Minerals Technologies Inc (MTX) 2011 Q1 法說會逐字稿

Good morning. My name is Shanelle and I will be your conference operator today. At this time I would like to welcome everyone to the Q1 2011 Minerals Technologies earnings 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).

I would now like to turn the call over to Mr. Rick Honey, Vice President of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to our first quarter 2011 earnings conference call, which is being broadcast on the Company's website, www.mineralstech.com. Joe Muscari, Chairman and Chief Executive Officer will begin today's call by providing some perspective on our first quarter performance. He will be followed by Doug Dietrich, Senior Vice President and Chief Financial Officer, who will review our first quarter results.

Before we begin, I need to remind you that on page 8 of our 2010 10-K we list the various factors 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 to Joe Muscari. Joe?

Thanks, Rick. Morning, everyone. As you can see, we started the year with a strong quarter, as sales and operating income were both up 4%. Much of the performance was driven by improvements in the Refractories segment and the Performance Minerals business. The Refractories segment was up 14% in operating income over the prior year and Performance Minerals increased sales by 7% while improving profitability by more than 40%.

Our geographic expansion strategy continues to gain momentum. During the quarter, we announced agreement to construct two satellite PCC plants in India, one with JK Paper and the other with West Coast Paper. This will bring our total number of satellites in Asia to 12 when construction is completed in 2012. In addition, we continue in discussions with more than a dozen other papermakers in Asia about utilizing PCC as their mineral filler of choice.

I've just returned from a two-week trip there visiting customers and prospective customers in China and Thailand, and my perspective around our growth potential there remains very positive. The pace of growth in Asia continues to be extremely fast and we are on track to further increase our presence there, both with new satellites and with our new product offerings. Papermakers in China and Thailand, for instance, have a strong interest in our new technologies and the use of PCC to replace GCC as a filler for their paper. To support our efforts in the region, especially in the commercialization of our new Fulfill platform of PCC products, we're continuing to add resources and providing additional personnel from other areas of the world.

I'll provide an update on our new product development pipeline, especially the Fulfill platform in a moment. Operational Excellence and Lean deployment continue to progress as these practices are becoming embedded in the way we conduct business every day in the Company. During the quarter, all three of our business units have productivity and efficiency gains.

Many of you have been asking about the effect of the earthquake and tsunami on our operations in Japan. So, I'd like to bring you up to date. We have two manufacturing facilities and an administrative office there, and we're grateful that none of our employees were injured and our facilities were not damaged. All of our plants are presently operating and there are minimal supply chain disruptions. However, in our Refractories segment, approximately 15% of our Japanese customers were affected, which will have a negative impact on our Japanese sales and operations over the next two quarters.

As you can see on this chart, our quarterly EPS has consistently been between $0.85 to nearly $1 per share for the last five quarters, as we've been able to improve and stabilize our earnings despite sales being around 15% below pre-recession levels. Our return on capital also continues to hold in the 8% range, as we maintain a strong focus and commitment to drive our ROC beyond our cost of capital.

On previous calls we've explained our organic growth strategies that center on geographic expansion and new product development with the primary focus being on Asia and our new Fulfill platform for paper PCC growth. I'd like to cover some of that ground again with you as well as update you on our activities in this arena during the quarter.

We described the potential on the last call, the potential Asian growth based upon expected continued economic expansion in the region that will drive increased paper production, which in turn will result in higher PCC use. We expect this growth to generate between $150 million to $200 million in annual revenue in Asia over the next five years. This growth will be driven by increased paper demand and higher paper quality requirements, as well as increased PCC penetration including use of our new GCC products.

In the first quarter we made some headway in executing that strategy with the two new agreements to build satellites in India. As I said earlier, we are also in active discussions with numerous other papermakers in the region for the development of new satellites and use of our new products. We believe the worldwide potential for the entire Fulfill brand to be more than $200 million in revenue in five years with Series-E contributing around $75 million and Series-V another $50 million. These new products save the papermaker higher cost fiber by increasing the PCC filler rate to between 3 to 5 points which in turn will increase the amount of PCC used in their paper by 15% to 20%.

Right now, we have one commercial account in Asia using our E-325 series, and we have engaged some 15 customers covering more than 30 paper mills about trialing this new technology. Most of these are with customers where we have satellite plans with adequate production capacity to quickly step up to higher PCC output levels. We will then begin to target the rest of our customer base, those that would require capital expansion to meet the higher demand for PCC.

In the first quarter, we ran two more successful E-325 trials, one at a paper mill in Asia and another in Europe. In the second quarter, we have trials scheduled for two mills in Asia and one in North America. In addition, we have three trials, in Asia, Europe, and North America set for the third quarter. By year-end, we are targeting to have 15 sites in total completed or scheduled, primarily on the E-325 product series. In addition to these products, we also have other products under development in our paper PCC pipeline that have the potential to add to our revenue base over time.

Our new product development pipeline is not entirely focused on paper PCC. In the Refractories business, we continue to be very active in developing new refractory product formulations that help steelmakers reduce costs and extend furnace life. We've also developed new ground calcium carbonate, specialty PCC, and talc products that are seeing some success in new market areas, such as consumer products and environmental. The recent growth we've seen in the talc and specialty PCC lines is significant and should be noted as it is non-seasonal.

Our base businesses remain solid and as we mentioned in the last call, we estimate that our return to pre-recession levels in our Refractories and Performance Minerals businesses would add up to around $100 million in revenue to our current sales level over time and as economic conditions continue to improve. I'd like to take just a few minutes to give you an update on the four key initiatives that we've put into place to drive growth and operational performance. They're technology and innovation, operations excellence, expense reduction, and safety.

I've touched upon the progress we've made in technology with a revitalized new product development pipeline. Today, we have over 60 new product ideas in a stage-gate process. These ideas came from a variety of sources both inside and outside the Company through a very vibrant and robust idea generation process that is reflective of our innovation culture. Our Operational Excellence Lean initiative, as I mentioned, is now becoming embedded in the way we do business in the Company, and this year we are beginning a deeper deployment of our Lean initiatives in all staff support groups in addition to the operating units, in order to leverage the full potential of Lean and continuous improvement throughout the Company.

Our initiatives to reduce expenses have resulted in more than $40 million in savings over the last three years, and we've been able to keep our expense level below that of 2006. On a percentage of revenue basis, in the first quarter, we were down to below 15% of sales for a combined SG&A, R&D, and plant administration cost, all overheads, with SG&A and R&D running at below 11%. On the safety front, MTI is now operating at safety performance levels that are the best in the Company's history and we remain to becoming world class with a target of 0.1 lost workday injuries per 200,000 hours worked by 2014.

Our safety performance continues to track well. Our lost workday rate per 200,000 hours work is 0.7 year-to-date. Four years ago, our lost workday rate was above 3 which represents a 75% reduction and our total recordable rate is approaching world class levels at a little over one injury per year for every 100 employees.

Let's take a quick look at productivity. During the quarter we generated $119,000 in sales per employee from a level of $100,000 per employee during the first quarter of 2008. The improvement of nearly 20% and productivity improvements are in evidence at each of our businesses. The estimated annual savings this represents is over $20 million in operating income and a 20% operating income margin impact.

In summary, the Company is very well focused today and is clearly a stronger operating company that is well positioned for growth, which will come organically through our geographic expansion and our new products as they are commercialized. Our efforts on the M&A front continue to be very active and, as I related in previous calls, we are seeking minerals-based companies with value added technologies where we can contribute our expertise in fine particle technology and crystal engineering. We're looking in areas that are less cyclical than our end markets of paper, steel, construction and automotive, such as the environmental energy and consumer products areas.

We remain committed to maximizing shareholder value through achieving our organic growth potential, delivering on our M&A strategy, and by continuing our share repurchase program. In the first quarter, for example, we repurchased $10 million in shares and we have around $35 million left in the $75 million stock repurchase authorization, which began in 2010. To date, we have repurchased 3.5% of our shares through this authorization.

The benefits of our Operational Excellence Lean initiative are clear and as we go forward we will continue to embed these processes and systems into acquisitions that we make, which will further leverage our return and margin improvements. Now, I'd like to turn it over to Doug Dietrich who will provide detail into our first quarter financial results. Doug?

Thanks, Joe. Good morning, everyone. I'd like to review with you our consolidated and business segment results for the first quarter. I'll highlight the key market and operational elements of our financial results before special items in each major product line and comment on comparisons to both first quarter of last year and sequentially to the fourth quarter of 2010.

We reported earnings per share of $0.87, which represents a 2% increase from the $0.85 per share excluding special items recorded in the first quarter of 2010. The special items in both years are detailed in the reconciliation table and footnote three of the press release. Consolidated sales increased 4% or about $10 million from the prior year. Sales growth was achieved in both segments with the most significant growth occurring in our talc product line where sales grew 12%, and our refractory product line where sales grow 11%, and in specialty PCC where sales grew 8%.

Sales in our paper PCC product line declined 1%, primarily due to closures last year at two paper mills and to the impact of price concessions in the first quarter associated with long term contract extensions. Operating income excluding special items was $24.9 million, an increase of 4% over the $23.9 million recorded in the prior year, and represented 9.5% of sales, slightly above the ratio recorded in the prior year. The improvement occurred in the Processed Minerals and specialty PCC product lines and the Refractories segment primarily due to increased volumes.

Paper PCC operating income has been affected by the aforementioned price concessions and plant closures. All product lines have been impacted by higher materials and energy costs. Productivity improvements have been achieved in all businesses and have helped offset these cost pressures. Total expenses including plant overhead cost represented 14.8% of sales in the first quarter, which is slightly below last year's ratio as we continue to leverage our sales growth with expense control efforts.

Our sequential performance was in-line with our expectations with earnings per share at $0.87, 2% above the fourth quarter. Our consolidated sales increased 8% or $19 million. These first quarter results reflect four additional days in the quarter as compared to the fourth quarter of 2010. This difference accounted for 4% of the increase of revenue in all product lines. On equal days basis, the underlying sales growth was approximately 4%. Operating income increased 9% from fourth quarter levels.

This improvement in operating income occurred primarily in the Specialty Minerals segment due to a seasonal improvement in the Processed Minerals and specialty PCC product lines. Productivity gains in all product lines and good expense in cost control. Our Refractories segment operating income increased slightly, as lower equipment sales and profits were offset by improved performances in both refractory and metallurgical product lines. Return on capital for the quarter was 7.8% on an annualized basis. Our balance sheet remains solid. We have nearly $400 million in cash and just under $100 million of debt.

In the first quarter we generated $19 million in cash flow from operations, of which $8 million was used for capital expenditures. We repurchased $10 million under our stock repurchase program in the quarter, and our cumulative purchases to date are $40 million under the $75 million two-year stock repurchase program.

In summary, our first quarter results reflect continued strong financial performance. This chart gives you a perspective of the amount of increased cost we faced in the first quarter. Magnesium oxide and lime have the largest impact on us of over $6 million. Price concessions and exchange for long-term contract extensions, as well as energy cost increases, were also significant in the quarter. We were able to offset these increases through expense reduction, operational cost savings and volume growth, as well as through price increases both contractual increases in our paper PCC product line and price increases in all other major product lines.

The following sales trend chart reflects the sales-per-day for each quarter. On a year-over-year basis, consolidated sales in the first quarter were $262.5 million and reflect an increase of 4% from the prior year. Foreign exchange had a favorable impact of 1% of sales, or approximately $2 million. Specialty Mineral sales of $173.3 million increased $1.2 million, or about 1% compared to the prior year. PCC sales were approximately the same, as volume growth from new and existing satellites was offset by the full effect of satellite plant closures in Plymouth, North Carolina and Franklin, Virginia, as well as by price concession.

In Processed Minerals, sales increased 6% to $28.5 million, primarily due to a 12% increase in talc volumes. Refractories segment sales increased 10% to $89.2 million. Improved steel industry conditions, particularly in North America and Europe, led to overall higher volumes in this segment. Price increases to offset increased material costs also contributed to the sales growth.

Sequentially, consolidated sales were 8% or $19.2 million higher than the $243.3 million recorded in the fourth quarter. The first quarter had four additional days compared to the fourth quarter of 2010, which accounted for about half of the sales growth. Specialty Mineral sales increased 9% to $173.3 million with volumes up 11%. On a per day basis, sales increased 5% and volumes increased 7%.

On a per day basis, paper PCC sales increased 3%. Specialty PCC sales increased 13% and Processed Minerals sales increased 14%. The improvement in specialty PCC and Processed Minerals was primarily due to share gains in both product lines, a seasonal upturn in the construction markets and the 17% increase in North American car and truck production. Refractories segment sales were $89.2 million, an increase of 5% from fourth quarter levels. Within the segment, refractory product sales increased 2% to $69.6 million. Excluding equipment sales, refractory product sales increased 9% or 5% on a per day basis.

Equipment sales, which are typically higher in the fourth quarter, declined as expected. Metallurgical product line sales increased 19% to $19.6 million in the quarter and 15% on a per day basis. Looking forward, we are not seeing any increases in demand in the uncoated wood-free paper sector in North America and Europe. In addition, we expect annual maintenance outages which usually occur in the second quarter at several paper mills, which will negatively affect our PCC sales and earnings. In Processed Minerals, we expect to see some continued seasonal improvement in the second quarter and current sales-per-day rates are 10% above first quarter levels.

In the Refractories segment, current sales-per-day rates are running at similar levels to first quarter. Steel industry utilization rates in the United States increased to about 74% in the first quarter and have increased slightly to 75% early in the second quarter.

This chart reflects the financial results within the Specialty Minerals segment. In total, segment operating income in the first quarter increased 3% from the prior year to $19.7 million on a 1% sales -- increase in sales. This improved profitability was a result of continued productivity gains derived from our Operational Excellence initiatives, overall cost reduction programs and price and volume increases in both the talc and specialty PCC product lines. These improvements more than offset higher raw material and energy costs in all product lines and the price concessions in paper PCC.

Overall, segment operating income represented 11.4% of sales in the first quarter compared to 11.1% in the prior year excluding special items. Total PCC product line operating income represented 11.8% of sales, which is about the same as the prior year but on a slight sales decline. Sequentially, segment operating income for the first quarter increased 14% from the fourth quarter on a 9% increase in sales. The increase in profitability occurred in both major product lines as a result of improved volumes, productivity and cost control, which collectively more than offset price concessions and increased material and energy costs.

Current indications are that profits in our PCC product line will be down from first quarter levels due to anticipated maintenance shutdowns at several paper mills which typically occur in the second quarter. In Processed Minerals, we expect to see some seasonal volume improvement in the second quarter which should offset the declines in PCC. Overall, we expect that second quarter operating income for the full segment will be approximately the same as the first quarter, but we remain concerned about higher energy costs.

To provide some additional insight into the current market conditions in the paper industry, I've included these two graphs which show the trend in the uncoated free sheet segment in North America and Europe, our largest markets. As you can see, North American production levels are relatively stable in this economic environment though they are still more than 20% below average pre-recession levels and 5% below the first quarter of 2010. In Europe, there was some recovery early last year, but the current trend is downward.

Housing starts are a good indicator of the expected volume demand in the Processed Minerals product line. US housing starts in the quarter decreased about 9% to an annualized rate of approximately 563,000 units, compared to 617,000 units in the first quarter of 2010. As you can see from this chart, the latest March revision is about 10% below the September forecast and the slope continues to point toward a slower recovery. However, forecasts for 2011 indicate that an average around the 660,000 unit mark, which would provide some opportunity for us in the numerous construction-related markets we serve.

North American automobile build rates have increased approximately 16% over the prior year and 17% over the fourth quarter of 2010, which have had a positive impact on the Company's talc and specialty PCC sales. Although there have been month-to-month fluctuations over the past year, build rates have stabilized around 1 million units, which is still more than 20% below pre-recession levels. The talc and specialty PCC product lines should continue to benefit from increased volumes as build rates improve.

This chart reflects the quarterly results for the Refractories segment. Operating income increased 14% in the first quarter to $6.7 million from $5.9 million in the prior year on a 10% sales increase. In North America and Europe, total steel production was 8% above the first quarter of 2010. The segment operating income ratio was 7.5% of sales compared with 7.2% in the prior year. The higher profitability was achieved through increased volumes associated with improved steel industry conditions, productivity improvements, and cost reduction initiatives.

In addition, the effect of higher magnesium oxide costs were offset with price increases and higher equipment sales. Sequentially, this segment's operating income increased 2% from the fourth quarter. As we indicated in the last call, we expected first quarter profitability in this segment to be similar to fourth quarter levels. Refractory product sales increased 9% and as expected, equipment sales declined in the first quarter. Metallurgical product sales increased 19% to $19.6 million. As a result, operating profits were slightly higher than the fourth quarter as volume increases in refractory and metallurgical products more than offset the decline in profitability from equipment sales.

For the second quarter, we were projecting some refractory volume increases and have initiated another series of price increases to customers to mitigate continued higher magnesium oxide costs. However, these price increases will lag due to the timing of customer acceptance. In addition, the earthquake and tsunami in Japan could have a 15% effect on our refractory sales in Japan and a $600,000 to $700,000 impact on operating income over the remainder of the year. Overall, we expect that our second quarter operating income for the full segment to be similar to the first quarter. However, segment operating income will be below the second quarter of 2010 due to reduced profits from non-steel special projects that we completed in the second quarter last year that will not recur this year, in addition to the effect of the Japan crisis and magnesium oxide cost increases I just mentioned.

This slide provides a view toward the current situation in the US steel industry, our largest market. US production levels dropped from 71% in the third quarter to 68.5% in the fourth quarter. Late in the fourth quarter, output stabilized and began to increase in the first quarter in which steel capacity utilization in the US averaged 74%. Through the first three weeks of April, steel capacity utilization has increased slightly to 75%. It should be noted that the current North American and European steel production rates remain about 15% to 20% below pre-recession levels. This should give you a good indication of the potential profit improvement opportunity we have in the Refractory segment.

The working capital chart here reflects our operating working capital trends as defined by trade accounts receivable, inventories, and trade accounts payable. As you can see, our total working capital increased from about $7 million from fourth quarter levels to $171 million. Total days of working capital increased by 1 day to 60 days and the Company has been able to sustain these low levels since the fourth quarter of 2009.

Our cash flow from operations was approximately $19 million in the quarter. Cash flow from operations was affected by higher working capital levels and increased income tax payments compared to the prior year. We expect our cash flow from operations to increase to around $30 million in the second quarter. Capital investments for the quarter remained at a relatively low level of $8 million. We anticipate capital expenditures for the full year to be between $50 million and $65 million, driven primarily by spending on new PCC satellite construction projects.

We are on track as noted by Joe with our two-year $75 million stock repurchase program that was authorized in February, 2010. Our cumulative purchases under this program were approximately $40 million, of which $10 million was purchased in the first quarter.

As I mentioned earlier, our earnings performance of $0.87 per share was within line of our expectations. Looking to the second quarter, we expect our PCC product line to be negatively affected by annual paper mill maintenance shutdowns, which is consistent with the second quarter of last year. Volumes in our Processed Minerals product line are expected to increase due to seasonal demand improvement, but we continue to be affected by higher energy costs.

In our Refractories segment, we expect some increases in volumes and prices in refractory monolithic products and metallurgical products, but these price increases will be offset by higher magnesium oxide costs. We expect the Company's second quarter profitability to be around the same level as the first quarter but about 10% below the second quarter of last year. The difference from the prior year is primarily due to the absence of special non-steel refractory projects that occurred last year, as well as the are higher material and energy costs.

If the underlying markets we serve continue on their stable track, we could see moderate improvement in the second half of the year. Our new paper PCC satellites will begin to come online and we should see continued profitability improvement through increased volumes and pricing and continued productivity improvements. Now, let's go to questions.

(Operator Instructions) Torin Eastburn, CJS Securities.

Could you provide an update on your conversations about Fulfill F?

Sure. We have DJ Monagle with us today and I think be best to ask DJ to give us an update. DJ?

Certainly. So Torin, Fulfill F is our filler fiber composite, so thanks for asking about that. This quarter was a pretty quiet quarter in that regard. So the update that I gave last time, what I would say is that if you recall, we're working with 2 different partners, 1 in Europe, 1in Asia.

Asia is where the most technical advancement has happened in recent months. So in Asia, we've been sorting through the data, developing a path forward and I would say that not much happened in the last 3 months, but in the last 3 weeks considerable activity has happened where we're trying to plot for our next steps. I'll tie that together with the next comment I make.

In Europe the same sort of thing, but in Europe the customer was working through some legitimate strategic items that should have taken precedence over the filler fiber and Fulfill F pursuit. They worked through those issues and also in the last 3 weeks our dialogue with them has increased. In both cases, what we're doing is we're trying to go through with these customers the full portfolio of products that have been developed really over and starting to be proven out over the last 6 months. It's the Fulfill E, Fulfill V, Fulfill F as well as some other things that are showing up in the market from other suppliers.

So very little activity over the quarter, a lot of activity in the last 3 weeks and I would expect that, that dialogue continues and I would expect more activity over the quarter, but I would also say that there is nothing imminent with Fulfill F. Does that help?

Yes, that does. Anecdotally, how are you finding the price pull impacting your business or your customers' willingness to deal with you?

Could you ask that again, please.

The price of pulp.

I'm sorry. The price of pulp in general is helping a lot. So what we are seeing is quite a bit of interest in Fulfill E, which is easier and quicker for us to implement. I say that under a background of an industry that is notoriously slow to move, but in general that dialogue has gone very well because you're seeing about a $100 increase globally in the price of pulp over the last couple of months. So in general that's going quite well.

Okay. Thank you. And two quick numbers questions. First, what were the PCC tons delivered in the quarter and what are your capital expenditures expectations for the year? Thank you.

PCC tons in the quarter were 900, about 900,000 tons, Torin. The capital expenditures I mentioned are $50 million to $65 million for the full year.

Okay. Thank you.

Rosemarie Morbelli, Gabelli & Company.

Following up on one of the recent comments, could you give us a little more details on the products you are seeing from other suppliers, which from the sound of it would be competing with your new Fulfill product line?

I'll be glad to, Rosemarie. So several chemical suppliers that are particularly expertise in supplying to the paper industry do have some different technologies. Typically they're organic additives that enhance the strength properties of the paper that allows for increased filler levels.

So you're absolutely right that they are competing for space with the Fulfill E and V, but what is good news to us is that SMI and Minerals Technologies is positioned to win regardless of the choice and to start seeing those wins immediately. What I mean by that is we still get the benefit of increased PCC sales when those technologies are in place. So it is our preference that they choose our technology, our technology that the Fulfill line does provide the greatest profit enhancement for us, but we do have improvements even if they go different direction.

Okay. So if I understand properly, regardless you will sell more PCC except that you would sell more of your standard PCC as opposed to your new product line, which means that you would not have -- and correct me if I am wrong -- that you would not have margin improvement, the margin improvement that you are expecting with the new line of products?

We would still have a margin improvement, Rosemarie, but it is more with when we sell the Fulfill brand of products.

Okay. That is helpful. And then, Joe or Doug -- I don't remember -- actually it was Doug mentioned that housing starts was down 9% to 563,000 units and that is down versus prior expectations. Why would the projection of 660,000 units suddenly make sense? I mean nothing that we here about housing is particularly positive.

Rosemarie, these were not our projections. These were industry projections that we were referencing to -- just to indicate that what was shown previously has actually shifted again, which has been a continuous pattern and that is exactly to your point. There really hasn't been a basis for forecasting an upturn and so in previous calls you may recall that we've tried to show what those previous forecasts have actually done and they keep moving out.

Okay. So you are not planning -- whenever you give us guidance, so to speak, on your expectations as far as you are concerned, you are keeping housing -- I mean not production, but housing start flat or are you actually looking at it going down further in your projections?

No. We're actually looking at flat right now and planning for it to continue -- for it to stay stable.

Okay. And could you give us a feel as to the size of the Japanese business as part of your refractory product?

Yes. The Japanese -- and I'll let Doug answer this, but Refractories in Japan is roughly around $20 million. Doug, you want to give perhaps a little more flavor?

Yes, Rosemarie. It's about $20 million we're seeing that about 15% of our customer base is currently either shut down or we're not delivering to. So we see about a 15% effect. It's unclear as to the duration there. We're trying to estimate that, that could result in a $600,000 to $700,000 operating income effect over the year potentially.

Okay, thanks. I'll get back in line.

Jeff Zekauskas, JPMorgan.

This is Silke Kueck for Jeff. So I have a question regarding the E Fulfill product. So is the 15 customers that you're trialing with Europe, if those were to convert and buy the product -- like the way to think about this is, normally each customer has like a 2 unit facility which is roughly 60,000 tons of PCC, and with Fulfill there's probably like an incremental -- I don't know -- 10,000 or 12,000 tons of PCC that would be added and so that's like 15 customers times 12,000. That's like 180,000 tons and at $100 million a ton that would add an incremental $18 million to PCC sales if those customers convert. Is that the way to think about it?

Yes. I think it is with one exception, Silke, that as I -- when we discussed this in the last call, we tried to paint a picture that says look, for 325 in 2011 we're anticipating the actual impact and growth to follow a relatively shallow curve, shallow growth curve and that we would most likely pick up momentum later in the year and then moving into 2012. The reason for that is that there is trialing time. There is a period of assessment at each papermaker. There's also lead time in terms of preparation to get units in for those trials.

So these do not turn on instantaneously. They require a good deal of logistic support, but the good news in it, in terms of the approach to this is that the capital hurdle is relatively low. So the capital requirements to accomplish this are low, but the time to evaluate is going to vary by papermaker and so these will come in at different points in time. Some of the trials that we do this year, a papermaker may not get turned on until next year or decide that they want it until next year. It may take them that long to make the assessment.

So predicting impact right now in this -- for 2011 is very difficult to be able to do and also indicated what is really important this year for us is to keep an eye on the rate of acceptance that we start to see. That will give us a much better handle on what that curve is going to look like in 2012 or 2013. DJ, would you like to add anything to that?

A couple of things, Silke. First, your volume calculations are a pretty good way of looking at it for the E-Series. Joe's comments regarding timing are spot on. Your revenue projections are probably a little bit low. Our average price of PCC is a little bit better than the one you cited.

So I guess the right way to sum it is that as we have gone forward, we still are as it relates to Fulfill E, we're still quite comfortable with that 5 year projection that we talked about. Also I would throw out that Joe cited another number I just want to bring your attention to. He talked about 30 locations. Where we are right now I think the last time I had given you an update I had indicated that we had gone to 25 locations. So we've expanded our scope because we do see greater technical application of this particular technology, and we have been pretty successful trials we've been running -- pretty successful trials at the 2 locations in the first quarter.

We've got another 3 that are coming up and what I call the flash-to-bang, from the time you get those trials to really when you're starting to see recurring revenues and getting things sustainably lined up in the system just logistically there's probably a 4 month sort of window from the time that you really get success. So we've got a lot of momentum. I'd stay focused on that 5 year target, and then as we build momentum such that we can maintain our confidentiality with these customers, we'll be giving you more insight into the economics.

Okay. Secondly, starting in the third quarter it looks like that there should be at least something like -- I don't know -- maybe like 100,000 tons of annualized new capacity coming on, like at the Thailand plant it's 20,000 tons. NewPage plant Wisconsin at 70,000 tons and the first plant in India. Like are those -- like on an annualized basis are those the types of volumes we should be looking for beginning in the third quarter?

On an annualized basis that would be correct. The India one comes online first. That will be over the next several weeks. Right behind that would be Tha Toom and then the Wisconsin operation starts up really towards the end of that quarter, but that is correct.

You've got your numbers right, and then on top of that we mentioned the other 2 India projects. So the West Coast would be more towards the end of the fourth quarter, and then the JK Paper, we're still lining on the specific startup of that one. That is dependent on their budgeted expansion and machine startup and that looks like that's more of a 2013 startup event, but -- excuse me, 2012 startup event. I apologize, so that's the kind of timing that you're looking at.

So that means like in the fourth quarter or beginning in the first quarter next year like the volume growth in these plants should add something like -- I don't know -- 3% or 4% on a --

What is your question?

So it seems like to what's the end of the year, beginning 2012, those capacities really should add something like -- I don't know -- 3% or 4% to your paper PCC volume growth.

It's in that ballpark.

That's a good ballpark, 2.5% to 3%.

And the last question, if I may, so paper PCC volumes sales declined 1% in the quarter. Is that what you said?

Yes, that's correct.

And what was the effect of -- how much was due to the contract renegotiations and how much was due to the plant shutdowns?

Well, it's a bit of a mix. There were some price concessions in the quarter. Those price concessions are given with, we have some depreciation cost savings as well. We also had some price pass-through from the fourth quarter that occurred into the first quarter. The net effect was probably about $1.5 million in the quarter, Silke.

Okay. That's helpful. I'll get back into queue. Thanks very much.

Steve Schwartz, First Analysts.

First one on paper PCC, in the release you noted a 7% sequential volume improvement and I think if you take out the day count differential, it drops to 3% and you might have addressed that in your comments, but I think you were guiding flat for volume and you mentioned share gains in your commentary. So is that what happened there? Is that where you got that additional 3% sequentially?

Yes, it was. I think the PCC volumes for the paper were largely flat, but you look at specialty PCC, I think I mentioned about an 8% sales growth. And a majority of that 8% came from some share gains. So yes, share gain did help with the specialty PCC product line.

So them going back to paper PCC, then where did you get the extra 3% that you didn't expect you were going to get at the last conference call? Was it just the pickup in paper that you guys didn't see coming or --

Well, I think we -- net, net we had when we talk about PCC we put specialty and paper together. As I just mentioned, I think the paper volumes were largely flat over the quarter, up a bit I think in the fourth quarter. Volumes were about 865,000 tons, so 900,000 tons in paper and then we had the specialty PCC gains. Now that's a much smaller part of the total PCC tonnage and the net effect of that was about 3%.

Okay. And then, Joe, if you could just give us a little bit of color here on, I guess, your capacity as a Management team, what resources you have in place to handle what potentially could be a large acquisition. I mean when I look at maybe you have an excess $300 million in cash on the balance sheet, you have the ability to take on some debt. If you were to buy something at a 6 or 7 times EBITDA, you're talking about increasing the EBITDA of the Corporation by 50% and upwards.

So this could be I think potentially a transformative acquisition. Can you just help us understand how you might comfortably and successfully consume something like that?

Sure, Steve. I appreciate the question. I actually tried to touch on that a little bit in my remarks. One of the things we've been building in the Company for the last 3 years is a much more robust set and system of Management processes and processes through which we manage the entire Company. So we have a -- you looked at the Company 3 or 4 years ago to today, we have many more common systems in the Company, but we also through our Operational Excellence initiatives have common approaches to manufacturing and apply basic principles, processes. You've heard me talk about the -- a number of Kaizens we conducted last year.

That rate is continuing this year, but relative to acquisitions, we are very well prepared to acquire companies and integrate them rapidly into MTI, because we do have systems in place and by systems I don't mean just computer systems, although we now have Oracle and the ERP System in place in Europe as well as the US and all of North America and South America. So from the standpoint of preparedness for integration we're very well prepared. That's something we have been preparing for. I couldn't have told you this 3 years ago.

Today I feel very good about where we are in our capability of integrating an acquisition. In addition to that, we have developed I believe very good processes for due diligence which we've been applying. And we also have a very good plan for how to integrate depending on the type of company and the size, how to integrate in a relatively short period of time through the identification of both personnel inside the company as well as outside the company that we can bring together in a relatively short period of time to focus on any acquisition that we want to make. So it's one area that I do feel very good about and it's one that we're hopefully going to be in a position to execute on in a reasonable period of time.

How would you describe the environment right now? In terms of sellers and their expectation for pricing and so forth?

Yes. I describe it as an active market and also one where expectations on prices have gone up.

Okay. Great. Thank you.

Daniel Rizzo, Sidoti & Company.

Just to further on the acquisition front, is there like -- are you looking for more in the Refractories business, or in the PCC business or something completely outside of what you're currently doing?

We've been heavily focused and many of the things we've been looking at in the inorganic minerals areas. So anything that is minerals related but that has a technology or technical component to it, a component that allows for differentiation that can match up to the things we do well, which revolve around small particle technology, crystal engineering, our core knowledge around inorganic minerals. So it's primarily focused around minerals. It could be adjunct to PCC. It could be complementary to PCC, but also very much in our Performance Minerals wheel house.

So if there's differentiation or specialization, then you would have to obviously pay up for that, too.

Absolutely, yes, but again we are also -- it doesn't -- we're not overlooking basic commodity areas that could make sense to us, but very often, for instance, our own Performance Minerals business has a large percentage of commodity-type products, but even within that we have some very, very strong differentiated segments where we apply our know-how to custom tailor products to customers. So it's not excluding the commodity arena, but we're looking for areas that we can actually do more with to differentiate the product.

Okay. Thanks for the clarification. Just one other area. I was just looking at the productivity for employees, the chart you have, and it just seems like it's kind of significantly over the last 3 years which is great, but are we reaching a point where incremental increases are going to be harder to come by where it's going to be harder to go up from here?

The way we look at it and what our experience so far has demonstrated is that as we further deploy the principles of Operational Excellence, further deploy the tools, the processes, but integrated across all our functions, all our functions. That's why I mentioned in my remarks that we embarked on deploying OE to all staff functions in the Company. That means the way we do, the way we work in every corner of the Company, we're going to be able to continue to improve, continue to get better from a productivity standpoint.

As a manufacturing Company, that is a fundamental -- we see that as a fundamental mandate. We have to focus on continually improving. The environment continues to throw things at us and having all our employees engaged in continuously finding ways to do things better, to overcome the obstacles we have, as well as a one of the things that this has enabled us to do is better introduce new products faster. We can manufacture new products faster, more efficiently. So as a Company we focus and believe we can continue to improve. We have different goals, different targets in each of our businesses, but every business unit is very engaged in the continuous improvement process.

All right. Thank you, guys.

At this time there are no further questions. Presenters, I hand the call back over to you for closing remarks.

Thank you. Appreciate everybody tuning in with us.

Thanks for your interest in Minerals Technologies.

This concludes today's earnings call. You may now disconnect.