Good morning. My name is Jodi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Minerals Technologies Inc., Third Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Rick Honey, Vice President of Investor Relations. Please go ahead, sir.

Good morning, and welcome to our third quarter 2012 earnings conference call. Joe Muscari, Chairman and Chief Executive Officer, will begin today's call by providing some perspective on our third quarter performance. He will be followed by Doug Dietrich, our Chief Financial Officer, who will review our third quarter financial results. Before we begin, I need to remind you that on Page 8 of our 2011 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'll turn the call over to Joe Muscari. Joe?

Thanks, Rick. Good morning, everyone. Our financial performance for the third quarter continued to be strong as we mark the fourth consecutive quarter with earnings per share higher than $1, as we came in at $1.05, 11% better than in 2011. Our operating income ratio improved 13% over the prior year to over 11% of sales. And our return on capital for the quarter continued to show improvement, increasing 6% over the prior year to 8.8% on an annualized basis. Our cash flow also remained strong as we generated $40 million. Much of the contribution in profit came from a record quarter in our Specialty Minerals segment. Performance Minerals, our operating unit, comprised of the mining operations and Specialty PCC, continued to be a strong contributor to this through higher productivity, lower energy cost, good expense control, as well as pricing improvements. Our Paper PCC business also improved profitability over the prior year through improved performance in North and Latin America. We achieved this high level of performance despite a lower revenue environment because of our intense focus on continuous improvement in all facets of the company through our strategic and operational initiatives. Looking at the longer term, what really stands out is the momentum we are gaining in our 2 major growth strategies, geographic expansion and new product development. We just signed a 10-year agreement with Sun Paper to build a 100,000-ton satellite PCC facility at a paper mill in Shandong Province owned by Sun Paper, the largest privately-owned paper company in China. Recently, I had the pleasure of meeting Mr. Li Hongxin, Chairman of Sun Paper in China, where we signed a long-term relationship pact focusing on broader technical and process cooperation, in addition to the new satellite supply contract. This agreement is integral to our geographic expansion…

Thanks, Joe. Good morning, everyone. I'll take you through our consolidated and business segment results for the third quarter. I'll highlight the key market and operational elements of our financial results in each major product line and comment on comparisons to both the third quarter 2011 and sequentially, to the second quarter of 2012. As Joe mentioned, we reported earnings per share of $1.05, which represents an 11% increase from the $0.95 per share recorded in the third quarter of 2011, excluding special items. Our reported earnings last year were $0.87 per share as the company recorded a noncash special currency translation charge related to the sale of our majority ownership in the company's refractory operations in Korea. Our solid performance this quarter was achieved due to record quarterly earnings from our Specialty Minerals segment. The Performance Minerals business continues to operate on a very strong track, and profits also improved in Paper PCC. These strong earnings were accomplished despite weaker-than-expected results in the Refractories segment and the continued weak market conditions in Europe, where total company sales and operating income were down 14% and 37%, respectively. Our consolidated sales decreased 5% or about $12 million from the prior year. This decline was primarily due to foreign exchange, which had an unfavorable impact of $11.6 million. In addition, sales were affected by the permanent and temporary mill shutdowns in Finland and France in the fourth quarter of last year. Excluding foreign exchange and these closures, our underlying sales are up 2%. Though our sales are down 5%, our cost of sales decreased 7%, resulting in a 4% increase in gross margin. The margin improvement occurred in all business units, but most significantly in Performance Minerals. Expenses were slightly below last year and represented 10.8% of sales. This resulted in operating…

[Operator Instructions] Your first question comes from the line of Andrew Gadlin from CJS Securities.

I was wondering if you talk about some of the consolidation that's happening in the paper market, potential for seeing some of that in the steel market as well and how that could impact you?

Okay. D.J. Monagle is with us. I'm going to ask D.J. to give us an overview of the paper industry, both here and in Europe. D.J.?

Yes. So, Andrew, we see the trend continuing, but we don't see anything imminent in both North America and Europe. Our bigger concern right now is with the North American companies that have been in bankruptcy and are getting -- developing plans to come out of bankruptcy. So I don't think that there's going to be a lot of shifting around that's not associated with those bankruptcies. So I would say our -- the general, we think it's pretty stable right now, and the caveat is that these -- how these companies emerge, in particular NewPage, Catalyst is another one. There's a couple of other smaller ones that are out there. How they emerge and the impact of that on the industry will be the biggest bell weather.

I'm going to ask Han Schut, our Head of the Refractories Group, to comment on the steel industry as he sees it today.

Yes. Thank you, Andrew. So if you look to the steel industry in general, we see overcapacity. And of course, we see an unbalance between demand and supply, and that's primarily driven by China. So we see the major players working on their asset optimization. For instance, Thyssen has put assets in Brazil and in North America up for sale, and we see also, of course, some customers going bankrupt like we have seen in -- with RG Steel, which was a major account for us. So overall, we see a reshuffling between the players and the major players cutting back on their supply as part of the supply discipline to bring demand and supply in balance again.

And as you -- and this, I guess, is more in relation to the Paper segment. What's the ability for some of these new contracts to replace some of the volume you're losing from plants that are going out of business or consolidating away?

So, Andrew, I -- between those new contracts that are coming online and the growth that we see coming from our FulFill technology, we think that it will be a net growth proposition for our business. And, Andrew, as Doug pointed out on his slide, you get a sense of it in terms of if you exclude the exchange impact on us, we actually were able to hold ourselves to the same level of last year in spite of the shutdowns that we're affected both in steel and paper, but particularly on the paper side. And keeping in mind what I mentioned in my remarks, we've got new satellites coming on over the next several quarters that are going to, again, contribute to higher volumes for us.

Your next question comes from the line of Jeff Zekauskas from JPMorgan.

[indiscernible] for Jeff. A couple of questions. On the refractory side, when I look at the Refractory business on a sequential basis, it looks the sales were about flat and the EBIT was about $1.5 million lower. Is that a function of raw materials being up sequentially? Or is it a function of a different ratio of like high-margin equipment sales? Or -- what's behind that?

Yes, Silke, it's the lower equipment sales that we saw in the third quarter versus the second, but it's also some of the product mix I mentioned. The refractory product mix was a little bit different in the third quarter. Some of our lower margin products and some of our non-steel refractory volumes were down compared to the second quarter, so it's more of a mix issue.

Okay. Secondly, I was wondering whether you could quantify the benefit -- or the energy benefit in the Processed Minerals division.

Sure. So 2 parts to that: One is just, in general, lower energy compared to last year. But I think a bigger part of that is the kiln conversion that we made in the Performance Minerals business from Number 6 oil to natural gas, that we generated some savings this year from that. And about, let me give you an idea at kind of today's oil prices, we expect probably $2.5 million to $3 million per year of savings just from that one conversion.

And how many -- from one conversion. And how many kilns could you convert, like what's the absolute opportunity?

Well, for now, that's the current opportunity. We've done that one kiln, that is the capacity that we need to both sell lime and for our Specialty PCC production. But as lime grows, there could be other opportunities.

And could I -- we have Doug Mayger with us here, and maybe Doug could comment on this a little bit as well, Silke. Because we're also looking at -- we have 3 or 4 kilns, we have 4 kilns at the Adams site, and we're actually looking at some new market opportunities as one of the aspects of converting some of these kilns over, that could get us into markets where today, we may not be as competitive. Doug, could you comment on that a little bit?

Yes. So for some of the -- certainly, some of the market opportunities we have are excellent. We're in the process of doing an expansion today that should come online March of next year. It may, at some point, require us to do some more kiln conversions later on. But as Joe does mention, we have 4 kilns in total, 1 of them is converted today.

Okay, that's helpful. And lastly, there was another quarter of very nice operating cash flow and free cash flow generation. And I don't know, maybe by now, there's about like $21 a share of net cash on your balance sheet. So various companies have decided to do something about it. So Lime in Dallas [ph] do now get another special dividend, and C.S. [ph] is buying back a lot of shares. And I guess, I was just wondering whether over time, is there no acquisition benefits, whether any of that cash will be given back to shareholders.

Well, it is something that, as I've mentioned in previous calls, we closely take a look at, Silke, from the standpoint of shareholder return. And particularly, as we look at the acquisition side, if that's not coming on fast enough and our ability to continue to generate good cash flow, which, as we look forward, is still very, very strong, so that is something we're going to look at further. I can't go into any specifics right now other than to say it clearly is on our radar screen.

Your next question comes from the line of Rosemarie Morbelli from Gabelli & Company.

So the benefit on the energy, this is from North Adams, right?

Yes.

And when you say that there are another 3 kilns that could be converted, are they in the same locations or are they somewhere else and for different -- used for different purposes?

Rosemarie, they're in the same location at North Adams. And what we do is we have to cycle them between each other for rebuilds, but ultimately, we have operating permits that allow us to run all 4 at the same time.

Yes, I think it's important to note there, not all 4 are running today.

The potential is really for a total of something like $12 million in annual savings. And would you convert those only because if -- because of expansion? You would not convert them even if operations remain at today's level?

To utilize all 4, we -- and this is why I touched on the fact that we are looking at new markets or expanding our capability in existing markets. So the savings comes from a base of 2 kilns that had been running. So 2 had been idled. They're maintained in a way that we can turn them on fairly easily. But as Doug was touching on, we're actually -- when he mentioned March, we're actually looking at an investment that will allow us to increase our capacity for Specialty PCC, which is a very high margin product for us that is capacity constrained and there's some good opportunities in North America. So the upside around what we've done on the kiln conversion really manifests itself as new products and new sales with a commensurate profitability from it. Doug, do you want to add anything to that?

No, I think Joe hit all the points, but there is good opportunity for us not only in North America, but Asia also.

So when you say new markets, do you mean new geographies or do you mean actually new markets outside of construction?

It's a little bit of both. So certainly, automotive sealants would hit the mark. Certainly, there would be opportunity in consumer markets and in some areas like the construction area also.

And talking about the construction, have your results been helped -- I mean, I know revenues were up 7%, I think, if my memory serves me right. Is that from extended market share, or is it from the fact that you are already seeing some pickup on construction?

It's a little bit of both. It's market share, it's some growth, so certainly, we've seen some growth on the East Coast here. On the West Coast, it's been relatively flat, but we've had good penetration in the market share piece.

And if I may ask one last question, well, actually, 2. What is behind the last [ph] cost increase? And then since steel production seems to be growing only in China, while it is shrinking everywhere else, at least in Europe and North America, what is your presence in China and how quickly can you increase it?

So let me take the first question. The lime cost increases are the typical North America lime cost increases that we get each year. We absorb those lime cost increases in the fourth quarter, and then we're able to pass them through to North America customers the beginning of the first quarter. And that's a typical occurrence with our contracts. That's the first piece. Your second question was in terms of...

Steel in China, obviously, it is growing there while it is contracting elsewhere in your traditional markets. And do you have a large presence? And is it easy to actually increase your presence in Asia for this and participate in that growth?

Actually, Rosemarie, we've actually had a position in China now since -- well, actually, for a number of years and that we made an investment in 2004. That investment has not really gotten us to where we were targeting from a growth standpoint. So we have good upside in terms of capacity, but we're actually -- we have been looking for a partner to help us with penetration inside of China. The conditions actually in China are not that good right now. I was just in China 2 weeks ago, I met with the CEO of Meishan Steel, who's also a Director of Baosteel. And China is in an overcapacity mode. And they're struggling with how to take cost out and get their capacity and their demand and supply more in balance. What I did come away from the meeting with them, and since they're a good account for us, is that they're -- because of the heavy emphasis now on cost reduction, it looks to me like there are some new opportunity potentials for us that we're going to try to follow up on quickly, and then that actually play to the notice that we talked about, our new SULB contract. But it's really a change in the business model to be a prime contractor to take care of all of the facilities' refractories, and they expressed a strong interest in exploring that with us. They like the concept and they indicated they were trying to figure out a way to consolidate their supply base and refractories down to one. So I think for us, it's much more of a rifle shoot in terms of some of the key accounts where we can, let's say, increase our share and presence, and they know who we are. So right now, I'm actually seeing some upside for us in China, but not due to the general overall demand level.

[Operator Instructions] Your next question comes from the line of Steve Schwartz from First Analysis.

Guys, sorry, if you've answered this, I missed some of the call because of another conference call. But in Latin America, I think the majority of your satellites are in Brazil, and I'm just wondering what's specifically driving the improved profitability there?

The improvements in Latin America are a couple of items: One, productivities have certainly increased over last year; second, would be just operational spend, general operation spend is down versus last year. We had a number of equipment failures last year that did not reoccur, so -- but really, through the process of continuous improvement in productivities, that's really driving Latin America's [indiscernible].

Okay. And when you say productivity, those are internal initiatives?

Yes, internal initiatives focused at improving production levels, tons per employee, tons per man-hour, et cetera, those types of efficiencies.

Okay. And then, Joe, if you could help us just reconcile the comments you made in the press release about FulFill, 4 additional agreements signed. If I just kind of look at your second quarter presentation to third, that FulFill progress chart, I don't see an equivalent number of increases on that chart in terms of revenue generation or what have you. And perhaps, said secondary, most importantly, can you just give us an idea of, at this point, what you're feeling for the annualized contribution from FulFill agreements?

Sure. I think that what -- maybe where there's a bit of confusion, in the last call, we had included in the chart, some of the announcements that had occurred, already occurred in the third quarter, in that first month of the third quarter. And what we were recapping this time around, I think we did it in the press release and I did it here in the remarks, is what actually came in during the third quarter. And so the chart, I guess I'm saying to look at the chart itself, that is accurate and we typically -- we announce when we sign a contract. So it just so happened that a number of the contracts were signed in that -- that would have been in the July timeframe. And that's where the difference is, Steve. It's really -- I mean it is 4 that came in during the quarter itself. In terms of the op income impact, as recall on the last call, I indicated that based on what we had and what we sort of had in hand and what we could see, we were looking at an op income impact of $2.5 million to $3 million next year on an annual basis. That -- let's get to the end of the year, see where we are, there's clearly upside in that. But right now, I'd say what I shared with you last time, it's pretty much reflective of the companies that we have contracts with, but clearly, we have more that are going to be coming on. So I think it could actually be a little more than that. As you know, I'm leery of giving out, as I mentioned in my remarks, this -- it's not a linear process and it takes time even when we have a contract. If a particular mill has 3 paper machines, that contract could sometimes only be on one machine and then we work our way to the other machines, and that takes some time to do.

Yes, certainly, we understand and it is nice to see the progress there. Just my final question. In the Sun Paper agreement, can you give us an idea of what the loading might be, maybe not specific with Sun, but in China and some of these new agreements that you're signing? And I guess with respect to Sun, I don't want to bog the call down with technicals, but that OPACARB is coating grade. Is that different from when it's coated versus -- does that change the concentration within the pulp?

I'm going to let D.J. Monagle, our technical expert in this area, answer that one for you.

Yes. So, Steve, a couple of things. Joe mentioned it's 100,000 tons and then Sun is not just an industry leader, but they're a market leader, so this is providing us some great momentum. OPACARB is a coating pigment, and as such, carries a higher price per ton with it. So this will be above our average revenue growth that's associated with 100,000 tons. And then you mentioned on, what does this mean for China for us? I just want to expand on that a little bit. Both Joe and Doug referred to some targets that we started setting out in 2010. Of course, everyone knows or we've been talking about our growth in India and the surrounding region, but we've also been getting ready to grow in China as we've been left out of that market for so long because of other obligations we had with APP. In the meantime, we've been shifting our resources, the engineering resources, the applications resources, marketing resources, to really take advantage of the opportunity that's in China for us as we did in India. So Sun Paper sets up a terrific growth for us, we believe, in China, we've got everything in position. This is a wholly-owned, so this is a 100% SMI venture that's in China, so we have a great opportunity to work with the government and establish our entities there. We're developing new relationships with lime suppliers. We've got a whole infrastructure that's going into place to be able to fabricate equipment better for China. So we're looking at this as something that's going to open up the door for considerable growth in China. Hope that provides some color for you.

Steve, I would add to what D.J. said. One of the things that Sun Paper does for us, we had, from a marketing standpoint, we believe that with that contract, if we're able to get them, which we now have, that would begin to attract other paper companies who we have been doing missionary work with. Well, we are now getting those other companies, they are calling us and they want to know more about what we've done, and that's leading to other proposals at the moment.

[Operator Instructions] I would now like to turn the conference back over to Mr. Rick Honey for closing remarks.

We'd like to -- we really appreciate your interest in Minerals Technologies. And that concludes today's call. For those of you on the East Coast, New York, stay safe.

Thank you.

Thank you. Bye bye now.

Thank you. That concludes today's conference call. You may now disconnect.