MINERALS TECHNOLOGIES INC - 10-Q Quarterly Report

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MTX Form 10-Q First quarter

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2004

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)

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.

DELAWARE	25-1190717
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification 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.

YES X

NO _____

MINERALS TECHNOLOGIES INC.

INDEX TO FORM 10-Q

Class

Common Stock, $0.10 par value

Outstanding at April 21, 2004

20,535,889

PART 1. FINANCIAL INFORMATION

ITEM 1. Financial Statements

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Unaudited)


			Page No.
PART I. FINANCIAL INFORMATION
Item 1.
	Financial Statements:
		Condensed Consolidated Statement of Income for the three-month periods ended March 28, 2004 and March 30, 2003	3
		Condensed Consolidated Balance Sheet as of March 28, 2004 and December 31, 2003	4
		Condensed Consolidated Statement of Cash Flows for the three-month periods ended March 28, 2004 and March 30, 2003	5
		Notes to Condensed Consolidated Financial Statements	6
	Independent Auditors' Review Report		14
Item 2.
	Management's Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.
	Quantitative and Qualitative Disclosures about Market Risk		20
Item 4.
	Controls and Procedures		20

PART II. OTHER INFORMATION
Item 1.
	Legal Proceedings		21
Item 2.
	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		21
Item 6.
	Exhibits and Reports on Form 8-K		21
Signatures			23

See accompanying notes to Condensed Consolidated Financial Statements.

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEET

ASSETS

				Three Months Ended
(in thousands, except per share data)					March 28, 2004		March 30, 2003
Net sales					$	209,473	$	201,450
Operating costs and expenses:
	Cost of goods sold					159,807		151,683
	Marketing and administrative expenses					22,211		21,137
	Research and development expenses					6,817		6,085
	Restructuring costs					572		--
Income from operations						20,066		22,545
Non-operating deductions, net						1,565		1,027
Income before provision for taxes
	on income and minority interests					18,501		21,518
Provision for taxes on income						5,500		6,134
Minority interests						411		467
Income before cumulative effect of accounting change						12,590		14,917
Cumulative effect of accounting change						--		3,433
Net income					$	12,590 ======	$	11,484 ======
Earnings per share:
	Basic:
		Before cumulative effect of accounting change			$	0.61	$	0.74
		Cumulative effect of accounting change				--		( 0.17	)
			Basic earnings per share		$	0.61 ======	$	0.57 ======
	Diluted:
		Before cumulative effect of accounting change			$	0.61	$	0.74
		Cumulative effect of accounting change				--		( 0.17	)
			Diluted earnings per share		$	0.61 ======	$	0.57 ======

Cash dividends declared per common share					$	0.050	$	0.025
Shares used in computation of earnings per share:
	Basic					20,479		20,117
	Diluted					20,716		20,223

LIABILITIES AND SHAREHOLDERS' EQUITY

(in thousands, except per share data)					March 28, 2004*		December 31, 2003**
Current assets:
			Cash and cash equivalents		$	86,561	$	90,515
			Accounts receivable, net			157,718		147,600
			Inventories			83,244		86,378
			Prepaid expenses and other current assets			16,163		15,632
				Total current assets		343,686		340,125

	Property, plant and equipment, less accumulated
		depreciation and depletion - March 28, 2004 - $661,639; December 31, 2003 - $648,362				557,967		561,588
Goodwill						52,671		52,721
Prepaid benefit cost						45,487		46,251
Other assets and deferred charges						34,671		34,815
				Total assets	$	1,034,482 =============	$	1,035,500 ==============

* Unaudited

** Condensed from audited financial statements

See accompanying Notes to Condensed Consolidated Financial Statements.

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

Current liabilities:
	Short-term debt		$	30,000		$	30,347
	Current maturities of long-term debt			3,524			3,175
	Accounts payable			41,736			44,217
	Other current liabilities			42,103			44,296
		Total current liabilities		117,363			122,035

Long-term debt				98,015			98,159
Other non-current liabilities				107,018			107,925
	Total liabilities			322,396			328,119

Shareholders' equity:
	Common stock			2,746			2,742
	Additional paid-in capital			213,692			210,512
	Deferred compensation			( 2,578	)		( 1,220	)
	Retained earnings			751,503			739,936
	Accumulated other comprehensive income (loss)			( 386	)		3,814
				964,977			955,784
	Less treasury stock			252,891			248,403
		Total shareholders' equity		712,086			707,381
		Total liabilities and shareholders' equity	$	1,034,482 =============		$	1,035,500 ==============

See accompanying Notes to Condensed Consolidated Financial Statements.

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 accounting principles generally accepted in the United States of America 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, 2003. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. The results for the three-month period ended March 28, 2004 are not necessarily indicative of the results that may be e
xpected for the year ending December 31, 2004.

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 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.

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 at one location at which the PCC contract has expired. 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 at such facility.

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.

Note 3 -- 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 FASB recently indicated that they would require stock-based employee compensation to be recorded as a charge to earnings beginning in 2005. 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, with the following weighted average assumptions:

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Three Months Ended
(in thousands, except per share data)		March 28, 2004			March 30, 2003
Operating Activities:
Net income		$	12,590		$	11,484
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of accounting change			--			3,433
Depreciation, depletion and amortization			17,481			17,627
Other non-cash items			2,926			1,620
Net changes in operating activities			( 14,311	)		( 16,730	)
Net cash provided by operating activities			18,686			17,434

Investing Activities:
Purchases of property, plant and equipment			( 17,518	)		( 7,709	)
Net cash used in investing activities			( 17,518	)		( 7,709	)

Financing Activities:
Proceeds from issuance of short-term debt			--			5,318
Repayment of debt			( 352	)		( 5,318	)
Purchase of common shares for treasury			( 4,487	)		( 4,716	)
Proceeds from issuance of stock under option plan			1,494			1,391
Cash dividends paid			( 1,023	)		( 502	)
Net cash used in financing activities			( 4,368	)		( 3,827	)
Effect of exchange rate changes on cash and cash equivalents			( 754	)		( 365	)
Net increase (decrease) in cash and cash equivalents			( 3,954	)		5,533
Cash and cash equivalents at beginning of period			90,515			31,762
Cash and cash equivalents at end of period		$	86,561		$	37,295

Supplemental disclosure of cash flow information:
Interest paid		$	2,357 =============		$	2,648 ============
Income taxes paid		$	4,531 =============		$	1,726 ============

Pro forma net income and earnings per share reflecting compensation cost for the fair value of stock options were as follows:

	March 28, 2004		March 30, 2003

Expected life (years)	7		7
Interest rate	3.33	%	3.27	%
Volatility	30.47	%	30.93	%
Expected dividend yield	0.37	%	0.26	%

Note 4 -- Earnings Per Share (EPS)

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

MINERALS TECHNOLOGIES INC. AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

			Three Months Ended
(millions of dollars, except per share amounts)			March 28, 2004		March 30, 2003
Income before cumulative effect of accounting change,			$	12.6	$	14.9
	as reported		$	12.6	$	14.9
Add: Stock-based employee compensation
	included in reported income before accounting change			0.1		--
Deduct: Total stock-based employee compensation expense
	determined under fair value based method for all awards,
	net of related tax effects			(0.6)		(0.4)
Pro forma income before cumulative effect of
	accounting change			12.1		14.5
Cumulative effect of accounting change				--		3.4
		Pro forma net income	$	12.1 ============	$	11.1 ============

		Net income, as reported	$	12.6 ============	$	11.5 ============

Basic EPS
Income before cumulative effect of accounting change,
	as reported		$	0.61	$	0.74
Pro forma income before cumulative effect of
	accounting change		$	0.59	$	0.72
Pro forma net income			$	0.59	$	0.55
Net income, as reported			$	0.61	$	0.57

Diluted EPS
Income before cumulative effect of accounting change,
	as reported		$	0.61	$	0.74
Pro forma income before cumulative effect of
	accounting change		$	0.59	$	0.72
Pro forma net income			$	0.59	$	0.55
Net income, as reported			$	0.61	$	0.57

	Three Months Ended
Basic EPS (in thousands, except per share data)	March 28, 2004		March 30, 2003

Income before cumulative effect of accounting change	$	12,590	$	14,917

Cumulative effect of accounting change		--		( 3,433	)

Net income	$	12,590 =======	$	11,484 =======

Weighted average shares outstanding		20,479		20,117

Basic earnings per share before cumulative effect of accounting change	$	0.61	$	0.74

Cumulative effect of accounting change		--		( 0.17	)
Basic earnings per share	$	0.61 =======	$	0.57 =======

Note 5 -- Inventories

The following is a summary of inventories by major category:

	Three Months Ended
Diluted EPS (in thousands, except per share data)	March 28, 2004		March 30, 2004
Income before cumulative effect of accounting change	$	12,590	$	14,917
Cumulative effect of accounting change		--		( 3,433	)
Net income	$	12,590 =======	$	11,484 =======

Weighted average shares outstanding		20,479		20,117
Dilutive effect of stock options and stock units		237		106
Weighted average shares outstanding, adjusted		20,716		20,223
Diluted earnings per share before cumulative effect of accounting change	$	0.61	$	0.74
Cumulative effect of accounting change		--		( 0.17	)
Diluted earnings per share	$	0.61 =======	$	0.57 =======

(thousands of dollars)	March 28, 2004		December 31, 2003
	March 28, 2004		December 31, 2003
Raw materials	$	33,791	$	34,132
Work-in-process		7,987		8,153
Finished goods		22,957