Minerals Technologies Inc (MTX) 2003 Q4 法說會逐字稿

Good day everyone, and welcome to this Minerals Technologies Incorporated, fourth quarter 2003 earnings conference call. Today's call is being recorded. Now, for opening remarks and introductions, I would like to turn the call over to the CEO, Mr. Paul Saueracker. Please go ahead, sir.

Thank you, operator, and good morning. And welcome to the fourth quarter 2003, Minerals Technologies analyst conference call. The fourth quarter was as difficult as we had anticipated, but I am pleased to be able to report growth in sales and net income, despite the continued weakness in the portion of the manufacturing sector we serve, paper and steel.

As we go forward in 2004, we will continue to execute our strategies for growth. MTI achieved net sales in the fourth quarter of $211.7 million, 9% above last year's fourth quarter. The growth in sales came from all three-business areas - refractory products, PCC, and processed minerals. We achieved this growth despite continued slow down's and shut down's in both the paper and steel industries. For the full year, MTI recorded net sales of $814 million, up 8% over 2002.

Our growth and profitability was limited by such factors as higher pension, medical, and other employee benefit costs, higher costs associated with the implementation of a new IT system, and increased provisions for bad debt. Despite these factors, our net income in the fourth quarter increased 10% to $13.2 million, from $12 million in the fourth quarter of 2002.

As a result, diluted fourth quarter earnings per common share were 64 cents, up 7% from the 59 cents reported for the same period last year. However, a number of factors complicate our fourth quarter results. In December, we recorded a pretax charge of $6.5 million, or 19 cents per share, for asset retirements and workforce reductions. In addition, in the third quarter, we announced that the statute of limitations had expired on our US tax returns for earlier years, which resulted in the reversal of certain tax accruals.

This adjustment reduced our 2003 tax provision and increased our net income in the fourth quarter by $3.5 million, or 17 cents per share. And in the first quarter of 2003, the company adopted an accounting change for asset retirement obligations that reduced full year earnings by 17 cents per share. In summary, when combined, these adjustments decreased our earnings by 2 cents per share in the fourth quarter to 64 cents per share, and increased our earnings for the full year from $2.72 per share to $3.09 per share.

Following my introduction, Ken Massimine, SVP for Paper PCC, will provide you with an insight as to the factors underlying the performance of PCC, our largest product group. Alain Bouruet SVP of MINTEQ, will report on the refractory segment of our business. And John Sorel, our SVP of Finance and CFO, will provide a financial summary, including some further detail on the restructuring in the tax adjustment.

Following John's presentation, I will conclude with a few remarks and open the floor to questions. Before proceeding further, I need to remind you that on page 6 of our 2002 10-K, we list the various factors that may affect future results. Any forward-looking statements by me or other members of our management are subject to these cautionary conditions. Also, a recording of this conference call will be available on our Web site, www.mineralstech.com.

First, I would like to address current business conditions. There is a general consensus that the US economy, as measured by GDP, ended 2003 growing at about 4%, and according to the purchase and manager's index, manufacturing activity is at its highest level in two decades. What we as a company are observing, however, is a disconnection between the economy as a whole and the materials manufacturing segment.

The paper and steel sectors in the US, for example, have seen little, if any, benefit from this growth. Shipments by steel companies in the United States declined 3.3% in 2003 versus 2002. Shipments of uncoated three-sheet paper were estimated to be down by 1% in 2003, versus 2002, which marks the fourth consecutive year of decline. Stated simply, the business environment is still not good.

Today, about 65% of our sales are domestic and are tied to the US economy. Recognizing that significant growth in our key markets will occur outside North America, we are building a larger base outside of the United States and will continue to do so over time. Production slowdowns and curtailments of both the steel and paper industries continued, as do bankruptcies in the steel sector. For example, several paper machines in North America, where we supplied PCC, were shut down in 2003.

Furthermore, additional machine shut downs have already been announced for this year. Despite these impediments, MTI was still able to increase its net sales and operating income. We are hopeful that as the US economy finally gains momentum, the manufacturing sector will pick up speed and accelerate throughout 2004. While Ken and Alain will provide you with more detail analysis of our PCC and refracturing business, I would like to point out a few highlights.

Total PCC sales are up 2% for the quarter, reaching $111.7 million. We are up 3% for the full year. We were able to show this growth despite the poor market conditions in the United States for uncoated three-sheet paper, our largest market, and the temporary shutdown of the Great Northern Paper Mill, now Katahdin Paper in Millinocket, Maine, a large volume customer in 2002. We anticipate that Katahdin Paper will restart the paper and pulp mill complex, where our satellite facility is located later this year.

For the year, our volumes of satellite PCC produced for paper increased slightly by several thousand tons and remained above 3.4 million tons. This past September, MTI began operation of a one-unit satellite plant at a paper mill owned by Sabah Forest Industries in Malaysia, and added a one unit expansion at an existing satellite. You will recall that a unit is equivalent to 25,000 to 35,000 tons of PCC produced annually.

We are proceeding with the construction of a large merchant coating grade PCC facility in Walsum, Germany, in order to service the growing European market for coated paper. Qualification trials of MTI's PCC products are preceding supply from our Belgian facility to develop an immediate base load for the Walsum plant when it comes on stream in September of this year.

We will continue to push forward with our strategy to increase PCC use in groundwood papers, which represents a major market for us. I'm also confident that we will sign contracts for additional satellite PCC plants during the year.

Our especially PCC product line sales were down slightly in the fourth quarter, again, due weak market conditions and shifting our borders into the first if first quarter of 2004 by several customers.

The refractory segment performed well in the quarter, despite an extremely difficult operating environment in the United States where the steel industry continues to consolidate and restructure. Refractory sales grew 17% in the quarter, reflecting a modest increase in steel production during that period. Production margin increased 34% over prior year as a result of stronger product sales and improved product mix and equipment installations. MINTEQ's programs have become more cost effective and to improve internal operations are paying off.

Alain has also implemented broad programs that are repositioning MINTEQ to broaden its geographic scope to include China, more effectively introduce new monolithic refractive products and integrated systems that will help steel makers eliminate costly installation labor and expand the classic concept of the refractories business to include a large component of high technology application and measurement equipment.

Our processed minerals group continued to show strong growth with sales up 17% for the quarter and 25% for the full year. Full year growth was primarily due to the poorer acquisition.

Fourth quarter sales growth for the segment was driven by the strong performance of the residential construction sector and new applications for our health products. In the fourth quarter, recognizing that our markets have changed fundamentally, we undertook a restructuring of our company to reallocate our resources globally and to share service across the company, wherever it is efficient and appropriate. We are confident that we have the right strategies and programs in place to ensure continued growth. Looking ahead, we will increase our commitment to research, as would be expected of a technology-based growth company.

We expect R&D expenditures to increase by more than 10% during the year. This additional funding will primarily support our efforts in the area of filler\fiber composite material technology and you know product development for the glass industry. Last year we entered into a technology agreement with International Paper to collaborate and to develop a new filler\fiber composite technology, which would have the potential to significantly increase the demand of PCC in uncoated free-sheet paper. The commercialization of this technology would result in a significant opportunity for this company.

As we stated during the third quarter conference call, we have signed our first commercial contract Syncil with a major glass manufacturer. Today we are confident that we will sign a second contract with that same company at a different production location. Further confirnment of the value of the product. In addition, we're running other customer trials in the body of evidence supporting use of Syncil as an alternative to the conventional glass manufacturing process is building.

As a research-based growth company, the development of new products is our foundation, and we will continue to seek innovative products and services that will add value for our customers. In addition to releasing our earnings yesterday, we announced an increase in our dividend. After 11 years, we doubled the dividend pay off from 10 cents a year to 20 cents a year. We decided that this was an appropriate time to benefit our shareholders given our strong task position, the success we've achieved since 1992 and our confidence in our future profitable growth. I will now ask Ken Massimine to provide us with the details related to our PCC 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 2003 and some expectations for the coming year. Last month, the U.S. paper industry capped its fourth year of declining shipments of printing and writing papers. Since 1999, shipments of these papers have declined by over 3 million tons to an estimated 22.4 million tons, which represents the smallest yearly output since 1992.

On the other hand, apparent consumption of these papers has declined by only 1 million tons. Obviously imported papers have increased to fill the domestic gap. Actually, imports of printing and writing papers have increased 29% or almost 2 million tons from the 1999 level. The decline in paper shipments last year was evident across all grades. Uncoated ground wood showed the greatest yearly reduction of 10.5% while coated ground wood declined 0.2%, the lowest contraction of the four major paper grades.

U.S. shipments of uncoated free sheet, our most important market segment, and remains soft throughout the year in response to high import levels, persistent high unemployment and the continuing growth of competitive electronic communications. The outlook for the US paper industry in 2004 is somewhat uncertain.

Shipments of uncoated free sheet papers are expected to rise a modest 2% this year, in response to an improving level of business activity since they are used primarily as copy, office, and computer stock. However, this recovery could be tempered somewhat by recent announced paper machine shut down's, including closures at Weyerhauser, Georgia Pacific and Minnesota paper. Similarly, coated papers should be responding to a pick up in advertising pages, inserts and mail order catalogs as consumer activity strengthens. Concurrently we expect imports to these papers to also increase.

Internationally, western European production of printing and writing papers improved for the fourth quarter, raising yearly output 3.3%. During the fourth quarter domestic demand in exports for graphic papers showed some improvement, however, excess capacity kept overall operating rates around 87%. We should see paper demands and exports picking up strongly this year in response to an improving European economic climate.

The Asian pacific region excluding Japan has emerged as the fastest growing regional economic block. China is the engine of this growth, rivaling Japan in total paper production for the first time last year. Over the next five years we anticipate growth in China's paper demand will average 6% per year. MTI has five operating PCC satellite plants in Asia, including one in China. We expect this PCC facility to be a springboard for future satellite installations in that country.

Our moderate sales growth during the fourth quarter in full year of 2003, were disappointing and directly related to the fourth straight year of lack luster economic in paper industry performance. MTI's total PCC sales for paper and non-paper applications in the fourth quarter are up 2% over the prior year's fourth quarter from approximately $109 million to $112 million, well volume was down 1%. Foreign exchanges during the quarter had a positive impact of 5.6 million.

For the year total PCC sales gained 3% from $423 million to $436 million. The persistent weakness of the US dollar was the major contributor to sales growth. Total PCC operating income declined 6% in the fourth quarter, excluding charges for restructuring and asset impairment. This was due in part to expenses associated with increase prior related activities as well as paper mill shut down's and the contract resolution at international paper.

For the full year 2003, total PCC operating income decreased 3%. On a same store basis excluding the Millinocket satellite, which is temporarily shut down. Sales percentage of paper PCC from existing satellites was essential even in the fourth quarter compared to a year ago. For the year as a whole, same story sales percentage increased 1.2%.

However, when viewed in the context of the unprecedented financial difficulties within the paper industry this past year, including the shut down of several paper machines in North American locations, where we supply PCC, we are pleased with our overall performance and strategic progress. We continue to position ourselves for the future.

As Paul already mentioned, we have recently rebalanced our workforce to better align our operating departments, vis a vis the permanent discontinuities within the paper industry. I am also pleased to report that during the year we added two new units of PCC capacity. One unit at Sahba forest industry in Malaysia, and another unit representing an expansion at an existing satellite facility. Further, during this past year we have witnessed that increase in trial activity, a gauge of future potential business, which I will comment on in a moment.

Our European region hosted good sales growth due in part to a 3.3% increase in the production of western European printing and writing papers, as well as foreign currency translations. Construction of our new emerging PCC facility in Walsum, Germany, is currently well underway with expected start up in September. This 125,000 metric ton plant will produce sophisticated coating PCC products for use in high quality publication and graphic arts papers. The wholesome area is central to one of the world's largest concentrations of coated manufacturers. The production of coated PCC products is an integral part of our strategy dependent free to worldwide coded paper market.

We remain extremely bullish about opportunities in this exciting market segment. Sales of our coating grade PCCs in North America increased last year. Additionally, our Hermalle Belgian facility PCC facility, which was recently converted to allow the production of coating PCC products, is currently manufacturing commercial quantities of these products. And ever-increasing portion for our production is now earmarked for coated paper trials. Current paper trail activity and demand for our over corp (ph) PCC coating products have exceeded our expectations.

The overall trial activity for filling and coding PCC products has reinforced our belief that we will be adding additional units of PCC capacity in 2004. I am confident that we will negotiate and sign contracts for new PCC satellites with several world-class paper companies. The global potential for incorporating PCC into a large portion of paper remains significant as competition and cause pressures towards paper makers to continually look for ways to improve profitability. PCC allows paper makers to leverage their cost savings while maintaining or increasing quality. We remain optimistic that these discussions will lead to new levels of business.

We continue to work closely with international paper, and I am satisfied with the current trials are been planned that should take place during the course of this year, as part of our effort to improve the efficacy of this technology. To further assure our strategic objectives are met, we have implemented a series of major initiatives to strengthen our business model. In particular, with the recent restructuring, we have bolstered and realigned our resources, enhanced our process technologies and redirected personnel to qualify our sales and marketing trust on a worldwide basis.

Moreover, we are building and sustaining key customer relationships to better understand individual corporate long-term requirements. This sound approach will help generate not only increase worldwide PCC sale this year, but also assures long-term growth momentum as well.

Now let's briefly turn our attention to special PCC for non-paper applications. Sales for our special PCC segment declined slightly in the fourth quarter of 2003 compared to the same period the year before. This decline resulted primarily from a postponement of traditional orders during the quarter. Going forward into 2004, we expect the special PTCC segment to improve its sales growth based on our initiatives not only in plastics and healthcare markets but in sealants and adhesives as well.

In conclusion, we firmly believe that programs now in place will act as a positive catalyst for improved sales and profitability this year. MTI is proud of its market positions, leading edge products, and strong related customers. We remain optimistic that significant ongoing projects will culminate in important new PCC business. Now I will turn the microphone over to Alain who will review MINTEQ business performance. Alain.

Thank you, Ken. After a difficult fourth quarter affected by bankruptcy, steel production (inaudible) low capacity utilization in North America and Europe, MINTEQ was about report significant increases in both net sales and averaging income in the fourth quarter, which enabled us to meet our commitment of a double digit reference to margin. This performance was the result of a modest improvement in steel production activity in North America and Europe, and for the most part, the result of strong sales of both refractory materials and equipment in all regions.

For the fourth quarter, MINTEQ reported net sales of $68.8 million, up $10 million versus prior years fourth quarter sales and a new high for MINTEQ. Operating income excluding the asset charges reached $7 million and 10.2% of sales, up 53% compared to prior years for fourth quarter. At the last conference call in October, I indicated the possibility of an uptake in North American steel production. This was confirmed as steel production increased by 1.6% from the third quarter. However, the environment remained challenging for MINTEQ as U.S. steel production was still down 3.3% as compared to prior year and capacity utilization was low at 18.7% in the US.

When capacity utilization is lower, this impacts MINTEQ's ability to market premium products that are used to increase equipment availability for the steel producer. In Europe, steel production for the fourth quarter was up slightly, 1.7% versus prior year. Underlying these numbers is the fact that these (inaudible) throughout the fourth quarter, which is in sharp contrast to prior years major capacity shutdowns that occurred during the last few weeks of 2002.

In Asia, steel production continues to increase at a higher rate, 13.3% up from prior year, primarily driven by economy growth in China with steel production increased by an amazing 25% in the fourth quarter. MINTEQ's fourth quarter net sales were up in all regions, 7% in North America and 41% in Europe. Both regions where all sales growth as out based market growth in steel.

Latin American sales were up 12% and sales in Asia were up 17% as we were successful at adding new accounts and generating new products trial activity. Total net sales growth was driven by 12% growth in refractory products and materials and 74% for equipment installations. This sharp growth in equipment sales is the reflection of MINTEQ's continuing effort of promoting the sales of integrated systems. In addition, the significant increase from last year is also a consequence of the fact that equipment installations were delayed at the end of fourth quarter of 2002, due to significant year end capacity shut down's.

For the fourth quarter of 2003, MINTEQ's production margin was up 34%, primarily due to a favorable product mix and improved manufacturing operations. This result reflects the successful implementation of continuous improvement initiatives throughout 2003.

In this regard, the decision we made to modernize our refractory plant in Dover, Ohio, and disclose our forecast of improved performance for increased cost and improved quality and performance. More over this investment will enable MINTEQ to make the new complex shut grid products (inaudible) by R&D, which are critical to our growth strategy in steel and non-steel applications. For the whole year, steel production was down 0.2% in North America and up 0.8% in Europe.

At the same time, growth occurred in other regions up to 4.5% in Latin America and 12% in Asia, most notably in China which a accounted for almost two-thirds of two-thirds of total world-wide steel production growth. Accompanying in the low growth in steel production where a number of significant bankruptcies in our largest market, North America. Overall, year 2003 confirmed our assessment that permanent disruption has taken place in the marketplace.

MINTEQ faces a challenging business environment in metro markets where we have a major presence. At the same time, MINTEQ has the opportunity to apply its unique integrated system approach in developing countries for higher efficiency and improve quality in the steel making business. This is why we have been actively working on our re-deployment strategies.

Accelerate the development of new products and systems in North America and Europe, increase our presence newly opening markets, particularly China. In 2003, sales reached $256.6 billion, a new high for MINTEQ, up 10% from the prior year. Approximately half of this increase was due to favorable currency exchange rates. The remainder reflects our success at increasing market penetration through the sale of high performance refractory products and application and measurements equipment, which combined constitute MINTEQ's unique integrated system approach.

For the year 2003, operating income excluding the restructuring and asset impairment charges rose 18% above the prior year to $24.6 million, corresponding to an operating margin of 9.6%. While this result was short of our objectives, it reflects an improvement in operating. This improvement was led by strong growth in production margin, 19%. However, expenses also increased significantly. The expense growth was primarily driven by the establishment of our infrastructure to support MINTEQ's strategy of global re-deployment.

At the same time, all the deviations of MTI, we recognize the challenging nature of our business environment also requires us to take a hard look at our organization capability in light of the business growth objectives. We accomplished this through restructuring plan established in the fourth quarter, which led to workforce reductions particularly in North America and Europe, as well as the decision to close down the river ridge plant at the end of the first quarter of 2004.

Current MINTEQ's production will be transferred to other US plants that have recently been up upgraded while the current production of ships will be transferred to (inaudible) plant acquired last year, which has greater production capability. We believe that these actions will allow MINTEQ to be better positions in its re-deployment efforts. In a nutshell, despite a clear improvement in functional performance, MINTEQ had a very challenging year in 2003, facing a difficult market environment of low demand and metro markets and a high level of bankruptcies.

Going forward, I anticipate that progress in our final performance will continue in 2004 through the execution of our strategy as we continue our profitability improvement program, increased market penetration for MINTEQ's high performance products and integrated systems and increased market presence in developing markets. However, while I believe we have the right programs in place for sustainable profitable growth going forward, there are still significant challenges ahead of us.

In particular, at the beginning of this year, the very high industrial activity in China, (inaudible) steel industry is causing shortages in price packs of some key raw materials critical to the steel making process. This is the case for coach currently in tight supply as well as for metal scrap whose prices are significantly increasing. As a consequence, MINTEQ's customers, particularly in the U.S. are undergoing significant pressure, which is not eased may lead to some steel production curtailment that would impact MINTEQ to those customers.

Moreover, high demand for packed mineral materials from China is causing worldwide shipping costs to rise to record highs. This in term is driving up the cost of raw materials imported to North America and Europe, primarily magnesia supplied from China. We hope to obtain price adjustments to respond to this pressure. Excluding further major disruptions in the market place, I believe we are well positioned to achieve the previously articulated goal of double-digit operation margin in 2004. John?

Thank you, Alain. You have just heard the descriptions of the business environment and the highlights of the operating conditions, key programs of the company during the fourth quarter. I would now like to review with you how that information is reflected in the company's consolidated financial results.

Net sales for the quarter were $211.7 million, an increase of 17 million or 9% compared to prior year. Foreign exchange had a $10.4 million or nearly 6-percentage point favorable effect on sales in the quarter driven by the continued weakness of the U.S. dollar. As you have just heard, our specialty mineral segment achieves single-digit sales growth during the quarter despite a difficult to deployment, refractories segment sales increased 17% reflecting increase equipment sales, a steady business environment and favorable currency.

Sales in the specialty mineral segment were $142.9 millions, a 7 million increase or 5% growth. Approximately 4 points of growth were from currency. sales from PCC increased to 2% to a 111.7 million. Sales growth in the PCC product line was tempered by the continued shut down of the Millinocket PCC facility, the implementation of the international paper agreement, and several mill outages late in the quarter and continued weakness in the non-paper PCC market.

Overall for the quarter, PCC product line volume decreased to 1%. For the full year, PCC volume increased slightly from the prior year. Sales from the process mineral product line were 32.1 million up 4.5 million or 17%, due to strong demand in all regions. Notably from residential construction related industries and from new polymer healthcare applications for our Talc products.

Refractory segment sales increased $10 million or 17% to 68.8 million as compared with 58.8 million in the prior year. Approximately $4.7 million or 8 points of MINTEQ's sales growth was due to the favorable impact of foreign exchange. The increase of 9 percentage points in business activity were due primarily to an accelerating demand for equipment and what we hope will be a sustainable trend toward higher steel production. With overall sales growth of 9%, MTIs performance of the gross margin line improved to 11% or $5 million.

In the specialty mineral segment, gross margin was even with last year despite the 5% sales growth, as margin results were impacted by the continued maintenance of the Millinocket satellite, low volumes due to additional paper mill outages, weakness in specialty PCC and the international paper agreement. Since sell program costs are below prior year, the reflection of the higher average pricing for the current mix of commercial and trial activity.

In the refractory segment, gross margins grew 34%, double the 17% rate of sales reflecting the benefit of improved product mix, increasing equipment sales and improved manufacturing operations. MTIs total marketing administrative expenses for the quarter increased 15% on a 9% sales increase. As planned, both the refractories and specialty minerals segment increased marketing expenses to support business development efforts worldwide.

In addition, we incurred higher employee benefit costs, particularly in pension and medical expenses and higher IT costs associated with the implementation of a new ERP system. The company's research and development expenses for the quarter were 10% above last year primarily due to increased product development activities in the paper PCC product line. The bad debt expense for the quarter is 2.3 million, 43% below prior year. However, you may recall that we incurred a sizable charge in the fourth quarter of 2002, due to bankruptcy of a large paper customer.

During the quarter, the company recorded a charge of $6.5 million for restructuring in the rate down incurred assets. The restructuring charges relate to workforce reductions from all business units throughout the company's worldwide operations and to the termination of certain leases. The asset rate down was associated with the planned closure of the company's operation in River Rues (ph), Michigan and the retirement of certain Synsil assets that have been made absolutely by the latest process development.

The impact of the restructuring and asset permit charges was 19 cents per share for the quarter. We also expect an additional charge in 2004 of about 750,000 for the final plant closures expenses at River Rues and a final work force reduction cost.

MTI's income from operations was $13.5 million, 6.4% of sales and 20% below the fourth quarter of 2002. Excluding the $6.5 million charge for restructuring and asset impairment, MTI's income from operation reached $20 million, 9.5% of sales and was up 19% over the fourth quarter of 2002. The specialty mineral segments operating chargers was 6% above prior year, generating an operating margin of 9.1% of sales.

Our margins continued to be affected in the near term by the IP agreement and the Millinocket shut down. The refractory segment excluding restructuring and asset impairment charges generated an operating margin of $7 million, 10.2% of sales meeting last year7.8% performance and achieving the targeted double digit performance.

Non-operating deductions of 1.3 million for the quarter were up 200,000 primarily due to higher interest expense. The overall effective tax rate for the year was 5.7%, which resulted in an overall tax benefit for the fourth quarter. This was a result of the reversal of certain tax accruals due to the expiration during the third quarter of the statute of limitations on the companies U.S. tax returns for earlier years. This has the effective increasing net income for the quarter by $3.5 million or 17 cents per share and by $15 million or 73 cents per share for the full year.

As mentioned last quarter, the tax reversal was a one-time event spanning the third and fourth quarters and we expect the rate for 2004 to be in the range of 30%. Net income was $13.2 million and diluted EPS for the quarter were 64 cents or 8% above the same period in 2002. EPS were reduced by the restructuring and asset impairment charges of 19 cents per share, which was mostly offset by the favorable tax adjustment of 17 cents per share.

To summarize the income statement for the quarter, sales increased 9%, generating an 11% increase in gross margin. Total expenses drew 6%, leading to an increase in operating income of 19% before the restructuring and asset impairment charges.

These restructuring program charges reduced the income from operations to a negative 20% growth. However, the tax mostly offset restriction program and as a result, we have achieved a 10% growth in net income. Diluted EPS increased by 8% to 64 cents compared to last year's 59 cents per share. For the full year, MTI's sales reached $813.7 million, a $61 million and 8% growth over the prior year.

Foreign exchange had a favorable impact under sales of 32.6 million, accounting for about half that growth. Total operating income was 77.2 million, including the 6.5 million restructuring and impairment charges compared to 80.9 million in the prior year.

Net income for the full year was 63.2 million compared to 53.8 million in 2002. Diluted earnings per common share increase 18% of $3 or 9 cents versus 261 reported in 2002. As Paul mentioned, full year EPS were affected by the (inaudible) accounting change of 17 cents per share, restructuring and asset impairment charges of 19 cents per share and the favorable tax adjustment of 73 cents per share, excluding these items EPS share grew 4%.

Our balance sheet remains very strong. Our debt to capital ratio is about 16% giving us substantial capacity to continue to support and invest in our growth strategies. Cash generated from operations for the year was in excess of $100 million. In 2003, we invested about 55 million in capital addition. During the fourth quarter, we repurchased an additional 25,000 shares for treasury at an average price of $52 per share for a total expenditure of 1.3 million, bringing the total repurchases for 2003 to 149,500 shares at an average price of $40.24 at a total expenditure of $6 million.

Depreciation and amortization expense totaled approximately 70 million for the year. Sales outstanding are up over the prior year and inventories are in line with historical levels. Now I will return the microphone back to Paul for closing remarks and for questions.

Thank you, Ken, Alain, and John. As you have heard, MTI continues to perform well, despite a poor economic environment. During the year, we took the necessary actions to position a company to execute our growth strategies most effectively. We are expanding our presence internationally to take add advantage of the growth opportunities in both paper and steel. Our PCC for paper coating forum is accelerating. MINTEQ is increasing its presence in Asia to take advantage of increase demand for steel in that region. And we have we demonstrated that we can deliver results in an unfavorable business environment.

Looking ahead, the economic picture for the paper and steel industry remains uncertain. We will have additional expenditures for R&D in 2004 and there will be added restructuring costs for the closure of Michigan facility in the first quarter, which is seasonally MTI's weakest quarter.

However, we are confident we have taken the appropriate steps to ensure the continued growth of MTI. We believe that earnings in the range of $2.90 to $3 per diluted share for 2004, excluding the plan restructuring charge of about 3 cents per share, is reasonable barring unforeseen circumstances. Operator, we are now ready for the first question.

Thank, you, gentlemen.[OPERATOR INSTRUCTIONS] we will go first today to Alan Cohen of First Analysis.

Hi actually I'm Greg Femer (ph) in for Alan. Congratulations on your strong operating margin and refractory. On that note, in Europe, 41% sales gain, can you sort of break that down just specifically to Europe between your FX equipment, and just general market recovery in your implementation? More details on what went on there?

We certainly don't get into that specific information on a regional basis. We're very pleased with the performance that MINTEQ accomplished in the third quarter in a difficult environment returning to double digit operating margins and certainly moving at key role strategies. But I'll ask Alain to provide more information on that.

We're not providing the breakdown between the two types of product lines. It's the result of the three parameters: First the continuing market penetration that we have on the refractory products. That was a factor in 2004 -- fourth quarter of 2003 versus 2002. There was also the continuing market penetration of the equipment, which is a major forecast of our marketing approach on global basis so that was increasing also as compared to 2002.

There was also the particular situation of the fourth quarter of 2002. where we had significant shut down's of capacity in Europe, which creates a delay of some of the decisions of installing equipment. And that was a major explanation why we had the short fall in the fourth quarter of 2002. So the very important growth is also the result of this particular situation in 2002.I should also ask the fact that as part of this growth we have about 24% in currency exchange rate that is a very bold one expressed in (inaudible). So this increase also was amplified by the currency situation.

How sustainable is equipment sales going forward? Does that tend to be a one-time purchase or how does that work?

Well, we have various ways of marketing our equipment. I mean, it's through leases. So we have capital leases. We have operating leases depending on the conditions we negotiate with customers. Obviously it is sustainable because it is at the core of our system approach so we can expect and that's our strategy that this product line also will continue to grow as we go forward.

Thank you. Again, congratulations on your success there. Turning to Asia, are there any milestones or specific developments you can share there in your efforts to tap into that market?

Well, we are looking at a number of options as far as MINTEQ is concerned. There are a number of options above and beyond what we are doing. We have existing operations in Korea and Japan for a long time now and we are accelerating our growth in these markets. Obviously we have been also present in China for some time with a joint venture and we are also increasing our participation in this market but we're looking at some options on how we can accelerate our growth and increase our market penetration. This is a very important part of our strategy.

And ray, as you know in Ken Massimine has prepared comments he indicated that we have five satellite plants ourselves in Asia from the paper side of the business. As he indicated, the paper market will grow rapidly in Asia, and again in China being one of the major factors there. We in fact have a satellite plant in China which we think, as Ken indicated, will be a spring board to other opportunities that we see in china for our PCC business in the paper industry. So we see opportunities there certainly in Asia and in China, particularly both for the MINTEQ side of the business and over the paper side of the business.

In terms of the timing of those opportunities, are those '04 events or '05 events?

Well obviously we're building infrastructure in both paper and steel MINTEQ in that area and we think that we will continue to grow that business both in '04 and '05 as we go forward.

Returning to Synsil, is the new contract that you think you are going to get, is that comparable in size to the previous contract?

That would be where I don't want to get into the size at that point but that certainly is another facility with that same company. We obviously-- they are using our product right now, using it very effectively and we expect that to move to a multiyear commercial contract as we move forward over the next few months.

And you still have the capacity in your trial facility to sell the commercial quantities for these contracts?

Yes, we do.

OK. Thanks very much.

We'll go next to Jeff Zekauskas at J. P. Morgan.

Hi. Good morning.

Good morning, Jeff.

Can you update us on the time line for the filler fiber product that you have where you're working with international paper? That is, when do you expect the product to be commercialized?

Well, that certainly, obviously, is a difficult question to answer, Jeff, as you would imagine. We certainly have the cooperative development agreement with international paper, and I'm pleased to personally report that obviously that relationship, as you know, has been restored. I think this agreement is part of the restoration of that relationship and is then moving forward on a very cooperative basis between the two companies and certainly as you indicated we're going to be putting more resources into this area because of the opportunity provided for MTI and certainly for international paper.

We hope to be moving that just in terms of the sense of timing, we obviously are doing a lot of work in both IP's, research laboratories and our research laboratories, as you would imagine, and hope to be moving that into machine trials in 2004. So, there is certainly a sense of urgency by both the companies to move that forward, but to when it will be fully commercial, it would be presumptuous for me to try to quit a time frame on that.

Well, (inaudible) if your large scale trial and as you spoke up earlier in the call was successful when would you commercialize it?

We would move it quickly. I'm just going to leave it at Feb. There is a sense of urgency by both companies to move this as quickly as possible.

Is this beginning of '05?

I don't want to speculate on that, Jeff but either we will move it very rapidly and as far we are putting additional resources into it.

In terms of sin sell, what do you hope to accomplish in the first half of 2004, all things being equal?

We expect obviously all things being equal, Jeff, that we will certainly have a second contract. We have other trials underway as we speak. We expect those are going well. Our body of knowledge continues to build, as John indicated in terms of the value of the cost of sin sell, where one confirming the value of sin sell to the glass manufacturer, that's certainly hoping, helping us as a company in terms of, with continuing development costs that we have but we're very continually very optimistic of how we're moving this program forward.

And I think, if I remember correctly you had six large trials that you were working on. Do you expect those six trials to end before midyear 2004?

I think some will and some will continue. Some will continue.

Well, all things being equal, how many do you think will end?

I'm certainly not going to speculate on that, Jeff.

OK. Question for John Sorel. Is that accounts receivables went from 129.6 to 147.6?

Right.

Is there anything we should worry about there?

I would not only see in anything-there Jeff, that we're concerned about you know I think currency's affected us a bit and the sales increase has affected it and caused some of the growth. But if you look at it sequentially in a comparison made with year-end to year-end, we're down about 30 million from the end of last quarter. As we go through the major accounts, we don't really see particular increasing risk situations that we're concerned about.

OK. Sort of a last question. You didn't really talk about whether the mill closings at various customers would affect your PCC operations. Do you expect to close various PCC facilities this year? And if you do, how many and do we have to worry about refractories profitability in the first quarter because of high raw material cost? Are you going to start the year slow?

Well, in terms of answering that multipart question, Jeff, we see a couple things. Obviously we are watching the paper industry very closely. As we know, for example that several machines were shut down in 2003. And we know already and announced that there will be some small machine closures here in the early part of 2004. These are not satellite site customers. They're what we call as you know third party customers.

So, 1-obviously it's a negative for us as a company because it reduces the sales of PCC from an existing satellite plant. So from that sense, that is a negative and that will have some impact on us in the first quarter with those shut down's that we see. We don't see them causing the cessation of operations at the satellite plant as a result of that. We have obviously had several, as you well know, that we've had to cease operations and dismantle because the paper mills were, in fact, shut down permanently. So we don't see that as we're looking in the early part of 2004 from what we see with the shut down's right now.

In the MINTEQ side, obviously Alain as he probably indicated, is concerned about trade expenses and other costs that he is wrestling with in his business. But certainly I know he's looking at some surcharges and other things to make sure that we can recoup a portion of what those increased expenses would be. But I'll ask Alain to comment on that directly. Alain.

That's the situation that we have had now for some time and that we see is not improving right now. There's always a time lag between when we buy the raw materials and when it is actually received in our plants. So we expect that to go beyond the first quarter. I think after that it's very difficult to see how the situation is going to evolve.

So in other words, you'll have low profitability for the first two quarters of the year? Is that what you said?

Well, I wouldn't go that far but I did indicate in my comments that obviously as you know, seasonally, the first quarter is generally the weakest quarter for MTI. That is seasonally something that, traditionally is how this company operates. We see a similar situation here going into 2004. We know some paper mills have shut down or will be shutting down, so that will impact us, and certainly there are some increased expenses that Alain has spoken about, so there is some concern there.

OK. Thank you.

Jeff, let me correct that the sequential receivables are down about 4 million, obviously is about 2.5%. I think I said 30 when I initially found the averages that would be too huge a number for a month of change, or quarterly change.

And we will take our next question now from Michael Judd at Greenwich Consulting.

Yes. Hi, guys. You got -- I think your net debt is down to around $41 million here with the 91 million in cash. I know that you're planning on building or adding some - perhaps adding new capacity, and but seems to me that you have more than an adequate amount of cash. So could you just comment about you know what cash level you would be comfortable with, please?

Well, that's a good question, Mike. Obviously one we think about. We are obviously a very financially healthy company. We see, obviously, investment requirements as we go forward. In terms of additional satellite facilities and with the expectation that sin sell will be successful and we'll need capital to build sin sell facilities to continue to move that program forward and certainly to build infrastructure on the MINTEQ side of the business we are working at. So we don't have a specific target per sale, as we look at that. We have obviously a strong balance sheet, but I would ask John to address that question also. John, from your perspective?

I think we mentioned in the previous conference calls that we are looking at that growing cash balance, we do have some debt we will be able to pay down after another year or so from a swap that we did. I guess the comfort level we're really seeking is to increase investment and that will by it cure the cash levels.

And the next question is, I think probably at this time of the year you typically give us an update on how much capacity you added in the previous year.

We provided some of that, Mike, during our comments. We added two units of new capacity in 2003. One was the Sahba forest new satellite facility in Malaysia, and then we added one unit of capacity to one of our existing satellite facilities for a total of two units of new capacity.

Thank you.

[OPERATOR INSTRUCTION] and we'll go now to John Roberts of Buckingham Research.

Good morning. Guys.

Good morning John.

I wanted to ask about the persistent weakness in the specialty minerals area. Is it fair to say that PVC markets were relatively strong during the quarter and pointing ceramic demand was relatively was strong and this is just all, your internal issues, and the antacid? I mean, with the anniversary of the antacid market, when that came down.

We -- as we look at this specially PCC business, that portion of the business, one of the things that we look at is that, first of all, PVC is weak from our perspective, in terms of the market demand that we have there. You know, that manufacturing segment of the industries that we serve continues to be weak. We don't see huge demand for our products in that segment of the industry, so we are certainly looking to expand in other areas. Indicated in my comments for example that the talc side of the business has improved. So that develops a new application for talc. That's helping that business.

We had very nice growth in the fourth quarter in that portion of the business. But in the specially PCC business, certainly we need continue to work in that area to improve the performance of that business going forward, John. It's not where we want it. We obviously had the impact from the healthcare issues and that certainly caused that business to decline somewhat, but certainly in the fourth quarter we also suffered from the movement of some of those orders into the first quarter of 2004, so there was some shifting aboard to displace at the end of the fourth quarter. That will pick up here into the first quarter of 2004. Overall, with the improvement that we're seeing in GBT, we're expecting that improvement will favorably, favorably impact us in 2004 versus 2003.

Secondly, are you at all concerned in the refractory side about the emerging shortage of Coke and the impact that might have on steel production?

I think Alain addressed that in his comments, John. Yes. We see that some of that raw material cost and some of the shortages could impact the production of steel in certain areas, but again I'll ask Alain to provide some additional thoughts.

No, at this point there hasn't been any disruptions in the production of steel in the major markets but that's something that we're looking at. As you'll see this, say risk for the industry and for MINTEQ as a supplier to this industry... so that's something we are looking at. But the situation is the same. It's because of the very high industrial activity that we have in China in particular.

We've seen some announcements from US steel customers about the problems they are having. Is it a European issue as well I don't - ?

No. This is a particular problem in North America, from what I understand, where there are some problems that are specific to the US in the production of Coke, domestic production. But that adds to the overall tension that there is on this particular product.

John, does that address your question?

That's fine, thank you.

OK.

We'll now go to Robert Kosowsky at Sidoti and company.

Hello, guys. On of my question has been answered, but I was curious about market penetration on the refractory side. I guess how many more mills are here in now, and compare now to may be a year ago and with any particular growth in one particular region or another?

We don't account for the number of minutes, I don't have the numbers with me, but I can only assure you that the growth corresponds to the addition of new accounts, meaning new news that we new serving right now. But also to existing existing news, where we are so expanding the service and coverage of the applications and the various process steps of the steel making process. So we are increasing both our coverage, in terms of new accounts, new geographic, but also increasing our activity with existing accounts.

OK. I guess from the PCC side, where did you guys first set up that plant in China and the Asian plants and what gives you the increased confidence in the area of contracts in the next year or two over there?

Obviously, we've had a number of satellite plants in Asia starting with Thailand and Indonesia for example, Japan, and China and so we have a sequence of satellite PCC plants in Asia. The reason why both Ken Massimine and myself have expressed confidence is only because of the level of activity and more importantly discussions we have with potential satellite host paper mills. So those discussions continue as you would expect and we feel that those discussions will lead to additional satellite commitments in 2004.

OK. And some of the bit on the coding side on the Walsum plant, do you expect that to be sold out as soon as you set up production?

Well, we hope to sell it out and have to expand it, Robert. Certainly, that's a goal we have. It's a modular type facility.

But as soon as you get online, do you think it is going to be?

No. It will not be sold when you get online. That would certainly not be a good thing to do because if you sold out, you weren't online, you wouldn't have material to develop additional customers with. So you have to always-excess capacity for market development activity. We feel we will have a very strong base load for that plant when it starts up in September and as Ken indicated, the trial activity coming out of our Hermalle facility in Belgium is exceeding our expectations as Ken said in his comments. The trial activity and demand for the coated grading PCC because of the flexibility for binds to the paper manufacturer is exceeding our expectations in terms of how many customers and the quantities they're asking to take that material from Hermalle obviously to build that base load for the Walsum plant when it comes on stream in September. So we're very encouraged and optimistic as that program moves forward.

All right. Thank you.

[OPERATOR INSTRUCTIONS] We'll now take a follow-up from Jeff Zekauskas at J.P. Morgan.

First question is for John Sorel. Can you describe your cost reduction effort for 2004? That is, what is the change in head count and what are the cost savings, how do you expect them to phase in through the year?

Well, certainly both John and I will answer that. Obviously we did a restructuring and reorganization here in the fourth quarter recognizing, obviously the changes and disruptions that have taken place in the worldwide market that we serve. The position -- this company for very profitable growth going forward. We will get the benefit of that throughout 2004 with the reductions that we've made. But we're also building this company too.

So although we all do have reductions that we've made in certain areas, as you can well imagine, we're adding in other areas as we look at whether is Asia for example, or other key strategies that we're moving forward in this company. But again, that's -- redirection is too critical for us to be successful. So we've made those changes. The other thing that John - I will ask him to speak to is obviously, as you know we are implementing a worldwide ERP system and that system also have world wide opportunity to run this company more efficiently as we go forward and very critical for our continued success. With that brief in production, I'll turn it over to John. John, your thoughts?

Couple of comments. First, in regards to the restructuring, in the press release, we put out when we announced that back in December, we indicated to be about a $5 million reduction. You saw the breakdown I think between impairment, restructuring charges. The part of the savings is related to the head count worldwide. It tends to be front-loaded. But without disclose the actual individual components of it, the part related to the asset impairment and the movement of the MINTEQ plants were closing down, will not occur in the first quarter. That will continue to have costs for the company really part of the quarter. So you shouldn't think of it as being heavily front end loaded. If you're looking for a seasonal effect to it, you should think of the 5 million savings but not front end loaded at all.

If I understand Paul from remarks, there's no net benefit? That is this 5 million in cost savings and 5 million in spending?

No, no, no. I hope you didn't take that as my comment.

Try to sharpen the points a little bit.

That's OK, Jeff. No. Other than we obviously have made these changes to redirect the resources that we have with this company and where we need reduce and where we need to add. Obviously we have the reduction that we just spoke about. At the same time during 2004, we will certainly look at adding where it is appropriate to add to this company.

Well, what is the net benefit?

The net benefit is one of the things -- the real net benefit is going to be that we will see only limited expense flow for example as we go forward in 2004 versus 2003. One way of measuring it.

Just lastly, would you be disappointed if by the end of 2004 you had only signed up 50,000 metric tons of Synsil business?

A portion of the answer is yes.

Yes. OK. Thank you very much.

Gentlemen, we have no other questions at this time.

Thank you, operator, and thank you for all those who participated on the conference call. I think as you have heard that we will continue to perform well despite a challenging economic environment. I think we've demonstrated that we continue move our strategies forward and that we can deliver very favorable results in a challenging environment. We think that we will have a good 2004, that our earnings per share will continue to improve versus 2003 and that we will very successfully move our key strategies to go forward.

So thank you very much for your interest in Minerals Technologies and certainly we look forward to speaking with you in April. Thank you very much. Have a very nice day.