Minerals Technologies Inc. (MTX) Q1 2014 Earnings Report, Transcript and Summary

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 of the closing of the International Paper Courtland facility and the UPM Docelles, France facility also affected us. We also improved our safety performance and expense control as our recordable injury rate improved more than 50% so far this year when compared to last year's average. And total overhead expenses tracked 3% below last year in the quarter, even as we continue to add resources in Asia to support our growth initiatives. In January, we announced a contract for a new satellite PCC plant with UPM at its paper mill in Changshu, China. This is a large satellite that will produce 100,000 tons of PCC a year, and we expect it to become operational in the first quarter of 2015. As I said earlier, this marks the fourth new satellite in China in the last 15 months, and we continue to aggressively pursue papermakers in the growing Chinese paper market with good results. We're engaged with 11 papermakers there now and have identified a dozen more that could benefit from PCC's value proposition. In the last 4 years, we've built 5 new satellite plants in India, and they are meeting our revenue and profit expectations. We've been able to win these contracts with papermakers there, primarily because we can offer the paper companies access to higher-filler technologies like our FulFill portfolio of products. In January, we announced a commercial agreement for our FulFill E-325 high-filler technology with a papermaker in Europe. And earlier this month, we announced an agreement with a major papermaker in North America. We now have 3 agreements with papermakers in Europe and 4 in North America. Overall, we have 16 commercial agreements since we announced the new technologies late in 2010. Our Performance Minerals group, which was hardest hit by the winter weather, still saw an 8% sales increase in its talc product line. And I should mention, we just announced the launching of a new line of talc products for the polyolefin market. In addition, as I mentioned earlier, Refractories in Europe and the Middle East also had good sales growth of about 12%. This chart, which we review at each call outlines the advancement of our FulFill high-filler technology. And as I said, in the first quarter, we added the European and North American papermakers, and we increased the number of paper mills where we are actively engaged from 35 to 37. In addition to the 2 new agreements, we saw advances, as you can see, at 4 other mills. I'd like to take a few minutes and just review the present status of the AMCOL transaction with you. The closing, as I mentioned, is set for early May, and we have the financing in place to conclude the $1.7 billion transaction. Right now, the SEC and the U.S. antitrust reviews are complete. We have approvals from the German regulatory authorities. However, we're still awaiting approval from Poland. As of last night, we had around 67% of the shares tended, so we're all set to close. For the last few weeks, we've been working closely with AMCOL management to merge the 2 companies, which we intend to implement as expeditiously as possible. Many of you know, we've been interested in the combination of MTI and AMCOL for a number of years. This exciting transaction doubles our size while creating a platform for future growth that will provide shareholders with superior returns. We'll become a $2 billion U.S.-based minerals company with global reach, demonstrated leadership in process technology and product innovation, along with dedicated and customer-focused employees. This transaction combines the global leaders in precipitated calcium carbonate and bentonite. In addition to these 2 major products, both companies are also leaders in a number of other significant, diverse and growing product areas. Combining MTI and AMCOL extends and deepens our ability to grow. Our geographic expansion and new product innovation strategies will be accelerated through the creation of a broader portfolio to penetrate new markets like energy, environmental and consumer products. AMCOL brings a strong and deep history of commitment to product innovation, and they also have had a very successful track record in developing markets. Product development and customer-centricity is a part of their DNA, just as it's a part of MTI's DNA. When combined, we believe that through our joint research and development efforts, we can accelerate new product development and commercialization in a number of markets, as well as forge some new commercial pathways together. An additional $1 billion in revenue growth is being targeted through this combination. This growth will also come from MTI's strategies of geographic expansion and new product innovation in our Paper PCC business, new technologies like FulFill, the new full-service Refractories business model, expansion of the Metallurgical Wire business, and the globalization of our Performance Minerals business. The growth opportunities for AMCOL include: expansion of oilfield water treatment technologies, promising new products for reducing mercury from coal-fired power plants and improving crop yields as part of their agricultural products platform. We've shown over the last 7 years that our dedication to continuous improvement has resulted in a high-performance operating company, and we'll continue with this momentum in the new MTI. The transaction is immediately accretive, and the combined company will generate strong cash flows that will allow us to quickly pay down the debt. We look forward to bringing the AMCOL employees into the MTI family and further growing the company through accelerated geographic expansion and product innovation and operational excellence. Let's take a quick look at where we expect to see the synergies from the transaction. As I said, we'll bring that same business model and performance approach in integrating AMCOL that transformed MTI. Underlying that transformation has been operational excellence, customer focus, product development and strong financial management, resulting in increased operating margins, cash flows and return on capital. Over the next 2 years, we see $50 million in synergies through the rapid deployment of MTI's efficient shared service platform throughout the new MTI, and this will be a major driver of cost synergies. MTI has an extensive shared service organization that manages all the company's transactions and services, including financial accounting, procurement, benefits and HR services. Increased productivity improvements will also be realized over time as we deploy operational excellence and MTI's continuous improvement processes throughout the AMCOL organization. In the near term, you'll see reduction in duplicate corporate and other overhead expenses and further expense control through the disciplined spending approach that we've demonstrated at MTI. We also expect to see additional savings by deploying our Oracle ERP system throughout AMCOL. Further out, over the next 5 years, we see potential synergies of up to $70 million, as we move further along the operational excellence journey and continue to drive further productivity improvements, along with new product sales. We also expect to see significant improvement in asset efficiencies and, over the next 3 years, we believe we can release up to $100 million in cash as we improve AMCOL's net working capital position. Another area where we'll be focusing is asset turnover. We see improvement in asset utilization through a very disciplined approach to capital deployment, as well as overall equipment utilization improvement and effectiveness. This should deliver another $50 million over the next 5 years. Since the merger agreement on March 10, we've been working extensively on integration planning with AMCOL management, and I want to take the opportunity to thank AMCOL's senior managers and others involved for their cooperation and help in the process. I've also had the opportunity to meet and engage with AMCOL employees at the company's headquarters during a recent town hall meeting. And we're also developing a plan for meeting with key customers, suppliers and business partners. So the process has started. In the first few months, we'll be conducting an extensive strategic review of all AMCOL's businesses and operations to ascertain strengths, weaknesses and opportunities for improvement. Our integration team, led by Jon Hastings, along with the MTI and AMCOL management teams, are poised to begin the integration and transformation process immediately upon closing. Right now, our foremost objective near term is to maintain the stability and continuity of the businesses and the commitments to customers. We'll keep you updated on our progress as we go forward. And now, let's turn it over to Doug for a look at our first quarter financial results. Doug?

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 have been 12.6% of sales. The increase in operating income was due to a better-than-expected performance in our Refractory segment, where operating income was up 33% to $9.2 million from the first quarter of last year. The Specialty Minerals segment recorded first quarter operating profit of $21.5 million, an 8% reduction from the prior year. In March, however, sales rebounded slightly. We achieved a 2% overall sales growth over last March, driven by a 6% growth in the Performance Minerals product lines and 7% growth in the Refractory segment. We continue to effectively manage our expenses, and despite the lower sales, total fixed overhead cost dropped to 14.8% of sales compared to 14.9% last year. Sequentially, consolidated sales decreased 5%, driven by a number of factors in both segments. Specialty Mineral sales were sequentially lower by 4% due to having 4 fewer days in the quarter, weather conditions affecting customers, typical seasonal decline in Performance Minerals and Paper PCC sales that were 8% lower due to paper grade realignments in North America that reduced demand at several satellites. Sales in the Refractory segment were sequentially lower by 5% due to the fewer days in the quarter, lower equipment sales and lower volumes at steel mills in the Midwest that experienced weather-related production interruptions. These unfavorable issues more than offset a 5% increase in sales in our Refractories in European and Middle East markets. This slide highlights the product line contribution to the operating margin improvement over last year. You could see the growth in the first quarter of 2014 was driven entirely by improvement in the Refractory segment. The Paper PCC margin decline was due to the paper grade -- paper capacity grade realignments in North America and Europe, lower volumes related to the weather in North America and to unfavorable foreign exchange. The issues more than offset positive income contributions from our new satellites in India that started up early last year. The slight drop in Performance Minerals was due to higher energy costs, which more than offset price increases, productivity improvement of 6%, and increased sales and profit growth in our talc and Western U.S. GCC business. The Refractories margins improved through a 12% volume growth in our Europe and Middle East refractory products business, higher volumes and margin improvements in our Metallurgical Wire product line, a 7% productivity improvement and also favorable foreign exchange in Turkey. Let's go through the financial results within the Specialty Minerals segment. The segment achieved operating income of $21.5 million, and a 4% reduction in sales, and segment operating margin was 13.5%. As I mentioned earlier, underlying sales were lower by 2%, excluding the effect of weather and foreign exchange. Within the segment, Paper PCC's underlying sales declined 3%, driven by a 7% decrease in North America, which more than offset increases of 5% in Latin America and 3% in Asia. Paper PCC North America volumes were impacted by weather-related outages at our customers and the paper grade realignments, primarily within the International Paper production system due to the closure of the Courtland, Alabama mill beginning in the year. The Courtland mill began building inventory last fourth quarter in preparation for the movement of its paper grades to other IP North American Mills. As the Courtland grade shifted this quarter, our volumes were impacted as they worked through this inventory build. These issues which impacted PCC profits in North America more than offset a 38% improvement in profits in our satellites in India. Processed Minerals underlying sales grew 3%, driven by sales growth of 8% in our talc product line and 6% increase in our ground calcium carbonate California plant. Sequentially, segment sales declined 4%, which is as we expected and communicated on our last call. However, $21.5 million in operating income decreased 10% from the fourth quarter was more than the 5% we expected. If you recall back in January, we indicated that our sequential first quarter results would be impacted due to the 4 fewer days in the quarter, the paper grade realignments I just mentioned, typical seasonal decline in Processed Minerals and the effects from the severe weather we were experiencing in North America. However, the impact of the weather was worse than we expected on the segment and was responsible for approximately 70% of the operating income reduction versus the fourth quarter of 2013. These conditions affected sales in all product lines in January and February and were largely responsible for the higher energy costs in Performance Minerals for the entire quarter. Excluding the direct weather impact, operating income would have been $23.2 million and represented 14.4% of sales. Looking forward to the second quarter, we expect our Paper PCC operating income to be up, as volume should recover at the satellites affected by the weather and as we move through the paper grade realignments in North America. This volume growth will be partially offset by the normal paper mill annual maintenance outages we see, which typically occur in the second quarter in all regions. In Performance Minerals, we expect operating income to also increase sequentially as the second quarter is typically the strongest seasonal period for this business. Overall, we expect the second quarter operating income for the segment to increase approximately 20% in the first quarter and be 4% higher than the second quarter of last year. I also want to note that we continue with the construction of 4 satellites in China, and we expect to commence operations at the Jianghe paper mill late in the second quarter or possibly early in the third. This will be our fourth satellite operating in China. We'll begin to see volume from this new satellite mill as it ramps up later this year. In addition, we're currently building or commencing the construction of 3 other satellites in China, which will come online late this year and early next. Total capacity being installed with these 4 new satellites from 270,000 tons and will increase our capacity installed in China by 70%. As I mentioned on the last chart, Specialty Minerals operating margin decreased 50 basis points this quarter to 13.5%. Higher pricing in Paper PCC and price increases in our Performance Minerals business helped margins by a little over 1%. Productivity and other cost control improvements in the segment contributed 0.6%. You can see the considerable impact of the higher energy costs and lower volumes associated with the weather had on the segment as it lowered margins by nearly 1 full point. In addition, higher lime costs lowered margins by another 0.8%. These higher lime costs were fully recovered contractually with our customers due to price increases I just mentioned. Lost contribution margin due to the paper grade realignments in North America and Europe lowered margins by another 0.3%. And finally, unfavorable foreign exchange in Brazil, Japan and India lowered margins by around 2/10 of a point. Okay. Now let's go through the results within the Refractories segment. Sales were 1% higher versus last year and underlying sales grew 4%, excluding foreign exchange and the direct weather-related impact. Underlying sales in refractory products and systems grew 4%, driven primarily by growth in our European and Middle East refractory products business, where sales increased 12% due to the organic growth at several customers in U.K., Turkey, Germany, India and The Netherlands. These higher sales were partially offset by 5% lower sales in North America refractory products, lower equipment and non-steel application sales. Underlying sales in Metallurgical Wire increased 4% due to a 22% increase in Europe, due primarily to share gain with customers in Italy and Russia and a strong base volume growth. Operating income for the segment increased $2.3 million or 33% in the quarter to $9.2 million. The increase was driven by the sales growth in the European Refractory and Metallurgical Wire product lines, as well as the favorable product mix in North America Metallurgical Wire. In addition, margins improved due to a 7% productivity gain over last year and also to favorable foreign exchange in Turkey. However, the strong performance in Europe was offset by several issues in North America. Cold weather increased our operating cost that our Bryan, Ohio facility and was shut down for several days in January and February due to extreme freezing conditions. Truck logistics and shipping were also affected due to restrictions placed on the state and county roads around the Bryan facility, cold weather affected steel production rates at several mills in the Great Lakes and the Southeast U.S. regions. The combination of these issues lowered sales by about $1 million. Despite these issues, segment operating margin was 10.9% for the quarter, which is a 260-basis-point improvement over the 8.3% in the first quarter of last year. Excluding the weather impact I just mentioned, operating income would have been $9.8 million or 11.4% of sales. Sequentially, our Refractory segment sales were lower by 5%, primarily due to the 4 fewer days in the quarter, the lower equipment sales, which was consistent with our expectations. Operating income was about $400,000 lower than the fourth quarter, which was better than our estimate of $1.5 million lower that we communicated on the last call. The higher-than-expected income was due to stronger sales in the Europe and Middle East and sales were sequentially higher by 5%, along with the favorable foreign exchange in Turkey. Looking forward to the second quarter. We expect to continue our sales momentum in Europe and the Middle East, which have been running 12% higher than the prior year. However, we expect profits to continue to be lower in North America over last year due to the recent production curtailments announced by U.S. Steel and AK Steel as a result of iron ore supply issues related to the prolonged ice conditions on the Great Lakes. We expect, however, this production to be made up over the balance of the year. Despite these issues and current concerns in North America, we expect operating income for this segment for the second quarter to be approximately 5% higher than the first quarter and increase 10% compared to last year. Here's a summary of the 31% improvement in the Refractory segment operating margin. Higher-margin refractory sales in Europe improved operating margins by almost 1%. We also saw positive impact of foreign exchange in Turkey, which improved margins by 1.3%. Improved higher margin metallurgical wire volumes in Europe, favorable product mix in North America contributed 3/10 of a percentage point. 7% productivity improvement and expense control added another 0.6% (sic) [0.8%]. And finally, you can see the impact the weather had on us in North America that reduced margins by about 6/10 of a point. Quickly, these charts illustrate our working capital and cash flow trends. Our total days of working capital increased sequentially 1 day to 61 days from the fourth quarter. The increase was driven by higher receivables in Paper PCC due to the timing of collections and also higher inventories in Refractories due to the weather conditions that lowered refractory product consumption in the first 2 months of the quarter. We continue to diligently manage our working capital and expect to return to the 2013 levels throughout the year. Our cash from operations was $15 million in the quarter and capital spending was $11 million. Now let me summarize what we're seeing -- what we're currently seeing for the second quarter. Paper PCC, we expect operating income to be up as we move past the weather-related issues and the paper grade realignments that affected volumes in the first quarter. The volume improvement will be slightly offset by lower volumes related to the normal paper mill annual maintenance outages that we typically see in the second quarter in all regions. Performance Minerals, we also expect operating income to increase from the first quarter. As the second quarter is typically the strongest seasonal period for this business, we should also see lower energy cost. For the segment, we expect second quarter operating income to increase approximately 20% from the first quarter to be about a 4% higher in the second quarter of last year. In Refractories, we expect our operating income for the full segment to be around 5% higher in the first quarter of this year and 10% higher compared to last year. We expect to continue the strong sales momentum in Europe and Middle East, and we expect this growth to be partially offset by lower profits in North America due to the recent production curtailments announced by customers in the Great Lakes region. Also in the second quarter, we'll be closing on the AMCOL acquisition and consolidating the post-closing AMCOL financial results within MTI. Our reported earnings will be quite different from what we reported here today and include purchase accounting adjustments and other onetime transaction-related charges. We'll lay all of this out for you on our next call, which should give you more insights into the combined company's ongoing earnings and will also show how accretive this transaction will be. Now let's open it up for questions.

[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.