Minerals Technologies Inc. (MTX) Q4 2008 Earnings Call Transcript

Rick B. Honey - Vice President, Investor Relations Joseph C. Muscari - Chairman and Chief Executive Officer John A. Sorel - Senior Vice President and Chief Financial Officer D.J. Monagle, III - Senior Vice President and Managing Director, Specialty Minerals Inc. Paper PCC Douglas W. Mayger - Vice President, Managing Director Performance Minerals John A Sorel - Senior Vice President and Chief Financial Officer

Silka Koopf - JPMorgan Rosemarie Morbelli - Ingalls & Snyder Steven Schwartz - First Analysis Corp. Richard O'Reilly - Standard & Poor's

Good morning. My name is Latanya, and I will be your conference operator today. At this time I would like to welcome everyone to the Minerals Technologies Inc. Fourth 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) Thank you, I would now like to turn the call over to Mr. Rick Honey, Vice President of Investor Relations. Rick B. Honey: Good morning. Welcome to our fourth 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 full year and fourth quarter results, and then update on the steps we are taking to manage through this global recession. He will be followed by John Sorel, Senior Vice President and Chief Financial Officer, who will review our fourth 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 the company faces throughout 2009. Before we begin, I need to remind you that on Page 6 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? Joseph C. Muscari: Thanks Rick. Good morning, everyone. Last night we released our fourth quarter financial results which were hard hit by the economic downturns. Steel, paper, construction and automotive sectors, our primary end markets were particularly impacted. Our earnings excluding special items were $0.41 per share which compares to $0.84 in the fourth quarter of 2007, a 51% decline. The sequential decline from the third to the fourth quarter of 2008 was 61%, which provide some further perspectives into the significant drop in demand for our products. I'd like to point that, despite the perilous economic environment we are now mired in, MTI posted its record best annual earnings at 3.44 per share. I believe this is the direct results of the restructuring we undertook in the third quarter of 2007, when we refocused our strategy and placed the company on a stronger foundation, one that is helping us manage through this difficult period. As the economic crisis began to the surface we are able to adjust quickly by taking decisive steps to conserve cash and further reduced cost to maintain MTI's competitiveness. Today we continue to have a strong balance sheet with over a $190 million of cash, and a 170 million of unused credit lines at year-end. And our debt-to-capital ratio is very low at 14%. Cash flow itself during the quarter was a strong 53 million; I believe it is strength of our balance sheet that particularly differentiates Minerals Technologies from many others during these turbulent and uncertain times. The first part of this call is; I would like to provide a brief overview of our performance, take a closer look at the economic collapse we saw in our major end markets and provide some insights, into how we are managing through this recession. As you can see here our performance for the full year of 2008 showed good growth in sales and earnings despite, the weakness in the fourth quarter. Throughout the year we were able to achieve the savings we were targeting from the 2007 restructuring which significantly improved our operating income. We also began to see some positive impact from our operational excellence initiative. In an environment where we faced increasing raw material and chemical cost across all of our businesses we were also successful in raising prices in all of our major product lines. During the year, we've also repurchased 691,000 shares of our stock for $42.7 million, but suspended the share repurchase program when the downturn hit. When I joined the company, in March of 2007, one of my first objectives was to improve return on capital as quickly as possible to at least our cost of capital, targeting greater than 9% by 2010. By the third quarter MTI's return on capital was running at an annualized rate of 9% for the full year and we finished the year at 8%. A significant improvement given the circumstances over the 6% rate, the company recorded in 2006. In reviewing our balance scorecard and assessing our performance for the full year, it's clear that we are able to deliver overall much higher performance to shareholders. There were however, a few areas where we were somewhat off track, working capital and volume growth, for example. The working capital performance was directly associated with having to purchase of magnesium oxide, our primary raw material for the refractory business when we were concerned about an interruption in supply prior the Olympics in Beijing. The decline in fuel production exacerbated our situation and has left with us with considerably higher inventory levels than we had planned. We did however see some working capital improvement in some areas such Paper PCC. The lower than targeted volume growth was affected by the steep declines in the all of our end markets during the fourth quarter which in turn took us off track for the full year. The overhead expense reduction effort which began in 2007, remained on track, as we are able to reduce our expenses by more than 8% from our 2007 spend level of reduction of approximately $15 million. Our safety performance for the year enabled the company to experience the lowest lost work day injury rate in its history. A rate of 0.93 which is less than one injury for 200,000 hours worked resulted in over 30% fewer serious injuries than in 2007. As I stated earlier, we are also now beginning to see some increased efficiencies from the global roll out of operational excellence initiative in all facilities, and we have also have made progress in strengthening our research and development through a sharper focus on product innovation and speed to commercialization. We also instituted in new product development process which will allow us to maintain our focus on new products, processes and technologies that will ensure our future growth. The trend line in this graph paints a clear picture of where we have been heading, from the fourth quarter of 2007, after we restructured until the recent fourth quarter economic downturn the company has been on a much higher performance track. In the fourth quarter we faced the same conditions so many other companies experienced, a precipitous decline in volumes at our end markets, and as well as increasing raw material costs. We experienced plant shutdowns in paper, steel and the construction in automotive industries. As we related in third quarter call, we expected based on what would could see at the time which was limited, a 30 to 40% decline, as you can see however we didn't anticipate that the economic conditions in the fourth quarter would be as severe as they turned out be. John, will review the decline in our end markets in more detail. But I wanted to provide you with some example of how deeply one segment of our customer base, the steel industry has been hit, which in turn had a commensurate impact on our refractories business. In October the U.S. steel industry was still running at an annualized rate of more than 100 million tons a pace that it had been on from more than a year, which had our refractories business tracking the record earnings through the third quarter and into October. Field production in the U.S. our largest market for refractories, dropped like a rock in November and December as this slide illustrate. The fourth quarter steel production in the U.S. actually declined 38% versus the third quarter. December production, as we look at that however as of further reference point had actually dropped to 60% below third quarter levels. The steep decline began in the U.S. and soon followed to Europe and Asia, with severe drop in our refractories operating income was directly tied to this drastic change in market condition. In addition to the worldwide steel industry steep decline, we saw shutdowns at paper mills in Maine and Wisconsin, where we have satellite plants as well as production curtailments at other mills. We also experienced increases in magnesium oxide cost, which we purchased from China inline our primary raw material for precipitated calcium carbonate also rose significantly. The housing market as you all know is at an all time low with December new home sales at the lowest since the commerce department began recording that data in 1959. In addition, the automotive sector remains and decline and these both have a direct impact on our performance minerals business. We have adjusted quickly, so there's significant chain of events by taking aggressive, yet prudent steps to maintain the company's competitive position. We're reducing our workforce by 14%, approximately 380 people through both permanent reductions and lay-offs. We established procedures to conserve our cash and contain our costs by containing production. We shortened workweeks, reduced overtime, and by continuing our intensive expense control, and procurement initiatives. Now I'll turn it over to John, who will provide with the more detail look at our financial performance, John? John A. Sorel: Thank you Joe, and good morning everyone. I will review with you our consolidated and segment financial results focusing on the fourth quarter and highlight the key market operational elements of our performance in each of the major product lines. The first slide provides an overview with the company's consolidated results for the fourth quarter, total reported earnings per share were $0.31, of which $0.19 per share were from continuing operations and $0.12 were from discontinued operations, primarily the result of a gain from the sale of an idle facility. Earnings from continuing operations concluded restructuring charge of $0.22 per share associated with the program to reduce our work force by an additional 14% to both layoffs as well as permanent reduction in respond to the downturn and business activity. Excluding special items, earnings from continuing operations were $0.41 a share, a 51% drop from the fourth quarter of 2007. We have provided a reconciliation table on footnote three of the press release, which details the effect out of earnings of this special items, which are comprised of restructuring charges in both continuing and discontinued operations. Asset impairment charges engaged in the sale of idle facilities, which were previously written down. As Joe mentioned, our performance decline was steeper than we previously forecasted due to the precipitous downturn in our paper, steal, construction and automotive end market, which led to an unprecedented drop in demand for our products. Sales for the quarter decreased 13% or $34.3 million from the prior year. The sales reduction was driven by a substantial volume drop in all our major product lines, which more than offset the pricing gains we achieved during the year. In addition, due to a stronger dollar in the quarter, foreign exchange and non-favorable impact on the sales at $11.4 million or 4 percentage points. Operating income, excluding special items in both years decreased 66% to $9.4 million and represented 3.9% of sales. The significantly drop in operating income reflects the volume losses in all product lines, which represented the major portion of the decline and higher raw material costs, primarily line with the PCC business, where cost can not be passed on through the customer contracts until 2009. Savings resulting from the successful execution of the restructuring program put in place in 2007, combined with a rapid response spot by management for the current economic turmoil, mitigated the full potential impact at the market downturn. Net income, excluding special items, which includes the benefit of lowered interest expense and a lowered tax rate compared to last year still dropped 53%, 7.6 million from 16.3 million in the prior year. A return on capital, excluding special items on an annualized quarterly basis was 4.2% in the fourth quarter, and was 8% for the full year, a significant improvement over the past several years, which averaged around 6%. Cash flow from operations in the fourth quarter was approximately $53 million, reflecting a continued focus on working capital. Capital expenditures were only $7.3 million. The rate of market deterioration accelerated throughout the fourth quarter; and as a result, the overall performance was well below our expectations. The key industries we serve remain at low operating levels today, and we don't currently have a view to any fundamental demands improvement. In addition, we faced continued margin compression in both segments due to the increased cost of raw materials, which have not yet begun to subside. And the difficulty in mitigating these pressures comprise adjustments in today's market. We will continue to intensively monitor the economic projections for our end market to manage our future financial performance. MTI sales for the quarter were $240 million, a reduction of 13%, 34.3 million compared to the fourth quarter of 2007 and a reduction of 19% of 54.9 million sequentially. As you can see from these graphs, sales in all of the major product lines dropped off dramatically compared to both the prior year and the third quarter levels. The economic downturn that started in the third quarter, accelerated throughout the fourth quarter, substantially reducing the demand for our products. Sales in the specialty mineral segment, which is comprised of both the PCC and processed minerals product lines in the chart were $158.9 million, 20.6 million, or a 11% below prior year. PCC sales decreased 11% or $16.7 million to 137.4 million from 154.1 million in the same period last year with the unit volume down 10% and an unfavorable currency effect of about $5.1 million or 3 percentage points. Verses the same quarter, PCC sales dropped 13% or 19.8 million and volume decreases of 14%. Within the PCC product line, paper PCC volumes, sales were about 900,000 tons for the quarter, the lowest level since the first quarter of 2004. The current sales rate for paper PCC products is about $1.3 million per day; only about 2% lower than the fourth quarter rate. Sales within the process minerals product line decreased 3.9 million or 15% compared to last year. Unit volumes were down 24% below the already depressed level experienced last year due to a further decline in residential and commercial construction activity and a weakening automobile market in the United States. Versus the third quarter of 2008, sales and process minerals drop 24% to $7.1 million with unit volumes down 26%. Current unit volumes are running about 31% below third quarter levels. The credit sales rates for process minerals is about $235,000 per day about 13% lower than the fourth quarter rate. Refractory segment sales in the fourth quarter decreased $13.7 million or 15% to $80.2 million from $93.3 million in the prior year. This decline was primarily driven by a decrease in refectory product unit volumes, which declined 27%. Impact on total sales dollars was partially offset by price increases, which were faced in throughout 2008 that's necessitated by a dramatic rise in the prices of raw materials particularly MGO. Foreign exchange had an unfavorable impact on sales of $6.3 million or 7 percentage points. Versus the third quarter, sales decreased 26% or $28 million on a 26% reduction in volume. Within this segment, refractory product sales decreased $11 million or 14% to 65.2 million from 76.2 million last year and 25% or 21.5 million versus the prior quarter. Refractory product sales volumes are currently averaging about one half the third quarter rate and about 25% below the December rate. Metallurgical product sales also decreased 15% to 15.0 million as compared with 17.7 million in the same period last year, and 30% or $6.5 million versus the third quarter. The current sales rate for the refractory segment is about $660,000 per day or 20% lower than the fourth quarter rate. This next chart reflects the financially results within a specialty mineral segment. In total, segment profitability for the quarter declined 52% from prior year excluding special items in both years. This decline was primarily due to the significant volume losses in both product lines, increased raw material costs, price concessions related to contract expansions on a paper PCC product line, and unfavorable foreign exchange. These factors combine to more than offset the savings generated from restructuring program initiated in 2007. PCC operating income declined 45% from the prior year and was 6.9% of its sales. Process minerals recordable a loss at the operating income line as volumes collapsed to 24% below prior year levels and 26% below third quarter levels. Overall, segment operating income represented 5.2% of net sales in the fourth quarter, excluding the special items. Production levels within the North American and European uncoated free sheet market our most significant market areas, continuing to contract to adjust to reduced demand and de-stocking in reaction for the global economic crisis. Compared to the fourth quarter of last year, we saw additional machine shutdowns and paper mill closures, which can only be partially offset by increased volumes from our new facilities in Thailand and Brazil. As a result, Paper PCC unit volume declined about 10% from the prior year and 8% versus the third quarter. In addition, increased lime costs had an unfavorable impact on operating income during the quarter, but these cost increases are not passed on to customers until 2009. Further more, residential housing starts have experienced further decline in what are lowest level in more than 24 years, which caused a significant drag at our processes minerals product line, which primarily supports industrial suppliers at residential construction industry. We also began to experience the impact of the deeper slowdown in the commercial real estate market which represents about 15% of the process minerals business. In addition, U.S. automobile industry volumes were down about 35% in the quarter versus last year, and about 18% compared to the third quarter. To further adjust in this rapid decline in demand and uncertain future outlook, we recorded additional restructuring charges of $3.3 million in this segment during the quarter. Overall, we expect our end markets to remain at the pressed operating levels or even decline further. As a result, we are cautious about the future levels of profitability, to the major product lines within this segment, due to these economic uncertainties, we are making adjustments within the business units to better position us for the realities of an extended slowdown in our end market. To provide some additional insight for the current market situation in the paper business, I have included these two graphs which show the trend that uncoated free sheet paper demand at operating rates for 2007 and 2008, in both North America and Europe our largest markets. In North America demand dropped at double digit rates during the fourth quarter as de-stocking occurred with the expectation of paper prices would be further reduced as deliveries continued to fall. In Europe, the de-stocking occurred earlier in the year, and as a result fourth quarter volumes were more stable, although still on negative growth territory. It appears that the full effect of the economic crisis arrived later in Europe, and the current forecast is for significantly lower volumes there, during the first half of 2009. There are currently no positive signs of a rebound in demand and additional paper production curtailments continued to be announced in both regions. Although the volume price adjacent mechanisms and our long-term PCC contracts provide some measure of protection, further industry consolidations are possible if demand remains at this level for an extended period which could cause additional PCC plants shutdowns. This chart, are housing starts; is a good indicator of the expected performance in the process of minerals product line. Housing starts in the U.S. are at the lowest levels in about 24 years. The annualized rate in December was only 550,000 units and 2008 as a whole represented about 900,000 units which is less than half the peak rate of 2.07 million units recorded in 2005. You will also note that the industry forecast continued to move towards lower activity levels and towards a slower recovery. Based on this information, we do not believe we have reached the bottom in this market and a timing for recovery remains uncertain. In the refractories segment, the rapid decline of steel production in the United States that Joe graphically described earlier significantly impacted sales and profitability for this segment. Nearly half of our sales are based in North America, with steel production decline from 2.2 million ton per week rate in the third quarter to a 1.6 million ton per week rate in the fourth quarter, a drop of about 30%. Many major steel mills curtailed production and laid out thousands of employees. As a result, overall refractory product line, unit volumes declined 26%, compared to both fourth quarter of 2007 and the third quarter of 2008. In North America, volumes declined 29% from prior year levels and fell 31% in the third quarter, and that performance included a relatively strong October period, when steel production remained at about a 2.1 million ton per week rate. However by December steel production had declined to weekly rate of about 1.2 million tons, 45% below the third quarter levels. In Europe with the timing of the curtailments of steel production lie slightly behind North America, volumes dropped to 25% compared to both the prior year and the third quarter. In response to rapid decline in demand for refractory product, the company recorded an additional restructuring charge of $3 million to better align our cost structure with the closure of mills and reduced sales volume levels. The majority of the lay-offs were related to our steel mill service employees who provide technical support at the mill. During the fourth quarter, segment sales declined 15%, and the refractory product line volume loss is accounting for the majority of the reduced segment sales in an unfavorable foreign exchange related to the stronger dollar accounting for six points of the decline. The metallurgical product line also recorded a 15% sales decline from prior year and a 30% decline from the third quarter due to reduced steel output. The extreme volume sales declines was slightly was offset by increased pricing related to the pass through of increased raw material cost of magnesium oxide. As a result of the superior volume decline, operating income excluding special items dropped by 85% from the fourth quarter of 2007 and 86% versus the prior quarter. The outlook for the refractories business is also uncertain as we continue to evaluate the latest economic forecast for the steel industry. Generally steel analysts predict market conditions will slowly improve in the second half of 2009. However, fundamentally automakers have a high level of inventory, which they are trying to sell off in the commercial construction industry that's weathering a sharp decline in activity as many projects have been either suspended or cancelled. Therefore the timing of any sustainable recovery remains uncertain. The economic slowdown in the fourth quarter has left us with a higher than anticipated inventory level of MGO, which was purchased during the peak of the demand cycle for the Chinese source materials. This will result in even higher production cost for us in the first half of 2009. As summarized in this chart the major restructuring price initiative and cost improvement programs undertaken by the business unit leaders since the third quarter of 2007 allow us to largely mitigate the extreme cost pressures and unfavorable market factors we would have faced in 2008; despite a dramatic decrease in business activity in the fourth quarter. This chart gives you a prospective of the size of the cost increases that we faced in 2008. Magnesium oxide and bauxite had the largest negative impact over $34 million and lime and chemical costs were up over $15 million. Although the market environment had not been exceptionally positive during the year, the fourth quarter volume losses represented about $20 million significantly impacting our net full year improvement. We're able offset this increased costs and market practices through a combination of actions including price increases, our restructuring program, which gave us about $30 million in gross savings, expense reduction, operational cost savings, and some volume growth primarily, in the metallurgical wire area, Paper PCC where we started up a new satellite facility in Thailand and increased our operations in Brazil. This chart will give you a perspective of the significance of the individual elements of the decline and our sequential operating income performance. As you could see, the market factors had the most significant impact on performance with volume accounting for a decrease of approximately $20 million versus the third quarter. All product lines were affected, the hardest refractories and products processed minerals. Even with the favorable impact of the price initiatives and cost saving programs, the net resulting impact on operating income was dramatic. The working capital chart here reflects our operating working capital trends as defined by trade accounts receivable, inventories and trade accounts payable. As you can see, after some of the favorable results in the first three quarters of 2008, total working capital is reduced in the fourth quarter of 2008 to a level just 2% higher than December 2007. The increase is being driven by the refractories segment due to the higher cost of raw materials imported from China and a slowdown in steel production that resulted in higher MGO inventory levels than planned at year end. Our days of working capital increased to 88 days, from 71 days in 2007. The lowest sales level related to the economic downturn in the fourth quarter particularly November and December is a primary driver in a substantial increase in the number of days. Our cash flow from operations was approximately $53 million in the fourth quarter, included about $30 million in the working capital reduction. Our capital investment for the quarter remained at a relatively lower level of $7.3 million, and was $31.5 million for all of 2008. An expansion rate well below the 100 million run rate have been maintaining in the past. Our balance sheet remains very strong, our year-end cash position is over $190 million. And we also have available lines of credit of $170 million that remain unused. This leaves the company well positioned to weather a protracted weak economic environment. Our debt to capital ratio was very low at 14% and our liquidity remains very strong with the current ratio of 3.5. This compares very with well for the S&P 500 average of about 1.0 represents a fundamental strength of the company. We continue to pay down debt during the year, and we'll repurchase 691,400 shares for $42.7 million prior to suspending the program to conserve cash. You'll note that since 2006 we have been able to increase our cash by $115 million, and reduce our debt by about $90 million. The company recorded... achieved record earnings of $3.44 per share, excluding special items, despite a very weak performance of only 41%... only $0.41 per share in fourth quarter. The anticipated service and construction program initiated last year was fully realized to the efforts of the management teams and all our business units. We have recognized the realities of the current market situation and has implemented additional restructuring programs to meet the challenges. As expressed throughout this presentation, there remains considerable uncertainty in the major industrial markets we serve. We are now experiencing production slow downs in all of our global markets and expecting steeper declines in steel and paper as the general economy is affected by a continued recession. There's also a way of noting that our projected periodic pension costs in 2009 will increase significantly, about $7 million or $0.25 per share as a result of the lower asset base and amortization of unrealized losses following the financial crisis in the fourth quarter. Our funding status in the largest U.S. plan remains at high levels over 95%, and we've adopted a capital conservation strategy for the remaining invested funds. As a result of all these factors relating to the economic crisis, we expect our first quarter 2009 results to be significantly lower than the fourth quarter performance. However MTI has an exceptionally strong balance sheet, the cash and short-term investments of over 190 million and debt of only 116 million. Despite the financial crisis, we remain a fiscally strong company and have taken steps to ensure those reserves are safely invested. Now I'll turn the call back to Joe for closing remarks. Joseph C. Muscari: Thanks John. While we go to questions, I have just a few additional thoughts I'd like to share with you. It's clear as I mentioned earlier that many companies today are facing great difficulty because of the economic downturn. MTI is no exception. Our biggest challenge at the moment is to steer the company through these unsorted waters with very limited forward visibility. The transformation initiatives that we undertook in 2007 have created a stronger and more responsive company than we had in the past. So, MTI is better able to deal with the conditions currently confronting us. Today the company is clearly also a more disciplined organization with a better sense of direction and purpose. Looking ahead, as I mentioned, there is no clear visibility on the economic front, our primary end markets are in the midst of a downturn that as yet does not seem to have hit bottom. We've already taken many actions as the company to manage through this global recession, and we'll continue to make the adjustments we find necessary to maintain our competitiveness including further restructuring. As I said earlier, our balance sheet continues to be strong, which I believe is one of our key strengths in these difficult times. We will also continue to execute the major initiatives we established in 2007, operation excellence is beginning to gain traction and we'll continue to maintain focus on it. Safety remains a top priority, and we'll also continue to our initiatives to make MTI a safer place to work. Expense reduction will continue to be a major focus and we will maintain our new product development efforts in filler fiber enforce and new refractory products, key areas for our future growth. Maintaining our lines of sight to our longer term objectives while making the adjustment necessary in the coming months to ensure our economic competitiveness will be our key challenges for 2009. We'll continue to take the necessary actions as I said to manage through this recession. Aggressive cash conservation, cost reduction, market position enhancements, selective repositioning and restructuring will be our key near term levers. For a strong balance sheet and cash position, they may well also be some opportunities out there that we can take advantage of to further strengthen the company and improve shareholders value. Given what the company and its employees have done so far to transform and strengthen MTI through a strong performance improvement focus and value based balanced approach to everything we do, I fully expect that we will come out of this recession stronger than when we went in. Now let's open it up for questions.

Thank you. (Operator Instructions). Your next question comes from the line of Jeffrey Zekauskas, JPMorgan. Silka Koopf - JPMorgan: Good morning. This is Silka Koopf for Jeff; how are you?

Hello, how are you? Silka Koopf - JPMorgan: Doing okay. A couple of questions; on PCC side, how many satellite plants do you have at the year? And what's your expectation of... how many may have to be like shutdown given the very steep decline in volumes? And are those costs already in the restructuring that has been... the restructuring costs that has been announced for the first quarter?

Yeah, I'm going to let D.J. Monagle answer this, and then to give you a perspective. D.J., as you know, is the business unit President of Paper PCC. D.J.? D.J. Monagle, III: Let me take... we may have to go back and fork on this. So I understand that sequence of the question. But let me give you the essence was, where do we close out the year on our number and how do we see this recession affecting our basic, our footprints of satellites that are out there. The best way I can answer that is as we close out the year, we have about 57 satellite locations and as we look forward to the year, we see probably in the neighborhood of five customers that are under stress, but it's very hard to project that whether they will or will not make it through the year. Those customers then... those customers that are... everyday we open up the paper, we see some level of curtailment or shut down, so the more likely scenario that was looking after the next two quarter is reduced volumes that's still keep our satellite plants there with the base. Does that help answer your question? Silka Koopf - JPMorgan: Yeah. That means the restructuring charge taken in the fourth quarter doesn't really include a provision for our plant shut down. D.J. Monagle, III: No, it does not.

No. Silka Koopf - JPMorgan: Okay. Secondly, regarding the restructuring taken... regarding the head count reduction, where are you today with that? Is half of that implemented or a third of that and what are the ultimate cost savings that you expect over the next 12 months?

Yeah. We have, if you recall when we announced the lay-offs and the restructuring, we announced around 340 people would be affected. As we moved into 2008 we made some additional adjustments and that number is now 380. The large majority of those folks are in our Minteq business. And I'd say probably at this point we have 70, 80% either through permanent or temporary layoffs or layoffs per say have occurred; occurred last year and then continued to occur in January. And the expectations on our estimated savings would be in the $6 to $7 million range in 2009, with the biggest impact obviously occurring in the third and fourth quarters. Silka Koopf - JPMorgan: Okay. And if I can ask last question on operating cash flow. So for the year you announced that you achieved very good operating cash flow of 132 million and with free cash flow of 115 million. How do you get to that number given that like CapEx was about, -- was I think about 30 million in the year as well?

Silka, this is John. We had cash flow from operations at about 132 at the capital of 31 we had proceeds in the sale of assets of about 14. Silka Koopf - JPMorgan: Okay.

Those are the major components that will bring you to 115. Silka Koopf - JPMorgan: And given that, this maybe -- run rate that you may be able to achieve and 9 and let's say it's only 100 million given that you have 190 million in cash in your balance sheet. What do you plan to do with that cash?

Well as I mentioned in my remarks, we're taking a very conservative approach to the future, because the future has, as we all know is quite uncertain right now. So, we do have a number of potential opportunities in our Paper PCC business that are under development right now, that could put us in a position to make some investments there later in the year. As you know we continue to be very active in certain parts of the world on new opportunities for growth and in satellites as I mentioned in previous call. So, there clearly is a potential for additional capital spending there. Again that remains to be seen relative to the economic climate and how that evolves through the rest of the year. And at this point in time we're going to conserve and work our way through the conditions we have right now. As I also mentioned we could presented with some opportunities, from an acquisition standpoint that might make sense later in the year and given our strong cash position, if it's something that can have a significant positive effect on the company from a repositioning standpoint long-term. And it is inline with our strategy then we would certainly consider doing that. Silka Koopf - JPMorgan: Would those be are there minerals businesses or what would you consider acquiring?

Well, as we've mentioned, we have a fairly comprehensive targeting process that where we look at a number of areas in the minerals industry as one particular area given that we are a minerals based company. There also potentially could be refractories opportunities for us that might make sense. Silka Koopf - JPMorgan: Thanks very much. I'll get back into queue.

Thank you, your next question comes from the line of Rosemarie Morbelli, Ingalls & Snyder. Rosemarie Morbelli - Ingalls & Snyder: Good morning all.

Hi Rosemarie, how are you? Rosemarie Morbelli - Ingalls & Snyder: All right, how are you?

Good, thank you. Rosemarie Morbelli - Ingalls & Snyder: When you talked about the restructuring in December, you mentioned the additional layoffs but you didn't talk about the capacity. Could you give us any feel as to what you have done in that particular area and what is your capacity utilization at this particular low level?

Well, at company makes more sense to try to come at it by the two businesses that have been most affected and that is in our performance minerals business, process minerals business and the refractories business. In the performance minerals business, we are below 50% utilization, probably in the -- Doug would you say in the 40% range or a little lower than that right now. So it's quite low.

I would say that's right.

And looking the, the way we are adjusting there is by fundamentally, as I indicated in the remarks, reducing work hours number of people and making people adjustments. The refractories business which also was very hard hit is running in the range of 30 to 40% of capacity right now. And as we think about the future, and try to ascertain further areas where we can save money certainly things, such as further consolidations between some of our facilities or areas that we have on the table right now that we're beginning -- that we are taking to look at, not beginning to take a look at; but to see if we can conserve cash and also reduce cost by combining some of our operations around the world. Rosemarie Morbelli - Ingalls & Snyder: And as you combine operations, any thought of doing that announcing (ph) those particular steps in the sometime in the first quarter when you have a better feel if you do for what the industry is going to be like in the second half of this year. Or do you think that, that particular business should just be smaller regardless of the economic environment in order to repair it more efficiently in major downturns which I'm sure will come again?

Yes those are good questions, and they are very domain and they are the key questions we have on our table right now, in terms of at what point do you further consolidate, based on what you believe is going to happen over a longer time period. And so we're right in the middle of doing that right now, and trying to assess what makes sense for us as we move into the second half. At this point in time its hard to tell exactly what will make those decisions, but suffices to say that we're monitoring the forward situation as best we can on a day-to-day basis, while we make contingency plans for that business in particular in terms of how to maintain, stay cash positive in the business, because they are being impacted the most of the three businesses we have right now. Rosemarie Morbelli - Ingalls & Snyder: I wish I could ask one last question on PCC, you mentioned that your raw material costs for that particular business are continuing to increase, and you said that you would most likely pass the price increases in 2009. And I guess I am wondering what makes you think that you can pass them through when the demand is down the way it is. And if my memory serves me right, you also said that you have to give some price concessions when you renewed some contracts in 2008?

Rosemarie that's a -- a much as I can say, I have a lot of confidence in the head of my being President of PCC which I do; the reality is we're in uncharted waters as I said earlier, with regard to the impact on all industries today. And so there are never any guarantees in this kind of environment and our price increases, suffice it to say though that we are going to continue to wherever we can to make the adjustments in prices that we have contractual arrangements to. And then as we also have make adjustments where it makes sense to, make those adjustments, and I am going to let D. J. answered that if you'd like to D.J.? D.J. Monagle, III: Yeah, I would just reaffirm two elements that Joe said, Rosemarie. First one is that, we do have some contractual commitments, and many of our customers are committed to honoring that relationship with us. But as Joe, mentioned, we're in some uncharted waters. So; we are interested in the long term health or that relationship of that facility, and the proper cash generation overtime. So if there is something that we can do to help these viable customers, make it through this difficult time, we will do that. But its -- in general, I think we'll be able to recover most of those costs, but its going to be a tougher year than usual. Rosemarie Morbelli - Ingalls & Snyder: Excellent. Good luck.

Thank you.

Thank you (Operator Instructions) Your next question comes from the line of Steve Schwartz with First Analysis. Steven Schwartz - First Analysis Corp.: Good morning everyone.

Good morning Steve. Steven Schwartz - First Analysis Corp.: John, thanks for the detail on operating steps and so forth. But I'd like to go back to operating income, and what happened there relative to revenue. If I understand you correctly in both segments unabsorbed overhead and higher costs without price increases are what really, really pinched operating income; is that true?

Yeah, it's the volume impact of the slowdown. The volume... unobserved volume issue was in excess of $40 million on quarter-to-quarter basis. Steven Schwartz - First Analysis Corp.: Okay.

By enlarge, it outweighs everything else; we have a little bit unfavorable on currency. We had some cost pressures, but we also had some savings as we showed you in the chart on the positive influence or programs we have, but those were just overwhelmed by the magnitude of the volumes decreases. Steven Schwartz - First Analysis Corp.: Okay. So were you losing up income at 30 to 40% of the revenue decline. We could expect to see that kind of dynamic for the next couple of quarters?

Not sequentially. Steven Schwartz - First Analysis Corp.: Okay. Because even sequentially, you dropped about 28... 27, 28 million in each of the segments. And op income dropped by 8 to 10 million and this is on an adjusted basis. But I mean you are looking at 30 to 35% decline in op income relative to the revenue decline. I guess the other thing that I need to ask about here is, your adjusted operating margin in refectories was about 2% in the fourth quarter. And I think you mentioned you're continuing to see higher costs and that will continue to be an issue in the first quarter. Is there a possibility your operating margin could go negative in the first quarter?

Yeah, I will not take that one Steve. Steven Schwartz - First Analysis Corp.: Okay.

As we look at the refractory sector, we are minimizing our costs. We're balancing our operating needs throughout the network to help us maintain our margins. We monitor the our breakeven ratios and really what it comes down to is we are in very unchartered waters as we had alluded, the volumes could lower in Q1 as compared to Q4 this year. So it's tough to predict, Steve, but again we are doing everything we possibly can to minimize any shortfall in volumes that we see. Steven Schwartz - First Analysis Corp.: And as far as these contracts resets and where you get pricing, what does that wave look like this year. I would imagine may you've modeled this out for what your pricing wave looks like. I guess if you could give me an idea both in the minerals and the refectories business?

Let me start, Steve. It's John. Let me come back to a couple of point to try and summarize little bit on the refractory side. And there is an overall view for the earlier question, I think, is we're touching back. There as we look at the leverage to operating income compared to decrease in sales. Steven Schwartz - First Analysis Corp.: Okay.

} Follow those through the production margin line, you'll see that that's really where the major variances coming. It's coming from the loss of gross margin. We're having savings as Joe pointed out, a very good success on reducing expenses. We've done... we've controlled cost for more than two years now. But that do not materially impact the wave of the volume decreases, which I said quarter-to-quarter was more than $40 million. So if you look at the segment, also look at the impact of the gross margin coming down to the operating income, so what that leads you to is just at these volumes, the very low utilization rates that you're having in the refractory business, you could go to a negative operating position in refractory business, if the steel mills don't operate particularly in North America and Europe.

And I think also for certain other segments of our businesses such process mineral, if there isn't a seasonal rebound that we typically would get as we move in the warm weather, then they also... some of those sub-business segments could be negative as well.

We said the fourth quarter process minerals was... did have an operating loss for the period. And it was the worst fourth quarter we had seen in the history of the company. On the other hand, it is seasonally typically a weak quarter. But in the strong quarter though usually comes in process minerals in the second quarter. And it's yet to be determined whether it will be a seasonally strong period for paint, housing, and those types of things in the second quarter; it's a bit early. Now coming to the... your third question was really around, I think the contract renewals for Paper PCC. It was at the major... Steven Schwartz - First Analysis Corp.: What the pricing looks like through the year? When do you expect to see or how do you expect to see that wave of pricing move through on these contracts this year?

Well, as you probably know, the long-term contracts generally provide for two adjustments per year. One in January based on fourth quarter data, one in July based on the second quarter data. But that's a normal cycle that most of them take in that all that way, but probably 65 to 70% of our contracts operate in that basis. Steven Schwartz - First Analysis Corp.: Okay. That's exactly what I was looking for. Okay, thank you John.

Okay your next question comes from the line of Richard O'Reilly with Standard & Poor's. Richard O'Reilly - Standard & Poor's: Good morning gentleman. One quick clarification and I have a bigger question for Joe. What was the volume decline for PCC in the fourth quarter?

John, do you... Q4, I think, was about 10% volume decline; is that...?

Yeah. Versus the third quarter, sequentially it was a decrease of 14% versus prior year was down 10%. Richard O'Reilly - Standard & Poor's: Okay. Fine great, okay good. And then my question for Joe; it's a bigger picture. There was couple questions... there was a question on possible M&A. But how open are you to a transaction in which Mineral Tech is not the surviving entity?

Right now our focus, to be quite candid with you, is on the company and what we need to do to stay what I call the strategic course, and make it through a very, very tough period. So, we have some core strength of the company. And as we've looked at our strategy for the long-term, it is one of looking at how do we enhance the positions we have, and how can we grow more profitability at faster rates than we have in the past. Those things become very difficult to have clear lines of sight to yet. They still are longer term objectives. So we are going to be looking for things in spite of the difficulty of doing transactions in these kinds of time periods of areas that can help us to future growth and the future strategies that we've laid out for the company. And I recognize and that this is tough for any company today to entertain any type of transaction with the degree of uncertainty. But in... potentially, in six to nine months, things maybe a little clearer and opportunities depending on the length of this recession could be even greater than they maybe today, which could provide a good opportunity for us to utilize the strong balance sheet we have. Richard O'Reilly - Standard & Poor's: Okay, good. Thank you for the answer.

And we have a follow-up question from the line of Jeff Zekauskas, JPMorgan. Silka Koopf - JPMorgan: Yes, good morning. I just want to touch one more time on the restructuring initiative. If I remember that right, in the first quarter of 2007, the restructuring that was announced then included the elimination of maybe 200 positions; and if I remember it correctly the related savings were about $10 million, should the ultimate cost savings that you expect from this restructuring be larger than the 6 to 7 million?

Yes. As you recall when we did our restructuring in '07, indicated that we expected to save $15 to 20 million. On our last call, we indicated that we actually were saving at a rate that was 20 to 25, and as we look at where we ended the year, from that again, just from that restructuring, the savings were approaching closer to 28 or $30 million. Okay. So, we've been able to capture on the bottom-line, although it gets harder to see because of the significant volume drop that occurred in the fourth quarter, but we were able to execute what we've set out to do and capture those savings. As got more into the fourth quarter, the 6 to 8 million that I mentioned that we expect from what we announced in the fourth quarter is in addition to what we were doing or what we were targeting in 2007. I'm going let John elaborate on that a little bit. John.

Okay. Thanks, Joe. A couple of points I'll tell, first of all that the 30 million gross that when we saved from restructuring last year included impairments as well, significant number of impairments there so that we had a depreciation savings. It wasn't the savings wasn't just from the reductions in man power it was also from the, significant portion came from depreciation as well. So you have to keep that in balance. And in addition to that, we as Joe pointed out, we ended up, at the time we said we would end up with savings of around $20 million or more because we had additional restructuring charges, coming in that were recorded until the first quarter of this year related to that one, so there are additional restructuring charges that goes with that first restructuring of third quarter 2007. Now when you come into 2008 we have an additional restructuring charge coming in. It includes no impairments; I think that was an answer to a question someone else asked. In this case it's a reduction in force, but no; additional impairment at this time although we looked carefully at the loadings that we've had. The other element of that is of the 380 people, that we talked about. A significant portion of those as we said in the prepared tax were related to layoffs in the steel mills. So those are savings directly of direct labor if you will, directly proportional to the business volume we have. It's the portion that's related to overheads that ultimately gives you the longer term savings. So it's a little different structure, considerably different structure than the last one. Silka Koopf - JPMorgan: That makes it clear. Thanks very much.

Thank you. At this time there are no further questions.

Alright. We'd like to conclude this call and thank everyone for their interest in Minerals Technologies.

Thank you. Bye-bye

Thank you. This concludes today's Minerals Technologies Inc. Fourth Quarter 2008 Earnings Conference Call. You may now disconnect.