Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Minerals Technologies Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Rick Honey, Vice President of Investor Relations. Please go ahead.

Good morning. Welcome to our First Quarter 2014 Earnings Conference Call. Today, Chairman and Chief Executive Officer, Joe Muscari, will provide some insights into our first quarter 2014 performance and an update on the AMCOL acquisition. We will then turn the call over to our Chief Financial Officer, Doug Dietrich, who will give you a detailed report of our financial results for the quarter. Before we begin, I need to remind you that on Page 8 of our 2013 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. As you all know, MTI achieved a major milestone during the first quarter with the signing of a merger agreement for AMCOL International. We're expecting to close the deal in early May. And in the meantime, we've been actively engaged with AMCOL management in planning for the integration of the 2 companies after the transaction closes. I'll address aspects of the deal in more detail in a few minutes, but first, let's look at our first quarter performance. Our financial performance, despite some impediments from the severe winter weather in North America continued to be strong as we recorded $0.58 per share in earnings versus $0.55 in the first quarter a year ago. We're continuing to see contributions from our strategies of geographic expansion and new product innovation. The new satellite plants in India are beginning to ramp up, and we're constructing 4 new satellite PCC plants in China, which will bring our total in that country to 7. Our FulFill high-filler technology continued to gain traction as we announced 2 new commercial agreements. Refractory segment saw a good sales growth of 12% in Europe and the Middle East, which contributed to the segment's 33% overall growth in operating income. Doug will go deeper into a deeper explanation of the effect of severe weather had on our operations in North America, but the bottom line impact was around $0.05 per share for the quarter. As you can see, we remain on a strong earnings-per-share track, albeit without the effect of the weather and increased energy cost. Even with this effect, we delivered results above the first quarter of 2013. Also keep in mind that the first quarter is traditionally slower for our Performance Minerals operations, which primarily serves the construction and automotive industries. The impact…

Thanks, Joe. Good morning, everyone. Okay, let me take you through our consolidated and business segment results for the quarter. I'll touch on the key markets and operational elements of our results in each major product line, and I'll also give you comparisons to both the first quarter and sequentially to the fourth quarter of last year. As Joe mentioned, our first quarter earnings per share from continuing operations were $0.58. This is a 5% increase from the $0.55 recorded last year, and was in the expected range of $0.56 to $0.58 that we communicated to you on the last call. Our reported earnings were $0.45 per share, which included a charge of $0.13 related to the AMCOL acquisition cost of $5.1 million. As we expected on our last call, the severe North America weather conditions experienced earlier in the quarter negatively impacted our results. These weather-related issues directly affected sales by approximately $2 million and increased our energy cost by $1.3 million, resulted in a combined reduction in operating income of around $2.3 million or approximately $0.05 per share. Our reported sales of $244.4 million were 2% lower than the first quarter of last year. Our underlying sales were essentially flat as foreign exchange and the weather issues in North America both had an unfavorable effect of approximately 1% each. Refractory sales grew 1%. And on an underlying basis, the segment grew 4%. Specialty Mineral sales were lower by 4% and 2% on an underlying basis due to the paper grade realignments in North America and Europe associated with the closure of the Courtland and Docelles mills. Despite these issues affecting sales, our operating income increased to $28.7 million from $28.2 million in the prior year, represented 11.7% of sales. Including the weather-related issues, our operating income margin would…

[Operator Instructions] Our first question comes from the line of Daniel Moore with CJS Securities.

Joe, I'm wondering, instilling lean and cost improvement has been, obviously, highly successful at MTI, it's also been a multiyear process. Can you talk a little bit about the challenges involved in implementing cultural change at MTI versus doing it over again at AMCOL. Do you expect it to be maybe a little bit of an accelerated process? How are things similar and how are they different there?

Yes, that's a good question. I foresee the ability of MTI to accelerate the process, mainly because we've got significant, what I would call, points of contact and integration that range from the lead teams we have in place. We have an operational excellence lead team. We have an expense reduction lead team. We have an EHS [ph] lead team, a technology lead team. These become, as we look at our integration plan, points at which we will be connecting with the various AMCOL entities and helping them become part of the MTI processes and deploying the processes there. We also have, as I mentioned in my remarks, a very, very strong platform of shared service offerings. And this will allow us to accelerate an area that took us longer to accomplish when I came into MTI because it's built. And so it will be a question of deploying Oracle ERP to the AMCOL facilities and functions, but it certainly will allow a faster full deployment and streamlining than occurred here at MTI. And so I think those are 2 -- because of that, we're certainly going to be able to do it faster. But I think the other thing to keep in mind is the reference point for manufacturing, I'd say, at AMCOL is starting off at a higher level than perhaps where MTI was in 2006. And so I think where it took us 5 years, 6 years, it may not take us long to fully deploy operational excellence because AMCOL does have aspects of what we deployed in various parts of the company. It's not, at this point, it's not fully developed. It's not fully integrated. It's not holistic. So it's maybe a long-winded way of saying, we should be able to do some aspects of what we did at MTI very quickly. Others will take a little longer because of the reason that you've mentioned. It will be a cultural change, but I haven't seen any major impediments. As we've spent time with the AMCOL management team and with employees, there's a clear and very strong willingness to first develop a deep understanding of what we've done and how we've done it and then to become a part of it.

Very helpful, appreciate it. And Doug, on the Refractory side, operating margins really reached a new -- at least a recent new plateau over the last 2 quarters. Can you talk about mix of Metallurgical Wire? Are these margins sustainable going forward? And do we expect perhaps you'll be able to build off of those over the next 12 to 24 months?

Yes, we do. The margin improvement was significant in Refractories and largely due to, as I mentioned, Metallurgical Wire, but also the refractory products in Europe. So we saw significant volume growth in refractory products in Europe. The margins in Metallurgical Wire, we sell 2 types of wire. We sell calcium -- core calcium wire. We also sell alloyed wire. Margins are significantly different between those 2, calcium wire being higher. And we did see a mix of those, both in Europe and North America. I also mentioned that some of that growth in Europe was share gain in Italy and Russia. We do see that, that's going to be sustainable. So other than the foreign exchange that I mentioned in Turkey, that underlying sales and margin growth should be sustainable, again, with the exception of the foreign exchange depending on where that goes.

And lastly, how much revenue did the Bahrain contract contribute in the quarter?

It's about around $3 million in the quarter.

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

Could you talk -- talking about Russia, Doug, could you give us a feel as to whether or not you have been impacted by the current turmoil in Ukraine and what is happening there?

Yes, Rosemarie, we do get some of our supply for calcium metal from Russia. We have Han Schut and his team have been developing a plan, have a plan in place should supply be curtailed that we could move to. Something to keep in mind there, perhaps as a reminder, we are backward integrated for a good part of our requirements at our new Canaan, Connecticut facility. We've recently been working towards restarting a furnace there, so we can -- when we have additional furnaces, we can add capacity. So I think we're well covered for that eventuality if it were to occur, but that's the major -- I'd say that's the major exposure we have.

The major exposure, we sell about $6 million in Refractory into Russia, not under Ukraine. So really, it would be a disruption of some sort of trade issues between U.S. and Russia. So it's a small portion of Refractory sales.

Okay, that is helpful. And then I was wondering if you could give us a better feel for what AMCOL is doing regarding mercury removal? My understanding is that at the moment the cheapest way of doing it is incriminating activated carbon with bromine. So what is AMCOL doing?

Well that, at the moment, is beyond my technical capabilities to fully explain to you, but there also are some proprietary aspects of it, at least I have gotten a basic understanding, but it's working -- which is also -- AMCOL has an ownership position in a company called Novinda and a supplier arrangement. And it's Novinda who has come up with this approach for removal, which appears to be a very cost-effective approach. And you probably saw last week, the U.S. Appeals Court just upheld the EPA rule on power plant emissions. And one of those regulatory limits that was put in place is around mercury, so this is definitely going to help us going forward. Can't give you specifics at the moment in terms of how it actually works other than to say, it's something that has been in development for some time. And the AMCOL positioning around taking advantage of these new regulatory requirements is quite good.

Do you know, Joe, whether it involves bentonite or is it something totally different?

Yes, it does involve bentonite. That's where I mentioned the supply agreement. It is a supply agreement of bentonite to the entity, Novinda, that I mentioned.

Okay. And before I get back on queue, could you give us a feel for the CapEx that goes on with AMCOL? You spent about $52 million in 2012, going down to $44 million in 2013. Can you give us a feel for what you expect going forward?

For AMCOL only, is that the question, Rosemarie?

Yes.

Well, I think, right now, a bit early to tell. I think we're probably around $50 million to $55 million kind of remaining this year would be my estimate at this point.

Okay, so within $50 million and $55 million, and then plus the same amount to you?

We're still projecting about $65 million to $75 million for MTI, again, driven primarily by the growth of our satellites. We're building those 4 satellites in China, so that's why CapEx is higher this year. So in addition to that, I would think from now through the rest of the year, about $50 million, $55 million for AMCOL.

Oh, okay, so now it's not on a full year. Then for a full year, it will be higher than that?

The full year's a little higher, but I'm speaking to what I'm estimating going forward for the combined entity.

Our next question comes from the line of Ivan Marcuse with KeyBanc Capital Markets.

Real quickly on the follow-up on that CapEx that you just mentioned, just to make sure I was clear. $55 million to $58 million is your expected total, so the combination between AMCOL and MTX for the May through the end of December?

No, no. I was saying for the full year for MTI, we had estimated about $65 million to $75 million, and we're still on track for that level of spending for us. CapEx in the first quarter was $11 million of that amount. For AMCOL, again, early to tell and really we haven't closed anything, but I'm estimating probably about $50 million to $55 million in addition to what I just gave you for MTI, so combine the 2 numbers.

On an annualized basis?

Yes, well, it's going to be a little higher for them on annualized. I'm giving you the run rate. So you're probably about $70 million for each company would be the 2014. I'm saying that post close, the additional CapEx from the AMCOL business would be about $50 million to $55 million.

All right, great. And then on your -- and the FulFill contract that you mentioned that you announced that you got in April, was that with an existing customer or that will be transitioning to FulFill? Or is that a brand-new customer and is that sized right? Can you gauge it?

Ivan, it's D.J. It is expanding with a customer that is already comfortable with FulFill. At this time, I'd rather not gauge what the specific contract would be worth, but I would tell you that we would expect that since the customer is familiar with the technology, that the ramp-up would be quicker than we had been experiencing with customers. I would have to go through every grade qualification. We would expect this to ramp up to speed more quickly.

Okay, great. And on the specialty flag, you mentioned that you benefited from price increase of about 1%. Was there any mix effect into there? And are you seeing a positive mix effect? And how would you gauge the contribution of FulFill at this point to the bottom line on an annualized basis?

Those price increases that I referred to are twofold. One, the majority of those price increases are price increases in our Paper PCC business. And we split that out to show you the impact of pricing and cost increases. You'll see below that, the lime cost increases. So what we do is, we absorb lime cost increases in the paper business, and then we pass them through usually in the first quarter in North America. So the partial of those -- that 1.1% margin improvement is that price increase, but we also have some price increases in the Performance Minerals business. So between the 2 product lines in that segment, there is a bit of a mix, but the majority of it is really Paper PCC price.

Got it. And then would you expect the price increase on the specialty to increase, like meaning that you just announced it, of course, you didn't get the full impact of it? Or would you or is this sort of 1% sort of a run rate to think about for the remainder -- for the rest of the year?

Yes, I think it's the run rate you'd think about, but you also -- part of it you have to net against the lime cost increases which also show on that chart. So you've got about 9/10 -- about 0.9% lime cost, and we're up 2/10 in margin due to pricing, the PCC price and the Specialty PCC, GCC and talc price increases. We expect that to be sustainable for the year.

Okay. And then in regards to the AMCOL acquisition, and I know your focus is going to be debt reduction in the near term and sort of improving the cash flow of, I guess, the cash flow contribution from AMCOL. So will this impact your -- sort of your growth or CapEx spend for your PCC expansions over the next -- in the short term? Or do you expect to sort of keep the rate that you've been expanding at?

No, we expect to -- we've positioned ourselves to maintain or increase the rate if we need to. And as I mentioned in my remarks, we do have quite a few live opportunities right now. And I think we're well-positioned. And we plan to, as we get those contracts, to spend the capital that's going to be needed.

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

So just to clarify, in your press release, you talked about the weather impact, the $2 million revenue, $2.3 million op profit. And then Doug, you gave some numbers for Refractories. In the press release, that's for the total business, right?

Yes, that's for the total business, so $2 million sales impact. And that was really -- they're probably split evenly between Paper PCC and the Refractory segment. So it's really $2 million on sales, but I also included the higher energy cost, the $1.3 million, that was all in our Performance Minerals business.

So from an operating income standpoint, you guys came generally in line, I think, with what most analysts were expecting. And that was with the weather impact. So that implies that x the weather impact, your business is operating higher than we would have expected. Does that run rate continue, do you think, in second and third and fourth quarter?

No. That's right. We think the business is operating at a higher level than the $0.58 and because we wanted to call out the $0.05 impact that the weather had. So we are running improved over last year and sequentially. And we see -- and in my comments mentioning, we see that continuing in Refractories. We think we're going to grow 5% sequentially there, largely due to what we spoke about earlier, with Metallurgical Wire growth and the growth that we're seeing in Europe. We do expect North America steel to come back a little and gain their production loss in the second quarter. But we're also going to start to see the momentum in growth through Performance Minerals. As we've seen, the talc business was up 8%. We've also seen growth in our Western GCC business of 6%. And then you have some paper coming online in Asia. Now I caution that, that will come online late in the second quarter, but that will contribute later in the year to our Asia growth. So yes, we do see the sustainability. And I also mentioned that our operating income for the Specialty Minerals segment will be up 20% from the first quarter. So sort of gaining back that weather impact and then beyond.

How much of the weather impact recovery is built-in to the second quarter? You expect all of it to come back eventually, right? Is that all coming back in the second quarter?

We see most of it -- we see most all of it coming back in the second quarter with the exception of North America Refractories. We're still seeing some of the impact in the Great Lakes region. We had -- right now, we're seeing U.S. Steel -- the U.S. Steel plants there were operating at 80% kind of utilization. They've dropped to 30%, 35%. I don't see them making up that production this quarter. But as I mentioned, we see that business being made up over the balance of the year, depending on whether imports come in and take some of it.

Steve, I would add to what Doug was saying just to emphasize the point. And we touched on this in the last call. And it's the importance of MTI to why we're doing the acquisition and it's pre-acquisition, but to remain focused, maintain focus. And as you can see, we have been, and I've reinforce that both performance and momentum. And we had very good momentum coming out of last year. We've been able to keep that momentum going in spite of what the weather did in North America.

Yes, no doubt, the results showed that. It's impressive.

Our next question comes from the line of Sachin Shah with Albert Fried.

Just curious on the ACO deal. I think the only remaining approval is the Polish approval. I think the waiting period is set to approximately expire in early June. Any comment on that, the TO is expiring in May?

Well, the tender is targeted May 2. We can extend that. What -- we have been in contact with the Polish authorities through a number of channels. They are working on it. They have not been able to give us a definite date. We don't see any issues. It's very clean. There's no overlap in the product. So it's merely a question of, in the authorities there, of going through the proper steps and going through the channels. And I think they've got to go through 3 or 4 more different bureaus within the authority there. So it's just a matter of working its way through. And we've been -- there have been questions. We've been responding. Everything is tracking. It's just going to take a little while. And we're hoping by early April, it could be done. Excuse me, May. I'm sorry, May.

Early May?

Early May.

Okay. So in that context that you may have to extend the TO maybe one more time?

Possibly.

You said possibly, can you get it maybe before?

It is possible that it could come in next week. It's possible.

Okay. Great.

We're ready if it comes. If it doesn't, we'll extend. It will be right behind it. That's why we said early May.

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

You had a very strong demand on both PCC and talc, and that is in spite of the cold weather in the U.S. and the fact that those product lines go, quite a bit, goes to construction. So do you think that there was some kind of inventory buildup in those 2 product lines? And that -- but then the second quarter will be a little weaker? Or do you anticipate that growth rate of 6% to 8% of volume to continue?

Well, we did -- our sense is there's good, strong, underlying pull, Rosemarie. And I would, if I could add, I've been hoping I'd get a question around this. There's no coincidence that the mine and plant location that is in the coldest part of the United States that suffered the most snow actually had the least amount of interruptions for us, and that may have something to do with the fact that they have to deal with the weather conditions every winter, but they did a tremendous job of being able to get product out under the circumstances. But no, we have been seeing improvement in Class 8 build rates. And as you'll recall, the filter systems, catalytic converter systems on Class 8 is a major area that we ship our product to. And so that has been pretty strong during this period.

Okay, that is helpful. And if I may ask one last question. Refractory was very strong. It does include the contribution from the steel mill contract you have in, I think, Saudi Arabia. Is that amount going away? Was it a big contributor to the quarter?

It was. It did contribute. It's still going. Sales, as I just mentioned, were about $3 million, so it was a good contributor to the profits this quarter, Rosemarie.

And when is the contract expiring? I mean, aren't you -- don't you have a specific dollar amount that you are going to get equivalent of the contract and then it drops after you stop building at or bringing the products in line with whatever you are going to need?

Yes, that contract was a 3-year contract. We estimated over the life of the contract about $25 million. And that expires in October of 2015. So we're a little bit more than halfway through that contract. We'd love to hopefully through the performance renew the contract, but we're also looking at other opportunities to deploy that model through the Middle East and also have some opportunities in India that we've been pursuing as well.

Is anything about to materialize on those projects?

I think we have a couple of good opportunities. We actually have a similar. I'll let Han comment on this as well. But we have a contract that's not for the entire mill in the U.K. that we're looking at. It's more for shapes, but it is that type of cost per ton contract on an area of the mill in the U.K. We have a couple of opportunities in India. We've partnered with a brick manufacturer, local brick manufacturer, a rather large one, in India. And together, we're starting to pursue different opportunities similar to what we're doing with the SULB in Bahrain. So we do have some good opportunities. And yes, we think we're going to continue to pursue and capture them in the coming quarters.

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

With respect to Paper PCC, can you just share with us what the volumes look like, excluding weather? So maybe you could give us a bridge that would include the mill closures, the new mills and satellites and FulFill netted out?

Wow, I'll see if I can get all those pieces in there. So let me dimension it a little bit. I would say half -- about half of the volume decline in North America sequentially was due to the weather. So we had -- well, let me say a little less than that, probably 30% was due to the weather, 70% of it was largely due to, like we said, the paper grade realignments from the Courtland mill. That was the largest piece of the volume decline in North America. We have seen offsetting -- and that's just -- right there, that's sequential. It's a one isolated event, Steve, that happened this quarter. And we think we're going to -- as we move through those alignments, we're going to -- as we move through the inventory build at Courtland, as we move through those alignments in the second quarter, those volumes will return. We are seeing about -- I'm getting this from -- this is FulFill. Yes, so we have about 9,000 tons of additional volume from FulFill year-over-year. So that will help you there. That's probably about 1% growth over last year. And then we also have on a quarterly basis. And we have about 27,000 tons that have come online through builds in India, okay? So we put a new satellite facility in early last year, and that ramped up over in the second and third quarter. And we have about another 20,000 tons. So to give you it all, the Courtland mill is the majority of it, North America, but we had the Docelles mill go down. This was about 25,000 tons in France. And that was offset by FulFill increases of 9,000 tons and also the ramp-up of our satellites in India of about 25,000, 26,000 tons.

Okay. So it sounds like if you net Courtland, Docelles, against FulFill with India, volume was down a little bit?

Let's see. Courtland, Docelles, yes, for the quarter, but largely due -- so net even, but if you look at the paper grade realignments in North America, that should come back.

All right. Yes, no, you've talked about that going to other mills that you already serve.

Yes. So Docelles was offset by India build. FulFill was an incremental add. And then the temporary decline in the first quarter should come back in the second.

Okay. And then you mentioned with respect to AMCOL, you've secured financing. I'm sorry if I missed this, but did you talk about what the blended rate or the interest rate on that debt is? And what you expect the interest expense to be?

I didn't. I didn't comment on it, although I can tell you. We did finalize the syndication of the Term B and also the revolver. The Term B loan interest will be 4% for the $1.56 billion term loan. We will use that 4% to retire the AMCOL debt, legacy debt and also the Minerals Technologies legacy debt. But in addition to the interest expense, don't forget, there's some amortized financing cost that we'll also have over the life of the loan.

Okay. And the revolver is at what rate? That's low, right? 2.5%, 3%?

No, the revolver -- our revolver -- $200 million revolver priced at L plus 175. So the term -- so let me give you the Term Loan B was L plus 325. It has a 75 basis point floor. So it's going to be 4% until you see the LIBOR rate go above 75 basis points, the variable rate. And the term -- and the revolver we have is L plus 175.

So at this point, Doug, do you want us to adjust the -- perhaps an interest expense that we can use in modeling?

So yes, I'll give you one. The net interest expense, so after you retire the legacy AMCOL and MTI debt with the incremental Term Loan B debt, you have -- and the amortization, you're probably at $13 million per quarter, $13 million, $13.5 million per quarter. That's incremental, additional interest and amortization.

Okay. And Joe, if I could, this will be my last one guys, I promise. If Joe, if I could lead you down a path, I'm sure you're going to take eventually, but if you could tell us a little bit about Jon Hastings? He's going to be handling the integration, and I'm sure at some point you'll have him on one of our conference calls.

He's on right now. So if you have any questions for Jon, I'm sure he'd be happy to take them. Jon has been with the company for 2.5, I'd say going on 3 years. And Jon has been heading up the Corporate Development group. So he was at point for the acquisition of AMCOL. And he is moving into the role. He's keeping his Corporate Development role, but he will be the full-time integration head. And Jon is the one that is working with the various teams at MTI and AMCOL to map out the plan, set up the execution schedules in terms of timing and resources and those kinds of things. And Jon has a varied background. He's run businesses. He's worked in staff functions. He was here. So he has a good depth of knowledge of how to run a business and what's involved in integrating a company.

Our next question comes from the line of Daniel Moore with CJS Securities.

Doug, just a quick follow-up. 4%, is that a little bit lower than the rate that was implied when you gave kind of the initial look at accretion of the deal? I thought we were looking at something closer to 5% initially?

No, it's around where we expected it to come in. I think when you add the amortization in there, the total cost is going to look something like that, 5%. But on an interest rate basis, I think it's around -- we'd hoped for it to be a bit lower than that, but it's in the range of where we have modeled. And it doesn't affect our viewpoint in terms of the 39% accretion to achieve year 1 after close.

Very good. And since you're being so generous, I figured I'd try. Any stab at what D&A will look like on a pro forma basis?

Well, to complete your model -- actually, I'm going to dodge this one, Dan, because we've given some indications in the past. We thought this would be upwards of around $20 million, but as we go through post-close, there will be a lot of changes as we go through. We have to do the valuation work. It's going to take some time, which is going to be both asset step-ups and inventory step-ups to the balance sheet. That's going to make some changes in incremental depreciation. So I can give you that number I just said, but I'd use that very preliminarily until we can get through the valuation and figure out how the balance sheet, plus all the intangibles that are going to change. It's going to be around that area, I think, in terms of incremental from a pro forma basis for the combined companies. I'll give you more detail once we get through the process. And that's kind of why I indicated that next call I can probably give you more clarity there.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Rick Honey for closing remarks.

Thank you, everyone, for your interest in Minerals Technologies, and everyone have a great day. That concludes the call.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does concludes the program, and you may all disconnect. Everyone, have a good day.