Minerals Technologies Inc (MTX) 2002 Q4 法說會逐字稿

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

Thank you. Good morning and welcome to the fourth quarter and full year 2002, Minerals Technologies' Analyst's conference call. In 2002 MTI achieved net sales of $753m, 10% or $69m above 2001 levels. MTI's net income of $53.8m was 8% above prior year, despite the challenges presented by bankruptcies, industry consolidations and flat domestic volumes in our primary customer industries, paper and steel. Net income was $2.61 per diluted shares, up 5% from the $2.48 reported in 2001.

For the fourth quarter, MTI reported net sales of $195m, up 11% versus toe prior year fourth quarter. It should be noted that this sales growth came from all business areas. PCC was up 9%, Process Minerals up 29%, and Refractories up 9%. However, net income of $12m was down 16% versus the fourth quarter of 2001. The major factors which contributed to the decline, were an additional $3m provision for bad debt reserves associated with the Great Northern Paper bankruptcy filing on January 10. And the fact that the Refractories segment stayed at the same 7.8% operating income to sales ratio recorded in the third quarter. MINTEQ was unable to achieve the [two pin] improvement in operating income we had anticipated in our last conference call.

Following my introduction, Ken Massimine, Senior Vice President for Paper PCC, will provide more details on the progress we have made in the PCC Product area. Alain Bouruet, our new Senior Vice President in charge of MINTEQ, will report on the Refractories segment of our business. And John Sorel, our Senior Vice President Finance and Chief Financial Officer, will provide a brief financial summary. Following John's presentation, I will conclude with a few remarks and open the floor to questions.

First, I would like to take this opportunity to introduce Alain, who joined our company this past November. Alain, who succeeds Howard Crabtree, who served as Interim Head of MINTEQ, brings to us extensive experience and operations management in the implementation of global strategic programs, which we see as the critical next step for MINTEQ.

Before proceeding further, I need to remind you that on page six of our 2001 10-Q, we list the various factors that may affect future results. Any forward-looking statements by me or other members of management, are subject to these cautionary conditions.

MT's operating margins for the full year 2002, were dramatically affected by events of the fourth quarter. For the year, MTI reported income from operations of $80.9m, which was equivalent to 10.7% of net sales, down 1.6 [pins], from the previous year. The operating margin for Specialty Minerals in 2002, declined from 11.8% in the prior year, to 9%. However, without the bankruptcy related increased provision for bad debt reserves, the operating margin for Specialty Minerals would have increased to 11.2% for the fourth quarter, and to 12.1% for the year.

The PCC operating income, without the bad debt reserve, and the accelerated depreciation we are now taking on certain assets associated with International Paper, would have increased by 11% rather than the actual 2% increase for the year. For the full year, the Refractory segment recorded an operating margin of $20.9m, equivalent to 9% of sales, and down 18% from prior year. The fourth quarter operating margin of $4.6m, was 39% below the prior year level.

The programs to turn around MINTEQ's performance will be discussed in detail by Alain. What I would like to say at this point, is that we believe that our strategy for MINTEQ will be successful in returning the business to the levels of profitability that were characteristic, prior to the US steel industry meltdown beginning in late 2000. That strategy is based upon the increased use of refractory application systems to expand the market for MINTEQ products, to focus on expanding MINTEQ's position and high growth international steel markets, and improved operational efficiencies.

For MTI, control of expenses continues to be an important element in achieving our income objective. For the full year 2002, expenses decreased to 13.7% of net sales, from 14.3% of net sales in 2001.

While I will not dwell on the details affecting PCC and Refractories, which will be reviewed by Ken and Alain, I would like to point out some highlights.

For the year 2002, sales of Paper PCC, MTI's largest product line, were up 7%, despite the shutdown of over 5m tons of North American paper capacity over the past two years, and a 1.6% decline in the 11-month year-to-date consumption of uncoated free sheet, the primary market for our filler grade PCC.

The volume of Paper PCC sales was up 8%, over 3.4m tons, as efficient mills utilizing PCC outperformed the market as a whole. Growth came from stronger buy-ins at existing satellite plants, and a contribution from the ramp up and start up of new facilities. Particularly noteworthy is the increased use of PCC for ground-wood paper.

We continue to supply all of IP's operating locations, where satellite PCC plants have been installed. Although discussion between our two companies continue at high levels, as of yet there has been no final resolution of our difference. As I said in an earlier conference, I continue to believe that MTI offers the best value proposition available to the paper industry, and I am hopeful that in the future IP will recognize this.

One of the problems in consolidating industries, are the changes in management mandated by consolidation, and a tendency to defer major decisions until the consolidation is complete. This has affected us in both steel and paper, where decisions on the installation of new refractory systems, and commitments for new satellite plants, tended to be deferred. Despite this, MTI was able to add four new units of satellite capacity in 2002.

Briefly, with regard to the Refractories segment, fourth quarter sales of $58.8m were up $4.9m, or 9% compared to the fourth quarter of last year. Unfortunately, despite the sales increase in the fourth quarter, operating margin of the Refractories segment decreased by $2.9m or 39%. This was primarily due to a sharp slowdown in European steel production in December, which reduced the sales of a number of high profit margin products in this region, and delayed the installation of new refractory systems that carry enhanced profitability.

In North America, while sales were up, we continue to be adversely affected by manufacturing and distribution cost issues, continuing plant variances, and higher cost of sales at a number of the electric furnace accounts obtained through the Martin Marietta acquisition.

Our Specialty PCC sales increased 7% in the fourth quarter, primarily as a result of increased buy-ins at our Brookhaven (ph) plant, particularly for the plastics and [sealants] applications. In addition, there appears to be stabilization in the buying of [USP] and food grade PCC, as calcium fortification of soya-milk products continues to grow.

Process Minerals benefited from the acquisition of Polar Minerals, which was the primary factor behind the 11% increase in 2002 sales for Process Minerals. Operating margins for Process Minerals, excluding Sincil (ph) development costs, were up 12%.

We continue to invest in the Sincil (ph) opportunity. Modifications of facility, complete in September, allowed us to produce over 5,000 tons of product, that was used to conduct large-scale trials in both flat glass and fiberglass. Based on the results of these trials, we are now engaged in the critical step of product optimization to meet individual customer needs. Design in both large-scale Sincil (ph) facilities and satellite Sincil (ph) facilities, to be constructed adjacent to glass plants, have been completed. Large volume tests will continue through the first and second quarters, as we vigorously pursue opportunities in [indiscernible] glass, raw fiberglass, e-type fiberglass and container glass.

I will now have Ken 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 current market conditions, followed by highlights of our business results for the fourth quarter and full year 2002, and some expectations for the coming year.

Shipments of US printing and writing papers in 2002 showed virtually no change from the totals of the previous year. US producers shipped about 21.1m shore tons of paper, which was the lowest since 1993, aside from the previous year in 2001. Still, there was evidence of tonnage improvements in selected grades, notably coated papers. Shipments of coated free sheet paper has advanced about 11% in the fourth quarter of 2002, compared to the same period the year before. Coated ground-wood papers are also enjoying resurgence in demand. Both papers are responding to a pickup in advertising pages and catalogues mailed.

Demand for, and shipment of, uncoated free sheet, out most important market segment, softened somewhat in the fourth quarter in response to a sluggish economy. The general level of business activity affects these papers more than coated papers, since they are used primarily as copy, office and computer stock. US shipments of uncoated free sheet papers are expected to rise a modest 2% this year, in response to an improving economic climate.

Internationally, Western Europe and Asia are caught in the global economic malaise. Both regions depend greatly on North America as an outlet for exported goods, and appear to be waiting for the US economic recovery to begin. During the fourth quarter, demand for graphic papers in Western Europe showed some improvement, however, excess capacity has forced overall operating rates down to 85%.

In Asia, China has emerged as the engine of growth, rivaling Japan in total paper demand for the first time in 2002. Over the next five years, we anticipate growth in China's paper demand will average 5.5% per year. MTI already has an established PCC satellite in China. We expect this PCC satellite to be a springboard for future satellite installations in this country.

We are pleased with our sales growth during the fourth quarter and full year 2002, in spite of the third straight year of lackluster economic performance. MTI's total PCC sales for paper and non-paper applications in the fourth quarter, are up 9% over the prior year's fourth quarter, from approximately $100m to $109m. for the year, the total PCC sales likewise gained 7%, from $396m to $423m. Although the US dollar weakened during the fourth quarter, for the year 2002, foreign exchange had a minimal impact.

Total PCC operating income increased 2% in 2002, despite absorbing accelerated depreciation associated with International Paper, and increasing our bad debt reserve due to the Great Northern bankruptcy filing, as Paul recently outlined. Without these final adjustments, operating income would have increase 11%.

On a same store basis, sales tonnage of paper PCC from existing satellites, increase 9% in the fourth quarter, compared to a year-ago period. For the year as a whole, same store sales tonnage increase 5%. We achieved this increase in spite of sub-par global economy and continued printing and writing paper capacity reduction, which have now totaled over 5.5m tons in North America since 1999.

In addition to recent satellite expansions associated with coated and uncoated papers, the increase in our paper PCC sales can also be attributed in part to our successful implementation of strategic initiatives into ground-wood papers, by mill conversions and satellite expansions. To date, this represents about 40 machines that manufacture [FC] and other ground-wood papers, including newsprint and directory.

PCC is especially adapted at supplying the necessary [indiscernible] and printing properties necessary. As a consequence, we have expanded our PCC capacity to supply its increasing demand. Our goal this year is to leverage our successes in North America, as Europe papermakers in particular, are moving to higher brightness [FC] papers made from recycled fibers.

Our European region posted strong sales growth, due in part to a 4.3% increase in the production of Western European printing and writing papers, as well as from satellite expansions. In addition, we have successfully installed coating grade PCC capabilities at our Hermalle, Belgium merchant PCC plant, and fully expect our ongoing product sampling program to lead to a ramp up in sales throughout 2003.

We are also encouraged by continued serious interest expressed by manufacturers of white top linerboard*. At present, we serve six board mills. This particular type of board used a white liner in multi-color printed corrugated boxes. PCC imparts needed lightness and opacity to the liner, and reduces manufacturing costs, by allowing the substitution of bleached fiber, with less expensive natural or recycled fiber. Our existing network of PCC facilities potentially can serve the demands of the board mills, thus leveraging current capacity and reducing the possible need for additional capital investment.

We also intend to increase our penetration into the coated bleach board market. In addition to current filler PCC product offerings, we have recently introduced a new coating grade PCC through a supply agreement with Mississippi Liner.

Because of paper industry consolidations, capacity shutdown and mill closings, due to financial difficulties, two MTI PCC satellites, representing four units of PCC capacity, were closed during 2002. On the positive side in 2002, we added two units of PCC capacity to our Pacific Northwest satellite facilities. And, as reported earlier last year, MTI acquired an existing PCC satellite facility as Hermalle, Belgium, representing two units of capacity.

Moreover, the recently announced new PCC satellite in Malaysia, at [Saberforest Industries] (ph), our first in that country, will add one unit of capacity upon start up later this year.

We are fully confident of adding additional units of PCC capacity in 2003, as demand warrants. MTI is currently negotiating new PCC satellite opportunities, with several world class paper companies. The global potential for incorporating PCC into a large portion of paper, remains significant, as competition and cost pressures force papermakers to continually upgrade the quality of their products. We remain optimistic that our discussions with these companies will lead to new levels of business, and we are prepared. Proactive strategic objectives promoting the value of Paper PCC, are now in place.

We have implemented a series of major initiatives to strengthen our business model. In particular, we have continues to strengthen and align our resources, enhance our process technologies, and redirect personnel to bolster our sales and marketing thrust on a worldwide basis. Moreover, we are building and fortifying key customer relationships, and plant to accelerate new product introductions. When completely executed, we expect this approach will help generate not only increased worldwide sales this year, but also assure long-term growth momentum as well.

Now, let's briefly turn our attention to Specialty PCC for non-paper applications. We are pleased to report that our specialty PCC segment, registered a healthy sales increase of 7% during the fourth quarter of 2002, compared to the same period the year before. However, profitability was below our expectations. Going forward in 2003, we expect the Specialty PCC segment to continue its sales growth, based on our initiatives not only in plastic and healthcare markets, but also in sealant and adhesives as well. This will improve profitability.

In conclusion, our strategic initiatives in paper, paperboard and specialty markets are in place. MTI is proud of its market positions, leading edge products and strong array of customers. Based on these sound business fundamentals, we remain optimistic that significant ongoing projects will culminate in PCC business.

Now I will turn the microphone over to Alain, who will review MINTEQ's business performance.

Thank you, Ken. First, in order to prevent confusion when you hear me speak, I'm not Jeff Devalas (ph) I am Alain Bouruet-Aubertot, a new member of the MTI team. MINTEQ reported net sales in the fourth quarter, of $58.8m, up 9% versus prior year's fourth quarter. This increase was primarily driven by organic growth in the Refractories and Equipment segments.

This being my first appearance before you, I was hoping to be able to relate a story of immediate turnaround and progress. Unfortunately, our sales growth has not been accompanied by the rebounding operating income, that was anticipated in the last quarter. Fourth quarter operating income for MINTEQ, of $4.6m was equivalent to 7.8% of net sales, essentially unchanged from the third-quarter ratio. Fourth quarter operating income was 39% below the $7.5m earned in the fourth quarter of 2001.

When I looked at our 2002 operating statements, October and November both showed operating income in excess of 10%, consistent with the commitment to improve ratios by two percentage points above the 7.8% recorded in the third quarter. I thought my job would be easy. However, December turned out to be an extreme disappointment. Sales in Europe declined significantly in mid-December, as most major steel mills took extended holiday shutdowns, and downtime for repairs starting as early as December 15.

December sales in the United States declined from October and November levels, as steel prices deteriorated, and production slowed. The reticence on the part of the steel industry to invest in capital or long-term leases of equipment, as capital budgets and fund allocations for 2002 were exhausted, slowed the installation and stat up of MINTEQ refractory systems and equipment. Increased accrual of bad debt reserve, reflecting steel industry instability. Increase steel mill service expenses, particularly as systems trials were undertaken. Continued unfavorable manufacturing variances, product yield and quality issues, particularly at [River Rouge].

With regard to the steel industry, bankruptcies, management transitions and consolidations, have been the key words in the news related to the US steel industry. The Chapter 11's and the consolidations in 2002 in the United States generally slowed down MINTEQ's efforts to install new systems. Management restructuring and spending restrictions under chapter 11 reorganization have made new systems commitments difficult to come by, particularly at the end of the year when capital budgets are depleted.

While the general perception is that 2002 was a year of recovery, this needs to be taken in perspective. 2000 was a great year for steel. 2002 was a disaster. In the United States, steel production for 2002 was up 2.5% versus 2001, but was still 8% below 2000. In the European Union, steel production for 2002 was up 4.1% and was down 9% in December from the November rate. While Asian steel production was up 12%, it has been driven by the steel production in China, which was up an astounding 20%.

In summary, full year steel production was up very little in Europe and North America, but was up substantially in Asia and Latin America. High growth is expected to continue in these regions, which is why I am bolstering our development efforts on them.

For the fourth quarter, MINTEQ sales increased 9% overall, 10% in North America, 20% in Latin America, and 8% in Europe. There was a 1% decrease in our sales in Asia. In Japan the expiration of a long-term [indiscernible] contract adversely affected Refractory sales since July. The growth in Refractory sales was basically organic, and is reflective of both increased steel production at [Select] (ph), [indiscernible], that we started operations post bankruptcy.

The increased population of MINTEQ Systems in the field, which resulted in increased sales of Refractory products through these systems. Increasing the speed of new system [commensurisation] is a top priority. Metallurgical product sales were down internationally. The number of the products acquired from Rijnstaal carried very high cost of sales. Those Rijnstaal sales, which could not beat MINTEQ's profitability criteria, were dropped. That's why for the year, Metallurgical Product sales were up 32%, fourth quarter sales were down 10%, compared to the fourth quarter of 2001, when we first acquired Rijnstaal.

Ferrotron instrumentation sales were up 59% for the year, driven by both expanded demand for Ferratron's [indiscernible] system, and the [Visiontech] system that was added in February of 2002. These systems are the eyes of MINTEQ's fully automated maintenance systems, which measure refractory wear and automatically apply [monolithic] refractories in the right amount to the right areas, all without an operator.

Industrial products sales achieved gains resulting in overall sales growth of 11%. The fall in industrial products was a 40% fall off in outsales to the electronic sector, which caused the localized volume variance and a high unfavorable mix affect in this product line.

As I indicated in my introductory remarks, growth in sales was not our problem. MINTEQ's cost of sales continues to be affected by unfavorable production variances. At the same time, expenses were higher than prior year, due to increased development activity. While the program to include the operating performance of MINTEQ, outlined in the last conference call, appears sound, and significant progress was achieved in the course of the quarter, it had not yet fully taken hold.

Overall, for the quarter, we see a [indiscernible] variances due to quality problems and high maintenance spending, particularly at the River Rouge plant acquired from Martin Marietta. That notwithstanding, the operating income of the North American segment has improved so as to approach past operation ratios. In Asia, the management restructuring has been fully placed, but it has not yet reversed the decline in sales on income in the region. The timing and cost required to improve the profitability of acquired product lines, like Martin Marietta's electric furnace line, was greatly underestimated.

Compared to last year during the fourth quarter, we face continued elevated expenses associated with product line modification, process modifications, facilities repairs, and distribution system realignments.

One thing has become clear, with the new equipment components and the greatly increase number of customers in the electric furnace segment applied through Martin Marietta, the business has become far more complex. Looking forward, this more complex business requires an evolving management structure, capable of providing the necessarily coordination to fully integrate and optimize the developing and acquired operations.

Currently, we are implementing a profitability improvement program, including a revised system of information reporting, that will give us more timely information. Priorities to accelerate the interaction and servicing of new refractory systems have been established. Specific account strategies to turn around the profitability of problem accounts, have been implemented. A new program to improve manufacturing operations has also been put in place, that should continue to improve efficiency [indiscernible].

While the fourth quarter was a disappointment, I believe MINTEQ is on the right track to deliver both growth and sustain income improvement. For the full year MINTEQ sales of $233b were 16% above prior year, due partly to the full year contribution of the Martin Marietta and Rijnstaal acquisitions, and partly due to increase market penetration.

Operating income declined 19%, as problems of assimilation were discovered, and spending increased to address them. Excluding a weakening in steel demand, further bankruptcies, or other force measure type occurrences, which may occur in North America or Europe, my personal goal is to reach the previously articulated goal of increasing operating margin back to double-digits in 2003, as we continue to strengthen our management structure and make progress implementing our profitability improvement program.

John?

Thank you Alain. You've just heard the descriptions of the business environment, and the general operating conditions within the company during the fourth quarter. I shall now describe how that information is reflected in the company's consolidated results for the quarter, and in summary, for the full year.

Net sales for the fourth quarter were $194.7m, an increase of $20m or 11% compared to prior year fourth quarter. Foreign exchange had a favorable affect on sales of approximately one percentage point of growth in the quarter. As you have heard, most of our business segments recorded excellent sales growth in the quarter. A 12% growth in Specialty Mineral segment was driven by continued growth in all product lines, Paper PCC, Specialty PCC, and Process Minerals, with approximately four points of the Specialty Minerals growth generated by the Polar Minerals acquisition, completed late in the previous quarter. A 9% growth in Refractories segment was contributed by strong growth in all regions, except Asia.

While our overall sales results for the quarter were satisfactory, performance of the gross margin line was not. Gross margin decreased by $1m, or 2% despite the increase in sales. In the Specialty Minerals segment, gross margins did increase slightly, but overall growth was affected somewhat by development costs at the new Hermalle Paper PCC facility, increase costs to provide Sincil (ph) trial material, and weather related outages in one of our major Process Minerals facilities.

In addition, the previously announced increased depreciation expense for satellite PCC plants, located at international paper mills, further limited the segment's margin growth.

In Refractories, Alain described several issues that led to a significant gross margin deterioration in that segment. Extended outages in Europe, manufacturing yield problems in North America. On a more positive note, but nonetheless impacting gross margins, an increase in steel mill service activity and trial activity, particularly in new [indiscernible] and electric furnace accounts.

MTI's marketing and administrative expenses for the quarter increased only 6%, versus the 11% increase recorded in sales. The company's research and development expense for the quarter were even with last year, but represents a slight increase over the previous quarters of this year, due to increased trial activities in the Paper PCC business and Sincil product areas.

Bad debt expense increased approximately $3m over prior year's fourth quarter, primarily due to the before mentioned January bankruptcy filing of Great Northern Paper. As a result, MTI's income from operations declined 23% from the fourth quarter of 2002. The Specialty Minerals segment operating income decreased 14% overall. However, as Paul mentioned earlier, excluding the $3m reserve for bad debt, SMI would have generated an operating margin of 11.2%, and showed a growth of nearly 7%. Refractories segment generated an operating margin equivalent to 7.8% of sales, the same level as the third quarter, but decreased 39% from a particularly strong prior year fourth quarter.

Non-operating deductions declined by $0.5m for the quarter, due to reduced interest expense. Average borrowings were about 25% lower than last year's fourth quarter, and average borrowing rates were relatively flat on our outstanding debt. During the quarter the overall effective tax rate for the year was adjusted to 26.7%, 2.4 points below last year's 29.1%. The net reduction year-to-year was primarily the result of a change in the geographic mix of earnings and an increased depletion benefit from our mining operations.

To summarize the quarter, sales increased 11%, generating a 2% decrease in gross margin. Total expenses were 16%, leading to a decrease in operating income of 23%. A reduction in non-operating expense and lower tax rate, limited the reduction to net income to 16%. Diluted earnings per share decreased by 17% to 59 cents, compared to last years 71 cents per share. This shortfall was caused primarily by the increase in bad debt reserves, and the difficult business conditions in Refractories segment, as mentioned in our press release of January 15.

For the full year, MTI sales reached $753m, a $69m and 10% growth over prior year. The Specialty Minerals segment achieved the $0,5b mark for the first time in Mid-December. Total operating income was $80.9m, compared to $80.6m in the prior year, which included $3.4m restructuring charge. Net income for the full year increased 8% in 2002, to $53.8m, compared with $49.8m in the prior year. Diluted earnings per common share increased 5%, to £2.61, versus $2.48 reported in 2001.

As many of you know, the total outstanding shares increased this year, as a result of the exercise of options that were held by our employees for nearly 10 years, and were due to expire. This had about a three point impact on our earnings per share growth rate.

Our balance sheet remains very strong. Our debt to total capital ratio declined to 17% from 24% at the end of 2001, giving a substantial capacity to continue to support and invest in our growth strategy. Cash flow generated from operations for the year reached $120m, compared with approximately $100m last year. And we received an additional $30m from the stock option exercises. We invested $70m this year in acquisitions and capitalization, and we have repaid $40m of short-term debt. We also repurchased 433,000 shares from treasury, at an average price of $40 per share, with total expenditure of $17.3m. Depreciation and amortization expense totaled $69m for this year.

Now I will turn the mike back over to Paul for his closing remarks and the questions.

Thank you Ken, Alain and John. As you can see, MTI was able to deliver strong sales growth, despite modest operating rates, consolidations and bankruptcies affecting our two largest customer industries, paper and steel. The economic recoveries we are all waiting for seem soft and neutral. The consensus of forecast is for a modest recovery, although whispers of a double-dip or a 1-2 economic punch, keep rustling in the background. In particularly, we believe that PCC's penetration into the ground-wood segment of the paper market, will continue in 2003, and progress will be made in the coating segment, as [technical difficulty] development facility at Hermalle is accepted by the market.

We are confident that the new organization we have put in place in MINTEQ, will return that segment to double-digit earnings in early 2003. And we look forward to Sincil moving out of the development phase and into the commercial phase.

However, right now, we have number of issues facing us. The uncertainty in the economy, as well as in the industries we serve. The cumulative impact of FASB-143, accounting for asset retirement obligations, which we will quantify and record during the first quarter of 2003. Our continuing discussions with International Paper, and the resolution of the Great Northern Bankruptcy.

Because of these issues, and a variety of ways in which they may unfold, we are not at this time prepared to provide guidance on earnings per share for 2003. When we clarify these issues, we will supply the appropriate guidance. Operator, we are now ready for the first question.

The question and answer session will be conducted electronically. If you would like to ask a question please press the star key followed by the digit one on your touchtone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that's star one to ask a question. We will take our first question from Alan Cohen with First Analysis.

Yes, if I can I've got a question in each area. In the MINTEQ area for Alain, the prior operating margins were achieved with products that really were a value to, if you will, challenging customers. Have you clearly defined in the electronic furnace arena -which seems to be your replacement customer, if you will, for the integrated steel mills - do you currently have the products that, if your operations were running smoothly, that could provide the same kind of operating margins?

I would answer that we have a two-step approach. The first step, which has been delayed, and which has been the cause of all the problems over the last months and quarters, is the optimization of the product line and the production efficiencies. To streamline both product lines from the two companies. What we are doing at the same time, also, is to have the same market approach in terms of providing value to the application, by developing value added products. We are in the process of doing that as well. We don't have them right now.

But we can say that, for example, we have also a very good profitability with the products we have in the electric furnace. When we consider Europe, for example, we have a product line that has a 60% cost of sales for this particular segment. So we have also to revise where we are in the market. But definitely strategically we are working on a new product line that at some point will come to the market and also should improve the profitability. That's one of the rationales of the acquisition.

Okay, I appreciate that. For Ken, is it possible to provide any more color -- you talked about strengthening relationships with key customers. There's one key customer that was indeed mentioned at the end, International Paper. Is there anything that you can add to what's already been said?

Not at this time.

I was going to say, Alan, obviously as part of Ken's strategy, we are establishing, and have over the years established very good relationships with many of our major paper industry customers. We have joint development programs underway with a number of them. Obviously we continue our discussions with International Paper, but have not brought that to a resolution at this time.

and for Paul, looking forward with respect to Sincil, can you provide a little bit more color or amplification? Are you far enough along where you define the value for the customers, and have agreed on pricing? Does it look like this will give you cash on cash returns, and operating margins that are better or worse than PCC? If it takes off, do you have enough cash to support the capital expenditures of growth of both businesses, and whatever else you can share?

Certainly, Alan, I'd be very happy to. Obviously we have continued, as I indicated, we're very active in the fourth quarter because of the modifications and expansion we made to our sampling facility there in [indiscernible] Ohio. We are very pleased as we move that, and we are continuing with a very active trial program in the first quarter, continuing that, with commitments going into the second quarter. We're looking, as I indicated, to expanding this to essentially all segments of the glass industry at this time. Both types of fiberglass, both raw fiberglass and e-type fiberglass trials in faux glass, and certainly one of the biggest market segment anticipating trials in the container glass segment, which is the larges single segment of the glass industry.

So far the economics of the products that we're [trailing], and the economics that have been presented to the potential customers. Obviously what we're verifying with these extended trials provides as you would think a very attractive return to Minerals Technologies. We think it's an exciting opportunity, and that as we would invest, presuming that the trials are very successful when we move, as we are expecting to, to the [indiscernible] stage, that these investment - and we certain, as John indicated, have the financial resources to do it - will be very attractive investments for Minerals Technologies.

Thank you very much, and congratulations on surviving this year, and of being well positioned for next year.

Well thank you, Alan, it's been a challenging year to say the least, for a lot of people.

We'll go next to John Roberts with Buckingham Research. Mr. Roberts, your line is open.

Can you hear me now?

Yes we can, John. I can hear you.

I'm interested in the shift in the business that would have caused the tax rate to go lower. Typically that's a geographic shift, and it looks like at least the sales were up 11%-12%, both in the US and outside the US. So what was the mix shift, at least in terms of where your taxable earnings come from that would have caused that?

John, thank you for that question, I'll turn it over to John Sorel to answer that.

There are certain regions in Europe in particular where our average tax structure is better than in the US. So we started off the year with an estimated rate based on our expected earnings in each of the regions. As the year goes on we re-evaluate, re-weight the impact of the change of the actual earnings we have. We can often take advantage of some tax planning strategies to improve our overall ratio.

Europe was stronger than you had planned earlier, and it's unusual. Most companies have a high tax rate in Europe, so your European business, which is lower than your average rate, was stronger in the mix than you thought - is that what you're saying?

We have a particular tax treatment through a company in Ireland as well. And the other factor was, we had some increased benefits of percentage depletion from our mining operations.

Secondly, when IP closes plants like they have this past year, do the contracts get terminated from some [force-majeur] clause? It's not like a customer went bankrupt. When they choose just as part of rationalization to take them out, how do the contracts deal with that?

Okay. There are two ways there, John. Obviously in terms of the IP situation, those contracts had expired. When you looked at Lockhaven, for example, and [Eerie] (ph). So those contract had expired. If a plant is terminated or a plant shuts down and a contract is terminated prior to the expiration of the contract, there are in fact [force-majeur] penalties in those contracts. Obviously if they shut it down and the contract hasn't expired, there is a payment that would be made to MTI to compensate MTI for the lost opportunity to provide PCC and earn a rate of return on that PCC. If they, for example, had terminated that contract in the 7th year of a 10-year agreement, for example. So there would be a payment there that would be made to MTI to in fact enable us to achieve or end up with a financial opportunity that continues to be attractive to this company.

Could you remind me, you now have three idle plants. I think there was two in the prior years, one of which has been resold, I thought. Is it sort of like an inventory now with three idle plants for you to sort of cannibalize, or try to move to some other location?

Yes. The three that are shut down right now are Mobil, that was the first one if you remember ceased operations. Then Eerie (ph) and then Lockhaven. So those are the three facilities where we have shut down operations with International Paper. We have another facility with International Paper at Oswego (ph), where they have shut down the paper mill, but we still have the right to operate that satellite plant.

And do the shutdown facilities at some point show up in the financials? If you re-use the equipment on those facilities, does your capital expenditures go lower here at some point? I'm just thinking when the business absorbs these units, or you want to use the equipment out of them somewhere else. How does that come into the financials? Because now we've got three units -- we're starting to get sort of a sizeable inventory I guess of plants for you to relocate or cannibalize parts from as you built new facilities.

I'll answer that first here, John, and then I'll turn it over to John Sorel. Obviously where the facilities are idle, we have in fact taken out a lot of the equipment out of those facilities. For example, motors, agitators, compressors, the equipment that is common to our entire satellite network. And we have used that equipment at other satellite plants. We've taken tanks out of those plants, and in fact the plant at Mobil has been removed from that site at this point, which is what they actually, as you know - and I'll just say it - IP actually dismantled the paper mill at Mobil, so that paper mill was no longer there. We have also dismantled that satellite plant there. So we have used a substantial portion of that equipment. So with that said, I'll turn it over to John for the treatment of those assets.

Thanks, Paul. John, the way it works in the financials. The first thing that happens when they announce a closedown - and fortunately these plants were ones that operated for long time - they had relatively small book value. But we did take a write-down on them when that event occurred. And I think some of them were included in a special write-down we took. Cannibalizing is probably a bit of a strong term, because the assets are really quite valuable in large components. Some of those components, as Paul mentioned, in Mobil in particular, were relocated to another site. So you end up building or expanding another facility at a lower than normal cost to construct. You still have the transportation and installation costs, but you have a certain amount of depreciated valued equipment to bring into the picture. So you end up constructing a new facility in the future at a lower than average cost to capital. Then that's depreciated over the life of the new project.

Okay. I've got some more questions but I'll get back in the queue.

We'll go next to Robert Risis with Bear Stearns.

I got some real [indiscernible] points and then a couple of more sensitive. What is the tax rate guidance you could give us? In other words it was 20% versus 28% a year ago. I heard you don't think that -- should we expect 20 or 28, what's your expected tax rate to be?

I'll have John Sorel answer that.

As Paul mentioned, we're still doing some reviews here, so we have not published our guidance for the full year. But the normal expectation on a tax rate for next your will probably be a couple of points higher than the average for this year.

So 29% to 30%, it's a little high?

Or a little lower than that, 29% to 29% range is what I would expect.

When I went through the income statement for the fourth quarter, if I normalize everything for the 28 cents, it looks to me that you lost 5 cents based on Europe. Is that the steel mills in Europe, is that - I wouldn't say lost, but expectations were about 5 cents - does that seem about right?

Well that was a combination of both North America and Europe, Bob, when you look at that. Yes, the MINTEQ side of the business was in that range, lower than what we had anticipated for the fourth quarter, that 5 cents to 6 cents of [multiple speakers]. Okay. But that was really a combination of both Europe and North America, but I'll ask Alain if you would --

No, let me just ask a follow-up before you go into that. I'm looking at some ICI data, which shows Europe's steel production up 27%, and US up 13%. I don't know if ISI is tantamount to being correct all the time. But I guess the question is, if steel production was so strong in December, in Europe and the US, how come your numbers weren't that good?

Well first of all, Bob, I have to just take issue with our forecast or your data for the European steel market. The data that we look at in terms of the international steel-making* market in Western Europe, showed 0.1% growth in 2002 over 2001.

I'm just talking for December, I'm not talking for the year, but okay, go ahead.

In December we saw from the third quarter going into the fourth quarter, and then December, we saw a decline there in steel production. Alright, so I'm just trying to make sure that we're on the same [indiscernible] here.

Then the follow-up question that is my concern is that when you look forward, leaving out PCC and the squabbles etc., if steel was so lousy, the economy is so lousy, why are you so bullish on getting MINTEQ back to such levels?

I think there are a number of factors, and I'll ask Alain to comment on that, Bob. As we look at the issues that impacted the MINTEQ business n 2002, that Alain had gone through in terms of his comments. Whether it was the sales levels, for examples, manufacturing issues, distribution and logistics, the cloning of products, a number of issues that adversely impacted that business in 2002. We obviously had thought a number of those were behind us at the end of the third quarter. Unfortunately we were not there as far as we expected, even though October and November had good performance. But as we continue to look at those issues, and as Alain indicated, put the structure in place, the management structure in place to address those issues, we feel that we have a solid double-digit operating income business as we go into the 2003 timeframe. But with that said, I'll ask Alain to provide his thought and comments on that also. Alain?

Well I think you have several issues. You have the month of December and you have the results for the fourth quarter. Where we were surprised is the very sharp decline of demand of production of steel, particularly in Europe, that started very early on during the month of December. So we knew there was a seasonality effect, but it was very pronounced. That got us off track in terms of predicting - or that was part of the reason - the results for the fourth quarter. In November, and particularly October, from October to November we saw the decline in steel production in the US, and that continued to decline also in December. So the rate of production declined over the quarter. But particularly December was a month that was hit by the demand.

The profitability was also impacted by other factors. One of them that we have to address and asses more closely, because it becomes a more important part of our business, is the very low sales of equipment that we had at the end of the quarter. We had almost no sales of equipment during the month of December, and this equipment contributes significantly to our profitability. And most of the sales were deferred into the first quarter of this year. So whether we had -- also combined with higher expenses [unclear] -- when we had profitability of 10 points in November and October, overall we saw the decline at the end of the fourth quarter. So when we have a more steady demand for our product, and particularly for the equipment and the resolution of some of the operational issues that we had, we believe we can get back to the double-digit operating income. That's where we see this business.

Let me ask one last question. I know what you said on the conference call. Wall Street's said 70 cents for the first quarter, and I'm not even going to address the whole year. Given some of the issues that you've described, bankruptcies, etc., and the issue in steel, it seems -- I mean I'd rather you get it out now -- does it seem unlikely that the first quarter will hit Wall Street's estimates? I mean you might as well at least -- even if the year hits, if you have good growth for the year, it looks like the first quarter may be a disappointment?

Bob, I really choose not to comment on that at this time as I indicated. There are a number of issues that we're wrestling with. The retirement of assets and obligations, for example. There's just too many issues for me to say something. Obviously I will provide that guidance once we have that clarified, but at this point I choose not to really go in that direction.

Alright, thank you.

We'll go next to Jeff Zekauskas with JP Morgan.

Hi, good morning.

Morning, Jeff.

I think in the last conference call, Paul, you said that you expected to sign a large Sincil contract in the first quarter of '03? Are you sticking with that, or have you changed your view?

No, actually what we're looking at, and this is why we're very optimistic about the Sincil project in development that we had, Jeff. We will be having a trial with a major customer, and basically this is actually the third go with them, as they have continued to test the efficacy of Sincil in their furnace. And essentially, the way we look at it is, if that in fact goes smoothly, it will be a commercial account at that point. So hopefully it will go smoothly, because this is the third time they're running Sincil. So obviously they like what they see, they think it has great benefit for them, they will be starting that up within a few weeks. If in fact it runs well, then in fact they said it will never come out again.

How long does that trial last once it's started up?

If it starts up it will go probably for a couple of months.

So all things being equal, it might be hard for you then to sign a contract this quarter with them?

Oh, yes. You're absolutely right, it may be, but they will have told us at that point that in fact this product works, it is now considered a commercial product for that account.

What's the capacity at Woodville?

We've indicated, Jeff, that that's in the tens of thousands of tons.

Tens means like 30 or 20, that kind of number?

Actually, more than that. You're probably in the range of 40,000 to 50,000 tons.

So you can make commercial quantities out of Woodville?

Absolutely, that is correct.

What about capital? How much capital have you put into Woodville?

We have not divulged that. Obviously it's a pilot facility, what we call customer sampling facility, has the capacity to make those types of volumes there. We're very pleased with that facility, and so are the customers. They have all been through it, there quality assurance people have been through that facility for the different accounts we're trialing with. And they consider it a facility that makes high quality consistent uniform products.

In terms of the commentary on Refractories and getting back to double-digit margins, is the goal to have the average margins for 2003 be in the double-digits, or some time during the year you'll hit double-digit margin? Can you just clarify what you meant to say?

We think, in our basis that Alain and I are working on, is that for 2003 the MINTEQ business will be in double-digits.

I'm still not following. In other words, the average margin will be over 10%, is that what that means?

Absolutely. That's correct.

Just to wrap up, can you break out your sales benefit from acquisition in PCC in the quarter, and in Refractories as well? That is, how much of the sales were required?

One second here, Jeff, we're just trying to come up with that number. Obviously in the PCC area it's very small. If you look at the Paper PCC area, it would be very small in terms of acquisitions. The bit impact for the fourth quarter is actually [indiscernible] minerals, on the Process Minerals side.

Because that's where Polar went.

That's where Polar went, so that was in the Process Mineral side. We had very nice growth there in the fourth quarter. And that would have been the biggest growth benefit, because we had both the Martin Marietta and the Rijnstaal acquisitions in the fourth quarter of 2001. so really the big impact for the contribution of acquisitions to the business, would have been the Polar Minerals acquisitions that was made in the Process Minerals side in September. So we had that for the full fourth quarter, and obviously a significant upside versus the fourth quarter of 2001.

There's another chemical company called Kavat (ph), and what Kavat (ph) does is they take the extended analysis of each of the business divisions, and they posted a supplemental information on the web. So instead of there being a very, very long presentation with little time for questions, they're able to efficiently get it to investors, so there's more time for discussion. I don't know if it's possible in the case Minerals Tech, but it may be of assistance so that the next time we can explore some of the issues a little bit more closely.

Well we'll look into that, Jeff.

I guess just lastly, to follow up with Bob Risis, question. If you exclude accounting issues having to do with [FASB-143]. And if you exclude the International Paper, how does the PCC and Refractory segment look going into the first quarter? What are earnings like excluding those?

Well we think, as you saw in the results, Jeff, and you look at that. We believe if you look at obviously excluding all those issues and that uncertainty that we have -- and I think you heard from the comments that Alain made, and the comments that Ken Massimine made - obviously Ken was impacted by the provision for Bankruptcy of GNP, and that's not fully resolved yet. But if you take out those uncertainties, we believe we have a very profitable business that this company runs. Alain, obviously in terms of his objectives, to return that business, the MINTEQ side of the business to double-digit, 10+% in terms of what he's looking at. You look at the PCC business that Ken Massimine spoke about, is solidly profitable. You look at the Process Minerals business with the Polar acquisition is solidly profitable. We believe that excluding those uncertainties that we have - FASB 143, obviously the International Paper, the Great Northern Bankruptcy - the basic underlying business of Minerals Technologies is a very solid business, with very substantial growth opportunities ahead if it.

Okay, thank you very much.

We will go next to Rosemary Morbelli with Ingles and Snyder.

Good morning, all. Going back to the MINTEQ situation. You said that you have seen some of the revenue, some of the sales of equipment, deferred into the first quarter. Do you have actually concrete evidence that they are going to go out the door in the first quarter, or is that still not clear?

I will just take a crack it. But one of the things that we do, as we account for equipment, is that equipment can be in fact at the potential steel mill site, for example. And it is not counted as a sale until that equipment is actually installed and operating. With the downturn, we had instances where equipment was at the steel mill site, but not installed and operating. So that's why it's deferred into 2003. But with that brief introduction, I'll ask Alain to comment further on that.

That's exactly the case. We know we have a backlog of orders, and there is a time lag between we ship the equipment and it is up and running, which is the time we book the sales. So we have a deferment of these sales in our books in the month of December.

So in other words, you already know you already have some sales which have been booked, the equipment is there?

Sales in the sense that -- yes the equipment is there, but not in case fully installed and operating. Obviously we only book that sale when in fact it is fully installed and operating. So we know those sales will be there in 2003.

But you don't know yet whether it will actually be there fully installed and operating in the first quarter?

I'm going to let Alain answer that question, because I can't answer that question.

It's a case by case basis. Normally we know when there is no problem when it is up and running. In one of the sales that we haven't booked yet, they equipment was in place in a steel mill in Europe, where we have an explosion - or the customer had an explosion in his steel mill. So we know that this equipment that we hoped to book in the last quarter, is going to be delayed, and that may take more time. But I think one of the issues we have to address and do a better job or so, is to try to [indiscernible] the impact of the sales that are just at the borderline at the end of the quarter, or the end of the year. And that's where the sensitivity is. That's going to be more difficult for us moving forward.

Alain, how comfortable are you that you are going to actually hit the magic 10% margin in the first quarter?

Well first of all I still have things to learn about the business. But what I've seen over the time I've been here, is a very sound business in terms of the fundamentals. What I call fundamentals are the market presence, the product range we have. And when I look at past performance, we know what our issues are. That's what we are doing, addressing these issues through profitability improvement program, that we have started. I haven't had to wait very long, we have started already this year. And we are going to work on this program. The whole organization of MINTEQ is going to be focused on the fundamentals of the business, on this profitability improvement program. Which includes better operating efficiencies, new product development rollout, [indiscernible] management. So we're going to work on the fundamentals of the business. At this point it's an article of faith, but I am confident we're going to get back to this level. That's our business model, and it's shown in the past it works, and I believe it's going to work.

None of those particular projects you have mentioned are going to occur overnight. Could you give us a feel in terms of the value added products which you said you were working very hard on? Do you have some kind of a timing as to when we could see them and have them benefit the bottom line?

I'm not going to be very specific on numbers, because it's a process where we have intellectual property. But we have several projects where we would have some rollout during the year 2003.

Okay, and then talking about rollout, if we could move over to Sincil. If in a couple of months, Paul, your customer is still happy with the product and decides to go commercial, what kind of a capacity do you think, or volume will be needed? Do you have enough in that 40,000 to 50,000 tons which is for trials? Is that enough when you go from trials to commercial?

We can probably support from that facility, Rosemary, one commercial customer, possibly a second small commercial customer, and still have capacity to run some additional trials. But we would be in a position if that continues to move forward, to at that point make a commitment for the construction of a full Sincil facility in the latter part of say 2003.

And how long does it take to bring one of your facilities on stream?

That obviously varies by region, in terms of permitting processes and that. But we don't see with our process a difficult permitting issues as we would move that forward. But with any facility between permitting and construction, you're talking -- I don't want to hazard a guess here, but obviously you're looking at a year or something like that.

No longer than a year?

I don't know, that's one of the things that our engineering and environmental people would have top be looking at.

And then lastly on the ground-wood side. You've already in about 40 machined. What kind of a market share does that represent, and how quickly can it grow?

We still feel that we're really in the infancy here of the ground-wood program. That has grow very nicely, as Ken has indicated, with the number of mills and machines that we're on. With obviously just extensive continuing trials being planned and underway as we move that forward. It was one of the growth markets that we had for that increase in the volume of PCC to over 3.4m tons here in 2002. So where my feeling is, we're just in the infancy of it, and I'd just ask Ken if he wanted to add anything to that.

Just really to add one other point. We do feel very enthusiastic about this particularly program, Rosemary. As a matter of fact some of the activity that's ongoing in the first quarter will be continued trial work in this area. Which will hopefully lead to new satellite opportunities for us. So in essence, as Paul said, we've gained tremendous momentum over the last couple of years. And we're really bullish about 2003 with respect to what we'll be able to do with ground-wood as well.

Could you give us a feel as to how much you are selling, in terms of tons, and what the market is for the ground-wood? Maybe you have in the past and I forgot?

No we haven't, Rosemary. Obviously it's a competitive situation. We prefer not to give that impression or that feel for it. But obviously the growth that we had in this year, the only reference I would give you is the equivalent of several units of capacity of growth in 2002 over 2001, of additional sales in this area.

And you are talking, when you talk about units, we are talking about the 25,000 to 35,000 tons, right?

Right.

Which actually brings me to the four new units in satellite. I mean the extension, or the two new satellites for this year? This compares to how many in 2001? And then, what is the pricing situation in those new contracts?

I think in 2001, if I remember right - I'll ask Ken - I think we had 10 units of capacity expansions in new facilities that came on stream in 2001. And pricing, I'll have to defer to Ken. But I think the pricing was routine type pricing for those.

There was nothing inordinate.

Nothing inordinate, nothing unusual. Right. So it was in our typical range of average pricing.

Okay, and then to go back to the previous questions regarding the first quarter. Given all of those things that you are doing, can it be enough quarter versus this last one? I mean you could have more bankruptcy, you could have more problems, so --

Yes, we could, Rosemary. In terms of business development we still expect obviously our strategies for the business to develop to continue to show growth for this company as we do that. But I really don't want to make a projection for the first quarter. Like I say, I see these uncertainties in it, Rosemary, and I think at this point I would rather not make that projection until we further clarify those issues.

I would almost translate that as a first quarter being lower than the fourth?

I wouldn't jump to that by any stretch, but I just really don't want to comment there.

Okay, you win. Thank you.

We'll go next to Robert Kazowski of Sedoni and Company.

Good morning, gentlemen. I was just curious about your cash management for the future. Are you looking to make any acquisitions? Are just going to sit on the cash and just use it for potential PCC satellites, or new Sincil capacity?

That's one of the things we always evaluate, Robert, in terms of the cash management of this account. As John indicated, we had used some of the cash as we looked at 2002, to buy back shares, for example, over $17m acquisitions that we made. Polar Minerals was a little over $20m for the Polar Minerals acquisition. And obviously investment, we continue to see investment needs as we grow this company, whether it's PCC, MINTEQ Process Minerals, or Sincil. Hopefully Sincil will require significant capital investment by the end of 2003 as we go forward. Obviously share repurchase is something that we're always looking at. But I'd as John, from your perspective, as you look at that, John?

The only thing I would add, Paul, is that I think many of you know we are authorized for a share buyback, and do have a plan in place. But we will continue -- quarterly these questions come up, and we continue to evaluate our cash needs. We're hopeful that the acceleration of the strategies will allow us to consume that cash and get it back maybe even to a [boring] position.

Okay. How's the acquisition environment out there? Is pricing pretty attractive right now? Especially in minerals or refractories?

We certainly look at opportunities that are brought to our attention, or opportunities that we see ourselves out there in the marketplace. Obviously the one we made just four months ago was the Polar Minerals acquisition, and that has performed very well, and has been integrated very well into the Process Minerals business. My compliments to Randy Harrison who's responsible for that business.

We continue to look at that. Obviously we always look at opportune acquisitions. We have bid on things that have not been successful because other people have bid higher values than we assigned to them. So we're very cautious in terms of the valuations that we place on potential acquisitions. We will continue to evaluate those, and if an opportune one comes forward we are certainly not reluctant to pursue it.

Okay, well just one other question. Given the difficult past two years in both paper and steel, how can you gauge the mill consolidation risk, as we go forward in 2003?

I would expect, and I'll ask Ken to comment -- I would expect that there could be some additional consolidations in the paper industry. Obviously one that may come up very quickly is GMP. They declared -- filed for bankruptcy protection, as you know, on January 10, and we know -- obviously we have a satellite plant there. You're aware of what's happening at that mill. There has been several other paper companies that have been there looking, as we talk, with people at that mill, to potentially buy it. So there will be a consolidation there at that mill, is what we would expect as we go out over the next several months. And that's one of the uncertainties that we have.

So we're not out of the woods yet in terms of paper?

No. No, I think there will be more acquisitions and consolidations in paper. Obviously in the steel side, we see the same thing with National Steel being chased by both [AK] and US Steel. Certainly the consolidation of [Bethlehem] Steel and [ISG] seems will move forward over the next 30 to 60 days. 'so we see continues consolidations in both paper and steel.

Okay, thank you very much.

Once again, if you'd like to ask a question, please press star one on your telephone. We do have a follow-up from John Roberts with Buckingham Research.

Thanks. In the Specialty PCC plant, are there any production issues still holding you back there? Because the vinyl's marketplace at least has been reasonable normal, maybe even a little bit stronger than normal.

John, well we don't have production issues per se. In fact we have improved the efficiency of the plants as part of the overall program to get Specialty PCC back on track. As Ken indicated, and John indicated in his prepared remarks, although we're finally getting the sales growth, and we have made improvement in the profitability, it is still the profit -- both levels, both the sales level and the profit level are unsatisfactory. So both levels are unsatisfactory. Did we make progress? Yes, in the fourth quarter, sales were up 7%, for example. Have we made progress in the profitability side? The answer is, yes we have there. Not what we wanted to do by the way, but we have improved it. Obviously with what we're doing, we expect that to improve nicely in 2003, both the top line and the bottom line. So we're expecting improvement as we continue to move these strategies forward. But very frankly, it is not where we want it to be at this point.

Is it market acceptance that's holding you back, or are your costs going to market higher than you had expected? Where's the variance, versus where you'd like it to be?

Mainly it's the [indiscernible] is moving the product out. We have introduced several new products. They are being accepted, that's why sales are up nicely. We expect that sales rate to continue to growing nicely. We're finally getting the market acceptance of the products, both the [Ultrafine] PCC, and certainly the other products that we're producing for other markets in the polymer side of the business, adhesives, [indiscernible] and polymers. So we have expanded the market range that we're looking at, and we're finally getting the success out of that expansion of the market range. Casting a wider net, sort of thing.

I've forgotten who your competitors are in the Refractories business. They must be in even worse shape, given the industry conditions out there. Is there any more rationalization, consolidation among your competitors that we might look for?

As far as we can tell, many of our competitors are in more difficult conditions certainly, than we are. We certainly see, as we've indicated, and Alain has indicated, getting back into the double-digit numbers as we go forward. Yes. As you know, National Refractories, for example, is being dismantled and sold through bankruptcy proceedings. So yes, there are other refractory manufacturers that are in difficulties and in fact have filed for Chapter 11, or in fact portions of those businesses are being sold off to beat that process.

Thank you.

We will go next to Mark Fulham with Healy Circle Partners.

Thank you. It appears on January 2, you sold about 35% of your shares. Given the comments during this conference call in terms of how the quarter shaped up, can you help me understand what the policies are in terms of insider purchases as well as sales of shares?

Oh absolutely. We have a very strict policy here that all our sales of shares have to be cleared through our General Counsel. So that any selling that's done by myself or other members of management, are all cleared in advance through the proper filing with our General Counsel. Then certainly through any other regulatory agencies that are required. So we are very cautious in this case with that. And certainly sensitive to the issues that may come up.

So therefore, on the 30 December you were unaware of the significant shortfall that you were going to announce three weeks later?

In my case, absolutely. Because in my case, as we made provisions for that, back around the [indiscernible], we in fact looked at the issues in the business. Obviously were not aware of any bankruptcy proceedings, or the filing for bankruptcy by GNP, which was filed on January 10. And certainly were not aware of the issues at that time. I didn't sell per se, by the way, just in my own personal account, I sold enough shares to purchase shares. In fact I increased my holdings of MTI during that process. So I feel, as our members -- as myself as CEO, that I continue to increase the ownership of my share position in MTI, and in fact that was the process I did on December 30. I increased my ownership of MTI, is what I did.

Thank you.

Mr. Saueracker, it appears there are no further questions at this time. I would like to turn the call back over to you for any additional or closing remarks.

Well thank you very much, operator. Thank you to all the participants on the conference call for your interest in MTI. We believe that they foundation of this business is very solid, as we look at both the MINTEQ side, Process Minerals and PCC. We hope to have continued improvement in the basic financial performance of this business as we think this is a great company. Obviously there is some uncertainty, as we spoke about, going forward over the next several months. I look forward to speaking with you in a few months. And as we further define the uncertainty, provide additional guidance to the investment community.

So thank you very much, I appreciate your continued interest in MTI.

Once again, that does conclude today's conference. We thank you for your participation. You may disconnect at this time.