Minerals Technologies Inc. (MTX) Q4 2011 Earnings Call Transcript

Good morning. My name is Chanel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2011 Mineral Technologies Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Rick Honey, Vice President of Investor Relations Corporate Communications. Please go ahead, sir.

Good morning. Welcome to our fourth quarter 2011 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 by providing some perspective on our full-year performance. He will be followed by Doug Dietrich, Senior Vice President and Chief Financial Officer, who will review our fourth quarter financial results and D.J. Monagle, Senior Vice President and Managing Director of Paper PCC, will provide an update on growth development in that business unit. Before we begin, I need to remind you that on Page 8 of our 2010 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'll turn the call over to Joe Muscari. Joe?

Thanks, Rick. Good morning, everyone. 2011 was a record-breaking year for Minerals Technologies. Operating income surpassed $100 million mark for the first time in our 19-year history and earnings per share were $3.77, an all-time high. Sales increased 4% over 2010 to over $1 billion. It was also a traditional -- a transitional year for the company. We successfully executed our key strategic initiatives and geographic expansion in our Paper PCC business well engaging in a major new product introduction that simultaneously spanned 4 regions of the world at over 24 papermaking sites as we launch our new Fulfill portfolio of products. D.J. Monagle, Head of our Paper PCC business will be providing an in-depth status update on this program later during the call. This year also saw record performance in our Refractories segment and near breaking -- record performance in our Performance Minerals business. Both of these businesses are now on a very solid footing and position to fully leverage improvement in the general economic environment. Much of the company's improved performance is the result of our operational excellence, lean initiative, which is now integrated and embedded throughout the company. We are now truly in a new place from an operation standpoint. Our cash position remains strong as we generated $134 million in cash flow from operations during the year. And we also continue our share repurchase program, buying back $48 million in Treasury Stock during the year. As you can see on this slide, our 2011 earnings are well above prerecession levels even our volumes are not there yet, which is indicated our operating leverage potential. Return on capital presents a similar picture. In 2011, we met the targets set in 2007, which was to raise or return to a level greater than our cost of capital. Let's take a quick look at some other company's growth accomplishments during 2011. On the Paper PCC side, we signed 5 new contracts to construct satellite PCC facilities on paper mill sites. All in Asia, where printing and writing paper production continues to grow 6% to 7% a year. In addition, we began operation at 3 satellite facilities: 2 in India and 1 in the U.S. These agreements mean that we've signed contracts for 9 new satellite PCC plants and 5 expansions in the last 2-plus years. We now have 5 satellite plants in operations or under construction in India. And we are able to obtain these facilities over our competition primarily through the differentiation we offer in our new products and our ability to customize these products to individual customer needs. The added value of our new Fulfill portfolio of higher filler products is a beginning to be accepted by paper makers, not as quickly as we wanted but we are gaining momentum. We now have 5 paper mills that are using our E-325 commercially, as we announced another commercialization in Southeast Asia earlier this week. In the fourth quarter, we announced an agreement with Nalco to distribute the Nalco's FillerTEK technology for paper mills using PCC as a filler in the papermaking process. We will distribute this technology under the Fulfill V name as we urge on vision as we announced the Fulfill platform a little over a year ago. During the year, we also launched new ground calcium carbonate and talc products. These included a new line of low oil absorption talc products for such applications as architectural and industrial coatings. These products provide excellent scrub resistance and flow control in low, volatile organic paint and coatings. In January, we announced the new NI blocking series of products for high clarity film and bag applications, which helped to prevent the adhesion of 2 adjacent layers of plastic films. During the summer, the third trial division of our Refractories business unit lunch of the LaCam Torpedo Measuring system, a revolutionary way to measure refractory lining sickness in hot torpedo transport ladles. This the technology improves safety increase ladle ability extends refractory life and saves cost in terms of energy, material and maintenance. Our Ferrotron business has long been a market leader in 3D laser profile measurement systems for assessing refractory lining conditions in the steel converter the vessels, electrical furnaces and ladles. It was actually significant progress on many fronts as we reflect on our overall performance for the year. As I mentioned earlier, the Refractories business unit had record performance with 9% revenue growth and 15% growth in operating income, all on sales that were 15% lower than prerecession levels. We'll take a few minutes and review some of the company's other accomplishments including our operational excellence initiative, new product development, expense control and safety. I'd also like to provide some deeper insight into our performance minerals business unit, which is operating at a very high level of performance. This business, which consists of our ground calcium carbonate talc and Specialty PCC operations showed remarkably strong growth and profitability. The group improved income from operations by 22%, on increased sales of 6% and volume growth of 7%. The business also improved its return on capital to over 12%, an increase of about 25% from 2010. And they have the best safety performance in the company with a loss work day injury rate of 0.24 or 200,000 hours worked, which is very close to world-class safety levels. This next chart compares residential fixed investment in the U.S. to our ground calcium carbonate sales on an indexed basis from 2007. And as you can see from 2009, residential fixed investment has actually declined 5%, while our volumes of GCC grew 13%. Keep in mind that more than 60% of our GCC goes into the residential construction market. Our increased GCC sales are a direct result of improved cost and quality performance, which is enabling increased market penetration. Our new products and customer product customization efforts over the last several years are also paying off here. On the productivity front, MTI continues to improve with sales per employee increasing by nearly 25% over the last 5 years. These productivity improvements are founded on our operational excellence, lean operating model and in 2011, we continued our deployment initiative. MTI employees met the target of establishing Standard Work for 80% to 100% of all critical work processes of the company, including staff functions as well as all of our operations processes. We held more than 400 Total Productive Maintenance events during the year. TPM is a process by which equipment availability, efficiency and repair costs are improved in a systematic way by our employees, a very critical area for operations. We also held some 730 Kaizen events, which are designed to engage all of our employees in helping to improve our processes. On average, 3 learning and improvement events were occurring every day somewhere in the company. And our employees also continue to generate new ideas as part of a robust suggestion system, which is now a normal part of how we operate in MTI. For 2011, our employees generated more than 6,100 ideas of which 65% were implemented. Perhaps the most significant metric for a technology-based company is the health of its new product development pipeline. As you can see in this chart, MTI's continues to be very healthy. As we continue to generate new ideas for products that can increase value for our customers. Each stage of our pipeline is active and progressing these ideas and we continue to launch and commercialize at a relatively good rate. Our continuous improvement approach to expense control allows us to further improve profitability and as you can see on the slide, we've been able to reduce SG&A from 12.9% to 10.7% and total overhead, which includes planned administrative expenses have actually been reduced by around $40 million over the last 5 years. Safety, as I think all of you are aware, is a top priority at MTI and we continue to make progress in this arena as well in 2011, with our overall rate for lost workday injuries coming down to 0.65 for 200,000 work compared to 0.75 in 2010, a 13% improvement. The company's recordable injury rate was 1.7 per 200,000 hours worked and that compares to 2.1 in 2010, almost a 20% improvement. Our target condition is to achieve world-class safety performance, which as you can see from this chart, we are now approaching. As we look forward, technology leadership and operational excellence will continue to be key drivers of profitable growth along with our key strategies of geographic expansion and M&A. Key points of focus for innovation and new product development will continue to be our higher filler technologies and the Fulfill portfolio of products for our PCC business, as well as innovative new products for our Refractories and Performance Minerals businesses. On the M&A front, we remain very active although nothing has come to fruition yet. We continue to target minerals-based companies that have a technology base and products where we can leverage our core competencies, crystal engineering and fine particle technology. As we look at 2012, we're facing both challenges and opportunities in this new year. We'll continue to enlarge our presence in Asia with new satellite PCC plants in that growing region. More rapid acceptance of the facility and V-series will continue to be a significant opportunity and priority for us and as I mentioned, D.J. Monagle will update you on our progress here in a few minutes with a lot more detail. The economic situation in Europe, however, is a concern for us and we expect to see further consolidation of the paper industry there, as a result of it. We also expect steel to be affected to some degree. Steel production in North America, however is expected to remain stable and we believe we will continue to see improvements in our Refractories business here. Our Performance Minerals business outlook is good and small improvements in economic recovery will continue to be effectively leveraged to the bottom line. As I mentioned earlier, M&A will also continue to be a priority for us, as we are well-positioned in the market as an acquirer. Overall, we have a positive outlook on 2012 and expect to continue on our performance improvement track. Now let's turn it over to Doug.

Thanks, Joe. Good morning, everyone. I'd like to review with you our consolidated business segment results for the fourth quarter. I'll highlight the key market and operational elements. For the financial results before specialized items in each major product line, comment on comparisons to both fourth quarter 2010 and sequentially to the third quarter 2011. As Joe mentioned, we reported earnings per share of $1.05 excluding special items, which represents a 24% increase from the $0.85 per share reported in the fourth quarter 2010. We recorded a tax settlement benefit of $1 million or $0.06 per share in the quarter, with our reported earnings to $1.11. Consolidated sales increased 3% or about $8.4 million from the prior year. Sales increased in both the Specialty Minerals and Refractories segments, with the most significant growth occurring in our Refractories segment were sales grew 8%. Sales in Specialty Minerals grew 1% with Paper PCC sales down 3%. Specialty PCC, up 16% and Processed Minerals product sales up 11%. Operating income increased 11% to $25.2 million and represented 10% of sales versus 9.4% in the prior year. Specialty Minerals segment operating income declined 6% due to European paper mill shutdowns and curtailments affecting paper PCC volumes. Refractory segment operating income increased 58% due to improved refractory margins, as well as increased metallurgical volumes. Both segments were affected higher raw material and energy costs, which were partially offset by price increases. For the company, total expenses including plant overhead cost represented 14.7% of sales in the fourth quarter, below last year's ratio of 15.7% reflecting our ongoing efforts to keep expenses tightly in control. Our sequential performance was above expectations, as earnings per share were $0.10 higher than in the third quarter driven primarily by higher operating income in refractories. In addition, we also benefited from a favorable swing in other income primarily due to foreign exchange and a lower tax rate. Our full-year effective tax rate was 28.8%, which resulted in a fourth quarter rate of 26.3%, excluding special items. Our consolidated sales decreased 4% and operating income decreased 2% from the third quarter. The decrease in sales was in Specialty Minerals due to lower Paper PCC volumes in Europe and to the normal seasonal declines in our Processed Minerals product line. The decrease in operating income was also in Specialty Minerals segment due to these volume declines combined with higher-line cost in North America which we cannot pass through contractually until the first quarter 2012. The Refractories segment operating income performance was higher than expected due to an increase in sales and higher refractory and wire volumes. Our return on capital for the quarter was 9.5% on an annualized basis, and 8.5% for the year, which is above our weighted average cost of capital of 8.4%. Our balance sheet remains strong. We have nearly $415 million in cash and just under $100 million of debt. And in the fourth quarter, we generated $41 million in cash flow from operations, of which $15 million was used for capital expenditures. In summary, our fourth quarter results reflect strong financial performance and our continuous focus on profitable growth and maintaining strong cash flows. This chart illustrates our quarterly earnings per share over the past 5 years. We're now performing in the range of EPS that we recorded in early 2008 before the recession, despite 16% lower revenue. This slide shows the financial results within the Specialty Minerals segment. In total, sales in Specialty Minerals grew 1% from the prior year. Paper PCC sales were down 3%, primarily due to a 13% decline in European Paper PCC volumes. The declines in Europe are the result of permanent mill shutdowns in Finland, a temporary mill shutdowns in France, and general weakness across Europe. These declines in Europe were partially offset by volumes from our 3 new satellite facilities in Superior, Wisconsin and in India, reflecting the benefits that our growth strategies beginning to have on our business. In the other segment product lines, Specialty PCC sales were up 16% and Processed Minerals products rose 11%. Within Processed Minerals, talc sales increased 17% and GCC sales were up 6%. Segment operating income in the fourth quarter decreased 6% from the prior year to $16.2 million. This decrease was a result of higher raw material and energy costs, and lower paper PCC volumes in Europe, which was partially offset by the contribution our new PCC satellite facility and volume growth and price increases at our talc and specialty PCC product line. In addition, we benefited from continued productivity improvements on our Performance Minerals facilities and overall, segment operating income represented 10% of sales in the fourth quarter compared to 10.9% the prior year excluding special items. Sequentially, fourth quarter segment sales declined 6% and operating income decreased 17% from the third quarter. Decline in profits was more than the 10% we had anticipated in our last call and occurred primarily in the Paper PCC product line. The European economy and subsequent impact on the paper market was more severe than expected, and as I mentioned earlier, many European paper mills curtailed production in the quarter. This decline was also due to higher lime costs in North America, which cannot be passed through contractually PCC prices until the first quarter this year and lower volumes in Performance Minerals due to the normal seasonal declines in our end markets. Looking forward, North America PCC demand is projected to be down about 2% in 2012. I mentioned the concerns we have about the European paper market as sequential demand was down 2% in the fourth quarter, and the forecast for 2012 was to be 5% lower than 2011. Our indications are that first-quarter profits in our PCC product line will increase slightly from fourth quarter levels due mainly to the contractual price recovery of lime costs in North America. In Processed Minerals, we're expecting similar levels of profitability to the fourth quarter. Overall, we expect first quarter operating income for this segment to be up slightly. Each call I show these 2 charts to illustrate the current market trends in the uncoated freesheet segment in North America and Europe. As you can see, North American production levels have been relatively stable in the past 2 years, but they remain roughly more than 20% below average prerecession levels. European printing and writing paper production, of which uncoated freesheet is a part, were down 3% versus 2010 and 2% lower than the third quarter. Economic conditions in Europe continue to be unstable and our first quarter Paper PCC volumes will continue to be affected by these conditions. As I mentioned in the last 2 calls, M-real Corporation announced plans to divest its Alizay paper mill in France. For the past several months, we've been in negotiation with a number of paper producers. Although the paper mill is presently not operating, we believe discussions for the sale of the mill continue. In addition, our Myllykoski paper facilities, our associated satellite operation has been closed in our production at the Anacostia [ph] mill has been substantially reduced due to lower demand of both M-real and UPM. The effect of these shutdowns and demand changes have in our volumes are on average about 40,000 tons per quarter. Our growth in Paper PCC though remains on-track with the projections we communicated to you approximately a year ago. To give you some dimensioning of the volume growth associated with our new satellite PCC facility, this chart shows the announced the PCC capacity that we have been deploying and will continue to deploy over the next 2 years. In 2011, we began operations at 3 new facilities. One in the U.S. and 2 in India, and 3 satellite expansions with a combined annual capacity of 160,000 tons. In 2012, we'll begin operations at 3 more facilities with a combined annual capacity of another 150,000 tons. It should be noted that volumes at these new facilities tend to ramp up slowly as the paper mill comes online. We also expect some small additional volume growth at our existing facilities as the deployment of the Fulfill program gains traction. And in total, this new satellites should contribute an incremental 140,000 to 150,000 tons in 2012. I highlight this because given the current situation in Europe, this goal may not be clearly visible until the latter part of this year. As Joe mentioned earlier, the Refractory segment had a record year. Its highlights the turnaround we've achieved in this business from where it was only 2 years ago. In total, sales in the fourth quarter grew 8% over the prior year. Refractory products sales were up 4% to $71.3 million, Metallurgical Wire sales grew 24% to $20.5 million. This growth was attributable to higher refractory volumes and prices in both North America and Europe and to improve metallurgical wire volumes. Operating income increased 58% in the fourth quarter to $10.4 million from $6.6 million in the prior year. This was due to improved margin in refractory product-line particularly in Europe, higher metallurgical wire volumes and lower expenses. Expense levels including plant fixed costs improved significantly in the fourth quarter and were 14.7% of sales as compared to 17% last year. Segment operating income ratio improved to 11.3% of sales compared to with 7.8% in the prior year. Sequentially, segment sales increased 1% and operating income increased 35% from the third quarter, which was better than expected. This improved profitability was driven by an increase in higher-margin equipment sales, which contributed half of the profit growth. A couple of units that we expected to be qualified by our customers in the first quarter were completed in the fourth. The remainder of this increase was the result of higher refractory volumes due to the delay of a number of steel mill furnace re-aligns [ph] to the first quarter. Improved productivity and overhead expansion -- overhead expenses control -- contributed to the increase. Looking forward, we expected our first quarter operating income for the full segment to be lower. Segment sales will be down -- equipment sales will we down significantly from fourth quarter levels and we remain concerned that steel production levels in Europe will continue to soften. As I just mentioned, several steel mills in the U.S. and Europe postponed their vessel re-aligns [ph] of the first quarter, which will lower refractory product volumes. This chart illustrates North America and European steel production over the past 2 years. As you can see, North America steel production has remained relatively stable during 2011. Production in the fourth quarter increased 7% from 2010, but decreased 2% from the third quarter. In Europe, monthly steel production levels have been much more volatile. During the fourth quarter, steel production decreased 3% from 2010, was down 1% from the third quarter. However, production level -- production and several the major markets which is Germany, Italy and France have acquired 12%, 17% and 13%, respectively over the months of November and December. These charts illustrate our working capital and cash flow trends. As you can see, total days of working capital remained at 55 days over the past 2 quarters. Last, the company has made significant improvements in this area since 2009 and we've been able to sustain this low level over the past 2 years. This reflects the constant focus we give to working capital management within all our business units. Our cash flow from operations was approximately $41 million in the fourth quarter and was $134 million for the full year. Capital investment for the quarter increased to $15 million. Total capital expenditures for the year were $52 million. Capital spending is primarily supporting our new PCC satellite construction projects. As I mentioned earlier, our earnings performance of $1.05 per share this quarter was above our expectations primarily due to stronger-than-expected performance in the Refractories segment and favorability below the operating income line. Looking to first quarter, Specialty Minerals segment profits will increase slightly from the fourth quarter as Paper PCC product line will recover higher lime cost absorbed in the fourth quarter. However, European paper demand will continue to be lower. In Processed Minerals, we expect profits to be similar to the fourth quarter. In our Refractory segment, we expect lower profitability in the first quarter as sequential equipment sales will be significantly lower. Our biggest area of concern remains the uncertainties in Europe and the potential effect on our end markets. We expect the company's first quarter profits to be 10% to 15% lower than the fourth quarter driven primarily by lower sequential refractory profits. The items below the operating income line that will not reoccur and higher tax rate. Keep in mind however, that even with this projected decline, our first quarter profit should be 5% higher than the first quarter last year. Now let's go to D.J. Monagle, and will provide an update on the deployment of our Fulfill program. DJ? D. J. Monagle: Thanks, Doug. I'd like to bring you up-to-date about our high filler program in Paper PCC. Fulfill is our trade name for the portfolio of products, which allows for greater PCC fiber substitution. We are in the process of rolling out the Fulfill E and Fulfill V technologies, which typically allow the paper makers to consume 15% to 40% more filler, saving $5 to $25 per day per paper ton. We see this portfolio as advancing our position as the global leader in paper filling technology. We just announced yet another commercial agreement associated with Fulfill E with a customer in Southeast Asia. This now accounts for 5 commercial agreements at customer locations. All of them in Asia and all of them in uncoated wood-free grades. In addition to this commercial accomplishment, we continue to make technical progress across the entire Fulfill portfolio. Fulfill E-325 remains the work force technology and we're running numerous trails across the globe. In addition last quarter, we announced the commercial availability of Fulfill V-426 to the market place, a product that we are marketing other the recently announced distribution dealing with Nalco. The last few months, having spent on finalizing commercial deployment logistics as well as spending time with our customers to determine the best application of the multiple products in our portfolio. We've also advanced our understanding of Fulfill F, our most advanced high filler technology that many of you may know as filler fiber, where we continue to work with European papermaker to commercialize this high-value technology. Let's look at the progress made with Fulfill E and V technologies. We now have 24 active engagements around the world. Of those 24 engagements, we've installed the equipment required to run Fulfill on a commercial scale at 13 paper mills and will soon be trialing or running commercially at 19 locations. With 8 of our customers, we're still experimenting with the product, making technical adjustments to validate the value proposition we've discussed with them. We've achieved commercial agreements in 5 locations and we're working with the customers to integrate the technology across their product line. When that integration is complete, we'll see a reliable revenue stream. Commercial adoption of the Fulfill technologies occurs along defined fine path, which is important to understand that not just a technical adoption but also impacts when revenue begins to be generated. The chart shows how the Fulfill technologies are deployed, and the steps in the process towards full commercialization. Our approach begins with demonstrating to the customer that trialing the technology is worth the effort and should merit urgency to it in terms of developing the application technique that will save them money. To do this, we undertake a very specific, very technical cost-benefit analysis taking into account the customer cost structure and paper machine configuration. With agreement to trial, we then need to tailor engineer specifically designed equipment to enable integration of the Fulfill technology. This specialized equipment is integrated into each specific paper-making operation at each mill. Once installed, we generally run a short trial proving the general concept to the papermaker. Assuming success with this short trial, we then arrange to run extended trials taking into account the papermaker's grade structure and any particular market or customer consideration that papermaker might have. During this extended trial period, we work with the customer and determine how they can best use the technology in each and every grade of paper they make. Put differently, we collaborate with a customer to determine the optimal Fulfill recipe, a combination of our PCC, the chemical additive and the specific machine operating condition in every grade before agreeing that the technology is indeed worth it for them to convert to this new system. At any time, if there are machine run-ability concerns or any problems observed with the paper in the market, MTI needs to resolve the problem regardless of whether that problem is associated with Fulfill. It is important to keep in mind that to date, we've been able to resolve all of the problems the papermaker's had. In addition, every time Fulfill is been trialed extensively, it has been validated. Regarding our market, you can see from this slide that the trial to commercialization process has been moving very fast in Asia. This is a function of both our value in that market and the tenacity of the Asian papermaker. The papermaking competition in Asia is ferocious and their somewhat higher risk tolerance allows us to move quicker to validate the technology. Asian papermaker's accept the concept rapidly then build the technology into their manufacturing plans more slowly. The approach in North America and Europe is quite different. We're finding that the validation period takes longer and is integrated with much more feedback from the marketplace. That feedback, generally regarding paper performance in the different printing systems. While this validation takes more time, we're encouraged that the North American and European paper makers will work with us on faster proliferation across their grade structure. Put differently, we see North American and European paper makers as slower to accept and validate the technology, but we expect them integrate it into the manufacturing plants quicker. In summary, regardless of the region and nature of this technology is a grade by grade, machine by machine proliferation, once the concept has been validated. We see more caution in the early phase of the process by the Europeans and North Americans. Now let's open to questions.

[Operator Instructions] Your first question comes from Rosemarie Morbelli with Gabelli.

When you look at -- in your, in the press release, you talked about the new generation of satellites in Asia. Could you give us a feel for what you are doing? I mean, are those satellites different models than what you are using currently in other paper mills in North America and Europe?

Well, we actually, we've made some refinements that in some cases, we're able to go in with versions of our basic models that we have, but go in versions that can be lower capital, smaller, because many of the Asian mills are smaller in size, but we also can do it in a way that allows us to scale up easily. So that's really what's referenced by new generation.

Okay. And when you look at your expectations from Fulfill. You have given us a volume, potential volume in 2012 and I am assuming that if I add those 2, it was about 300,000 tons in addition. Could you give -- and first of all, is that correct? And then could you give us and the potential on the revenues and on the profitability or is it too early to see much change on the profitability side?

It is a little early. We had hoped to give you more visibility on that by this point in time, but it's fair to say we, in the first quarter, we'll be receiving a revenue stream albeit small from -- that come out of those 5 satellites and there will be some operating profit associated with it, but it is relatively small. And it's early to give you a projection of how many are actually going to come across that line in the second and third quarters, and that will determine what the impact is going to be in 2012. With regard to the volumes, Doug, can maybe give you a better handle but I wasn't totally sure of the question on the volumes, Rosemary if you will ...

Well, I was checking more how many more pounds or tons would come from the addition of the satellites and the integration of Fulfill...

The total. Go ahead, Doug.

The majority, Rosemary, will be the new satellites. We're expecting about an incremental 140,000 tons this year over last from the new facilities. Keep in mind I showed 150,000 tons that we installed last year and another 150,000 tons this year. Some of those satellites this year will be as you've noted from the chart will be Q3 and Q4 installments. So the increase in volumes associated with them will be later in the year. And that was my comment. So about an incremental 140,000 and 150,000 tons this year.

And that does not include the decline in Europe?

The decline in Europe. So as I mentioned about 40,000 tons per quarter. No, that's not exactly -- that's an average. And also it depends on the Alizay mill and so if that will be less than the 140,000 or 160,000 tons annualized if that Alizay mill comes back up. So 40,000 tons per quarter in Europe, down and we're looking at about 140,000 to 150,000 tons in Asia coming on this year incremental.

Okay so net, you're going to have a loss in terms of volume?

I think we're looking, it's more even in terms of volumes. And again, it really depends on how Europe shapes this year.

And Fulfill, how Fulfill can come in faster.

And regarding Fulfill and coming faster, once the product has been accepted at, let's say one paper mill for one machine, which I'm assuming is kind of what is going on currently in Asia. How quickly do you think that you are going to see the incremental growth from these products going through all of their paper machines?

Rosemarie, that was the insight I was trying to give as we're discussing that. So we're still working through that. Certainly we're starting to see a revenue stream from a couple of the Asian papermaker's now, but it's been taking a while. So from the time we have announced the agreements, it does take a little bit of time. I don't have a good sense yet to be able to commit to exactly what that time is. And then on the -- what we are hopeful based on the plans that the North Americans and Europeans are sharing with us, their project management and their way of rolling into new technology seems to be very different but all indications are based on the plans that we have seen that from the time that we would announce something in those locations to the time we would see the revenue stream should be quicker. But it's just too early to give you a specific weeks or months sort of guideline on that.

And if I may ask one last question on refractories, given your expectations in Europe, do you think that at a lower volume, you can maintain your improvement on the margin side?

In the rate of improvement or the absolute?

The absolute. And can you actually improve some more from this particular basis even with the lower volume?

I think in part it's a little hard to answer because it depends on how low the volume drops. In other words, how -- questions are around how severe will the Europe recession be, and how will that affect steel. And so I think we do have, we do have a lower breakeven point across the whole business globally, but Europe was also part of that. So I think we should be able to reasonably hold margins up to a certain level. What is that level? If steel drops 10%, 15% utilization, that clearly is going to have an effect on us with a 5% band, we should be able to manage that.

Your next question comes from Daniel Rizzo with Sidoti & Co.

You indicated that you raised prices to offset closed the lime cost in the fourth quarter. Are lime cost still rising?

They are. So we contractually in Paper PCC, we reset our prices in North America annually. So we absorb lime cost increases in the fourth quarter and then we pass them through and that's contractual in the first quarter. In Europe, it's a different timing. We have seen some higher lime cost in Europe and it also depends on whether those lime costs are in some of our merchant facilities, where we can't pass on pricing. So we do see some higher lime cost but in North America we'll be absorbing them through pricing in the first quarter.

Okay. And then maybe you said this and I missed it, what's the time frame difference between going from active discussion to revenue stream in Fulfill in Asia versus North America or North America and Europe? Is there, I mean, months or what have you seen so far? D. J. Monagle: Well, our final reference is that right now, we don't have any European or Americans that I'm in full commercial agreement with. So to give you a strong data point is difficult because I don't have that close. But in general, should we continue to see the technology perform as it has been and assume that we can maintain the project plans as we work on them with the customers. I would say the difference is months, maybe a quarter sort of difference.

I think also if I can add, this really ties back to Rosemarie question of about getting 1 with the paper company, how does that help in getting other mills and to give you a real example, unfortunately we can't tell you the name of the company, but this recent announcement that we made on the recent commercialization is actually tied to a papermaker that we announced with earlier. And it did lead to faster acceptance at another paper mill at a totally different site, totally different country. So we do clearly see -- we're working with paper companies that have mills, multiple mills, in the same country or different countries. We do believe it is going to help move faster once we get through the initial commercialization and it's proven out because then the other mills within that company system are able to go in and observe it, and be able to relate faster to the differences in their own particular mill. So that's part of what I think will help this process going forward.

Okay. And then just related, what was the first -- share buyback, do you know that or handily average price you guys pay for the buyback?

Average price. Sorry, Dan. For the year was about $61.45.

Your next question comes from Steve Schwartz with First Analysis.

At some point, I'd like to come back to get the FX details on the segments. But if I can just ask you first about any potential price concessions in the Paper PCC business. I think the first quarter is often when you see the first wave of that for the year. So how is 2012 looking?

This is Doug. I'm not seeing any significant price concessions coming up in the first quarter. A lot of those contracts, the major ones were renewed for last year. We saw those impacts. We do typically of renewals each year. D.J. can talk a little bit more about that but right now, we're not seeing any significant concessions in the first quarter. Is that good?

Yes, that's good. And then regarding the volume gains and losses for Paper PCC. A very helpful information that you put in the presentation by the way, you didn't mention the Anacostia mill over in Europe, that's kind of an event that happened since you last reported it all in the fourth quarter. Are you guys affected by that?

We are. We've seen some volume declines, they have taken some of their grades and shifted it to some other of their mills. So Myllykoski I mentioned was a direct shutdown. Anacostia some of the volumes have shifted that's affecting us about 24,000 tons of the 140,000, 150,000 I told you, that I mentioned.

Okay. So it's of course been factored into everything that you talked about to this point?

Yes, so what I gave you the kind of average for the quarter, the Alizay, Anacostia and Myllykoski were in there. Anacostia is about 24,000 annualized.

That's annualized.

And looking at Slide 14, that's great detail on the new product development. And so Joe, is there a way you can maybe help us understand and I know you gotten this question before, but I want to ask it again, to what extent that might be helping revenue in '12 or '13. Is there any 1 product in that bar chart that might be 0.5% or 1% revenue add or maybe another way to look at it is of those 24 that are in launch stage from 2011, does that add 1% or 2% to revenue?

Well, if you take the accumulative effect of -- starting with the first quarter revenues that we expect to see from Fulfill, then you add the number of product announcements that we've had in the Performance Minerals business in terms of the opto-blocks [ph] and other products that have actually been commercialized over the last several years. I can't give you the exact percentage but we're beginning to affect that, that revenue line. Some of these are small. In Performance Minerals, they, we've announced some that are in the $2 million to $5 million range, others $2 million to $3 million. So we should expect to begin to get the accumulative effect from the aggregation of all of the new product development activities. And keep in mind that we've been working and building this pipeline up now for 2 years and we started to see the rates of new products becoming commercialized. That top number, that 24 in 2011 means we actually launched 24 new products. Doesn't mean 24 are generating revenue but you start to see the accumulative affect that is beginning to actually happen in the company. Obviously, the largest is going to be Fulfill, but we've got many other smaller ones up to and including the LaCam. LaCam is expected to generate revenue for us this year. And Refractories have some other products that are part of that pipeline that they have actually been out in the field with, we just haven't made the announcement yet that they're testing out. So there are a lot of things, when I talk about health, it's health around not just the numbers but health in terms of line of sight to commercialization and solid revenue potential.

Okay. Well, that's helpful. And its certain encouraging seeing the terms here on 14. Okay I have some other questions but I'll get back in queue and hopefully we have some time to come back. What is the FX detail for the segment revenue, fourth quarter?

Sure. Fourth quarter sequentially, Steve?

Year-over-year please. I think you did a sequential in the release.

Yes. It's minimal year-over-year. It's minimal, it hasn't been -- down about $1.2 million in sales in total year-over-year. So very minimal fourth quarter report.

Your next question comes from Silke Kueck with JP Morgan.

Do you expect any PCC volume growth in 2012 or is it more of like a flattish year, if some of the satellite expansion will just be offset by the mill shutdowns in Europe? How do you think about it?

Well, you know, as I just mentioned to Steve, this is Doug Dietrich. The Myllykoski mill is shutdown. The Anacostia mill is a demand shift and it’s not shutdown so that the movement of those paper volumes to another facility is affecting our demand. And then you have the Alizay mill. Again, we still have a contract for that mill, I'm hopeful it will come back this year. So that's really, the unknown. If they were to stay down the entire year, that's what I represented in terms of about 40,000 tons per quarter, which would leave us relatively flat with the growth we would expect out of our new satellites. With the exception of Fulfill volumes as they combine and D.J. touched all of that. So we could see some volume growth from that Fulfill but it depends on the timing of some of the commercialization.

So it seems like that there are some expectations that maybe the first half of the year, may be more flattish or maybe there's a little bit of growth in the second half of the year?

Yes. Silke, I think that's a good assessment and part of that ties to perspective around Europe and recession. If Europe -- many of the current economists are forecasting Europe GDP at negative 1, negative 1.2 for the year, that would suggest recession, low economic growth first half, coming back in the second half. So that's part of our thinking as well. So I think your overall assessment is kind of where we are right now as well.

What -- if I can ask like 2 or 3 questions, I'll get back into queue. What's the percentage of equipment sales out of your total refractory sales, currently? How much was it the fourth quarter and what is it typically?

Typically in Refractories, in total, it's only about 4%, Silke, of the total Refractories segment sales, so it's a very small piece. However, it's a very profitable piece, the margins that equipment are much higher. And so in the fourth quarter, as we build those in and throughout the year and the customer finally accepts them in the fourth quarter is why we see such a boost in profitability.

And how much more profitable is the business? Is it...

They are significantly more profitable in terms of our compared -- to the refractory ton.

Okay. I'm on -- just jump around. When do you think you'll have worked through most of the high-cost magnesium inventories? Do think you can -- do you think you'll have those levels completed sometime in the first quarter? Because it looks like, at least if you look at some of the indexes that but magnesium costs really are moving lower and I was wondering when that may become -- when you may begin to benefit from that?

Yes. So we're still working through -- we have a very long supply chain. We do purchase our magnesium oxide, for the most part from China although we've been diversifying that base. So we're looking at probably toward the end of the first quarter, Silke, so we'll work through the higher cost inventories.

And lastly, have you sold any V series PCC today for Nalco? D. J. Monagle: Silke, this is D.J. We have not sold it today. We are in position to run trials but what I was trying to highlight earlier, a lot of that last quarter was spent on working with the customer deciding which series is best for them, based on the specifics of their operation. We sorted through that in a couple of locations. And so I would imagine that trial activity right now, we've got commitment for trial activity really this quarter and next, and that will be much more significant than the last.

Your next question comes from Steve Schwartz from First Analysis.

Again Joe, going back just in a reference points at Slide 14, can you give us a picture like that for what you're M&A pipeline looks like?

I'd love to.

I know we have only 3 minutes.

I would love to.

It's just simple. But maybe you can tell us in the equivalent of that launch stage, how has that maybe category for you guys changed over the past 6 months? Do you see more things that are potentially closer or fewer.

Well, I think that's an interesting way to look at it. I'd say a year ago, we -- the list might have been a little longer than it is today but the probability of actually making an acquisition has gone up as I look at inside of the number of companies that we have now been targeted but obviously your at different points of evaluating companies or in discussions. So I'd say from the standpoint of richness of what we have, fewer numbers but richer. In terms of the types of companies, sometimes the divisions of larger companies. And also, the market conditions have changed a bit. If you recall we talked about, there was a period first half of last year and even prior to that were valuations were very, very high. We had been engaged in a number of projects where it didn't work out simply because we weren't willing to pay the price, that something actually went for, was the multiple or was too high in the IRR we would've achieved would have been too low. What we're seeing is that actually is beginning to come in to more reasonable ranges, and also like why it feels like the market itself for us in terms of opportunities, and potential for doing something appears better today. It's a better climate.

I think, perhaps in the Europe and what's happening there is having an effect on the general climate as well as money supply.

So fewer targets but better and basically the pricing on assets is what you're seeing as a little bit better?

A little bit better, exactly.

Okay. And in terms of the size of the assets you're looking at, still the pool is still may be about the same size as some of the assets that we heard about in the past?

I would say so. Yes, we've looked at companies or divisions that are $30 million, $40 million, $50 million, up to $250 million, $300 million, $400 million. And as I've indicated, the potential for us to do something even larger that -- assuming that it makes sense for us, given not only our cash position but our balance sheet and our borrowing capability around that balance sheet suggests that we can do something larger if it makes sense.

Okay, and then if I can just ask one last 1 against some 2012 estimates, both with respect to operating expenses and tax rate. For Op expenses, obviously Fulfill's ramping up and you gave a very nice description of the efforts that MTI put's into working with its customers. So net that effort and those expenses against your general austerity, let's call it. What does 2012 look like?

Well, first of all, I think, one of the things that I would like to reinforce because we talked about this when we were actually in the depth of the financial crisis and the economic recession and what we said was that, a, even at that point in time, we had a restructuring but we've been expense cautious and focused on continuous improvements since then, which is -- which I touched on earlier in the presentation. But one of the things we've maintained throughout the last 5 years is a strong focus on growth, new products and customers. And so we have continued to fund every avenue from an expense standpoint that we believe can pay off from a commercialization and revenue and profit standpoint. So that philosophy or underlying approach to how we manage the business is not changing. So the net effect of what we're doing may come out a little more on expenses, which you would expect but there will be a -- obviously, a significant multiple pay off on that going forward. But at the same time, we have other parts of the company that we continue to look at reducing expenses. So net effect, we're able -- we've been able year-on-year in spite of all these efforts and business development and trialing to continue to actually reduce net expenses as a percentage of sales. And we're going to stay on that track.

So the 10.7% you had for '11 is likely to be appropriate for '12?

Doug, I wouldn't -- I wouldn't suggest if there's anything else.

I think so. I wouldn't suggest either. I think Joe is right. We have a relentless focus other than pushing expenses to where they can generate revenues. That level is focused on streamlining processes and keeping an eye on expenses. So that we can keep that base and leverage it as sales grow. So I would say that yes, I think we're looking to keep that at the same level as not driving lower as sales increase.

Okay, very good. And then tax rate for '12, the expect?

Tax rate, probably 29%, 29.5% it really depends on the mix of -- but I mentioned we were 28.75% this year. So looking similar, 29% next year.

Your next question comes from Rosemarie Morbelli with Gabelli.

Just quickly, Joe and I may have missed this, if I have I apologize. What is the CapEx expectations for 2012?

Yes. We spent around $50 million, $52 million 2011. We're projecting a little bit of a wideband but we're projecting higher, $60 million to $75 million in 2012.

Is that a larger amount because of construction of new satellites?

Yes, exactly. Both what we have in process right now plus the potential to add more satellites.

And since you are in, what it sounds like, serious discussions with North American and European mills, what would be the cost for those particular paper mills to convert to using Fulfill? Is there a lot of additional expenses involved? Is that an additional cost that you share with them? Could you give us a better feel for how it works?

Sure. It's -- one of the reasons we're able to progress and drive the Fulfill as fast as we've been able to drive it, is because there is a very low capital threshold. Very low, below $100,000 in many cases. We've actually done some of these for $50,000. So it's not -- capital is not a barrier to us or the paper makers. Maybe D.J. can give us a little more color on that. D. J. Monagle: So what I would say is capital is not the barrier at all. The only issue is getting our heads together and innovating the specifics. So it's not about cost but you can see that it is taking us a little more time to deploy these items, and that's because it's very tailored and very -- it's very precise. And then part of that tailoring is the needs for today coupled with what we can see for needs for tomorrow. So there's planning time. There's brain power that is applied but minimal capital.

Okay, that is helpful. And then if I could ask one last question. So 2011 was supposed to be one of those years of consolidation, but then you did a lot better. Does that change the delta going into 2012, do you -- and linked to that, if you look at a similar top line growth just to pick a number, do you see EBITDA margin or EBIT margin improvement year-over-year? The company as a whole. I mean, we talked about the different pieces but if you put it all together.

Yes. I think that's important to -- and it gives me a chance to perhaps reinforce. The company achieved record earnings in relatively, either stable or markets that in the case of Europe, we're quite shaky. And so I think it's fair to say that the company did a lot relative to the economic environment that we were working, accomplished a lot. But the seeds for accomplishing a lot were set a number of years ago, and we see them coming together as you heard me mention, we're a better operating company. We're much better able on not only controlling costs but improving efficiencies, bringing more to the bottom line. We're also improving in the area of market penetration and certain markets through -- you heard D.J. talk about customization and product customization with customers. We're doing that better across the Performance Minerals business, you heard me. We're doing it better in the Refractories business in terms of working closer with customers. Those are the things that allow us to do more and leverage in stable markets or markets that are growing more slowly. It also positions us very well where there is an increase in the environment -- like the automotive sector improved. I think it grew what, 7% or 8% or more. We were able to leverage that extremely well in the Performance Minerals business. And by keeping cost low but also by having some products that the customers for those particular segments really like, then we're cost-effective. So to answer your question, yes. The reason why I said in my closing remarks -- my earlier remarks was that I'm positive on the year and I'm positive on it because I do believe barring something unforeseen in Europe that we should be able to improve further. A long winded answer to your question but there's a lot underneath it that I think is important to understand in terms of how we're operating today as a company.

I appreciate the answer. And when you say that you're looking at opportunities and uncertainties in Europe, in your mind, when you look at the answer you just gave and the anticipated decline in Europe, do you -- are you factoring in of the 1% to 2% negative growth for the year that you mentioned earlier?

Well, I'd say yes. But Europe potentially, some of the forecasts are 2% to 4%. But yes, it's within that -- but if Europe is worse than what people are projecting, then obviously that's going to have some effect on it. But we're taking -- in our own planning, yes, we do plan for worse condition but in terms of a real and outlook, we're not expecting it to be that bad. But we have to be prepared in case it is. So we're -- the projections Doug gave, were I would say, a moderate projection relative to some of the key drivers around profitability, which are going to be for paper and even refractories is going to be around volumes. So within a certain the volume, we're going to do fine. We're going to do well. If there are no other questions, I would like to conclude the call and I like to thank everybody for their interest in Mineral Technologies.

Thank You.

Thank you. This concludes today's earnings call. You may now disconnect.