14.0
====

$  25.8
====

$  27.5
=====

Basic EPS

       

Income before cumulative effect
of accounting change, as reported

$  0.71

$  0.68

$  1.45

$  1.36

Pro forma income before cumulative effect
of accounting change

$  0.69

$  0.66

$  1.41

$  1.33

Pro forma net income

$  0.69

$  0.66

$  1.24

$  1.33

Net income, as reported

$  0.71

$  0.68

$  1.28

$  1.36

Diluted EPS

       

Income before cumulative effect
of accounting change, as reported

$  0.70

$  0.67

$  1.44

$  1.33

Pro forma income before cumulative effect
of accounting change

$  0.68

$  0.64

$  1.42

$  1.30

Pro forma net income

$  0.68

$  0.64

$  1.25

$  1.30

Net income, as reported

$  0.70

$  0.67

$  1.27

$  1.33

 

 

Note 3 -- Inventories

     The following is a summary of inventories by major category:

(thousands of dollars)

June 29, 
2003   


 

December 31,
2002   


Raw materials

$32,635

 

$32,967

Work-in-process

7,864

 

7,153

Finished goods

24,350

 

25,459

Packaging and supplies

17,216

 

17,330

Total inventories

$82,065
=====

 

$82,909
=====

  

 

7


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 4 -- Long-Term Debt and Commitments

     The following is a summary of long-term debt:

(thousands of dollars)

June 29, 
2003  


 

December 31,
2002 


7.49% Guaranteed Senior Notes Due July 24, 2006

$  50,000

 

$  50,000

Yen-denominated Guaranteed Credit Agreement
   Due March 31, 2007

8,725

 

8,957

Variable/Fixed Rate Industrial
   Development Revenue Bonds Due 2009

4,000

 

4,000

Economic Development Authority Refunding
   Revenue Bonds Series 1999 Due 2010

4,600

 

4,600

Variable/Fixed Rate Industrial
   Development Revenue Bonds Due August 1, 2012

8,000

 

8,000

Variable/Fixed Rate Industrial
   Development Revenue Bonds Series 1999
      Due November 1, 2014

8,200

 

8,200

Variable/Fixed Rate Industrial
   Development Revenue Bonds Due March 31, 2020

5,000

 

5,000

Installment obligations

11,368

 

--

Other borrowings

   1,647

 

   1,594

        Total

101,540

 

90,351

Less: Current maturities

   2,503

 

   1,331

Long-term debt

$  99,037
======

 

$  89,020
======

 

     On May 31, 2003, the Company acquired land and limestone ore reserves from the Cushenberry Mine Trust for approximately $17.5 million. Approximately $6.1 million was paid at the closing and $11.4 million was financed through an installment obligation. The average interest rate on this obligation is approximately 4.25%. The principal payments are as follows: 2004 - $0.8 million; 2005 - $0.9 million; 2006 - $0.9 million; 2007 - $0.9 million; 2008 - $6.5 million; 2013 - $1.4 million.

 

Note 5 -- Earnings Per Share (EPS)

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

 

Three Months Ended


 

Six Months Ended


Basic EPS
(in thousands, except per share data)

June 29,
2003
  

June 30,
2002
  

 

June 29,
2003
  

June 30,
2002  

           

Income before cumulative effect 
of accounting change

$14,283

$13,997

 

$29,200 

$27,540

           

Cumulative effect of accounting change

     --

     --

 

(3,433)

     --

           

Net income

$14,283
=====

$13,997
=====

 

$25,767 
===== 

$27,540
====

           

Weighted average shares outstanding

20,094

20,457

 

20,105 

20,221

           

Basic earnings per share 
before cumulative effect of accounting change

$    0.71

$    0.68

 

$    1.45 

$    1.36

Cumulative effect of accounting change

     --

     --

 

  (0.17)

     --

Basic earnings per share

$    0.71
======

$    0.68
======

 

$    1.28 
======

$    1.36
======

 

 

8


MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Three Months Ended


Six Months Ended


Diluted EPS
(in thousands, except per share data)

June 29,
2003
  

June 30,
2002  

June 29, 
2003
  

June 30,
2002  

         

Income before cumulative effect
of accounting change

$14,283

$13,997

$29,200 

$27,540

Cumulative effect of
accounting change

        --

        --

 (3,433)

        --

Net income

$14,283

$13,997

$25,767 

$27,540

         

Weighted average shares outstanding

20,094

20,457

20,105 

20,221

Dilutive effect of stock options

     241

     516

     174 

     547

         

Weighted average shares outstanding, adjusted

20,335

20,973

20,279 

20,768

         

Diluted earnings per share before 
cumulative effect of accounting change

$    0.70

$    0.67

$    1.44 

$    1.33

Cumulative effect of accounting change

        --

        --

 (0.17)

        --

Diluted earnings per share

$    0.70
======

$    0.67
======

$    1.27 
====== 

$    1.33
======

 

Note 6 -- Comprehensive Income (Loss)

     The following are the components of comprehensive income:

 

Three Months Ended


Six Months Ended


(thousands of dollars)

June 29,
2003  

June 30,
2002  

June 29, 
2003
  

June 30,
2002  

         

Net income

$  14,283

$  13,997 

$  25,767

$  27,540 

Other comprehensive income, net of tax:

       

   Foreign currency translation adjustments

15,005

18,454 

19,518

14,911 

   Cash flow hedges:

       

      Net derivative losses
      arising during the period

--

(250)

--

(222)

      Reclassification adjustment

       --

     (189)

       --

    (223)

Comprehensive income

$  29,288
======

$  32,012 
======

$  45,285
======

$  42,006 
=======

 

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

(millions of dollars)

June 29,
2003   


 

December 31,
2002    


       

Foreign currency translation adjustments

$(13.3)

 

$(32.8)

Minimum pension liability adjustment

(1.3)

 

(1.3)

Net loss on cash flow hedges

  (0.9)

 

  (0.9)

Accumulated other comprehensive loss

$(15.5)
=== 

 

$(35.0)
=== 

 

 

9


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 7 -- Segment and Related Information

     Segment information for the three months and six months ended June 29, 2003 and June 30, 2002 was as follows:

 

Net Sales


(thousands of dollars)

Three Months Ended


Six Months Ended


June 29, 
2003
  

June 30,
2002  

June 29, 
2003
  

June 30,
2002  

Specialty Minerals

$137,357

$127,700

$275,132

$252,015

Refractories

65,017

   59,128

128,692

113,813

   Total

$202,374
======

$186,828
======

$403,824
======

$365,828
======

 

Income from Operations


(thousands of dollars)

Three Months Ended


Six Months Ended


June 29,
2003  

June 30,
2002  

June 29,
2003  

June 30,
2002  

Specialty Minerals

$  15,584

$  15,614

$  31,128

$  30,833

Refractories

    6,015

    5,370

  13,016

  11,587

   Total

$  21,599
=====

$  20,984
=====

$  44,144
=====

$  42,420
=====

 

     Included in income from operations of the Specialty Minerals segment for the first quarter of 2003 was a charge for one-time termination benefits of $660,000. Included in income from operations of the Specialty Minerals segment for the first quarter of 2002 was a write-down of impaired assets of $750,000.

     The carrying amount of goodwill by reportable segment as of June 29, 2003 and December 31, 2002 was as follows:

 

Goodwill


(thousands of dollars)

June 29,
2003  

December 31,
2002  

Specialty Minerals

$14,967

$14,637

Refractories

36,754

36,654

   Total

$51,721
=====

$51,291
=====

 

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

(thousands of dollars)

Three Months Ended


Six Months Ended


Income before provision for taxes on
     income and minority interests:

June 29,
2003  

June 30,
2002 

 

June 29,
2003  

June 30,
2002  

           

Income from operations 
     for reportable segments

$  21,599

$   20,984

 

$  44,144

$  42,420

Non-operating deductions, net

   1,441

   1,021

 

    2,468

    2,959

Income before provision for  taxes 
     on income and minority interests

$  20,158
======

$  19,963
=====

 

$  41,676
======

$  39,461
======

 

 

10

 


 

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 8 -- Goodwill and Other Intangible Assets

     The Company accounts for goodwill and other intangible assets in accordance with 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 are no longer amortized, but instead are tested for impairment at least annually in accordance with the provisions of SFAS No. 142.

     The carrying amount of goodwill was $51.7 million and $51.3 million as of June 29, 2003 and December 31, 2002, respectively. The net change in goodwill since January 1, 2003 was primarily attributable to the effects of foreign exchange rates.

     Acquired intangible assets subject to amortization as of June 29, 2003 and December 31, 2002 were as follows:

June 29, 2003


December 31, 2002 


(millions of dollars)

Gross Carrying Amount

Accumulated Amortization

 

Gross Carrying Amount

Accumulated Amortization

Patents and trademarks

$ 5.8   

$ 0.7   

 

$ 5.8   

$ 0.7   

Customer lists

1.4   

0.2   

 

1.4   

0.1   

Other

0.2   

    --   

 

 0.2   

  --   

 

$ 7.4   
===   

$ 0.9   
===