Materion Corp (MTRN) 2007 Q1 法說會逐字稿

Greetings, ladies and gentlemen. Welcome to Brush Engineered Materials first quarter 2007 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Hasychak, Vice President, Treasurer and Secretary of Brush Engineered Materials. Thank you, Mr Hasychak. You may begin.

Good afternoon. This is Michael Hasychak. With me today is Dick Hipple, President, Chairman and CEO, John Grampa, Senior Vice President of Finance and Chief Financial Officer and Jim Marrotte Vice President and Corporate Controller.. Our format for today's conference call is as follows. John Grampa will comment on the first quarter 2007 results and the outlook and Dick Hipple will give a market update. There after, we will open up the teleconference call for questions.

A recorded playback of this call will be available until May 11, 2007 by dialing area code 877-660-6853, account number 286 and conference I.D. 237722. The call will also be archived on the Company's web site, beminc.com. To access the replay, click on quarterly earnings conference call under the investors page. Broadcast requires RealPlayer software, which is available as a free down load from the icon as indicated. Any forward-looking statements made in this announcement including those in the outlook section and during the question and answer portion are based on current expectations. The Company's actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings release issued this morning. Now I'll turn it over to John Grampa for comments.

Thank you, Mike. Good afternoon, everyone. Welcome to our first quarter 2007 earnings teleconference. Thanks again for joining us today. As in the past, I'll review the financial dimensions of the quarter and then comment on the outlook. Following my prepared comments, Dick Hipple will provide a brief business update and market update. Then we'll open the call for questions. I'll attempt to adequately reinforce and expand on the key points that were made in the press release today, especially those that are related to sales growth and the margin gains. I'll also review the effect that the increase in our stock price had and the sale of the ruthenium inventory had on our results as well as the factors driving the year-over-year change in tax rates. Then I'll review the outlook, including the current status of the factors behind the previously announced significant increase in our outlook for the year.

Let's begin. As you know, this morning, we reported sales and earnings that were consistent with the expectations that we had published coming into the quarter excluding the additional profit on the inventory. Sales for the quarter were up 49% or about $83 million to the $250 million level, which was a new quarterly high. The previous quarterly high was actually the previous quarter, the fourth quarter of 2006. This was the 17th consecutive quarter where sales were higher than the comparable quarter of the prior year and the third consecutive quarter where our sales growth actually approached 50%.

Reported net income was $1.12 per share, however, excluding the effect of the profit on the inventory, and the loss on the sale of substantially all of the assets of a small company subsidiary, net income was $0.62 a share and more than doubled at $0.27 a share earned in the first quarter of the prior year.

I'd like to call your attention to five important factors that affect the quarter's results and the year-over-year comparisons. The first was metal price inflation or said differently, that portion of both precious and nonprecious metal price increases that we were able to pass onto our customers in the quarter had far less of an effect on the reported sales growth than in recent periods. Approximately, 6 percentage points of the reported 49% growth is metal price. Thus real growth, or organic growth, if you will, was approximately 43% in the quarter.

Secondly, earnings were negatively affected by higher expenses for the Company's stock-based deferred compensation plans and long-term incentive compensation plans that are stock-based. Changes in the Company's stock price affect the recorded expense for these plans. The significant increase in the stock price that occurred in the quarter raised the expense from these plans and reduced earnings by approximately $0.08 per share compared to the prior year.

Thirdly, you'll recall that during 2006, we worked to dramatically reduce or eliminate the effect of changing metal prices on our margins. Especially changes related to copper prices. We made good progress with these efforts, especially in our international markets. And by the end of the year 2006, we were 90% effective with our new pass-through model essentially eliminating the effect of changes. The good news is that this continued throughout the first quarter. Further solidifying the new practices and the resulting higher margins. This helped raise margins by over 4 points in our copper-based alloy businesses.

Fourth, while the first quarter gross margin was 28%, up approximately 8 percentage points compared to the prior year, about 7 of the 8-point increase relates to the profit on the sale of ruthenium inventory, that had increased in value significantly, while in our production system since late 2006 to support the start-up and ramp up of the new media-related products. The 21% gross margin excluding that improvement is a more normalized measure of the gross margin one should expect from the Company given the new mix, which includes a significant volume of new high-priced rare metals in the top line. In our company, operating profit percent is a better measure of profitability progress than is gross margin. Given the precious metal and again other expensive metal content now in the top line. Operating profit percent was 8.3% in the quarter without the impact of the sale of the ruthenium inventory compared to 5.3% in the first quarter of the prior year. A full three-point increase.

The fifth factor is the reported change in income tax rate. The four-point increase in the reported rate affects the year-over-year comparisons. The rate change compared to the prior year is principally due to the significantly higher level of income as well as the reduction in foreign source income benefits. The reduction in foreign source income benefits is tied to some statutory changes and some non deductible losses in our foreign start-ups. The non deductible start-up losses will become usable as the start-ups begin to generate income in future periods. The additional tax in the quarter was approximately $1.5 million due to these factors or $0.07 a share compared to the prior year. Due to other known changes, we expect the tax rate for the balance of the year to be closer to the 35% rate we shared with you as our forecast for the year at the beginning of the year.

I'd like to review four additional points before moving on to the business and the outlook. First, our international business was 48% of the Company in the first quarter. Obviously, the highest level ever. This was driven by the new ruthenium based new media materials, the majority of which is shipped to customers in Japan and Singapore. And that brings me to the second point, approximately $55 million of our growth in the quarter was due to growth in media. Our remaining businesses grew 16% year-over-year.

Third, as we noted in the press release, we sold a small company business. The business, a circuits business located in Southern California was nonstrategic with sales well below $10 million a year. We recorded small losses in this business in the quarter, and a small loss on the sale of the business. The sale eliminates those losses making the transaction effectively accretive almost immediately.

And fourth, our already strong balance sheet remained very strong in the quarter. Debt in total remained at -- debt to total capital remained at 15% in spite of an increase in inventory receivables of over $25 million to support the growth. We expect significant positive cash flows in the coming quarters.

Now turning to the business and to the outlook. Dick will provide you with a market update in a moment. As most of you well know, we've made good progress over recent quarters with our new products, our efforts to penetrate new markets, our global expansion initiatives and our initiatives to improve margins. We've executed very well. The progress has brought with it significant growth in sales and profits, especially in the last four to five quarters. We believe that the Company's global markets will continue to present double-digit organic growth opportunities throughout the remainder of 2007.

The year is off to a stronger start than we had been expecting coming into the year. The primary factors driving the previously announced improvement in the outlook for the Company continue to be favorable. Markets overall have held up well, and inventory corrections to this point have been very mild. The noted margin improvement appears to be holding, and as the year progresses, the Company expects sales of the new media products to continue to grow and overall stronger second half market conditions driven by the normal seasonal build for consumer electronics. These factors plus an increased backlog for defense-related applications are currently expected to result in a stronger second half revenue for the Company.

As a result of these factors, the Company is essentially reinforcing the previously provided sales outlook. Assuming no change in these trends, sales for 2007 are expected to be in the range of $950 million to $1.050 billion. The high end of the range is raised by $50 million from what we published previously.

The second quarter of 2007 is currently expected to be similar to that of the first with sales expected to be in the range of $245 to $255 million dollars, up between 30 and 35% compared to the prior year. Excluding the additional profit on the inventory that was in the production system to support the initial ramp up of the new media-related products, earnings for 2007 are currently expected to be in the range of $2.20 to $2.75 per share. The low end of the range has been raised by $0.20 to $2.20 from $2. For the second quarter, the Company currently expects earnings excluding the inventory benefit to be in the range of $0.50 to $0.65 per share, up approximately 40 to 85% compared to the second quarter of the prior year.

I think it's important to reiterate and to note that the Company's sales and earnings estimates for both the second quarter and the full year remain subject to significant variability based on metal prices and metal supply assumptions as well as significant fluctuations in demand levels driven by macro economic factors, inventory corrections and new product ramp up rates in critical markets such as the magnetic media market. The outlook for the quarter and the year are based on the Company's best estimates at this time and are subject to significant fluctuations due to these factors. Now I'll turn the call over to Dick Hipple.

Thank you, John. We certainly got off to a great start this year, and I'm particularly proud of our organization finding ways to bring strong organic growth across the globe while expanding our margins in O.P. percentage. We are on track with our Brewster expansion for media markets and opening of our operations in the Czech Republic and Suzhou, China. As John mention, the three key factors driving our improved results were the ramp up in the media business in WAM, the completion of our efforts for pass-through copper pricing in the alloy business and better business conditions in our BE products group, primarily from stronger defense bookings and an expansion of our high BE commercial products.

Current market conditions are in flux which cause us to be cautious in our second quarter forecast, although it is substantially stronger than last year. As you are well aware from recent industry reports, cell phone sales have slowed from a 20% growth rate to a 10% growth rate, which is resulting in some inventory adjustments, particularly in our alloy strip sales. The auto build rate is down and the hard disk drive market is going through its seasonal slowdown. Our heavy industrial markets such as defense, aerospace, oil and gas and heavy off-road equipment all remain strong along with our telecom infrastructure market.

Given all of these factors, we expect our second quarter results to be similar to the fist quarter and look forward to better overall seasonal conditions in the second half from consumer electronics and additional growth from the ongoing ramp up in our magnetic media materials to support the hard disk drive producers in their PMR technology change out. Now, moderator I'd like to now open it up for questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Avinash Kant with First Albany Capital. Please proceed with your questions.

Good morning, Dick and John.

Good morning.

A few questions. The first one, of course, is related to the backlog that you talked about, that you feel is pretty strong right now. Could you give us an idea how much of a backlog you have at this point and maybe how much of that is from defense?

This is Jim Marrotte. We don't have the total right here. What we can say the defense backlog is at a very, very high level. In fact, we haven't seen levels like this since we go back to the Cold War days of the '80s for our defense business. Obviously, other portions of our business are looking strong. We had the order entry rates slow a little bit in the markets as Dick referred to earlier but our overall backlog is looking healthy.

Okay, and recently on its conference call, Texas Instruments talked about cell phone demand now reverting back to the high end cell phones. Have you started to see that?

As I mentioned, we're seeing what we believe to be an inventory correction at this point in time, but we do expect to see, you know, a stronger second half. I've talked about that many times in these calls. The cell phone rates were at around 20% growth rate. Any time you'd have a shift from 20 to, let's say a 10% in a growth rate change, your going to have an inventory adjustment occur within, say, a quarterly time period. That's what I think we've seen.

The last question is on ruthenium. Of course prices of ruthenium have gone up significantly and there is a discussion that maybe people would like to go to some other material if they can. What's your comment on that? How feasible do you think it is, and if at all, how much time would it take?

First of all, the price of ruthenium has been swinging around. In fact, it's come down about $200 an ounce since the last call that we had. Still it's a relatively high prices. I think everybody's working hard to try to minimize the use of ruthenium in the disk layers. We're certainly working with our customer base on that technology. But I still think that it's a substantial time away before ruthenium would be able to be replaced. There's not an exact technology replacement at this point in time. It's being worked on but I don't see that as any kind of a near-term move.

Thank you. I'll come back if I have more questions later on.

Our next question comes from the line of Anthony Sorrentino. With Sorrentino Metals Please proceed with your question.

Good afternoon, everyone.

Good afternoon.

How is the expansion proceeding at WAM's Brewster, New York facility.

It's on schedule and we expect to be up with our production capability early in the third quarter.

Okay. And is it on budget as well?

Yes it is.

Okay. That's good. With regard to the defense market, do you have sufficient capacity to meet the defense market demand?

Yes, we do. Any time you get a fast ramp up, our lead times have stretched out a little bit, but we're working on those areas where we have bottlenecks and we've got a very good proven track record to be able to address our bottlenecks and continue to supply the market base.

Very good. Thank you very much.

Our next question comes from the line of Chuck Murphy with Sidoti and Company. Please proceed with your question.

Good afternoon, guys.

Hi, chuck.

Just wondering. Obviously, Williams did very well during the quarter. Just wondering how you felt about the performance-- of the rest of the segments, what you were thinking going into the quarter and how it actually turned out?

I think looking at the balance of the segments, I think we're quite pleased with the alloy performance if you can see the year to year there. We've seen a nice increase in profitability, again, a lot of that driven by a little bit better mix. The copper pass, we are finally kind of getting it all, at this point in time. I'd like to have seen a little bit stronger sales in the cell phone areas. I'd like to see a little bit stronger strip sales but overall, I think we were pleased with the performance there.

In the case of BE products, we were pleased we that performance. We saw as we mentioned earlier a very strong backlog and if you compare year-to-year performance there, it's much stronger than last year. The only division that we weren't totally happy with, was the TMI division, and they were primarily impacted by slow automotive -- they're still very much tied to the automotive market. Although that's a small piece of our overall impact for the company but for that division, automotive is very important. I'm not sure whether I had mentioned it, but the overall auto build in the United States versus last year is actually down around 10%. So that impacted their performance because they did fall backwards as to where they were last year.

Okay. The other question kind of since you mentioned BE, what exactly is driving that surge in sales?

Well, that's a couple of things. We actually are big in the defense area. We've just seen a very strong across the board bookings in defense. It's very, very strong.

What types of projects will you be talking about there?

There's both projects on satellites and projects on, let's say, forward-looking infrared devices. Those are the two big areas. And the FLIR systems as we call them. That's going on both aircraft and unmanned aircraft for data collection and optical devices.

The other thing that we're really pleased with is part of the B products division outside of even defense is what we call our electrofusion unit. They supply specialty products in the X-ray windows and also beryllium speakers, which very interesting, very high end speakers and we're seeing that market take off. We're also seeing the X-ray market, which typically has been a medical market for us where the best materials for X-rays for, like, mammography but we're seeing some growth there is that due to the new environmental regulations there's these new X-ray devices that are used to monitor constituents within products. So we're going into a much broader -- I wouldn't call it a commercial application but a broader industrial application for Ross and Wii devices to analyze chemical constituencies and products. That's a whole new application for us. So we've seen some real nice growth there. So it's both on the commercial, primarily a defense side. That business is about 70% defense and 30% commercial. We're actually seeing some nice growth on the commercial side, too.

Just out of curiosity, why would you need a Beryllium speaker?

For those that have excellent hearing, apparently it actually is the best acoustical device to respond for accuracy for acoustics.

Wouldn't that be really expensive, though?

Yes, it is.

Okay. All right. And my final --

You know, there are little headphone speakers you can spend $400 on.

Okay. Final question is, what did you say was the growth in the media area?

Well, actually, we didn't speak to the growth in the media. We said that the dollar increase due to the new media ruthenium product was $55 million year-over-year.

Thank you.

Our next question comes from the line of Mark Parr with KeyBanc Capital Markets. Please proceed with your question.

Hey, thanks, guys. Hey.

Hi, Mark.

How are you doing?

Good.

Better than your stock today. Holy smokes. I don't know what to say. I thought you guys had a great quarter, and I guess I'm looking at a couple of things. I think you had given a revenue guidance range back in February. I think 250 was the low end. Is that -- am I correct in that memory?

That's correct.

Could you talk a little bit about, what you were thinking back in February and then how the actual revenue number unfolded for the quarter?

Sure, Mark. Actually, as you well know, we do see movement in the revenue from time to time and substantial programs can get moved out just by a couple of weeks and affect the number. We in that estimate, at the low end of that estimate obviously we're at, the higher end of that estimate had a little more media material in it.

Okay.

It also had an undersea program being shipped in the quarter. It also had a shipment to the joint European Tores project, the fusion experimental reactor to be shipped in the quarter.

Okay.

As we moved into the latter part of the quarter, some of the undersea material which is related to a line that is being put between Japan and Russia was by the customer moved out, delayed. A piece of the joint European Tores order was actually again by the customer moved into the third quarter, and there was a media delay by one of our media customers who we believe was inventory correction on his part that was, frankly, moved from the first quarter into the second quarter. So we ended up a little lighter than we thought we might be, on the low end of that range, due to those three factors and this does happen in our business.

Right. I had a sneaky feeling that there might be some defense-related or large project related--

The large project -- obviously the undersea is a project as is the joint European Tores project.

Right, right. That helps to explain it. Those are not lost revenues. Those are just things that'll show up later in the year.

Sure.

And then I guess the other thing that was actually very encouraging to me, and again, if you look at the tax rate, I think you had envisioned at the time you gave guidance, which was in February, the actual accrual that you used higher by I think you said $0.07 a share?

That's year-over-year. We had expected the rate of 35% for the year.

Okay, but I'm just talking about for the quarter.

For the quarter we expected 35 as well and came in a little over 36. Compared to the prior year we were up four points. Last year we were at 32 points in the quarter; that's correct.

So you lost a couple of pennies on the tax rate. You lost $0.08 on the stock appreciation. So let's call that a dime.

Fundamentally says margins were a little stronger.

Even though the revenues were a little light. And you look, you would think the margins on stuff like that fusion business and the margins on those repeater housings, I mean that's all very high margins, very proprietary business to you guys.

That's right.

So even excluding a lot of high proprietary, high margin business, your underlying profitability was actual better than you thought this the first quarter. Is that fair to say?

I would say that's fair to say.

Could you talk a little bit as to what is driving that, whether it's mix or whether you guys are just getting better at what you are doing, or got higher volume, you got better overhead absorption, could you give us some color on what's driving that better than expected profitability?

Sure; a couple of things, Mark, and you hit on all of them. One is mix. Mix was a little stronger in the first quarter. A second one is the ongoing success of the copper pass-through. We continue to get not only what we expect but then even then some. And third factor -- ongoing productivity improvements itself. And of course the fourth factor, the higher volume.

Okay. All right. So that's all helpful. And so, I guess what you're saying is that the response of your assets to this significant increase in volume momentum was better than what you had forecast. Is that fair to say?

I would say it's fair to say, and I think if you go all the way down to the operating profit percent and remove the ruthenium benefit from the material that was in the system at year end and you see a 5.3% margin rate, moving to an 8.3 year-over-year and you see a 6 moving to an 8 in the subsequent, 8.3 quarter-over-quarter, it speaks to the point that you're making. I'd have to say, yes, the market price dropping the way it did today, who knows what happens in these markets? We're just as surprised as you are.

There's been profit taking in a lot of the names. The magnitude of the sell-off is maybe a bit unusual but I think the magnitude of your upside was also a bit unusual. But I don't know how -- you know, day's not over yet so we'll see how this works out. One last thing, if I could, could you try to address for us given the significant change in Williams' growth outlook here over the near-term, what should we be thinking about in terms of a normalized margin for Williams.

You say normalized margin? You speaking about the operating profit margin in this segment?

Yes.

I think the mix of the first quarter is probably a fair mix, to be thinking about it. We'll move around depending on obviously metals and what metal is in that top line. From a percentage perspective. But if we hold to that first quarter mix with that ruthenium in the picture that's probably a fair number. You'd have to adapt that I think, Jim, correct for the one time benefit?

Yes.

Can't call a one-time benefit because we're going to have more of that material flowing through, but you would have to adapt that number for the $16.9 million or so of benefit that flowed through, that top line and that bottom line.

Okay, terrific. Hey, look, congratulations on a fantastic quarter. I look forward to see what the rest of this year's going to look like. Amazing.

Thanks, Mark. Appreciate it.

Our next question comes from the line of Bob Schenosky, with Jefferies and Company. Please proceed with your question.

Good afternoon, guys.

Hi, Bob.

Just a couple quick ones. On the ruthenium, that 16 million and change that was a direct flow through revenue to operating income, right?

That's correct.

Okay.

Well, Bob, the way to think about that again as you well know that is the difference between who we bought that metal for, late last year and what the market price was when we sold it this year.

Correct. Right.

(Multiple speakers) -- flow through to the bottom line.

Right. Just following some of Mark's question. Especially given the stock today. I just want to get a full handle on this. Just pick out a number in terms of your range, say the 250 number that's out there in the middle of your range. If you were to look at what drove that number in December and what would potentially drive that number today, has anything changed in your mind to get to that level?

Well, obviously, if you take that range, the fact that we think sales will be a little stronger and we've raised the bottom end of that range, obviously we're feeling a little more confident with the range overall. We've tightened it, and while we haven't raised the upper end, we've tightened it. For that to occur means that we've got one quarter behind us of observing of what's going on inside the ramp up of the media business, one quarter more behind us in observing what's happening with the copper price pass-through and the level of business inside our Beryllium copper business as well as the backlog that's developing inside Beryllium products.

So if anything it's -- we're one quarter or three months closer to sort of the end of that of this year with a readout on the progress we're making as well as the progress the market's making.

Just one more. I know this might be a little difficult to answer directly, but you had so much more product sales in the first quarter, around 50 million I think. As you progress, is there a way to get a sense of say that 50 million, of which would be dependent upon increases in demand of an end market versus let's say your new product that goes into storage where you are basically starting from zero as it's a replacement product for something else?

I think if I understand what you're saying, and Dick will expand on my comments, I think, Bob, we probably have to start talking about ruthenium and media separate from the rest of our new product initiatives given the magnitude of it.

Yes.

So if you gauge the ruthenium ramp or the media ramp at $55 million year-over-year in the first quarter, you look at the rest of our key initiatives, I believe that for example the ToughMet products grew by, what percent was it, (multiple speakers)?

ToughMet grew up another 25% in pounds and 68% in sales for another example.

That's another example. The disk drive arm business at T.M.I. grew.

It's probably up another 30, 40% (multiple speakers).

yes, so all of those initiatives - .

It's hard, but they pale in comparison but we're still on track with the other initiatives and we've had to grow some great new applications.

Okay. Because I think there's a misunderstanding to some degree if I'm correct in my statement here. There's a perception that you're necessarily reliant, in some of these products, on the actual volume change in that end-market versus you offering brand new products in the market where you can grow those business off a very low base, and that's why you're able to sell (multiple speakers) - .

That could very well be. We attempt to reinforce over and over again that we are designing new products for new markets and new products for existing markets, and we're chasing the highest growth applications inside existing markets.

Our objective is to grow stronger than the strong markets that we've targeted.

Right. And with the change in business model that you've seen with a lot of these specialty applications, in the back half of the year you have really outgrown to a great degree the normal seasonality of your old historical businesses. Is that a fair comment?

Yes.

Yes.

Thanks for your time.

Thank you.

Thank you, Bob.

Our next question is a follow-up question from the line of Avinash Kant. Please proceed with your question.

Good morning. Trying to follow up with this one. You did mention during your comments that you do expect revenues, if I heard it right, to grow sequentially throughout the rest of the year, is that right?

I don't think we said sequentially to imply each quarter greater than the previous quarter but we do expect a stronger second half than the first half. And that's what we said.

That's on the top line basically assuming no changes in material prices, right?

That's correct.

A little bit more on the ToughMet. You give some numbers here. What kind of growth are you seeing in ToughMet and what do you expect on an annual basis? I think it was a small part of your revenue last year, I believe not more than 15 million or so. Where do you expect it to grow this year?

Well, we haven't announced it but we've been growing at a rate of 40% a year as we just mentioned. From a pound standpoint we're growing about 25% and sales revenue far in excess of that. So we continue to expect that kind of rate even on an ongoing basis for the next couple of years because these applications for ToughMet continue to expand. So I'm not ready to put a halt on that kind of growth rate yet.

When you talk about corporate pass-through, I think last quarter you mentioned you had more than 90% pass-through. Is that where you are or are you close to 100% right now?

Well, you never want to say 100, but I think we've exceeded our expectations. We were certainly trying to target about 90%. I think we've exceeded that. I said we've kind of I think run the gamut on that. We saw the full impact on the first quarter in the alloy business, and we've certainly exceeded 90%.

Trying to understand overall utilization at your plants right now, what's your utilization at this time? You can maybe break it into different segments (multiple speakers) - .

Well you know, we're such a complex business, there's no such thing. You have to look at each plant, each facility in the product mix.

If could you give us a flavor in terms of the product segments which ones---

In general, in the copper Beryllium business, we're, the bulk side of the business we're certainly not at capacity but we're at a higher level of maybe in the range of 80, 85%. On the strip side of the business due to the inventory correction that's gone on there at this point in time, we've come off a pretty high level there, so we've got plenty of capacity there.

You're certainly familiar with the Williams business; to keep up with the media capacity we are -- we've spent the capital to expand that capability. So those are the -- and as I mentioned in the Beryllium products business, we've seen a pretty big surge in orders there. We're about from an operating stand point knocking down those bottlenecks as a function of where the mix issue is. So that's a very complex business, so you can't just say what's your capacity there at all. It depends on exactly what you're making. So we're addressing those bottleneck situation within the plant to keep up with the pace of this business. You can go on to other parts of this business, too, of other operations, but those are the primary hitters.

Going back to one of the questions asked previously about new products and new things coming up. If you think about in the future, a lot of growth will come from ruthenium. Do you see new products or new applications coming up which could be driving growth in '08?

I would certainly think that will continue to see growth in the media sector there for a couple of reasons. I mean, the disk drive guys will not have completed their ramp up on the switch to PMR technology in 2007. That'll continue through to 2008. We expect to continue to introduce new products within that segment. There's other layers outside of the ruthenium layer and we're having some very good success on qualifications for the other layers. We will continue to see some growth in that area. So I don't see that as a one-trick pony for 2007.

In terms of alloy products, do you see new applications coming on board while using your material now?

I talked about that in the past. I mean, yes, we've actually got three different initiatives across alloy. One is in the classical, strip copper Beryllium business, we are working on some new products there to continue to press the envelope for the miniaturization requirements in consumer electronics.

We are continuing to introduce some new variants, if you will, of the ToughMet product capability and its capability both size range and performance range, and we're also introducing new products. Again they're actually non-beryllium derivatives out of our Lorain plant that are not ToughMet but actually some other new alloys that we're seeing some nice growth with. So we've got three separate initiatives going on in alloy to continue to grow the business.

And I've also talked about prior to this in the Beryllium business, although I wouldn't call it brand new products, the high B.E. business, we've actually got a brand new business model working to where it is bringing us a lot of new business. That's one actually of the things that's fueling our growth, is not from new products, it's through a new business model, where we're performing a value-add engineering supply to a semi finished component versus just blocks of metal and us being able to do that is now broadening the envelope of applications that we're participating in. So that's a whole other different area of the way we're attacking growth.

Thank you, Dick. Finally, some housekeeping questions, can you give me the headcount, CapEx and depreciation?

Headcount of the company is around 2150. Depreciation I think's around 30 million. Help me, Jim.

Depreciation around 25. (Multiple speakers) The CapEx, 25 to 30.

Thank you so much.

(OPERATOR INSTRUCTIONS). Our next question comes from the line of Vincent Allen who is a private investor. Please proceed with your question.

Gentlemen, I'm a stockholder and I've been buying stock 60 years and I'm quite surprised at the drastic interpretation of the earnings report this morning. How do you -- what do you attribute it to such a negative outlook?

Well, I know you're reading the same things that we're reading. You know, we are surprised by the stock reaction. We just reported a great record quarter and a string of strong consecutive quarters of growth and we've maintained our forecast for the year. So what more can I say?

We're as surprised as you are.

Well, I am surprised and I appreciate your response, and I hope we have good luck. Thank you, gentlemen.

Thank you.

We're with you.

Gentlemen, there are no further questions in the queue. Do you have any closing comments?

This is Michael Hasychak. We'd like to thank all of you for participating on this call this afternoon. I'll be around for the remainder of the afternoon to answer any further questions. My direct dial number is area code 216-383-6823. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.