Minerals Technologies Inc. (MTX) Q2 2013 Earnings Call Transcript

Rick B. Honey - Vice President of Investor Relations & Corporate Communucations Robert S. Wetherbee - Chief Executive Officer and President Douglas T. Dietrich - Chief Financial Officer and Senior Vice President of Finance & Treasury Joseph C. Muscari - Executive Chairman Han Schut - Former Vice President and Managing Director of Minteq International Inc Douglas W. Mayger - Senior Vice President of Performance Minerals and MTI Supply Chain D. J. Monagle - Senior Vice President and Managing Director of Paper PCC

Daniel Moore - CJS Securities, Inc. Rosemarie J. Morbelli - Gabelli & Company, Inc. Steven Schwartz - First Analysis Securities Corporation, Research Division

Ladies and gentlemen, thank you for standing by and welcome to the Minerals Technologies Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Rick Honey, Vice President of Investor Relations. You may begin. Rick B. Honey: Good morning. Welcome to our second quarter 2013 earnings conference call. Today, Chief Executive Officer, Bob Wetherbee will provide some insights into our second quarter performance, as well as his perspectives on his first few months as CEO. Bob will then turn the call over to Chief Financial Officer, Doug Dietrich, who will give you a detailed report of our financial results for the quarter. Executive Chairman, Joe Muscari, will provide some closing comments on the direction of the company and then we will open it up to questions for our management team. Before we begin, I need to remind you that on Page 8 of our 2012 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 marks and conditions. Now I'll turn the call over to Bob Wetherbee. Bob? Robert S. Wetherbee: Thanks, Rick, and good morning, everyone. Minerals Technologies posted record financial results for both the second quarter and first half of 2013. We saw increases in sales and operating income and recorded $0.63 per share from continuing operations for the quarter versus $0.57 a year ago. Underlying sales increased 4% over the second quarter of 2012 and operating income was up 7% over a year ago to $32.4 million. The primary drivers for this growth were the increased volume in the Paper PCC business with the continuing ramp up of 3 new satellite plants in Asia, increased penetration of our FulFill technology at paper mills, where we have existing commercial agreements, and the restart of production at our Alizay, France satellite facility, a plant that had been idle since the fourth quarter of 2011. We also saw an 8% increase in sales in our U.S. specialty PCC product line enabled by an expansion at our Adams, Massachusetts facility. In all, this resulted in a record operating income for the Specialty Minerals segment of $25.2 million. This is 15% of sales, the highest level of profitability in a decade. In the Refractory segment, underlying sales increased 5%, primarily due to incremental sales from our operations in Bahrain. We're also faced with lower equipment sales and the loss of sales from 2 steel mill closures in the United States in the second quarter of 2012, both of which contributed to a 2% decline in operating income for the segment. Looking forward, we see economic conditions that drive our steel and paper end markets, remaining similar to what we experienced in the quarter. Our core strategies were developed in some of the most difficult economic conditions of our generation and they have proven to be very successful. As conditions improve, we are well-positioned for additional profitable growth. Looking at our earnings per share, you'll see that we've been at or above $0.50 per share, 8 consecutive quarters starting in the third quarter of 2011 and we've now broken through the $0.60 level. We've been able to achieve these sustained levels despite several steel mill shutdowns in 2012 that I mentioned earlier and 2 paper mill closures in 2011. We've done this through winning and building new PCC satellites through new product introductions, productivity improvements and continued overhead expense savings. $0.63 per share in Q2 is a record level of performance. Our return on capital improved to 9.9% versus 9.7% a year ago and we remain above our cost of capital. We are seeing organic growth by way of geographic expansion and new product innovation. Paper PCC volumes in Asia recorded a 7% increase from the 3 new satellite plants in India and Thailand that were not operational a year ago. These 3 facilities have an installed capacity to produce 150,000 tons of PCC a year. We're also expanding 4 satellite plants in North America that will add another 75,000 tons and another 150,000 tons of annual capacity is scheduled to come on stream in Asia by the end of next year. We continue to pursue net -- new satellite projects, particularly in Asia. We are currently finalizing contract negotiations for 2 satellites that we expect to announce shortly. Our FulFill technology continues to gain traction and is contributing to profits through increased use. Our Performance Minerals business, which consists of our Processed Minerals and Specialty PCC product lines, posted the best performance in its history. We did this through higher pricing, market penetration and an improvement in the building construction and automotive industries. During the quarter, we also launched the VICRON FRP, a new calcium carbonate product for plastic reinforcement that utilizes our expertise in fine particle technology for the polymers industry. VICRON FRP provides a value proposition that combines lower costs and improved mechanical properties. In the Specialty PCC product line, which goes into nonpaper end products like food, pharmaceuticals, sealants and adhesives, we saw an 8% sales increase in the United States that was a direct result of the expansion of our ultrafine PCC manufacturing capacity at our plant in Massachusetts. We are now working on Phase 2 of this expansion, which, when it comes online early next year, will increase our U.S. capacity by a total of 35%. Performance Minerals also benefited from the fuel oil to natural gas conversion of our lime kilns at Adams. As I mentioned earlier, a bright note for our Refractories business was the contribution from the operation at the new steel mill owned by United Steel Company in Bahrain, where we serve as the general contractor for all refractory maintenance, a different business model for the Refractory segment that we have discussed in previous calls. Our operational excellence, expense control and new product development initiatives, the underpinnings of our ability to grow, continued on track. Although we did not sign any new commercial agreements for FulFill in the second quarter, we did see greater use of the technology among our existing 13 customers. This improved usage of 30% increase over the first quarter of this year, a strong confirmation that the improved cost savings it provides paper makers is driving acceptance in the market. In addition to the greater usage with our existing FulFill customers, we're also seeing an increase in the number of paper mills running trials to validate the technology and we expect these to move to commercial agreements. We're on track to achieve $2.5 million to $3 million in operating income from the FulFill technology in 2013. Before I turn it over to Doug Dietrich, who will provide the financial details of the second quarter, I'd like to share my thoughts about the company and the quarter. When I joined Minerals Technologies in March, I could see that over the last 6 years, the company had undergone a cultural transformation to become a highly efficient and high-performance organization. Our second quarter results could not have made that point any clearer. We achieved a 12.6% operating margin as a percentage of sales 2 years ahead of our 2015 goal. In the quarter, we grew sales, continued to introduce new products and technologies and overcame the challenge of ongoing softness in the steel industry. We did this through execution of our strategies and our sharp focus on improving efficiency and productivity. The fact that we have a track record of achieving record-breaking financial results is indicative that our strategies of geographic expansion, new product innovation and operational excellence continue to deliver. We're on a high-performance path with a solid management team committed to safety, technology development, continuous improvement, expense control and top line growth. We are becoming an even stronger operating company with market-leading positions in many of our businesses. My objective is to build upon that by continuing to grow our existing product lines and to seek opportunities through acquisitions that will add value for our shareholders. We are staying the course that has improved our financial performance and will continue to develop and capture opportunities for future profitable growth. Now I'll turn it over to Doug Dietrich for a detailed review of our financial results. Doug? Douglas T. Dietrich: Thanks, Bob. Good morning, everyone. Let's go through our consolidated and business segment results for the quarter. I'll highlight the key market and operational elements of our financial results in each major product line and comment on comparisons to both the second quarter of 2012 and sequentially, to the first quarter of 2013. As Bob mentioned, we achieved record quarterly earnings from continuing operations of $0.63 per share, which is an 11% increase from the $0.57 recorded last year. Our strong performance this quarter was led by the Specialty Minerals segment, which also achieved record quarterly profits. Paper PCC profits increased over 15% compared to last year and the Performance Minerals business continues to operate on a very strong track. Our record earnings were achieved despite slightly lower profitability in the Refractories segment. We also benefited from a lower effective tax rate due primarily to a one-time reversal of tax reserves associated with the completion of the U.S. tax audits. This added approximately $0.02 to our earnings per share. As we indicated on the last call, we closed our merchant PCC facility in Walsum, Germany in the second quarter and reclassified the operation as discontinued. We recorded a loss from discontinued operations in the second quarter of $0.14 per share related to operating losses that were higher this quarter due to winding down of the facility and through a charge related to the facility closure cost. Normal quarterly operating losses of the Walsum facility have been between $0.01 to $0.02 per share. All prior periods have been restated to reflect this reclassification. Our consolidated sales this quarter increased 2% or about $5 million from the prior year. Our underlying sales grew approximately 4% as foreign exchange had an unfavorable effect on sales. In each segment, underlying sales grew by 3% in Specialty Minerals and 5% in Refractories. Operating income of $32.4 million, an all-time high for Minerals Technologies, represented 12.6% of sales compared with 12% last year. We continue to leverage our centralized shared service model and control our overhead expenses tightly, which has helped drive a greater portion of these new sales to the bottom line. In addition, overall productivity improved more than 2% versus the second quarter of last year. Our return on capital for the quarter increased to 9.9% on an annualized basis compared to 9.7% in the second quarter of last year. We generated $34 million in cash from operations of which, $13 million was used for capital expenditures and $10.7 million was used to repurchase shares. Sequentially, consolidated sales increased 3%. Specialty Minerals increased 1% and Refractories sales were 6% higher. Operating income increased 15%, which was higher than anticipated on our last call. The Specialty Minerals segment operating profits increased 8% due to a strong seasonal growth in Performance Minerals, partially offset by the anticipated lower profitability in Paper PCC. The Refractories segment's operating profits improved 23%, which was considerably more than we had expected. Let me outline what contributed to the improvements in our operating margin over last year. As you can see, the growth was driven primarily by Paper PCC and Performance Minerals. Paper PCC margin growth was due to price increases from the contractual passthrough of our lime costs, productivity improvements, contributions from both new satellites and FulFill and the restart of our satellite in Alizay, France. The improvement in Performance Minerals was due to volume growth in our North American Specialty PCC product line, price increases and a strong performance from our ground calcium carbonate business. In Refractories, margins deteriorated slightly due to the drop in volume from weak market conditions in North America and continued weak equipment sales. These were partially offset by volume growth at our Metallurgical Wire business and contributions from Refractories sales in Bahrain. This chart highlights the mixed conditions we continue to face in our main market segments and geographies. In North America, uncoated wood-free paper production was down 1% and in Europe, it was flat. The construction market in the U.S., which includes both residential and commercial markets, improved over last year and was up 5% in the second quarter. In Europe, however, construction continues to be lower. North American automotive unit production was up 6% as production levels remain relatively high at 4.4 million units in the quarter. Lastly, you can see the continued soft steel market conditions. Production in North America and Europe, our 2 largest markets, were lower than the second quarter of last year by 6% and 5%, respectively. Let's go over the financial results within the Specialty Minerals segment. As I mentioned earlier, this segment had a record quarter and as you can see from the chart, we continue to build on the performance momentum we generated last year. The $25.2 million of operating income increased 11% and we expanded our operating margins in this segment to 15% of sales compared with 13.7% last year. Within this segment, Paper PCC's underlying sales grew 3% driven by higher sales in Europe, Latin America and Asia. This growth was partially offset by slightly lower volumes in North America due to several seasonal mill maintenance shutdowns. In Performance Minerals, underlying sales also grew 3% driven by growth in our U.S. Specialty PCC product line and favorable product mix in our ground calcium carbonate business where sales grew by 8% and 5%, respectively. This growth was partially offset by weaker Specialty PCC demand in Europe. Segment operating income growth was driven by a 16% increase in Paper PCC and a 5% increase in Performance Minerals. The increase in Paper PCC was primarily due to the contribution from our new satellite facilities in Asia, increased profits from FulFill, higher pricing, a 2% improvement in productivity and the restart of the Alizay facility. The improvement in Performance Minerals was due to volume growth in North American Specialty PCC, price increases and a strong contribution from the ground calcium carbonate business. Sequentially, segment sales were 1% higher than the first quarter driven by the seasonal volume improvements in the Performance Minerals business. Sales in Processed Minerals were 10% higher than the first quarter. Operating income for this segment increased 8%, which was in line with our expectations. Looking forward to the third quarter, we expect our Paper PCC volumes to be up slightly for the number of North American paper mills, which completed their normal annual maintenance outages in the second quarter, will return to normal operating rates. However, these higher volumes will be partially offset by lower volumes in Europe and Latin America as paper mills in these regions perform their annual summer maintenance outages. We'll also benefit from a full quarter of operations at our Alizay satellite. Current indications are that third quarter profits in our Paper PCC product line will increase slightly from the second quarter. In Performance Minerals, we expect profits to decrease from the second quarter as we enter a slower seasonal period for the business. Overall, we expect the third quarter operating income for this segment to be down slightly from the second quarter yet compared to the third quarter of last year, we expect sales to grow by 4% and operating income to increase by 5%. Specialty Minerals segment operating margins increased significantly this quarter from -- to 15% from 13.7% last year. These margins are on a comparable basis as both exclude the Walsum operation. As you can see from the chart, we absorbed higher lime costs in Paper PCC, as well as significantly higher electricity costs in Performance Minerals in the quarter. These costs were offset by contractual price -- Paper PCC price increases and product price increases in our Performance Minerals business. As Bob mentioned earlier, we completed a Specialty PCC expansion in June at our Adams, Massachusetts facility to meet increased customer demands. This Specialty PCC volume growth, along with favorable product mix in our GCC business, generated close to 0.5% of margin improvement. We continue to achieve productivity and other cost control improvements in this segment, which contributed 0.7/10 of 1% to the margin growth. Finally, we're seeing solid performance from our new PCC satellites in Asia, along with increased contribution from FulFill. Now let's go through the results within the Refractories segment. Sales in the second quarter were 3% higher than last year. Underlying sales grew 5% as foreign exchange had an unfavorable impact of approximately $2 million. Underlying sales of refractory products and systems grew 5%. Sales in our Europe Refractory business increased 20% due to incremental refractory volumes in Bahrain, share gain with customers in Germany and Russia and also to increased volumes in the U.K. These higher sales were partially offset by a 9% decline in North America Refractory products due to the closure of RG Steel's mill last June, as well as to the temporary closure this quarter of the U.S. Steel's Lake Erie Works and the idling of a blast furnace, which affected steel production at the ArcelorMittal Indiana Harbor facility. Underlying Metallurgical Wires sales were higher by 5% due to volume growth in North America, Europe and India. Operating income for this segment decreased $200,000 in the quarter to $8.5 million despite the sales growth I just outlined. This decline was primarily due to the loss of profitable business in North America, lower equipment profitability and compressed margins in Japan due to foreign exchange. Operating income was 9.6% of sales for the quarter. Sequentially, Refractories sales were 6% higher than the first quarter, and operating income increased 23%, which was considerably more than we'd expected on the last call. This was primarily due to higher-than-expected Refractories sales in Bahrain and the higher Metallurgical Wire sales. Looking to the third quarter, we expect that our operating income for the full segment to remain at these second quarter levels. We currently do not see any near-term improvement in steel production levels in both North America and Europe, nor do we anticipate any change in our equipment sales levels. However, compared to the third quarter of last year, we expect segment sales to grow by 2% and operating income to increase 15%. Here's a summary of the changes in the Refractories segment operating margin. You can see that the second quarter ratio of 9.6% compares to 10.1% last year. Improved Metallurgical Wire volumes contributed 0.3 of a point to margin improvement and productivity improvements and expense control at 0.5% and the increased sales and profits in Europe Refractory products added another 0.7. These improvements were more than offset by the lower profits in North America, lower equipment sales and foreign exchange, which, primarily, had a negative impact on our margins in Japan. Now these charts illustrate our working capital and cash flow trends. Total days of working capital remained at historically low level of 55 days, as we continue to tightly manage our working capital. Our cash flow from operations was $34 million in the second quarter. Capital spending for the quarter was $13 million, as I mentioned, $10.7 million was used to repurchase shares. We expect capital spending to increase about midway through the second half of this year, as we begin construction of 2 new satellite facilities in China with Sun Paper and Jianghe Paper and begin work on the 4 PCC satellite expansions here in the U.S. Let me take a minute to review our results for the first half of 2013. Our first half earnings per share from continuing operations of $1.18 is a company record and represents an 8% increase from the $1.09 per share recorded in the first half of last year. This performance is also highlighted by record first half profits in both the Specialty Minerals segment and the Performance Minerals business. Consolidated sales for the half were $507 million, which was slightly higher than last year. Foreign exchange had an unfavorable effect on sales of $5.7 million or about 1%. There were also 2 less days in the first half of this year compared to last, which affected sales by another 1%. Consequently, our underlying sales for the first half grew 2.5%. Gross margins increased 2%, driven by a 5% improvement in productivity. Expenses declined approximately 1% and represented 10.7% of sales. Our operating income increased 4% and operating margins improved to 12% of sales, achieving the 2015 target we set for ourselves back in 2010. We continue to improve our return on capital, which, for the half, was 9.5% on an annualized basis. We generated $16 million in cash from operations in the first half of which, close to $22 million was used to fund capital expenditures and $20 million was used to repurchase shares. In total, this was the strongest first half performance in the company's history and is a direct result of the execution of our key strategies of geographic expansion, particularly in Asia, and new product innovation highlighted by the increased contribution from FulFill. As I mentioned earlier, our second quarter earnings of $0.63 per share were above our expectations, primarily due to a strong performance in Specialty Minerals and better-than-expected performance in Refractories. We also benefited from a lower tax rate. Looking to the third quarter, we expect profits in the Specialty Minerals segment to be slightly lower than the second quarter as an improvement in Paper PCC will be offset by a normal seasonal drop in Performance Minerals. In Refractories, we expect our operating income for the full segment to be similar to the second quarter, as steel market conditions remain weak and we do not see any improvement in equipment sales. I also want to note that we will not realize the one-time tax benefits in the third quarter that contributed $0.02 to earnings per share in the second quarter. For the full year, we estimate that our effective tax rate will be approximately 28.5%. Overall, we expect the third quarter to continue on a strong track and deliver 4% sales growth and 10% EPS growth compared to last year for approximately $0.60 per share. Further, we expect to continue our track of revenue growth into the fourth quarter. As you can see, the growth we have been projecting to you over the past several quarters is beginning to show through. Now I'll turn it over to Joe Muscari for some closing comments. Joe? Joseph C. Muscari: Thanks, Doug. Good morning, everyone. I just want to take a few minutes to share a few additional thoughts with you as Bob and I continue on the leadership transition path that we started on a few months ago. By the way, the transition is going well and as planned, Bob has taken over the day-to-day operations of the company as I focused more on the M&A front and major new customers, particularly in Asia. I expect to serve in an active management role as Executive Chairman, at least through the end of this year and possibly into the early part of 2014. As you heard from Bob and Doug, Minerals Technologies continues to perform at a high level, setting new records for profitability. The company's direction and trust is to continue on that track and as Bob indicated, to deliver on opportunities that will increase shareholder value. As we look forward, the challenges of a never-changing global economy, as well as competing in the highly cyclical markets of steel, paper, construction and automotive, remain. What has changed, however, is the company's ability to improve its leading market positions because we offer our customers products and services that provide significant cost savings, as well as advantages that allow them to differentiate in their marketplaces. And because we're a strong operating company built on a lean foundation, we will continue to grow our product line through geographic expansion and technological differentiation. These have been and will continue to be the company's pathways to creating value. As we move through the transition, it is clear that the groundwork we've laid in the last 6 years, while I might add, increasing our earnings almost 70%, will remain the foundation for future growth, both organically and through acquisitions. I'm confident in Bob Wetherbee's ability to lead this company and to maintain a high-performance track going forward. Now let's open it up for questions.

[Operator Instructions] And your first question will come from the line of Daniel Moore, CJS Securities. Daniel Moore - CJS Securities, Inc.: The Refractories, as you mentioned, showed surprising strength. Can you give us a sense of the contribution from the Bahrain operation? Douglas T. Dietrich: Yes, Dan, this is Doug. So we saw a little bit stronger sales than we'd expected in the second quarter. So most of that growth, we had about $5 million worth of sales just in the quarter in Bahrain so that was higher than normal. Operating income from that, probably around $750,000. So I think the higher sales are what really drove through the volume increases in Europe. Daniel Moore - CJS Securities, Inc.: Perfect. And obviously, in your prepared remarks, you see similar type results for operations as you look into Q3. What might give you pause? Any concerns around the core business in Refractories or is this level -- very comfortable this level is sustainable as we look out at Q3 and the back half of the year? Douglas T. Dietrich: Yes. I think in Q3, it's really probably a difference in mix. I don't think we're going to see the continued strong sales in Bahrain and I think that -- to your question, what gives me pause is probably the equipment sales. We've continued, as you've known for almost the past year with the soft steel industry, where capital spending on their behalf has been lower, and that's affected our equipment sales. So those equipment sales coming through in the third quarter but if it gives me pause, that's one area that has been soft through the past year. Daniel Moore - CJS Securities, Inc.: And lastly, that goes to my question, just a little bit more detail on equipment sales in Q2, specifically. Did you see much of a pickup and obviously, the environment remains a little uncertain there. Douglas T. Dietrich: Yes, it does. We didn't see much of a pickup in Q2 as I referenced in my remarks. It just continues to be soft on a year-over-year basis in terms of number of units. We do usually see a pickup in the fourth quarter. Typically for this business, we're working on selling units throughout the year and building them throughout the year and most customers take deliveries in the fourth quarter. So it's not that the second quarter is typically strong anyway but they have been typical to the soft market. They've been weak this quarter.

Your next question is from Rosemarie Morbelli with Gabelli & Co. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Doug, you just said that on the steel area, equipment is -- I mean, customers take -- well, we see their equipment in the fourth quarter. Could you talk about your backlog? I know this is an area of concern and when you look at that backlog, are there any cases of customers placing an order and then either delaying delivery or actually canceling it all together? Douglas T. Dietrich: So, Rose, I'm going to start then I'm going to pass it over to Han to give you a little bit more color. The structure, as I mentioned, of kind of our equipment sales on a typical year, we'll have some equipment sales, laser units, some dektecs [ph] other types of equipment that are sold throughout the year. But typically, historically, our sales are increased in the fourth quarter as most of the units where the orders are placed through the year are finally sold, commissioned, qualified in the fourth quarter. I'll take you back to the second quarter or the fourth quarter of last year, where we did not see those sales. If we go back to that call we highlighted that with the downturn in the second half of the steel market last year, a lot of customers didn't take the equipment, they didn't place the purchase orders, they didn't come back, they didn't place the orders as they were constricting their capital spending. While we're seeing that continue this year, though we're hopeful in outlook, I'm going to let Han talk about the outlook of the fourth quarter of this year in terms of the number of units that could potentially come through. Han?

Yes, thank you, Doug. Yes, so if you look to the -- in general, to our sales, of course, in the equipment, it's heavily loaded normally to the fourth quarter. It has primarily to do also with the outages that the customer has taken in the Christmas period and they are looking for a way, of course, to install the equipment. So we have to be ready to be able to install in the fourth quarter, and that's why it's heavily loaded into the fourth quarter. We haven't seen really customers postponing so far but we see still a lot of capital restrictions and the capital approvals as the customers are very slow at the moment. So that continues to be the current situation. Douglas T. Dietrich: Rosemarie, I'd add one thing to that, though. You look at restriction in capital spend over the past 18 months and we do see that that's going to come back eventually. We also have some new products out there, as we mentioned, with the laser torpedo. We've continued to market and sell that. Some other new products that the business is working on. So we do see some growth in equipment sales in the future. We just, as I mentioned, in the third quarter, we're not seeing it happen in the near term. Rosemarie J. Morbelli - Gabelli & Company, Inc.: And then on the Specialty Minerals, that 15% operating margin, which is a great level. But is it sustainable, is it because usually the second quarter is seasonally stronger so it is not going to be at that level over the next couple of quarters but then more importantly, what about next year? Is anything in -- that you see happening that would prevent you from having that 15% margin? Robert S. Wetherbee: This is Bob Wetherbee and thanks for joining the call. We feel well-positioned for future growth. We're executing our strategies. We're seeing success and when you get underneath of that, the Paper PCC business continues to grow with new satellites expansions, FulFill is gaining traction in the marketplace. We see the increase validation around trials coming through and you see our expansions in ultrafine Specialty PCC coming to the marketplace. On top of that, we have the development pipeline that's very robust at the moment. So we do see that we built a foundation for growth and expect continued results. Doug, any flavor you'd like to add to that? Douglas T. Dietrich: Yes. Rosemarie, I do think they're sustainable. I think, as Bob mentioned, the underpinnings of those margins with higher-margin products, productivity improvements, our new satellites and growth and leveraging our shared service model to support that growth without having to add to cost. So I do think all of the underpinnings of our margin expansion that we've been talking about are coming through. So yes, I do see that that's sustainable and not necessarily just a reflection of the seasonality in the second quarter. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And then lastly, if I may. I was wondering if Joe could give us a feel for what he sees out there in terms of M&A, whether we are getting closer to a third leg and if there are any thoughts of repurchasing more shares with the lack of acquisitions. Joseph C. Muscari: Sure, Rosemarie. One, we're -- we continue to be -- you've heard me say this before but it's simply a fact, we are very active. Our M&A team, at any one point in time and that's true today, is involved in 3 to 5 different projects. So the activity level of areas that we're either looking at or in discussion at is still at a very high level today. We are going to continue to take a very balanced approach to the use of that cash, as you heard me say before, which basically means that if we see that certain acquisitions may not be developing as fast or we bet we can bring them to fruition within a reasonable time frames, then we have the opportunity to accelerate buyback, which is something that we have done from time to time and we're going to continue to look at share repurchasing as another aspect of delivering shareholder value and making good use of the cash. Rosemarie J. Morbelli - Gabelli & Company, Inc.: And, Joe, your definition of a reasonable timeframe, is that 1 year, 2 years? Joseph C. Muscari: You know what? As soon as I used the word reasonable, I had a feeling you were going to ask me what reasonable is. Well, it's -- you have to sort of be in the moment and assess how much longer a deal may take to complete and the probability of it taking to complete. But I think the thing to keep an eye on is that we have not really been materially adding to the cash position, which is reflective of some acceleration while at the same time, it's still a large amount of cash, which means that we still have a perspective that we can put that to good use within the coming year or so.

Your next question is from Steve Schwartz with First Analysis. Steven Schwartz - First Analysis Securities Corporation, Research Division: On the SULB ramp in Bahrain, so this is going to anniversary in the third quarter and, Doug, I think when you were answering one of Dan's questions, you commented that you thought maybe the third quarter year-over-year growth might slow. So I'm just wondering as this goes into the 2nd and 3rd year of the agreement, do you expect that essentially the revenue from that will be flat year-over-year from here on out? Douglas T. Dietrich: Well, let me go back to Dan's comment -- my answer to Dan's question. That mill continues to ramp up and so, as they go through their ramp-up, they could be consuming more -- they do consume more refractory products in these early days. So it's taking them some time to get that plant started late in the third quarter and they're still going. So I think the sales -- the higher sales in the second quarter is reflective of that kind of higher consumption. As that mill gets up to full capacity and full running rate, we think we're going to get back down to the normal and we had about, I think, we said $10 million to $12 million per year and so we're going to get back to that kind of run rate. And so it's nothing significant in terms of slow, I think it's just more of getting back to the normal run rates when that mill gets ramped up. So on a year-over-year basis, I think you're going to still see in the third quarter probably some sales growth because we had -- we're ramping it up in -- just in the beginning of the third quarter. So there'll still be some incremental growth there but that will normalize as we get to the fourth quarter. Steven Schwartz - First Analysis Securities Corporation, Research Division: And then regarding Alizay, I thought I saw some comments from Double A that -- where they suggested that, that mill would ramp through this year. So I'm just wondering, it obviously was a notable contributor to the second quarter, did you -- because it's starting up, did you see a huge surge in volume in the second quarter or will the third and fourth get better for you? Douglas T. Dietrich: So we saw some volume increase. I think it will continue to ramp up. We got to normal running rate, D.J., probably late in July. So we had about $0.5 million of revenue contribution from it just in the quarter as it ramped up through -- I'm sorry, through June. That facility will just run. I think it got to run rate at the end of June. So we'll see a full quarter of that rate coming forward. Steven Schwartz - First Analysis Securities Corporation, Research Division: Okay. All right, that sounds good. And then just my last question on the net wire sales, how is it those are bucking macro trends in steel and you're seeing growth there? Robert S. Wetherbee: That's a great question, Steve. I appreciate you bringing it up. It's actually a good example of our new product innovation and the robust portfolio of products coming to the marketplace. We're actually joined this morning by Han Schut, who runs the Refractory business and, Han, can you add a little color as to what's going on in the Metallurgical Wire business?

Yes, sure. Thank you. And, Steve, so if you look at wire and our strategies there, it -- first of all, it's new product development. So we are developing new injection systems and also new products, which gives us the entry to new market segments. So that's a way for us to grow. And then secondly, geographically, we're also focusing on new markets. So specifically, if you look to India has been for us a very important growth markets that we have been able to penetrate and we're also starting to make traction in both Turkey and Russia.

You have a follow-up question from the line of Daniel Moore. Daniel Moore - CJS Securities, Inc.: Any potential lingering impact on the P&L from Walsum in Q3 or is that entirely behind? Douglas T. Dietrich: No, that's entirely behind and that's all been called prior financial result sales and income have been restated to discontinued ops. Daniel Moore - CJS Securities, Inc.: And lastly, I haven't talked too much on GCC, you have nice pickup in Q2 after several quarters' declines. Is that sustainable and what's the outlook for the remainder of the year? Robert S. Wetherbee: Yes, I think -- well, first off, the Performance Minerals business is seasonal and a lot of our GCC products goes into the construction industry. You'll see that the second quarter is typically the highest point as it ramps up through late in the first quarter into the second quarter, and then as the construction industry starts to tail off. So I think from a year-over-year basis, yes, we're going to continue to contribute with the growth in construction and that's regional. I mean, it's -- we operate on the East Coast to the West Coast but as you see into the third quarter, that will probably tail off in terms of growth just due to the seasonal nature of the business.

We also have a follow-up question from the line of Rosemarie Morbelli. Rosemarie J. Morbelli - Gabelli & Company, Inc.: I was wondering if you could give us some -- I mean, an idea of the progress you are making in TiO2 extenders now that TiO2 seems to be stabilized in terms of price. Do you see less of an interest from your customers? Robert S. Wetherbee: Well, thanks, Rosemarie, this is Bob. TiO2 extenders are still a product of our -- in our portfolio and we still see it as an avenue for growth. There's certainly been a lot of news in the press about where TiO2 is going and we have Doug Mayger here with us who is responsible for the Performance Minerals business and he can shed some light on that. Douglas W. Mayger: Yes, we continue to do trials with customers. We have commercial customers although small, but we do see that as -- and a little bit into the future as TiO2 prices, perhaps, increase into the future as construction becomes more robust, paint industries will be challenged with, perhaps, higher TiO2 prices. And at that point, we do see that we would be in a good position to leverage our extenders and at -- the ALBAFIL T10 and the ALBACR T10. And we do continue to make even today inroads with other customers. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. So you haven't -- how big business is it today? I mean, it is still very tiny, right? Douglas W. Mayger: It is tiny, yes, it is. Rosemarie J. Morbelli - Gabelli & Company, Inc.: And same question on the talc, which also goes into construction if my memory serves me right, as well as into plastics? Robert S. Wetherbee: Well, actually, you're right, Rosemarie, we're very excited about where the talc business is going in terms of plastics. You heard us announce, or you saw us announce last week an opportunity called VICRON FRP and that product is going into the polymer plastic reinforcement industry. And so, we see some new products there. I think when you look at talc, the other concern we have for that is that we do supply the Class A truck market and where exactly that market has been, it's certainly down from the historical peaks. So we see the talc products going into a variety of different markets but upside growth for us with polymers, concerns about Class A trucks. And then the other opportunity for us, clearly, in the talc business is geographic expansion. We certainly talked about that as a key part of our strategy and we have a lot of energy going into where do we play or how do we play in China and then the balance of Asia, specifically to follow our global customers around the world as they continue to grow. So, Doug, do you have anything you'd like to add to that perspective? Douglas T. Dietrich: The -- so pretty good opportunities around construction for us, market share, opportunities. And as Bob said, we continue to make good progress in all product lines and in talc and the opportunities to leverage that technology over into Asia and take advantage of good opportunities in Asia would be our desire. Rosemarie J. Morbelli - Gabelli & Company, Inc.: I think that you are looking for, possibly, a source of good talc somewhere in the world. Are there any possibilities in Asia? Douglas T. Dietrich: There are opportunities in Asia and all talc is not created equal. But I will tell you that even here in the U.S., there are opportunities and we continue to have a very good mine in Montana that we continue to do our exploration on to find additional reserves there. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And then lastly, the pricing on the contract renewals regarding PCC. Is the price staying the same, is it coming down, what do you see? D. J. Monagle: Rosemarie, it's D.J. On balance, we've been -- as we've been renewing, we've been keeping them about the same. We've been able to do that as we're going forward as we've gotten some good leverage from our new products and we've been having a concentrated effort at refreshing the product line within our existing customers. So on balance, I'd say it's about the same, our best success probably to give you an indicator, is in Brazil where most of our contracts now are locked up through 2020 without any significant price erosion. So that's just an indicator for you.

Our next question is from Steve Schwartz. Steven Schwartz - First Analysis Securities Corporation, Research Division: Is there any more potential savings from the fuel oil to natural gas conversions on your kilns? Douglas T. Dietrich: Yes. We have -- we mentioned on the past calls that we have 4 kilns in Adams, we currently use 2 of them. That second one was just converted late in the second quarter to natural gas. We converted one last year and you've seen the savings from that one flow-through as part of our margin growth. Converted the second one to the extent that we can continue to expand Specialty PCC like we've done and continue to grow that market. We're self-sufficient in lime and then we could convert a third kiln with the use of that lime. And so we could see some continued savings, but right now, you're going to see a little bit more savings coming in the third quarter from the second one we converted just recently. Steven Schwartz - First Analysis Securities Corporation, Research Division: Yes. I think on that first kiln, you'd said on prior calls that you saved as much as $2.5 million a year, is it that still an appropriate number? Douglas T. Dietrich: It is. Again, it fluctuates at the price of natural gas. And so the amount of savings is based on it and gas is up a little bit but that's a good number, Steven. The second kiln is a little bit smaller than that one, it's not the different sizes. So the savings will be less, probably about half on that kiln. Steven Schwartz - First Analysis Securities Corporation, Research Division: And then, Doug, in your prepared remarks, and I apologize for missing some of this, I heard you say $0.60 and I think you were referring to the near-term quarters. Did you say that was in fact, a floor or just kind of a target or -- can you clarify that for me? Douglas T. Dietrich: Well, Steve, I don't think I gave you the floor, or I gave you an approximate $0.60. I think I was trying to highlight that we see the second -- we see the third quarter continuing to be strong and if you look at it versus last year with sales up 4%, we think earnings per share of approximately 10%. Again, we're not going to have the tax benefit, the $0.02 tax benefit that we got this quarter so you have to discount that. So I see a strong quarter in the third quarter, and I said approximately $0.60. Steven Schwartz - First Analysis Securities Corporation, Research Division: Approximately, okay. Well, good thing both of us, we got that clarified.

You have a follow-up question from the line of Rosemarie Morbelli. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Just a little more clarification on the clarification. When we are looking at that 10% increase, are we looking at adjusted numbers in 2012 to reflect Germany? And if that is the case, what is the number we are looking at in 2012? Because while you were in last year, you reported $0.55 in the second, it was actually -- the comparison was against the $0.57, which is an adjusted number. Douglas T. Dietrich: Correct. If you look at the charts that I showed today, Rosemarie, all -- everything has been restated. So if you look at our restated charted chart today, last quarter was $0.54 -- last third quarter, last year was $0.54 restated. I've taken that out, so I'm looking at a 10% or around $0.60 from last third quarter, and that is without Walsum, that's taking out Walsum and everything from both last year and this year. Joseph C. Muscari: This is Joe. If I could maybe add a little bit to that from my perspective in my new role but also of the board, but if you reflect a little bit on the comments that were made during this call, it really speak to -- the company is at a different place today from where it's been and it's different in a sense and it's not something that was a leapfrog. It was something that's been deliberately built in a consistent way over time and our ability to now, I think, grow in a more consistent manner to continue to deliver good, high performance. The integration, the further engagements of our employees in terms of their suggestions and what we convert in terms of ideas that are converted to things that we act on. So the company is at a new place. And the board has an expectation that the company is going to continue to deliver at a higher level. And so you heard Bob talk about we've broken through or we -- the $0.60 level. And there is an expectation of ourselves and of the board that is going to continue to be a high-performance level. So I think that's the way, maybe, to maybe think about this quarter in terms of the things that came together that are sustainable going forward.

There are no further questions at this time. Robert S. Wetherbee: That will conclude our call today. Thank you for your interest in Minerals Technologies.

Thank you for your participation in today's call. This concludes today's conference. You may now disconnect.