Materion Corp (MTRN) 2009 Q4 法說會逐字稿

Greetings and welcome to the Brush Engineered Materials Inc. fourth quarter 2009 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 for Brush Engineered Materials Inc. Thank you, Mr. Hasychak, you may now begin.

Good morning. This is Mike Hasychak. With me today is Dick Hipple, President, Chairman and CEO; John Grampa, Senior Vice President, 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 fourth quarter 2009 and the outlook for 2010; and Dick Hipple will give a market update, review the full year 2009 and comment on the ongoing transformation of the Company. Thereafter we will open up the teleconference call for questions.

A recorded playback of this call will be available until March 4 by dialing 877-660-6853, account number 286; and conference ID, 343326. The call will also be archived on the Company's website, BMIMC.com. To access the replay, click on events and presentations on the investor page.

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 press release issued this morning. And now I'll turn it over to John Grampa for comments.

Thank you, Mike. Good morning, everyone. As Mike indicated, today's call format is the same of prior calls.

I will review the quarter and then comment on the outlook. Following my comments, Dick Hipple will review the full year and he will also comment on the ongoing transformation of our Company and especially how the recent acquisitions fit that strategy. In addition, Dick will review the state of our markets. Then we will open the call for questions.

I'll focus on the key points identified in the press release covering both the fourth quarter and the outlook for the first quarter and the full year of 2010. I believe it is most relevant to compare the fourth quarter sequentially to the third as opposed to comparing it to the prior year. Thus most of my review of the past will focus on that.

First up, for those who have not had a chance to review the press release in any detail, I will reiterate the numbers. Then I will cover the factors affecting the reported sequential growth compared to the third quarter, defining the effect of real market growth, metal prices and the acquisition that closed during the quarter.

Then I will review the charges taken in the quarter as well as restructuring and acquisition related costs that were incurred and other factors that affected the quarter specifically. Fourth, I'll review the two acquisitions.

During this discussion, I'll define how they were funded and how that affected our year-end balance sheet as well as how the acquisitions will affect reported sales and margins going forward. Dick will comment on the market and strategic dimensions of the acquisitions in his update. And finally, following my discussion of those four areas, I will review the outlook identified in the press release. Let's now begin with fourth-quarter results.

Sales for the fourth quarter were up 13% to approximately $215 million compared to the third quarter of the year. Earnings, as we also reported, were affected by non-cash, non-recurring charge as well as restructuring and acquisition related costs totaling $0.21 per share.

These led to to the Company reporting a net loss of $3.6 million or $0.18 per share diluted for the quarter. Excluding these items, the operating run rate for the quarter was $0.03 per share consistent with the Company's expectations.

While seasonal factors often negatively affect sales in the fourth quarter compared to the third, sales in the fourth quarter of this year were stronger, resulting in the third consecutive quarter of sequential growth for the Company. The order entry rate in the fourth quarter was the highest since mid-2008.

The reported 13% sequential increase was due to three factors. One, an increase in demand for the Company's materials, especially from the consumer electronics oriented markets; two, metal price increases; and three, the recent acquisition of Barr Associates which was completed in the middle of the quarter.

Metal price increases, that is that portion of both precious and non-precious metal price increases that the Company generally passes on to customers, accounted for approximately 7 percentage points of the quarter-over-quarter growth. The Barr acquisition accounted for approximately 3 percentage points of the quarter-over-quarter growth.

As reported in the press release, and as I just noted, the favorable effect of the higher sales volumes in the quarter was offset by the charges and costs that totaled $0.21 per share. Approximately $0.16 of the $0.21 was driven by a rapid change in the market price of copper.

The change in the market price resulted in a non-cash marked to market charge related to a copper denominated debt instrument that was put in place during the third quarter when the Company initiated a new copper consignment arrangement as part of a new precious metal consignment agreement. Our objective at the time was to further reduce our working capital investment by including this copper denominated facility in the expanded precious metal lines.

Subsequent to us drawing the funds under this line, the price of copper increased significantly which in turn increased the copper denominated liability and resulted in the $4.9 million of non-cash expense in the fourth quarter. In early 2010, we changed how the transactions under this line are structured.

With this change, the agreement will function as our existing precious metal consignment agreements function and the amounts outstanding will not be subject charges against the income statement should copper prices change. There will be an additional expense of $0.5 million in the first quarter of 2010 related to the initial draws.

The remaining $0.05 per share of the $0.21 per share of charges and costs is related to additional restructuring costs taken in the Company's specialty engineered alloys and beryllium and beryllium composite segments as well as acquisition costs. The restructuring costs are primarily severance costs, linked to additional manpower reductions in both segments as well as the costs associated with a realignment of activities in one of the Company's smaller foreign units.

The acquisition costs include among other things, the diligence and legal fees that are now required to be expensed under the new accounting guidance. In addition, results for the quarter were negatively affected by continued delays in shipment of higher-margin defense orders and significantly lower than expected shipments of the Company's products to the medical market. The Company estimated that these factors affected earnings in the fourth quarter by up to $0.10 per share. These factors appear to have abated as the fourth quarter ended and the first quarter of 2010 began.

Now let's turn to the balance sheet and the acquisitions. The balance sheet is attached to the press release.

The Company began the year with a very strong balance sheet. In spite of the difficult macroeconomic environment experienced during the year, the strength of the Company's balance sheet and its cash flow during the year provided the flexibility to take advantage of the opportunity to complete two important acquisitions.

During the fourth quarter, the Company announced and closed on the acquisition of Barr Associates and announced the acquisition of Academy which closed in early January 2010. The total investment for the two acquisitions was approximately $78 million.

These were financed through internally generated cash plus approximately $40 million from the Company's $240 million revolving line of credit. The Company's balance sheet remains strong at year-end with debt of approximately $65 million and debt to total cap of approximately 16%.

We are pleased to have the liquidity that we do have and the flexibility to support important strategic initiatives such as these two acquisitions. These acquisitions along with the others made in recent years continue the process of transforming the Company by further broadening its advanced material technologies, products and markets and moving us closer and closer to becoming truly recognized as an advanced materials company.

While historically considered a mining and metals company, and more recently a specialty metals company, our evolution is rapidly shifting our mix away from specialty metals to advanced materials. I'd like to now spend a minute on the financial characteristics of the acquisitions and the effect that they are expected to have on the Company's results and financial statements in 2010 and beyond.

While it is our practice to not disclose the sales and profit levels of individual businesses inside our segments, we feel that it is important to review at least initially the impact that these acquisitions have as they do significantly change certain key Company financial metrics. I will do that in the aggregate.

As noted in the press release, the acquisitions are expected to be accretive to earnings in 2010. We expect currently that they will be accretive by up to $0.20 per share and in 2010 they're expected to add about 30 percentage points or well over $200 billion to Company sales.

A high percentage of the added sales includes high-value precious metals, primarily silver and gold. A high percentage of that in this case is silver.

As we have discussed in the past, a high metal value in the sales line of Brush Engineered Materials as a whole has the effect of lowering gross profit and operating profit percents to sales to levels below what some would expect to see from specialty metals and advanced materials companies. Considering this, note that these acquisitions in total are currently expected to generate a gross profit and operating profit percent of sales of approximately 15% and 3% respectively in 2010.

The same ratios expressed as value added sales or expressed as ratios to value added sales, that is sales less material costs in sales, are above 35% and above 12%, respectively. This is also accretive to the expected Company averages for the year 2010.

I will now turn to the outlook. As we noted in the press release, our overall business level improved sequentially quarter over quarter as the difficult 2009 year progressed.

The improving trend continued throughout the fourth quarter and into the first quarter of 2010. Demand levels in the early weeks of 2010 are currently well ahead of the fourth quarter levels.

The improvement in order entry was initially driven by (technical difficulty) by the consumer electronics and wireless infrastructure oriented markets and now an improvement is visible in the medical, defense and industrial markets as well. While there's still significant uncertainty in the global economic environments, especially in what the second half of 2010 might look like, we are encouraged by the momentum that we are currently experiencing across our segments and the markets they serve. We do expect business levels to be considerably stronger for the year.

As I noted earlier, the effect of the acquisitions will be significant to the Company's sales levels in 2010 due to the precious metal content in the sales of Academy Corporation. At this time and assuming current metal prices, the Company expects sales for the full year 2010 to improve in the range of 55% to 65% from approximately $715 million to the $1.1 billion to $1.2 billion level. Organic sales growth is expected to account for up to approximately 25 percentage points of this increase with the acquisitions adding approximately 30 percentage points and the balance being increased metal prices passed on to customers.

A profit in the range of $0.75 to $1.00 a share is currently expected for the full year. At this time, we expect sales for the first quarter to be in the range of 275 to $295 million. During the first quarter, we do expect to incur acquisition related costs, including integration costs and potentially some restructuring costs of the magnitude of those reported in the fourth quarter.

While we are currently optimistic about 2010, it is nonetheless important to continue to reinforce that the Company's outlook is subject to significant variability, especially given the uncertainty about sustainability and quality of a global economic recovery. Changes in demand levels, metal price changes, metal supply conditions, new product qualification and ramp up rates, swings in customer inventory levels, changes in the financial health of key customers, acquisition related integration costs and other factors can have a significant effect on actual results. The outlook that we have provided is based on the Company's best estimates at this time and is subject to significant fluctuations due to these as well as other factors.

I'll now turn the call over to Dick Hipple. Dick will provide you with a market update.

Thank you, John, and I will say I am very happy that 2009 is behind us; and meanwhile, I'm very proud of the resiliency of the Brush organization and I want to thank the entire Brush team for their outstanding achievements throughout 2009 as we fought through an incredibly challenging year.

We were a strong Company coming into this recession and the efforts of our management team and employees brought us the cost reductions and the liquidity necessary to successfully navigate the deep recession, execute on two important acquisitions and emerge an even stronger company. The cost reductions and acquisitions were among many important accomplishments in the difficult 2009.

Our working capital and capital spending controls were certainly positive factors driving our cash flow and fueling our ability to fund the acquisitions while at the same time maintaining a strong balance sheet coming out of the recession. The cost reductions while difficult were broad based, leading to approximately $40 million of overhead savings and total headcount reductions approaching 17%, much of which will not be added back in the near term. In our specialty engineered alloys and engineered materials segments, the breakeven points were driven down considerably as evidenced by our sequential quarter-over-quarter improvement in these two segments.

On a non-financial front, we did stay the course with our investments and our most promising new product and new market initiatives as well as with our investment in common systems, common back office processes and our health and safety programs; in fact, the latter leading to our record safety performance ever in the Company last year.

Markets are considerably stronger coming into 2010 and I'm looking for a rapid and exciting turnaround. It is important to keep in mind that it took the Company three years to return to profitability after the last milder recession of the early 2000s.

Our strategic transformation since that time has put the Company in a much stronger position. The transformation has been focused on growing the business in areas with higher margins, lower working and investment capital, distinctive technologies and businesses well positioned in the fastest growing global markets.

Our latest two acquisitions, Barr completed in the fourth quarter of 2009; and Academy, completed in January of 2010, continue the transformation; both providing exciting synergies and outstanding additional growth opportunities for the Company.

With the acquisition of Barr, Brush is one of the largest independent specialty optical coating companies in the United States. Combined with our TFT acquisition, Brush now brings the full range of optical wavelengths to the market focused on the defense, science and medical markets.

The Academy acquisition is an outstanding fit with our Williams precious metals business. Academy has a strong presence in the silver refining and value add products for the energy, industrial and jewelry markets.

Combined with Williams, the Academy acquisition creates one of the largest precious metal processing companies in the United States and we welcome aboard the new Barr and Academy team members. Their expertise and knowledge in new technology and markets are exciting additions to Brush.

Regarding the overall state of our markets, we see a solid rebound and a developing strength in the mobile electronics and the associated infrastructure sector. The ongoing shift to smart phones and other sophisticated mobile devices and 3G, 4G networks to support the increasing demands on networks across the globe appear to be the main drivers.

This is supporting growth in both of our main divisions, Advanced Materials and Specialty Alloys. And with the 2009 cost reductions driving the breakeven point down, we are looking forward to a quick return to profitability in our Specialty Alloys division from this increasing volume.

While we are encouraged by the increasing order book in the electronics sector, we all must be very careful to keep in mind that it's possible that some inventory build may be occurring which could result in some order book slowdown as we move into the second and third quarters of this year. We will certainly be on watch for such a trend and will be diligent about our cost structure as we move through the early months of 2010.

Also as we move through the fourth quarter of 2009, several of our other key markets began to recover which bodes well as we move into 2010. Both the defense sector and the heavy industrial sector, primarily oil and gas, began to gain strength.

Drilling activities are beginning to recover from the 2009 low points and oil pricing above $70 should continue to support ongoing strength. Again, we are well positioned as our materials are critical to applications for directional drilling and deep-sea exploration and extraction, the two main areas of future growth.

I'm also happy to report that our new beryllium pebbles plant that is under construction remains on schedule for the beginning of startup in the second quarter of 2010. So thank you and we will now take questions.

(Operator Instructions) Chuck Murphy, Sidoti & Co.

Just a few questions for you. First, could you kind of walk me through the impact of your nonrecurring items on cost of goods, SGA and R&D?

Sure. This is Jim Marrotte. The largest item, the $0.16 item on the marked to market on the valuation of the debt obligation, that actually is a line item you'll see down in with -- separated from SG&A. The severance costs and restructuring, the majority of that is embedded in the G&A line.

Even excluding the non-recurring items, profitability was a little bit lower than at least I was expecting. Can you kind of attribute that to the slower than expected ramp back up for medical and defense and acquisitions? I mean was there anything else I'm not missing there?

Chuck, this is John. I think that is in part fair, part of the explanation. But on the other hand, mix was not as strong as we would have expected or perhaps even you would have expected in the fourth quarter with the medical and defense. So we had some additional defense pushouts and medical wasn't as strong as we thought. Those are high margin businesses.

How should we think about kind of the linearity of EPS in 2010?

Well as you know, we haven't -- we don't provide quarterly guidance. We have indicated in my comments that we would have a first quarter repeat of some integration and acquisition related costs of the same magnitude of the fourth quarter, which was maybe $600,000 to $1 million in expense that would not be appearing in subsequent quarters. In addition to that, there was a carryover of a $4.9 million derivative and effectiveness charge that we referenced of about $0.5 million that will also affect the first quarter.

Now are those items included in your guidance, the $0.75 to $1.00?

Yes.

My last question was just in terms of your medical device business, I mean is it a fact that [it will ramp] back up or are you just expecting it to ramp back up?

It is a fact (multiple speakers) back up.

Okay, just wanted to double check.

Beginning late in the first month of the quarter. It's not ramped entirely in January, but it's at previous levels beginning the 1st of February.

Gotcha. Okay, thanks.

Rob Young, Wm Smith & Co.

Good morning and congratulations on the quarter. Just a quick question regarding some of the consumer electronics. Is there a lengthy process that is associated with kind of what you're talking about with the (inaudible) market on the disk drives?

No, the focus of my conversation on the electronics market really goes more to the mobile electronics, the handset market and the basic infrastructure market. What we are seeing is quite a strong pull out of China.

In fact, the Chinese stimulus program seems to be working fairly well as opposed to ours. They are building out their 3G, 4G networks across China. So they are pouring billions of dollars into that and we are seeing the impact of that.

Okay, so in terms of I guess the consumer electronics market, you're not seeing that here domestically, it's mainly foreign and more specifically in China. Is that reasonable?

I would say that it is global, but it's being driven by Asia and there's also a pickup in the United States.

Okay, perfect. Have you heard anything -- there wasn't really an update on perpendicular media with the disk drives. Is that still an opportunity or is that kind of lagging from these other --

We play in three areas on the disk drive. Two out of three of them are doing quite well. I mean we have -- we participate in what's known as the head business. The disk drive market itself has also had a very strong recovery.

So you can put that in the basket of consumer electronics also and we also supply disk drive arms to some of the suppliers. that's doing well. We have not quite been as successful as we would have liked to to regrow if you will, our position within the media side of the market. So that's not as strong as we would like to see it.

And then on TV yesterday with Obama talking about the nuclear opportunities, how does that play into your overall business? Is that lumped in with some of the energy opportunities or is that I guess second tier?

I would say in the near term based on existing technology, that is really not an important area for us.

Okay, okay. But the directional drilling with oil, with gas, that is still

Yes, what I recall, where we are playing in the energy markets, it's really quite a broad spectrum but it includes the oil and gas sector on the conventional fuels for again directional drilling and deep sea. We expect to be growing in the solar market as we have considerable solar materials in the thin-film side and we also are playing in the high-intensity LED market, is another very interesting area for us. And then also when they start to build electric vehicles, we also expect that to -- we've got some applications in there that we expect to be growing with. So we have a pretty good portfolio of products in these, what I call both the conventional carbon-based and the alternative energy area.

Perfect and then just lastly, regarding some of the sales growth that you are expecting for 2010, is there any way that you could have a little bit more granularity with that in terms of breaking it out between the consumer electronics, the medical and defense that you talked about as kind of the three opportunities, three major opportunities?

The biggest area by far will be the electronics sector moving the needle. Well also from a revenue increase standpoint, the two acquisitions obviously bring a big kick. But if we remove ourselves from the two acquisitions, the biggest driver will be the electronics market and then the second biggest driver for growth will be the energy sector and then the third will be medical.

Perfect, that's all I have. Thank you.

Mark Parr, KeyBanc Capital Markets.

One thing, I was curious, just as a point of clarification, the restructuring charges you talk about in the first quarter and continuation of the due diligence acquisition costs, is that embedded in the $0.75 to $1.00 number for the year? Or does that number you gave exclude those charges?

No, those are embedded.

Okay, so the odds are we'll see a first quarter that reads something like the fourth quarter; instead of the copper charge, there will be a $0.5 million hit there, then there will be some other charges as well?

Well, as I indicated, the order of magnitude of those --

That will be a lot less.

Well, excluding the copper charge, the order of magnitude of the restructuring and the acquisition integration costs are about the same as those that we recorded in the fourth quarter. So fundamentally no change, Q4 to Q1, for those two factors.

Alright, terrific. And then I had another just kind of a general question and I understand the strategic shifts away from specialty metals to advanced materials. And I guess what I'm wondering is, Dick, if you could give a little more color on how -- what Academy brings to the table that really makes it an advanced materials as opposed to a specialty metals producer. I'm just curious about that.

Well they are in -- they give us a broader base within the precious metals which again when you're trying to be -- what we're trying to do is be the full supplier between gold, platinum, palladium, and silver. So we haven't had a real strong presence in silver and we also get some very interesting operating synergies between the WAM operation and the Academy operation.

If you remember, Academy also has a significant position in gold. So it's just not the silver side. And then Academy itself brings -- they're a leader in themselves in the markets of some of these e-materials that are used for energy control on glass. So that we found -- we think is going to be a very, very interesting growth market for us and we feel we bought that operation at the right time in the market.

So again, we're getting some precious metal operating synergies. They also do some things that we don't do and we are going to be able to not do some things on the outside that we do today. We're going to be able to fold that in under the Academy acquisition.

So what happens really for the first time, as we have been doing acquisitions, we haven't really got a lot of synergies. We have been augmenting the Company on technology and markets. So what's really exciting to us about Academy is doing two things. We're getting actually operating synergies from that Company, plus we are increasing our market footprint and capabilities.

Terrific. Thanks for that color.

(Operator Instructions) Avinash Kant, DA Davidson.

A few questions. So just to clarify, I believe the number, the $0.16 charge that you have had, is $4.892 million, that is in the P&L you provided. Did you give out exactly how much was the SG&A charge pretax? Could you give that number exactly?

That number was $4.892 million (multiple speakers) restructuring charge. Are you asking about the restructuring piece?

Yes, I am asking about the severance and restructuring piece. How much was that?

Approximately $600,000.

No, it was $0.05 after tax (multiple speakers)

The acquisition and the restructuring.

Right, the whole -- the $0.05 converts into about $1.3 million, $1.4 million of costs on a pretax basis.

Okay, so basically my next question was what's the effective tax rate on that?

You use the rate in the mid-30s; about 35, 36%.

So $1.3 million to $1.4 million pretax and if I applied it, 35%, 36%; that should work out to $0.05, right?

Yes.

So now trying to clarify exactly how the charges will work out in the current quarter, Q1, and I've been confused about that one. So when you say the copper related charge, that's a derivative instrument, that would come in at the same level or it would be significantly lower?

No, no (multiple speakers) it's roughly $0.5 million for that and somewhere between $600,000 and $1 million for the acquisition related and potential restructuring costs.

Okay, so $0.5 million for copper related and $600,000 for restructuring?

$600,000 to a maximum of $1 million.

To $1 million, okay. So then it's lower than what you had this quarter though? Restructuring charges are lower than what you had in the current quarter?

Yes.

And copper is very little, right. And I believe the guidance, you said $0.75 to $1.00, that is the GAAP number that you are talking about?

Included in that (multiple speakers)

Including everything.

(multiple speakers) are these factors and that is a GAAP number.

Okay and what should we think about the tax rate going forward in calendar year 2010?

I think you can assume for now mid 30s; historical levels, 33% to 35%.

Okay.

Depending on how the year unfolds and what the mix of the profitability really is by jurisdiction.

Right and with the acquisitions that you brought in place, do you think you have mix changes in terms of geography like higher sales in Asia or something?

No, not with these recent acquisitions.

So majority of the sales are coming from the US?

They have a percent sales overseas, but it's not going to change the needle on our overall.

I see. Looking at the full year guidance, I think your comment you made about that there's a possibility that orders could come down in the second and third quarter. That's just your -- are you seeing something to that effect or you were just kind of being careful about that?

We have to be careful, absolutely.

But at this point (multiple speakers)

There's no sign for that, but you know, Avinash, this electrical market, electronics market, has this tendency to kind of run away for a bit and then they have an inventory adjustment. So we've got to be careful that are going to see an adjustment here with the strength that's going on.

But there's no evidence to show that there will be one (multiple speakers)

No evidence, but I've got gray hair.

I understand totally. Now also looking at the first quarter guidance, basically looks like your full-year guidance is pretty much take the first year guidance and multiply that by four basically. Now if you were to (technical difficulty) in terms of seasonality or any trend within the year, should we kind assume everything flat or you would expect a little bit more growth in the first half or maybe some slowdown? How are you guiding?

We're not going to help you a whole lot with quarter-by-quarter guidance. It's not our practice to guide quarterly guidance.

However, I don't think it's appropriate to take those numbers and divide them by four. Recognize that we did comment earlier on two or three things.

Number one, we do have these costs of $0.5 million and up to $1 million affecting the first quarter. I commented on that. That will not repeat in the second, third and fourth quarters.

Secondly, we have the medical defense business not ramping, not until middle of the first quarter for all practical purposes. So that will be stronger in the second, third and fourth quarters. So I think that dividing a number by four would be a little reckless, frankly.

I was talking more in terms of topline. It looks like the topline guidance is basically (multiple speakers)

Well the topline guidance can move around based on a where metal prices are. The topline guidance that we provided is perhaps a little bit lower than the average for the year. Also don't forget, we have some seasonality in our consumer electronics business. You pick up some seasonality in August and September.

Right, that's higher in that time frame. Okay. But I believe -- but in the guidance that you provide, you don't assume many changes in metal prices, right? You're kind of assuming that metal prices remain where they are.

That's the assumption, that's right.

If I also understand the quarter-over-quarter and the year-over-year impact of metal pricing, I believe you said metal prices compared to the September quarter added 7% to the growth, right?

Right.

And then I saw a comment saying that year-over-year your revenues would have been down 2% (multiple speakers)

That's right.

That means metal prices added 15% to year-over-year growth?

No.

Or there was a 2% negative impact on metal?

For the year.

For the year.

Okay, I'm talking Q4 09 versus Q4 08, what was the impact of metal pricing?

I don't have that data here, but I think it would have been up versus (multiple speakers) up significantly.

It was a sizeable increase.

That's what -- I'm leading into the (multiple speakers)

I might be able to locate (multiple speakers) I have that somewhere here.

Fourth-quarter sales would have decreased by approximately 2% compared to the prior year's fourth quarter excluding the impact of higher metal prices. So if your (multiple speakers) that means metal prices added 15% to growth on year-over-year basis.

Compared to the fourth quarter of last year, volumes in this Company are still down. Is that what you're asking? (multiple speakers) That's right, they are down.

That's what it makes (multiple speakers) yes.

Metal price quarter to quarter, fourth quarter this year, fourth quarter last year, is up 12%.

12%, exactly. Okay (inaudible) yes. 12% but you should be meaningfully, okay. Now a few product questions. Of course electronic seems to be the big driver right now. [Tough net], you used to talk about quite a bit. What's happening on [tough net] lately over the (multiple speakers)

That was hit hard last year with the downturn in the heavy industrial market and that's coming back as we speak. And that's the primary driver for [tough net] is in two areas. One is oil and gas and the other one is in heavy equipment.

Okay.

Like a Caterpillar (inaudible) and if you saw the recent earnings report by Caterpillar, you can see that market is picking back up.

Also are your materials into Boeing 787? And if it all, how much do you have in each plane?

We're both in the Boeing and the Airbus.

Roughly what kind of opportunity per plane?

We haven't given that out but we have increased our market share per plane to a nice degree with (inaudible). Again, we're not looking for a a lot from that market this year because of all the markets right now, the commercial aerospace is the one that really hasn't shown a whole lot of recovery at this point.

Yes.

We don't have a lot in our forecast for that. That would be upside.

Okay and would you say that some of the new cell phones, especially the smart phones coming in, that maybe they have more content than what was there in the previous generation phones?

Yes, absolutely. You get a lot more electronic intensity in the 3G and 4G systems and so we enjoy that. We are seeing some impact in our copper beryllium strip business in some of these newer models which has been very helpful as they have come through; models like the iPhones, the Droids.

They are all -- they're top-of-the-line and that's -- we're certainly playing a part in those models. I would think the -- we'll see how that Google phone works out. You've got the Droid already is kind of Google-based and then Google is going to come out with their own phone. God only knows what that's going to be like but that's coming out. And then you've got -- like even this -- the iPad is another device driving some revenue.

Okay and one final question. I know when you were starting to see some ramp in the ruthenium business, you had expanded capacity in anticipation of that business growing. Now what have you done with that capacity lately or what do you plan to do with that?

That capacity serves more than just the ruthenium business, Avinash. That equipment serves multiple purposes. It was an expansion of that entire business that also supported the ruthenium media site. It wasn't just ruthenium oriented. It's being utilized to support growth in other areas.

In fact, we expect to use that for some of the solar growth that we have on some of these targets.

Okay, so at this point would you say that the facilities is being utilized at what kind of level?

We won't comment on the individual facilities and their utilization rates. There's plenty of capacity there to support the growth that we see coming over the next couple of years and we do not anticipate needing to invest further in that capability.

So for 2010 CapEx, we shouldn't be modeling (multiple speakers)

2010 CapEx is going to be well below depreciation levels. Depreciation levels in the Company are somewhere between $35 million and $38 million. Our CapEx might be between $20 million and $25 million.

Perfect, that's great. Thanks so much, Dick and thanks so much, John.

Thank you. There are no further questions in the queue. I would like to hand the floor back over to management for any closing comments.

This is Mike Hasychak. We would like to thank all of you for participating on the call this morning. I will be around the remainder of the afternoon to answer any questions. My direct dial number is 216-383-6823. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.