Minerals Technologies Inc (MTX) 2002 Q1 法說會逐字稿

Good day everyone and welcome to this Minerals Technologies Inc. first quarter 2002 earnings conference call. Today's conference is being recorded. With us today is the Chairman and CEO, Mr. Paul Saueracker. Please go ahead

Thank you and good morning and welcome to the first quarter 2002 Minerals Technologies conference call. It is a please to be with you today, particularly in spite of the fact that first quarter 2002 financial results for MTI was quite strong. We are able to report net sales at $179 million up 9% from prior year first quarter and net income of $13.5 million, 16% above 2001 first quarter results. This translated into diluted Earnings Per Share of $0.66 versus $0.58 of last year's first quarter, an increase of 14%. I continue to believe that the people of MTI have done an excellent job of managing our businesses during a very difficult period. Especially within the industrial sectors we serve.

Following my introduction, Kenneth Massimine, Senior Vice President, Paper PCC will provide you with more detail on the progress we have made in the PCC product area. Howard R. Crabtree, Senior Vice President, Minteq will report on refractories segment of our business and Neil M. Bardach, our Chief Financial Officer will provide a brief financial summary. Following Neil's presentation, I will conclude this part of the conference call with a few final remarks and then respond to your questions. Before proceeding further, I need to remind you that on page 6 above 2001 10K, we have listed several factors that may have attack future results. Any forward-looking statements made by or other members of the management are subject to these portions.

As I indicated in my opening remarks worldwide sales for the first quarter were up 9% to a $179 million. Worldwide sales of PCC were up 3% to a $102.9 million paced by an increase in paper PCC sales, while especially PCC sales were . Minteq sales were up 26% to almost $55 million and process mineral sales were up 2% to $21.4 million. The store growth in sales performance of the refractory segment was principally due to two acquisitions completed last year, Martin Marietta refractories in May and Rijnstaal in October. Operating income for MTI increased 10% to $21.4 million equal to 12% of sales, a significant achievement in the difficult economic environment. This reflects our commitment to selling high valued products and systems while closely controlling expenses. Our focus on controlling expenses is a key element in preserving our operating income ratios despite an evermore market. The 9% sales increase in the first quarter has leveraged to the 10% operating income increase by holding expenses essentially constant; thereby, reducing the expense ratio to 13.5% of sales in the first quarter of 2002 from 14.6% of sales in the first quarter of 2001 but while we are not on the details affecting PCC and refractories which will be explained by Kenneth Massimine and Howard Crabtree. I would like to mention some highlights.

Demand for Paper PCC, MTI's largest product line, continues to grow while production upturning and for North America appears to have stabilized in the first quarter. There has not been a strong demand. Despite this, paper PCC sales volume was up 5%. This increased was driven by the ramp up of new satellite facilities and expansions of existing satellite plans. Furthermore, our growth was global with sales volume increasing in all geographic areas. In particular, we are seeing increased sales in our coating PCC segment of the market, an area where we expect considerable future growth. Related to coatings, we recently announced that we had acquired the PCC facility owned by J.M. Huber Hermalle, Belgium. Modifications of this facility are currently underway and it has already demonstrated the ability to produce OPACARB A40, our new coating segment. This product has gained considerable market acceptance and generated strong interests particularly in Europe. The acquisition of this facility will allow us to exhilarate our penetration of the coated paper market. On the specialty PCC side, although our sales were essentially flat in the first quarter versus prior year, our operating income in full with all three facilities Adams, Brookhaven, and Lifford contributing to the improvement. On the refractories side of the business, net sales were up by 26% while operating income was up by 11%. Many of the new products we recently acquired has high cost of sales ratios. Minteq has programs in place improving the margins of these products by reducing manufacturing costs, synergies between our combined operations and upgrading the scope and value of the product offerings by including our advanced systems and services that add additional value. Howard will describe these programs in greater detail. Looking at the process minerals business was initial construction recorded by very attractive interest rates as remained relatively strong throughout the turmoil of 2001. With interest rates now stabilizing and possibly increasing as the year progresses, we do not anticipate a surge and construction spending. Demand for our process minerals products will increase slowly in line with general economic growth.

We continue to invest in the essential opportunity. Our family of synthetics locate products for the glass industry. As I reported during the January conference call we have resolved our manufacturing and consistency of quality issues. I also reported that we were preparing for two long account trials, one in specialty glass and one in fiberglass. Both of these trials are underway and initial results indicate fast molting of the patch ingredients, reduction in both furnace and in glass temperatures and reduction in exhaust glass emissions. While the results are not yet fully quantified, the outlook is encouraging as we continue these by both in efforts in 2002, we will initiate additional trials in these segments as well as in other segments of this industry. At this time, I would ask Kenneth Massimine to provide us with details related to the PCC portion of our business. Ken,

Thank you Paul. Let me begin by providing a summary of market conditions followed by our business results for the first quarter and some expectations for the year. As you know, paper production is highly influenced by the degree of economic activity. At this point in the current business cycle most economic indicators are slowly beginning to look positive. While this implies a reviving paper industry, it does not speak of this speed about revival. We believe the US paper industry reached bottom in the late third to fourth quarter of last year and while still depressed in the first quarter should slowly improve as the year progresses. Increased business activity and replenishment of paper inventories will be the major drivers of this improvement. Thus far there is a scan evidence of paper industry turnaround. Through the first quarter of this year, US printing and writing paper shipments were down approximately 6.3% versus the first quarter of last year. Overall, US operating rates stayed near 87% in spite of foreign demand due to continued reductions in production capacity by paper companies. Within the past year alone, total printing and writing capacity in the US has declined by an additional 280,000 tons. In North America, uncoated pre-sheet are the largest markets. It is starting to show an improvement in demand. First quarter shipments were ahead of fourth quarter by 1.7%. Initial reports from March showed a continuing strong order pattern due to increased business activity and the need to replace completed inventories. However, the expectation is that the shipments will remain essentially flat over the course of the year as compared to 2001. Even now operating rates are expected to improve to around 92% as the year progresses. This results from capacity reduction during the last couple of years. Likewise, recent consolidations within the coated papers market have reduced excess capacity. Almost 1.3m tons or 21% of the North American coated pre-sheet capacity has shut down since 1999. While this helps to stabilize the supply and demand balance, coated pre-sheet imports primarily from Europe continue to flood into the North American market less negating the effect of no closures. For the year as a whole, coated pre-sheet shipments are anticipated to be down 1.4% versus last year. Globally, the story is pretty much the same. For example, in Western Europe, in the first 2 months of this year, printing and writing paper demand is down 1.8% but shipments were up 1.3% indicating increased exports. Uncoated pre-sheet shipments have now turned positive and should record almost 3% increase this year over last and coated pre-sheet as per forecast will increase to 10% this year. With 2002 expected to be year of modest improvement for the paper industry, our growth will be driven primarily by the ramp ups of the recently expanded satellite and continued expansion of existing as well as new satellite facilities and the scheduled start of our new emerging facility. Overall, our total PCC sales for the first quarter were up 3% over the prior year's first quarter from approximately $100m to approximately $103m. The strong US dollar had a negative effect of approximately $2 million on PCC sales while in total percentage points of over 2% percentage points of growth. This overall growth is a result of 10 new units of PCC capacity that was added during 2001. First quarter to first quarter comparison shows our paper PCC volumes growing by close to 5%. Sequentially from the fourth quarter of last year to the first quarter 2002, our PCC volume is up over 3%. This is based on new capacity coming on strange at our newly commissioned Alizay, France satellite, which represents 3 units of capacity and continued ramp ups at our Great Northern Paper Satellite at Millinocket, Maine as well as from expansions at other existing PCC satellite. Our growth strategy to penetrate the coating market remains on track in both Europe and North America. It should be noted that the recent acquisition from Huber has been low received by the marketplace. The newly acquired merchant plant at Hermalle, Belgium is being modified to produce OPACARB A40 with commercial products now expected to be available for customer trials within the second quarter. With the ability to produce coating grade PCC on track, we expect to be in a position to commercialize business in the second half of 2002 with sales ramping up in 2003. In addition, our wholesome Germany merchant plant site is still anticipated to come on screen in mid 2003. In North America, we expect to be in a similar position. Our alliance with Mississippi in line to produce OPACARB A40 for the same facility should also be on screen within the current quarter. Key customer trial activities will begin shortly. Our overall ground with paper strategy continues to gain momentum in both grounds with specialties applications. Recently, we converted another mill to PCC bringing our total up to 43 paper machines in 20 mills. Trials are now scheduled at another of this customer's paper mill. The demand driver here is the replacement of higher priced pigments while still providing brightness and opacity in movements. We are expanding still another satellite facility to accommodate increased demand for PCC and groundwood applications as well. In the paper boat filling area, North American trial activity continues to be successful with expectation is that we will commercialize new business in the second half of this year. Also, with OPACARB A40 now being available locally , we anticipate increased activity in coated white top line wood applications while PCC can be cost effectively substituted for titanium dioxide and plastic pigments while maintaining the desire opacity. In the pre-sheet segment, two of our new PCC products continue to be trialed successfully. These products to allow paper mills to increase improving paper bulk and machine productivity. Furthermore, internationally, we are in discussions with several other potential customers concerning construction of new satellite facilities.

Now, let us turn our attention to specialty PCC for non-paper applications. This product line continues to experience a difficult market environment. However, during the first quarter, while sales were essentially leveled versus prior year, they were up more than 10% from the previous quarter. While not expecting this level of quarter-to-quarter improvement to continue, we do anticipate progress in sequential growth. Our plant in Brookhaven, Mississippi continues to ramp up albeit much slowly than we would like. With production issues behind us, we have now commercialized new business at various targeted accounts. We are also continuing to conduct product trials with other customers. As a result, we anticipate a steadily improving situation over the course of 2002. In conclusion, we remain confident in our strategic initiatives and are optimistic that our PCC product line is well positioned to provide continued growth for MTI in 2002. Now I will turn over the microphone to Howard who will review Minteq's business performance.

Thank you Ken. Minteq continues to perform exceptionally well compared close to the industry it is in, we factored of the industry, Steel. Net sales in the first quarter was $54.7 million, up 26% versus the prior year. Minteq's operating income of $6.2 million was up 11%. Minteq's sales growth was primarily driven by the addition of the Martin Marietta and Rijnstaal businesses. The added business has had a short and negative effect on the cost of sale ratio, which increased to 72% from 69% in the first quarter of 2001. A significant portion of the Martin Marietta business services the electric offsets which traditionally has lower margins in our business in the basic oxygen furnaces. The Rijnstaal business also had lower margins in the existing Minteq wire business. It is a less sophisticated product. Sales growth of 37% in metallurgical products produced operating income growth of 29%, still a very healthy increase. We are confident that we can improve the operating margins of the electric furnace product line by selling the products in combination with our technologically advanced system. We will improve the margins of the Rijnstaal products by continuing to implement the business synergies that were part of the acquisition strategy. While there has been a lot of commentary in the press suggesting the recession is over, a number of first quarter events in the materials manufacturing sector has suggested otherwise, the bankruptcy of National Steels, the bankruptcy of Geneva Steels, and the bankruptcy of RHI Refractories. Although, the US Steel Industry was given a helping hand by the tariffs implemented by President Bush, this has led to some price increases and any benefits occurring to Minteq in the US from the tariffs are likely to be at least partially offset by that impact on the European and Asian markets. In terms of total steel produced in the first quarter 2002 compared to the first quarter 2001, volumes are down approximately 4% in North America, 5.5% in Europe, and 4% in Latin America. The 22% increase reported by China is still at both Asian and world figures. For example, world steel production without China was down 2.1% in February 2002, with China it was up 1.6%. Minteq shares the opinion of many steel industry analysts that the Chinese production figures are not totally reliable. We have seen improvements in the North American steel capacity utilization in 2002 but this has been a result of capacity shift downs rather than increased volumes. Thus while steel volumes may be headed up from our product levels of a low what they were in the last year's first quarter. Despite the continued weakness in steel, Minteq's net sales were up 45% in North America, 20% in Europe but down 19% in Asia where the Japanese economy and its steel industry continues to falter. The plant closures and bankruptcies I spoke of earlier occurred in North America. Restructuring of the North American steel industry has shrunk our customer base. However, the restructuring of the refractories industry has created opportunities for Minteq that increased the sales of monolithic refractory systems in areas that are up till now are being dominated by bricks. In particular, our sales in the molten metal handling and continuous casting areas showed very strong growth in North America. Growth into these areas is a key strategy for our business. Europe had a strong quarter with good sales growth and good leveraging of operating income. The improved performance in Europe was due to the Rijnstaal acquisition, increased systems sales, and strong growth in Ferrotron sales. Asia continues to be weak with sales down in the quarter compared to a year ago generating a marginal operating income. China and Australia are the two bright spots here, but both are quite small and unable to offset the decline in Japan. I believe that there is a tremendous opportunity for us in Asia and I have recently made some management changes that will help to reverse the trend in the region.

Operations in Latin America are showing some improvement but are not yet contributing to income, I am confident that they will. Sales of industrial products were up slightly over last year, but income was down because of a less favorable product mix. Sales of the profitable Pyrogenics products were down from prior year as we expected they would be due to a large one-time order in the first quarter 2001. Sales of refractory products into the cement and the glass industries are being quite strong and margins are improving. While acquisitions were the primary contributor to first quarter growth, considerable progress was made in new products and systems developed by R&D. Particularly, I would like to mention the mega stall ladle maintenance system that was introduced to six new accounts during the first quarter. as a brick replacement was introduced before new accounts. In particular, a new composition developed by R&D offering a more durable and erosion-resistant monolithic replacement bricks has been very successful. The Ferrotron line of ladle scanners continues to gain market acceptance and meet our expectations with sales up 17% in the first quarter. These are examples of the progress we are making in revoking the state of Minteq's business by providing complete systems, product, equipment, and services at a higher dollar value. This will provide the future organic growth for us.

In conclusion, Minteq remains cautiously optimistic for the remainder of 2002. Conditions in steel appear to be improving in North America and as long as the steel industry continues to strengthen we should continue to improve our sales on operating margin. Neil.

Thanks Howard. Our sales increase of 9% in the first quarter, which would have been 11% except for the effects of currency adjustments in considerable product lines. The operating margin in 1Q02 in the Specialty mineral segment was 12.2%, an increase from last year's 11.5%. The Martin Marietta and Rijnstaal purchases continue to generate double-digit growth in refractory sales. PCC for paper grew in nearly every region of the world in that quarter with our additions of 10 units of manufacturing capacity allowed us to offset the plant shut downs and slow downs that we have described in previous quarters. The modest growth in process mineral sales reflects the underlying state of our end markets. Although our Specialty PCC sales were essentially flat, we are particularly encouraged by improvements in sales volumes at Brookhaven, Mississippi. Our gross margin increased by $2 million for the quarter, but declined in percentage terms.

The one-point decline is principally due to the fact that our refractory sales still include a significant volume of low-margin products from those recent acquisitions. Gross margins in PCC were essentially flat in percentage terms, despite our taking an impairment charge related to idle satellite facilities. Marketing and administrative expenses for the quarter increased only 2% on our 9% sales increase. We have added marketing staff with our acquisitions and we have increased our bad debt provision where we have largely offset those costs through the benefits of last year's restructuring. Research and development spending declined slightly for 2001 again a result of the restructuring. In total, income from operations increased 10% from the first quarter of 2001, a slight increase as a percent of sales. While we recognize that we have for improvement at the gross margin line. We are pleased with our success at maintaining operating income at this level in the current economic climate. Non-operating deductions were essentially flat for the quarter. So income before-tax has increased 11% on the sales increase of 9%. Our effective tax rate for the quarter was 28.9%, lower than our rate for the first quarter of 2001, but very close to our full year 2001 rate. As a result of the lower rate, income taxes for the quarter increased only 3% from last year's first quarter. So to summarize the quarter, sales increased 9%, generating a 5% increase in gross margin dollars. By keeping total expenses flat, we generated a 10% increase in operating income, which totaled 12% of sales. Our lower tax rate and reduced minority interest lead to a 16% increase in net income. Diluted Earnings Per Share increased by 14% to $0.66 per share compared to last year's $0.58 per share. As many of you are aware, the number of diluted shares outstanding has increased through the end of 2001, due to the exercise of a large number of options, many of which will duly expire in January 2003. I think it is important to note that most of the options that are recently been exercised had been held by our employees for nearly 10 years. Naturally, we expected them to be exercised prior to the expiration and it is not surprising given the recent strength in our stock price that so many people have taken advantage of that opportunity. Our results for the quarter exceeded the latest Wall Street consensus of $0.65 by $0.01 per share.

Now, I will discuss operating margins by product line. The operating margin in the first quarter 2002 in our Specialty mineral segment is 12.2%, an increase from last year's 11.5%. Improvements in PCC for paper and in Specialty PCC more than offset a small decline in process minerals. Margins in the Refractories segment declined 1.5% points in the first quarter. Largely, with reckoning the product mix generated by our recent acquisitions and increases in our bad debt provisions. MTI's overall operating margins were virtually flat at 12% from last year's 11.9%. Our balance sheet remains very strong. Two more of our steel customers declared bankruptcy this quarter. Yet once again, it was not necessary for us to provide any unusual quarterly provision. Our balance sheet continues to include adequate reserves to handle even significant future problem that our customers may have. Our debt to total capital ratio declined to 21% from 24% at the end of 2001. Cash flow from operations for the quarter was augmented by proceeds from option exercises allowing us to invest $9 million in capital expenditures and $10 million for the acquisition from all and also repay approximately $12m in short-term debt. Our working capital increased during the quarter in line with our business growth and our historical trends in receivables and inventories. Depreciation and amortization totaled approximately $17 million. For the full year 2002, we expect capital expenditures and depreciation and amortization each to approximate $70m. Paul.

Thank you Ken, Howard, and Neil. As you can see, MTI continues to achieve growth in an economic environment that has adversely impacted the number of our customers in unused markets. Our strategy to service these cyclical markets with value-added products, technologies, and services that deliver significant economic benefits to our customers continues to be effective. We remain cautiously optimistic with regard to the rest of the year and borrowing in unexpected decline in the economy, we should be able to show continued improvement in our performance. We believe that earnings in the range of $2.90 to $3 per diluted share for 2002 remains reasonable.

Operator, we are now ready for the first question.

Today's question and answer session will be conducted electronically. At this time, if you would like to ask a question please press the star key followed by the digit one on your touchtone telephone. Once again, if you would like to ask a question at this time please press star one. We will pause for just a moment to give everyone a chance to signal.

We will take our first question from Allan Cohen with First Analysis.

Yes, one. Ken congratulations. In your company, it looks like it does not service market. A couple of sort of specific questions, is it, in looking at the outlook for the North American paper market, is it reasonable to speculate that the bulk if not all of the capacity shutdowns are now behind us?

Well I will. Thank you for your congrats. We think we are doing a terrific job here in a very difficult economic environment. I will just answer quickly and then I will ask Ken to comment, What I think is as you look at the North American market, there may be some additional consolidations in mergers as we go forward. As you hear rumors, obviously in the marketplace but I would say that the bulk of the consolidations and shutdowns of say inefficient mills or inefficient machines within specific mill complexes has been accomplished at this time. But I would ask Ken to pass as he is sort of focused on that.

Well, I will. In essence Paul, I will just really reiterate what you just said and yes, we do feel that the bulk of the shutdowns have occurred, there maybe you know somewhat based on some movements that we do there in the marketplace but in essence I think most of them are now in .

And then, doing them outright as, if you exclude the impaired asset write-down, one would add $0.02 to your earnings?

It would certainly improve the earnings and then it would be in the $0.015 to $0.02 range.

If SFAS 142 had not gone into effect, you gave the number for the last year but if it had not gone into effect this year, is that a similar number for this year or a little larger?

I think the effect of, this is Paul, SFAS, yeah, and we made a $114,000 that is less than a penny a share.

And that is what it was last year if it had not gone into effect this year, would it have been a little larger?

No. It would have been added about a half a million dollar in the third and fourth quarters since most of the acquisitions occurred, Martin Marietta occurred in the second quarter. So it ramped up. In third and fourth quarter our amortization and goodwill were in the half a million dollar per quarter.

Okay, that is what we thought $0.5 million a quarter or $200,000 a quarter?

$0.5 million in Q3 and Q4.

Thank you and that is it. I will let other people ask questions now. Thank you.

Okay Allan. Thank you.

We will take our next question from John Roberts with Buckingham Research

Thank you. Do you still have at least one if not two idle PCC units from over a year ago? What are your efforts currently to get those units relocated to other customers?

John, as you did question, the answer is yes, we do have some idle PCC facilities at this time. The largest one that we have is the one with IP at Mobil Alabama. And as you know that closed down at the end of 2000 in terms of timing. We are looking to utilize those assets in other locations. In fact, some of that equipment has been relocated to other PCC facilities. It has in fact, it has been use this time. But we have not taken an entire plant at this time. That is okay. We are in discussions just, we are in discussions with other parties to move those assets where they can be effectively utilized to produce PCC.

Secondly, a kind of related. Is that $70 million capital spending budget lower than earlier guidance? Can you state down near that level without constraining your growth?

I will ask Neil to address that. I don't think that we are constraining our growth in any fashion, John. Let me ask Neil to address that for you.

I think that is in the low part of the range. We were in the $75-90 million range in previous discussion to this. But certainly we do not think that the spending of $70 million range will constrain our growth at all.

Did the expenses become material as the size of the trial starts to expand here?

No they do not. They are in fact have been fairly consistent as we look at 2001. Going into 2002, the trials will obviously be a greater, I want to use the term, burden for this company. But in fact the customer does pay for the material as it is being used in the trial application.

And then lastly, you may have given this but I missed it. But what was the refractory sales change excluding acquisitions?

That was a number that we have not looked at, we did not abide that.

It is almost impossible to say because Martin Marietta has been so into normal business now.

As per the previous statistics, it was about $12 million a year ago, before you acquired it, a quarterly revenue rate?

I mean, yeah, most of the growth is just the growth is coming from the acquisitions anyway. Martin Marietta is now just part of the regular Minteq business and we don't separate it at all anymore

We have got next, Jeffery Zekauskas with JP Morgan. Mr. Zekauskas, your line is open. Please go ahead sir.

A few questions. The first is when you look at now as opposed to looking at it three months ago, what is it that you have learned about it?

Well Jeff. That is a good question. And I think what we have learned about it is that as we have run two trials now and the trials continue to run, so they are ongoing trials with two trials, as I indicated in my comments, we have verified now on a commercial scale. A commercial scale that when we use in a large continuous melting furnace that the batch materials, the materials, the ingredients in that melt more quickly. We have confirmed that. We have also confirmed that they were able to reduce both the furnace temperature and the actual molten glass temperature. So both our parameters have been reduced in temperature. And we also have verified that there is a reduction in the exhaust gas emissions. So those are three measurements that we have been able to verify. We still need to fully quantify those reductions for example in both the time for the ingredients to melt and the reductions and the implications of the difference in temperatures, for example, in exhaust gas emissions. For the people, the companies that are running the trials are, I can tell you, very very pleased with the results.

I don't know Paul. I mean it strikes to me that you would know all of those factors even without running a test.

No no no. Jeff, Jeff just be careful now. What we said, we in small trials and in laboratory work, and we have verified all of these benefits. I have indicated that the potential customers have verified all of these benefits at the laboratory and the pilot glass production basis but they have not verified these benefits in a long-term large-scale glass furnace. That is going to be operating for one or two months on this material. This is what has been verified at this time. They have no display, observed all of these benefits. They agree that they see these benefits, but to quantify those benefits and say, `Here is the economic value in my glass furnace` is where you need to run this long trial. And this is why the trials are, in fact, verifying these benefits and why not only us but also the customers were encouraged with what they are seeing.

Let me try one more time. Is there an agreement between Minerals Tech and companies you are working with as to how you might measure the economic value and are you capturing any meaningful economic value?

And the answer is yes. before we do the trial, the potential customer has to agree to share this data with us. So the data is, in fact, being shared with us so that both we MTI and the customer can evaluate the benefits that have been provided by and from quantifying those benefits then determine the economic value that provides to the customer.

Well, are you still on track to have some sort of clarification by July as to the viability of the economics of this?

We will have the initial quantification by that time, but as we continue to run trials and look at other glass segments that we need to also look at . We will be running the and other segments of the glass industry and those trials are in the process of being established. In other words, we are running as I indicated in Specialty and in fiberglass. We are looking at trials and glass, container glass, other large segments of the glass industry and those trials, in fact, are being discussed with potential people that we run those trials with. So that is why I said, although we haven't fully quantified the results of these first two trials that continue to run as we speak today, the outlook from both the customer where we are running the trials and the data that we see is why I say is most encouraging in terms of how we look at that data.

Is the data better than you thought or worse or the same?

I don't want to start quantifying the data at this time but I would say that we are very encouraged.

I will get back in the queue. Thank you.

Okay, thank you Jeff.

We have got next, Rosemarie Morbelli with Ingalls & Snyder.

Good morning all, congratulations. And I apologize in advance if there are any . To follow up on Jeff's last question regarding , do you have a feel for how much in revenue you could be generating if those trials are positive in 2003? I mean if you don't want to quantify it, are we going to see some revenues in 2003?

I would expect to see, I don't want to quantify anything but the answer is yes. I would expect to see revenues in 2003.

And as part of the agreement with customers, are you going to sell, oh maybe you have not determined that, that are you thinking of selling the products on a per pound basis or are you going to share into the benefits with the customers? 50-50, 20-80, whatever the magic number maybe?

Right, those concepts have been discussed. I would just leave it at that point as we look at this. By the way, the material would be sold on a per ton basis, just say you are aware it is, in terms of value for ton of material used as per general measure that is used in the glass industry. We would be looking at how to capture that economic value and how we would share that economic value with the customers. Your comments are on track there, Rosemarie.

Okay and I guess you will try to go which ever way is the most profitable for you, right?

That would certainly be our intention.

Any product at the moment, is the glass industry looking at it positively or do they just don't want to talk about it even though you mentioned it?

No, they see in fact, one of the comments that has been made and I will share with you. One of the comments from the trial and potential trial customers is that the improvements that had been observed or had been brought to the glass manufacturer's attention have really been improvements in either furnace design, oxygen enhancement of the burning characteristics for example. The comments that have been made to us is that we are the first person bringing something new to them that actually impacts the actual melting of the ingredients in the furnace itself. So we are being looked at by the glass industry as a company that is bringing something that is truly innovative for that industry. As opposed to say, we can modify the furnace design, we can modify the design, we can supplement it with oxygen. We can do other things. We are saying no. We have something that is actually going to enhance the melt characteristics of the patch ingredients themselves. And that has been recognized by the glass industry as being something that is truly innovative by this company.

Good. On the CAPEX sir, you are at $70 million down from, I mean the range of $75-90. What have you eliminated from your original CAPEX?

No, we haven't eliminated anything, Rosemarie, if you look at that, what really as you look at the capital expenditures here for the company is that as we look at the paper industry and the construction of entirely new satellite PCC facilities, I think as we all recognize that the turmoil in the industry since the end of 2000, has really delayed some of the decisions by the paper customers themselves in terms of moving forward with the satellite PCC plant. We just finished, as you know, the construction of the one at Millinocket and the construction of the satellite plant at Alizay, France which came on screen a couple of months ago. And really the number that we have mentioned to you, the $70 million in capital versus a 80 or 90 just reflects the fact that because of the turmoil in the paper industry, the consolidations, slowdowns, the dislocation of employees those that were, in fact, restructured out, has really slowed down the commitments for some new satellite plants and we will be reflecting them in our capital expenditures. We expect that to pick up. Ken and his team are working on a number of opportunities for new satellites and as they come into full vision then we will see the capital expenditures increase as we continue to move forward.

And the additional 10 units, Paul in 2001, was that from the combination of the new satellites and the expansion of units?

That is correct, Rosemarie. It was five units of new satellite capacity and five units of expansion. And as Ken indicated that was the reason for the improvement in volume as we look at 2002 vs. 2001. It is the utilization of those 10 units of additional capacity.

Thank you very much.

We will go next to Steve with .

In the discussion, I guess, I heard about a few operating segments that are losing money. I want to understand what they are and why that's happening? You mentioned I think Latin American refractories. Did you also say that was the case in Mississippi Specialty PCC plant? Is that still under rate as well?

Yeah, Steve as you will get that review that we know we have to improve the performance as Howard mentioned in his review of refractory business. The one area that is not performing up to expectations is North America. And very pleased with the direction that Howard is moving to correct that situation. In the Brookhaven area, we still know that we have not had a volume level that we need to get through to make that plant a contributor to the probability of Minerals Technologies. We are very pleased with the improvements that has been made in the first quarter 2002 versus last year. The volume there has improved very nicely. The ramp up of the Toughguard and the that we are producing there and the financial performance of that plant is improving and that was part of the improvement that we mentioned for Specialty PCC in total, but it is not contributing at the level that we desired it to contribute.

In terms of that operation, did you have to change the pricing of the product versus your expectations when you first built the site?

No. The pricing of that product is still very similar to what we originally had anticipated. What we have done obviously is, moved into some other market segments where we were able to, I guess, more quickly demonstrate the value of Toughguard. But there has really been no significant change in the selling price of product.

And in terms of that Latin American operation, has that been enhanced? In terms of the losses increased by the Martin Marietta operation or do they not have an impact on that?

No. Not really. I mean, in fact the loss was down than last year. But it's a very small part of our sales. We've got some ideas on how to improve that and we are working on that right now, but it's not significant in the overall business.

And the last question, just you talked about the situation in Japan. I know it's an important refractory market for you. What's the situation from your ability to respond to that because they obviously have a secular issue there?

Yeah, we need to make some organizational changes. That's what I have done right now because I think we do have some opportunities in Japan, but we are just not taking. We've been under pressure like all other suppliers, but the steel industry to reduce prices. Rather than submit to that we have tended to walk away from some business. But we believe there are opportunities to sell value into the steel industry in Japan and we are aiming to do that.

Is that about half of your Asian business, Japan?

It's more than half.

Okay.

One last question. You talked about the ability to use the Mississippi line to enter the linerboard market. Can you just talk about the size of that segment? That is the one that you haven't spoken much about.

It's really the opportunity as with Mississippi line facility is really for the ability to produce more coating grade product, OPACARB A40 and there are really two segments then that we are really targeting. One of course is the like we said, like the pre-sheet area. Then as you have just mentioned paperboard, there are segments of paperboard business that do use coatings. So therefore, in that particular market segment, for example like the linerboard. That's where we will be looking to position our OPACARB A40.

But is that market a quarter of the size of the paper market or is that a very large market? Can you just give us a sense for?

It would be a little bit smaller than that. I will just put it in relative terms, Steve. In terms, for example, if that application would not support a satellite PCC facility. In other words, you will be talking in the range, I am going to make that number, 10,000 per year, 15,000 tons per year for that application. So that application would not support a satellite plant of itself. So we are looking more to supply that. As Ken has done here with a strategy with Mississippi is to have a facility to produce the OPACARB A40 coating thing and then we would sell that as a merchant sale to the people who would use it in that application. Of course the quantity used would not support say a satellite plant by itself.

Okay. One last question. On the testing, is anyone talking about extending the lengths of the trial or is everybody on the schedule that you originally outline, in terms of how long they were going to run this in-house?

Well, but one customer has indicated that they would like it to continue running it. So they would like to continue running that trial for an additional period.

Okay, so they have extended the trial period?

From that perspective, yes.

And that's one of the two trials you have got?

Yes. They are seeing some very good benefits and they want to continue to work with it. So we obviously have told them that we will be very happy to support that.

Great, thank you guys.

Thank you, Steve.

We will take our next question from .

Good morning, and congratulations on a good quarter.

Thank you Mike.

What is going on with Toughguard?

Well, Toughguard is, as were speaking a few minutes ago, Mike, as we look at the improvement that we see at Brookhaven, the primary reason for that Brookhaven is the sale of the Toughguard PCC for the polymer PVC applications. So, the ramp up that we are seeing in the volume, that Ken mentioned in some of his comments, and the indication as we spoke a few minutes ago, the improvement in the financial performance of Brookhaven, it is not just words

as I need to be very clear at that, but the improvements that we are seeing there is, in fact, due to the additional sales of Toughguard that we are generating at that facility.

Is that a function of working out some of the processing issues or is it due to just the fact that PVC demands seems to be picking up a little bit?

No, I think it is more of the former. In another words, we worked with the customers in terms of the processing issues what they have. Some of the handling issues that they had with the product. We worked that through with the customers and then now ordering that along routine, routine quantities and in some cases we are shipping that to some of the customers now.

Most of which going into the market share we originally talked about going into both the PVC siding then also into some of the new PVC fencing and decking, like you see.

Okay and secondarily you mentioned before that you made some changes to the processing of up . What impact did that have on the manufacturing costs or production, was is material?

The processing changes that we made were not material in terms of the cost of producing . It was really material in the terms about our ability to consistently produce a high quality product. So the two of them playing together, the ability to be able to routinely produce so that was the first step that we had to do and then the second step was to ensure the consistency of the quality of the that we were producing and that was the turnaround that we achieved during the fourth quarter of 2001.

Okay, I think you have mentioned your CAPEX number already, the total CAPEX number but can you give us some sense of, this would have, I guess indicate the level of comfort that you have with ramp up of the product. Approximately, how much you would expect to spend, you know, either product development or you know capital expenditures for the product over

the next year or two?

Oh I prefer not to get into that type of a discussions, Mike. Obviously where we still continue to fund our product development efforts, just being one of those product development efforts. And we think certainly we have the financial strength to continue move those programs forward.

And lastly, you had mentioned that your net debt to total capital has come down somewhat. What level are you comfortable with, I have noted it very low, you have a very conservative financial management? But having said that I think you have indicated that if interesting opportunities came up in the future you might be willing to look at doing some further small acquisitions.

Well, we constantly look for opportunities both to invest for the growth within our own businesses that we seek today or into the opportunity of, that is fortunately enough to develop into a major business for this company. We are willing to make acquisitions as we demonstrated on the Minteq side with the Ferrotron and then Martin Marietta and then Rijnstaal. We are looking at various acquisition opportunities that are brought to our attention and if we see something that is appropriate we will obviously make those acquisitions, but we will do it on a basis that it adds value to the company.

But in terms trying to figure out how much room that you have, how many you can make or what the sizes can they assert, a limit that you would feel comfortable with in terms of your net debt to total capital?

I have indicated these four, Mike, that as I look at that ratio right now as Neil indicated, it is down in the low 20s, that easily, I wouldn't be comfortable as we look at the capital requirements of this company and the opportunity for acquisitions will fairly number this up substantially. It must double that. I would still be comfortable on a high side and I think that leaves us plenty of room to have the financial flexibility to grow this company and make new acquisitions.

Great, thank you very much.

As a reminder if you would like to ask a question, please press star one. Our next question will be a followup from Jeffery Zekauskas with J.P. Morgan.

Couple of things, not to beat since I was once in the ground. Is there a scheduled end and the trials that you are adding in the , when are they supposed to close?

The one trial has a scheduled end, which is still quite a few weeks in the future. And the other one is continuing. The customer has indicated that they would like to continue that trial. So we are continuing to support them with material as they have requested. But trials normally have a finite link, Jeff, whether that is 45 days, 60 days, 75 days, something like that. But they normally have a finite link, the one in fact has been extended.

Do you expect that one that has the scheduled conclusion to close before June 1?

It may, but again we will run that trial in conjunction with the customer and basically if he would ask us to stop we would, if he asked us to continue we would also.

Okay, I was listening to Neil's comments and I think what he said was that the margin in the minerals business, that is the non-PCC business sell for the quarter and if I remember correctly, your brown calcium carbonate operations in California had very high-energy costs and all that. now it would have expected the profits in that business to pick up and what happened?

I am going to let Neil answer that question, because he was getting information as you were speaking. Neil has all that information in front. Jeff, I will let Neil addressed that but yes we did have a slight decline in the operating income of the, what we would call our process minerals business but let me ask Neil to address that.

Jeff, just let me know whether it is clear. That decline it is okay at the, at the production margin level, again, the expense control that we maintain throughout the company has been very effective and it has been effect into that division as well. The real issue that arose in the performance and the process minerals business in the first quarter, where we had an unusual number of repairs and maintenance expenditures that we incurred in the first quarter. These are the things that we expected to do during the course of the year but we didn't necessarily expect to do so much of it in the first quarter. So it is the money we will have to spend again, but it has clearly affected the gross margins and therefore the operating margins in that business in the first quarter.

How much did you spend?

Oh we don't need those kind of details. Those are a couple of percentage points deterioration in the gross margin in that business in the quarter and we would expect a return, we want to close those gross margin numbers segment by segment. We would expect that to get back up to the kind of levels that we have had in the past year in line with the budgeting as the year goes along. Those were clearly timing questions as opposed to fundamental problems in the gross margins.

I guess just the two last questions. What were same-store sales growth or same-store sales contraction in PCC? And I again there is another way of answering, of asking John Roberts this question? What were the pro forma felt a year ago in refractories for the acquired businesses?

There are clearly two ways to address that, Jeff as you look at it. One of that is I think that we need to get credit for the progress that we have made in the satellite PCC area because if we compare to the first quarter of last year, we have had a significant, I won't say significant, we have had several locations more in fact, they have ceased operations. That was Anderson for example in California, they are in a bankruptcy proceeding right now, that mill was shut down and it was all done in the first quarter of last year. Obviously, we know the facility at IC will be going down mid-year and that is on a significant decreased use in PCC. So though we have had a very significant decrease in several locations we in fact have still accommodated a 5% increase in total volume. Even though we had a number of satellites that are now shut down than in fact to operating in the first quarter of last year. So I think when we look at that I think it indicates that the basic strength of the business that we have and the strategies that can describe to continue to grow this business in spite of the fact that we have had some significant reductions in sales from the first quarter of 2001. I think that indicates a very good strength for the business and the effectiveness of the strategies that we have going forward.

I believe all that, I was just wondering what the numbers are?

Well, we indicated that for the prior year we have a 5% increase and with the same-store basis it is less than that because it is about probably half that on a same-store basis. But on a same-store basis we are also taking out the satellite shuttle shut down.

What about the refractory pro forma from a year ago?

It is really very difficult to say because of the way we have built our businesses. But I would say that all of the growth in our wire businesses is probably due to the acquisition, but there again we substituted some of the Rijnstaal sale for Minteq sale and on the Martin Marietta side, I would face, probably about the same. So you could say that all of our sales growth has come from the acquisitions. However, there are some ups and downs in that because we have lost business because of the closed accounts. One significant one was LCB Steel, which is due to start off again in another form. So that is going to bring us business back in the basic oxygen furnace area. And, as I said, we have been substituting Martin Marietta business for Minteq business and vice versa. So it becomes very difficult to say. In the area where I think we are going to have the most organic growth, which is into molten metal handling, we had very significant increases in sales this year. So it is a balance up and down.

Okay, I give.

We have got next, .

Hi Hello. I will be on your side Jeff.

I think you sounded a little bit more optimistic about the opportunities in the groundwood segment and the titanium dioxide? Could you just talk about that a little bit more please?

I did not hear clearly the question. Could you please repeat that please?

You sounded a little bit more optimistic about your opportunities in the groundwood segment as well as the replacement for titanium dioxide in that application? Could you talk a little bit more about that please?

Okay, yes got it. I think this relates back to what Ken Massimine has indicated that we have in fact had some very nice successes in the groundwood area both in filling and in some cases in the coating area where we were able to use the PCC to replace PIO2 in those applications and that is one of the things that we are seeing as an opportunity continuing to expand our business and as Ken indicated we are expanding a number of satellites to accommodate the additional requirements for PCC in that application. But I would ask Ken to pick up on that and to compile a little more detail. Ken.

Yeah, well. Paul just kind of what you said. In the groundwood segment strategy, it really does continue to gain the momentum especially in the groundwood areas and in the first quarter, we were very successful in converting over with the customer and, matter of fact, based on the success of those trials and really quick conversion the same customer has asked us to move very quickly to another location where they feel that they have been able to see the value and we would like to take advantage of it in another location that they have. In addition to that also we have some opportunities where business is expanding, people are using more and several other satellites that we have expanded and will continue to expand in order to take advantage of the opportunities as they arise. But right now the groundwood strategy I think this will be followed right on track in terms of putting much rather than we hope to be at this point.

Okay and I have a followup question for Neil please. Neil, the return on investment capital has been improving over the last few quarters. Could you talk about your targets and where you think that might be going out in two to three years? Thank you.

Sure. For the next two to three years, we will hope to improve our return on investment capital by two to three or four percentage points. And we have seen improvement and I clarified that people have noticed that we are pleased with that progress but we think we have another two to three percentage points of improvement that we can realize.

Thank you, good luck.

Thank you.

That concludes today's question and answer session. At this time, I would like to turn the conference back over to Mr. Saueracker, for any additional or closing comments.

Thank you very much and we appreciate your interest in Minerals Technologies. We think we have a very fine first quarter of 2002 and barring any proceeding the climb in the economy we think we should show continued improvement throughout the year as we go through the next several quarters. We think that $2.90 to $3 per share is reasonable for this full year. Again, thank you for your continued interest in Minerals Technologies and I look forward to again speaking with you again in July. Thank you.

That concludes today's conference call. We thank you for your participation. You may now disconnect.