Minerals Technologies Inc. (MTX) Q4 2007 Earnings Call Transcript

Rick Honey - Vice President of Investor Relations Joe Muscari - Chairman & CEO John Sorel - SVP & CFO Doug Dietrich - VP Corporate Development Ken Massimine - SVP & MD of Paper PCC Bill Wilkins - SVP & MD of Minteq International Inc.

Bob Koort - Goldman Sachs Mike Judd - Greenwich Consulting Daniel Rizzo - Sidoti & Company Rosemarie Morbelli - Ingalls & Snyder Steve Schwartz - First Analysis Jeff Zekauskas - JPMorgan Richard O'Reilly - Standard & Poors Amy John - Goldman Sachs

Good morning, my name is Tina, and I will be your conference operator today. At this time I would like to welcome everyone to the MTX Fourth Quarter 2007 Conference Call. All lines have been placed on mute to prevent any background nose. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Honey, you may begin your conference.

Good morning. I'm Rick Honey, Vice President of Investor Relations. Welcome to our fourth quarter 2007 Earnings Call. We will begin today's call with Joe Muscari, Chairman and Chief Executive Officer, who will provide an overview of the quarter and some of the effects the realignment we announced in October, has had on our results. He will be followed by John Sorel, Senior Vice President and Chief Financial Officer, who will review our fourth quarter financial results and provide some additional details and clarity on our financial impact of the realignment. After the review of our financial performance, Joe will provide some further thoughts on MTIs path forward. This call is being webcast from the company website, www.mineralstech.com. To view the webcast, just go to investor information, presentation and conference calls. If you are viewing the presentation on the webcast, please note that we have provided a pdf file for clearer viewing of the charts. Before we begin, I need to remind you that on page 7 of the 2006 10-K, we list the various factors and conditions that may affect future results. Statements related to future performance by members of our management are subject to these cautionary remarks and conditions. Now I will turn the call over to Joe Muscari. Joe?

Thanks, Rick. Good morning, everyone. Last night we released our fourth quarter and full year 2007 financial results. We recorded earnings of $0.86 a share for the quarter and a net loss of $3.31 per share for the full year as a result of the realignment restructuring program we announced last October. The $0.86 includes some favorable non-recurring items which John will discuss. What I'd like to do in the first part of this call is, share with you the progress we've made over the course of 2007 with the initiatives started earlier in the year, as well as the realignment of our operations and provide some insight into what effect these changes have already had in the fourth quarter. John Sorel will provide you with more detail on the fourth quarter financial performance itself. As we discussed during the last call, after an intense strategic review of all our businesses and operations, we initiated a realignment restructuring program. This program in which we took a pretax charge of $157 million continues to proceed smoothly and on the track that we envisioned and planned for, including a reduction in workforce of more than 200 employees. We have shutdown the Synsil products business. Our operations in Mt. Vernon, Indiana and Wellsville, Ohio are being held for sale. The customers and products from the Brookhaven, Mississippi facility are being transferred to Adams, Massachusetts. We are concentrating on an integrated mine-to-market strategy in our performance minerals business. We have reorganized our refractory operation in China and we are moving from a merchant business model to a satellite model in our European PCC Coating operations. These steps were necessary for Minerals Technologies to get back on the track of sustainable growth by refocusing on our core competencies, in those areas and business segments where the company performed well in the past. These actions have provided a stronger foundation to build upon that will result in greater success in our markets, higher levels of profitable growth and improved shareholder return. During the quarter, we began to see savings from the realignment program, which as I mentioned in the last call are targeted at $15 million to $20 million pretax. Our cash flows increased from a little under $48 million in the third quarter of '07 to $57 million in the fourth quarter of '07. Working capital was reduced from $249 million to $221 million quarter-over-quarter. We also made a number of significant organizational changes in the quarter that position us well for improved performance. Bill Wilkins has taken over the Minteq business unit, Randy Harrison has moved over to lead our HR effort, a critical transformation overall, D. J. Monagle has moved from PCC Americas to become Head of our Performance Minerals business taking Randy's place and Dan Skrovanek has joined us from Bayer with an extensive Materials Business Management background to take D.J.s place in PCC. Our expense control initiative which was instituted shortly after I arrived in March enabled us to keep our expenses at 2006 levels, well below what was being planned. We also bought back a little over $20 million of stock in the quarter and the $75 million program approved in late 2005 is now complete. During the quarter, we continued to focus on the four major objectives, we laid out last spring, profitable growth, product innovation, operational excellence and safety and most importantly our customers. Let's look at the improvement we've seen in safety for example, for the year our total recordable injury rate was 3.08 per 100 employees and our lost day rate was 1.15 per 100 employees, 17% and 35% lower respectively than the pervious three years average. We were also able to improve our working capital days from 81 at end of 2006 to 69 at the end of 2007, a reduction of $23 million. One of my first actions I undertook when I joined the company was to establish expense controls and new system for allocating capital. We've seen some slight improvement in our return on capital and we will continue to work to improve that metric by bringing it up to an over 9% our weighted average cost of capital as fast as possible. In the past the company did not view capital as a scare resource, today, I believe that perspective has changed. Production innovation has been a foundation for MTI's fast growth and profitability. In general our R&D capabilities are solid, but they needed to be better focus, so we made some changes in the R&D organization and resources to achieve better alignment and focus on our critical development areas. We have also formed a technology lead team to better guide and enhance the company’s technology base, as well as better, evaluate new areas of innovation for the company. We expect to see impact from these changes in our critical development programs, the filler-fiber composites, new coding PCC products, calcium carbonates and talc's for biopolymers. We need to continue to have rapid deployment of our new refractory formulations and we also plan to further leverage the company's crystal engineering expertise to provide greater product customization for paper makers. Our efforts towards continuous improvement at all levels of the company continue to gain traction. We have rolled out the initial phase of the 5S process across all of our manufacturing facilities, and are now in the train the trainer stage for establishing the processes of daily management control, problem solving and total productive maintenance (TPM). The implementation of continuous improvement throughout the company will provide us with a more disciplined approach to operations and process management in addition to making MTI a safer place to work. Project management standards have also been put into place across all businesses and resource units as part of this operational excellence initiative. Operational excellence is intended to become part of how we do business everyday, thereby stabilizing our processes and eliminating waste, which will overtime help us to achieve higher levels of return. And most important, we will continue to focus on providing our customers with the kind of valuated products and services that will allow them profitable growth, and we will accomplish this at a faster pace. Now I'll turn it over to John to discuss the financial results of the quarter. John?

Thank you, Joe, and good morning everyone. I will now provide you with an overview of our consolidated and segment financial results for the quarter and discuss the key market and operational elements of our performance. You will note that we reclassified the Synsil and Midwest Process Minerals businesses to discounted operations and have accordingly restated our history as required. Also in order to provide you with a better sense of the ongoing business performance during my discussion, I will exclude the effect of restructuring charges from the product line reviews as we did in the last call. This was a complex quarter for financial reporting and for providing as [sync] summary of results. An important aspect to provide the context of our performance is that the business environment was not favorable for us during the quarter. The North American and European Paper industries continue to consolidate to improve operating rates and profitability as demand weakens. For example, in the North American uncoated freesheet market, one of our most important markets, demand though in the quarter continued to drop by 3% to 4% while operating rates remained high at 96% to 97%. As a result paper PCC volume for the quarter was essentially the same as last year, just over 1 million tons as growth generated from previous expansion in our new facility in Brazil was offset by machine shutdown and reduced demand through all other parts of the system. December housing starts were at their lowest level in 17 years and down 56% from the peak level of about $2.2 million in January of 2006. This has caused a significant drag on our Process Minerals business which supports all aspects of the construction industry. In addition the U.S. automobile industry volumes are down about 2% from prior year levels. As a result, sales in unit volumes in the Process Minerals and product line were even slightly lower than the fourth quarter of last year, which was itself a very weak quarter as our customers began adjusting inventories to reflect a weaker economic outlook. From a market perspective, the steel industry was a relative highlight with production volumes in North America and Europe our two most important markets of 7.2% and 2.9% respectively. However, our Refractories business face unprecedented pressure on magnesia and aluminum raw material costs both the sourcing costs and logistics costs escalated to record levels worldwide causing delays in pricing recovery in the marketplace. Within this environment the company still recorded net income of $16.8 million or $0.86 per share in the fourth quarter. To understand this performance, our strongest for the year required consideration of several unusual items, which combined had an overall favorable impact on fourth quarter results. As we advised you last quarter, we expected to incur additional severance costs associated with the realignment program, which could not be recorded in the third quarter. These costs totaled approximately $4 million pretax or $0.14 per share in the fourth quarter. Offsetting these restructuring costs, were certain one-time compensation cost reductions and the SG&A expense area related to management changes in the company and other employee adjustments, which totaled approximately $0.10 per share. We also received a business interruption insurance recovery of $3 million related to storm damage, which affected some of our research and development activities in 2005, due primarily to the higher cost of raw materials incurred in 2007. The company also recorded favorable inventory evaluation adjustments during the quarter due to escalating raw material costs [Technical Difficulty] together these items had a less favorable impact on our results of about $0.11 per share. There were a number of other factors, which also contributed to our stronger than expected financial performance. Interest expense was only $200,000 in the quarter, over $2 million below the fourth quarter of 2006 reflecting our record cash flow for the period. In addition, we benefited from a continued steep decline in the value of the dollar against the euro and other European currencies which provided additional earnings in dollar terms. Our results reflect the reclassification of the Synsil business with ceased operations in the fourth quarter and the Midwest Process Minerals operations which are being held for sale. To discontinued operations for the first time, the effect of the loss in Synsil which was partially offset by a profit in the Midwest Process Minerals business equates to a net loss after tax of $600,000 or $0.03 per share. However, not included in discontinued operations, our number of assets globally for which we will incur ongoing expenses before we dispose of them and ultimately achieve the forecast of benefits. This stage highlights some of the key financial results. Sales for the fourth quarter were $274.3 million, 8% above prior year's sales. Growth was driven primarily by favorable currency and the pass through of higher raw material and energy costs. In a moment I will provide you with sales highlights by major product line. Income of $16.8 million includes a loss of $600,000 from discontinued operations. Income from continuing operations of $17.3 million for the quarter represents an increase of 32% from the $13.2 million earned from continuing operation in the prior year's fourth quarter. The growth was primarily from the PCC product line which benefited from the pass through of raw material cost and favorable currency. The other major product lines, Process Minerals and Refractories benefited strongly from the items I previously mentioned but otherwise performance was depressed by the market conditions for Process Minerals and the raw material cost in Refractories. As mentioned in the press release all product lines benefited from the reduction in depreciation expense related to the realignment recorded last quarter. Cash generated from operations in the fourth quarter of 2007 was at record levels at approximately $57 million, including a $29 million decrease in working capital. For the full year, cash generated from operations was approximately $177 million, the largest annual level in the company's history. Capital expenditures for the quarter totaled $9 million, while depreciation and amortization were about $19 million. Year-to-date capital expenditures totaled only $50 million, the lowest annual rate in the company's history. During the fourth quarter, we accelerated the share repurchase program and acquired 301,400 shares for $20.3 million. MTI's sales for the quarter as I mentioned were $274.3 million, a growth of $19.5 million or 8%. Sales in especially mineral segment for the quarter were $180.4 million, a $15.5 million increase or 9% growth with foreign exchange accounting for 5 percentage points of the net increase. Sales of PCC increased 11% or $15.6 million to $154.1 million from the $138.5 million in the same period last year. This increase was primarily the result of foreign exchange and higher selling prices related to the pass through of raw material cost increases and slightly increased volumes in Europe. Sales of ground calcium carbonate decreased slightly in the quarter from an already depressed level last year due to a continued decline of residential construction activity and a weak automotive market in the United States. Talc sales were even with last year. Refractory segment sales in the fourth quarter increased $4 million to $93.9 million from $89.9 million in the prior year. Foreign exchange had a favorable impact on sales of $5.8 million. Sales of the metallurgical products decreased 6% to $17.6 million, as compared with $18.7 million in the same period last year. The decline in metallurgical sales was primarily attributable to lower volumes in North America and to lower prices as a result of reduction in the cost of raw materials that has passed through to the customers for this product line. In the Specialty Minerals segment the financial performance graph for the last eight quarters reflects a generally positive trend in sales for 2007 versus 2006 despite the market weakness in the Process Minerals product line. The growth in PCC sales is derived from the effect of the weaker dollar combined with the pass through of raw material and energy cost increases, which more offset volume declines in the Process Minerals product line and the shutdown of additional paper making capacity. Segment profitability in the fourth quarter improved over the prior year driven by improvements in the paper PCC business, and the effect of the adjustments I mentioned earlier including savings from restructuring. With all these factors the paper PCC product line performance grew 40% over prior year and 7% over the third quarter. Overall segment operating income represented 10% of net sales in the fourth quarter. We expect some further market softening in the first quarter of this year in all product lines in the segment due to forecasted weakness in North American uncoated free sheet paper production as well as continued weakness in the construction and automotive industries. The recent announcement of future paper capacity reductions in North America would impact our satellite PCC product line in 2008. The refractory segment's financial performance graph also reflects sales and operating income performance for the last eight quarters. Although sales in 2008 benefited significantly from the Turkish acquisition and foreign exchange, performance issues related to the acquisition combined with a 30% decrease in metallurgical product line operating income for the full year mitigated income growth. Sales and operating income quarterly fluctuations over the two-year period have been driven by several factors including the cost of magnesia imported from China, and a time lag to affect price recovery, timing of refractory equipment systems installations, and raw material pricing and volume volatility within our metallurgical product line. During the fourth quarter, steel production growth occurred in all regions. In our two largest markets, North America and Europe, steel production grew 7.2% and 2.9% respectively. Contributing to our income performance in this quarter were several unusual and non-operational adjustments I mentioned earlier. Primarily the favorable compensation and benefit adjustment and a favorable year-end inventory revaluation. We expect our profitability in this segment to improve in 2008 despite continued cost increases of magnesia imported from China, as we have comprehensive programs in place to mitigate this cost pressure to price increases and through the introduction of more advanced product formulations. The working capital chart reflects our operating and working capital trends defined as trade account receivable, inventories and trade accounts payable. This became a major focus area for the company's leadership as part of the initiative to improve return on capital. The business unit has developed specific programs to achieve a through performance by year-end. I'm pleased to report that improvement was achieved in all areas and the company was able to reduce working capital by $23 million over the 2006 ending balance representing 12 days of working capital. Our cash flow remains very strong with improved performance continuing through the fourth quarter. The year-to-date cash from operations is about $177 million, the strongest performance in the company's history and well above the prior record of $135 million. Our capital investment for the year was also at record low levels of $50 million, well below the target of $75 million we said at the beginning of the year and far below the $100 million run rate we had been maintaining. We also accelerated our share repurchase program during the quarter, we repurchased 301,400 shares for $20.3 million bringing our full year total program repurchases to 433,200 shares and $27.9 million. Although as I said at the beginning the fourth quarter was a difficult period to make comparisons with prior performance, it does provide some insights into the positive effects of our realignment program. Our corporate initiatives of expense and capital control have allowed us to improve our performance as we realign the company for enhanced future growth. We expect business conditions in early 2008, which remained difficult in the paper PCC and Process Minerals product line and to improve modestly in our refractory segment. In the paper PCC product line we expect further capacity closures to continue to have an impact on overall growth. In Process Minerals we expect continued weakness in the residential construction and automotive market, but likely downward revisions and demand forecast. Although steel demand remained steady in our major market, we expect the escalating costs of our key raw material MgO to continue to pressure refractory segment's performance. However, these escalating costs will be partially mitigated by increased selling prices. That I will discuss in more detail in a momentum, we also expect additional restructuring costs into 2008. To update you on the realignment program, as I mentioned we expected, as expected we incurred an additional $4 million of severance cost in the fourth quarter. We expect it will be additional costs in 2008 related to ongoing carrying costs incurred until final disposition of the assets. We estimate these cost will be in the $6 million to $8 million range. To capture all with the planned savings from the 7% work force reduction the company will have to reengineer certain business processes and systems. The cost associated with this transformation effort will also continue throughout 2008 So that the benefits of the program will be phased in over the year. As I noted earlier the Synsil business and the two Midwestern facilities located in Mt. Vernon, Indiana, and Wellsville, Ohio which are being held for sale reclassified and discontinued operations in the fourth quarter. As a result the income statement has been restated to move the combined net losses from these operations to discontinued operations. Well there is considerable work to be done to derive the full benefit of the realignment program; we expect the total effort to generate annualized pretax net savings of $15 million to $20 million as a savings associated with the planned reduction for us will be phased in over the year. The company will remain in a transition phase in early 2008, as we continue the transformation plan initiated last quarter. The economic outlook remains uncertain; we did not expect to see any meaningful improvements in our major markets, which are normally, seasonally weak in the first quarter. However, we have established stability in our product line and have defined a clear strategy direction for each of them. As I mentioned earlier we will incur some additional costs associated with the realignment program, but we will also begin to realize additional savings in our ongoing operations. Although there are a number of uncertainties in our market with some aspects of the realignment program need to be finalized, we have taken the necessary steps in 2007 to provide a firm foundation for improved performance in 2008. Now I will turn the call back to Joe for closing comments.

Before we open it up for questions, I'd like to share some additional thoughts and perspectives on the approach we've been taking to improve the company's future performance. The chart you see on the screen attempts to capture the essence of how we go about the challenge or how we're going about the challenge of performance improvement and return on capital earnings, technology and other critical areas. We've been focusing on organic growth of existing businesses, significant culture changes, as well as some portfolio changes. During the last ten months of 2007, we concentrated very heavily on boxes one and three through the in-depth strategic analysis that we completed, as well as through the initiation and aggressive deployment of a number of key initiatives which included expense control, capital allocation in control, operations excellence, performance management, safety, as well as major organization changes and accountability realignments. Our business units now have a clear direction and strategies in place to reach their destinations and achieve higher levels of return. Some portfolio changes in the form of existing some of our sub-business units also came out of the strategic review. As we start 2008, we are clearly a more focused company capable of achieving higher returns on capital and profitable growth. In 2008 our primary objective is to deliver improved financial performance by basically effectively executing the restructuring, continuing with the key initiatives begun in 2007, and by focusing on execution of the newly defined strategies in each of our core businesses. We will also begin to closely examine the potential to enhance the strategies of our businesses through additions to our portfolio in the form of acquisition. As I mentioned a number of times last year, our appetite for acquisitions would be limited until we had a better foundation in terms of performance and direction. I believe that we also needed to significantly improve our ability to identify, acquire and successfully integrate companies. We've already started to build that capability through our corporate development team led by Doug Dietrich who has been overseeing execution of our restructuring plan. You've heard me mention a number of times that I believe that the company has a very solid customer base. We offer good value propositions for our products and services, our market positions and paper PCC floor are strong and well positioned throughout the world. Our Refractories business has a strong position in North America and an improving one in Europe. The four mining operations in the U.S. hold good positions regionally and selectively on a global basis. We are now in the process of taking in-depth looks at how we can enhance or significantly increase value by leveraging these positions through acquisitions and agencies, technologies or other areas and vehicles. I'd like at this point to also share some performance targets that we are setting for ourselves. Our plan is to achieve a return on capital of greater than 9% by 2010. We are in essence targeting to move from third quartile performance to second quartile performance in S&P's mid-cap materials companies and peer companies over this timeframe. This will require significant rates of performance improvement from each of our business units, ranging from 25% to 40%. We believe this is possible through the changes that we have just discussed, as well as, continued focus and deployment of our operational excellence initiatives. We also plan to maintain and are targeting our historically levels of revenue growth of around 7% plus excluding the potential benefits from filler-fiber composites or acquisitions. In the area of safety, we plan to achieve a 75% reduction in injuries over that timeframe. Looking closer in at 2008, there is no question this year will be a challenging one for us. Not only because of the conditions in some of our markets and uncertainties in some others, but also because we still need to complete the restructuring process. We need to begin to deploy additional operational excellence initiatives of daily management control, problem solving and total productive maintenance. And we need to overcome raw material cost increases. We must also advance our product and process development capabilities. And most importantly, we need to further engage all of our employees in continuous improvement. I believe we are prepared to deal with those challenges and we plan to deliver a performance level that begins to take the company to a better place than it has been over the previous years, regardless of the challenges. Now, let's open it up to questions.

(Operator Instructions). Your first question comes from the line of Bob Koort with Goldman Sachs. Bob Koort - Goldman Sachs: Thank you, good morning. I was wondering if you could talk a little bit about what your expectations are for cash flow and CapEx. I know you gave some historic trends on slide 15 and it is pretty telling how CapEx has declined and cash flow has increased, can you give us some sense of what that might look like on a go forward basis?

Yeah, I expect cash flow to remain strong but 2007 was -- relative to where the company has been on capital quite low at the $50 million level. As we look at 2008, we don't expect it to be that low. We've put a max target of about around $75 million and would expect us to be somewhere between that $50 and $75, somewhere that is obviously high to new potential satellite facilities coming in. That I would hope that gives you sort of a sense where I think we will be and that's something that from a cash management standpoint as you've seen through. This year we've put a strong focus on in the company and we intend to continue that with regard to managing both capital investments quite carefully, but also the working capital side of the equation. So we're going to continue to put emphasis on maintaining good controls there as well as improvement. Bob Koort - Goldman Sachs: Can you talk a little bit about the share repurchase, how you came to the size, you were seeking for the authorization, and then whether we'll actually see some progress on a share count reduction as we go through '08?

Yeah, again the -- as you saw now, as we shared with you in the fourth quarter we were relatively aggressive in the buying back $20 million worth. We have an approval for $75 million. The rationale for that nothing very scientific about it, but based on what our projected cash flows were and what we expected them to be and what we thought was a reasonable amount at that point in time and that's something that we set a two-year window for it. And certainly it can be done in a much shorter timeframe as we exhibited in the fourth quarter, but at this point in time I don't have the specific timeframe less than that that I can share. Bob Koort - Goldman Sachs: And lastly, can you talk about the cost savings that you've targeted $15 million to $20 million, how those phase in? What the net '08 versus '07 reduced cost number might be? And then when you start thinking about all the moving parts of the restructuring program and moving some production in other facilities, asset sales et cetera, can you just give us an update on how that's progressing?

Let me start and then I am going to ask Dietrich to give you a brief update as he is, as I mentioned in the earlier part of the call, Doug has been leading that, that effort. The savings are intended to be total year-on-year that we expect to get sort of pre-restructuring to the post-restructuring. So in essence it is $15 million to $20 million pre-tax we've targeted that restructuring should yield. And obviously there are some additional costs that we're going to be incurring in the early part of -- we are incurring already during 2008 that will continue, as John mentioned through good part of the year. But we will begin to phase down probably in terms of being associated with some of the workforce reductions begin to phase down in the third quarter. I think as we go into the third, fourth quarter we'll begin to see on a running rate basis that start to come through a little stronger. Although, we did have a reasonable impact already in the fourth quarter, most of that was associated with depreciations savings. Bob Koort - Goldman Sachs: Thanks Joe.

Doug, you want to share some, where we are in the sale?

Sure. We are progressing on track. We've been aggressively marketing those facilities that are being held for sale. We do have a number of interested parties and we expect to continue to progress with them per the schedule we've laid out. So we do have some interest and that's moving forward. Bob Koort - Goldman Sachs: Okay. Thanks Doug.

Your next question comes from the line of Mike Judd with Greenwich Consulting Mike Judd - Greenwich Consulting: Yes, good morning. A question about the, I guess the Refractories there had been an inventory or a write up of inventory or something along those lines and there was a comment that there could be negative variance in the first quarter. I was just wondering if you could provide some sort of absolute impact.

Yeah. Basically what we tried to do understand part of the audio was cut out, when John was going through that, so we'll be happy to kind of go through any aspect of that further if that didn’t come through clearly. But what we're -- because there were -- have been -- were so many moving parts going on the quarter, and the number of non-recurring or things that occurred that are gong to come back in an opposite way in the following quarter or in the first half, we felt it was important to try to give you a reasonable picture of where we actually were. So with that I'm going to turn it over to John to further explain the revaluation.

Thanks Joe and I think that is just about where the audio did cut out. What I have planned to say in my prepared remarks there was that due to the higher cost raw materials in 2007. We recorded particularly in the Refractory business we recorded a favorable inventory evaluation adjustment during the quarter from the raw material cost of about $1.5 million or $0.05 a share. So that didn't come through, we intended that to come through. And essentially it's because of the cause of our MgO, it rose to record levels throughout the year and the complete [closure] of those higher cost don't occur in our cost assumption till the inventory is sold in 2008. Mike Judd - Greenwich Consulting: So in the flipside, is there a negative variance of the same magnitude in the first quarter?

Yeah, it will go over the inventory turns it may take a little longer than adjusted first quarter but the point of it is, it was an unusual impact on a fourth quarter that will be spread out in 2008. Mike Judd - Greenwich Consulting: All right, thanks. And on filler-fiber, could you give us an update please?

Yeah, Ken will you?

All right, sure. As you may remember we had, our plan was to run your next trial on the fourth quarter but unfortunately the timing had slipped. But what I'm pleased to report is that we've just recently completed our next filler-fiber trial and we were able to exhibit again the filler levels up to that 30% range. We had good machine runability, obviously we need to go through extensive paper testing, but we do definitely expect more trials in the late first quarter, early second quarter of this year. Mike Judd - Greenwich Consulting: Thank you, Ken.

Thank you.

Your next question comes from the line of Daniel Rizzo with Sidoti & Company Daniel Rizzo - Sidoti & Company: Hi guys. You mentioned that you expect revenue growth of 7%, I'm sorry is that like [prior items] starting this year. I mean, I don't know [what to call it].

So it would be over as we look over the next three years again. If you look at our history we've been able to grow as a company and at 7% range and as we look forward we believe we can as minimum continue to grow at that kind of a level. But that again excludes our filler-fiber program or any acquisitions in the next three years. Daniel Rizzo - Sidoti & Company: Okay. And in terms of filler-fiber I know you guys are going forward with the trials, but is there any goal when you expect the commercialization?

Yeah that again is a very as we have discussed you know on a number of previous calls. It's very difficult to predict in terms of timing because it is very much a development project and it takes -- in some ways it's similar to the very early commercial development of a basic filler product. In that it takes success at one major paper producer demonstrating that it's viable and can achieve the commercial savings and value added that is being targeted and that simply takes the time. Now what we've done in 2007 is we have refocused our resources in a way that we have a higher chance of commercializing sooner, I guess that's the best way to put it. We are putting a tremendous amount of emphasis and focus to bringing this home as quickly as possible, but have having said that, it's not something that we're in a position to predict a date certain when this will happen. Daniel Rizzo - Sidoti & Company: Okay, thanks guys.

Your next question comes from the line of Rosemarie Morbelli with Ingalls & Snyder. Rosemarie Morbelli - Ingalls & Snyder: Good morning all. Just following up on the filler-fiber, Joe you just mentioned that, are there?

Yes, we are Rosemarie. Rosemarie Morbelli - Ingalls & Snyder: Okay, thank you. You just mentioned that the speed of the commercialization maybe similar to that of the PCC and I know we have discussed that earlier. But it really took about 10 years to get the PCC really move from a plateau when I am assuming all of the different clients were trying it out and so on, before suddenly it took off. When you say that you expect this development to happen faster I am guessing it is because you’re already in the paper mills. But what are you looking versus that 10 year window? Can you do it in five years? Can you do it in actually only two years? What is your feel?

That’s a good question. First, I’m going to have to ask Ken because I think we've been after this now for five or six years is that about right.

Five years.

About five years. The difference from the filler when we were initially focused on PCC as a filler replacement for wood, this obviously was not a product and the technology that will known. It was known but hadn't actually been fully commercialized at all. So the advantage we have today is the paper makers know their product, they know what it can do. They just don’t know what it can do at much higher levels which, is what we're targeting at. So, if you use 10 years as a reference point for the original product than we're at five now, it certainly should be less than the 10 and that's the basis upon which I'm trying to focus the organization. I had say from a commercial contact believability standpoint on the part of the customers who want a trial, there is a positive pool, obviously this paper makers that in Europe that we've been working with basically gave one of their major machines to us together with them running a joint trial for what, kind of 11 hours, 10 hours. So for a paper maker to do that gives you an indication of the value potential that they do see. But now having said that there is still a whole lot of work to be done and a lot of trials to be run until we're able to get it at the rates where our paper makers have [asked us]. This really makes sense, it can add a lot of value and I'm willing to pay the price for it that is warranted, and that we believe is warranted and make the capital investment as well.

Okay, thank you. On the new satellites, how many new satellites did you build in '07, a combination of new satellites in extension? And what are your expectations for '08?

Rosemarie, this is Ken Massimine, I'll take that question. In 2007 we added one new unit of capacity. But in terms of opportunities for the future, yes, there are a number of them and we are in discussions with various locations where new capacity has already been announced. And also it knows whether we are also considering converting two PCC promoted minerals. So there is a lot of activity right now, a lot of interest and it's really just getting to move over the finish line.

Thanks. And if I may ask one last question, the R&D was substantially lower than in previous quarter, in the fourth quarter. Is that because Synsil is out or are you cutting additional projects? And what is reasonable level to look at on a quarterly basis going forward?

Yeah. I'd say it was low in part because of Synsil, that's certainly was part of the equation. And other part of the equation, the trials we expected to run in the fourth quarter for filler-fiber composites got shifted to the first quarter. Ken mentioned originally we were targeting for the fourth quarter and so that had a lowering effect as well. Rosemarie Morbelli - Ingalls & Snyder: Okay. And so the $7 million that you previously had is kind of $7.3 million somewhere around there that is a good number going forward?

No, I wouldn't say it is. This is where we're resetting without Synsil basically. And frankly, I don't have a number for you, but it will be something less than it was before. We've also done some realigning in our R&D group to one -- capture some efficiencies. So that will have an effect on us. We impacted in trials of course its going to have an impact on that as well. Rosemarie Morbelli - Ingalls & Snyder: Okay, thank you.

Your next question comes from the line of Steve Schwartz with First Analysis. Steve Schwartz - First Analysis: Good morning. In your cost savings of $15 million to $20 million, does that -- I would have assumed that net of the restructuring and reengineering cost?

Yes Steve. That's true. When I mentioned that in my prepared comments that's what we meant. We will give some ramp up of the savings from the restructuring at same time we will have some ongoing costs. So, we're looking at that as a net number. Steve Schwartz - First Analysis: Okay. In this quarter and the last one, it doesn’t sound like you were certain of what the reengineering costs were or do you know at this point, what that component could be -- could amount to?

We didn't have an exact calculation of it. We're in that transition phase where we have operations moving products from one to another. So, they are all just really in cost of sales. They are hard to be separable at this point, as we phased out in production at some of these operations ought to be more clearly but they are just ongoing carrying costs. We are preparing for sale cost. Steve Schwartz - First Analysis: Okay. And in Specialty Minerals, I think you mentioned that the growth you saw on PCC, part of that came from a raw material cost pass throughs, is that right?

That’s correct. Steve Schwartz - First Analysis: Do you have an idea of what that amount was, what percent was pricing?

Yes, it was, we said that about half of the growth, little more than half of the growth was currency. The next major piece of that was the pass through of the raw material cost. Steve Schwartz - First Analysis: Okay. Currency was at 5 and so this was probably do we call that and it -- like 4%, 3%?

Yes, that is the range. Steve Schwartz - First Analysis: Okay. Sounds good. In metallurgical products, you had seven quarters now declining sales. How do you see the turnaround in that business and what do you guys think as far as turning it around and what the timeline is for that?

We’ve had metallurgical product, the products historically has been up and down. However this year was down lower than it had been in terms of some of the down period from previous years from the data that I looked at. But some of that was price compression in terms of effect on us, on some of the materials that we buy others, come from make versus buy, decisions that can change over the course of the year. But we're beginning to see in the fourth quarter some indications of improvements and have a little bit of momentum, still working through that. I'm going to ask Bill Wilkins to maybe give us a quick update around it, if you would Bill?

Yes, clearly what we saw in 2007, it was a year following 2006 which was unprecedented in terms of what we saw in the ferro-titanium alloy products market. And to Joe's point, some of the volume reductions we saw in '07 was on account of just that in terms of the lower selling price, which we would be ordinarily passing onto our customer. And clearly as we look at the future, as I've been in this growth for a period of about a couple of months, one of the plans that we have is to widen our global position with our wire product, our business has been very well focused and very well entrenched in both the Americas and also in Europe. So [our chances] to look selectively at opportunities with key global customers that are asking for our product, so as they are looking to develop global positions we will be following with them as part of our overall strategy. Steve Schwartz - First Analysis: Okay. Looking at the release and then slide 10, in the release you had a table that outlines some special items and and it basically amounts to about $0.5 million or $0.02 per share. But it doesn't look like it includes a favorable inventory adjustment in refractories and so on slide 10 you have $0.11 per share net. Can you help me reconcile that just so I know what the true operating number is?

Yes, I'll try and help you there. In the table we were able to do some direct comparison of individual items year-over-year. Not included in that table was the inventory revaluation and not included in that table were the benefit adjustment except for the adjustment there that's mentioned there which is about half of the amount that we have in total in the net basket of benefits that we talked about on page 1 of the press release. Steve Schwartz - First Analysis: Okay. Good that's helpful. And then just one last quick one here. I presume that 2007 revised quarter release will be in the K?

Yes, yes certainly. Steve Schwartz - First Analysis: Okay, great thank you.

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeff Zekauskas - JPMorgan: Hi good morning.

Hi, Jeff. Jeff Zekauskas - JPMorgan: I had a few questions. What you expect your depreciation to be in '08?

Hi Jeff, it's John. From continuing operations we would expect it to be in the mid 80s. Jeff Zekauskas - JPMorgan: How is that possible if you are at 19 currently?

The, well the 19 currently would give you around 18, and there should be some additional capital spending right. Jeff Zekauskas - JPMorgan: It gave you 76, right. And if you have additional capital expenditures for the PCC plants they don't come on. So they don't get depreciated yet. Do they?

There is also some ramp up of spending even from this year. So I would look at mid-80 range as a appropriate number for next year. Jeff Zekauskas - JPMorgan: Okay. To go back to that previous answer you gave, the $15 million to $20 million in cost cuts you said were net of the transition cost, so that is, the absolute benefit to the income statement is $15 million to $20 million pretax. So, that's what you are aiming for?

That’s what we are targeting, Jeff. Jeff Zekauskas - JPMorgan: You’re targeting. Have you made any progress on optimizing your tax credit?

Well, it's a -- I’m going to let John further elaborate it. It's clearly a point of focus for improvement and at this stage I don't have specifics that we can share. But, it's a challenge that I have given the finance group and our tax group to look for opportunities for us to target a lower rate. But as you know that's a very complicated area with a lot of -- given that we are global requires a lot of planning. And right now there is a team set up, a small task force that's focused on improving our plans in the tax area. But John, you want to elaborate a little further please.

I can add a little bit to that. The last couple of years have been a little hard to follow the rate as Joe mentioned. I think it is an area of opportunity for us. In 2007 the rate is considerably distorted by the realignment and the fact that we took charges in places and the regions in the world where we had NOLs or we had tax holidays. So we had a very unusual rate here in 2007, driven by that third quarter adjustment, although in the fourth quarter the rate, probably averaged around 32.5. And in the prior year, in 2006, we also took advantage of the repay creating a lot of dividends from the special bill that was approved here in the US. Going forward, it's driven by the desire and ability to move dividends from around the world back to the US and we're looking at, as in a way to address that. We're looking at some alternative structures that may allow us to maximize our use of the cash, at the same time, minimize the amount of tax liability we have in the short-term. Jeffrey Zekauskas - JPMorgan: If I can continue, there are few more. Joe, one of the themes of the conference call has been, the renewed desire to acquire. And Minerals Tech's history has not been strong. There was the Polar Minerals acquisition, which didn't work out and it looks like there are some issues now with the Turkish acquisition. So what's the organizing principle that you're going to use to acquire? That is, what are the types of things that you're looking for, that the previous management didn't look for? Is it in different areas or you simply are going to try to pay lower prices or execute better, what is it that you're seeing that makes acquisition so alluring?

Good question, Jeff. First of all, good acquisitions come from having clarity of value in terms of what is it, why are you doing it. And that comes from a very-very clear understanding of what your current value bases are, what your value propositions are, what it is you bring value to the marketplace and to customers. As we're going forward we are looking very carefully at what are our strength positions, what are our value propositions and what kinds of things could we be doing to actually leverage those positions further and using that as a screening basis to identify areas that we can find companies or technologies or joint ventures that can enhance our value. And so part of it is on the screening and having clarity of what it is that you are trying to achieve from what you are doing, but also working with the higher value areas as the first priority as opposed to I would suggest lower value added areas which we have done in the past. And the second aspect deals with achieving targeted results from an acquisition, where the company has -- as you are suggesting and I agree totally has not done well at all. And it's how we integrate and as you say, we are having some issues right now at [Aupus], not only has it not been a strength, it has been a weakness. And that's an area that can be addressed through leadership, through processes, through capabilities, both inside and outside the company. And it's having people who know how to integrate an acquisition, but knowing first of all what it is that you want to do with them and then just as we are executing this restructuring program, which is causing the exiting of some businesses, you apply some of the same principle on integrating businesses and company. So it's doing it quite differently than the company has done in the past and also going at with a high degree of caution in terms of, this is in something that you do lightly, and when you're ready to it, you really have to have your act together. And that's the basis upon which we're beginning to look at something. Jeffrey Zekauskas - JPMorgan: This isn't a new leg for the stool. This is to compliment the ongoing refractory and PCC operations?

Right now, that's where we are initially focusing. It's focusing around where we have good positions, where have good technology basis that together with perhaps other companies or other technologies can improve those, expand them. Looking at adjacencies as one area for us, as a point of inquiry, that we are beginning to look at. So, yes, it is starting with where we are, what we know. Jeffrey Zekauskas - JPMorgan: And just a couple of more questions if I may. Were you satisfied with the operating results in the quarter and that your operating income was up about $4.6 million ex-items and $4 million of that is depreciation. And there is another, I don't know, 1.4 benefit from the inventory change. So, on an operating income basis excluding that, you were down a little bit?

I think that the reason why, we wanted John to go through [what it is]. So that with all these moving parts of what we are doing, it's hard to get a read and we wanted to give you as good a read as we possibly could. And that's why John walked through that. And having said that, though, I would share with you I believe we do have some upward momentum going and not from a market place standpoint, the market is kind of we see it working against us. But in terms of the initiatives we have started and carrying the restructuring through, it's really executing those things which we had yet, we still have to do more. So far I think the quarter would suggest yes, we've been on-track and there is further room for us to improve within a context of a number of challenges. But I'd say on balance, it was good from the standpoint that we were able to advance the restructuring to pretty much where we wanted to before we actually announced it. Jeffrey Zekauskas - JPMorgan: Of the 200 people that are slated to part the company, how many have left so far?

By the end of the year we had around a 100. Jeffrey Zekauskas - JPMorgan: Around a 100.

Yeah. Jeffrey Zekauskas - JPMorgan: And they'll phase out through the course of the year?

Exactly. Balance the course of the year. Jeffrey Zekauskas - JPMorgan: And then just a last question for John. Where is that $0.10 in compensation and benefit adjustments, that is having you allocate that to SG&A in cost of goods sold and on a segment basis to refractories and specialty minerals?

It's a little higher to see in the aggregate because it goes with the people. It's in every place that has employees, so a lot of it's in cost of sales. Some of it below the line in expenses, SG&A, but basically follows the people. Jeffrey Zekauskas - JPMorgan: Right, I know that. So how do you allocate?

Predominantly US. Jeffrey Zekauskas - JPMorgan: Predominantly US. So is it leaning more towards refractories then on a segment level?

That's on under table four in the press release, we disclosed one major item that was in refractories. So because of that, it did lean more towards the refractory segment. Jeffrey Zekauskas - JPMorgan: Okay. Thank you very much. Thanks for your patience.

Your next question comes from the line of Richard O'Reilly with Standard & Poors. Richard O'Reilly - Standard & Poors: Good afternoon, gentlemen.

Hi. Richard O'Reilly - Standard & Poor's: I guess, I just want to keep following up on this table 10 and I guess I just want to understand. You want us to be focusing on what EPS for the fourth quarter? The $0.78 that table implies or the $0.84 that's on the footnote; because if we just take whatever that number for the fourth quarter, even number and if we take the higher number when you annualize it, it's well above the consensus for '08 and the lower number is something below the consensus for '08. And I am not trying to get you to say a comment about '08, but it could get us the outsiders to what direction that you may not want us to go? You want to take a shot at that?

Yeah. This is John Sorel. I'll give that as a shot. The purpose of that slide 10 was to try and take it from that 86 which was, as you said, in very-very relative terms a very strong quarter for us and get it in line with things that would be more ongoing, more realistic to expect in continuing. And then that brings you down, that would take the $0.11 off, brings you down into the $0.75 range. Considering the other factors on that page, you would think that something below that. So if you were looking at a 70 to 75 range, you would probably have a much better perspective than you do at 86. Richard O'Reilly - Standard & Poors: Okay, good. Okay. Thank you. And second question is there was a statement at least in the press release about the restructuring charges largely offset by initial savings. That implies the savings already at a run rate of about $0.10 or maybe even a run rate of $0.40, which could be half of that $15 million to $20 million. Should I be reading that right or is my logic correct?

I think your logic is correct. I am not sure your numbers are. But let's just touch base here. The restructuring charges are about $0.14 a share for the quarter and restructuring savings were a similar amount and that comes primarily from the depreciation related to the write-off of the assets in the third quarter. So, the perspective would be, you are saying in the range of the 10 to 15 would be the range. Richard O'Reilly - Standard & Poors: Okay. Is that savings of $15 million to $20 million is excluding depreciation?

No. Richard O'Reilly - Standard & Poors: Okay. Because I am just taking $20 million and trying to convert it to an EPS and it's a sizeable number, $0.70 or plus and that's why I say particularly run rate?

Remember its pre-tax, right. Richard O'Reilly - Standard & Poors: Yes, okay. Fine, good. Thank you, gentlemen.

We have time for one more question operator.

Have follow-up question from the line of Bob Koort with Goldman Sachs. Amy John - Goldman Sachs: Good afternoon, this is [Amy John] sitting with Bob. I have question regarding your end market exposure. Given that the current market concern about a mild recession in the US over the next, may be one to two quarters. And then, people, I mean, have they asked, are they concerned about the end market exposure in paper and steel. But if I look back at your history, in the last recession 2000-2001. During the industrial consolidation periods in early 2000's and obviously, sales performance of the PCC and there was the refractory business that's being pretty stable. Can you just give us some color, what are the drivers for this stability?

I will maybe take a shot at it, and then invite the focus who are in the industries to comment if they like. But as you look at, clearly, uncertainties that we're seeing in the North American markets on steel. Steel has actually done pretty well. It has held up well. So it has more to do with the question of will it continue to hold up? And at this point in time, it's just a question mark. And if anybody has a better perspective on what the US economy is going to do, we would love to hear it. But that's where the uncertainty comes into play. We're going into the year on a very good footing, in terms of our positions in the refractories business in North American steel. :

I think you said it right John.

Does that give you a perspective of how we see things? Amy John - Goldman Sachs: Yeah. But can you just also give us a little bit color on, just give us some historical proceeding for, I mean back to a last recession, 2001, which we didn't see significant volume erosion for both of your core businesses, and then what was the reason at that time?

Again it depends on back in 2001 if I remember sort of correctly, since I wasn't here. So my history is not the best. But our refractories business was doing more in blast furnace rebuild and rebuild work, than it does today. Today it's much more concentrated on refractories and total systems dilution. And so back then, we could have been moving over recessionary period and have some of those things going on, which steelmakers would allow them to take some of their mills down and blast furnaces down to actually rebuild them. That can actually happen from year-to-year. It looked like it's counter-cyclical. That may have been in play there. And I am going to let Ken, who's got the experience in paper, tell us about your experience in 2001. Ken?

I think again, if you look at history and since you made that comment that in some cases the volumes were fairly stable. In a recessionary environment, one thing that you need to bear in mind is that we had satellites that were coming on stream, also some expansions of existing satellites and so that was helping to mitigate some of those recessionary headwinds. Amy John - Goldman Sachs: Okay, got you. Thank you.

End of follow-on, operator?

Thank you, bye-bye now.

This concludes the MTX fourth quarter 2007 conference call. You may now disconnect.