Minerals Technologies Inc (MTX) 2007 Q4 法說會逐字稿

Good morning. My name is Tina and I will be your conference operator today. At this time I would like to welcome everyone to the MTX fourth quarter 2007 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. [OPERATOR INSTRUCTIONS] Thank you.

Mr. Honey, you may begin your conference.

Good morning, I'm Rick Honey, Vice President of Investor Relations. Welcome to our fourth quarter 2007 earnings conference call. We will begin today's calm with Joe Muscari, Chairman and Chief Executive Officer who will provide an overview of the quarter and some of the effects the realignment we announced in October has had on our results. He will be followed by John Sorel, Senior VP and Chief Financial Officer who will review our fourth quarter financial results and provide some additional details and clarity on the financial impact of the realignment. After the review of our financial performance, Joe will provide some further thoughts on MTI's path forward. This call is being webcast from the Company web site, www.mineralstech .com. To me view the webcast just go to investor information, presentation, and conference calls. If you are viewing the presentation on the webcast please note that we have provided a PDF file for a clearer viewing of the charts. Before we begin I need to remind you that on page seven of our 2006 10(K) we list the various facts and conditions that may affect future results. Statements related to future performance by members of our management, are subject to these cautionary remarks and conditions.

Now I will turn the call over o Joe Muscari. Joe.

Thanks, Rick. Good morning everyone. Last night we released our fourth quarter and full year 2007 financial results. We recorded earnings of $0.86 per share for the quarter and a net loss of $3.31 per share for the full year as a result of the realignment and restructuring program we announced last October. The $0.86 includes some favorable non-recurring items which John will discuss. What I'd like to do in the first part of this call is share with you the progress we've made over the course of 2007 with the initiatives started earlier in the year as well as the realignment of our operations and provide some insight into what effect these changes have already had in the fourth quarter. John Sorel will provide you with more detail on the fourth quarter financial performance itself.

As we discussed during the last call after an intense strategic review of all our businesses and operations we initiated a realignment and restructuring program. This program in which we took a pretax charge of $157 million continues to proceed smoothly and on the track that we envisioned and planned for, including a reduction in work force of more than 200 employees. We have shut down the Synsil products business, our operations in Mount Vernon, Indiana and Wellsville,Ohio are being held for sale. The customers and products from the Brookhaven, Mississippi facility are being transferred to Adams, Massachusetts. We are concentrating on an integrated mine to market strategy in our performance minerals business. We reorganized our refractory operation in China, and we are moving from a merchant business model to a satellite model in our European PCC coating operations.

These steps are necessary for Minerals Technologies to get back on the track of sustainable growth by refocusing on our core competencies. Those areas and business segments where the Company performed well in the past. These actions have provided a stronger foundation to build upon that will result in greater success in our markets, higher levels of profitable growth and improved shareholder returns.

During the quarter we began to see savings from the realignment program, savings, which as I mentioned in the last call are targeted at $15 to $20 million pretax. Our cash flows increased from a little under $48 million in the third quarter of '07 to $57 million in the fourth quarter of '07. Working capital was reduced from $249 million to $221 million quarter-over-quarter. We also made a number of significant organizational changes in the quarter that position us well for improved performance. Bill Wilkins has taken over the Minteq business unit, Randy Harrison has moved over to lead our HR effort, a critical role, D.J. Monagle has moved from PCC Americas to become ahead of our performance minerals and Dan Skrovanek has joined us from Bayer with an extensive materials business management background, to take D.J.s place in PCC.

Our expense control initiative which was instituted shortly after I arrived in March enabled to us keep our expenses at 2006 levels, well below what was being planned. We also bought back a little over $20 million of stock in the quarter and the $75 million program approved in late 2005 is now complete. During the quarter we continued to focus on the four major objectives we laid out last spring, profitable growth, product innovation, operational excellence and safety and, most importantly, our customers. Let's look at the improvement we've seen in safety, for example. For the year our total recordable injury rate was 3.08 per hundred employees and our lost workday rate was 1.15 per 100 employees. 17% and 35% lower respectively than the previous three years average. We were also able to improve our working capital days from 81 at the end of 2006 to 69 at the end of 2007, a reduction of $23 million.

One of the first actions I undertook when I joined the Company was to establish expense controls and a new system for allocating capital. We've seen some slight improvement in our return on capital and we will continue to work to improve that metric by bringing it up to at over 9%, our weighted-average cost of capital as fast as possible. In the past the company did not view capital as a scarce resource. Today I believe that perspective has changed. Product innovation has been a foundation for MTIs past growth and cape built. In general our R&D capabilities are solid but they needed to be better focused so we made some change in the R&D organization and resources to achieve better alignment and focus on our critical development areas. We have also formed a technology lead team to better guide and enhance the Company's technology base as well as better evaluate new areas of innovation for the Company. We expect to see impact from these changes in our critical development programs, the filler fiber composites, new coating PCC products, calcium carbonates and talc, for biopolymers. We need to continue to have rapid deployment of our new refractory formulations and we also plan to further leverage the Company's critical; engineering expertise to provide greater product customization for paper makers.

Our effords towards continuous improvement at all levels of the Company continues to gain traction. We have rolled out the initial phase of the 5S process across all of our manufacturing facilities and are now in the train the trainer stage for establishing the processes of daily management control, problem solving and total productive maintenance, TPM. The implementation of continuous improvement throughout the company will provide us with a more disciplined approach to operation and process management. In addition to making MTI a safer place to work. Project management standards have also been put into place across all businesses and resource units as part of this operational excellence initiative. Operational excellence is intended to become part of how we do business every day, there by stabilizing our processes and eliminating waste which will over time help us to achieve higher levels of return. And most important, we will continue to focus on providing our customers with the kind of value-added products and services that will allow them profitable growth and we will accomplish this at a faster pace.

Now I'll turn it over to John to discuss the financial results of the quarter, John?

Thank you, Joe. And good morning everyone. I will now provide you with an overview of our consolidated and segment financial results for the quarter and discuss the key market and operational elements of our performance. You will note that we have reclassified the Synsil and Midwest process minerals businesses to discontinued operation and have accordingly restated our history as required. Also in order to provide you with a better sense of the ongoing business performance during my discussion, I will exclude the effective restructuring charges from the product line review, as we did in the last call.

This was a complex quarter for financial reporting and for providing a succinct summary of results; an important aspect to provide the context for our performance is that the business environment was not favorable for us during the quarter. The North American and European paper industries continue to consolidate to improve operating rate and profitability as demand weakens. For example, in the North American uncoated presheet market, one of our most important markets, the demand during the quarter continued to drop by 3%to 4% while operating rates remained high at 96% to 97%. As a result, paper PCC volume for the quarter was essentially the same as last year, just over one million tons as growth generated from previous expansion in our new facility in Brazil was offset by machine shut down and reduced demand throughout other parts of the system.

December housing starts were at their lowest level in 17 years and down 56% from the peak level of about 2.2 million in January of 2006. This has caused a significant drag on our process minerals business which supports all aspects of the construction industry. In addition, the U.S. automobile industry volumes are down about 2% from prior year levels. As a result sales and unit volumes in the process minerals and product line were even slightly lower than the fourth quarter of last year which was itself a very weak quarter as our customers began adjusting inventories to reflect a weaker economic outlook. From a market perspective the steel industry was a relative highlight with production volumes in North America and Europe, our two most important markets of 7.2% and 2.9% respectively. However, our refractories business face unprecedented pressure of magnesia and allumina raw material costs, both sourcing costs and logistics costs escalate to do record levels worldwide causing delays in pricing recovery in the marketplace.

Within this environment the company still recorded net income of $16.8 million, or $0.86 cents per share in the fourth quarter. To understand this performance our strongest of the year requires consideration of several unusual items which combined had an overall favorable impact on fourth quarter results. As we advised you last quarter we expected to incur additional severance costs associated with the realignment program which could not be recorded in the third quarter. These costs totaled approximately $4 million pretax, or $0.14 per share in the fourth quarter. Offsetting these restructuring costs were certain one time compensation cost reductions and the SG&A expense area related to management changes in the company and other employee adjustments which totaled approximately $0.10 per share. We also received a business interruption insurance recovery of $3 million related to storm damage which affected some of our R&D activities in 2005. Due primarily to the higher cost of raw materials recorded in 2007 the company recorded favorable inventory adjustments during the quarter due to escalating raw material cost -- valuation adjustments during the quarter due to escalating raw material cost -- I'll pick up here. Together these items had enough favorable impact on our results, of about $0.11 per share. There were a number of other factors which is also contributed to our stronger than expected financial performance. Interest expense was only $200,000 in the quarter, over $2 million below the fourth quarter of 2006 reflecting our record cash flow for the period. In addition we benefited from a continued steep decline in the value of the dollar against the Euro and other European currencies which provided additional earnings in dollar terms. Our results reflect the reclassification of the Synsil business which ceased operations in the fourth quarter and the Midwest process minerals operations which are being held for sale. To discontinued operations for the first time. The effect of the loss in Synsil which is partially offset by a profit in the Midwest process minerals business equates to a net loss after tax of $600,000 dollars or $0.03 per share. However, nonincluded in discontinued operation are a number of assets globally for which we will incur ongoing expenses before we dispose of them and ultimately achieve the forecasted benefits.

This stage highlights some of the key financial results. Sales for the fourth quarter were $274.3 million, 8% above prior year sales. Growth was driven primarily by favorable currency and the pass through of higher raw material and energy costs. In a moment I will provide you with the sales highlights by major product line. Income of $16.8 million includes a loss of $600,000 from discontinued operations. Income from continuing operations of $17.3 million for the quarter represents an increase of 32% from the $13.2 million earned from continuing operations in the prior year's fourth quarter. The growth is primarily from the PCC product line which benefited from the pass through of raw material costs and favorable currency. The other major product lines, process minerals and refractories, benefited strongly from the items I previously mentioned but otherwise performance was depressed by the market conditions for process minerals and the raw material costs and refractories.

As mentioned in the press release, all product lines benefited from the reduction and depreciation expense related to the realignment recorded last quarter. Cash generated from operations in the fourth quarter of 2007 was at record levels at approximately $57 million including a $29 million decrease in working capital. For the full year cash generated from operations was approximately $177 million, the largest annual level in the Company's history. Capital expenditures for the quarter totaled $9 million while depreciation and amortization were about $19 million. Year to date, capital expenditures totaled only $50 million, the lowest annual rate in the company's history. During the fourth quarter we accelerated the share repurchase program and acquired 301,400 shares for $20.3 million. MTI sales for the quarter as I mentioned were $274.3 million, a growth of $19.5 million, or 8%. Sales in the specialty minerals segment for the quarter were $180.4 million, a $15.5 million increase or 9% growth, with foreign exchange accounting for five percentage points of the net increase. Sales of PCC increased 11% or $15.6 million, to $154.1 million from the $138.5 million in the same period last year. This increase was primarily the result of foreign exchange and higher selling prices related to the pass through of raw material cost increases and slightly increased volumes in Europe.

Sales of ground calcium carbonate it in decreased slightly in the quarter from an are already depressed level last year due to a continued decline in residential construction activity and a weak automotive market in the United States. Talc sales were even with last year. Refractory segment sales in the fourth quarter increased $4 million to $93.9 million from $89.9 million in the prior year. Foreign exchange had a favorable impact on sales of $5.8 million. Sales of the metallurgical products decreased 6% to $17.6 million as compared to $18.7 million in the same period last year. The decline in metallurgical sales was primarily attributable to lower volumes in North America and to lower prices as a result of a reduction in the cost of raw materials that is passed through to the customers for this product line. In the specialty minerals segment the financial performance graph for the last eight quarters reflects a generally positive trends in sales for 2007 versus 2006, despite the market weakness in the process minerals product line. The growth in PCC sales is derived from the effective of a weaker dollar combined with the pass through of raw material and energy cost increases which more than offset volume declines in the process minerals product line and the shut down of additional paper making capacity. Segment profitability in the fourth quarter improved over the prior year driven by improvement in the paper PCC business and the effect of the adjustments I mentioned earlier, including savings from restructuring. With all these factors the paper PCC product line performance grew 40% over prior year and 7% over the third quarter. Overall segment operating income represented 10% of net sales in the fourth quarter.

We expect some further market softening in the first quarter of this year in all product lines in the segment due to forecasted weakness in North America in uncoated presheet paper production as well as continued weakness in the construction and automotive industries. The recent announcement of further paper capacity reductions in North America could impact our satellite PCC product line in 2008.

The refractory segments financial performance graph also reflects sales and operating performance for the last eight quarters. Although sales in 2008 benefited significantly from the Turkish acquisition and foreign exchange performance issues related to the acquisition combined with a 30% decrease in product line impact for the full year mitigated income growth. Sales and operating income quarterly fluctuations over the two-year period have been driven by several factors including the cost of magnesium import from China and the time lag to reflect price recovery, timing of fragment systems installations and raw material pricing and volume volatility within our metallurgical product line.

During the fourth quarter steel production growth occurred in all regions and our two largest regions, North America and Europe steel product grew 7.2% and 2.9% respectively. Contributing to our income performance in this quarter were several unusual non-operational adjustments I mentioned earlier, primarily the favorable compensation and benefit adjustments and a favorable year end inventory revaluations. We expect our profitability in the segment to improve in 2008 despite continued cost increases of mass niece yes import from China as we have comprehensive programs in place to mitigate this cost pressure to price increases and through the introduction of more advanced product formulations.

The working capital chart reflects our operating and working capital trends to find the defined rat trade accounts receivable, inventory and trade accounts payable. This became a major focus area for the Company's leadership as part of the initiative to improve return on capital. The business unit head developed specific program to improve achievements by year end. I am pleased to announce improved performance was achieved in all areas and Company was able to reduce working capital by $23 million over the 2006 ending balance, representing 12 days of working capital. Our cash flow remains very strong with improved performance continuing through the fourth quarter. The year to date cash from operations is about $177 million, the strongest performance in the company's history and well above the prior record of $135 million. Our capital investment for the year was also at record low levels of $50 million, well below the target of $75 million we set at the beginning of the year and far below the $100 million run rate we had been maintaining.

We also accelerated our share repurchase program during the quarter. We repurchased 301,400 shares for $20.3 million, bringing our full year total program repurchases to 433,200 shares, and $27.9 million.

Although as I said at the beginning the fourth quarter was a difficult period to make comparisons with prior performance, it does provide some incite into the positive effects of our realignment program. Our corporate initiatives of expense and capital control have allowed us to improve our performance as we realign the Company for enhanced future growth. We expect business continues in early 2008 to remain difficult in the paper PCC and process minerals product lines and to improve modestly in our refractory segment. In the paper PCC product line we expect further capacity closures to continue to have an impact on overall growth. In process minerals we expect continued weakness in the residential construction and automotive market with likely downward revisions in demand forecast. Although steel demand remained steady in our major markets we expect the escalating costs or key raw material MgO to continue to pressure through refractory segments. However these escalating costs are partially mitigated by increased selling price. As we will discuss in a more detail in a moment. We also expect more additional costs into 2008.

To update you on the realignment program as I mentioned we expected, as expected we incurred an additional $4 million of severance costs in the fourth quarter, we expect that there will be additional costs in 2008 related to ongoing carrying costs incurred until final disposition of the assets. We estimate these costs will be in the $6 to $8 million range. To capture all of the planned savings from the 7% work force reduction the company will have to reengineer certain business processes and systems. The cost associated with this transformation effort will also continue throughout 2008 so that the benefits of the program will be phased in over the year. As I noted earlier the Synsil business and the two Midwestern facilities located in Mount Vernon, Indiana and Wellsville, Ohio which are being held for sale are reclassified as discontinued operations in the fourth quarter. As a result the income statement had a has been restate to do move the combined net losses from these operations to discontinued operations. While there is considerable work to be done to derive the full benefit of the realignment program, we expect the total effort to generate annualized pretax net savings of $15 to $20 million as a savings associated with the planned reduction in force will be phased in over the year.

The Company will remain in a transition phase in early 2008 as we continue the transformation plan initiated last quarter. The economic outlook remains uncertain and we do not expect to see any meaningful improvements in our major markets which are normally seasonally weak in the first quarter. However we have established stability in our product lines and have defined a clear strategic direction for each of them. As I mentioned earlier we will incur some additional costs associated with the realignment program but will also begin to realize additional savings in our ongoing operations. Although there are a number of uncertainties in our market in some aspects a realignment program needs to be finalized, we have taken the necessary steps in 2007 to provide a firm foundation for improved performance in 2008.

Now I will turn the call back to Joe, for closing comments.

Before we open it up for questions I'd like to share some additional thoughts and perspectives on the approach we've been taking to improve the Company's future performance. The trucks you see on the screen intends to capture the essence of how we go about the challenge, or how we are going about the challenge of performance improvement in return on capital, earnings, technology and other critical areas. We've been focusing on organic growth of existing businesses, significant culture changes as well as some portfolio changes. During the last ten months of 2007 we concentrated very heavily on boxes one and three through the in depth strategic analysis that we completed as well as through the initiation and aggressive deployment of a number of key initiatives which included expense control, capital allocation and control, operations excellence, performance management, safety as well as major organization changes and accountability realignments. Our business units now have a clear direction and strategies in place to reach their destinations and achieve higher levels of return. Some portfolio changes in the form of exiting some of our sub business units also came out of the strategic review. As we start 2008 we are clearly a more focused Company, capable of achieving hire returns on capital and profitable growth.

In 2008 our primary objective is to deliver improved financial performance, by basically effectively executing the restructuring. Continuing with the key initiatives begun in 2007 and by focusing on execution of the newly defined strategies in each of our core businesses. We will also begin to closely examine the potential to enhance the strategies of our businesses through additions to our portfolio in the form of acquisitions. As I mentioned a number of times last year, our appetite for acquisitions would be limited until we had a better foundation in terms of performance and direction. I believe that we also needed to significantly improve our ability to identify, acquire and successfully integrate companies. We've already started to build that capability through our corporate development team led by Doug Dietrich who has been overseeing execution of our restructuring plan.

You've heard me mention a number of times that I believe that the Company has a very solid customer base. We offer good value propositions for our products and services, our market positions and paper PCC filler is strong and well-positioned throughout the world. Our refractories business has a strong position in North America and an improving one in Europe. The four mining operations in the U.S. hold good positions regionally and selectively on a global basis. We are now in the process of taking in depth looks at how we can enhance or significantly increase value by leveraging these positions through acquisitions and adjacencies, technologies or other areas and vehicles.

I'd like at this point to also share some performance targets that we are setting for ourselves. Our plan is to achieve a return on capital of greater than 9% by 2010. We are in essence target to go move from third quartile performance to second quartile performance in S&Ps mid cap materials companies and peer companies over this time frame. This will require significant rates of performance improvement from each of our business units ranging from 25% to 40%. We believe this is possible through the changes that we have just discussed as well as continued focus at deployment of our operational excellence initiatives. We also plan to maintain and are targeting our historical levels of revenue growth of around seven plus percent excluding the potential benefits from filler fiber composites or acquisitions. In the area of safety we plan to achieve a 75% reduction in injuries over that time frame.

Looking closer in at 2008 there is no question this year will be a challenging one for us. Not only because of the conditions in some of the our markets and uncertainties in some others but also because we still need to complete the restructuring process. We need to begin the to deploy additional operational excellence initiatives of daily management control, problem solving and total productive maintenance and we need to overcome raw material cost increases. We must also advance our product and process development capabilities. And, most importantly, we need to further engage all of our employees in continuous improvement.

I believe we are prepared to deal with those challenges and we plan to deliver a performance level that begins to take the company to a better place than it has been over the previous years regardless of the challenges. Now let's open it up to questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Bob Koort with Goldman Sachs.

Thank you, good morning. Joe, I was wondering if you could talk a little bit about what your expectations are for cash flow and cap-ex? I know you gave some historic trends on slide 15 and it gets pretty telling how cap-ex is declining cash flow and cash flow has increased. Can you give us some sense what have that might look like on a go forward basis?

I expect cash flow to remain strong but 2007 was a relative to where the company has been on capital quite low, at the $50 million level. As we look at 2008 we don't expect it to be that low, we've put a max target of around $75 million would expect us to be somewhere between that 50 and 75. Some of that is obviously tied to new potential satellite facilities coming in. I would hope that gives you sort of a sense of where I think we'll be. That's something that from a cash management standpoint as you've seen through this year we've put a strong focus on in the Company and we intend to continue that with regard to managing both capital investments quite carefully but also the working capital side of the equation. So we are going to continue to put emphasis on maintaining good controls there as well as improvement.

Can you talk a little bit about the share repurchase, how you came to the size you were seeking for the authorization and then whether we will actually see some progress on the share count reduction as we go through '08?

Again, the, as you saw now as we shared with you in the fourth quarter we were relatively aggressive in the buying back $20 million worth. We have an approval for $75 million. The rationale for that, nothing very scientific about it but based on what our projected cash flows were and what we expected them to be, and what we thought was a reasonable amount tap in time and that's something that -- -- at that point in time and that's something that we set a two-year window for it and certainly can be done in a much shorter time frame as we exhibited in the fourth quarter. But I don't have a--at this point in time I don't have a specific time frame less than that that I can share.

And lastly can you talk about the cost savings that you targeted $15 million to $20 million, how those phase in, what the net '08 versus '07 reduced cost number might be? And then when you start thinking about all the moving parts of the restructuring program and moving some production into other facilities, asset sales, et cetera, can you just give us an update on how that's progressing?

Let me start and then I am going to ask Doug Dietrich to give you an update as he is as I mentioned in the earlier part of the call, Doug has been leading that effort. The savings are intended to be total year on year that we expect to get sort of post prerestructuring to a post restructuring. So in essence it is a $15 to $20 million pretax that we've targeted that the restructuring should yield. And obviously there are some additional costs that we are going to be inccurring in the early part of, we are incurring already during 2008 that will continue as John mentioned through a good part of the year. But will begin to phase down probably in the, in terms of being associated with some of the work force reductions, begin to phase down in the third quarter. So I think as we go into the third, fourth quarter, we'll begin to see on a running rate basis that start to come through a little stronger. Although we did have a reasonable impact already in the fourth quarter, most of that was associated with depreciation savings.

Thanks, Joe.

Doug you want to share where we are on the sales?

Sure. We are progressing on track. We've been aggressively marketing those facilities that are being held for sale. We do have a number of interested parties and we expect to continue to progress with them per the schedule we've laid out. So we do have some interest and that's moving forward.

Thanks, Doug.

Your next question comes from the line of Mike Judd with Greenwich Consulting.

Yes, good morning. A question about the, I guess the refractories there had been an inventory or write up of inventory, something along those lines and there was a comment that there could be a negative variance in the first quarter. I was just wondering if you could provide some sort of an absolute impact?

I'm going to basically what we try to do--understand part of the audio was cut out when John was going through that so we'll be happy to kind of go through any aspect of that further if that didn't come through clearly. But because there were so many moving parts going on in the quarter and a number of non-recurring, or things that occurred that are going to come back in an opposite way in the following quarter or in the first half, we felt it was important to try to give you a reasonable picture of where we actually were. So with that I'm going to turn it over to John to further explain the revaluation.

Thanks, Joe, and I think that is just about where the audio did cut out. What I had planned to say in my prepared remarks there was that due to the higher cost of raw materials in 2007, we recorded, particularly in the refractory business, we recorded a favorable inventory valuation adjustment during the quarter from the raw material cost of about $1.5 million, or $0.05 per share. So if that didn't come through we intended that to come through, and essentially it's because of the because of our own MgO rose to record rose to record levels throughout the year and the complete flow through of those costs don't occur in our costs until the inventory is sold in 2008.

So on the flip side is there a negative variance of the same magnitude in the first quarter?

Yes, it will go over the inventory turns, it may take a little longer than just the first quarter but the point of it is that it was an unusual impact on the fourth quarter that will be spread out into 2008.

All right. Thanks. On filler fiber can you give us an update, please?

Ken, please.

Sure. As you may remember, we had, our plan was to run our next trial in the fourth quarter but unfortunately with the timing that slipped but what I am pleased to report is that we just recently completed our next filler fiber trial and we were able to exhibit begin filler levels up to that 30% range. We had good machine runability. Obviously we need to go through extensive paper testing but we do definitely expect more trials in the late first quarter, early second quarter of this year.

Thanks, Ken.

Thank you.

Your next question coming from the line of Daniel Rizzo with Sidoti & Company.

Hi, guys, you mentioned that you expect revenue growth of 7% -- I'm sorry, is that per annum starting this year? I know it's a goal, I was just wondering.

As we look out over the next three years, again, if you look at our history we've been able to grow as a company in that 7% range and as we look forward we believe we can at minimum continue to grow at that kind of level. But that again excludes our filler fiber program or any acquisitions in the next three years.

Okay. And in terms of filler fiber, I know you are going forward with the trials but is there a goal for when you expect to make commercialization?

That again is a very as we discussed on a number of the previous calls, it's very difficult to predict in terms of timing because it is very much a development project and it takes, in some ways is similar to the very early commercial development of our basic filler product, in that it takes success at one major paper producer demonstrating that it's viable and can achieve the commercial savings and value-added that is being targeted. And that simply takes time. Now what we've done in 2007 is we have refocused our resources in a way that we have a higher chance of commercializing sooner. I guess that's the best way to put it. We are putting a tremendous amount of emphasis and focus to bringing this home as quickly as possible. But having said that, it's not something that we are in a position to predict a date certain when this will happen.

Thanks, guys.

Your next question comes from the line of Rosemarie Morbelli from Ingalls and Snyder.

Good morning, all. Just following up on this filler fiber, Joe, that you just mentioned that -- are you there?

Yes, we are here, Rosemarie.

Okay. Thank you. You just mentioned that the of the commercialization may be similar to that of the PC C. and I know we have discussed that earlier but it really took about ten years to get the PCC to really move from a plateau when I am assuming all of the different plants were trying it out and so on before suddenly it took off. When you say that you expect the development to happen faster, I am guessing it is because you are already in the paper mills. But what are you looking versus that ten year window? Can you do it in five years? Can you do it actually in only two years? What is your feel?

First I'm going to have to ask Ken because I think we've been asked this now for five or six years, is that about right, five years? About five years. So the difference from the filler when we were initially focused on PCC as a filler replacement for wood, we were not, obviously this was not a product and a technology that was that well known or it was known but hadn't actually been fully commercialized at all. So the advantage we have today is that the paper makers know the product. They know what it can do. They just don't know what it can do at much higher levels which is what we are targeting at. So if you use ten years at a reference point for the original product and we are at five now it certainly should be less than the ten and that's the basis upon which I'm trying to focus the organization. I would say from a commercial contact believability standpoint on the part of the customers who want a trial, there is positive pull. Obviously this paper maker that in Europe that we've been working with basically gave one of their major machines to us together with them running a joint trial for, what, Ken, 11 hours, ten hours? So for a paper maker to do that gives you an indication of the value potential that they do see. But having said that there is still a whole lot of work to be done and a lot of trials to be run until we are able to get it at the rates where a paper maker says, yes, this really makes sense, it can add a lot of value and I'm willing to pay the price for it that is warranted and that we believe is warranted and make the capital investment as well.

Okay. Thank you. On the new satellite, how many new satellites did you build in '07, a combination of new satellites and extensions, and what are your expectations for '08?

Rosemarie, this is Ken Massimine, I will take that question. In 2007 we added one new unit of capacity. But in terms of opportunities for the future, yes, there are a number of them, and we are in discussions with various locations where new capacity has already been announced. And also at mills where they are also considering to converting to new PCC promoted minerals. So there is a lot of activity and interest and it's really getting them over the finish line.

If I may ask one last question, the R&D was substantially lower than in previous quarters in the fourth quarter. Is that because Synsil is out or are you cutting additional projects and what is a reasonable level to look at on a quarterly basis going forward?

I'd say it was low, in part because of Synsil. That certainly was part of the equation. Another part of the equation, the trials we expected to run in the fourth quarter for filler fiber composites got shifted to the first quarter. Ken mentioned originally we were targeting for the fourth quarter and so that had a lowering effect as well.

Okay. And so the $7 million then that you previously had is kind of a $7.3 million, somewhere around there that is a good number going forward?

No, I wouldn't say it is. This is where we are resetting without Synsil basically. And frankly I don't have a number for you but it will be something less than it was before. We've also done summary aligning in our R&D group to one, capture some of the efficiencies, so that will have an effect on us. We impacted in trials, of course, is going to have an impact on that as well.

Okay. Thank you.

Your next question comes from the line of Steve Schwartz with First Analysis.

Good morning. In your cost savings of $15 to $20 million, does that, I would assume that's net of the restructuring and reengineering costs?

Yes, Steve, when I mentioned that in my prepared comments that's what we meant. We'll get some ramp up of the savings at the same time we will have some ongoing costs so we look at that as a net number.

Okay. In this quarter and the last one it doesn't sound like you were certain of what the engineering costs were or do you know at this point what that component could be, could amount to?

We didn't have an exact calculation. We are in that transition phase where we have operations moving product from one to another. So they were all just really in cost of sales. They are hard to be separable at this point as we fades out production in these operations just to be clear they are ongoing operations cost or preparing for sale costs.

In specialty minerals I think you mentioned that the growth you saw in PCC, part of that came from raw material costs pass throughs. Is that right?

That's correct.

Do you have an idea what that amount was, what percent was pricing?

Yes, it was. We said that about half of the growth, a little more than half the growth was currency. The next major piece of that was the pass through of the raw material costs.

Okay. So currency was at five, so this was probably, do we call that then like 4%, 3%?

Yes, that's just a range.

Okay. Sounds good. In metallurgical products, you've had seven quarters now declining sales. How do you see the turnaround in that business and what do you guys think as far as turning it around and what the time line is for that?

We've had metallurgical products historically has been up and down. However, this year was down lower than it had been in terms of some of the down periods in previous years from the data that I looked at. But some of that was price compression in terms of effect on us, on some of the materials that we by. Others come from make versus by decisions that can change over the course of the year. But we are beginning to see in the fourth quarter some indications of improvement and have a little bit of momentum still working through that.

I am going to ask Bill Wilkins to maybe give us a quick update around it if you would, Bill.

Clear what will we saw isn't 2007 was the year following 2006 which was unprecedented in terms of what we saw in the ferro titanium alloy products market. And to Joe's point some of the volume reductions we saw in '07 was on account of just that in terms of lower selling price which we would ordinarily be passing on to our customer. Clearly as we look out to the future, as I've been in this role for a period of about a couple of months, one of the plans that we have is to widen our global position with our wire product, our business has been very well focused and very well entrenched in both the Americas and also in Europe. So our intension is to look selectively at opportunities with key global customers that are asking for our product. So as they are looking to develop global positions we'll be following with them as part of our overall strategy.

Okay. Looking at the release and then slide ten; in the release had you a table that outlined some special items and it basically amounts to about $.5 million or $0.02 per share. But it doesn't look like it includes this favorable inventory adjustment in refractories. So on slide ten you have $0.11 per share net. Can you help me reconcile that just so I know what the true operating number is?

Yes, Steve, I'll try and help through. In the table we were able to do some direct comparison of individual items year-over-year. Not included in that table was the inventory revaluation and not included in that table were the benefit adjustments except for the Ltip adjustment that's mentioned there, which is about half of the amount that we have in total in that basket of benefits that we talked about on page one of the press release.

Okay. Okay. Good. That's helpful. And then just one last quick one here, I presume that 2007 revised quarterlies will be in the K.

Yes, certainly.

Okay. Thank you.

Your next question comes from the line of Jeff Zekauskas with JP Morgan.

Hi, good morning.

Hi, Jeff.

A few questions. Would you expect your depreciation to be in '08?

Let me take that. Hi, Jeff, this is John. Yes, from continuing operations we would expect it to be in the mid 80s.

How is that possible if you are at 19 currently?

Well that 19 currently would give you around 80 and there should be some additional capital spending, right?

That would give you 76, right. And if you have additional cap-ex for the PCC plants they don't come on, so they don't get depreciated yet, do they?

There's also some ramp up of spending even from this year. So I would look at that mid 80 range as an appropriate number for next year.

To go back to our previous answer you gave, the $15 to $20 million in cost cuts you said were net of the transition costs. So that is absolute benefit to the income statement is $15 to $20 million pretax, so that's what you're aiming for?

That's what we are targeting, Jeff.

Have you made any progress on optimizing your tax rate?

Well, it's a, I am going to let John further elaborate. It's clearly a point of focus for improvement and at this stage I don't have specifics that we can share but it's a challenge that I have given the finance group and our tax group to look for opportunities for us to target a lower rate. But as you know that's a very complicated area with a lot of, given that we are global it requires a lot of planning. And right now there is a team set up, a small task force that's focused on improving our plans in the tax area. John, you want to elaborate a little further.

I can elaborate, the last couple of years have been hard to and as Joe mentioned, it is an area of opportunity for us. In 2007 the rate is considerably distorted by the realignment and the fact that we took charges in places, in regions of the world where we had NOLs or we had tax holidays so we had a very unusual rate year in 2007 driven by that third quarter adjustment. Although in the fourth quarter the rate averaged around 32.5. And in the prior year, in 2006, we also took advantage of the repatriating a lot of dividends from a special bill that was approved here in the U.S. Going forward it's driven by the desire and ability to move dividends from around the world back to the U.S. And we are looking at, as a way to address that, we are looking at some alternative structures that may allow to us maximize our use of the cash at the same time minimize the amount of tax liability we have in the short term.

If I can continue with few more, what are the one of the themes of the conference call has been I think a renewed desire to acquire, and Minerals Technologies' history has not been strong. It was the Polar minerals acquisition which didn't work out and it looks like there are some issues now with the Turkish acquisition. So what's the organizing principal that you are going to use to acquire? That is what are the types of things that you are looking for that the previous management didn't look for? Is it in different areas? Are you simply going to try to pay lower prices or execute better? What is it that you are seeing that makes acquisitions so alluring?

Good question, Jeff. First of all, good acquisitions come from having clarity of value, what is it, why are you doing it? And that comes from a very, very clear understanding of what your current value bays are basis are, what your value propositions are, what you bring of value to the marketplace and to customers. What we are, as we are going forward we are looking very carefully at what are our strength positions, what are our value propositions and what kind of things could we be doing to actually leverage those positions further? And using that as a screening basis to identify areas that we can find companies or technologists or joint ventures that can enhance our value base. And so part of it is on the screening and having clarity of what it is that you are trying to achieve from what you are doing but also working with the higher value areas as a first priority as opposed to I would suggest lower value-added areas which we've done in the past. And the second aspect deals with achieving targeted results from an acquisition where the Company has, as you are suggesting and I agree totally, has not done well at all. And it's how we integrate and as you say, we are having some issues right now at ASMAS. That has not, not only has it not been a strength, it's been a weakness. But that's an area that can be addressed through leadership, through processes, through capabilities both inside and outs a company. And it's having people who know how to integrate an acquisition but knowing first of all what it is that you want to do with them. And just as we are executing this restructuring program which is causing the exiting of some businesses, you apply some of the same principles on integrating businesses and companies. So it's doing it quite differently than the company has done in the past. And also going at it with a Heidi agree of caution in terms of, this isn't something that you do likely and when you are ready to do it you really have to have your act together and that's the basis upon which we are beginning to look at some things.

So these are not, this isn't a new leg for the stool, this is to complement the ongoing refractory and PCC operations?

Right now that's where we are initially focusing. Focusing around where we have good positions, where we have good technology bays that together with perhaps other companies or other companies can improve them, expand them looking at adjacent seas is an area for us as a point of inquiry that we will be giving a look at. Yes, it is starting with where we are, what we know.

Just a couple more questions if I may. Were you satisfied with the operating results in the quarter in that your operating income was up about $4.6 million X items and $4 million of that is depreciation. And there's another, I don't know, 1.4 benefits from the inventory change. So on an operating income basis excluding that, you were down a little bit.

I think the reason why, John, we wanted John to go through what he did with all these moving parts what have we are doing its hard to get a read and we want to do give you as good a read as we possibly could and that's why John kind of walked through that. And having said that, though, I would share with you I believe we do have some upward momentum going, not from a marketplace standpoint, the market is kind of, we see it working against us but in terms of the initiatives we have started and carrying the restructuring through, it's really executing those things which we still have to do more. So far I think the quarter would suggest, yes, we are on track and there's further room for us to improve within the context of a number of challenges. I would say on balance it was good from the standpoint that we were able to advance the restructuring to pretty much where we wanted to before we actually announced it.

Of the 200 people that are slated to depart the Company, how many have left so far?

By the end of the year we had around 100.

Around 100.

Yes.

And they will phase out through the course of the year?

Exactly, now throughout the course of the year.

Last question for John. Where is the $0.10 in compensation and benefit adjustments? That is how do you allocate that to SG&A and cost of goods sold and on a segment basis to refractories and specialty minerals?

It's a little hard to see in the aggregate because it goes with the people. It's every place that has employees. So a lot of it's in cost of sales. Some of it's below the line in expenses as SG&A but basically follows the people.

Right, I know that, so how do you allocate it?

Predominantly U.S.

So is it leaning more toward refractories then on a segment level?

It was. On the table four in the press release, we disclose that one major item in refractories.So because of that it did lean more towards the refractory segment.

Okay. Thank you very much. Thanks for your patience.

Your next question comes from the line of Richard O'Reilly with Standard and Poor's. Good afternoon, gentlemen.

I want to keep following up on this table ten. I guess I want to understand, you want us to be focusing on what EPS for the fourth quarter, the $.078 that that table implies or the $0.84 that's on the footnote? Because if we just take whatever that number for the fourth quarter, either number and if we take the higher number we annualize it, it's well above the consensus for '08. And the lower number is something below the consensus for '08. I'm not trying to get you to say comment about '08 but it could get us, the outsiders to a direction that you may not want us to go. Can you take a shot at that?

This is John Sorel, I will give that a shot. The purpose of that slide ten was to try to take it from that 86 which was as you said a very, very relative terms very strong quarter for us and get it in line with things that would be more ongoing, more realistic and expectant continuing and that $.011 brings you down to that 75 range. Considering the other factors on that page you would think that it is something below that. So if you were looking in the 70 to 75 range, would you probably have a much better perspective than do you at 86.

Okay. Good. Okay. Thank you. And the second question is, there was a statement, at least in the press release, about the restructuring charges largely offset by initial savings. Now that implies the savings already at a run rate of about $0.10 or maybe even a run rate of $0.40 which could be half of that $15 million to $20 million. Should I be reading that right? Or is my logic correct?

I think your logic is correct. I'm not sure your numbers are but let's just touch base here. The restructuring charges are about $0.14 per share for the quarter. And restructuring savings are a similar amount. And that comes primarily from the depreciation related to the write off of the assets in the third quarter. Sort of perspective would be you are saying in a range of ten, you have ten to 15 would be the range.

Is that savings of $15 to $20 million a year excluding depreciation?

No.

Zero, okay. Because I'm just taking $20 million trying to convert to it an EPS and it's a sizeable number, $0.70 plus cents and that's where I said run rate.

Remember it's pretax, right. Yes,Yes. Okay, fine.Okay, thank you, gentlemen.

We have time for one more question, operator.

A follow-up question from the line of Bob Koort with Goldman Sachs.

Good afternoon, this is Amy John sitting with Bob. I have a question regarding your end market exposure. Given the current market concern about a mild recession in the U.S. over the next maybe one to two quarters and then concern about the ends market exposure in paper and steel, but if you were to look back at your history, the last recession to 2000, 2001, and also the, during the industrial consolidation periods in early 2000, obviously your sales performance of the PCC and refractory business is pretty stable. Can you give us some color what were the drivers for this stability?

Yes, I'll maybe take a shot at it and invite the folks who are in the industry to comment if they like. But as you look at clearly uncertainties that we are seeing in the North American markets on steel, steel is actually done pretty well. It's held up well. So it has month to do with a question of will it continue to hold up. And at this point in time it's just a question mark. And if anybody has a better perspective on what the U.S. economy is going to do I would love to hear it. But that's where the uncertainty comes into play. We are going into the year on a very good footing in terms of our positions in the refractories business in North America steel and as I mentioned in my remarks an improving position in Europe. But again that can be impacted by a lot of what we are all seeing and hearing today.

The paper arena, Europe has some uncertainties. The prices of paper have been relatively low. They are working at trying to get some price increases but the potential for some consolidation is there and if your question is would we be affected by a recession in the U.S. in paper or Europe, it could have some effect, it tends to be perhaps a little more stable and it would be more stable than the steel. But in given the fact that we have satellite position are able to hold up better in a recession air time. I don't know. Ken, you want to add anything to that?

No, I think you said it fine, Joe.

Does that give you a perspective of how we see things?

Yes, but can you just give us a little bit of color on, give us some historical perspective for why, I mean back to the last recession, 2001, which we didn't see a significant volume erosion for both of your core businesses and then at that time?

Yes, again it depends on, back in 2001 if I remember sort of correctly, since I wasn't here so my history is not the best, but the refractories business was doing more in blast furnace rebuilds and rebuilds work than it does today. Today it's much more concentrated on refractories and total systems solutions. And so back then we could have been moved into a recessionary period and have some those things going on which steel makers would allow them to take some of their mills down and blast furnish glass down to actually rebuild them. That can actually happen from year to year and look like it's counters cyclical. That may have been in play there. And I am going to let Ken who has the experience in paper tell us about your experience in 2001. Ken.

Yes, I think again if you look at history and you made that comment that in some cases the volumes were fairly stable in a recessionary environment one thing that you need to bear in mind is that we had satellites that were, that were coming on stream, also some expansions of existing sat lights. So that was helping to mitigate some of those recessionary headwinds.

Okay. Got you. Thank you.

End the call now, Operator. Thank you. By by, now.

Thank you, this concludes the Minerals Technologies fourth quarter 2007 conference call. You may now disconnect.