Rick Honey - VP, IR, Corporate Communications Joe Muscari - Chairman, CEO Doug Dietrich - SVP, - Finance and Treasury, CFO Mike Johnson - VP, Managing Director Energy Services Gary Castagna - SVP, Managing Director Performance Materials Patrick Carpenter - VP, Managing Director Construction Technologies D. J. Monagle - COO, SVP.

Daniel Moore - CJS Securities Silke Kueck - JPMorgan Ivan Marcuse - KeyBanc Capital Markets Rosemarie Morbelli - Gabelli Company Daniel Rizzo - Sidoti & Company Steven Schwartz - First Analysis.

Good day, ladies and gentlemen, thank you for standing by. And welcome to the Minerals Technologies Incorporated Third Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference to our host, Mr. Rick Honey. Sir, you may begin..

Good morning. Welcome to our 2014 third quarter conference call. Today, Chairman and Chief Executive Officer, Joe Muscari will provide some insights into our third quarter 2014 performance, as well as a brief update on the integration of the former AMCOL.

He 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 will turn the call over to Joe Muscari.

Joe?.

Thanks Rick. Good morning everyone. MTI had an outstanding third quarter recording $1.25 per share, which is a 98% increase over the same quarter in 2013. This financial performance, which is the first full quarter of contribution from the former AMCOL businesses illustrates how highly accretive this acquisition is.

All five of our segments contributed double-digit operating margins with the entire company maintaining over 14% operating income as a percentage of sales. As we continue to integrate the Performance Materials, Construction Technologies, and Energy Services businesses, we are ahead of the synergy targets that we set when we announced the acquisition.

Those targets of $25 million in the first full year of the acquisition and $50 million in two years have been surpassed to the point that we are now almost nine months ahead of schedule on these savings. Doug Dietrich will give you some additional detail later in the call.

The company also had strong cash flows of $87 million during the quarter, which has allowed us to make a debt repayment of $38 million, and we also continued to maintain the stability of the acquired businesses, while at the same time restructuring various aspects of our business segments and functions.

I believe it's fair to say that we are a much stronger company today with even greater prospects for the future than a year ago at this time.

This Slide provides a graphic, and I say fairly dramatic illustration of the acquisitions impact on MTI earnings in the third quarter, nearly a doubling over our earnings per share over the $0.63 we recorded in the third quarter of 2013.

And as I said, each of the businesses as well as our focused integration team contributed to this excellent performance. MTI's two main strategies of geographical expansion and new product innovation are moving forward on both fronts. I would like to just take a few minutes to update you on our progress in these areas.

We continue to make inroads with our paper PCC business in Asia, especially China where paper production continues to grow between 5% and 7% annually. We began operation of our satellite PCC plant with Jianghe Paper in Henan Province in June. As this satellite ramps up, we are also constructing four additional satellite PCC plants in China.

In total, we are bringing on an additional 350,000 tons of basic PCC capacity in that country over the next 15 months. Our Energy Services business unit continues to focus on new opportunities that leverage its filtration in water treatment technology, and it's currently also pushing forward with new oil field service projects in Mexico and Brazil.

Performance Materials, which is the leading producer of metal casting binders in the U.S. and hold a solid position in China is targeting growth opportunities in India, while also extending its line of granular additives such as surfactants and related products to detergent manufacturers in developing countries.

Our Refractory segment that recently announced two new costs per ton agreements, one with Bhushan Steel Limited in India and the second with Tata Steel in the U.K.

The three-year agreement with Bhushan includes refractory maintenance for two basic oxygen furnaces, and the contract with Tata is for two years for maintenance of Tata's continuous casting tundish operations. These contracts provide longer-term stability and a closer working relationship with these customers.

Construction Technologies continues to see promising opportunities for its new Resistex liner and is focusing on geo-synthetic clay liners for coal ash landfills in the U.S.

Coal ash landfilling regulations will be changing by the end of the year to require landfills over the coming years to be dry with composite liners, which in turn will stimulate additional sales for CTs liners.

Further to better support our geographic expansion initiatives, we have also reorganized our organizations both in Brazil and India such that all businesses will have a reporting linkage to one country manager respectively.

This change will provide for better focus, easier resource sharing, and greater effectiveness as we move forward in these developing countries. On the new product front, we are seeing a number of new products begin to gain traction.

During the quarter, we signed an agreement with Sun Paper to deploy our New Yield integrated process technology at Sun's Paper mill in Shandong Province.

This breakthrough technology, as we discussed on the last call converts a waste stream that needs to be landfilled into a usable pigment for fill and paper allowing paper makers to eliminate the cost associated with landfill disposal.

We also continued to make progress with our Fulfill E-325 high filler technology as we announced our fifth agreement for Fulfill in North America in the quarter.

We now have 17 agreements with paper mills around the globe and are actively engaged with 20 more mills interested in this technology that allows paper makers to reduce costs by increasing the filler levels of PCC which in turn replaces higher cost pulp.

We recently have also conducted a successful trial in Japan of ENERSOL, our plant growth additives, and we began shipping ENERSOL for trials to new geographical markets including Brazil and Argentina.

As we discussed during the second quarter conference call, we have a partner – a partial ownership and supply agreement with Novinda, a company that has developed a new cleaner and more efficient technology for mercury removal from coal-fired power plants.

The technology is non-carbon based and provides the additional benefit of allowing reuse of the fly ash generated in the combustion process. Fly ash produced in power plants using activated carbon mercury removal products, typically needs to be landfilled.

In April of 2015, the EPA’ stricter mercury and air toxic standard becomes effective which could provide an impetus for utilities to adopt this new technology. So far, Novinda has signed with four coal-fired power plants. We’ve also begun several new initiatives on the R&D front.

As you are aware, the R&D core competencies of both the heritage MTI and the former AMCOL are found in fine particle and coating technologies for such minerals as calcium carbonate, PCC, bentonite, leonardite, talc, and chromite.

To better leverage that knowledge, we’ve begun joint R&D projects in the products and market segments where there is overlap such as adhesives, sealants, and clumping pet litter. I would now like to take a few minutes to talk about the progress we are making with the integration.

In the past six months, our first priority has been to keep all businesses stable to meet the needs of our customers. We have been able to do that while at the same time working diligently to execute capture of the planned synergies.

As I stated earlier, we are ahead of the targets that we set in May when we announced the acquisition by about nine months, and we continue to identify additional savings areas. The transition to our global shared services system is progressing.

We have moved the transactional duties in finance and human resources into our shared services organization just as we did in MTI several years ago. And we will be transitioning IT and supply chain into the system in the coming months.

In addition, as many of you know MTI has four lead teams that are responsible for operational excellence, environment health and safety, technology and expense reduction. We have begun integrating the former AMCOL into these teams, which will provide additional major points of integration for us.

More recently we named two scientists from the former AMCOL to our technology lead team and just this week we began the introduction of operational excellence with a three-day training session for the Top 65 global leaders of the newly acquired businesses at our Bethlehem, PA, training center.

We've also made good progress in our in-depth strategic review of the former AMCOL businesses and expect to be substantially completed by year end.

Some of the areas of focus are utilization levels of manufacturing facilities adjustment of resource and capital allocations in each business, productivity, modifying regional strategies and the pipeline for new products.

I should mention that we do anticipate that the strategic review will result in the consolidation of 6 to 8 manufacturing facilities and the number of sales and administrative offices. We will provide further insight into the analysis and changes that we plan to make in these and other areas in upcoming calls.

As many of you know for an acquisition to be successful, the integration must be done quickly and effectively. For the last 7 years, we worked to develop to a high performing company by building a disciplined and multi-faceted business system and culture.

In the last six months, we have been able to move significant parts of the newly acquired businesses quickly into the MTI business system and have begun a cultural transformation process. We are in the middle of that process now and are progressing very well as our third quarter results would indicate.

Our current challenge is to maintain momentum and stay on this track and with help of all of our employees, I'm confident that we will be able to deliver our targeted growth objectives, synergies and results. As I indicated earlier, we are a much stronger company with a very bright future. Now, let me turn it over to Doug Dietrich..

Thanks Joe, good morning everyone. Now let's go through our consolidated and business segment results for the third quarter. This is the first full quarter results post-acquisition for our five reporting segments; Specialty Minerals, Refractory's, Performance Materials, Construction Technologies and Energy Services.

I will touch on the key market and operational elements of our results in each of these segments. Our third quarter earnings per share from continuing operations were strong at $1.25 excluding special items and 98% increase from the $0.63 recorded last year.

Reported earnings were $1.06 per share which included a special charges of $0.19 related to the acquisition. I will provide some additional details on these special charges in a moment. Our sales for the quarter were $544 million which is 114% higher than the third quarter of last year and increased 4% on a pro forma basis.

Operating income excluding the special items increased 135% to $76.8 million and represented 14.1% of sales. Each of the five business segments achieved double-digit operating margins again this period. EBITDA for the quarter was $103 million which represented 19% of sales.

Return on capital was 9% which I will note is the return including the stepped up value of assets from the acquisition. Sequentially, consolidated sales increased 29% as the third quarter included a full quarter of sales for the acquired business compared to only 52 days in the second quarter.

Cash flow for the quarter was $87 million driven by the strong operating results and continued improvements in working capital from the acquired businesses and we made a debt principle payment of $38 million. As Joe highlighted, the synergies from the integration are tracking ahead of target, I will go deeper into our progress in a few minutes.

First, let me reconcile our reported earnings from continuing operations of $1.06 to the $1.25 which excludes special items. This quarter we recorded $4.2 million of additional integration related costs as well as $5.8 million of additional restructuring charges. In total, these special items were $0.19 per share.

The restructuring program which we announced last quarter is associated with a deployment of our shared service model, the consolidation of various corporate functions and overhead reductions being made in the acquired business units.

This program now has a cost of $11.8 million and will result in the permanent reduction of 8% of the company's total workforce, will generate annualized savings of approximately $20 million over the next year.

As we continue with the integration and complete our in-depth strategic review of the acquired businesses, we do anticipate additional future charges and associated savings. As Joe mentioned, we anticipate consolidating certain manufacturing facilities in a number of sales and administrative offices.

I will provide further details in these actions on future call. This table bridges our earnings of $0.63 in the third quarter of last year to the $1.25 this quarter. The MTI-based business contributed $0.07 to the earnings growth as both the Specialty Minerals and Refractory segments had higher operating income.

And you can see the acquisition is highly accretive to MTI earnings as the acquired businesses contributed $0.71 per share. As indicated earlier, our progress with capturing synergies is ahead of target and these savings contributed $0.14 in the quarter. Interest expense and amortization of deferred financing cost were $0.30 per share.

If you exclude the 11% MTI-based business improvement this quarter, the accretion from the acquisition was 87%. As I just mentioned, the performance of three new segments and the captured synergies made a significant contribution to our earnings this quarter.

This chart reflects the sales and operating income contribution from each excluding the special charges. There are few items that I would like to again call to your attention regarding these results. First, they reflect a full quarter of sales and income compared to only 52 days in the second quarter.

Second, the operating income for each segment reflects the increased depreciation and amortization resulting from the purchase accounting adjustments. And third, they include four full absorption of all corporate expenses which prior to the acquisition were not allocated to the segments.

Total sales this quarter for the three new segments were $290 million and combined operating income was $42.5 million which was 14.7% of sales. On a pro forma basis combined sales for these three segments increased 9% over the third quarter of last year.

But before I get into the details on each segment, I want to outline the progress we have made thus far with capturing synergies and what we projected over the next two quarters. If you recall, our targets were to achieve $25 million in annual run rate synergies by the end of year one and $50 million in synergies by the end of year two.

As you can see, we achieved $7 million in actual savings in the third quarter which is an annualized rate of $28 million.

We have line of sight to savings of $8 million to $9 million in the fourth quarter which is an annualized rate of $32 million to $36 million and expect that to grow to $9 million to $10 million in savings by the first quarter of next year or rate of $36 million to $40 million. This would put us ahead of our first year target by about 8 to 9 months.

We are making good progress on deploying our shared service organization which will leverage our global resources and continue to drive additional synergies. In the third quarter, we completed activity analyzes for our global staff and they started to make organizational changes based on those assessments.

Now, let me give you a sense of the contribution that each segment is making to the increase in operating margins. For the company in total, the operating margins increased from 12.9% last year to 14.1% this quarter and notably all segments contributed to the improvement.

The Specialty Minerals segment contributed to the improvement through growth in talc, productivity improvements in Performance Minerals and good expense control that more than offset the impact of the PCC shutdowns and the lower overall production levels in North America and European paper markets.

In the Refractory segment, growth in North America and European refractory products and the productivity improvement of 15% added to the improved margins. In Performance Materials, a strong performance in household and personal care and basic minerals more than offset higher costs in metal casting related to railcar issues in North America.

In Construction Technologies and Energy Services segments also achieved the strong performance and contributed combined 3/10s to the margin improvements. Now, let's go through the financial results in each of the business segments. And I will start with Specialty Minerals.

This segment achieved record operating income of $26.5 million despite the lower sales of 3% with operating margin of 16.3%. Within the segment, paper PCC sales declined 5% driven by volume decreases in North America and Europe over last year.

North America uncoated free sheet paper production was down 7% from the third quarter of last year and our volumes were impacted by the closure of the Courtland, Alabama mill at the beginning of the year. And lower off-site sales volumes from our Ashdown, Arkansas satellite.

In Europe, sales were impacted over last year due to the closure of the UMP Docelles mill in France earlier this year. These lower North America and Europe sales were offset by a strong performance in our India PCC operations and sales growth of 8% in our talc product line and 3% growth in ground calcium carbonates.

Segment operating income improved 2% over last year driven by strong performances in talc and GGC as well as the continued improved performance of the India PCC business. Operating income also improved due to higher pricing, good cost control and the 4% productivity improvement in performance minerals.

These improvements more than offset the lower sales in North America and Europe PCC. Sequentially, segment sales decreased 3% due to 2% decline in the PCC product line and the 5% decrease in the process minerals product line due to the typical seasonal volume decline in that business late in the quarter as the U.S.

construction industry begins to slowdown. Despite lower levels, operating income increased 2% for the second quarter which was slightly better than our expectations.

Looking forward to the fourth quarter, we expect our paper PCC operating income to improve slightly from the third quarter due to the continued ramp up of our new Jianghe satellite in China.

In Performance Minerals, the fourth quarter is the low point of demand in the year for our end markets and sales are typically 7% to 10% lower than the third quarter. But overall, we expect the fourth quarter operating income for this segment to be between 5% and 10% lower than the third quarter levels, which is a normal seasonal drop.

Now, let's go through the Refractory segment. Sales were 4% higher versus last year, driven primarily by refractory product volume growth in North America and Europe.

We saw 9% sales growth in North America due to higher steel capacity utilization rates earlier in the quarter and 7% sales growth in Europe where we have captured new business with several customers in the U.K., Germany, the Netherlands, and continue with our growth track in the Middle East and India.

Operating income for this segment increased 15% to $9.7 million and operating margin improved 100 basis points to 10.7%. This is primarily due to a strong performance in North America and Europe refractory products. Productivity improvement of 15% and a favorable foreign exchange in Turkey partially offset by lower profits in metallurgical wire.

Sequentially, Refractory segment sales were lowered by 1% due to a 10% decrease in metallurgical wire that more than offset a 2% increase in refractory products. Operating income was 9% lower than the second quarter, which was lower than we had expected and communicated on the last call.

This was due to the metallurgical wire sales, lower metallurgical wire sales and $800,000 provision for bad debt related to the bankruptcy of U.S. Steel's, Canadian subsidiary. Looking to the fourth quarter, we expect segment operating income to be similar to the third quarter.

North America's steel capacity utilization rates are currently running lower than they were early in the third quarter and as a result, we anticipate slightly lower volumes. However, we expect to see the typical fourth quarter increase in laser equipment sales. Now, let me take you through the performance of our three new business segments.

I will begin with Performance Materials segment, which includes three product lines, metal casting, household personal care and specialty products and basic minerals. Sales in this segment were $135.6 million with operating income of $20.7 million. On a pro forma basis, sales increased 3% over the third quarter of last year.

Within the segment metal casting sales were up 4% driven by strong sales of our specialty sands products. In household and personal care and specialty products, revenues were down slightly. And sales and volume growth in pet care were offset by slightly lower revenues in fabric care in Europe.

The basic minerals product line had sales growth of 8% driven by drilling fluids and iron ore pelletizing products. However, along with the strong volume growth, the segment continued to absorb higher transportation and logistics cost in the quarter due to railcar availability issues out of our Wyoming and South Dakota processing facilities.

The business unit held a number of kaizen events resulting in process improvements to mitigate some of the ongoing availability issues. These improvements took hold late in the quarter and they have reduced our backlog and better positioned us going into the winter.

For the fourth quarter, we expected a typical seasonal decrease in the segment operating income of approximately 15%. Metal casting, the largest product line in the business usually has a 5% to 7% volume decline in the fourth quarter in the U.S. due primarily to foundry customer shutdowns towards the end of the year.

Now let's take a look at the results in the Construction Technologies segment, which consist two product lines; Environmental products and Building Materials products. Sales for this segment were $69.1 million and operating income was $10.3 million. On a pro forma basis sales increased 10% over the third quarter of last year.

Environmental product line sales improved by 18% on a pro forma basis versus last year, and the improvement was driven by strong sales and to riverbed remediation projects as well as higher sales of vapor intrusion products and our new Resistex technology. Building Materials sales were 3% higher on a pro forma basis.

We saw a growth in the RX Ultraseal and Voltex water proofing products compared to last year and primarily due to large water proofing jobs here in the U.S. For the fourth quarter, we also expect a considerable seasonal decline in operating income in this business as the fourth quarter is typically the weakest period.

Segment sales are usually lower by 15% to 25% due to the slowdown in the construction and environmental remediation markets and operating income normally decreases over 50% from third quarter levels.

Now, let's turn to the Energy Services segment, as a reminder, this segment provides products and services to the oil and gas industry including a range of on and offshore water filtration, well testing, pipeline, coil tubing and nitrogen services primarily in the Gulf of Mexico and the surrounding onshore areas.

Sales in this segment were $85.4 million and operating income was $11.5 million. On a pro forma basis, sales increased 17% over the third quarter of last year. This performance was much better than we expected and communicated on the second quarter call as we were able to secure several offshore jobs which improved sales and profitability.

We also did not face any weather related shutdowns in the Gulf of Mexico due to the relatively quite tropical storm season. All service lines improved profitably in the quarter, but the main drivers of the higher profits were the filtration and well testing service lines in the U.S. as well as increased filtration sales in Brazil.

It's also worth noting that the coil tubing unit improved profitability sequentially over the second quarter due to a number of cost reduction and efficiency related initiatives that were started in June. Looking to the fourth quarter in this segment, we expect a 15% decline in operating income from the third quarter level.

This is a typical decline for this business as it moves into the end of the year driven primarily by lower demand for service work. Again, I will caution that earnings in this segment can be volatile and difficult to forecast due to the nature of the services we provide.

Many projects are performed on very short notice from our customers, yet they can be sizeable in nature and the combination of these two factors can lead to significant swings in segment profits quarter-to-quarter. Okay, let's move to our cash flow and capital spending for the quarter.

You can see the continued strong cash flow is generated post-acquisition. Cash flows from operations were $87 million and our cash balance ended the quarter at $220 million. We tidily managed cash capital which was $26 million in the quarter and was driven primarily by the construction of our new PCC satellite facilities in China.

We also focused on working capital across the company and the portion of the strong cash flow is generated in the quarter was due to working capital improvements made in the acquired businesses. Cash generation will continue to be a major focus for us.

As I previously mentioned, we made a debt principle payment of $38 million in the quarter and expect to continue to use excess cash flow to delever as quickly as possible. In summary, our third quarter earnings of $1.25 per share reflect both the strong performance this quarter from all segments and our ability to accelerate synergies.

The 98% earnings per share growth and our initial debt payment demonstrate that we are on track with the targets we set for the acquisition. Let me summarize what we are currently seeing for the fourth quarter.

The Specialty Minerals segment, we expect 5% to 10% sequential decline in operating income due primarily to a typical seasonal decline in Performance Minerals partially offset by an improved performance in paper PCC.

Refractory's, we expect segment operating income to be similar to the third quarter as lower refractory volumes in North America are offset by increased equipment sales which typically occur in the fourth quarter.

In the Performance Materials segment, we see a typical seasonal decline in operating income of approximately 15% from the third quarter levels due primarily to anticipated foundry customer downtime late in the quarter.

In the Construction Technologies, the fourth quarter is the slowest period in environmental remediation and building construction markets. And as such we expect operating income to decline by 50% from the third quarter which is a normal seasonal drop and commensurate with prior years.

In the Energy Services segment, we expect operating income to be 15% lower than the third quarter and it's due to lower than expected demand for service work towards the end of the year.

In total, we expect fourth quarter earnings to be approximately $1.05 to $1.10 per share with the change in earnings from the third quarter driven primarily by the normal seasonality of the markets we serve.

Our outlook is positive and the fourth quarter will be another strong one for MTI with earnings of 70% to 80% higher than the fourth quarter of last year.

As Joe mentioned earlier, our focus over the next several quarters will continue to be on integration, capturing targeted synergies which we expect to be $1 million to $2 million higher in the fourth quarter on generating strong cash flows to accelerate paying down debt. Now, let's open it up to questions..

(Operator Instructions) And our first question comes from Daniel Moore of CJS Securities. Please go ahead..

Good morning..

Good morning..

Good morning, Dan..

First congratulations obviously on the tremendous progress you’ve made, and thank you once again for all the detail that you provide each and every quarter..

Thank you..

Wanted to maybe focus a little bit on segments in PCC, obviously, maybe you can quantify the impact in the quarter of the closure of Courtland, Alabama and given that the multiple projects or multiple satellites scheduled to come online later in 2015, when would you expect that segment to turn back to positive growth?.

Yes. Dan, the impact from Courtland was about 100,000 tons as we had expected some of that volume to be absorbed throughout the IP system. We didn't see that this year. As Joe mentioned and I mentioned earlier, we are adding about 350,000 tons of capacity in China throughout 2015.

So, we will probably see that offset occur sometime in the first or second quarter. But, well, let's say we have a couple of facilities coming online in the second. So, you’re probably going to see the second, third quarter of next year, we will start to see the inflection point. But, we should be fully up and running within about 9 months after that..

Very good. And then shifting gears, Energy Services business remains very strong, maybe just elaborate again, you mentioned some of the improvements you made in coil tubing and profitability.

And elaborate on what's – drivers of those businesses and then with oil prices falling out of bed, is there a concern that might have an impact on demand going forward?.

Yes. Dan, I would say to your later part of your question, potentially if oil starts to fall below $80, we could see some softening that would impact us. Right now, that's been holding fairly strong at the $81 to $85 level.

Part of what you are seeing is, I would say improvements that have been focused on to increase the equipment utilization, increase the personnel utilization in the business, but also being able to get some jobs that have been targeted and in terms of with some of the larger companies and some of the larger projects such as I mentioned in my remarks, there is a strong focus on both Brazil and Mexico that's still in front of us.

So I would say it's the beginning of a number of things that are coming together in the business. We are still subject to the good deal of volatility just by the nature of the business.

And I'd say so far we have been able to -- Mike Johnson and his team have been able to work on improvements particularly in coil tubing, which had been in a loss position, I guess parts of last year, the first quarter of this year, when we did the – started the acquisition, it was in a loss position, and so that was a very focused effort to move first to breakeven quickly, and they were able to do that within two to three months and now it's moved to a slightly positive level.

So that's been a major accomplishment for the business. I'm going to ask Mike Johnson to share a few remarks with you as well.

Mike?.

I guess the strength that we have seen in Q3 was due mainly in Gulf of Mexico and filtration of well testing and also we are seeing strength on land. We are also seeing significant improvements in Latin America and Brazil specifically, but also some improvements in Malaysia and Australia. So….

Very good. And lastly, and I will jump back in queue. Last quarter, the railcar issues that you had in terms of margin pressure, you talked about quite a bit.

It seems like that's abated, how much of that is market related and what are some of the steps that you have been able to take internally to reduce that as a concern as we go into the peak season once again next year in 2015?.

So Dan, we had about the same impact in the third quarter as I mentioned in the second, about $1.2 million of higher costs. That was really incurred early in the quarter, and I mentioned the business unit held a number of process improvements,, kaizen events made some substantial progress.

They took hold late in the quarter, have helped to reduce some of the backlog and position ourselves much better for handling issues as they come up going into the winter. So, we still did have an impact, margins were impacted in the third similar to the second, but I think we are looking for that to improve going forward..

I think it's fair to say within the last two to three weeks, Gary, we have gotten the backlogs down, and the rail availability and turnarounds to I'd say pre-winter of last year levels. It's been about as low as – as we have seen. And so, that's why as Doug mentioned in his remarks, we are well positioned going into the winter.

And a good part of that was controlling the things that we had control over a little better through the kaizen events, but very focused things that were geared towards ensuring that more cars are born into the system, turned around faster, attract and monitor, so it was a combination of five or six things that came together well.

Gary, you want to add anything to that?.

Yes. Especially in what came through the kaizen process was really the order management, and we went several locations within the company as well as to customers where we have to organize the fleet and essentially optimizing the best we could to where we could move the fleet most quickly to serve the markets as well as alleviate the cost happen.

But also, we were able to get more cars in the fleet and through a task force that we have organized with the rail service carriers well to also look at points where we can improve the overall process.

The rail line there now is in much more responsive for – with these kind of approaches that we have taken, and to this day, even into the fourth quarter, we have continued to sustain that improvement in the process.

And we were also just -- probably also to mention was also taken steps to assure that we could move more products closer to our end markets – key end markets. So we have more distribution and storage capability downstream to take advantage of this time of the year, so that we are more positioned for any other winter related interruptions..

Very good.

Lastly, just quick clarification Doug, the $20 million annualized cost savings that you alluded to in the press release and your comments that in addition to the $50 million initial synergies that obviously you laid out?.

Dan that's part of the $50 million..

That's part of the initial $50 million. Okay. Thank you again..

Our next question comes from Silke Kueck from JPMorgan. Please go ahead..

Good morning.

How are you?.

Feeling good.

How are you Silke?.

Good. I had a similar question on the cost savings. That is I was trying to figure out based on the initial targets that you gave reaching $25 million by the second quarter of 2015 and $50 million by the second quarter of 2016.

The incremental headcount reductions and the closure of six to eight manufacture facilities, what is that incrementally contributing? And does it just mean that you hope to get an additional – that you try to get to – I don't know like $70 million of run rate basis now by the second quarter in 2016.

Is that the way to think about it?.

The way to think about it, we are trying to give you is as much granularity as possible relative, it's sort of a scorecard to where are we versus where we said we would be both in terms of dollars and synergies and time, okay? So from a time standpoint we are head of target to achieve the $50 million.

I also touched on that we are identifying additional savings and as we have also related when we had our acquisition conference call that we were looking and felt that we should be targeting beyond $50 million. And as I touched on, we were beginning to identify some areas that will take us beyond the $50 million. But, it's premature to focus on it.

Right now we are very focused on achieving the $50 million. And as we are doing that we are identifying other areas to go further..

Right. So it looks like that you are going to get to $50 million by mid-year 2015, right, and so the question is since you probably going to be – I mean that's sort of – I mean if you just look at the progression of savings and so it seems by the time you get to mid-2016, you would be like $70 million already..

Oh, well….

Is that reasonable to say?.

So as Joe mentioned, if you hold on to the $50 million, yes, it probably third quarter were about nine months ahead of schedule, at least on our target for achieving the $50 million. Joe mentioned we are starting to identify other areas, but it's premature, so good to tell you that that's what that's going to be beyond the $50 million..

I think Silke, the thing to keep in mind; some of these things when we say identify take time to make happen some may require some investments. Others may require further planning. So would be items that could get us on the road from the – will get us on the road from the $50 million to the $70 million.

But its premature to talk about exactly when that's something, I think again, as we go through each quarter, we are getting, better and better position to give you more visibility as to when these are going to come in just as we went out two quarters on this call, we're going to try to go out a little further with you on the next call..

Okay. That's helpful. How long do you think it may take to shutdown the six to eight facilities and to absorb some of the manufacturing elsewhere.

And that is what you are trying to do or you are trying to move – are you trying to close underutilized facilities and move production elsewhere or you entirely closing down certain projects and product lines?.

Silke, so we are just going through that process right now. We haven't determined anything or made any decisions on what we are doing. But, it would be more tied toward – looking at offices, administrative offices where there is redundancies and looking to combine them, two yes, looking to creating more and more efficient operating platform.

At this point, we are not talking about just discontinuing product lines. So there is more around the efficiency related areas and redundant areas and administrative offices..

And is that like a 6-month process, like a 9-month process, how long do you think it may take to consolidate the facilities?.

Consolidate about – we are looking at this through our strategic review of the three new businesses. As far as how long it will take that to happen – we don't have – we are not that far long in the process. It probably throughout in at least 12 months plus to do something like that..

And how do you think about like on capital allocation like the next 12 months, do you anticipate that you make additional debt payments in forcing the first quarter?.

Yes. Absolutely, we are looking at using the majority of our operating cash flow to steer toward paying down debt. We have been looking at increase strict capital allocation.

We have always have in the legacy MTI business really seeing a hard look at capital spending and we are doing that across the company now to really tighten things working on working capital improvements as I mentioned we made some progress there in the past five months.

But that cash flow that operating cash flow – free cash flow will be steered towards debt repayment..

Thanks very much. I will get back into queue..

Our next question comes from Ivan Marcuse from KeyBanc Capital Markets. Please go ahead..

Hi. It's great quarter. Thanks for taking my questions..

Thanks Ivan..

Real quick, most of it has been answered. If you look at in the PCC business, how much I understand you get some – the sales related volumes came down in North America and Europe.

But how much did new business sort of your expansions into the regionals, add to sales or add to volume and how much was Fulfill contributed in the quarter what sort of the run rate there or how to think about it?.

To answer the first part, so we had the Courtland volume in North America and Docelles in Europe plus just lower paper production volumes in the third quarter, I mentioned 7% North America. Really the growth has come from 2 satellites, our JK paper satellite which was ramping up about this time last year, so that added to our volumes in India.

Second quarter, late in the second quarter, we had mentioned Jianghe satellite ramp up in China and so that's picked pace.

We haven't – those two satellites have not offset the loss at Courtland and Docelles and as I mentioned earlier as we have the five other satellites, four other satellites in China ramp up mid-to-late next year, we should see the growth resume on the top line of PCC..

Okay.

Then for Fulfill?.

Did I miss another question from you? Oh, sorry, Fulfill. Fulfill is a contributor in the quarter. We had similar performance to last year in terms of Fulfill so it's continuing to progress engaged with 20 additional facilities with 17 contracts.

But, we have faced a couple of issues in terms of – with the plant shutdowns as curtailed some of the volume and some of these just for Fulfill this year compared to last year..

Okay. Got you. And then in terms of working capital, you are doing a really nice job there. The $100 million that you have identified when you announced the deal or the campus call about the deal.

Where are you in terms of achieving that $100 million?.

We are about $25 million to $30 million, I mean it's a – when you look at – if you are going to look at the balance sheet you are going to see the higher sales and so there is going to be some high working capital. But on an apples-to-apples basis kind of adjusted we are probably about $25 million to $30 million of improved working capital..

Great.

In the fourth quarter of the season, is this a – would you expect working capital continue to be a source of cash?.

While we are going to continue to look at working capital improvements we made some very quick improvements in the second and third, some of those improvements are going to continue to be the ones that are under our control inventories and to some extent payables. Sales will take a little bit longer time to restructure some of those.

But also the synergies, we will also provide additional cash. So we do see the continued strong cash flows moving forward. I mean there will be some seasonality to it, as you know the first quarter is a lower cash period for the legacy MTI. I expect that to be in the same but for the combined entity but on a relative basis, yes.

We continue to see driving a stronger cash flows..

And let that pay down you may have missed this and I have missed that. You pay down $38 million this quarter, is that sort of the average sort of – that sort of where you want to be on a quarter-over-quarter basis for the next couple of quarters or would you expect to pay down to accelerate as the cash generation continues to be pretty strong here..

We expect that to accelerate, I think over the next few couple of quarters that will probably be at that level but as we continue to generate higher cash flows and make the improvements in the business, we will – we see that accelerated increase..

Okay.

And then my final question, I guess the final question is, you keep mentioning in the past couple of calls this mercury removal business and this opportunity, how much in volume are you selling into that market rate now and as we get into 2015 and math goes into effect in April and you guys have another step up in 2016 in the other half of the utilities get on board.

What kind of volume does that – would that add to it, or how to think about it in terms of sales or profits, I don't know how – if you could quantify that?.

Yes. Dan, I described it has – I'm going to ask Patrick to chime in. Patrick Carpenter, the Head of the Construction Technologies business to chime in as well. But, I would say the best way to describe it. It's very early the volume is still very low.

As we mentioned there are four contracts and so part of what's happening is beginning of the ramping up to start to satisfy those contracts.

What is expected to happen is more contracts are expected or targeted to come on as we get towards the end of the year and we will start to see this thing potentially ramp up very quickly first quarter, second quarter, third quarter of next year. Patrick you want to add a little more granularity into that please..

Sure. The contracts will begin to kick-in to meet the regulation and really part of 2015. About 50% of those power plants will go for the extension and then we will be able to meet that regulation a year from the April date.

But, we still have quite a few customers that are now taking product on trial basis and we assume and look into the end of the quarter and then into the first quarter of 2015 what would be a find to our customers taking product and operating the facilities.

So things are on track and we see a pretty active contract season coming up the next two quarters..

How is just – I don't know if you look at a contract on average or power plant on average, how much bentonite would they use on an annual basis or what does that mean in terms of sales?.

We talk about the business in pounds. They are utilizing pounds to remove the mercury. The larger contracts are getting into the range of 9 million pounds annual usage. We've got some that are smaller and we've got that we come to the final stage at that level or even greater.

But a given power plant could have four operating boilers or four units and may only convert two at a time. But it's – we expect as the – and we have got one right at the cusp, our fifth contract coming that could be a significant client in pound usage.

So over the two quarters we could see several clients range between four to nine upwards of 10 million pounds annual usage..

How much per pound does the stuff go for?.

At this time we are still working with our clients, so we are recurring so much..

Yes. That's not something we are publicly disclosing at this point in time because we are supplier to Novinda. We also have an ownership position there. And so pricing is in terms of market pricing is something that we are not in a position to publicly disclose now..

Good. I was just trying to get an idea of what this remain in terms of sales. All right. Thank you very much..

Yes. I think in terms of total sales we are looking at –.

The overall market is about $800 million; we feel over the next three years, we could target 12% of that, $500 million..

Okay. That's great. Thank you very much..

Our next question comes from Rosemarie Morbelli from Gabelli Company. Please go ahead..

Thank you. Good morning, all..

Hi, Rosemarie..

Hi, Rosemarie..

I was wondering, Joe, if you could give us a feel for when we can expect New Yield to make an impact and whether you are looking at new contracts coming up the line sometimes soon or is that further out?.

Yes, well, I'm going to – we are expecting the contract we do have should be coming up in the latter part of next year. And we do have other targeted companies that we are talking to right now. There are a number of those. I'm going to ask D. J. Monagle to give us a little more flavor of the kinds of things that are happening right now in that area..

Glad to Joe. Thanks Rosemarie for the question. What we are looking at right now as Joe mentioned, we will bring on the 60,000 tons of Sun Paper towards the second half of next year.

We got active conversations with several other paper makers the overwhelming majority of those are in China, there may be one or two outside of China that are interested in the technology.

What I think we'll be seeing happen Rosemarie as we deploy that technology and gain even initial success, we'll be quickly following to another 5 to 10 other locations afterwards.

So you'll see a lot of activity and hopefully be hearing a lot of activity assuming the successful startup in the second half and I'd imagine that the major part of our 2016 growth efforts..

Can you quantify I don't remember if you have done it in the past, probably not – what you – the market expectations in terms of revenue size from that particular project?.

Yes. So Rosemarie, I think it's back to where to we were back in – back when I first rolled out our pipeline so early in January this year we had said that this is the first part of a technology portfolio and this was addressing these waste streams.

And so we look at that market as being in that 100 – I'd call it a $100 million, $125 million in that range. We'll be getting into the $70 million to $80 million range over the next five years is what more realistic penetration rate..

Wouldn't you say that we're also focused on China pretty much where we could get up to $70 million to $80 million in that timeframe, right?.

I think so China is the overwhelming place where this should make – where it make sense. There is some other third world countries but it is China..

Okay, thanks.

And I was wondering if you could go through the same exercise regarding your new coating satellite which is the first one, any thought of others, other paper mill adding the coating satellites?.

Could you ask the question again Rosemarie? I think I heard you, but I just want to make sure I address it properly..

Sure. You also are building a satellite that is going to be coating the paper at the end of the process, but for the first time you have the satellite on site.

And I was wondering what the progress was there and whether you had all the paper mills going through the same exercise?.

Yes. So, in particular we're in the process of building two coating satellites in China, the first one that will come online is with Sun Paper. And that one is targeted coated woodfree. The other one that we've got that's moving on is in Zhengda Paper and it's targeting the packaging market.

And so as we get that coating satellite up and running, we see other promotions right now other interest is in that packaging segment especially in China. So we've got a fair amount of interest and are working towards that, nothing to announce just yet, but that would be one of our key areas of promotion and we believe opportunity in China..

With the similar $70 million to $80 million potential in revenues or much smaller?.

I'm thinking you're in that ballpark, yes, Rosemarie..

Okay, thanks. And looking at the debt repayment of $38 million in the third quarter, I mean you are sitting on $220 million in cash and short-term investments.

So why not pay down more? Is it that you are needing it for the integration, for restructuring? Can you help me on that side?.

Sure. No, it's – we can certainly operate the company well below the $220 million of cash. It's largely that it does currently sit offshore Rosemarie. We have about 30% of our cash flow are currently in the United States which is what we used primarily for debt. And we're looking at repatriating some of that cash to repay debt.

We just haven't done that this quarter..

All right.

So we could actually see some of it going towards debt repayment as early at the first quarter of next year as opposed to $38 million over the next two to three quarters?.

That's correct. It's just a tax impact with repatriating that cash. And so we're balancing the needs of cash offshore and capital expenditures with the tax impact of bringing it back and paying the debt..

Okay. And one last question if I may. There is advertisement for the lighter clumping cat litter? Is that one of yours or is it someone else's because bentonite is not light by any definition..

Well, there is a lightweight cat litter and there is some activity in our product development pipeline around.

We sell a significant amount of clumping cat litter it's the primary, when I talk about cat litter in our remarks and the growth of cat litter that primarily it is the clumping type, its sodium bentonite which swells – the swelling type of cat litter. As far as the research and development, we do have projects that are geared towards lightweight.

I let Gary talk a little bit more about that in terms of our progress..

Yes.

Rosemarie this lightweight category was really just introduced in earnest by Nestlé at the turn of the year and that's fostered more interest to develop our products in this area as a key supplier around there with the bentonite area we've got access to approaches to alter what our current product form is to perhaps come out with a very similar version of products.

So we are actively developing an alternative for that particular space as well as looking at marketing plans here as we finish the year to introduce a product to certain customer areas..

So in the meantime are you losing customers to the lightweight categories since you aren't playing in it yet?.

We have not seen any type of movement of a material node away from call it the basic scoopable litter to the lightweight. It's probably more been within Nestlé's brands from what seen at this point or perhaps at the other national brand levels, but not as much in fact we haven't seen any deterioration in volume at this point.

So it's probably a bit of shifting within their own categories..

Okay. And actually if I may ask one last question, I promise. On Novinda, is the Novinda product is so much better than using activated carbon with oxidated bromine in it.

Why is it that the anticipation is only for 10% to 12% market share and not much larger than that? What am I missing?.

Well, the company our partner Novinda was looking at a pretty conservative approach to getting to a total marketplace and it's really getting those plants to convert their current contracts on to the Novinda technology.

So these are long-term contracts and it does take equipment to bring those into their systems and it's really just getting the penetration into that initial market and then we would expect to take that percentage higher but that's the current plan we have right now..

I think Rosemarie I think that's the key perspective to have. We do believe the potential was higher that we can go – that Novinda will be able to garner more than 13% but as Patrick said that is the initial target and we hope to be able go beyond that at some point in time..

Okay. Thank you very much and congratulations..

Thank you..

Our next question comes from Daniel Rizzo of Sidoti & Company. Please go ahead..

Yes. Just one quick question, guys.

With the New Yield product, is that work similar to Fulfill, where you trial it at a number of plants before it is adopted and it is kind of a – not a joint pluses, but it takes a few months before plants decide if they want to use it or not?.

Dan, its DJ. I wouldn't compare it to Fulfill in that way. It does require so it is a satellite that we'll be deploying, it's a different design of a satellite so it's a different manufacturing process that creates the pigment.

And so we've got a little bit of time where you actually install the satellite, but I would say that the rate of penetration across grades is more similar to our standard PCCs plus you've got this additional pressure where you'll recall the part of the value equation is not just that it is a pigment, but it is reducing and in many case eliminating a waste stream.

So there is incredible pressure that once that manufacturing process is deployed and there is going to be a little bit of time getting the proper pigment and manufacturing that proper spec.

But once you get that lined up, you should see a fairly quick rate of penetration and rate of acceptance within each particular paper mill and then as we announce every contract that typical lag between a time we announce something until that manufacturing system is up and running, would be very similar to what you'd seen with our normal satellite plans..

And then it would be similar to your other plants – the other PCC businesses in the sense that you get like a seven year contract roughly for each time it is installed?.

More in the neighborhood of 10 plus years..

Okay. All right. Thank you guys..

Thank you..

Thanks Dan..

Our next question comes from Steven Schwartz of First Analysis. Please go ahead..

Good afternoon guys..

Hi, Steve..

Good call. Thanks for all of the information. I had no questions coming off of your prepared remarks, and then we hit Q&A and now I have like 100. Anyway, I will keep it to one or two. I guess on Novinda and that opportunity, there are a lot of companies in the chem space that are really touting the opportunities with mercury removal.

So do you know, can that – the product from Novinda basically be used in the same injection equipment as activated carbon? And are the feed volumes about the same? So was it easy to transition a market that is already kind of been focused on activated carbon as the maximum achievable control technology?.

The equipment is a bit different, but it is not a big issue for the plants to convert to the Novinda technology from the traditional powder activated carbon. They do trials with our current technology and they are able to compare their performance of what they're currently using versus the Novinda. So they have no issue converting.

It's really about the overall cost of mercury removal and to be able to have this be more efficient on a pound per pound use it does provide a non-corrosive addition and really it's about the end use of that fly ash how can they reuse the fly ash and Novinda technology gives them an excellent opportunity to do that..

Okay. And then just as a follow up question. And Doug, this is I think for you. On Slide 13, where you talk about the acquired businesses in the segment contribution.

As we still try to kind of figure out the seasonality of the business and what have you – first off, you mentioned there was some purchase accounting that's built into the x-specials margin it sounds like. Is that just for one quarter or does that carry forward, number one.

And then number two, how do you expect the seasonality to affect margin in terms of unabsorbed overhead and those sorts of factors?.

Well, a couple of things. So, the margins that are represented on Slide 13 all of us trying to note is that they're different than what they would have been if you – prior to the acquisition. If you had followed these segments prior to the acquisition they would have looked very different.

In that prior to the acquisition all of the corporate overhead was not allocated to each of these segments like we do in the legacy MTI business. So all corporate and divisional overhead expenses are represented in these margins, okay that's first thing.

Also the second thing is, the step up of assets increased depreciation and amortization that as a result of the acquisition that's also reflected in these numbers.

So I'm trying to show is the $42.5 million and the 14.7% operating income margins are in a fully weighted basis and that should carry through continued quarters I mean we're going to continue with that depreciation, amortization in the full allocations. Now the margins will fluctuate from third quarter levels.

As I mentioned in the fourth quarter each of the three new business segments face some seasonality as those are legacy performance minerals business. Probably the most drastic change is coming in the Construction Technologies business unit. My remarks show that I mentioned that they typically see almost a 50% reduction in operating income.

But as you go back and calculate exactly what that's going to do their margin percentage, but you can see both the Performance Materials, Construction Technologies and Energy Services to some extent face some seasonality.

So don't expect next quarter to be 14.7%, but I expect them to be significantly stronger due to the cost savings that we're putting in place to synergies captured post acquisition..

Okay, that's great. Thanks. And Rick, I'll be calling you later with 98 questions..

Great. Okay, Steve..

We will book a half hour..

Thank you..

Our next question comes from Al Kaschalk from Wedbush. Please go ahead..

Ho, guys. This is actually [Jamil] (ph) in for Al..

How are you doing Jamil?.

I'm doing well. Quick question for you on the Energy segment. Given the fast growth that you are seeing there what kind of CapEx requirements you are going to have to have to continue that growth.

And do you really consider this business a strategic fit with rest of your segments?.

Yes. I don't have a number to give you. But I will share with you and I touched on this on my remarks relative to the strategic analysis that we have been doing on each of the businesses and each of the subsegments of each business.

With regard to Energy Services what – we are directionally moving towards there is focusing capital investment more in the areas of filtration technology, filtration contracts and jobs as well as waste water treatment.

As supposed to let's say coil tubing or some of the other segments because the real strength of the business is in the filtration part of the business.

And so we will be making some adjustments, so as you look back over where investments where made in the past you will – and you look inside Energy Services you will see that kind of a shift, which will net depending on the amount of business we are able to get and go after from a growth standpoint would have effect on the amount of capital.

On an equal-to-equal basis of business there will be less capital investment..

Okay, great. Thanks guys..

(Operator Instructions) And our next question comes from Daniel Moore of CJS Securities. Please go ahead..

My follow ups have been covered. Thank you..

Thanks Dan..

And I show no further questions at this time..

That concludes today's call. Thank you very much for your interest in Minerals Technologies. And have a wonderful day..

Great. Thanks..

Ladies and gentlemen, that concludes today's conference. Thank you for your attendance. You may now disconnect. Everyone have a great day..