Rick Honey - VP of Investor Relations Doug Dietrich - Chief Executive Officer Gary Castagna – SVP and MD, Performance Materials Andy Jones – VP and MD, Energy Services Rand Mendez – SVP and MD, PCC.

Daniel Moore - CJS Securities Silke Kueck - JPMorgan Rosemarie Morbelli - Gabelli & Company Mike Sison - KeyBanc Capital Markets.

Good day ladies and gentlemen and welcome to the Q4 2016 Minerals Technologies Earnings Conference Call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Rick Honey, Vice President of Investor Relations..

Good morning. Welcome to our fourth quarter 2016 earnings conference call. For this call Chief Executive Officer, Doug Dietrich will review our 2016 performance, address the fourth quarter results and provide some perspective on the coming year.

Before we begin, I'll remind you that beginning on Page 13 of our 2015 10-K, we list the various risk factors and conditions that may affect our future results. Statements related to future performance by members of our management are subject to these limitations, cautionary remarks, and conditions. Now I'll turn the call over to Doug..

Thanks, Rick. Good morning, everyone. Let's start off with a brief review of our financial performance, our performance highlights for 2016. 2016 was a successful yet extremely challenging year for Minerals Technologies.

This marked the seventh consecutive year we posted record earnings and two of the major contributors to that performance were our Specialty Minerals and Performance Materials segments both of which also had record years. We increased earnings to $4.47 per share and companywide operating margins increased to 15.7% up nearly 10% from last year.

We improved our safety performance this year reducing our recordable and lost time incidents by 22%. As most of you know, China is a major focus of our geographic expansion growth strategy and in 2016 our efforts there gained ground with revenue growth of 9%.

We made progress with the penetration of PCC into the paper market with the penetration of our blended green sand bond systems into the foundry market. Sales in the paper PCC business in China grew 12% including the startup of our 100,000 ton filler satellite with Sun Paper and our Performance Materials segments recorded 11% sales growth.

We also strengthened our technology pipeline. New technologies are maturing and we've moved closer to commercializing new products across each of our businesses all of which will yield future growth.

We remain a strong operating company and during the year continued to improve our manufacturing processes through our initiatives and operational excellence and lean. In 2016 for example, the company improved productivity measured by tons-per-hour worked by 7%.

This saved close to $5 million in cost compared to 2015 and marks the seventh year in a row we've had productivity improvements of 5% or higher. We also continued our progress with deploying operational excellence.

The number of suggestions received from our employees increased by 14% and we held over 4000 Kaizen which means that more than 10 structured problem-solving events are occurring each day throughout the company.

Again this year, we had strong cash generation, continued to strengthen the balance sheet and reduced our debt by another $190 million to bring our net leverage ratio to 2.5 times EBITDA. We also had our challenges this year.

The continued downturn in the oil and gas markets resulted in nearly $100 million in lower sales for our Energy Services segment on top of the more than $100 million decline we experienced the year before.

We moved quickly however, to restructure that business to maintain an acceptable level of profitability and repositioned it globally around its competitively differentiated offshore filtration and well testing services. The business is now well-positioned for revenue and profit growth as markets improve.

Weak worldwide steel markets which created continued pressure on our refractory segment was another challenge. Despite his market environment the business units turned in a strong performance increasing operating profits despite lower sales. In total, our services businesses sales declined by $120 million from last year.

Our ability to absorb this impact and continue to grow earnings is a significant accomplishment. Now let me take you through the details of our full-year and fourth-quarter performance and then I'm going to conclude with what we see for 2017 and I'll give you some perspectives on MTI going forward.

Starting off with the full year we increased earnings per share to $4.47. Operating income was flat at $257 million despite the decline in revenue I just mentioned that we experienced in Energy Services and refractories. Four of our five business units posted strong annual performance improving operating income over last year.

Energy Services was an exception, however it was able to maintain positive operating income despite the market-driven sales decline. We achieved these results through a strong operating performance across the company, lower raw material costs and reduced overhead expenses. As a result, operating margins increased 15.7%, 10% higher than last year.

This slide shows our annual earnings over the past 10 years. We've grown earnings except for the recession in 2009 each year over this period. This represents more than 12% compound annual growth rate.

As I mentioned earlier, our minerals related businesses continue to perform well with each of the segments recording double-digits operating margins and improving profits over last year.

Both the Specialty Minerals and Performance Materials segments had record years and in Construction Technologies sales of our Resistex product line grew threefold over 2015. Combined these three segments accounted for nearly 80% of total company sales and 85% of our operating income for 2016.

We continue to improve operating income and margin in each of these businesses. This year combined operating margin was 17.5% and EBITDA margin was over 23%. This slide provides the performance of our service related businesses, refractories and energy services. As I mentioned, these two businesses had a challenging year.

Combined sales for these two segments declined $120 million, but we were able to hold operating income relatively stable and improved operating margin. This was a result of the timely and difficult actions taken by the Energy Service business to restructure in order to maintain a reasonable level of profitability.

[Indiscernible] strong performance in the refractories segment to maintain focus, control costs and improve operating income under difficult market conditions. Now let's turn to the fourth quarter performance and I'll provide a more detailed review of the company and each segment.

Fourth quarter is a solid quarter for us with earnings per share of $1.08 excluding special items compared to the one dollar last year. Reported earnings this quarter were $1.04 per share.

Total sales for the quarter of $401 million down $29 million with about $20 million of this decline due to five fewer days in the quarter compared to last year and the remainder from the unfavorable impact of foreign exchange.

We saw a strong sales growth in the Performance Materials segment, however this growth was offset by decreases in Energy Services due to the exit of several service lines in mid-2016 and in paper PCC due to several previously announced paper mill closures in the U.S. that were operational at this time last year.

Our growth in China continues to gain traction as company sales there grew 10% over the fourth quarter of last year. Our operating income grew 2% over last year despite the five fewer days in the quarter.

Operating margins were strong at 15% of sales compared with 13.7% last year as we continued to realize productivity improvements and supply chain savings across the company.

On the same day basis, operating income increased 8% over last year due to a strong growth in Performance Materials and refractories which more than offset a weak fourth quarter in Specialty Minerals. We continue to generate strong operating cash flow of $61 million for the quarter and used it primarily to repay $50 million in debt.

Now let's go through each segment and I'll start with Specialty Minerals. As I mentioned earlier, this segment had a record year despite having a weak fourth quarter. Sales this quarter were $138 million and decreased 8% on the same day and constant currency basis from last year.

Paper PCC sales were down 9% due primarily to the paper machine closures early in the year and some extended paper mill outages in the quarter. If you recall these paper mills were fully operational in the fourth quarter of 2015. Performance Minerals the fourth quarter is typically the slowest period of the year.

However, it was particularly so this quarter as customers shifted orders during the last two weeks of December. We also faced temporary shutdowns at two of our own manufacturing plants, in Montana due to freezing temperatures and in California from heavy rain that occurred there in December.

A combination of these events lowered sales by 12% over the last year which was more than we expected on the last call. Operating income for the quarter was $21.6 million and operating margins were relatively strong at 15.7%.

The impact of the lower sales was partially offset by improved productivity, lower energy and raw material costs as well as good expense control. On an annual basis Specialty Minerals operating income was a record at $103 million and we've continued to improve operating margin in this segment.

Moving to our outlook for this segment for the first quarter, we expect operating income to be higher than the fourth quarter by $1 million to $2 million. On Paper PCC we expect some volume improvement in each region and in Performance Minerals we are currently seeing a stronger order book.

However, adverse weather conditions at our Western plants have continued into January and this could impact the segments results. Now let me take you through the Performance Materials segment. Sales this quarter were $136 million 6% higher than last year on a constant currency basis and 11% higher than last year on a same day basis.

On this same comparative basis, sales in metal casting increased to 7% due to a 22% increase in sales in Asia. In the household and personal care product line, sales were lower by 8% due to the changeover of a surfactant granule by one of our customers that we indicated would happen on the last call.

Basic minerals accounted for the majority of this segment's revenue increase with sales up 60% or $11.5 million on a same day basis from last year. This increase was primarily the result of higher bulk sales of chromite out of South Africa. Operating income for this segment was a quarterly record at $26.7 million and represented 19.7% of sales.

The increase in operating margins was due to higher chromite sales, productivity improvements of over 10%, and lower clay mining costs. We also achieved a record annual income in this segment and you can see the significant improvement in operating margins over the past several years.

Moving on to the first quarter, we expect segment operating income to be approximately $2 million lower than the record fourth quarter level primarily due to lower chromite sales, but also the mining productivity challenges we're having at our Western mines due to the heavy rains there.

Now let's take a look at the results in the Construction Technologies segment. Sales for this segment were approximately $39 million 5% higher on a same day in constant currency basis. Both environmental and building material product lines had strong sales and in the U.S. which were partially offset by weaker demand this quarter in Europe.

Operating income was $2.7 million and represented approximately 7% of sales as profitability was affected by an unfavorable product mix, where sales of Resistex were lower this quarter compared to last year.

Our annual operating margins continue to improve in this business as well which is a result of productivity improvements, overhead cost control, and shifting the product mix to higher value products like Resistex which generated $11.6 million of sales in 2016 compared with $3.3 million in 2015.

Looking to the first quarter we expect operating income to increase slightly from fourth quarter levels. So the first quarter is also a seasonally slow period for this business. Now let's go through the Energy Services segment. Sales in Energy Services were $20.3 million, $13 million lower than last year.

The sales decrease was primarily due to the shutdown of our U.S. onshore service lines including Nitrogen pipeline and land based well testing. We achieved our second consecutive quarter of improved profitability in this segment since restructuring it in the second quarter of 2016 and hit our near-term target of 10% operating margin.

As you can see on the chart on the right-hand side, weak oil and gas demand has significantly reduced sales and profits in this segment, yet we've been able to remain profitable despite a decline in sales of more than $200 million over the past two years.

Energy Services is now focused on global offshore filtration and well testing where we have a competitive advantage from our differentiated technology. We're seeing more activity and greater stability in the Gulf of Mexico and around the world and our new produced water technologies are beginning to gain traction with oil and gas producers.

We are now well positioned to grow sales and profits as energy markets recover. As we move into the first quarter we expect operating income to be around the same level as the fourth quarter. We're beginning to see increased activity in our Gulf of Mexico for well test services, however pricing remains competitive in all regions.

Now let's go through refractories. This business had a solid quarter posting very strong operating margins. Sales and operating income were better than we expected during our third quarter call due to stronger steel market conditions and we were also able to secure several laser equipment sales.

Compared to the prior year, sales were higher by 5% on a same day and constant currency basis. Operating income improved 85% to $9.8 million from $5.3 million last year. This was driven by the higher equipment sales through proved refractory sales from our operations in Turkey and 11% productivity improvement and lower overhead costs.

As you can see from the charts on the right-hand side, this segment had a solid year despite weak market conditions. Sales were down $20 million from 2015 and we were able to increase operating income by 17% and improve operating margins to 12.8% for the full year.

Looking to the first quarter, we expect operating income to be about $2 million lower than the fourth quarter. Steel markets continue to be stable; however, we will not see the same level of equipment sales as we did in the fourth quarter. Now we'll move to a quick update on our progress with debt repayment.

This structure is our debt to principal payments and associated net leverage ratio for the past 10 quarters. Over this period we've made a total of $480 million in debt principal payments and have reduced our net leverage ratio to 2.5 times EBITDA.

We expect to continue to use free cash flow to repay debt which will bring us closer to two times net leverage at the end of 2017. As I mentioned on the outset of the call, 2016 was both a successful and challenging year. It was our seventh consecutive year of record earnings.

We achieved record income levels in our two largest segments, Specialty Minerals and Performance Materials. We continued our sales and operating income growth in China.

Full-year earnings of $4.47 per share represents close to 85% earnings growth over the last three years which is a significant result considering the challenges we faced along the way in our services businesses. Let me first give you what we see for the first quarter and then I'll conclude with some perspective on what I see for MTI in the New Year.

In Specialty Minerals we expect operating income to be higher than the fourth quarter by $1 million to $2 million. In Performance Materials we expect segment operating income to be approximately $2 million lower in the fourth quarter.

In Construction Technologies we expect operating income to increase slightly from fourth quarter levels so the fourth quarter is still a seasonally slow period. For Refractories we expect the first quarter to be $2 million lower than the fourth quarter due to lower equipment sales.

For Energy Services we expect similar levels of operating income to the fourth quarter. In total, we expect our earnings for the first quarter to be between $1 and $1.05 per share.

One other thing I'd like to remind everyone is that our operating cash flow in the first quarter is typically lower than other quarters if you do some cash outflows that occur only in the period. However, the 2017 in total we see another strong cash flow year.

Now I'd like to take the few remaining moments to provide some insight on what we see for the coming year. Overall I see another strong year for MPI. In performance materials we will keep pursuing opportunities in metal casting, household and personal care and basic minerals around the world.

We expect to see further penetration of metal casting screens and bond formulations in Asia, especially China. Foundries move up the value curve and seek ways to save money through productivity improvement.

We have also seen in the past two years growth in pet litter sales, both through geographic expansion and through our new lightweight litter products and we expect that growth to continue this year. In 2016 we aggressively began our China Government marketing initiative.

We are sure that MTI Technologies can be specified for adoption by government agencies. Part of that initiative resulted in the company being chosen as one of six companies or institutions that were part of the Eighth Annual U.S. China Strategic and Economic Dialogue.

Eco-partnership was specifically for our NewYield process technology that converts the paper mill waste stream into a usable pigment.

Other technologies that have matured over the last year will begin marketing in China include geosynthetic clay liners, our environmental solutions to such problems as coal ash and red mud containment and our aerosol crop enhancement products.

We are also excited about our efforts in China with Sun Paper and with our NewYield technology and encoding grade PCC for the high-end packaging market, a market that continues to grow.

In paper PCC the potential exists in China and India to nearly double our PCC productions through new satellite plans at paper mills and we've seen increased interest from papermakers that are trialing our PCC, our FulFill high filler technology as well as evaluating new yields.

We also expect Performance Minerals to have another strong year as well construction technologies, as it continues to grow the Resistex product line. The outlook today for our two services businesses has improved from where we said at the beginning of 2016.

We have for example seen steel capacity utilizations creep up from the mid-60% range at this point last year to around 73% today and oil prices are now over $50 a barrel were last January they were closer to $30 a barrel. These two markets are more stable today and these two businesses are now well-positioned to grow if these markets improve.

As always we'll continue our disciplined approach to productivity and cost control and continue to improve our operational excellence capability throughout the organization in 2017.

MTI will continue to generate strong cash flows and will use it to further reduce our debt and strengthen the balance sheet which we will use on a balanced approach to capital allocation.

At the same time we have a robust set of acquisition opportunities in value-added minerals that are well placed in our current and market segments, geographies and our mineral and technology portfolios.

With the growth initiatives that we have in place and the continued development of new technologies I see Minerals Technologies well-positioned for growth in 2017.

I'd like to conclude today by offering some perspectives on how we will operate MTI going forward, continue to enhance shareholder value and also answer some questions that many of you asked about what if anything, I'll do differently. This is what I can provide you.

I intend to maintain and nurture MTI's culture which has its foundation in safety, strong employee engagement, transparency in our actions and accountability for results.

The company has worked hard over the last 10 years to develop a highly disciplined and structured business system founded on principles of operational excellence that provides each business leader with the resources they need to drive profitable growth. MTI is a high-performing company with efficient processes and I intend to maintain this.

However, with any system, no matter how good it is there are always areas that can be improved which is exactly what our operational excellence culture is designed for, continuous improvement and that too will remain. We will also keep tight control on costs, capital and continued focus on improving return on capital.

We will also keep and continue to execute our key growth strategies and geographic expansion, new product development and acquisitions. So where can you expect to see change? The first areas is to improve our speed and execution on our growth opportunities.

I want to take what we do so well with operating the company an efficient, aligned and disciplined approach and apply those same principles to improve revenue growth.

To do this I believe we need to better align our organizational structure within the MTI business system, to speed up communications, make faster decisions, knock down barriers and better align our resources to focus on the needs of our customers.

We need to have the right talent in the right spots to provide the necessary focus on growth and build even stronger customer relationships.

One area in which I will focus early on is accelerating the development of our organization in Asia particularly China to add depth and breadth to our team in the region to better support the growth opportunity we have. Second, I'll begin the longer-term process of developing and enhancing the talent we have in our organization.

By that I mean we will move people into new challenging positions and add to our talent base where needed yet within our expense controlled culture. MTI is a unique company and has a strong operating culture. Fostering talented people who understand it and grow up in it will provide the type of leadership we need to carry the company into the future.

So those points have recently made two changes to bolster our management team. We've brought on Matt Garth from Arconic to become the CFO and seeing that he has just joined us two days ago, I’m sparing him the trial by fire today until he gets up to speed, but you'll be hearing from him in future calls and meeting him at conferences.

Matt worked with both me and Joe Muscari in the past. He is very familiar with our style of operating culture. I also named Brett Argirakis who runs the refactories segment to our Executive Committee. Brett who has 29 years with the company, he is one of those who has grown up in and understands our culture.

You’ll be seeing additional changes in the months ahead all designed to enable us to go faster. Although not a change, but important as to where I'll be spending my time is our continued focus on acquisitions as an avenue of growth.

Our capabilities to accessed, transact and integrate acquisitions is as strong as ever and we have a healthy pipeline of opportunities to pursue.

I believe that all these efforts will enhance the growth trajectory of the company by creating clear customer focus and ensuring that we have the necessary resources, not only to take advantage of the growth opportunities we have available to us today, but also further build a foundation to carry the company for the next ten years.

Now let's go to questions..

Thank you. [Operator Instructions] We’ll hear first from Daniel Moore with CJS Securities..

Good morning, Doug. Thanks for taking the questions..

Hi, Dan..

First just wanted to take a look at the PCC side where kind of given the closures in North America hit a new low in Q4, do you expect that to be the bottom, have you seen any of the additional capacity come out rather than what we talked about maybe couple of months ago? And I guess, just more generally, if you look back at some of the closures is the return profile, are you still confident the return profile in these projects is the same as we had always expected historically?.

You mean the return profiles of the new satellites?.

Correct, yes..

Well, let me answer your first question. Right now we don't see any additional closures in North America and Europe. We look at operating rates for uncoated freesheet paper right now. I think they are around 90% in both Europe and North America and that's pretty healthy level.

So when we look at that level we don't see - and we don't see any this year coming at us. As far as returns on those new satellites, you look at how we price those and look at those capital expenditures with our customers and those returns are the same over the horizon that we have those contracts as anything that we’ve had in North America.

And we’ll caution you a little bit that the revenue is different.

So part of the revenue decline that you’re seeing in paper we'll try to give you some more clarity on this is a ton of PCC in China is different priced than a ton of PCC in North America and the reason that is is because the input costs are different, but the returns are the same to the company and how we price that cap..

Got it, very helpful.

And then just switching gears, did the long-term trend in household personal care continues to be very good, Q4 was a little light, anything that caused that and your expectations for 2017 and one quick follow-up?.

Sure, let me answer the first part and then I'll ask Gary to give you a little color. Household and personal care, the decline you saw this quarter it has been on a very good growth track, the decline this quarterly we had indicated on the last call what happened is the changeover of the surfactant granule from one of our customers.

So as they do that, that volume dropped off and then we expect to pick it back up in probably the second, end of the second quarter of 2017, so we move back on that track of growth. May be I'll let Gary give you a little bit more color on that..

Right, Dan, the prospects and the future like Doug said we had a particular product line that we knew coming into the last part of this 2016 was going to be phased down and that happens often in these formulations, there is changeovers to alternatives and then we do have programs though that are always in the pipeline looking certainly for or adding to the growth and we will see coming up to this year more growth potential coming down the road probably more toward the second half of the year that will take up for some of the decrease you saw here in the last quarter..

Perfect, and lastly I know you don’t like to get into the full year guidance game, but just thinking about the puts and takes this past year despite $120 million revenue drop in the services business you still managed 4% EPS growth.

Given the growth outlook that you described in the prepared remarks, is there any reason why we shouldn't grow at a higher clip this year on the bottom line and are there any investments or tax rates or other things that we should be thinking about that could be a governor? Thank you, I appreciate it..

Thanks, Dan. Look I think there is absolutely additional growth in earnings in 2017. I remain a little bit cautious about the contribution from the services business, I mean I think we feel much better as I mentioned today as we sit today looking into 2017 for both refractories and energy services.

We were facing some pretty significant slowdowns and declines last year, but where those businesses sit this year and where those markets are this year much healthier position. But I’m cautiously optimistic.

I don't think until we see oil prices if we want to talk specifically about energy services, so you really see something over $60 a barrel, I don't really think its driving some meaningful production and kind of filtration business to us, but we are seeing some better activity today. So that's a positive.

Refractories business is at 73% capacity utilization, that's up almost 7% from where we said last year, that’s another healthy indication.

Then may be what I’ll do first and then I’ll conclude Dan is I'll let Andy give you a little bit of color, Andy Jones give you a little color on what we're seeing here around the world in oil and gas and then Brett Argirakis on refractories and steel..

Yes, Dan its Andy here. I think we've kind of bottomed out at the beginning of the Q4 last year and I think that we're at the beginning of an up cycle now. We are seeing a stabilization of the rig count here in the U.S. offshore. We're seeing an uptake in the rig counts on land and internationally our business is growing quite well I would say.

So, I think, we predicated our plan on $45 to $55 oil – around - we're at the high side of that today around 54. As Doug said, once we get to 60 and we can sustain 60 then we'll see much more infrastructural spend I would say in the E&P environment. So I think we're beginning the uptick and I think we’re looking forward to a good year..

Thanks Andy, Brett you want to give us a little color on refractories?.

Sure. Sure. Hi Dan, the global steel production in 2016 was fairly flat and the utilization rates were around 70%. As Doug pointed out we - our expectations are to be better this year. So U.S. rates when you look at U.S.

rates as he pointed out, we went early in the year from 70% we're up to about 73% and we’re seeing orders picking up for the steelmakers over Q4. So that’s a positive indication.

Expectations for us, for 2017 we expect them to remain at similar levels for the time being, but also expect a possible uptick in the second half, so that should help us in our growth initiatives..

So Dan, let me complete the picture for you. If you look at the minerals businesses we said 22% growth in metal casting and we've got some really strong orders in China from metal casting. So we see that continuing. We are going to continue to ramp up Sun paper and filler satellite in the beginning of this year which will improves some PCC volumes.

And we tripled our Resistex sales this year and we look at that growth continuing, especially as we start to introduce some of those products into Asia. So, I think there are a lot of good things going for the company to start generating some revenue growth and I think that will yield higher earnings in 2017..

Great, I appreciate the color as always..

Thanks Dan..

Our next question comes from Silke Kueck with JPMorgan..

Good morning.

How are you?.

Hi, Silke..

I was wondering whether you can quantify how big your business in China is now as a percentage of sales and if you were to grow does that require any additional capital outlays or hiring and the rate SG&A expenses maybe you can comment on that?.

Sure. That sales in China is about 15% of the company sales right now, but it's growing as I said about at a 10% pace on an annualized basis. So it’s becoming a relatively sizable portion of the company.

When I talk about developing the organization there that will require some overhead expense in SG&A, but the way we look at things in the company is we manage our total overhead expenses to the company’s growth rate, so we will be moving and shifting where we always have been doing this.

As we shift resources from areas that may not be growing to those that are. So we’ll manage that expense control or manage that expense outlay, but it will require some broadening of talent to better support that growth and accelerate it even in China. Capital, it will require capital.

We are - the two main areas of capital expenditures for growth will be in the performance materials and the paper PCC business as always has been. No real capital needed, very small capital needed for construction technologies. We've got plenty of capacity around the world and in China right now.

So, but it will be more for new technologies in the paper PCC business and in performance material..

Thank you. .

You don’t sound very good Silke..

No, I’m on the upswing so I am unable to ask questions again which is good.

Do you have a cost saving target 2017?.

A cost savings target for 2017, well we don’t have, we do have targets. We set them internally. We set actually pretty tall stretch targets for Doug Mayger's team who runs our supply-chain group. This year we probably had about $10 million to $13 million worth of across-the-board supply-chain savings.

Where we plan the company Silke is, when we plan our business units and operating income we do one thing very standard. We build into our forecast a 10% per year productivity improvement and 3% variable cost improvement in each of our businesses that’s the target.

Expense savings, we look at it based on the business and where it's growing and what it needs, but on an operating basis we target those levels every year. Now what that's yielded is about 3% variable cost savings and a 5% productivity improvement on average every year for the past six years.

So those are our targets and they are kind of standard, but we did, we do have some supply-chain targets as well. This year will be a little bit more challenging with energy costs are flattening out we've participated in some energy savings last year, but we do have those targets as well..

In terms of D&A and CapEx how much D&A did you spend or what was the D&A expenditures in 2016 or what do you expect for 2017? And similar for CapEx I think for 2016 you thought you wanted to spend $80 million to $90 million and then you had enough spending 62 what do you think you may spend in 2017?.

Yes D&A Silke, is $92 million in 2016, CapEx was you are right it was only $62 million this year. We expect that to probably be around $70 to $75 million next year. Really it is dictated, it is really driven by paper PCC.

We built, we finished building one satellite plant this year and so that will be, the increase will be if we start to build satellites but that probably won't be until late if at all next year..

Okay and two more questions if I may.

In terms of your up warding cash flow or is there like a working capital headwind in the fourth quarter versus last year and that is your operating cash flow its lower than it was last year in the fourth quarter even though the net income is somewhat comparable or actually better?.

Yes, we had actually we did and we mentioned that on the last call.

We had some - working capital is a challenge for us this year, especially in the first part of the year we had number of payment terms extended on us, particularly in energy services and steel as those, our large customers kind of inflicted some changes on us that drove up our working capital.

We took some actions towards the second half of the year though some of that those receivables were extended. We tried to offset that with payables and works through some inventory reductions.

We did make some progress in the fourth quarter, some good progress on inventories and improved our outstanding collections, but it was something it was more of a draw this year than last..

And what’s your working capital change expectations for next year?.

So working capital, I get it, I can give it to you on a day basis. We typically run around 90, 97, 92 days, so we're looking to get ourselves back to where we were, I don’t know the exact numbers, Mike I think in 2014 we were around 92 days. So I think we’re up about six days in total working capital as a company..

And lastly, there was like a fair amount of currency headwind that you had stood this year and probably even little bit and so that was current year it was some 2016 probably even at the end of 2015 and all of that probably took away from what your productivity savings would have looked like if you didn’t have these currency headwinds and how much leverage do you expect if currencies begin to flatten out?.

Well, I can give you is from over the past two years our sales foreign exchanges impacted our sales negatively by $135 million. That's impacted negatively operating income by about $18 million to $20 million.

So as we stay here, I'm not making any predictions on where currency is going, but if you go back to 2014 that’s the kind of leverage you're looking for..

Thank you very much. I’ll get back in the queue..

Yes..

And we’ll go to Rosemarie Morbelli with Gabelli & Company..

Thank you, Good morning everyone. Congratulations and thank you for this very good dissertation and what’s you are planning to do..

Thanks Rosemarie..

I was wondering you mention new products as one which has always been, one way of for Minerals Technologies to grow and you said that, that a few of them were becoming, were getting close to commercialization.

Could you give us a better feel as to where those products are? Where they are going and what kind of revenues you anticipate three years out?.

Well let me answer the last question first and then I will give you some color. New products constitute new products that we've launched over the past five years constitute about 12% of the company sales today.

We've got of those products 83, 85 new products and they have the potential, the gross potential of about 300, a little over $325 million in total sales of things that we've launched that are still kind of developing. What I mentioned in terms of development of new technologies there are in areas in the paper PCC business.

We’ve developed; we’ve launched our NewYield product last year. NewYield, that was the first facility with Sun Paper and so we worked through, if that technology at that location and has made it more robust over the past years. So that has matured as though it was commercialized it is matured.

Our geosynthetic clay liners like Resistex have also matured. We've deployed them through number of red mud containment bounds as well as coal ash and we've refined that product even further over the past couple of years and it has become more robust.

Okay let me let Rand Mendez give you a little feel for some of the technologies in paper that he is seeing trial activity on those that have been maturing.

Rand?.

Yes, that’s right Doug, well as you know we have a good technical capability for coating of high-end packaging, but beyond that, beyond producing glossy coating with our PCC product, we have other technologies with Fulfill and NewYield that we're pursuing into packaging and Fulfill and NewYield can provide strength, light weighting, fiber displacement, all of these properties are important in the packaging market and we have similarly good active opportunities there.

In fact these opportunities are not just in China they’re currently active in all regions. Further out, we have some new technologies in addition to Fulfill and NewYield that we’ve not announced yet, but they are advancing in Asia and in fact the rest of the world as well, so beyond PCC several good developments there..

Hi that was some other technologies in the performance materials, Rosemarie [indiscernible] light weight litter.

Why don’t I let Gary give you a little color on those?.

Yes, hi, Rosemarie. On the lightweight litter I know you've asked about that the four, that's been a product that we commercialized really just over the last year here in the U.S.

and it's been pretty successful in terms of the traction in the overall market, the space within the space in the cat litter category lightweight litter now was about 12% to 50% of their retail dollars. It's held steady at that level. Our customers have principally large mass merchandising retailers.

They are getting a private label product on the shelves as we speak and we’ve seen pretty good development of those markets as we go along. So we're still at the small end of in terms of what the value is, but the rate of growth looks quite promising. But beyond the U.S.

we're really looking at that lightweight litter technology that we have and in the capabilities we have to move for quickly into China and other parts of Asia to introduce that product.

The whole idea of domestication of pets in that category is rapidly changing in that emerging market area and we’d like to really jump fast into this type of product into that region we think it makes a lot of sense. So we’re pushing very heavily and then like to think it will be introducing a product in China by the end of this year.

In terms of the Intersoft area, which again is our crop health attitude, we have distribution now well established in key geographies principally Brazil, China, India and of course North America. Some areas of that are influenced by crop prices like we are seeing today.

However, on a number of different smaller crop areas, fruits, vegetables principally we’ve seen very good trial data and ambiguity to get more each year into broadening our distribution in the key geographies and then once the key money crops begin to recover, we see a quite substantial growth potential beyond that the base we have today..

What are they replacing, are they replacing fertilizers? I am not an Ag person..

It’s not a replacement, it's an enhancement and in some cases we in many cases now what we're really doing is called formulating our particular attitude with the micronutrients that are used for in soil additives, so we're sort of compatible if you will with existing macro micronutrients..

Okay, now that is helpful thanks.

And what do you mean Doug by those products are matured, I mean they were just introduced in 2016, I am not sure I understand what you mean?.

Well, I guess I’m referring to as our technology pipeline. So two things, one, we operate our technology development in the stage gate process.

So every year we have a number of and we will probably show this to you in the next couple of calls, but we will highlight, the new technologies that are coming in and the ones that are moving through and the ones and the ones that we've developed that have matured another year that are becoming ready for commercialization.

So with any new product and they evolve as there are out in the market and we enhance them and we make them even more effective once we see how this worked with number of different customers.

So, I think it's those that are in the pipeline have matured another year and will be commercializing this year and those that are already commercial that have been enhanced and changed and developed for a broader customer base that’s kind of what I mean by the matured..

Okay, so it just means that they are in the marketplace and they are now beginning to generate revenues..

Yes, both and about to be in the marketplace..

Okay. .

The other thing I’ll let you know that we mentioned some of the produced water technologies that are taking hold and the energy services, we've got some new laser systems and other refractory formulations as well and refractories.

So there is a number of fronts, but we see new products contributing to growth in 2017 and part of my I guess dissertation as you put it..

Thanks and find a better word, I apologize, it was a fun one..

Felt like it I guess, but it is, some of the changes, the organizational changes that I intend to make are kind of getting a little bit closer to those customers and making sure we have the points with those customers because really understanding how these things are working and quickly making decisions and quickly enhancing them and so just speeding up that communication with these new products are some of the things that I think can help us go fast and that’s what those, that's what I referred to in terms of organizational changes that I think will help the growth trajectory..

Okay, yes thank you.

That is very helpful and just lastly, if I may on the chromite does it have a substantial, substantially higher margins in your other product lines looking at the results with the higher sales of chromite?.

They are good margins Rosemarie and it’s really driven by the market price of chromite.

So, we have a general and fixed mining cost, so that we're price takers in the market of chromite, give you an idea, chromite prices beginning of last year were around $100 a ton and they climbed to almost $340 a ton late this year, so very quick climb and that's, that's what we're participating in..

And what is the reason for that climb?.

It’s really driven by demand in China. So, over the past two or three years' stocks, market has changed a little bit. May be I'll let Gary give you an indication what changed three years ago, but it is driven by consumption in China right now..

Yes, Rosemarie the situation that this chromite is used ultimately in the - to produce stainless steel. So a lot of more consumer as well as at some industrial areas, so that demand has continued to be fairly strong in China particularly and China must purchase all of the raw materials that go into, ultimately into producing these goods.

So the chromite that comes from South Africa where our mine is approximately 70% of that supply going into the country and essentially what’s happened over time is there's been a rebalancing of the grades of the chromite going into the country and that rebalancing is more favored the type of mineral that we have at our disposal.

So we're definitely riding that wave. That wave goes up. It definitely can come down. So, but at this time, and for certainly a foreseeable future we see a fairly positive outlook, but it is a volatile, it can be a volatile end market..

Okay, thank you very much. I appreciate it..

Thank you. [Operator Instructions] Mike Sison with KeyBanc has our next question..

Hey guys. Doug, I appreciate your opening comments there and in terms of what you plan to do.

You did mention that EPS growth over your over time has been pretty good 12% when you think about sort of a three to five-year goal for Minerals Technologies, what type of growth do you think you can continue to generate there on EPS or top line or maybe some metrics on a three to five-year plan and I thought just I know your sort of just starting here..

I appreciate that Mike. Look, we usually don't guide out even a year, so I'm going to hesitate to give you numbers out three to five years.

I do think though that the company has the potential at least the minerals segment of the company has the potential to grow the top line with traction and again it may not be linear, but has opportunity to grow 5% to 6% range.

The challenges we’ve had over the past couple of years in terms of our topline have really been two things, really the services businesses, energy services and refractories I mentioned over the past two years about $230 million of sales decline in foreign exchange.

But I think that growth as it's now stabilized and will turn the other direction, I think with those growth trajectories in the top line are possible over the next five years.

And I think that will yield even higher levels of earnings growth on the bottom line and that's because we, our ability to turn a dollar revenue into very strong profits I think is evidence and so I think over a longer period of time that 10% type earnings growth albeit it may not be linear on a compound basis over the next 5 to 10 years is possible..

Okay, great and then for paper PCC, you talked about trailing activity, can you walk us through sort of the timing there and how that works into potentially adding more satellite capacity over time?.

Sure the trial activity, it's actually quite a long sale process it requires, what it requires most is time on the machine and when you're trailing so, first understanding the needs of the customer, understanding the pigment they are using, the paper grades that they are producing understanding how PCC can help them in terms of enhancement of quality and paper and saving costs in terms of pulp, I can give you the quick equation.

PCC is a direct one for one replacements for pulp. Pulp if you are making it averaged $350 cash cost and we sell PCC for $120. If you're buying pulp you are probably paying $800 a ton and we're selling it to you for $120 a ton. So there is a big cost advantage.

Now, not so easy, you have to make sure the paper works, it works within the chemical systems and on that machine and that’s the trial activities. So, first, it is understanding the value equation for the customer.

Describing that value equation and then getting time on the machine and it's been difficult to get time on machines in China and Asia the past year due to some of the dynamics that have been changing over there in terms of paper and supply and with Indonesia with a lot of paper that's come back from the U.S.

into Asia it's circled its way through India, Indonesia and China that's made it difficult for us to get time on those machines. Once you get time on the machine and that may be scheduled out a number of months, it may take a month or three-week trial and then some feedback and it may take another trial.

But once – and then we've seen this over the past 25 years, it's almost always shown that PCC is a higher value pigment saving money and then it begins - gets into what type of capital required to put a satellite on that location and then how we negotiate kind of 10 to 15-year commitment by both parties and that's not something taken lightly by either side getting together and putting a satellite on site of a plant and being there.

I think the average lifespan of our satellites right now are almost 20 years. And when we're doing these things we are there for long periods of time as partners with that customer. And so that cycle takes time and that can take a year in some instances and that's what's happening right now..

Right and then last question, Doug. When you think about acquisitions that you're focused on you've got all four segments have very good profitability and your service used to and maybe as those energies bounce back here that will as well.

But when you think about what makes more sense to add to the growth of your company, any particular areas of focus near-term?.

Well, I think certainly in the minerals based businesses is where we'll focus acquisitions. We've always had a - our template has been minerals based, but minerals that have a technology component or something that we can apply our technologies, mineral technologies to make them value-added constituents in whatever they go into.

I think with a bentonite based set of businesses it provides us avenues in that mineral, but also in the markets that are in metal casting, consumer products household personal care, those markets and that mineral provides an area and platforms for those growth same with the carbonate side.

And in our Specialty Minerals segment we have opportunities for growing in the specialty segment and also in further development of those minerals around the world.

So we have both market type platforms that we can move into and also mineral type platforms and it doesn’t necessarily have to be bentonite or carbonates that we look at, but something that is also parallel in a market that we currently serve maybe in another mineral and that's what we looked at when we bought AMCOL with bentonite.

So I think I gave you kind of a two-dimensional kind of power for where we can explore, primarily it will be in the minerals businesses..

Great, thank you very much..

Yep..

Thank you and we have a followup from Daniel Moore..

Thank you, Doug. Your comments and the last comment just sparked a thought. Just as you talked about what you'll keep and what's different, in terms of M&A strategy bolstering reserves has been a key goal.

Will you think about – in the past everything you've done has been materially accretive in a very short period of time, how do you think about balancing near-term earnings accretion with the opportunity that sort of bolster reserves over a longer period of time going forward?.

Well, absolutely I think making sure that we have the reserves around the world to support the growth in the regions that we're growing and their current based business. So I don't - sometimes I don't think about acquisitions that are necessary ongoing capital to sustain the business long-term.

So with that and that may come through acquisition in terms of buying a position that comes with those reserves. What I think of is I balance obviously the shareholder value creation of the acquisition.

So it really depends on what it is we always we tend to look for being accretive right out of the gate, but if something wasn't or was neutral, it would have something in there that generated a significant relatively near-term cash flow improvements for us to want to buy it.

We're pretty disciplined about how we look at acquisitions and how we value them. We value them from many different angles and I think we've probably seen historically we've been pretty disciplined about how we go about that..

Indeed, I appreciate it, thank you..

Yep..

And with no additional questions, I'd like to turn the floor back over to our speakers for any additional or closing remarks..

That concludes today's conference call. And thank you for your interest in Minerals Technologies and have a nice day..

Thank you. And again ladies and gentlemen that does conclude today's conference, thank you all again for your participation.

And gentlemen, is there anything else I can do for you?.

No, we're good Kathryn, thank you very much..

You are welcome. Have a lovely weekend..

You too..

Thank you..