Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2012 Minerals Technologies Inc., Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Rick Honey. Please go ahead, sir.

Good morning. Welcome to our Fourth Quarter 2012 Earnings Conference Call. Joe Muscari, Chairman and Chief Executive Officer, will begin today's call by providing some perspective on our 2012 performance. He will be followed by Doug Dietrich, our Chief Financial Officer, who will review our fourth quarter and full year 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. It should also be noted that the earnings per share numbers in this presentation reflect a 2:1 stock split we completed in December. Now I'll turn the call over to Joe Muscari. Joe?

Thanks, Rick. Good morning, everyone. 2012 was Minerals Technologies' third record-breaking year in a row. We recorded an operating income of $110 million and earnings per share of $2.09, both all-time highs. EPS was up 11% over the prior year, and operating income increased 9% over 2011. Our Specialty Minerals segment had a record year. Contributing to this performance was the Performance Minerals operating group, consisting of Processed Minerals and our Specialty PCC line, which also performed at record levels. During 2012, we were able to execute successfully on our strategies of geographic expansion, especially in China and India, and new product innovation, which included advancing our FulFill technology in the worldwide paper industry, as well as new products in Performance Minerals and Refractories. Now I'll go into a little greater detail about this progress in a moment. A great deal of our success, especially in the deployment of business processes, practices and systems, is the direct result of our operational excellence lean initiative, which is now integrated and embedded throughout the culture of the company. Our employees work daily to develop new ways to become more efficient, by reducing waste and improving productivity. Today, because of these efforts, we are a strong operating company that is position to fully leverage improvement in the general economic environment and the growth opportunities we are pursuing. Our cash position remains strong as we generated $140 million in cash flow from operations during the year, and we continue our balanced approach on the use of our cash. November, we announced the 2:1 stock split and a doubling of our dividend, and over the course of the year, we repurchased $28 million of shares, all of which provided value to our shareholders. This slide provides some insight into the improvement we've made in earnings…

Thanks, Joe. Good morning, everyone. I'll take you through our consolidated and business segment results for the fourth quarter and the full year. I'll highlight the key market and operational elements of our financial results in each major product line and comments on comparisons to both the fourth quarter of 2011 and sequentially to the third quarter of 2012. As Joe mentioned, we reported earnings per share of $0.50 versus the $0.52 per share recorded in the fourth quarter of last year, excluding special items. Our solid performance this quarter was due to better-than-expected earnings from our Refractories segment offsetting the Specialty Minerals segment performance, which was slightly below our forecast. In addition, our fourth quarter tax rate was 26.3%, which was lower than expected and improved our fourth quarter earnings by $0.02 per share. Our consolidated sales this quarter decreased 3% or about $8 million from the prior year. Foreign exchange had an unfavorable impact of $3 million or about 1% and the permanent and temporary paper mill shutdowns in Finland and France last year, as well as several steel mill shutdowns this year account for the remainder of the decrease. We continue to be affected by the weak market conditions in Europe. Our total company sales and operating income were down 8% and 18%, respectively. The company's cost to sales this quarter were 4% lower, resulting in a 1% improvement in gross margin. Specialty Minerals segment margins improved significantly over last year due to increased pricing, continued productivity gains and lower energy costs, while partially offset by the Refractories segment margins, which contracted from lower equipment profits this year. In addition, total expenses for the company were slightly lower than last year. Operating income increased 2% to $25.7 million and represented 10.5% of sales compared with 10% last…

[Operator Instructions] Your first question comes from the line of Rosemarie Morbelli with Gabelli & Company.

If I understood properly, you are expecting net income to be lower than last year in the first quarter, Joe? And what kind of gross do you expect for the full year?

Well, we are expecting a growth -- overall income growth that is going to be commensurate with the track that we are on, Rosemarie. As you know we don't give annual guidance and try to give you what we can see for a quarter out. So yes, we expect to be a little bit lower in the first quarter. But overall, for the year, we are targeting to be up on a year-on-year basis. And a look at the earnings track we've been on, on an EPS basis for the last 3 years, I would say, we're targeting to be in that kind of a range from an annual year-on-year increase standpoint.

Okay. And what kind of -- are you expecting a similar type of stock repurchase in 2013 versus what you did in 2014 -- I mean, 2012? I'm sorry.

Yes. It could be -- the potential is there to be more. Every year, every period is going to be a little bit different depending on where we are, the rate of cash that we're accumulating, but also more importantly, how close we may or may not be to a particular deal that has an effect on cash. We're going to stay balanced and which -- and we have another $45 million -- $47 million that we could buy shares on the current program. So I'd say, if you look at the last 3 years, 4 years, we're going to -- right now, from what I can see probably on that track, which might suggest that there could be more than 2012.

And Joe, if I may, you gave us -- you and Doug gave us a lot of details on the Paper PCC on the refractory. If we look -- so I have to go through all of that, that data. If I look at the new products that you have launched like Optibloc and TiO2 extenders, did they contribute to 2012? And what are your expectations for 2013 or '14, if you have to go out that far in order to see bottom line and top line type of contribution?

Yes. There are actually -- the products are different in terms of the earnings impact or the sales impact. The Titanium Dioxide is, right now, we're still positioning, so I'd say the sales are relatively small. We have 4 accounts and it's -- we're looking at maybe more towards later 2013, '14, '15. We've also seen a softening in Titanium Dioxide prices, which is reducing some of the pull that the market has had around that. But over the longer term, we think we're going to see but nice and steady growth in that, but we're still in the embryonic stages. The Optibloc is, we've got a much stronger position. I'm going to ask Doug Mayger, our Business Unit President for Performance Minerals, to maybe elaborate a little further down.

Rosemarie, so the value proposition for the Optibloc line is really [indiscernible] films. And then in addition to that, you have this thing called antiblocking, which is a layer that creates -- you're able to pull the films apart easily, and you see that in polypropylene and polyethylene films. And the sales in 2012, about $3.25 million, and we expect that to increase in 2013.

Okay. And then lastly, on the tax rate, why was the tax rate lower in the fourth quarter?

Rosemarie, the tax rate was lower similar to last year at 26.3%. It's largely due to mix of earnings, also some tax planning strategies. We take dividends toward the end of the year, which provides some tax credits, foreign tax credits. So it's a mix of things that affect the fourth quarter to get us to our full year rate. Full year rate was about 28.75%. It's a little bit lower than it was last year.

So is that what's were expecting for 2013? That particular tax rate? The 28.5%?

We're at 28.75%, so probably going to be singular next year.

Your next question comes from the line of Silke Kueck with JPMorgan.

I was wondering whether I can start with a FulFill question. You said operating income from FulFill-related sales were $1.4 million in 2012. And I was wondering whether you can talk about like maybe how much tonnage that represents or level of sales, and whether that's related like the 10 contracts that you actually I think passed today?

Silke, for competitive reasons, as we've indicated before, we really prefer not to disclose and we haven't been disclosing what the tonnage and the actual sales number is, because the technology fee is a very important part, important component of the total pricing for the product.

Okay. The satellite mill expansions in the U.S. in 2013, when are those suppose to come online?

Yes, I'm going to ask D.J. Monagle, our BU President, to talk about that a little bit. D.J.?

Certainly. Silke, most of those will come online more towards the fourth quarter. Got some issues just making sure that we go through all the permitting processes and everything else. But fourth quarter, they would come online and we would expect them to ramp up relatively quickly given the familiarity those customers have with our products.

And are those customers rolling over to the FulFill product line, or they're just -- this is just an expansion of existing product, of the existing PCC product?

So we've already announced, to date, one North American FulFill customer, Silke, and these are for expansions that are in the U.S.. So the best way that I could put it is that these expansions enable us to do some things with the customer that include application of the FulFill product line. So FulFill is a factor in this for sure.

In terms of the TiO2 product that you've commercialized, did you work with all of the major paint producers? And is it a product that have some incremental sales this year? Or can you quantify what you may expect to to 2013, in any form?

We do work and have been working with many of the majors, running trials. The sales are relatively small -- were small in 2012. But I wanted to ask Doug Mayger again just to share a little more around that. Doug?

Right. So Silke, the -- we have really 2 products, the ALBAFIL T10 and the ALBACAR. T10, and it's, like Joe said, it's been relatively small. We do anticipate incremental sales in 2013, and we have been working with most of the major paint companies also with non-paint companies where we've received some traction, such as the grout industry that is also looking to displace TiO2. In the paint side, we can get the upwards of 10%, maybe 12% replacement on the high end. And then on the low end, maybe around 5%, depending on the paint formulation.

Are you allowed to divulge which paint companies have tested this?

I cannot do that.

Okay. And lastly, I was wondering whether you can just like discuss the current business trends. When I look at North American paper shipments, if I look at steel utilization rate, like everything seems to have slowed quite significantly in the month of December. And I was wondering whether you can talk about how things look in January, and maybe how important the individual months are in the first quarter? Do you do most of your business in March or is it more in January, less in February? Do you have like any guidance on that?

Yes, I'll maybe start and then ask others to chime in as well. The -- I guess the way to think about the company in a, sometimes, in a simple way, but I'll repeat, the pattern, the fourth and first quarters are the shoulders and the peak period for us because of the seasonal nature of some of our product lines, and our businesses are going to be in that second and third quarter. And particularly, the second quarter, will tend to be a little higher. And so we'll see subject to differences quarter-to-quarter, or like the fourth quarter, we've seen over the years because of equipment sales due to how budgets are affected in the steel companies. We might see a ramp-up in the fourth quarter, or like this past year, we saw a significant cutbacks. So that affected what the fourth quarter looked like because of the equipment sales. What we're seeing is equipment sales appear to be slow, for instance, in steel, going in -- that slowness in the -- or really non existence of sales in the fourth quarter equipment, that slowness is carrying over. So we're seeing that. We're seeing, however, steadiness in paper. Our paper is positive right now, so that's kind of solidifying. It held up, I think, well last year, in general. But from time to time, I think you see some shakiness. You run into period of mill maintenance or some cutbacks in productions for periods of time. But by and large, I would describe it as steady. The Performance Minerals business, what we've been seeing is now for over 2 years is, although it's subject to the seasonality more so than the other 2 businesses that I've described, it has been on a continuous improvement trend, upward trend. So we've seen sales improvement and profitability improvement. Doug, you want to add something to that?

I was going to say that we've seen also the construction markets have improved this year. So as Joe mentioned, though the seasonally low period, the fourth and first quarter, are starting to see some pickup over last year in the construction markets. So that's positive for us.

And in terms of differences in month, Silke, March is can be sort of a swing month. It's a good month to look at coming out of spring. East Coast, depending on the weather, will have an effect on us because of our plants. We have 2 plants in Performance Minerals on the East Coast. And obviously, during the winter, weather has somewhat of an effect. It hasn't been too bad. We had a cold spell beginning of January that have had some effect on us. But by and large -- and last year, if you recall, it was a very -- on the East Coast, it was quite warm.

Your next question comes from Adam -- Andrew Gadlin with CJS Securities.

I wonder if you could comment on -- or approaching the question about this a little differently. With about $1.4 million of EBIT in 2012, what was the run rate exiting the year?

Exiting the year, we were pushing -- I'm trying to remember the number. We are probably at a run rate of approaching $1.6 million to $1.9 million. We indicated on the last call, we would -- we expected -- and the call before that, expected to come in at, for the whole year, $1.4 million to $1.7 million. We came in at $1.4 million. And we also on the call indicated that for 2013, what we were seeing is that op income based on a run rate, we're seeing $2.5 million to $3 million. That is still holding for us.

And that is for next year?

For next year, yes.

2013.

For 2013, okay. And as you look at some of these other plants that Doug went through, what kind of run rate do you think you could have coming out of next year?

Coming out of next year? Oh, first of all, I think the mills that we have up there, D.J. mentioned the expansions in the fourth quarter. There's some applicability there. What we'll see as we put these mills in those regions, they are -- some of them are free-sheet. Now let me mention the Sun Paper, the coated paper application, so it's not a necessarily one that we look at as the FulFill opportunity. But the others are uncoated free-sheet, and there's opportunity in each of those for additional FulFill up-income generation.

Is there a round number that we can put that?

I think, Andrew, it really depends on the traction that we get through this year. As Joe mentioned, it's really hard to predict 2014 at the moment. We look at 2013 where were coming off at the run rate this quarter, as Joe mentioned, around $1.7 million. We think we can double that. We're still on to $2.5 million to $3 million for '13. But we will see as we gain traction here in North America and at these mills when they start up, what 2014 looks like.

And looking at the new mills that are coming on for 2014, meaning 152,000 tons capacity, would I think that the EBIT associated with that could be similar to -- I mean, are proportional to the EBIT, let's say, from 105,000 tons this year -- in 2012 and 120,000 in 2013?

Yes, they're similar. I mean, again, the Sun Paper is a coating facility, so prices are different there. A different process, different cost structure with that one, though. The other one's also...

Did higher or lower?

The pricing is higher. The margins are somewhat probably a little bit lower on that one. Coating is expensive from a cost standpoint. I think the other uncoated free-sheet mills that we're putting in there will be slightly lower than what you see in North America and Europe. Prices are a little bit lower in the Asian region.

Okay. On the refractory side, can you talk a little bit about the pyrogenics product that was a source of strength this past quarter?

8 Sure. Pyrogenic is just a very small non-steel, actually a graphite product line we have in our Refractories segment. I only highlighted it this year because we had a number -- actually, a little bit much higher than any other period, onetime sales that came through in the quarter. So it generated some benefit, which we weren't expecting those sales to come true in the fourth quarter. We projected to be down from the third quarter when we're actually up, and that was just one small piece of the contribution to it.

Got it. But you don't expect that to kind of trend into Q1 or 2?

No. I mentioned that that's one of the reasons we see the Refractories being slightly lower, not just refractory volumes and the market conditions we're seeing, but also we won't have those onetime sales.

And can you talk about the Bahrain refractory management agreement, how that came to pass? And you mentioned that you'd like to grow that relationship or that business model and talk about some of the things you're doing there.

Yes, that started with some basic development work from a business development standpoint on looking at opportunities around the world, and looking at what we could bring from an added value standpoint. And it's actually quite an interesting story, I'm going to ask Han Schut to elaborate a little further and give you a little more sense of what was involved and where we may be going with that as well. Han?

Thank you, Andrew, for your question. So first of what if you look for this greenfield facility that they are putting in, it's an investment by the customer of $1.2 billion and they're going to produce approximately 1 million tons of steel a year in their electric arc furnace, so it's a completely greenfield. And it's the first time that we have entered into a cost-per-ton contract where we are responsible for full refractory maintenance from start to finish. So this includes the bricks and the flow control of refractories also. This is a 3-year contract, with a total value between $25 million and $30 million, and we started, together with the customer, in 2012 in the third quarter and so we expect that for next year, our revenue will increase just on this concept alone by approximately $8 million. And it's, of course, a completely new business model. So normally, we do a -- we are very strong in BOF, full managements and electric arc furnace environments. But for us, this is a -- I know you could say, a new business model that we also want to extend to other customers. I think in this partnership what is special is that we have very strong technical salespeople on the ground in Bahrain and we are working very close in cooperation with the customer. So if operating conditions change, we also adjust the contract accordingly. And we're looking, of course, to extend this also to other regions and also further into the Middle East.

Excellent. Would you imagine that this type of agreement would be most appropriate, or only appropriate, even for new facilities?

No, not necessarily. I think the main issue is the cooperation with the customer and whether you can come to an agreement where you drive improved productivity in the steel mill, and that, in combination with total low refractory cost. And if you can get to such a partnership, it can be applied in any region and also for existing steel mills.

You said 3-year contract $25 million to $30 million. When would the contracts start, or when would revenues associated with the contract start?

It started the end of the third quarter.

Okay. And it's ramping by, I think you said, $8 million?

Approximately $8 million in 2013.

Andrew, that contract started at the end of the third quarter, but that mill is just now ramping up. So I think it's a little bit behind from where they are predicted at the end of the year. It's probably 50% in terms of their production.

And when did production start?

They open the mill and started the mill, end of the third quarter, probably October.

Yes, right.

All right. And profitability on this contract is in line with your existing business?

Yes, yes, it's in line with our existing business.

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

Seemingly simple questions, I think. On FulFill, is that run rate generally consistent from quarter-to-quarter?

Not necessarily. You have some starts and stops, I guess the best way to describe it, it can be a little bit herky-jerky. And in terms of running and -- things -- when I mentioned in my remarks, that it has been -- the team has learned a lot in the past 2 years. Part of that learning is adjusting to changes in things, simple things like, which are not that simple, grades of paper that are being made, types of paper, those can cause where you're -- let's say, even running for 2 or 3 months with FulFill, that brings in a new type of paper that we have to make adjustments to in the product and sort of ramp up. So this is not a smooth straight line. It requires a period of stability and in some cases, even with some of those 10, we're still going through that process right now. D.J., you want to...

Okay. So as it becomes a bigger part of your profit, we need to be prepared for maybe a little bit more volatility?

Yes. I think that's a fair way to look at it. And that's why I'm trying to give you numbers and ranges, and it gets a little difficult to point -- pinpoint exactly because of that. But over time, we're continuing to build greater technical fees and higher volumes and in turn, higher total operating income.

Okay. The expansion of these 4 U.S. satellites is surprising news, and so I'm just wondering if you could give us a little color around what's driving that. Is this a speculative move on your part? Is it a mix change by the paper maker with their production? Are they doing paper machine expansions? What's driving it?

Let me ask D.J. Monagle to kind of walk you through that. D.J.?

Yes. So Steven, as I've said before, we've only announced one North American FulFill customer. We expect to be announcing more in time. So what I would say is, we -- for these particular mills, we've hooked up with some world-class performers. They're going to be around for a while. They have -- we've helped them improved the utilization of our products, and we've got several pathways to -- for them to use more of our products, and including in those pathways is FulFill. So I'm not announcing that these are all FulFill customers, but I'm just saying that the Fulfill is a part of our consideration here.

I have to admit, D.J., it is exactly that earlier comment you made that made me mention the word speculative, in a sense. And I don't mean that negatively, but it sounds like you're preparing for potential new business.

That is a proper way to think of it, Steve.

Okay, very good. In the Refractories business, gentlemen, you showed steel being down from 2% to 5% year-over-year. The business itself was down, revenue was down about 8%. What was the reason for that? Was it all equipment? Was it lower pricing? Did you lose some share?

To recall, Steve, RG Steel was a large customer of ours and they filed for bankruptcy, so we took a higher than trend line hit or change hit year-on-year from the steel industry. So we had more exposure on average to RG Steel, and that's what affected us. Doug, you want to elaborate a little further on that?

Yes. I think the majority of the decline, as Joe mentioned, was RG Steel in sales. Also the lower equipment, but that contributed a piece of it. I think the reason that you're getting to it why operating income was better -- much better mix, as I mentioned. We have better mix in the refractory products, more BOF sales in other mills than EAF. We have better mix in wires as well. So really, the sales decline more so than the market was RG, and really had its full impact the second half of the year.

You have been talking about 2 mill closures in the second and third quarter. Now you're talking 4. Are the additional 2 part of RG?

There are 2 mills from RG, there were 3 other -- actually 2 others that were in Europe. They affected mostly this full year over last. There was some sales to those in the fourth quarter of last year, which is why I called them out. Those were European mills. They were ArcelorMittal and at [indiscernible] steel mill.

Okay. And then -- you've been generous with time. If you have time and can answer what the 2013 raw material outlook is like, I'd appreciate it. If you need to move on, I certainly understand.

No, not at all. So we're seeing some increases in magnesium oxide prices over where they were at their lows last year. A little bit of stability recently in magnesium oxide, that's one big cost. We've seen some line cost increases that's largely due to increased energy prices, we'll expect to see some of that this year. I think the major impact that we're seeing is what I mentioned in my comments is energy, specifically electricity cost on both coasts are affecting us in the Performance Minerals business. So I think the majority of the impact on our raw materials I think would be the utilities this year.

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

Just a quick question. You've done a good job cutting cost. I mean, is most of what you can do, done already, I mean, at this point, because of what you've done over the last 2 years?

Well, I was asked that question 4 years ago. And just to put it into perspective, part of what we're doing that I think differentiates us from other companies that from cost reduction standpoint is that, we've taken a continuous improvement approach. And really, the philosophy and the principles behind that is that the small incremental improvement across the globe throughout all parts of the company add up over time. And so we're constantly finding ways to save money. And as we bring new business in, one of the things it's doing is we were able to produce that new business in a more efficient way. But we've extended our operational excellence to all departments in the company, all resource units. So whether it's our finance department, our legal department, they're basically employing the principles of lean and how we operate. So there's just a constant positive pressure to make smart decisions on cost, find alternatives, find better ways to do it. So we expect to continue to have savings from that over time. And that's what the suggestions that employees make. Many of those are around ways to save money, and you just don't run out of ways to save money. At the same time, as I said, you combine that with a strong emphasis we have on growth through the geographic expansion. FulFill, we can get extremely good leverage on new sales that we're bringing in to the company.

Okay. And then you mentioned before about something not being a FulFill opportunity because it's coated paper or FulFill doesn't really apply. Is that's something you're working on that could be down the road where you could use FulFill for coated papers as well?

Yes, this is D.J. So our target market right now [indiscernible] attraction is in the uncoated grades. We do see applicability to the coated paper grades, but it's not a focus for us right now. The biggest bang for the buck is getting everything proliferated in uncoated free-sheet. So over time, will we be getting into the coated business? We believe so. Early indications are that, that there's a value equation. And one of the dots that was on the graph that Joe had shown earlier is in fact a coated location, so we're moving toward in that area just not with the same level of progress in the uncoated grades.

Your next question comes from the line of Jay Harris with Goldsmith.

Two questions, basically one on the steel industry and one on cost reductions. The model that you're implementing and borrowing, does that have to be up and working for some time before you'll be able to sign up additional customers? And does the model work in all areas of the world where you're serving steel industry?

I'll start off, Jay, and let Han complete it. But the -- we haven't -- I mean, we are looking at other opportunities for the model -- to apply the model, and we're in discussions with at least one company right now. But we also want to make sure that the model works. We believe it will, so we want a little bit more experience with it. But based on what we've seen so far and the experience with the Bahrain mill was very positive. So that keeps looking very good for us. Now I'll let Han add to that. If you would please, Han?

Yes. You asked, Jay, specifically about the applicability on a global basis. I think it very much depends on the customer environment and the customer relationship. So if you are in a relationship with the customer where you can drive improved steel productivity and lower total refractory cost together, and there is a fair contract when operating conditions change that you can also adjust the total refractory cost, then you can apply it in that environment. In the case that you are there as a refractory supplier alone and the steelmaker will just drive for productivity only, then you take the risk that we don't want to take. So it very much depends on your cooperation with the customer.

The key point I would emphasize here or the key takeaway is changes in operating conditions. One of the things that basically kills the cost-per-ton model is when conditions change and that causes, one, either the customer or the supplier to either have unusually high gains or unusually high losses. What's different about this contract, we have a customer who has set parameters with us that allow for change over that period, and it requires total openness and total trust between the customer and the supplier. That's sort of what's different about this model.

Do you have candidates in other geographies at this point?

Yes, we have candidates in other geographies as we speak, yes.

All right. And a little further on steel. It's my perception that you've not followed the steel industry as the center of -- geographic center of manufacturing has moved into Asia. Is that going to change?

Well, Asia is, of course, very broad. If you talk to China and if you look just specifically to Minteq, we are a value sales company where we sell productivity and we sell total refractory costs, like I just mentioned. In China, we are also involved with major steel companies where we can and where we find customers that are looking for this kind of relationship. We have been very successful with that in India, which has been a major growth market for us, and there, we signed acceptance of our, you could say, our value equation. In China, it has been limited so far. So it depends a bit on the country.

All right. Switching to what I think has been an exceptional record of getting costs out of the business. If we get into a more robust business environment, are any of these reductions going to have to be reversed?

Reversed?

Reversed cost savings.

No. I'd say, nothing comes to mind. We're -- what we've been driving is sustainable reductions over time. So it's a sustainability model that we -- our focus was -- I don't know if you recall, but the first 2 years of developing lean or my first 2 years in the company, I said, "Please don't expect any savings to come out of what we're doing in operational excellence." It takes 3 to 4 years to really build this into a company and bring about the culture changes. And it is because this is sustainable. It is for the long-term that this isn't something that goes away when you have a recession. That's not a high overhead process. It's involvement of all employees operating differently, operating in a way where we ask folks to bring their hearts and minds to work every day and help us figure out how to do things better. And that really is at the core of it.

And, Jay, also just to add to it that over the past 5 or 6 years, we've really changed the structure of that overhead. We have a shared service model in the company that we've been adding to and expanding to other regions. So that efficient kind of back-office model can be scaled with new sales. We won't have to add those expenses. We can leverage that overhead.

Jay, if I can ask you a question. Are you concern about the ability to swing up in terms of sales? Well, it just occurs to me that some of the efficiencies that you've installed are a reflection of static or declining volume.

No, it's quite the opposite. For instance, we have -- and for $1 billion company, this is a little unusual. We have a complete and total shared service -- business shared services. So every function that you can think of that should be in the shared services model, we basically have. And if anything, we're not fully utilizing it. And that's why as we talk about leveraging acquisition that come into the company, we're extremely well-positioned to bring in and get efficiencies or inefficiencies from other companies and capture them. So it is, in terms of where we are today, the ability to step up is we've got a lot of leveraged capability in that.

But where do you think your operating expense ratio -- let's take 3, 4 years from now when the business climate is, let's say, robust, you're suggesting that your operating expense ratio would be significantly lower?

Well, we've -- if you recall in 2010 when we set our 5-year targets, we were targeting to have an operating income margin improvement of -- going from 10% to 12%. So we're looking at a 20% improvement. Part of that improvement comes from leveraging the overhead. Another part comes from having higher valuated products from the new products that were out there selling today, so it's going to be a combination of both. Depending on companies that we bring in to the company that we integrate will have an effect on that particular ratio. But if you look at where we've been tracking, that also is now in a continuous improvement mode. So we're making year-on-year improvements that range from 5% to 10% from a productivity standpoint. From an overhead standpoint, we're probably running in that 2% to 4% range.

I just heard one of you say that you have access on a shared -- I've forgotten the terminology, but on a shared services basis, you have excess capacity.

We do. We have a capability that has both inside -- it's inside the company and outside. So we have business services that support us in places like Romania, India. So we have a very robust model that can flex up very easily can also flex down if it needs to.

So there should be a substantial improvement then when you start to grow your revenues more aggressively?

Yes.

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

A lot of additional questions I had were answered. But I was wondering, Joe, if you could give us some feel for the progress you are making on the M&A front, and whether we will see something in 2013?

Rosemarie, I would love to do that. I would love to give you more granularity of what we're doing, but unfortunately, we really can't. Other than to say we're active, as I've said. And active means, look, we're in discussions with companies, we continue to identify new targets and we're at various stages, so I really can't tell you anything more than that right now other than this is a very serious effort for us.

Okay. And just on the expansion of the satellites in the U.S., so I understand you are preparing to maybe do some trials on FulFill. But are those expansions on the paper mill side due to the fact that some of the capacity from the shutdown mills has been transferred into those 3 or 4 entities and therefore, require more PCC? Or is it just brand new capacity?

Yes, I'm going to ask D.J. to cover that.

Rosemarie, there is incremental gains and capacity at the mill. What you're mostly seeing is our ability to put more PCC in the sheet.

Okay. So not the mill making more paper?

They may be making incremental more in system with the normal progress of a world-class mill. They figure out over time how to improve their productivity, but the major increase in those tons is really about us putting more PCC into their sheet.

Okay, great. And just really quickly on the Bahrain model. When you say that the profitability of that particular model is similar to that of the Refractory business, are we talking about that, let's call it, 9.5% operating margin for your 2012 year? Is that a level that we are -- that you are referring to?

Similar, Rosemarie, yes, it's in the similar profitability to the refractory products that we sell. Remember, we also partner with other suppliers as the general contractors, so we're buying and providing the service. We have a Steel Mill Service on-site and then we also sell our own products, our own refractory products, which are sold at similar margins.

And is the model mostly adoptable -- I mean, for greenfield steel mills or can old mills be retrofitted to that particular model?

No, it's not only for greenfield mills. Han mentioned earlier, it's applicable to other mills as well, but it's the type of contract, the type of model that's different than other cost per tons that are out there in the market today.

Right. And then you'll have to kick out everybody who is working at that mill at the moment, right ?

I think so, yes.

I think we're done. Thank you for your interest in Minerals Technologies. And everybody, have a good day.

Thank you.

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