Minerals Technologies Inc (MTX) 2006 Q4 法說會逐字稿

Good day, everyone, and welcome to this Minerals Technologies Inc. fourth-quarter 2006 earnings conference call. As a reminder, today's call is being recorded. With us today is the Chairman, President and Chief Executive Officer, Mr. Paul Saueracker. Please go ahead, sir.

Thank you, operator, and good morning. In this my 25th and last Minerals Technologies analyst conference call I would like to highlight some of the noteworthy accomplishments of MTI in the fourth quarter and in the full year of 2006.

First of all, we achieved one of my personal goals for this company, to exceed the $1 billion mark in net sales. In 2006 we reached $1.06 billion resulting in a compound rate of growth of 8% over the past six years. This was accomplished during a period of significant transitions in the industries we serve.

Despite a difficult business environment in the fourth quarter of 2006 sales growth continued. North American construction and steel production dropped significantly and paper machines were idle as an ever increasing number of business transactions went paperless and the industry continued to consolidate. Fortunately the strategy of moving with the market was largely successful as increases in Asia and Europe offset weakness in North America.

MTI achieved net sales of $262.9 million in the fourth quarter which was $10.8 million or 4% above prior year's fourth quarter. Sales grew in both the refractory segment with fourth-quarter net sales up 8% propelled by the ASMAS acquisition and the Specialty Minerals segment with sales up 2%. For the full year refractory sales were up 6%, primarily due to increased sales in Europe, and Specialty Minerals sales were up 7%, primarily due to expanded PCC sales in Asia.

Operating income of $20.7 million increased 17% over prior year's fourth quarter. Full-year operating income for MTI was $84.9 million, up 5% compared to prior year and equivalent to 8% of net sales. This operating income translated into income from continuing operations of $51.6 million or $2.61 per diluted share. After recording a charge of $1.6 million for a discontinued operation, net income was $50 million or $2.53 per diluted share.

U.S. manufacturing continues to move to developing economies. While I am pleased with our strategy to move with the market, 60% of MTI's net sales still come from North America. The U.S. construction sector was particularly weak with housing starts dropping from 2.1 million units in 2005 to 1.8 million units in 2006. Many of our process mineral products are used in construction products such as floor tile and joint cement. Rigorous attention to costs allowed the Specialty Minerals segment to weather the downturn, fueling an operating income of $11.8 million, 18% above prior year fourth quarter.

Although the GDP in the U.S. grew 3.4% in 2006, the FRB index of industrial production showed a cooling as the year progressed, decreasing from 4.3% in the first quarter to a very modest 0.8% in the fourth quarter. Furthermore, global consolidation in the paper industry resulted in four paper plant or machine shutdowns which used our PCC. Fortunately the volumes of these smaller less efficient facilities were picked up by larger more modern plants that also used our PCC. This along with ramp ups and expansions allowed us to reach another milestone in 2006 when MTI's PCC shipments for paper exceeded 4 million tons.

Turning to the refractory segment, at the beginning of the fourth quarter Minteq successfully completed the acquisition of ASMAS, a Turkish refractories producer. This acquisition provided Minteq with an established base of operation in the rapidly expanding Middle East and Eastern European steel markets. ASMAS also added $6 million to Minteq's fourth-quarter net sales and will contribute even more significantly in 2007.

Following my introduction Ken Massimine, Senior Vice President and Managing Director of our paper PCC business, will provide further insight on the issues and programs related to our PCC product area. Alain Bouruet-Aubertot, Senior Vice President and Managing Director of Minteq, will report on the refractory segment of our business. And John Sorel, our Senior Vice President of Finance and Chief Financial Officer, will provide a brief review of the income statement and balance sheet. Following John's presentation I will conclude with a few summary remarks and open the floor to your questions.

Before proceeding further I need to remind you that on page 6 of our 2005 10-K we list the various factors and conditions that may affect future results, statements related to future performance by me or other members of management are subject to these cautionary remarks and conditions.

MTI continues to invest in three strategic programs that are gaining traction and should drive our long-term future growth and improved operating margins. First, we continue to move with the market and have responded by increasing our presence in regional markets where the manufacturing of paper and steel is shifting, particularly China and Eastern European. Second is the development and commercialization of disruptive technology such as filler-fiber composites for paper and Synsil for glass. Ken Massimine will address the filler-fiber technology in his overview and I will comment on Synsil.

Synsil sales were up 58% in 2006 to a total of $10.4 million. Additional trials in several glass segments are planned for this year. However, as you know, multiple trials are required to commercialize these potential new customers. We are also pleased to report that our second commercial Synsil facility in Cleburne, Texas is expected to initiate production during this quarter. However, the program will continue to require a significant investment by MTI.

Our third key strategy focuses on cost reduction and continuous improvement in all activities. For example, we stabilized the cost of our refractory raw materials by reformulation and alternative sourcing. I will now ask Ken Massimine to provide us with details related to our PCC business. Ken?

Thank you, Paul. I would like to begin my discussion with a few comments on the global paper industry followed by brief highlights of MTI's PCC business performance during the fourth quarter and full year of 2006 as well as some expectations for 2007.

2006 was another financially difficult year for the worldwide paper industry which saw moderate growth in paper demand. However, going forward recent evidence suggests that a small decline in paper demand growth could occur throughout 2007 in line with an expected softening in world economies. And as we saw in the recent past, regional factors continue to influence the overall production of printing and writing paper.

For example, overall production of printing and writing papers in North America declined by 2% in 2006 following a 2.5% reduction the year before. In particular production of uncoated freesheet, currently our most important market segment, declined approximately 2.4% last year. The rising popularity of competitive electronic communications, a major factor responsible for the prolonged decline in consumption of uncoated freesheet, coupled with an almost 20% increase in offshore imports of this grade versus the prior year negatively influenced its production in North America.

Faced with rising cost, a difficult pricing environment and stagnant sales the North American paper industry further reduced uncoated freesheet capacity in 2006 by closing down mills, idling machines and taking extended downtime. We expect this trend to continue into 2007 as uncoated freesheet production is forecast to show further declines.

Internationally Western European production of printing and writing papers improved last year primarily due to beneficial economic growth as well as a 4% jump in paper net exports. Combined this was enough to raise operating rates to 89% and increase overall paper production by 2.7%. However, the rate of growth in the region's economy is forecast to slow somewhat going forward.

Recent data from consultants at RISI show European printing and writing paper production will likely increase by only 1.7% this year. Contributing to this reduced growth in paper production, European mills plan to shudder 700,000 tons of uncoated freesheet capacity between 2006 and 2007 in response to greater cost pressures and Internet usage.

In Asia paper demand and production saw continued strong growth last year. Aided by a surge in exports, overall paper production increased by approximately 5%. Although China was responsible for the bulk of this growth, the entire region participated and will continue to dominate global paper growth for the next several years.

In light of a fairly difficult worldwide paper market, I am pleased that MTI's total sales of precipitated calcium carbonate for both paper and non paper applications in the fourth quarter of 2006 increased nearly 5% over the prior year's fourth quarter from $132.4 million to approximately $138.5 million. These results exclude the PCC satellite business at Hadera, Israel which discontinued operations in 2006.

Total PCC operating income increased 30% in the fourth quarter compared to the same period a year ago. Our operating income improved in part due to lower litigation expenses, strengthened year-over-year profitability at our new Chinese satellites, increased North American sales and royalty payments from a licensing agreement. These gains were offset somewhat by increased cost for raw materials due to energy which essentially could not be passed along to our customers because of contractual terms and conditions.

Cost reduction remained a key focus throughout 2006 for the North American paper industry as companies continued to rationalize capacity by closing paper mills or shutting down machines, some involving our on-site PCC satellite plants or directly affecting off-site customers. In particular, we were affected in 2006 by paper mill closures at Cornwall, Ontario; Nina, Wisconsin and Pasadena, Texas. In addition, we temporarily lost business at Park Falls, Wisconsin before the Company reorganized and resumed paper production under new management. Also affecting our sales was a machine shutdown at Dryden, Ontario.

In spite of these closures our business remains solid. Paper PCC volumes increased 5% versus prior year mainly driven by our two new PCC satellites in China as well as ramp ups of prior year expansions at select satellites. Equally important, PCC sales volumes increased in all geographical regions. We remain confident that our PCC volumes in 2007 will continue to grow despite possible further volume reductions at mills as mills continue to realign paper making capacity with demand.

For the full year total PCC sales gained 8% from $516 million in the prior year to a record $557 million while total PCC operating income increased 9%. Same-store sales tonnage increased approximately 3% and I am pleased to report that MTI reached an historical milestone last year when over 4 million tons of paper grade PCC was shipped for the first time.

Our business continues to be robust in spite of the previously mentioned closures and energy-related pressures. We are well positioned at world-class paper mills and can benefit from potential new business and/or expansions at existing satellites. Our paper productline is the most comprehensive in the industry exemplified by our state-of-the-art coating products. We are beginning to generate new sales for our coating PCC products; however, the slow conversion of favorable trials into additional product sales was disappointing. Nonetheless, we remain bullish that these products will offer superior customer value.

Our current goal is to gain full customer [incentive] and to commercialize several additional paper mill opportunities in 2007. As you know, we are also focusing on disruptive technology research. We continue to make progress with our research program involving filler-fiber materials to increase filler level significantly in uncoated freesheet. Currently we are actively working with several select paper companies on this unique mineral system.

During 2006 we increased R&D investments and trial-related activities with filler-fiber materials and will do so again this year. We are hopeful that we will transition from these trial-related programs into initial commercialization activities during 2007.

Now let us briefly turn our attention to specialty PCC or non paper applications. Our specialty PCC group had a challenging year in 2006 with sales growing only 1% due to sharply reduced demand in automotive and construction markets in the second half of the year. We anticipate that this year's specialty PCC performance will improve based on continued efforts to bring new materials to the polymeric markets that require the unique performance characteristics provided by PCC.

In conclusion, despite continuing headwinds we made good progress on all fronts in 2006. While we are cautiously optimistic about the coming year, we still have concerns that could create negative factors as we go forward, such a possible energy-related cost increases, further capacity rationalizations and slower product commercialization due to customer conservatism. We remain focused and intend to build on four overriding strategies, specifically -- commercialization of filler-fiber materials; further penetration into the coated paper market segment with coating grade PCC; acquisition of new PCC satellites; and reductions in operating costs.

We believe we have compelling technologies and value driven propositions for our customers which will add increased sales and income performance to our bottom line in the future. Now I will turn the microphone over to Alain who will review Minteq's business performance. Alain?

Thank you, Ken. Despite a sharp decline in North American steel production Minteq delivered an 8% increase in fourth-quarter net sales over 2005 which was leveraged to a 15% increase in operating income equivalent to a 9.9% operating margin. Fourth-quarter net sales of $89.9 million were $6.7 million above the $83.2 million reported for the fourth quarter of 2005. Fortunately a decline in North America net sales was more than offset by the benefit of strong steel demand in Europe and the addition of ASMAS resulting in a strong pickup in overall sales of refractory products and systems.

Operating income for the quarter was strong reaching $8.9 million, equivalent to 9.9% of net sales. This was $1.2 million above the $7.7 million reported for the fourth quarter of 2005. For the full year 2006 Minteq's net sales reached an all-time high of $347.9 million, up $20.1 million or 6% versus 2005. Moreover, Minteq delivered $32 million in operating income in 2006, a new record which was 30% above 2005 corresponding to an operating margin of 9.2%.

Minteq's fourth-quarter 2006 performance was shaped by three main factors -- the benefit of strong sales of refractory products and systems outside of North America, particularly in Europe; the favorable pension-related adjustments; and lower metallurgical wire revenue compared to an unusually strong prior year. Let me review each of these factors.

The first factor, strong sales of refractory products and systems outside of North America. Steel production in the EU 25 was up 6.5% for the fourth quarter and 5.9% for the year. This contributed to a significant improvement in Minteq's European sales of refractory products and systems.

Another important factor in performance improvement for Minteq in Europe was the continuing market penetration of [shutcreek] products which are gaining increasing acceptance, particularly in hot applications. This unique technology from Minteq enables the steelmakers who benefit from the high durability performance of a shutcreek product applied with minimum downtime, that is to say without having to take a furnace a little off-line to allow it to cool down.

Finally, growth in Europe also benefited from the recent acquisition of ASMAS, a refractory company based in Turkey which added approximately $6 million to Minteq's fourth-quarter sales. In Asia we continued our market development in China with important successful trials that led to increase commercial activity at the end of the year. We expect a continuing ramp up of our business in China going forward. Overall refractory productline sales were up 22% in the fourth quarter bringing total refractory sales for the year to $265 million, 11% ahead of 2005 sales.

The second factor, Minteq's operating income in the fourth quarter benefited from $800,000 in pension adjustments relating to the settlement and curtailment of a pension plan in Asia.

The third factor, reduced metallurgical wire revenue. The third major factor shaping Minteq's fourth-quarter results was the reduction in metallurgical products revenue when compared to last year. Fourth-quarter sales of metallurgical products dropped 25% to $18.7 million and this was the result of weaker North American market conditions as compared to an exceptionally strong fourth quarter in 2005.

The net sales decline was also caused by a significant drop in alloy raw material prices which was passed on to customers in accordance with our supply agreements. For the full year metallurgical product sales were $83.3 million, down 6% from prior year, again, largely driven by the change in alloy prices particularly in North America.

On the business development side the fourth-quarter highlight was the acquisition of ASMAS at the beginning of October. This provides Minteq with an experienced organization and a strong market position in Turkey as well as excellent manufacturing capabilities and internal access to our key raw material, magnesium.

This acquisition also better positions Minteq to move with the market to service the rapidly growing Middle East and Eastern European markets. It should be noted that Turkey was among the fastest-growing steel markets in the world with steel production increasing over 11% in 2006 and the prospects of continued strong growth both in Turkey and the surrounding region appear excellent. The integration of this acquisition as a bolt-on to Minteq's existing presence in Europe is progressing well and according to plan.

Another important development during the fourth quarter has been the sharp decline in steel production and capacity utilization in our largest market, North America. To give a sense of the significance of this downturn global steel production was up an estimated 7.3% for the fourth quarter of 2006 while North American steel production was down 7.7%.

It should be noted that U.S. steel manufacturing capacity utilization hit a five-year low dropping to 70% for the last week of December. The magnitude of the December drop is illustrated by the fact that you can usually use an 11-month year-to-date figure to get a reasonably good estimate of annual steel production versus prior year. In the U.S. for 11 months steel production was up 7%, while it was up only 3.8% for the full year. For the fourth quarter U.S. steel capacity utilization averaged approximately 75% while it was over 90% for the same period last year.

As we saw during a similar downturn in mid 2005 in North America, the consequence of the recent industry consolidation is that steel producers are more closely monitoring inventory levels of finished steel products resulting in a large number of steel mills that reduced production at the same time. Moreover, utilization rates were also negatively affected by a large inflow of steel from China which has become the largest U.S. trading partner in steel. This resulted in a large number of shutdowns that entered furnace re-lines which is going to impact Minteq in the first quarter of 2007 as the usage of refractories and systems is minimal immediately following furnace re-lines before ramping up over the life of a steelmaking furnace.

In conclusion, Minteq had a strong fourth quarter and achieved an all-time high operating income for the year. Minteq was able to deliver an operating income of $8.9 million in the fourth quarter of 2006 and a $32 million operating income for the full year. Looking forward we remain cautiously optimistic for 2007. We expect to benefit from our expansion in Europe, increase demand for our new [Hot Shot] (indiscernible) materials and the continued ramp up of our new plant in China.

However, as was the case in mid 2005, we anticipate a soft demand in the first quarter of 2007 in North America. I am now turning the microphone over to John who is going to review our financial results. John?

Thank you, Alain. You have just heard a discussion of the business environment, highlights of our productline initiatives and the key development activities of the Company during the fourth quarter. I will now review with you how that information is reflected in the Company's consolidated financial results and summarize our business segment performance.

MTI achieved diluted earnings per share for the quarter of $0.55 which includes a charge of $0.8 per share or $1.7 million related to foreign currency translation losses recognized upon liquidation of our investment in Israel. Net sales for the quarter were $262.9 million, an increase of $10.8 million or 4% compared to prior year. Foreign exchange had a favorable impact on sales of approximately $4.7 million or about 2 percentage points of sales growth during the quarter.

The remaining sales growth was attributable primarily to sales from our recent acquisition in Turkey. As you have just heard, we experienced weakening market conditions in all of our primary markets -- paper, steel and construction -- during the fourth quarter. Sales in the Specialty Minerals segment for the quarter were $173.0 million, a $4.1 million or 2% growth with foreign exchange accounting for more than half of the increase.

Sales of PCC increased 5% to $138.5 million from $132.4 million in the same period last year with the favorable foreign currency effect being primarily attributable to do this productline. In addition, increased sales from plant startups, primarily China, and ramp up of expansions worldwide more than offset the sales decline caused by several paper machine shutdowns. Sales in the processed minerals productline decreased 5% to $34.5 million from $36.5 million.

You will note in the sales table that for the first time we have shown Synsil product sales separately for the quarter and for the full year. Although Synsil sales increased significantly as we began our commercialization effort, sales of the other processed minerals products decreased 14% due to a steep decline in construction activity in the United States and a resulting downtime at our customers' facilities to adjust inventory.

Refractory segment sales for the quarter increased 8% to $89.9 million as compared with $83.2 million in the prior year. Within the segment growth was due to a combination of the acquisition in Turkey and the favorable impact of foreign currently. Excluding these two factors sales decreased 2%. Volume growth of refractory products, systems and services increased in Europe, but the overall refractory segment performance was affected by a 25% decrease in metallurgical product sales and weakness in North America.

MTI's cost of goods sold grew 3.8%, slightly below the rate of sales growth, which resulted in a 6% increase in gross margin. The gross margin line benefited from the receipt of royalties in the Specialty Minerals segment and a curtailment and settlement gain on a foreign pension plan in the refractory segment. Overall advances made in the PCC and refractories productlines were mitigated by higher raw material and energy costs, declines in the metallurgical wire area and increased product and market development cost.

Marketing and administrative and research and development expenses for the quarter both increased only 1% over the prior year. However, the prior year included litigation expense of approximately $2 million. Excluding this charge marketing and administrative expenses increased 10% due primarily to increased employee benefit expense including increased stock option expenses of approximately $0.6 million related to FAS 123R and planned increases in our worldwide business infrastructure.

In 2005 the Company recorded an impairment charge of $0.3 million related to the expected shutdown of a satellite PCC facility in Canada. There were no such impairments in 2006. MTI's income from operations increased 17% to $20.7 million from $17.7 million in the prior year. For the quarter the operating ratio was 7.9% of sales. Specialty Minerals income from operations of $11.8 million increased 18% from $10.0 million in the prior year and was 6.8% of sales. The growth was primarily the result of royalty income and lower legal defense costs.

Refractory segment operating income was $8.9 million, 15% above the $7.7 million from the prior year and was 9.9% of sales. This segment recognized a gain of $0.8 million from a pension plan curtailment and settlement in Asia. Gains in the refractory productline were largely offset by decreases in metallurgical products. Nonoperating deductions increased $2.3 million in 2006. The prior year included nonoperating income of $2.1 million related to the settlement of patent litigation.

The fourth-quarter tax rate was 30.9% this year compared with only 27.4% in the prior year when we made a year-to-date adjustment. However, the overall effective tax rate for 2006 was 30.9% compared to 29.72% for (indiscernible) year reflecting changes in the mix of earnings. Minority interest increased 49% to $0.7 million due to the continued ramp up of our joint venture operations primarily in China. Income from continuing operations was $12.2 million, down 3% from $12.6 million last year. The 17% increase previously mentioned in income from operations versus the fourth quarter of last year was offset by higher nonoperating deductions, a higher tax rate and increased provisions for minority interest.

The Company recorded a loss from discontinued operations of $1.7 million related to the liquidation of the satellite PCC business in Hadera, Israel. This non-cash charge was primarily the result of foreign currency translation losses associated with the investment. The effect on diluted earnings per share was $0.08. As a result net income for the quarter was $10.5 million, 17% below the prior year and diluted earnings per share for the quarter were $0.55, 13% below the prior year. Earnings from continuing operations were $0.63, even with the prior year. The average shares outstanding of 19,249,000 were approximately 1 million shares below last year's level.

Turning to the full-year results, MTI's sales grew 7% to $1.059 billion from $991 million in 2005. Foreign exchange had a favorable impact on full-year sales of about $2 million, less than one-half of a percentage point of growth. Operating income increased 5% to $84.9 million from $81.0 million in the prior year.

In the Specialty Minerals segment sales were $711.4 million, a 7% increase over the $662.9 million recorded in the prior year. Operating income was $52.9 million, 7.4% of sales and even with the prior year. The growth in PCC productline sales were offset by higher raw material and energy costs throughout the segment and by Synsil operating loss increases of about $2.5 million related to the initial startup of the manufacturing facility in South Carolina.

Sales in the refractory segment were $347.9 million, a 6% increase over the $327.8 million in the prior year, and operating income was $32.0 million, 9.2% of sales and 13% above the prior year. Improved performance was due to the strong market demand in North America throughout most of the year and improved performance in Europe.

In summary, the full-year operating income increase of 5% to $84.9 million was offset by higher nonoperating deductions, a slightly higher tax rate and increased provisions for minority interest resulting in a 2% decline in income from continuing operations. Including the discontinued operations net income decreased 6% to $50 million from $53.3 million last year. Diluted earnings per share were $2.53, 2% below the $2.59 per share achieved in the prior year. From continuing operations earnings were $2.61, 2% above the $2.56 earned in the prior year.

Turning to the balance sheet, our debt to total capital ratio is still about 20%. Cash generated from operations for the year was in excess of $130 million compared to $78.5 million in the prior year when working capital increased substantially. We invested about $117 million in capital additions worldwide including $32 million for the acquisition in Turkey. Accounts receivable increased slightly over the prior year, but days of sales outstanding decreased by about one day. Inventories increased about $11 million but are in line with historical levels at current prices.

During 2006 we repurchased an additional 1,001,400 shares for treasury at an average price of $53.30 per share for a total expenditure of $53.4 million. Depreciation and amortization expense totaled approximately $78 million for the year. Now I will turn the microphone back to Paul for his closing remarks and for questions.

Thank you, Ken, Alain and John. As you have heard, MTI was able to navigate through a difficult economic environment in the fourth quarter. We have maintained our focus on the key strategies that will drive the future growth of the Company. However, we are expecting a very difficult first quarter due to the weakness in demand for our construction-related products, refractories material in North America and the costs associated with the startup of our second commercial Synsil facility.

We expect earnings per share to be below first-quarter 2006 earnings per share, which would have been $0.58 per share excluding a $0.06 gain from an insurance settlement. I am also delighted that Joseph Muscari will be succeeding me as Chairman and CEO of MTI in less than four weeks. With that in mind it would be more appropriate for Joe rather than me to provide you with his expectations and perspectives for the Company.

Finally, I want to personally thank all of you for your interest in MTI and the opportunity to talk to you about the Company either on these conference calls or in person. It has been a most enjoyable run. Operator, we are ready for the first question.

(OPERATOR INSTRUCTIONS). Jeff Zekauskas, JPMorgan.

Good morning. Congratulations, Paul. I wish you well in your future endeavors.

Thank you, Jeff.

Can you talk about the operating rates at Synsil and why it's difficult to raise them? And what's the argument for bringing on a second plant when the first plant is running at such a low level of utilization?

As we look at the development of the Synsil program, Jeff, we are moving forward, as you know, with two cornerstone customers -- one that moved the construction of our first Synsil plant forward and then a second customer that was the impetus for the construction of our second Synsil facility in two widely dispersed geographic areas, one in South Carolina and one in Texas. Because of the logistics it is very expensive to try to move our Synsil products outside of the region where the Synsil plant is located and where the cornerstone customer is located. So that is the reason why we made the decision to build the second Synsil plant. And as you correctly observed, the first Synsil plant is now fully loaded.

In terms of your expectations for getting the first plant loaded, is there a strategy there or a goal as to what utilization rate you might reach? Sort of the talk in the industry is that your prices are too high. Is that something that needs to be addressed or do you think you can hold your prices where you are and just get some successful tests?

The pricing of the material is a price that we believe brings a value proposition to the potential glassmaker. And as we have moved the program forward and obviously a significant increase in sales in 2006 versus 2005 -- and we expect again a substantial increase in sales in 2007 versus 2006 -- that the trials will demonstrate that the value proposition is there. Just as I've mentioned a number of times that it takes a multiple number of trials to demonstrate that value proposition and that's why the program is moving more slowly than we would like.

And then just quickly before I get back in the queue, what are your expectations for capital expenditures in 2007 and your expectation for depreciation and amortization?

As you know, we normally spend -- and then I'll turn it over to John -- but we normally spend in the range of 80 to $100 million in capital per year. That has been our history. As John indicated, it was a little bit higher in 2006 because of the ASMAS acquisition that Alain made in his business unit. But John, I'll ask you to provide a little more color there.

That's about it. We announce our capital as we get the commitments and we still have, as you know, a number of programs moving forward that would draw the capital. So there will be a range which we'll announce as we get commitments. And so that means the timing of the capital additions spreads out quite a bit over the year. So I'd expect D&A with a total of $78 million this year to maybe be in the range of 80 to 85 next year.

All right, I'll get back in the queue. Thank you.

Mike Judd, Greenwich Consultants.

Good morning. And again, best wishes for a happy retirement.

Thank you.

I was just wondering if you could provide -- you've discussed in quite a bit of detail what happened in the fourth quarter and some details on what your outlook is by segment for the first quarter. And you have mentioned that you expect that the earnings will be down substantially year-over-year. And I'm just wondering if you could perhaps quantify what you mean by substantial. And I have a follow-up question afterwards?

Mike, as we look at the earnings, what I tried to provide in my comments was that as we look at the first quarter of 2007 versus the first quarter of 2006, the first quarter of 2006 was $0.64, but that included a gain from an insurance settlement of $0.06. So that $0.64 would have been $0.58. And we're saying at this point that we expect the earnings in the first quarter of 2007 to be below that $0.58.

And the reasons I indicated was obviously we continue to have significant weakness in North American steel, we have significant weakness in construction and we will be bringing on our second commercial Synsil facility which, as you know, there are startup costs associated with that. So those are the reasons why we expect to have a week first quarter 2007.

Okay. And then in the past you guys provided an annual look in terms of a range that you provided for EPS guidance. With the change in leadership here is there going to be a change in that policy?

Well, it would be presumptuous of me to speak for what Joe Muscari is planning for the Company as he takes over in less than four weeks. So that's why I think it would be better for Joe to provide the Street with his expectations and prospectus for the Company. So I would prefer to leave that to Joe.

Okay. And then with the discontinued operations, are there any costs which are going to be rolling into the first quarter there, or will discontinued operations disappear, it will just be sort of a one quarter event?

Well, at this time I believe it's a one-quarter event, but I will ask again John to provide any additional insights on that. John?

That wraps it up, Mike. It was just the balance sheet impact we had to deal with in the fourth quarter. Since we had announced previously that the plant contract was being terminated we accelerated the depreciation on it some time ago and it was all taken care of in earlier quarters.

Okay. And then in the refractories area, given the dynamics that you described for the quarter in the U.S., could you perhaps help us understand maybe from either a volume perspective or just something along those lines what the impact could be?

The way we look at that and then I'll ask Alain to comment, is that we look at the capacity utilization rate and when furnaces are re-lined. As you know, the capacity utilization rate was very low in the fourth quarter, it continues to below as we're entering the first quarter of 2007. Additionally, as you know, when they re-line a furnace, the usage of refractory material that we use the gumming materials, the hot shock treats is low and then the usage increases during the life of that lining.

So we're looking at those factors, both the low capacity utilization and the fact that a number of furnaces have been re-lined during the fourth quarter to really reduce the demand for the refractory products in the first quarter of 2007. But again, I'll ask Alain to provide a little additional insights into his expectations for the first quarter. Alain?

Yes, Paul. In the last quarter, in the fourth quarter the steel production was very low especially at the very end of the year. We see this capacity utilization and production ramping up in the U.S. at the beginning of the year. So it's according to what we anticipated. But there is a time lag in terms of the consumption and the usage in refractories. And this time lag is due to the fact that the usage in refractories is ramping up over the life of the furnace. So right after the re-line the usage is minimum.

So that's why we see a softness in terms of demand for all of our products and systems, but at the same time we see a ramp up which is further confirmed by the pickup or (indiscernible) activity at the beginning of the year. Further than that, I think it is difficult at this point to quantify. But we are optimistic it's ramping up, but it's going to be a hit for us, especially as compared to the strong fourth quarter.

Okay. And just finally in specialty PCC, have you begun to see a pickup in volumes there? I realize that things are pretty slow in December, but have things begun to turn around there or not?

No, actually that continues at a fairly low level at this point. We're expecting that it will pickup as we go through the first half of 2007, Mike. But at this point it still is at a fairly low level.

Thanks for the help.

Rosemarie Morbelli, Ingalls & Snyder.

Good morning, all. And best wishes for your next chapter, Paul.

Thank you.

Whatever that may be. When we are looking at refractory, where you had about $6 million in revenues in the fourth quarter, any contribution to earnings from ASMAS?

During the first quarter it was primarily a sales benefit to the Company, but of course we had some integration expenses. But I'll ask Alain again to provide a little more color there, Rosemarie. Alain.

I think it's too early at this stage to quantify the contribution. We are three months into the integration and I would say we are progressing well and according to plan.

Okay. When we eliminate of course the contribution from the pension plan and let's assume that ASMAS was breakeven, your margin was about 9%. Is that -- do you expect that level to be below that in the first quarter of '07? Or do you continue to see declining business below that? It was 8% in the first quarter of '06.

I don't have in mind the operating margin for the first quarter. What I can put into perspective is the activity of the steel industry in the first quarter of last year. It was way after six months after a downturn also in North America and you have this ramp up in refractories usage. So you are further along into the ramp up of the consumption. So all things being equal, we are going to be at the beginning of this ramp up in the first quarter, but obviously the situations are different.

But just to compare where we are in the cycle, we are early on in the re-lines. So I would say it's -- I don't have in mind a comparison. But it's going to be minimal for us, it's going to the soft in the first quarter.

So we are really expecting both pieces of the business, the Specialty Minerals and the refractory segment to be both substantially below last year as opposed to just one of them and the other one kind of hanging in there? Am I reading this properly?

That's similar to what I said, Rosemarie, in that the refractory business would be soft and that the construction related materials and process minerals and, as we spoke a few minutes ago, specialty PCC would also be soft in the first quarter.

Moving on to the Synsil. In the third quarter you mentioned that while revenues were ramping up it was below expectation, below your expectations. Are we still below your expectations in Q4 or are you making progress?

It (technical difficulty) never ramps up as quickly as I would like, Rosemarie, so that's the first thing I would say. And we continue to move forward, but not at a rapid rate that I would be pleased with.

And it took about 10 years for PCC to really be accepted and I know you always said that it will go a lot faster with the glass industry because you don't need to make any changes in the way you operate the plants. What is your best guess as to how long it will take, is it three years, is it five years or could it be 10 years?

I certainly don't want to speculate on that, Rosemarie. We see Synsil as a significant opportunity for this company and why we continue to invest in that and we'll be starting up the second commercial plant here in the first quarter. We believe that it provides value to the glassmaker and it will prove to be a very significant business for this company as we move forward over the next several years. But I would hate to try to quantify that as I look at it at this point.

Okay, thanks.

Ray Kramer, First Analysis.

Good morning all and best wishes, Paul, in whatever you choose to do. Sort of following up with Rosemarie's last question, but maybe looking a bit broader. You've got a whole series of big growth initiatives that at least to date have been a lot of CapEx and a lot of expense -- Synsil, filler-fiber, the big refractory plant in China, even paper in China. Without going into the specific years you sort of expect those to hit, could you maybe even give me like a rank order of which of those you think will be a positive P&L contributor the soonest and which might take the longest?

I would prefer not to give you a rank order in terms of which will contribute sooner or later than the others, by the way. But you did in fact identify those key growth strategies that we have as we move with the markets and try to bring disruptive technologies to the industries that we serve. Filler-fiber is moving forward, as Ken mentioned in his prepared remarks. We have the facility operational in China. And as Alain indicated in his remarks is that commercial business is developing. We have commercial customers from that facility and that will continue to grow in 2007. The Synsil, we are starting up in our second plant in this first quarter of 2007 and with the expectation that sales for Synsil will increase substantially in 2007 versus 2006.

So we have a number of what you properly categorized, Ray, as significant investments and expenses. We believe that as we move through 2007 and 2008 that we will start obtaining the benefits from those investments as we move those forward. But I would rather leave it at that at this point. Certainly those are issues that Joe Muscari will be addressing as he assumes responsibilities in less than four weeks.

I'll try it one more way then move on. Is there one of those segments that is -- which of those do you think is best positioned now? Which of those growth areas are you most happy with how the progress has been so far?

I'm just going to say I'm pleased with the progress that we're making. It doesn't move as quickly as I would like, but overall, as I look at the efforts that Ken and Alain and others are putting into their key strategies for growth already I'm very pleased with how they've positioned their businesses, organized their personnel and the marketing plans that they have in place to move them, so I'm very pleased with that.

Fair enough. Some specific questions -- with the new Synsil plant, it sounds like the South Carolina one was maybe a $2.5 million or so headwind this year. Should we assume a similar type magnitude as the Texas plant ramps up or is there anything fundamentally different about that versus the South Carolina plant?

No, the plants are similar in terms of their size and capacity. Obviously there are learnings that you get when you start a second plant versus a first plant. So I prefer not to give specific numbers, but we expect the Synsil program to improve as we continue to move forward.

Okay. And then you talked about I think even next year bringing on more R&D spending, I think particularly with the filler-fiber. If I look at least at the P&L for R&D in the December quarter, it was down a little from June and September. Are there some other projects that are winding down there or is that just some seasonality in R&D budgeting?

That's more seasonality in R&D budgeting. We expect to continue to be a research and technology based growth company and continue to make very significant investments in the R&D area as we move forward. So we will see continued growth in R&D. We're up $1 million in 2006 versus 2005 and we will continue to grow R&D spending as we move forward.

Okay. And then just lastly, can you hazard a guess if there will be any additional PCC satellite plants in China at least announced on the drawing board this year?

I'd prefer not to hazard a guess there. But we see significant opportunities internationally for our satellite PCC business. So we see continued opportunities globally for the satellite PCC business, not only in for example Asia but also in Latin America, Eastern Europe and that. So we see global opportunities for satellite PCC.

All right. Thanks a lot, Paul.

Todd Peters, American Century.

Good morning. Congratulations on your retirement.

Thank you.

Just a couple of clarifications. Firstly on Synsil, I think as I read it, it says here operating losses increased approximately $0.5 million in fourth quarter and $2.5 million for the full year. So number one, so the loss for the full year was not $2.5 million; it increased $2.5 million in addition to what it was in '05?

That is correct, Todd.

So on a clarification basis, if you look at the EBITDA margin of your Synsil business, is it near EBITDA neutral, breakeven?

No. As we have indicated previously, the Synsil business is not a breakeven business at this point.

And not on EBITDA basis either?

That is correct.

Then on your capital spending, you're right, excluding the acquisition it was right around near $85 million, which is what you normally spend. And I guess the commentary was that it was going to be near $75 million to $80 million this year, and I think maintenance is around $30 million. So $50 million of spend, what and where are you spending primarily?

Okay, I think those numbers may have been slightly not correct, but let me ask John Sorel to look at that.

Let's make sure we're on the same page. You're talking about 2007?

Yes.

And I think we said it would be in the range of, we'll just say 75 to 80.

That is what I said.

That would include the maintenance capital.

Correct. Yes, I understand that.

This is not additive.

Yes, I know. My implication was that --.

So the question then, assuming that part of that is maintenance capital, what is the rest for?

Correct.

Again, we don't try and be that specific. When we get PCC satellites or any other major investment, we announce that at the time. We don't try and forecast whether we will have a plan -- someone asked the question a minute ago, are you going to build another satellite, let's say, in Asia? We won't do that until -- we won't announce that until we actually get them. But you can expect with the number of programs that we have underway, with two new programs just in the early commercialization stage and the filler-fiber still in late development but heading towards commercialization, we would have capital requirements for some of those programs.

Okay. Then on the startup for the plant in Texas, does it begin and end in Q1, or is it a half-year startup cost time?

The startup is actually underway as we are speaking, so we are in the startup process. So a lot of the expenses will be in the first quarter, but there could be some in the second quarter also. But the major expense will be in the first quarter.

Okay. Is there any way that you would quantify what the spending has been on the filler-fiber technology?

Todd, we don't quantify that. It is obviously in our research expenses, and obviously, we continue to fund that. We believe it is a major opportunity for this company to significantly increase the filler level in uncoated free-sheet paper. We will accelerate that investment as we go into 2007, because we believe it has substantial benefit for MTI going forward.

One last question. I kind of appreciate your customers wanting to study a new product or a new process before they fully embrace it, and the filler-fiber research has been going on for quite some time. And is there a major hurdle still to be overcome, or is there one or two or is it multiple issues that the customer is dealing with before they move forward with it?

We are having continuing discussions with several customers that have moved the concept forward, but let me ask Ken to address that and provide a little additional clarification there.

Thanks, Paul. Todd, I think maybe the best way to find what it is that you're wanting to get at is that it is really a lot of the customer conservatism. This is a significant change in terms of really improving the filler levels above and beyond where we are today. So, in essence, there is a tremendous amount of trial activity that needs to be vetted out first before customers are really willing to move forward.

So as I said in my prepared remarks, I am very pleased with where we are. Like Paul says, I wish these things would always be moving faster too, but I think a lot of it right at this point, where we are with the program, we are reasonably satisfied with where we are. The program does continue to advance forward, and I think it is just basically getting through those milestones that we have set up with ourselves and customers in order to fully validate this technology. And then ultimately, there'll be a point where the customer will embrace it and want to commercialize it. But a lot of it is just, in essence, is the conservatism to make sure that before they are going to do something 24/7, that it is fully vetted.

Sure. John, what do you have left in your share repurchase authorization?

The authorization that began earlier this year was about 75 million, and we have left about 30 million.

Okay, thank you. That is all I have.

Alex Mitchell, Scopus Asset Management. correct.

I didn't quite hear the answer to Jeff's earlier question about why you are building another Synsil plant when the first one isn't really filled up yet.

Alex, the second plant, by the way, is constructed. So we have built the first plant which was constructed in South Carolina. That's in Chester, South Carolina, is operational at this time. There was a cornerstone customer which was the basis for the construction of that plant, and now we have a cornerstone customer that is the basis for the construction and startup of the second Synsil plant in Cleburne, Texas.

The logistics of such, because of the different geographic areas that we are looking at moving the material; in other words, a glass concentration in the South Carolina/North Carolina area and a glass concentration in the Texas area. So we have two plants there that can satisfy the market demands that we are anticipating in both of those glass geographic regions. So that is the reason for the construction of those two facilities, the one in South Carolina and the one in Texas.

It is a way of accelerating the development of the program by having the capacity to now source trials not only in the South Carolina/North Carolina area, but the ability now to conduct trials in the Texas area where there is another major concentration of glass manufacturers. So again, first construction based on a cornerstone customer in each facility, for each facility; and two, both are in a large glass manufacturing region where we expect significant demand for the Synsil products.

All right then. I understand that. That's significantly weaker than the $0.58? I was just thinking the text from the press release.

Again, trying to provide some color there in terms of the earnings expectation for the first quarter of 2007, what we're trying to just given a sense there that the first quarter of 2006, excluding the insurance gain, was $0.58. We are saying that because of a number of factors that we have been talking about here this morning that we expect that the earnings would be less than that $0.58 in the first quarter of 2007.

Care to characterize what the word significant means?

I would prefer not to.

Okay. How much is just the Synsil startup?

We don't get into those specific details in terms of the Synsil startup.

Is it most of the weakness?

I wouldn't characterize it as being most of the weakness. It is one of the factors that we have indicated. That plus, as you know, the weakness in some of the construction related markets that we serve. There's weakness in the steel as we tried to ramp up through the first half of 2007, because of the re-lines and the capacity utilization primarily here in North America. So there are a number of factors, Alex, that influence that.

I guess you've chosen only to talk about the first quarter. Does that suggest that a lot of these factors will be basically past when you enter the second quarter or --?

No, Alex, as I tried to comment earlier, I think with Joe Muscari assuming the responsibility for Minerals Technologies in less than four weeks, it would be presumptuous of me to provide information going forward.

That was in response to yearly guidance. I just wonder if you had any thoughts about the first half.

No, no, because I prefer to let Joe provide you folks with his expectations and perspectives for the Company.

Any of those markets that you would expect to be turning up?

I think we have indicated that we see the weakness in the first quarter possibly going into the second quarter, but expect that the economy as we look at the economic models in the forecast that we see, that we should see improvement as we go through 2007 in the economy here in North America, and globally.

Thank you very much.

Thank you, Alex.

John Roberts, Buckingham.

Before we all wish you bon voyage, JP has stayed on the board quite a while since he retired. Have you and Joe had conversations about whether you're staying on the board? I know you're up for election this year.

No, actually I will not be staying on the board. About five or six years ago, we changed some of the governance rules here, which I supported by the way, is that when a Chairman CEO retires that he would resign from the board at that time, and that is the common practice with most companies. We made that change about five or six years ago, and I certainly support that change. So I will be leaving the board as I retire.

Does that mean JP comes off next year when he comes up for election?

No, JP has already retired from the board. John, he retired from the board in October.

Okay. In the annual results, John, at least in the 10-K, you give the geographic sales. I don't know if you have a preliminary look at that to give us the regional growth. Does Europe show the growth in the coatings grades and does Asia show any progress related to Minteq?

We will have something in the K. I don't have them prepared now, but there will be growth in all of those regions, but we don't get into the specifics as to whether it is from a particular program or not. But you will see growth in the foreign regions.

Thank you.

Operator, it is now about a quarter after 12:00. We will take one more question.

Jeff Zekauskas.

I guess I'd just like to go back to that capital expenditure number. Last year you built a refractories plant in China, you built the Synsil plant in Cleburne, Texas. And normally at this time of the year you announce whatever PCC expansions you have for the coming year and I didn't see any in the release. So I'm puzzled as to how the capital expenditures might be in that 80 to 100 range that you provided?

I'll certainly speak to that. We have a number of things underway, Jeff, within the Company. You always have the maintenance capital that John spoke about that we use. We are for example finishing the construction of the Synsil plant in Texas and a good portion of that spending will carryover here into 2007. And we have some expansions in the satellite area as well as a major expansion in the processed minerals area to support the growth that we see long-term in those businesses.

So there are a number of projects underway within this company that will utilize the capital estimate that John provided, both for maintenance capital, for construction that is underway within this company, and the expectation that we will have other opportunities going forward in 2007. So that's why I think we always look at that estimate that John has provided. John, your thoughts on that?

I really can't add anything to that, Paul. The programs -- as you build plants, some of them are fairly expensive. If you build a coating plant for example, it takes a considerable amount of capital. So it doesn't take many projects to consume that amount of capital. Assuming we can reach the arrangements we want to justify such an investment, which would be subject to Board review, we would go forward with those investments.

I guess lastly, you have a number of technology ventures. You've got Synsil, you've got filler-fiber composite, you've got the new operations in China, you've got coatings grade PCC in Europe, and there are probably a few other projects that I don't know about. If you summed up all the losses from those operations, how much is that currently depressing your margins?

Well, the concept that you have is somewhat reasonable, Jeff, in that you have to make these investments to continue to grow a company. And that we look as we continue to move forward that these investments will provide a significant growth in operating income and earnings per share as we move those technologies and investments forward. The speed and rapidity that you can move them forward is always something that we look at here internally and debate internally as we look at where to invest and what programs to fund and the level of funding that we put into those. But certainly what you're asking is a normal activity that takes place here at Minerals Technologies.

Thank you very much. Good luck, Paul.

Thank you very much and, again, that concludes the conference call and, again, I would like to personally thank all of you for your interest in MTI and most importantly for the personal relationship that we've developed over the years as we've spoken about the Company either on the conference calls or in person. It's something that I certainly have very fond memories of. Thank you very much and let's have a terrific 2007. Thank you.

Once again, thank you all very much for joining us today. That does conclude the presentation. Have a great afternoon and a wonderful weekend.