Minerals Technologies Inc (MTX) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Minerals Technologies fourth-quarter 2013 earnings call.

At this time, all participants are in a listen only mode. Later, we will conduct a question-and answer-session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I will now turn the call over to your host, Rick Honey. Please go ahead.

Good morning. Welcome to our fourth-quarter 2013 earnings conference call. Today, Chief Executive Officer Bob Wetherbee will provide some insights into our full-year 2013 performance and we will then turn the call over to our Chief Financial Officer, Doug Dietrich, who will give you a detailed report on our financial results for the quarter. Doug will be followed by D.J. Monagle, Senior Vice President and Managing Director of our Paper PCC business, who will provide some insights into our new product development pipeline.

Before we begin, I need to remind you that, on Page 8 of our 2012 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 Bob Wetherbee. Bob?

Thanks, Rick, and good morning.

2013 was Minerals Technologies' fourth record-breaking year in a row. We recorded operating income of $124 million and earnings per share of $2.42. Both were all-time highs. EPS was up 12% over the prior year and operating income increased 10% over 2012. We also accelerated our momentum and revenue growth during the year with sales gains in the last three quarters, including 7% underlying sales growth in the fourth quarter. Year-over-year underlying sales increased 3%.

Both segments, Special Minerals and Refractories, established new operating income records for the year. Within Specialty Minerals, our performance minerals operating group, consisting of processed minerals and our specialty PCC product line, performed at record levels. And our Paper PCC unit delivered a very strong performance.

During the year, we continued to successfully execute on our strategies of geographic expansion and new product innovation, ramping up new satellite PCC facilities, securing commitments for new satellites, and advancing our FulFill high-filler technology. We also brought new products to market in Performance Minerals and Refractories.

We are a strong operating company with the ability to globally deploy highly efficient business processes, practices, and systems as a result of operational excellence, which is now integrated and embedded throughout the culture of the company. MTI employees work daily to develop new ways to reduce waste and improve productivity.

During the year, we held our operating -- our overhead expenses flat to 2012. This gave us tremendous leverage from every additional dollar of sales growth. We are set to further leverage that position as global economic conditions continue to improve and we deliver the growth opportunities we are pursuing.

Our cash position remains strong as we generated $138 million in cash flow from operations during the year. And we continue our balanced approach on the use of cash. In September, we announced a new two-year, $150 million share repurchase program, which is twice as large as previous repurchase programs.

Minerals Technologies is dedicated to providing a world-class safe environment for our employees. In 2013, we achieved the lowest loss workday injury rate in our 21-year history and we continue to close the gap to world-class safety performance.

As you see from this slide, we made consistent improvement in earnings per share and return on capital. Our EPS performance for the last four years has been record-setting. Over the period 2010 to 2013, the compound annual growth rate for EPS has been 11%. And for the year, return on capital improved to 9.5%.

In 2013, we delivered on our geographic expansion strategy by signing contracts for the construction of new satellite plants in China and Europe. We also are ramping up three satellite plans, two in India and one in Thailand.

In the first week of January, we also announced a contract with UPM-Kymmene for the construction of a 100,000 ton satellite plant to be built at UPM's paper mill in Changshu, China. This is our fourth satellite contract in China in the last year and brings our total satellites in China to seven and to 16 in Asia. The Asian region is now second only to North America in the number of satellites.

We signed four additional agreements in India, North America, and Brazil for our FulFill high-filler technology, bringing the total at year-end to 14 paper mills around the world that utilize the technology, enabling them to capture sustainable cost reductions.

In early January, we announced the 15th FulFill agreement, deploying the technology to a European paper maker.

Our North American PCC expansions are moving forward and we expect them to be contributing volume in 2014.

In the Performance Minerals business unit, our talc and ground calcium carbonate products both recorded a 6% increase in sales across a broad spectrum of end-use applications. And we completed the first phase of our 10,000 ton specialty PCC capacity expansion at our Adams, Massachusetts facility.

Refractories established a new record in operating income as we saw a 15% increase in sales from Europe and the Middle East. We also saw increased penetration of metallurgical wire products, increasing sales 6%.

This slide, similar to the one we showed on the last call, is a reminder of the significant PCC growth potential in China and India. Today, India is producing about 3.5 million tons of uncoated wood free paper and is growing by more than 7% per year. China produces 16.5 million tons of uncoated wood free, more than both North and South America combined, and is growing more than 6% per year.

In India, the penetration of PCC, which we define as the tons of PCC produced and sold into paper, is 9% or a little over 300,000 tons. This is up from 4%. The growth in India is primarily a result of our development efforts there, having built five satellite plans over the last four years.

In China, the penetration of PCC is about 7%, or 1.2 million tons. As a comparison, the PCC penetration rate in North America and Europe is approximately 20%, two to three times India and China, respectively.

We work tirelessly to establish PCC as the filler of choice for production of world-class quality, uncoated freesheet. Because these two countries are installing state-of-the-art paper machines, there is significant room to increase PCC penetration in China and India to the 20% Western levels. At a penetration rate of 20%, as indicated by the gold bar in the chart, PCC consumed in these two countries will increase by 2.6 million tons. And if you apply the historical growth rate of 6% over a five-year period, as shown by the blue bar, the near to medium term market potential grows by another 1 million tons.

In addition, expanded use of our FulFill technology portfolio has the potential to drive penetration beyond 20%.

For perspective, in 2013, Minerals Technologies sold 3.3 million tons of PCC for paper. For the Asia growth potential, it represents more than a doubling of our current volume sold to the industry. We have the team and the technology to capture this opportunity.

Let's move to FulFill high-filler technology. During 2013, we completed commercial agreements with an additional four paper mills. And in early January, as I mentioned, we announced our 15th agreement. We continue to be actively engaged with 20 other paper mills around the world, signing up and conducting trials to validate the technology. We continue to commercialize this technology worldwide, which, in 2013, generated $2.5 million in operating income.

In addition to our new product innovation and geographic expansion, Minerals Technologies is a strong operating company because our employees are thoroughly engaged in our operational excellence initiatives. Their engagement is most visible and measurable in two areas. The first is Kaizen events, which are highly focused improvement workshops that focus on a small team on a particular process or practice across our operational administrative functions. In 2013, MTI ran more than 1800 such events. You can see the continued growth in the number of events from 569 in 2010. It's a key tool to improve business processes of all kinds, using the knowledge and experience of people that actually work in the process. And our shared service model for transactional processes continues to expand, bringing a system perspective to finding sustainable improvements.

The second area of engagement that is now embedded in our company culture is our suggestion system, which produced nearly 16,000 suggestions in 2013. That is up 10 times from where we started in 2010 and up 60% over 2012. During the year, 70% of the suggestions were implemented, a large percentage by the people who actually made the suggestion, and these suggestions range from process improvements to ways to control expenses.

Operational excellence is a continuous improvement journey that engages every one of our nearly 2100 employees. And what does that all translate to? Consistent productivity improvement. As measured by sales per employee, we have increased productivity at a compound annual growth rate of 5% since 2007.

2013 was another record-breaking year for the company as well as both business segments. We signed two new contracts for the construction of satellite plants in China and Europe, we secured four new commercial agreements for FulFill, and at our Adams, Massachusetts facility, we completed the first phase of a 10,000 ton expansion in our specialty PCC product line.

The Refractory segment also performed well with strong growth in both refractory and metallurgical wire products in our European and Middle East region.

We have an active, rich, new product pipeline. We continue to control expenses, holding them flat during the year while growing sales. And this year was the company's best safety performance in terms of loss workday injuries in our 21-year history. All in all, 2013 was a great year for MTI, delivering both operating performance and growth.

As we look forward to 2014, we expect our new satellite plants in China, Europe, and India to ramp up and we will be building five new satellites and completing North American satellite expansions. These expansions will enable greater use of FulFill technology.

As we stated during the last call, we are engaged with a dozen papermakers in China to advance our PCC product line in that region where paper production is growing close to 6% a year. We also have identified another dozen paper mills that we plan to target for adoption of our PCC as a filling or coating material for their paper making process.

In Performance Minerals, we expect the construction market to continue to improve, and we will continue to grow sales by increasing market share and pricing. The worldwide steel market has stabilized, a good sign for the refractories business. We continue to explore opportunities with other steelmakers to adopt the full service business model we have deployed with a steelmaker in Bahrain. And like all of MTI, the refractories business unit will continue to bring new, higher value products to market.

We continue to execute as a high-performance team and execute our strategies of geographic expansion, new product innovation, and operational excellence.

Now I will turn it over to Doug Dietrich, who will provide the details of our financial performance for the fourth quarter. Doug?

Thanks, Bob. Good morning, everyone.

Let's go through our consolidated and business segment results for the fourth quarter and the full year. I will highlight the key markets and operational elements of our financial results in each major product line and will comment on comparisons to both the fourth quarter of 2012 sequentially to the third quarter of 2013.

As Bob mentioned, we achieved a record operating income for the fourth quarter of $31 million and earnings per share from continued operations of $0.61, which is a 15% increase from the $0.53 recorded last year. Our reported earnings were $0.65 per share, which included an insurance settlement gain of $2.5 million here in the US.

Our underlying sales grew approximately 7% as foreign exchange had a 1% unfavorable effect. We saw underlying sales growth in both the Specialty Minerals and Refractory segments and across the majority of our product lines.

Our strong performance this quarter was also driven by both operating segments. The Specialty Minerals segment recorded fourth-quarter operating profits of $24 million, a 15% improvement over the prior year on underlying sales growth of 6%. Performance Minerals continued on its strong track as operating income increased over 22% compared to last year. Paper PCC saw operating income growth of 11%.

The Refractory segment also achieved significant growth as operating income was up 26% from the fourth quarter of last year on underlying sales growth of 9%.

Gross profit was approximately $59 million, 9% of above the prior year. Gross margins expanded 70 basis points over last year to 23% driven by price increases, sales of higher margin products like FulFill, and an 8% improvement in manufacturing productivity. We continue to effectively manage our expenses as total fixed overhead costs dropped to 14.8% of sales compared to 15.2% last year.

Now, return on capital for the quarter increased to 9.7% on an annualized basis compared to 8.9% in the fourth quarter 2012.

We generated over $44 million in cash from operations, of which $12 million was used for capital expenditures. And we repurchased approximately 7.5 million shares in the quarter at a total of $52 million for the year. Sequentially, consolidated sales increased 1%. Specialty mineral sales were at the same level as the third quarter, despite the typical seasonal decline in Performance Minerals. Paper PCC sales increased 2%, which offset a 9% drop in processed minerals.

Sales in the Refractory segment were higher by 3%, due primarily to higher equipment sales and increased sales in our metallurgical product line.

And this slide, which we have shown over the last couple quarters, highlights the product line contribution to the operating margin improvement over last year. And you can see the growth was driven by improvement in all our product lines. Paper PCC margin growth was due to price increases, productivity improvements, and contributions from both our new satellites and FulFill. Improvement in Performance Minerals was due to strong sales growth from our higher margin talc and US specialty PCC product lines, price increases, productivity improvements, and to improved margins in our GCC product line.

In refractories, margins improved due to the growth in higher margin metallurgical wire products and equipment sales and to productivity improvements. We achieved our target of greater than 12% operating margins in 2013. As we continue to execute on our strategies in 2014, we are well positioned to expand margins further.

This slide highlights the top line impact our strategies of geographic expansion and new product innovation have made, moving MTI into a higher sales performance track. VARs are the reported sales growth for the last four fiscal quarters over the prior year's quarters. The line is the underlying sales growth in those same comparative periods, which excludes the effect of foreign exchange.

We are seeing growth across the board -- new satellite plants, especially in Asia, the penetration of FulFill high-filling technology, and share gain in Refractories and Performance Minerals. You can see the sales momentum building through the year where the fourth-quarter underlying sales increased 7%.

Let's go over the financial results within the Specialty Minerals segment. This segment had a record fourth quarter with $24 million in operating income, which is 15% higher than last year, and underlying sales growth of 6%. Within the segment, Paper PCC's underlying sales grew 5%, driven by an 8% increase in Europe and a 17% increase in Asia. Specialty PCC sales were up 1% as an 8% sales growth in the US partially offset by weakness in our operations in the UK.

Process Minerals' underlying sales grew 11%, driven by volume growth in our talc and ground calcium carbonate product lines and to higher pricing. Segment gross margins expanded 90 basis points over last year to 22.8%. As I just mentioned, operating income grew 15%, driven by a 22% increase in Performance Minerals and an 11% increase in Paper PCC.

Operating margins in the segment expanded over 130 basis points to 14.3%. This margin growth was primarily due to the contribution from our new satellite facilities in Asia, increased profits from FulFill, higher pricing, manufacturing productivity improvements, and growth in our GCC, talc, and US specialty PCC products lines. Sequentially, segment sales were about the same level as the third quarter as a 2% increase in Paper PCC offset the seasonal market decline in Performance Minerals that we typically see in the fourth quarter. Sales in Performance Minerals were 6% lower than the third quarter.

Operating income for the segment decreased 8%, which was slightly better than our expectations. Performance Minerals results were better than expected, due to higher than anticipated volumes in our talc and Western GCC locations. Paper PCC was higher due to improved performance in Asia and Europe.

Looking forward to the first quarter, sales and profits in this segment will be lower than the fourth quarter, due to a number of factors. First, we have four fewer days, or about 5% fewer, in our first-quarter reporting period. Second, Paper PCC volumes will be lower than the fourth quarter, due to the paper mill closures and paper grade realignments in the US and Europe that we mentioned on our last call. In addition, a few of our paper customers in the Southeast have had temporary shutdowns due to weather related issues. Also, the first quarter is a slow seasonal period for Performance Minerals business, but this year it is exacerbated by the cold temperatures affecting customer demand.

The third factor is that the severe weather conditions in January have increased our energy and transportation costs, and freezing conditions at our facilities have affected mining and process productivities. These factors will also negatively impact the segment's first-quarter profits. Overall, we expect first-quarter operating income for Specialty Minerals to be about 5% lower than the fourth quarter.

As I mentioned on the last chart, Specialty Minerals operating margins increased 130 basis points this quarter to 14.3%. This chart outlines the component of the improvement. Higher pricing in Paper PCC and price increases in our Performance Minerals business added 1.6% to the margin expansion.

We had sales growth in our GCC and talc businesses of 14% and 9%, respectively, which generated 0.6% of margin improvement. We continue to achieve productivity and other cost control improvements in this segment, which contributed 0.3% to the margin growth. And, again, we are seeing solid performance from our new PCC satellites in Asia, along with increased contribution from FulFill. The margin expansion was partially offset by higher lime costs in North America as well as significantly higher electricity costs in Performance Minerals this quarter. In addition, we had unfavorable foreign exchange in our Asian and Latin American operations.

Now, let's go through the results within the Refractory segment. Underlying sales grew 9% as foreign exchange had an unfavorable impact of around $1 million. Underlying sales in metallurgical wire increased 8% due to volume increases in both North America and Europe. Underlying sales of refractory products and systems grew 9%, driven primarily by our growth in the Europe, Middle East refractory business, where sales increased 15% with the higher equipment sales and sales to non-steel applications. Higher sales were partially offset by slightly lower sales in North America.

Operating income for this segment increased $2 million, or 26%, in the quarter to $9.6 million. This increase was driven by sales growth in all product lines and to manufacturing productivity gains. Operating margin was 10.7% for the quarter, which represents a 160 basis point improvement over the 9.1% in the fourth quarter of last year.

Sequentially, Refractory segment sales and operating income were higher than the third quarter, which was better than our expectations that we communicated on the last call. Higher equipment sales and increased sales to our non-steel applications drove this improved performance.

Looking forward to the first quarter, we expect our operating income for the full segment to be around $1.5 million lower than fourth-quarter levels. Again, we have four fewer days in the reporting period, but we'll also have lower equipment sales relative to the fourth quarter.

The severe weather conditions in January have also affected our refractory manufacturing operations in the US. Our Bryan, Ohio facility was shut down for several days this month due to some extreme freezing conditions. We have experienced some issues with truck logistics and shipping due to the weather related restrictions that have been placed on the state's and county roads around the Bryan facility. Many of our steel customers have also faced temporary shutdowns, which has lowered demand for our refractory products.

Let me go through a summary of the changes in the Refractory segment operating margin. The fourth-quarter ratio of 10.7% compares to 9.1% last year. Higher-margin refractory sales in Europe and Asia improved operating margin by 110 basis points. Improved higher-margin metallurgical wire volumes in both North America and Europe contributed 0.3 percentage point to margin improvement.

Productivity improvements and expense control added 0.5% and increased equipment sales and profits added another 0.4%. These were offset by unfavorable foreign exchange in Asia, which reduced margins by 0.7 point.

These charts illustrate our working capital and cash flow trends on an annual basis. You can see from the top chart that total days of working capital decreased from 58 days in 2012 to 57 days in 2013. The chart also illustrates that we have been able to sustain this lower working capital level over the past four years compared to the pre-2009 period.

The chart on the lower left shows our cash flow from operations of $138 million in 2013. Capital spending for the year ended up at $44 million, which is at the low end of the range we communicated to you on the last call pending anticipated uncertain PCC projects in Q4 that were moved into the first quarter of 2014. Our full-year capital spend estimate for 2014 is in the range of $65 million to $75 million.

And the chart on the lower right illustrates our free cash flow over the past several years.

Let's take a quick look at the full year. We had another strong performance and our earnings of $2.42 from continuing operations is a 12% increase from the $2.16 per share recorded last year. It represents the fourth consecutive year of record earnings for the company.

In addition, both the specialty Minerals and Refractory segments achieved record profitability this year. Our underlying sales grew over 3%, excluding foreign exchange. As I mentioned earlier, our sales growth has accelerated over the last three quarters. Gross margins increased 60 basis points due to an overall productivity increase of 5% and good cost control and price increases. We continue to maintain tight control of our overhead expenses, which remained flat with 2012.

Operating income increased 10% to $124.4 million and represented 12.2% of sales compared with 11.4% last year. Our return on capital for the year was 9.5% compared to the 9.2% achieved last year. As I mentioned, we generated approximately $138 million in cash from operations, repurchased $52 million, or a little over 3%, of our shares over the year.

In summary, our full-year earnings of $2.42 per share reflect the continued strong performance we have demonstrated over the past four years. Sales growth we have been projecting over the past several quarters is showing through and it is a direct result of the execution of our strategies of geographic expansion and new product innovation.

Let me summarize what we are currently seeing for the first quarter. As I mentioned earlier, we expect lower sequential sales and profits in both segments, due to what we see are a number of temporary factors. We have four fewer days, or about 5% of reporting period. That is first. We are seeing higher costs and lower demand associated with the severe weather conditions in the US that are affecting both our operations and our customers' operations. In January, the impact of these conditions has reduced earnings by about $0.02 per share.

Specialty Minerals, we expect lower Paper PCC volumes in North America and Europe, due to the announced mill closures and the realignment of paper production that we mentioned on the last call. The first quarter is also a seasonal slow period for Performance Minerals and more so this year due to the cold temperatures. Refractories will not have any significant contribution in the first quarter from our high-margin laser equipment sales. And, as I mentioned, we will have lower refractory volumes due to some of the temporary steel related -- weather-related steel outages.

Overall, there is a bit of uncertainty in our outlook in the first quarter, given the factors I just mentioned, so we expect our EPS to be between $0.56 and $0.58 per share. Despite the challenging conditions we are facing early this year, we see a strong 2014 for Minerals Technologies. We have built strong momentum with our PCC satellite expansions in China with the deployment of FulFill and other new technologies, and expect to continue on our track of delivering 10% year-over-year earnings per share growth this year.

Now I will turn it over to D.J. Monagle, who will take you deeper into our Paper PCC new product development pipeline, which we only touched on briefly in our last call. D.J.?

Thanks, Doug. Good morning, everyone. You just heard Bob provide examples of our high-performing corporate goals for delivering operationally, designed to sustain the gains we made in 2013 and to keep building upon those improvements. Doug then described how our efforts translated to outstanding financial performance in 2013.

My objective is to give you deeper insight into one of our core strategies, that of technology and innovation. In our last discussion, we introduced you to the Paper PCC technology pipeline to give you a sense of the dimension and the breadth of the ideas we are investing in to further grow our business. We thought it would be beneficial to give you an even better sense of where we are in some key development areas and provide greater detail regarding how these ideas will augment our growth in the coming years.

As we have stated previously, technology is and will remain key to our success. Bob provided an update to FulFill E-325 earlier in the discussion today, providing a good example of how technological development allows us to grow in the established regions of the world, while also supporting our strategy of geographic expansion. For instance, the main reason we were able to obtain five of the seven satellite PCC plants in India was that we offered a higher filler technology. It was a critical differentiator in our overall offering and we are seeing a very similar reaction from the market in China.

But FulFill is not only product innovation in our portfolio. This color-coded slide shows the updated product development pipeline for Paper PCC. It is a snapshot of where we are today, but it provides insight into our longer-term thinking.

As you may recall from prior calls, some of the areas of new technology that we are pursuing include products and processes for waste management recycling, the dark blue areas, energy, the environment, and sustainability, the yellow shading, growth in packaging, which is here in orange, and continued support of higher filler levels in paper. That is light blue. Today, I am going to expand on the potential we see in these key development themes and give you a sense of the opportunity that is before us.

Let's focus first on our ideas around waste management and recycling. These are the dark blue boxes and you can see that we have two of these technologies in stage II and two more in stage III. These developmental products relate to the concept of transforming postconsumer waste that is currently returned to the papermaker through established recycling channels. We are working on ways of taking some of the recycling residue and unused byproducts of the recycling process, then converting those into usable pigments for the paper industry. This unaddressed reclamation tends to be inorganic in nature, meaning that it is some form of mineral the we are able to then alter into a value-add product. This particular approach requires that the recycling infrastructure already exists and is designed for further growth in established markets, in particular the US and Europe. We estimate this market to be between $50 million and $100 million over time.

We're also addressing opportunities to reduce the environmental impact of the paper mill. Reduced energy consumption can improve the sustainability of the papermaking operation. Indicated on the slide, these yellow boxes, three of these are in stage V and one is in stage IV. This technology is very closely related to our waste management goals, but in this technological pursuit, we are taking waste streams from the paper-make manufacturing process that have never reached the end user and converting these byproducts into usable pigments, avoiding the cost of disposal and providing paper performance benefits of an engineered crystal. In other cases, we are actually modifying the papermaking or pulping process, such that the creation of any byproduct is avoided entirely, reducing the variable cost of the operation and the energy required to create the pulp of paper.

Besides operational cost reduction, we are able to provide a high-performance pigment that replaces fiber or other high-cost raw materials, thus delivering further value. These different approaches represent unique ways of manufacturing pigments, yet remain true to our satellite model, which creates a very unique, intimate, valuable, long-term relationship with our customer. This technological pursuit is most interesting to customers in the emerging regions of the world, China in particular, but has some global applicability as well. By offering these unique solutions, we are able to present options for the papermaker that provide them avenues of dealing with the increased cost pressure of waste disposal and waste transportation costs. More importantly, this approach relieves a lot of the pressure from regulatory agencies and local communities that are demanding papermaking operations reduce their environmental impact. We estimate the market for these initiatives to be approximately $100 million.

As we view the market today, both of these approaches for waste management and operational sustainability represent a market opportunity of about $150 million to $200 million. They also provide differentiators for MTI, building upon the environmental advantages we have already established and provided for years as our PCC captures CO2 from the stacks of our customers and improves the air quality surrounding the paper mill.

We are aggressively pursuing both market areas and expect to be trialing the products, framing the value, and defining the ultimate market for each in 2014.

The development portfolio also has some projects designed at making greater penetration in the packaging segment of the paper industry. We are currently exploring the market opportunities for these products, and the initial response is positive. We are exploring satellite opportunities for this market segment, but it will take a little time before we can define our ultimate opportunity.

And, finally, we will continue to focus on our core competency of developing even higher filler levels in paper. For example, we are early in developing several approaches to further extend the performance of FulFill. We are confident that we will make progress developing new technologies that allow our customers to increase the level of filler and paper.

Now let's open the line for questions.

(Operator Instructions). Rosemarie Morbelli, Gabelli and Company.

Good morning and congratulations. Just looking at the Paper PCC, I was wondering if you could help me, in any case, understand the gap or the difference between the number of paper mill shutdowns, the new satellites, the increased volumes due to FulFill. So in 2013, if you met the shutdown with the new satellites, the increased volume within FulFill, what would be your net volume gain in tons versus 2012? And then if you could go through the same exercise for 2014 to the best of your knowledge.

Okay, Rosemarie, let me see if I can break it down into a couple of elements. So we lost about 25,000 tons in total over the past year due to some shutdowns that we mentioned here in North America. However, we gained about 85,000 tons due to the new satellites that have either come online or continue to ramp up through 2014. The FulFill component of that is an additional 50,000 tons of FulFill volumes. So you are seeing about 85,000 tons from some of the expansions, 50,000 from FulFill, and that is offset by about 25,000 tons of volume declines, various things due to shutdowns et cetera. Does that help?

Yes, it does. And should I look at this number as increasing in 2014 or have you already taken into consideration the ramp up of the new satellites, the new contracts on FulFill, et cetera? Or maybe you want to go out to 2015 to have a better feel.

Sure. Let me give you just a quick kind of profile of the capacity that is going to be coming on in 2014. We have four satellites that are being built in 2014. Two in India will continue to ramp up, so there will be some incremental volumes from two. We are building four in China, the first of which is with [Xinghur] Paper, which was about 25,000 metric tons, will come online in late Q2, a second with Nanning Jindaxing Paper, which will come online in late Q3. That's about 30,000 tons. We have a 100,000 ton satellite, with [Sung] Paper that will come online in the fourth quarter, and recently announced a 100,000 ton filler satellite with UPM Changshu, which will probably come on line, if it is being built this year, it will probably come online beginning of 2015. So, you won't see all of the volume from that, but that gives you a profile and it usually takes about a quarter to ramp each of these satellites up. That should give you an idea of about 250,000 tons of capacity this year.

Yes. That is very helpful. And I was wondering if you have heard of any more existing mills shutting down and therefore eliminating some of the existing capacity.

Well, we have -- as I mentioned in my comments, the Courtland facility is currently in its process of shutting down. We expect those tons to be moving throughout the IP system, but as they do that, as those paper tons are shifting and as they reduce some of their inventories, we are seeing some impact on our volumes. And that was in my comments in the first quarter that may go suddenly into the second quarter.

One of the other facilities is the recently announced mill -- UPM mill in France, Docelles, our Docelles plant, that is currently being held for sale with UPM and our understanding is they have to potential buyers for that. So there is a temporary issue with the Docelles plant but we are confident -- that we are hopeful that will be sold and continue on operating.

Okay. That is very helpful. And if I can ask one last question before going back in queue, when you look at your existing customers for FulFill, are you seeing them moving the product on to more of the technology, the process, onto more machines and more mills, or is it still too early for them to be moving from the initial utilization to additional ones?

Yes. Rosemarie, it's D.J. A couple of answers to that and it kind of builds off what I had said last quarter. So we have got some 15 customers now and in that group seven are using it pretty routinely and we are seeing pretty robust expansion of that. And then we have got, as Bob's slide showed, we are still pursuing 35 active engagements and then we would expect that number to grow this year.

So we are not at all topped out on FulFill. We still see that same market opportunity that we saw before and we are hoping that the rate of growth for 2014 would be better than 2013.

So just to frame up what we have been thinking for FulFill next year, if we were $2.5 million of contribution this past year, we are looking at something that is in the neighborhood of $4 million to $4.5 million for next year. A slight chance I can get higher than that, but that $4 million to $4.5 million number is something I feel pretty good about.

Okay, thank you. I'll get back in queue.

Ivan Marcuse, KeyBanc Capital.

Thanks for taking my questions. The first one I have is that you have done a great job on your operating costs, obviously keeping them flat, but you have all of these different expansions going on and initiatives to grow. So should you see, as we go through 2014, how much longer can you keep the operating costs sort of at this $90 million level, or do you expect to start to see some pressure due to these expansions and due to all of these different initiative you have going on?

^ Look, we work very hard at holding our overhead expenses flat. Now, let me give you an idea. It is not that we are not adding expenses. What we are doing is we're looking to find ways to make our operations much more efficient here in North America and Europe through our shared service model to reduce our costs so that we can add where we need to in China, so in China and Asia. And this is really part of our continuous improvement culture. We look every day throughout the company to improve processes, to reduce costs in our operations, to reduce costs in our business processes and so that when we add sales and we add R&D and we are adding business development to pursue that growth of new technologies in China and Asia and around the world, we are making even more efficient the base of processes in the business. And that is how we have managed to keep our expenses flat. So it's not that we are not adding anything. We are just looking to continue to make more efficient the underlying processes for the company.

Great. And then in terms of the expenses, this is more of a quick modeling question. Your corporate and unallocated, it's correlated. It looks like it trends $1.5 million to $2 million, but it popped a little bit this quarter. Is there something special in there and how should I think about it going through 2014?

That was related to kind of marked-to-market expenses on our stock option and stock grants program.

Got you. And then if you -- moving back into the business a little bit more, if you look at your -- out of these expansions the higher-margin products you have coming out of Asia and India, and I think you said in your comments that you sort of look for -- you have been growing earnings at about 11%. Your buyback is actually double than what it has been. Why wouldn't your EPS growth start to accelerate above where it has been the past couple of years with all the different products coming on and the more accelerated buyback?

Well, it will. We just started on that buyback program, the larger buyback program, as I mentioned, this quarter, so that will as we continue through that buyback. And that should reduce -- it is pretty much giving our free cash flow back by reducing share count by about 5%. So that will happen.

However, with these new and higher margin products, you will see margin expansion. We do see, offset with that, higher raw material costs and energy costs. That is going to be an offset to that. But we expect, as I mentioned in my comments, that we achieved our 2015 target already in 2013 of 12% and we think we can grow those margins even further, perhaps to 15% over the next five years, and that will help accelerate that EPS growth.

Got you. But that 15% over the next -- so 300 additional basis points five years from now, that is the new goal?

I'm sorry. Can you repeat that again?

You plan on raising your operating margins 300 basis points over the next five years? Did I hear you correctly?

Well, I think that is possible. I think we have products, I think, with our operating expense control and with the new products, some of which D.J. just mentioned with our expansion in Asia and the potential expand in Asia and leverage of that overhead base, I see that as possible. Am I going to try to target for you right now that we are going to achieve that by a certain date? No. But I definitely see that we can do that in the short to -- in the medium term.

Great. And then my last question and I will move on or get back into queue. You talked -- I like the detail you put on the new product development. And, if you look at your stage, what is the timing on these different stages? Does each stage represent like a year? And what sort of -- if you look at all the products that you have in stage II, what is the success rate or how do you measure that historically, that you see five move on or 50% of those products move on? And how do you sort of measure the timing? If that makes sense. I don't know if I was fair enough.

I think it makes sense, so let me give you an answer and we will see if we addressed your question. So let's think about the graph for a second and talk with timing. If you had looked at that slide, you would see a bunch that go into stage I and stage I and II have a lot of churn. We might get 10 ideas in a month and we will go through those. But, when you are in stage III, IV, and V, that is where really the rubber meets the road; that is where we are spending and validating things.

So if we look at like energy and the environment that I had spoken of earlier, we had three in stage V and one of those in stage IV. So two of these that are in stage V are really significant about meeting that $100 million opportunity I was speaking to. And so we are in the process now of seeking some partners to scale up and test this. And so when we get that partner's commitment, which I do not have now, and if we are able to come up with an agreement, it has been our tradition to announce those sort of things to keep all of you updated, then you are looking at something that is six to nine months before we can actually measure the impact of those things.

So when will that -- and if we just look at the energy and environment, when will that $100 million opportunity start showing up? I get agreement, I build something for six to nine months, and then it probably takes me three months to figure out what the value of that is, and then we start proliferating on that. So we would expect to make good progress on that.

I mentioned the other one in waste management. You can see those are in stage III. We probably get some small trials early. If they get validated, now I am into another nine-month sort of a build on those things. But if you take those two objectives and a couple of the others that are in stage V, we are thinking that we can expect to have $100 million to $140 million over the next three to five years, if that kind of dimensions with that for you.

Got you. So something in -- so these blocks you have in stage V that represent $150 million, you would expect that to flow through over the next three to five years, depending on how successful you are at at getting traction.

Three to five. And then so the danger of giving you this insight is this, is we are running our first trials. And so, assuming success, I think that that is what you can expect. And then if it is not a perfect success, maybe the numbers change around a little bit, but, yes, we are running our first full-scale commercial trials. After we get those commitments, but, yes, that three to five range would be appropriate.

I appreciate the detail. Thank you very much.

Daniel Moore, CJS Securities.

Maybe focus on refractories little bit. Obviously, a nice pickup in Q4. And talk about how the environment may be improving for equipment sales, what your expectations are for growth, for metallurgical wire as well as refractories in general in 2014.

Sure. Well, we don't see -- we see some stability I guess. Let me start with the refractory products, so some stability in the US and Europe steel markets. Europe improved a bit over 2012 and I think that shows in some of our share gains and some of the gains we have had in Europe in terms of growth in refractory products.

Looking forward, again, in the US, pretty stable. So we are not projecting a tremendous amount of just base volume growth. However, we have been working on the SULB in the Bahrain model. So we see an opportunity for growth in the Middle East and that extends into India, where that cost per ton model -- the full-service refractory model could apply to a steel mill or a portion of a steel mill.

In equipment sales, typically Q4 is the best area -- is the best time for equipment sales. We sell most of them at the end of the year. This year actually picked up a bit and the reason it did is we had some equipment that we thought was probably going to be commissioned in the first quarter actually got commissioned in the fourth quarter. So we did a really good job bringing those into the fourth quarter and getting those sales booked last year.

So, going forward, though, the first quarter, as I mentioned, equipment sales, typically not the strongest quarter. We are usually taking orders for them or we are building them through the first and then start to see those sales pick up in the third and fourth quarter again. Han, do you want to elaborate on any of that?

Yes. Thank you, Doug. Yes, so, if you look over all, we saw the market growing in Europe and in North America 4%, our underlying sales growth was 9%. So it was positive from a refractory perspective.

Like Doug mentioned, equipment sales is really strongest in the fourth quarter. We were able to get some units from the first quarter into the fourth quarter.

I'd just like to highlight the wire side. So we will continue our strategy of geographical growth and new products. And so we were strong in Turkey, in Russia, and in India in the fourth quarter, and that will continue into 2014 as a strategy. Also, we have new products on the wire side introduced and new delivery systems, which are also starting to deliver on the wire side.

Very helpful. And remind us, Bahrain, how much revenue did you generate in 2013 and what should we expect for 2014?

Our full-service contract that we have in Bahrain with SULB, again, we had $14 million in revenue in 2013 and it was up from $4 million in 2012. So it was a delta of $10 million between the two years.

And remind me, should we be thinking of that in terms of a good portion of the initial contract has now been generated, or do you think that you hope to expand that and continue to grow off of that base?

Yes, Dan, so we saw a little bit higher sales this year as that mill has been ramping up, so their consumption of refractories a little higher than normal. But that contract is a $25 million to $30 million, three-year contract and we are about halfway through it. I think you're going to see sales normalize back to the $10 million, $9 million per year as we go through the final end. Their consumption, they are getting more efficient and as their consumption of refractories decline.

Very helpful. And then, I believe, Doug, you mentioned you still thought, even given the challenges in Q1, 10% EPS growth is a reasonable target for 2014. Did I hear that correct? And what might be, if there are areas of risk or concern around that, what might they be?

Sure. I think, well, look, the first quarter, as I mentioned, is just we have some uncertainty there. I won't go back through the items. A lot of them related to do with energy costs and weather. But as we look out, I mentioned we see another strong year for MTI. I mentioned we have delivered 10% earnings per share growth over the past four years and we think we could do that again this year. We see increased FulFill, as D.J. mentioned, will drive some of that growth. Our new satellites and ramp-ups that we are putting in China will drive some of that growth. We have got an expansion in Specialty PCC in Adams that we are filling up that will drive that growth. We have got the kiln conversion last year that we converted to natural gas that we are going to have some additional savings from this year. So there are a number of factors driving that growth -- the geographic expansion, deployment of new products, and the cost savings initiatives. So we are confident that we can continue to deliver that type of EPS growth.

Okay. Very good. And, lastly, maybe getting into LEED, just tell me a little bit more about the Vicron product. What technologies, if any, does it compete with or displace, cost-benefit, and how should we think about the size of that potential opportunity over time?

Sure. I'm going to let Doug talk about the Vicron product.

Dan, the Vicron product sale, it is a full product line for us, so Vicrons will tend to go into paints and coatings. It will displace higher value mineral content on certain products. In some cases, the compounders will see improvement in production rates.

So when you say Vicron, we have a number of specific areas that we have identified improvements like the new product that we launched with FRP that has been specifically designed for areas like bulk molding and thermal set polyesters as an example.

And in terms of anything you would gauge around market opportunity over time?

Well, we are always chasing the market opportunities. That really is our area where we are looking at displacing higher value and larger -- the higher expensive and more expensive minerals, but it is a big area for us, and it is an area that we have identified as a big growth area for Performance Minerals.

Very helpful. Thank you.

Jeff Zekauskas, JPMorgan.

It is [Tulka Coup] for Jeff. How are you?

A couple of questions. Maybe I will just start with earnings growth as well. So, 10% EPS growth for the year, I mean, that you will try to get to somewhere to like $2.65. And if your first quarter start slow, that means that you probably expect your EPS for the rest of the year to be somewhere in the high $0.60 a quarter or $0.70 a quarter range. Is that the way to think about it?

I think that is what we're going to have to deliver in the last three quarters to hit that target, yes.

And tropically, like seasonally, your second and third quarter are normally strongest. Would it be different this year because some of the ramp-ups of the satellite plants will happen later in the year or?

No, I don't think -- I think typically, the second and third quarter are our strongest. The fourth quarter -- the past couple of years, the fourth quarter has changed largely due to the refractories business unit, which I think in the past two years has had much lower high-margin equipment sales. But we see another year with the typical second and third quarter strength. And, yes, we are going to have to continue to increase our earnings per share the remainder of the year to hit that target.

Another one. A lot of questions about the growth in the refractory sales and in PCC sales. And there was a lot of strength that came out of Europe. So the way I understood the answers is that probably there was a fair amount of market share gain, and so it seems like MTX sales in Europe grew much faster than the underlying market. Is that right?

Well, in total, yes. Europe was a much better year for us than 2012. 2012 was a very low point. A lot of that growth was driven by the refractories. I mentioned 15% growth in refractory products. That was both in some base volume growth. SULB contributed to that, but also some share gain.

On Paper PCC, we did see some volume growth and particularly in some of our coated products, in our Aanekoski, Finland mill that really good drove, and those are some higher price point products. Also, if you remember, the Alizee mill restarted in late Q2, and that has helped the year-over-year comparisons as well.

That's helpful. Thank you. But then I have a question about the specialty PCC expansion. How much of the 10,000 ton expansion is complete by now? And the specialty PCC, does it get picked up as part of your overall PCC production? I guess it is part of this 3.3 million tons of production. And what do you sell the stuff for as in your dollar per ton, like an average?

It is separate from the PCC for paper. It is actually a separate process. We think PCC in North America at our Adams Mill, which is also one of our larger mines for GCC, so ground calcium carbonate, we also make our own lime there, and that lime is used in the specialty PCC product line. And specialty PCC, we call that anything with non-paper. So it goes into automotive sealants, very high-end automotive sealants. It goes into construction sealants. It goes into food and pharma as calcium fortification.

And we also have a facility in England outside of Birmingham that makes the same product.

We announced last year a 10,000 ton expansion in Adams. That is increasing the capacity about 35%. We are finishing up. Just this first quarter, we will have that full 10,000 tons online. It is probably another -- we had about 6000 or 7000 tons come online at the end of the first quarter of last year and this was the remainder of that expansion. So you will see some increased sales from specialty as a result.

And are the price points very different to what you saw in your paper (inaudible) PCC of paper (inaudible) PCC sales anywhere in the range of, I don't know, $100 to $150 a ton. Is the specialty grade very different?

I thought I dodged that question. No.

I am not letting you off the hook on that one.

No. They are much higher price points. They are four times -- it really depends on the type of product and the grade. There is a big difference between what we sell in terms of fine, uncoated products that might be price points of $200, $300. But when you are looking at the ultrafine products, the nano size that we have been making traditionally as a company that have coatings on them, that is one of our technological advantages that really go into plaster salt, the reality modifier. Those can be very high price points. They can be in the $500 and $600 per ton. When you are talking food and pharma, when you talk -- when you are going into calcium fortification of milk substitutes and other things, it could be higher than that.

Okay. And lastly, if (inaudible) rates in China and India could ever reach the 20% mark and you really get to these -- get to realize like another 3 million tons of salt production, is that really possible or is that something that is like a 10-year process or like an eight-year process, or do you have like a target or do you think it is actually feasible to get to this level at some point?

This is D.J. Not just feasible, that is where they are going.

Okay.

And so what I mean by that is China and India are a little slower than the Americas and Europe, and that is where they migrated to. And so the penetration rate is a little bit slower right now, but there is no doubt that that is where we are going.

Here's the drivers behind it. The first one is now they are putting in these world-class machines, as Bob had said earlier. The second part of that is if they are competing in the global market, so they have to improve their quality. And then we have got this value equation of replacing high-cost fiber. And in Asia currently, the fiber is even higher cost. A lot of that is shipped in from Brazil and other countries. So our value equation is very strong there. We had to do something to modify our processes to make it competitive versus other pigments, but we really do have a compelling story.

So they put up the slide for you here, just to orient you here. What we are saying is that, today, India ought to be 700,000 tons, 400,000 tons of growth that is there today. And what we are saying in China is just if I get them up to where Europe and North America is, that ought to be a 3 million ton market. And so we are saying that just the growth there today is about 2.6 million tons. And they have been growing at a historical rate between 5% and 7%.

So we are saying, near-term, that 2.6 million tons, just if they stay on the other track, is 1 million tons. And then, and I would be remiss if I don't remind you about FulFill.

And where we are taking people now is that we can get them from 20% to 22% to 24% fill-in levels. So it is a huge opportunity for us.

Now, let's go to the rate of penetration on this. And what I was trying to let you know before was this developmental pipeline augments this pursuit of geographic expansion. So where we are trying to go with some of our trials that we would be lining up in the next couple of months -- and I hope to deploy these new satellites early -- is that should increase our rate of penetration in this market and it should give us an opportunity to have an even higher market share than what we typically enjoy. So we should be north of that 50% market share just by being who we are and keeping the new products. So, yes, it is real and I am very excited about it.

I appreciate the insight. Maybe I have one last follow-up. When you launch these new satellite plans in China and in India, how long does it typically take until these mills switch over to FulFill? Is it like a one-year process, or do they start out with FulFill?

Based on my -- so probably a year ago, I would say that we should be able to get things squared away in three months. That has not been our case. So, right now, I would say that, from the time we start up, right now it is taking us three to six months to get them stabilized and then we start getting FulFill. We are looking at ways of trying to introduce FulFill earlier in the process. FulFill provides them many papermaking benefits. So saying a year into it is probably a more realistic planning figure to that, but I am trying to drive the organization to keep it close to that three to six months after things start up. But your calculation of a year is probably more pragmatic.

Okay. Thanks very much for all the insight. I appreciate it.

Steve Schwartz, First Analysis.

Thanks for the information. It is a good deck today, but of course that just generates more questions. So I think most of my questions are for D.J., but just -- you show the pipeline for FulFill and now for the new products in Paper PCC. How would you describe your pipeline for satellites? Because you are certainly coming off a period where that has been very strong.

It has been strong relatively and I guess what I am trying to say (inaudible) what we tried to give you insight on at the last call is that it is getting stronger. So especially as it relates to China, where we showed an opportunity pool that I am pursuing that is a dozen and I got another dozen behind that that I'm just trying to get qualified and now part of that momentum that we have got is related to these new products that we are bringing out, including FulFill, and we will probably be introducing a new brand on this environmental pursuit that we are talking about. It probably will take on another name, but I am telling you, in earnest, I am pursuing a dozen. Most of them are in China, got a couple more in India, several in Thailand, a couple down in the other Americas. We have got just great opportunities to bring home satellites, but part of delivering those satellites is about getting the new technology on board, because it is addressing a need and it creates that urgency to make the shift.

Okay. And then, D.J., when you talk about moving into the higher technology FulFill products, when you first introduced the program to us, you had a table that had different variants, different theories. Is that what you are referring to as moving down that table?

Well, it is not -- so let me try and take -- make sure we don't get into apples and oranges. So the FulFill line of products is very much around these higher filler technologies. And we showed you at the time a FulFill A, FulFill E, FulFill V, and Fulfill F. FulFill F is our highest performing system. That is the filler for fiber where we believe we can get people closer to a 50% filled sheet. That one is a little bit off of our track. We have had demonstrated capabilities where we increased by 50% where they are. So we take somebody from, say, 25% and get them to 34%, 35%. And we think we can extend that further if we're given a chance to work on it at full-scale commercially.

FulFill A has been helping on then FulFill E. And FulFill E is the workhorse of what we have been delivering that op income growth that you have seen so far.

I will tell you that one of our hiccups had been around FulFill V. I had thought that I would be having more contribution from FulFill V as part of the portfolio. Right now, we have got several trials that we had a technical hiccup with it. We think we are on track with that. They will get trialed in the first and second quarter of this year and FulFill V should start contributing some op income. If it doesn't, we will are quite comfortable that FulFill E can fill that void. So those higher filler products, that is what I have been referring to.

Pointing to that, just to make sure we answered your question, these are different technologies than the FulFill. The FulFill is one of them. What D.J. described today is different from FulFill. There are other technologies that, as we commercialize, even help further the penetration of the PCC because they are addressing other problems at the paper site. So, there is a filler need, but then there is also other issues and these are addressing those other environmental issues, recycling issues, et cetera. So, they are different than FulFill.

Okay. And then, lastly, can you give us a little more color about the 6% growth rate assumption? So for near-term market growth, India and China, I think you said you are assuming 6%. Is that just, to be a little bit Western arrogant, is that just the westernization of Asia in terms of using paper in a more formal business market?

Well, so Steve, it is two elements. The way we come up with the number is it's simply the application of the historical rate. So if you look at that 10-year historical rate, that is what the growth has been. What is going on there is what we see is a couple of things. And they are a little bit different for India and China at least in the rate in which the change is happening.

For China, it is about increased business and better consumption, and then there is also the other part that is creating the market opportunity is China is shutting down old equipment, putting in new equipment, making our PCC a more viable option as we get economies of scale with these larger machines.

In India, it is more of a -- I believe that they understand that evolving the paper industry has a lot to do with helping their infrastructure improve, providing very solid jobs, and also fueling the white-collar growth that they are hoping to continue to support in India. So both of those elements are growing it.

And then there is some slight export increase as well, India less so than China. So, I hope that is addressing what the question is, but the 5% to 7% really is the application of the historical rate and a projection that, if that continues, this is where we ought to be.

Okay. Yes. No, that's helpful. Thanks, guys.

Rosemarie Morbelli, Gabelli and Company.

Thank you. I Was wondering. On the (inaudible) doubling of the capacity or doubling of what you are producing now in order to supply China and India, what would be the cost of doing all of that? Are you paying fully for those satellites there, or is the model a little similar to that in the US and Europe in whereby you kind of share it, if my memory serves it right? Could you give us a feel for how much you need to invest in order to proceed that market?

Sure, Rosemarie. I think you are referring to this kind of capital spend, right?

Right.

Yes. So to support 3 million tons in the region, again, we do some of these in joint ventures and some of them are wholly-owned. Historically, it has been -- I would probably give you an answer of about $250 million, it's certainly something well in our capability to finance. But, as you know, we have been driving down the capital costs of building satellites tremendously over the past several years, almost 20% more capital through efficient designs, strategic sourcing of those parts, standardization of the plants from a commonality, being able to use capital from other plants that have closed. So we are really driving down the capital footprint. So it is not going to be -- the capital is not going to be an issue to pursue that growth.

Okay. And going back to the new products, your potential $100 million and $140 million over the next three to five years, first of all, is that the market or is that the amount that Minerals Technologies is expecting to generate? Or would you have only a certain percentage of that $100 million to $150 million.

So Rosemarie, what I said, what I tried to convey was that I see that total market right now at least in those two new areas that I introduced, but I didn't go into a lot on all the areas. But the two new areas that I introduced, I saw market a size of $150 million to $200 million, and I think that we ought to be between $100 million and $140 million of capturing that. So I described both the opportunity and what I think that we can get in the medium-term.

Okay. No, that is helpful. And then, will the margin on those new products be similar to what it is today or be at or above your 15% goal operating margin?

I would say that they will be slightly above those because we are trying to get the entire portfolio up to that sort of performance. And then, but a key part on all of this is that these are going into the trial stage now. And a key part of the trial validation is what is the value of this, because these are -- they are not displacing a pigment. We are creating a market space and creating a market opportunity. And so that will be -- we will know more as we come out of these trials, but as we are going forward, I would say they would be slightly higher than that average margin, and we will let you know more.

Okay. And then, lastly, if I may, if I remember properly from I think the last call, Joe said that he would give a reasonable timeframe before you come up with a third leg type of acquisition. Are we getting closer to that timeframe? Should we be expecting something by the end of 2014? And, if not, what are you going to do with all that cash? Would you be buying back some 15% of your shares? Could you give us a feel for what is happening there?

Sure. Rosemarie, this is Doug. We have a very robust pipeline. Jon Hastings commented on last time -- last call of potential acquisition opportunities. We continue to work of them and some of them continue to get closer and some of them get further behind. And some of them come back around. So, I really can't give you any insights on how fast that will happen.

I can tell you, though, that we continue to use a balanced approach to our cash and so we have issued or authorized from the board a $150 million share repurchase. And as we see the opportunities wane, we can accelerate the share repurchase. And as we see that they come a little bit closer towards perhaps fruition, we can throw all that back. So what's the use of the cash, I think it is balanced with what we see is the opportunity on the M&A side. And that is what I can offer you.

Okay, no, that is helpful. Thank you.

Alan Mitrani, Sylvan Lake Asset Management.

As you move more towards emerging markets in the next couple of years, can we expect your tax rate to drop appreciably from where -- from the current -- where is it now? Currently roughly around 28%, 29%?

Yes. About 29%. So as long as it is not Japan, we should see a net decrease in the tax rate. But we continuously work on lowering the tax rate. We are looking at opportunities as we move to other regions and setting up holding companies in those regions to make sure that we have the most tax efficient structure in China, or in the Asia region, making sure that we have ways of utilizing the cash that is generated and reinvesting it into China and the region.

So, when you move outside of the US, yes, in general the tax rate will drop, but until the United States decides to work with businesses and lower the tax rate here, any time we repatriate that cash, it is going to be subject, obviously, to the differential.

Okay. I appreciate that. And just to understand, you hit that 12% operating margin goal that you had had, which was great. It seems like you've got a lot of opportunity and potentially good opportunities with new products on pricing in the next couple of years if these products work out. I wanted to understand your thought on 15% operating margins in five years. In running through some back-of-the-envelope math, it seems like you probably need something close to 12, 50 -- or $1.25 billion or $1.3 billion in sales to get to that number. And that would imply an EPS number of in the $4s assuming you're using some of that early free cash to buy back stock. And, also, it doesn't assume you do anything with this $12 of cash, which would mean that your EPS growth accelerates from the 10% level it has been in the last five years to a little slightly higher, driven by buybacks and maybe even tax rate helping you.

I remember you Alan. I remember you.

Well, if you guys hit your targets early, that would give you a chance to give some new ones.

Yes. I think, look, you have seen -- as we have gone through building our satellites and FulFill higher margin products coming out, we have had 2%, 1%, 2%, 3% growth in the company's top line over the past year. As yet we have gone from 10% to 12% margins. So the additional sales certainly, and especially the higher margin sales will absolutely contribute to growing margins at the 15%.

But, we still have a very efficient shared service model in the company. We leverage that. We continue to add services to it.

And so, even our existing margins, I think, the base margins and our base business can expand as we continued to drive continuous improvement in the company and more efficiency. And that will, yes, so I haven't done the math in my head as fast as you just did to get to the $4 per share, but yes, a 15% margin at $1.25 billion, you are up in that range.

Yes. I was a little higher, but that is also assuming, again, like Rosemarie, that you don't do anything with this $12 a share in cash. I have got to tell you, we are waiting for the day that you do something with it because all of your customers run with leverage, competitors are running with leverage. And given where rates are, we just hope you don't miss a window to buy something that you could make -- that you could put your lean model on or at least to return the cash to shareholders ahead of you doing what we know you can do in terms of internal growth the next few years. So looking forward to it.

Absolutely. Well, thank you for those comments. I appreciate that.

Thank you. I will now turn the call back over to Rick Honey for closing remarks.

Thank you all for a good call and your interest in Minerals Technologies. Have a great afternoon.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and have a wonderful day.