Minerals Technologies Inc. (MTX) Q3 2008 Earnings Call Transcript

Joe Muscari - Chairman and Chief Executive Officer John Sorel - Senior Vice President and Chief Financial Officer DJ Monogle - Senior Vice President, Managing Director - Paper PCC Bill Wilkins - Senior Vice President and Managing Director of Minteq International Inc. Rick Honey - Vice President of Investor Relations

Jeff Zekauskas - JPMorgan Mike Judd - Greenwich Consulting Rosemarie Morbelli - Ingalls & Snyder Steve Schwartz - First Analysis Richard O'Reilly - Standards & Poor

Good morning. My name is Tasha and I will be your conference operator today. At this time I will like to welcome everyone to the Minerals Technologies Incorporated third quarter 2008 conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Mr. Rick Honey, Vice President of Investor Relations; please go ahead, sir.

Good morning. I’m Rick Honey Vice President of Investor Relations. Welcome to our third quarter 2008 earnings conference call which is being broadcast on the company’s website www.mineralstech.com. Joe Muscari, Chairman and Chief Executive Officer will begin today’s call with an overview of the quarter and an update on the progress of some of the initiatives we have implemented in the last year. He will be followed by John Sorel, Senior Vice President and Chief Financial Officer, who will review our third quarter financial results. After the review of our financial performance, Joe will provide some further thoughts on MTI's path forward and some of the challenges we face in the fourth quarter and into 2009. Before we begin, I need to remind you that on Page seven of our 2007 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 third quarter financial results with earnings from continuing operations of $1.02 per share excluding restructuring charges. Those earnings are slightly above the second quarter 2008 EPS levels, but more importantly this marks the company’s best performance for the first nine months in its 16 year history and if we look at the last four quarters, it becomes even clearer that MTI has been operating at a significantly higher performance level than in the past. We also continue to have a strong balance sheet, which I believe is one of the strengths of MTI that particularly differentiates us from others during these turbulent times. In the first part of the call, I’d like to bring you up to date on the progress we’ve achieved in some key target areas; primarily our efforts to improve profitability and return on capital, and illustrate some of the ways we’ve tried to overcome the significant negative market factors confronting us. The improvement in our return on capital in the first three quarters is a strong indicator that we truly have moved to another place. The third quarter annualized return on capital was 9.4%, up from 9.2% in the second quarter and our year-to-date return on capital is at our estimated cost of capital reflecting a 50% improvement over 2006. Operating cash flow for the quarter was a very strong $41 million, with free cash flow coming in at $37 million. Our earnings continued to remain strong despite increased energy costs, significantly higher material and chemical costs, as well as weak market conditions in the US paper, housing and automotive industries. If you exclude special items, you can see that we’ve been on a continuous earnings improvement track for the last four quarters. The expense reduction efforts, which we began last year, remain on target. We’ve reduced expenses 13% from the 12.1% rate experienced in the third quarter of ‘07. This is a little over 5% less in terms of actual spends. We also continue to realize the savings from our restructuring initiatives. As a company, we’ve continued to execute this multifaceted realignment of our operations well. Our productivity also improved in the third quarter as our sales per employee increased from $380,000 to $440,000 on an annualized rate basis, which is an improvement of 16% over 2007 and 26% over 2006. We also saw improvement in tons produced per employee during the first nine months of 2008 compared to 2007. In PCC, we increased by 8%, in performance minerals by 7% and in refectories by 3%. As we look at the fourth quarter and into 2009, we see ongoing and even more difficult challenges, not only from raw material costs, but we now also face weak and deteriorating market conditions across all business and product lines. We expect our performance minerals business unit to see continued weakness and even further declines in the US housing and commercial construction markets, as well as the automotive industry. Steel industry cutbacks and slow downs are now also being felt in the refectories business with product volumes declining rapidly. Paper PCC sales continue to be affected by industry consolidation and will be down as a result of paper machines and paper mill shutdowns. Lime costs in particular will be driven higher and we see a lag in cost recovery in the fourth quarter that will carry over into 2009 due to the nature of our PCC supply contracts and John Sorel is going to be discussing this further during his review. Magnesium oxide costs continue to remain at high levels and there is a good deal of uncertainty around future pricing tied to China supply constraints on export licenses. Here are some of the challenges we face for the rest of the year and into 2009. As I mentioned raw material costs increases of lime and MGO will continue to be a factor. There’s been an increase in a number of the paper mill shutdowns and closures, which have had an affect on our PCC volumes. Steel mills are scaling back production globally as a result of slower worldwide demand and the housing market remains weak, showing no signs of recovery with the possibility of even slower build rates in 2009. We will deal with these even more difficult challenges as aggressive and effectively as we have in the first three quarters, by concentrating on our major initiatives, as well as taking whatever additional steps and actions are necessary to minimize their impact. This relentless focus on execution has allowed us to improve an already strong balance sheet, with our debt to capital at 13%. This compares to the S&P 500 industrials debt-to-capital of around 35%. Our strong operating cash flow has also allowed us to continue repurchase our shares. In the first nine months we bought back 612,000 shares of our stock and returned over 60% of our free cash flow to shareholders. Our product innovation efforts will continue to center on three areas; filler fiber composite materials, minerals for biopolymers and refractory reformations; all of these areas made progress in the quarter. There were three filler fiber trials at two customers in this past quarter and we are still targeting fill rates of 30% or more in uncoated free sheet paper. Our refractory products, formulation efforts are continuing to provide sustainable competitive advantage and we continue to focus efforts on providing lower cost formulations using substitute material. Our initiatives and continuous improvement at all levels of the company continued in the third quarter. In the quarter, we completed implementation of the 5S process rollout across all of our manufacturing facilities and are now training for the second wave of deployment in the process use of daily management control, problem solving and total productive maintenance. As you’ve heard me describe before, these processes will provide us with a much more disciplined approach to operations and process management, in addition to making MTI a safer place to work. Our recordable rate for the first nine months was 2.6 injuries per 200,000 hours worked and our lost workday rate was 1 per 200,000 hours worked, both lower than our historical average and on track to achieve the milestones that we set for ourselves. Now I’ll turn it over to John, who’ll provide an overview of our financial results; 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 third quarter and highlight the key market and operational elements of our performance. As Joe related to you in our last call, the results we achieved in the first half of this year were pivotal and that they represented a significant improvement from the relatively flat performance track the company had been on for the previous five years. Our third quarter performance, as you can see in this earnings graph, is a continuation of the higher performance track. The combined results for the first nine months are a total of $3.12 per share and include additional restructuring charges of $0.26 per share, which were more than offset by a $0.35 per share gain on the sale of vital facilities. Excluding these two items, our earnings of $3.03 per share represents a 35% improvement from our previous best nine-month total of $2.24 earned in the year 2000. This slide provides an overview of the company’s consolidated results for the third quarter. Our press release reflects earnings per share of $1, of which $0.85 per share were from continuing operations and $0.15 from discontinued operations, which were primarily due to a gain from the sale of an idle facility. Earnings from continuing operations include a non-cash charge of $0.17 per share relating to pension settlement costs resulting from the significant distribution of pension benefits as part of the restructuring program. Including this item, earnings from continuing operations were $1.02 per share. We have provided a table and footnote four of the press release which details the effect on our earnings of the special items, which are comprised of restructuring charges in both continuing and discontinued operations; asset impairment charges in 2007 and gains from the sale of vital facilities, which were previously written down. Excluding these special items in both years, EPS grew 54% to $1.06 per share. Sales increased 11% to $28 million over the prior year. The sales growth was largely due to higher pricing, primarily reflected in our refractory segment due to price increases necessitated by a dramatic rise in the prices of raw materials and chemicals and volume increases of metallurgical products as a result of continued strong demand in the US steel industry. In addition, foreign exchange had a favorable impact on sales growth of about $10 million or four percentage points of growth. Volumes were below prior year in the specialty minerals segment and both the PCC and process minerals product lines. Operating income excluding special items in both years increased 17% to $28 million and represented 9.5% of sales. Operating income growth was driven by the refractory segment due to a relatively strong market demand for both refractory and metallurgical products. Both the PCC and process minerals product lines reflected declines in operating income, despite the savings achieved through the execution of the restructuring program and the favorable effect of foreign exchange. These declines were primarily attributable to reduced volumes, price concessions and increased raw material costs. Income from continuing operations, which includes the benefit of lower interest expense and a lower tax rate compared to last year, grew 31% to $19.3 million from $14.7 million in the prior year when adjusted for the special items. Our return on capital excluding special items on an annualized quarterly basis was 9.4% in the third quarter and is 9.0% through nine months. This is a significant improvement in ROC from the past several years when we averaged around 6.0%. The ROC metric improvement was generated primarily from the increase in net income, an emphasis on the higher returned capital projects with only about one half percentage point derived from the lower capital base resulting from the restructuring program. Cash flow from operations was approximately $41 million and capital expenditures were only $4.3 million in the third quarter. We also repurchased 231,100 shares of stock for $14.7 million or $63.62 per share during the third quarter. Depreciation and amortization totaled $20.3 million. We expect a significantly more difficult fourth quarter, as the trends in the construction, automotive and paper industries continue to be unfavorable and we have now begun to experience much lower demand in the steel industry. In addition, we expect to experience margin compression in both segments due to the increasing costs of raw materials and the delay in our ability to mitigate these pressures through price adjustment. The stronger dollar will also negatively affect the earnings from our international operations in the fourth quarter. MTI sales for the quarter were $294.9 million, a growth of 11% or $28.4 million. Sales in the specialty minerals segment, which is comprised of the PCC and process minerals product lines in the table, were $186.7 million, a 4% growth and $7.2 million above prior year. This growth was the result of contractual price escalation, energy surcharges and a favorable impact of foreign exchange as unit volumes declined in both product lines. Sales of PCC, which benefited from the favorable foreign exchange increased 5% or $6.9 million to $157.2 million from $150.3 million in the same period last year. Sales within the process minerals product line increased 1% in the quarter to $29.5 million. Volumes were down 10% below the already depressed level experienced last year, due to a continued decline of residential construction activity and a weak automotive market in the US. Refractory segment sales in the third quarter increased 24% or $21.2 million to $108.2 million from $87.0 million in the prior year. Growth was primarily driven by price increases necessitated by a dramatic rise in the prices of raw materials. In addition, foreign exchange had a favorable impact on sales of about $4.2 million. Refractory product sales increased $17.2 million or 25% to $86.7 million from $69.5 million last year and sales of metallurgical products increased 23% to $21.5 million as compared with $17.5 million in the same period last year. This next chart reflects the financial results from continuing operations within the specialty minerals segment. In total, segment profitability in the third quarter declined 9% from prior year, excluding the special items in both years. This decline was primarily due to increased raw material and energy costs, volume decreases in both product lines and price concessions in the paper PCC product line. These factors combined to more than offset the savings generated from the restructuring program initiated in 2007. PCC operating income declined 8% from prior year and was 9.5% of its sales. Process minerals operating income decreased 16%, as volumes were 10% below prior year levels and 5% below second quarter 2008 levels. Overall segment operating income represented 9.0% of net sales in the third quarter, excluding special items. The North American and European paper industries continued to consolidate to improve operating rates and profitability as demand continued to decline in the North American and European uncoated free sheet markets. Since the third quarter of last year, we saw additional machine shutdowns and paper mill closures, which were partially offset by increased volumes from new facilities and ramp-ups primarily in Asia during the quarter. As a result, paper PCC volume declined about 3% from the prior year. Residential housing starts remain low and went to the lowest level in more than 17 years. This has caused a significant drag in our process minerals and specialty PCC product lines that support all aspect of the residential construction industry. In addition, US automobile industry volumes remain on a downward trend and we now see further declines in commercial construction activity. We expect further market weakness in the fourth quarter of this year in the major product lines within this segment, due to economic uncertainty, forecasted weakness in North American uncoated pre-sheet paper production, as well as continued declines in the construction and automotive industries. The paper PCC product line will experience contractual increases in the cost of lime and pass-through of these costs are subject to delays and recovery in accordance with our long-term contracts. As a result, we anticipate that the paper PCC product line will experience reduced profitability in the fourth quarter from third quarter levels due to paper mill shutdowns and lime cost increases. The process minerals product line will typically have a seasonally weaker fourth quarter than the third quarter due to the cyclical nature of its business. We are already operating at very low volume declines, but we expect an even steeper decline in this fourth quarter. As a result, earnings in this segment could decrease by as much as 30% to 40% from third quarter levels. In the refractory segment, the sales trend over the last three quarters has been increasingly driven by higher selling prices necessitated by the increased cost of raw materials and to a lesser extent, a weaker US dollar. During the third quarter, increased pricing accounted for the largest component of sales growth with foreign exchange rates accounting for nearly five percentage points of growth and higher volumes, particularly in the United States accounting for the rest. Operating income excluding special items more than doubled from the depressed levels of the prior year as a result of the delayed implementation of price increases, which offset the higher costs of raw materials and benefits derived from restructuring programs and improved profitability at a metallurgical product line due to increased volumes. From a market perspective, the steel industry has been a relative highlight for MTI to date. During the third quarter, steel production growth occurred in all regions. In our two largest markets, North America and Europe, steel production grew 7% and 2% respectively. However, our refectories business continues to face unprecedented pressure on its Magnesia and aluminum raw material cost, which will significantly affect profitability in the fourth quarter and result in margin compression through the first half of 2009. We have comprehensive programs in place to work to mitigate this cost pressure through price increases, the introduction of more advanced product formulations and through manufacturing cost improvements. We have begun to experience a rapid decline in the North American steel industry, which has the greatest impact on our performance. As integrated steel mills higher capacity for market reasons, they often take the opportunity to realign their furnaces with brick, thereby reducing demand for our monolithic service linings, not only for the time they are down, but for an extended wear-in period once they become operational again. We expect reduced steel output will also negatively affect the metallurgical wire product line beginning in the fourth quarter. Therefore we expect fourth quarter operating performance in this segment to be down significantly, also as much as 30% to 40% from the third quarter, in line with the drop in worldwide steel production. The working capital chart reflects our working capital trends defined as trade accounts 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; however, after some initial success in the program during the third and fourth quarters of last year, working capital has increased approximately $50 million from December 31 levels. Most of the increases have occurred in the refractory segment due to the higher cost of raw materials imported from China, which were accelerated to avoid potential supply interruptions earlier in the year. We have begun to consume this excess inventory and have programs in place to closely manage our receivables during this uncertain economic cycle. Our days of working capital increased to 75 days from 71 days in December 2007, but decreased 5 days from the prior year’s third quarter. The day’s working capital chart is reflected on our weighted average quarterly basis, where an overall improved performance trend can be seen. Our cash flow from operations was approximately $41 million in the third quarter. Our capital investment for the third quarter remained on a relatively low level of $4.3 million and only $25 million for the nine months, a rate well below the target of $75 million we set for the year and far below the $100 million run rate we had been maintaining in the past. As I mentioned earlier, we also continued with the share repurchase program during the quarter. For the first nine months, we repurchased 612,000 shares at $38.7 million or $63.26 per share. Our earnings of $1.02 per share from continuing operations for the quarter, excluding the pension settlement special item continued our trend of improved profitability and return on capital. The anticipated savings from restructuring program are being realized through the efforts of the management teams in all our business units. Savings to date are tracking above target, primarily because we have been able to execute our key programs more quickly. We have begun to liquidate the assets being held for sale and have now realized the pretax gain from the sale of all of our Synsil facilities of over $10 million, of which $4 million was recognized in the third quarter. We are still actively marketing for sale, our older facilities and discontinued operations as well as two other facilities that are idle. There is increasing uncertainty in the major industrial markets we serve. We have now experienced production slowdowns in all of our markets and expect even steeper declines in steel and paper as the general economy is affected by fear of a possible recession. In addition, we are faced with increasing costs for raw materials from China and structural delays in passing through raw material costs to our customers, especially in this economic environment. We also expect that foreign currency will begin to negatively affect our profitability in the fourth quarter after several years of continued benefit. However, MTI has an exceptionally strong balance sheet, with cash and short-term investments of $166 million, in debt of only $116 million. Despite the financial crisis, we remain a fiscally strong company and have taken steps to ensure that our reserves are safely invested. As I mentioned earlier, we achieved record earnings for the first nine months of 2008, despite very weak economic conditions. The primary reasons for our enhanced performance was the execution of our restructuring programs, price increases to mitigate the effect of escalating costs, the favorable impact of foreign exchange and the management team’s focus on the costs and operational initiatives that Joe described, which have contributed significantly to our turnaround. The results show an operating income performance on a continuing basis that was 17% above the prior year. When combined with lower interest expense and a lower tax rate, this performance led to income from continuing operations of $56.6 million, 27% above prior year, excluding special items in both years. Our total EPS excluding special items in both years was $3.03 per share and was 52% above the prior year earnings of $1.99. For the nine months, the annualized ROC rate for the company excluding the gain from the sale of assets and restructuring costs was 9.0%, approximately our cost of capital. We have continued to use the free cash flow from operations to fund the more aggressive share repurchase program and to reduce debt. The economic outlook remains uncertain and we expect to see further declines in all of our major markets; however, we’ve established stability in our product lines and have defined a clearer strategic direction for each of them. Now I will turn the call back to Joe for closing comments.

Before we turn it over to questions, there are just a few additional thoughts I would like to share with you. We’ve accomplished a great deal in the last 18 months. We’ve been able to reverse many of the downward trends in performance the company had been experiencing in the past six years by first of all establishing a clearer sense of direction and purpose and that has resulted in a stronger foundation to build upon. Our restructuring was well executed and we continue to track at an annual savings as I mentioned of between $20 million and $25 million. Cash flow remained strong and we’ve been able to continue to buy back shares. During the third quarter we saw some of the slowdown on our markets that had an effect on our performance as we had anticipated and related to you during the second quarter call. We expect the fourth quarter as John outlined to be significantly more difficult with commensurate lower performance expectations. Despite all the negative economic factors we face, we are now however fundamentally stronger and better positioned to move forward. We will continue the improvement process begun last year to increase shareholder value. As we look into 2009, we are clearly moving into some unchartered waters given the current financial crisis and global economic uncertainties. Our challenges no doubt will be quite significant, but MTI is clearly much better equipped and positioned to deal with and step up to those challenges. Our balance sheet, operational capability, strategic focus, employee alignment and involvement in continuous improvement as well as the innovative technical D&A at the core of the company will be our key levers to meet these challenges. Now let’s open it up for questions.

(Operator Instructions) Your first question comes from Jeff Zekauskas - JPMorgan. Jeff Zekauskas – JPMorgan: Through the first three quarters your operating cash flow is about $80 million versus 120 last year and I think the largest depressing factor is working capital which if I heard correctly what John said I think was negative $50 million. Do you expect that to reverse in the fourth quarter and with your volumes coming down, I suspect you’ll need less working capital. Can you sort of talk to where all of that stands and what your outlook is for working capital.

I would say in terms of thinking about the fourth quarter, as we look at operating cash flow and then focused on free cash flow; we should be at a commensurate level to the third quarter based on what we’re seeing right now Jeff, plus or minus. The inventories in magnesium oxide some will be worked off in the fourth quarter, but its really working it off in a longer period of time into first and second quarter of next year. So it’s not something that is all going to come out at once. It will be worked out over time. John, you have anything you want to add to that?

No, from the perspective with the unprecedented changes in material costs coming out of China, in many respects we made decisions in terms of looking at increasing our inventories because of the long supply chain that we have from China, so in many respects we built our inventories to make sure that we are able to provide uninterrupted supply to our customers, which in many respects was obviously the right thing to do. Certainly the impact it’s had on our working capital was negative, but I think in the long-term, that particular decision will serve us well and as Joe had mentioned, clearly from a timing perspective, we have inventories at levels which we will work down over time, and that is not only a combination of passage of time, but it also speaks to some of the activities that we’re getting involved in, in our manufacturing operations in terms of improving our processes. Jeff Zekauskas – JPMorgan: Secondly, in your script you talked about concessions that you’ve needed to make in paper PCC. Can you elaborate on that price concession you spoke of?

I’ll start things off and then I’m going to ask DJ Monogle to speak to it as well. We’ve had a number of contracts come due this year. As I’ve shared with all of you before, each contract that comes due is a renegotiation and there are different factors that go into the various factors and aspects of it. On some of our contracts, we share based on if we’ve had a ten-year contract, we share some savings with customers, so price concessions come about that way. On other contracts we have competitive threats that we’re responding to. So it’s sort of a combination of different things at each one of the contracts. DJ, why don’t you add a little bit to that?

Yes Joe, thanks. What I would also add just to give you some dimension on what we’re looking at, so far this year, we basically renegotiated four contracts that just ballpark of things make up roughly 10% of our sales and we’ve got another, call it something just under 10 contracts that are in negotiation today and so as Joe mentioned, we look at those on a case by case basis and make a competitive offering to our customer and in a lot of cases, we are positioning ourselves for the future with these folks, as we introduce new technology. So that’s that way we take a pretty balanced approach on how we’re dealing with these. Jeff Zekauskas – JPMorgan: Your CapEx went down to a little bit more than $4 million this quarter. Given that you expect a very sort of dire outlook both in refectories and in PCC, does that annualized reflect in new maintenance level of capital expenditures that is somewhere around 20 million or a little bit below?

Jeff, that’s a little hard to nail down exactly because sometimes you have unanticipated equipment replacement issues. Clearly we demonstrated that we can operate at those levels and maintain pretty high performance in the company, so we may be or are at a place where we’ve developed an improved capability from a maintenance and replacement standpoint, but there isn’t a lot of history around that, but it doesn’t feel at this point that we’re absolutely are not constraining anything from the standpoint of significant cost savings, capital projects or obviously any growth projects. So I think part of it has been learning in the organization around preventive maintenance; how to improve, predict failure so that we can deal with those things ahead of time and it’s a little early to actually nail down a specific level.

Your next question comes from Mike Judd - Greenwich Consulting. Mike Judd - Greenwich Consulting: Yes a longer range question about when do you have your annual budget meetings and with that in mind, could you give us a little sneak preview given the current industry dynamics; what your expectations are for, say over the next couple of years?

This as you can imagine has turned into a relatively fluid process. Let’s start with the steel industry. The turndown has been relatively rapid. The key questions for us relative to planning next year will revolve around how long will steel be down? How deep will it go? And the broader question that everyone’s looking at is well how deep will the recession be worldwide and how long will it go? So we’re linked to a large extent to how those questions get answered and so we’re trying to as best we can take in the factors that we see right now. The forward visibility unfortunately in terms of planning horizon is just not very far out. So we’re basically in the middle of that process right now. We do expect steel to probably be down and this is not on our predictions based on what we’re getting from industry sources, from experts, so-called experts, a lot will think there are too many experts out there right now, but basically looking at steel most likely being down globally for the first half and perhaps beginning to recover in the second half, but as I say that’s not our view, that’s just what we’re kind of getting from outside the company. Mike Judd - Greenwich Consulting: Okay and just a couple of other more technical questions. I think you indicated that given where the Euro is that the foreign exchange expense could be higher in the December quarter. Do you have a range or a ballpark estimate of what that could be?

Yes, I’m looking at John, but I think the number is around $1 million to $1.5 million, is that right, John?

For a 10% decrease in the Euro; our major exposure is in the Euro.

And that was around, if it was at a 135 level? Mike Judd - Greenwich Consulting: Okay and then just lastly, I didn’t see a balance sheet in your release, but could you give us an update on where you are with your pension plans and whether you expect that there would be a need for any additional funding in that plan either this year or next year, how that’s going, please.

Yes Mike, this is John. I’ll try and cover that for you. As you know our major pension liabilities here in the United States represents over 70% of our liability, and it has been very well funded. It was over-funded at the end of the year by some $40 million. As of the end of the September we were still over-funded, although there had been quite a decrease in the equity portion of that fund. As it stands right now, we are still funded pretty strongly. It has not triggered any particular payments on our part. Our benefit obligation is covered still by the asset base even in this greatly reduced S&P 500 type of market. The question will remain where this goes longer term. Mike Judd - Greenwich Consulting: And what is the mix of fixed income to equities in that plan? Do you have any idea?

Although we have made some changes in it recently under these conditions, historically we were 65/35.

Your next question comes from Rosemarie Morbelli - Ingalls & Snyder. Rosemarie Morbelli - Ingalls & Snyder: Given the current environment, are you planning to continue buying back stock or do you think that since all of the industry, all of the markets you serve are going to be if not in the freefall, at least hurting quite a bit, will you hang on to the cash in order to survive however long this environment lasts?

As I’ve shared with you in past meetings, we’ve tried to take a balanced approach to managing the company and we’re going to continue to do that. We have been buying back, but I mean the environment right now does suggest that we be cautious around doing that, so we’re going to continue to I would say staying in the course in terms of doing the things that we think make sense for the changes in circumstances that are confronting us. Now, we might pause for a little while to kind of see what settles out. We have continued in the market to be in a market, not to the degree that we were before and we’re just going to assess that as we go forward and as I say continue to take that what I would call right now a balanced and prudent approach. Rosemarie Morbelli - Ingalls & Snyder: And are you planning additional steps regarding cost cutting and changes which would trigger additional restructuring charges next quarter?

We are in the process of currently making adjustments obviously to the decline in sales, both in refectories and in performance minerals. So there are going to be some layoffs as we adjust to get our manufacturing facilities more in line to the lower demand side and that is a process that has already started. That will continue over the next number of weeks and we’re going to continue to assess; if we need to take additional major actions, we will certainly do that. We’re not contemplating at the moment any major restructuring, but again visibility, long planning horizons just don’t exist today in terms of being able to look out for an extended enough period of time. In terms of as I look at where we are right now, we are actually quite well positioned from the standpoint of now having in place a continuous improvement process in the company so that we have more ways to involve all our employees in helping us save money, improving productivity and we are operating at a different level with regard to overall performance and by continuing to execute the things we need to execute, I think we’ll - my sense says we should be able to fare through this very well and deal with whatever comes at us. At this point in time, we obviously don’t know the things that are going to come at us, but I feel pretty good about where we are and our ability to make the right decisions, to take the proper actions, to continue to operate effectively. Rosemarie Morbelli - Ingalls & Snyder: And lastly before I go back into queue, if I may, looking at the capital expenditures, $46 million in 2007, you are for the nine months only at 20. What is your best estimate for ‘08 and then for ‘09?

’08 I would expect it to be in the $30 million to $35 million range. We just have a couple of projects in the pipeline at this point. Rosemarie Morbelli - Ingalls & Snyder: And for '09, John?

‘09, it was a question asked earlier about planning. It’s a little early for an ‘09 number in terms of that it’s going to be dependent on capital expenditures and projects with some of our customers and both on the men tech side, as well as on the paper PCC side, with the uncertainties in the marketplace, that’s a little difficult to predict right now with people delaying projects and moving things out.

Your next question comes from Steve Schwartz - First Analysis. Steve Schwartz - First Analysis: In your metallurgical product lines, don’t you normally pass through the revenue line to your customers decline in prices for raw materials?

I’ll turn this over to Bill in a second, but in the refectories business with every customer you have negotiations and they are typically I think in the last few years, they are about six month periods that we negotiate for some of the products and services. Some others can be shorter duration, but each one of those are subject to a negotiation at different points in time and some have some formulas, some don’t. Bill, do you want to elaborate a little bit?

Yes Joe thanks. It’s somewhat of a mixture, but it’s really predicated on customer-by-customer negotiation and those instances where we have contracts. Largely we’ve seen this year for sure, increases in our calcium, in our Ferro supplies, prices coming from our suppliers outside of the US and what we try to do is we try to take a balanced approach relative to our own internal manufacturing capabilities and also that which we source from outside of the business, so we do try to take a balanced approach, but in many respects we’ve seen the need to increase our pricing this year in line with what we’re seeing in the marketplace. Steve Schwartz - First Analysis: Okay, the reason I’m asking is because I think with the softening global economy and the lower energy costs, oil and so forth, I’m wondering if you’re going to start to see that reverse on the revenue line in the next couple quarters, to where you start to see a negative draw or a negative impact on revenue growth.

Well, I don’t necessarily see that and again as Joe had mentioned, in many respects, we’re navigating ourselves through waters that in many respects are unchartered at this moment in time. We do have a number of different product lines in our metallurgical business, some of which are Ferro type and alloy based wires and those are materials for the most part that we buy in, so in many respects with the market adjustments already taken into account at point of purchase. So whether or not the price is higher or lower it’ll just be pretty much dictated by the time in which we buy. So in terms of that, there could well be some flexibility for sure. Again, much will depend very much on the price of calcium going forward and, again that is very unpredictable at this current time. Steve Schwartz - First Analysis: Okay. On your R&D spend from a consolidated standpoint, it was very low relative to sales and yet you mentioned that you did three trials in the quarter. I guess the first thing is last quarter you had mentioned that there was potentially a second customer who would begin trialing filler fiber and I’m wondering if that second customer signed up and if so with these three trials, is primarily that savings all related to restructuring and can we look forward to that consistently lower level going forward.

Yes, let me just say, we do have a second customer that we trialed with and the delta if you look at second and third quarter was basically due to better spending control. We actually had some efficiency on that. We ran three trials and ended up spending less than we normally would for the trial, so we got some economies there and relative to the overall R&D level, as I’ve mentioned in the past the decreases you’ve seen are in part tied to R&D spending we had with Synsil, the restructuring that we did with regard to the coatings business and the R&D there. There were some shifts and some reductions to get better focus around coatings where we consolidated to one facility. So those are in effect right now, but by and large we’ve continued to focus on R&D as a critical area for us and the emphasis continues to be on more rapid commercialization. That’s why we shared with you that we do have a second customer. Trials have gone well and the potential for additional customer’s trialing with us are also on the horizon. I’m going to let DJ Monogle talk about that a little bit.

I would just add to Joe’s comments that eminently we’ve got at least two trials that are coming up in the next couple of months. As we move forward, we continue to be enthused about what the technology offers us and then in addition to the two partners we’re working with right now, we have had pretty significant conversations with two other customers who are expressing interest and we would imagine being in a position where we’re working with four separate folks over the coming months. That still needs be ironed out, but it’s progressing. Steve Schwartz - First Analysis: That’s certainly good news. Just two questions around the financials; your tax rate expectation for the year?

Right now we’re running a tax rate that’s year-to-date right about 30%, 29.8% and you can see we made an adjustment in the quarter. The quarter was only 27.2, to bring it down to that rate and we expect that rate to be just right around 30% for the full year. Steve Schwartz - First Analysis: Okay, and then your interest income was up by about a $0.5 million relative to prior quarters. That gave you about $0.02 a share. Do you expect to be earning as much interest income in the coming quarters?

Yes, that’s the impact of the excess cash and strong cash flow that we have of course.

Your next question comes from Jeff Zekauskas - JPMorgan. Jeff Zekauskas – JPMorgan: Can you talk about the level of the paper PCC business in China? Has that business slowed down or sped up or stayed the same? What’s your impression of it and Chinese business activity generally?

Jeff, in general we are a bit please with what’s going on in Asia. That has been the bright spot in terms of volume growth for us, just on a year-to-date basis, probably something a little north of 9% and it’s helping us offset what we’re seeing in the other region. Going forward, we continue to pursue several satellite opportunities and the bulk of those opportunities are in Asia, so we continue to be a region that we focus on. Jeff Zekauskas – JPMorgan: That’s helpful. Secondly, I think steel production in the United States in the fourth quarter is supposed to drop a little bit more than 20%. So, under those kinds of circumstances, is that the rate of your volume decrease or do you decrease at a slower rate or a faster rate? How do you see that?

Well, typically in North America where we are, we have heavier concentration in BOF. We will tend to experience or can experience from looking at the past, a faster rate. As John mentioned when he was going through the section on refectories, when a furnace is taken down and these are the periods where they will be taken down and relined, we won’t be selling a product and then there’s a period of what is termed wherein, where there is less product use. So it takes three or four months for it to pick up. So we traditionally will go down. In terms of volume effect we’ll be a little deeper before it comes back up. Bill, do you want to add anything to that in terms of what you’re seeing right now?

No, I think that’s a fair characterization, Joe. I think that there is somewhat of an anomaly this year in particular because the furnace gunning that our crews have been engaged in have been particularly hot and heavy and I think the reason for that is that we all know the steel production this year up to and including the third quarter has been strong, for reasons such as high levels of export because of favorable currency and so on. So in terms of what that has done for us is that we’ve been working very closely with our customers and the advantage that we provide is our ability to be able to keep our customers up time longer. So we’ve been gunning campaigns if you will that it be longer than normal. So when you get to see a reduction, particularly in the integrated steel mills, when VOS, as we call them, are brought down, then we would feel the impact fairly significantly. So in terms of what we’re seeing today it’s probably a faster decline than we have experienced in previous years. Jeff Zekauskas – JPMorgan: And then I think lastly, there’s been a fair amount of talk about raw material inflation, whether it’s magnesium oxide or lime and when you look across the commodities, what we’re seeing is in fact exactly the opposite and you use a fair amount of natural gas in your processed minerals. Do you see this inflation that you’ve got as relatively temporary and do you believe that you might face a very different environment next year?

I think selectively we’ll see some benefits in certain areas, where for instance we purchase direct fuel oil or gas. As you think about the PCC business and lime, we have supplier base formula contracts that lead and lag just as we have them with customers and so what we were trying to describe to you during the call is that fourth quarter and into next year, PCC we’re going to have some compression effect. We’ll work through that; you’ve seen this before. Depending on where energy goes, then you could begin to see some positive effects coming through, but that's going to take some time to play out, Jeff. On the MGO side, on the min-tech side, we have a different kind of a problem. The issue, or the challenge we have is that you have China which is still the center or the source for a good deal of MGO for a number of companies like us and are keeping a very high price level; not only keeping, they continue to raise. The export licenses provide a synthetic constraint that keeps the prices high and the question is will that start to break or not. Right now as we look out, we’re seeing compression in the fourth quarter that’s going to affect the refectories business, that’s going to affect us into the first and second quarters, but over time we would expect to see some impact and start to see some movement happening there. We’re just not seeing it yet and again, because it's somewhat synthetic relative to the Chinese government involvement in the supply and demand as it exists for this mineral. Jeff Zekauskas – JPMorgan: And then I guess lastly in terms of these renegotiations that you’re going through, I mean these seem fairly substantial. Are these with domestic customers or Chinese customers? Can you give us some sense of that?

I’ll let DJ, who’s in the middle of these share that with you.

Yes Jeff, as we are going through our contracts right now, the contracts that we’re negotiating are primarily North American and European. It’s as our satellites have been there for a pretty extended period of time that we get into these renegotiations. There are a couple in Asia, but the predominant conversations are in our established base, so you figure we’ve got 28 satellites in North America of varying ages and another 10, 12 and 10, 11 in Europe; that’s where the primary negotiations are. Jeff Zekauskas – JPMorgan: Originally you were going to take out $20 million to $25 million in costs this year and I think you had 15 through the first half. Are you looking more like 20 or 25 and in the quarter, if you had to talk about the incremental reductions, how did that affect refectories and specialty minerals?

I’ll let John give the breakdown, but we are still tracking in that 20 to 25 and we need to get through the rest of the year, but last call I mentioned we were tracking on the high side of that, that still feels like where we are right now Jeff, but John why don’t you break that down a little further, please.

Are you focusing primarily on restructuring savings, Jeff? Jeff Zekauskas – JPMorgan: Yes, in other words, when you look at the operating profits and your specialty minerals and your refractory business for the quarter. I mean refractory was up very, very nicely. Is that one where the savings were perhaps larger or how exactly does it work?

Well, we haven’t really broken it down by segment, but actually the restructuring savings on the refractory side was not the largest component. It was more in the SMI side and we had targeted to be in that $20 million to $25 million and we’ve been actually running stronger than that on a gross basis; we’ve been running closer to a $30 million rate. Our net has been a little lower than that because we have had additional restructuring costs as you know, put in about $7 million year-to-date in additional restructuring costs, so that brings our net down a little bit, but the gross we’ve been tracking at the high end of what we talked about last year.

Operator, we have time for one more question.

Your final question comes from the line of Richard O'Reilly - Standards & Poor. Richard O'Reilly - Standards & Poor: Two quick questions for John; what’s left in the discontinued operations business, because I thought you sold the plants?

We sold the Synsil operation, but we still have the [Telt] business that we still have for sale. The Mt. Vernon Wellsgo operation is the primary component of discontinued operations. It’s still running. It’s a profitable business. It’s still contributing a few cents, most of what you see of discontinued is the benefit of the sale of the Synsil assets, but it’s a good business that we’re holding for sale and Doug is working on that. Richard O'Reilly - Standards & Poor: So your $1.06 number, that includes a few pennies from that business?

That’s correct. Richard O'Reilly - Standards & Poor: Okay. Second question, I don’t have the slides up, but in your outlook comments, you talked about both segments being down 30% to 40% versus the third quarter. Now, is that as reported or excluding the restructuring expenses which I think you show as the total segments of $28 million for the quarter; is that what we should be flowing off?

Yes, on both of those slides, I showed the number excluding special items. That’s what we’re keying off, is the performance excluding special items and it’s subject of course to the --? Richard O'Reilly - Standards & Poor: And you didn’t give any specific EPS comment?

No, I did not. Richard O'Reilly - Standards & Poor: My math comes down to a number, so it’s off sharply from the third quarter, okay.

Just maybe if I could say a few words; we have not been giving specific guidance, but we felt under the circumstances of what’s happening around us that we should share with you as best we can what we see right now. So what John covered is what we see in each of those segments. Richard O'Reilly - Standards & Poor: No, I appreciate that because it implies a number well off what you were running for the last couple quarters.

That concludes the call. Thank you for your interest in Mineral Technologies.

This concludes today’s conference call. You may now disconnect.