Materion Corp (MTRN) 2010 Q3 法說會逐字稿

Greetings, and welcome to the Brush Engineering Materials, Inc. Third Quarter 2010 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, Michael Hasychak, Vice President, Treasurer, and Secretary. 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 third quarter 2010 results and the outlook, and Dick Hipple will give a market update. Thereafter, we will open up the teleconference call for questions.

A recorded playback of this call will be available until November 12th by dialing area code 877, the number is 660-6853, account number 286, and conference ID number 358635. The conference will also be archived on the Company's website, beminc.com. To access this 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 be materially different from that contemplated by the forward-looking statements as a result of a variety of factors. These 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. Thank you for taking the time to join us today. Today's agenda is the same as that of our past calls. I will briefly review several of the key financial points of the quarter and then comment on the outlook. Following my comments, Dick Hipple will review the state of our key markets. And then following Dick's market update, we'll open the call for questions.

As in the most recent quarterly calls, I believe that, given the economic conditions that existed in the prior year, it is important in certain areas to compare the current quarter sequentially to the previous quarters, as opposed to the prior year. Where relevant, I will do that. For those who have not had a chance to review the press release in any detail, I'll begin with a brief summary of the key points in the release. Then I'll cover the factors affecting the reported sales growth, isolating real or organic growth from the effect of passing through metal price increases and the effect of both Barr Associates' acquisition, that closed in the fourth quarter of 2009, and the Academy Corporation acquisition, that closed early in the first quarter of 2010.

I will also review sales by market, comparing it sequentially to the second quarter, highlighting the key changes -- and there were several. Then I'll review how the growth, the metal price inflation, and the acquisitions affect reported margins for the Company in total. In addition, I'll review the advanced materials segment margins, and, in particular, the effect that precious metal mix -- precious metal price increases and the added precious metal volumes from the Academy acquisition has had on the reported margins for this segment. Then I'll review our cash flows and balance sheet, and comment on the impact of the acquisitions on earnings to date in 2010. And, finally, I'll review the outlook for the balance of the year as well as for 2011, as we see it unfolding at this time.

Let's begin with a brief summary of the press release. Today we reported significantly stronger than expected results for the quarter, raised our outlook for the year, and provided some initial insight to the outlook for 2011. Overall, we continue to be pleased with the progress in our markets and our reported performance. The results for the third quarter, like those of the first and second quarters of the year, clearly demonstrate the benefit of the structural improvements that the Company had been making over time. These include creating a broader, faster-growing, more diversified market base, along with shifts in mix within segments and markets toward faster-growing, higher-value materials supplemented with cost reductions and pricing improvements. All of this has been leading to faster growth and expanding margins, resulting in more sustainable higher sales and profit levels.

Sales for the third quarter were up approximately $135 million, or 71%, to the $325 million level, just shy of the Company record that was established in the second quarter of the year. This brings sales to date in 2010 to $946 million, an increase of almost 90% when compared to the first 9 months of the prior year. The reported earnings per share for the quarter was much improved compared to the prior year, and stronger than expected, at $0.65 a share, which compares sequentially to an earnings per share of $0.67 in the second quarter, and $0.33 in the first quarter of this year. This brings EPS for the first 9 months of the year to $1.65, which includes, as you may recall, about $0.12 a share of charges taken in the first quarter of the year.

In the release, we also noted that, due to both stronger margins and better than expected overall market conditions, we are raising our estimates for the year. We have raised our GAAP earnings per share guidance for the year to the range of $2.00 and $2.10 a share from our previous guidance of $1.75 to $2.00 a share. I'll speak more on the outlook a bit later in this discussion, and Dick will cover the market outlook in his review of the state of our markets.

Let's now review sales in a bit more detail. The reported 71% increase in sales, compared to the third quarter of the prior year, is due to three primary factors. The first is a significant and broad-based increase in demand for the Company's materials across most of the Company's key markets, including the consumer electronics-oriented markets, as well as the telecom infrastructure, automotive electronics, defense, oil and gas, commercial aerospace, and optics markets. The second factor is metal price increases, and the third is the two acquisitions.

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 $29 million of the $135 million of sales growth compared to the prior year. The two acquisitions accounted for approximately $55 million of the growth. Organic growth, thus, was a very healthy $51 million, or 27% year-over-year.

Sequentially, comparing the third quarter to the record second quarter of the current year, sales were essentially flat. Metal price pass-through did increase sales compared to the second quarter by a small amount -- about $1.5 million. Thus, organically, sales were down in the third quarter when comparing to the second by about 1%. We had actually expected some additional decline in the quarter.

As we highlighted in the second quarter earnings call, coming into the third quarter, we were seeing improvements beginning to surface in the telecom infrastructure, defense, oil and gas, and industrial and commercial aerospace markets, following what had initially been a recovery earlier in the year, led by consumer electronics and automotive electronics. We had expected that the recovery in these markets would temper and possibly offset any inventory correction that would occur in the consumer electronics markets during the third and fourth quarters of the year. This did occur in the third quarter.

In the third quarter, value-added sales -- that is, sales excluding the pass-through of high-value metals -- declined by about 10% sequentially in the consumer electronics market. In addition, as noted in the press release, sales to the Company's medical applications also declined in the third quarter, when compared to the second quarter. The effect of these was entirely offset by the sequential growth in the telecom infrastructure, defense, oil and gas, industrial, and commercial aerospace markets.

Now let's turn to margins. Reported operating margins continued to improve sequentially in the quarter following a significant lift in the second quarter. Gross profit percent of sales was 17.9%, which is 80 basis points above the second quarter level. This trend is reflective of the structural changes in the Company and the related mix shifts to higher-value, higher-margin markets and applications, along with better pricing and cost reductions.

What is most relevant about these improvements is that they are occurring with significantly higher pass-through metal values -- both precious metals and copper -- as well as higher precious metal volumes in the reported sales mix of the Company. As we've noted in the past, having significant amounts of precious metal in the top line has the effect of diluting reported margin percentages for the Company, and lowering them to levels below what one would normally expect to see from mass materials companies. The precious metal content of our sales has increased significantly due to our growth, the acquisitions, and the metal price increases.

Factors such as these can, at times, result in margin percentages that appear to be decreasing or, conversely, not increasing as much as they really are. This does affect the reported margin percentages for the Company in the aggregate, as well as the reported margin percentages for the Company's advanced materials segment. Internally, we measure margins with high value metals excluded from the top line. While we do not disclose the specifics for competitive reasons, we do track in margin -- monitor our margin percentages on this basis as well.

In looking at margins on this basis, the Company gross profit percent in the third quarter is above 40%, as opposed to the reported 17.9%. And, on this basis, the improvement from the second quarter to the third quarter is 2.7 percentage points, or 1.9 percentage points greater than the reported 0.8 point improvement. Similarly, as noted in the past, operating profit percent of value-added revenue for the Company is in the mid-teens, as opposed to the reported 6.4%. And, on this same basis, the improvement from the second quarter to the third quarter is 0.6 percentage points versus the reported improvement of 0.1 points.

In the advanced materials segment, the third quarter operating profit percent on this basis improved by 30 basis points sequentially compared to the second quarter. Margin percentages increased in this segment in spite of the negative effect of the weaker demand from consumer electronics and the weaker sales of the medical product applications.

Now let's turn to the cash flow and the balance sheet. Both the balance sheet and the statement of cash flows are attached to the press release. The Company began 2010 with a very strong balance sheet. In spite of the difficult macroeconomic environment experienced during 2009, the strength of the Company's balance sheet and its cash flows provided the flexibility to take advantage of the opportunity to complete the two acquisitions. The total investment for the two acquisitions was approximately $70 million.

During the first half of 2010, the Company's balance sheet remained strong, with debt-to-total-capital at approximately 25%. Debt increased by approximately $56 million in the first half due to the acquisition of Academy and the receivables and inventory increases to support the growth.

In the third quarter, net cash provided by operating activities was approximately $36 million, and debt was reduced by approximately $22 million. The ratio of debt to debt plus equity decreased to less than 21% from 25% at the end of the second quarter, and at this time we anticipate favorable cash flows as the balance of the year progresses, and expect an even stronger balance sheet at the end of 2010. We're pleased to have the liquidity we do and the flexibility to support the recovery in our related growth, plus important strategic initiatives such as the acquisitions.

Let's now turn to the acquisitions for a moment. As I did in our previous conference call, I'd like to spend a minute on the financial characteristics of these acquisitions and the effect they have on some of the key company metrics. While it is our practice to not disclose the sales and profit levels of individual businesses inside our segments, we do feel that it is important to review the impact of these acquisitions at least during 2010. As I've already noted, and as we've highlighted in previous calls, a high percentage of the added sales from these acquisitions include precious metals, primarily silver, and some gold. This has the effect of diluting gross margin and operating margin percentages and, as a result, does reposition these key reference points considerably for both the Company and the advanced materials segment.

We announced earlier in the year that we expected the acquisitions to be accretive to earnings by up to $0.20 a share in 2010, and that they were expected to add over $200 million to company sales in 2010 as well. In the first half of the year, the acquisitions added approximately $0.10 a share to earnings, and in the third quarter, approximately $0.05 a share to earnings.

I'd now like to review the outlook. As I noted in the press release, overall market conditions have improved significantly as 2010 has developed. The Company is well-positioned in its markets, with an array of advanced materials that enable it to take advantage of the faster-growing segments of its markets. Order entry was driven up earlier in the year by the consumer electronics- and automotive electronics-oriented markets, which represent, collectively, about 35% of the Company's value-added revenue.

As the year has progressed, the defense, industrial and commercial aerospace, telecom infrastructure, and oil and gas markets -- which, collectively, represent about 40% of the Company's value-added revenue -- have also strengthened. As I noted earlier, the third quarter lift in these markets helped to offset weaker third quarter conditions in consumer electronics. The slower third quarter for consumer electronics was most likely driven by seasonal factors and inventory adjustments, as opposed to any change in secular growth or the long-term outlook for current and/or next-generation handsets, tablets, or other consumer electronic applications.

We expect results for the fourth quarter of 2010 to reflect the usual fewer production and shipping days, as well as lower shipments to consumer electronics applications due to seasonal factors, as well as inventory adjustments. In addition, as previously announced, costs associated with the start-up of the new beryllium plant and costs of other important key initiatives are expected to lower fourth quarter 2010 results sequentially from those in the third quarter. At this time, considering the above factors, and assuming current metal prices, we expect sales for the full year to be in the range of $1.24 billion to $1.26 billion, and we are raising the earnings outlook for the year to a range of $2 to $2.10 per share from the previously announced range of $1.75 to $2 a share.

While we're not prepared at this time to provide a specific forecast for the year 2011, the global economic outlook for 2011 continues to look encouraging. The markets and applications for the Company's materials appear promising. We believe that a portion of the strong growth in 2010 was partially driven by inventory builds. For 2011, assuming continued global economic recovery, we, at this time, expect single-digit sales growth driven primarily by increasing demand for the Company's materials from applications in the telecom infrastructure, industrial, commercial aerospace, oil and gas, optics, and medical markets offsetting any potential inventory adjustment for downside in consumer electronics. I'll now turn the call over to Dick Hipple. Dick will provide you with a market update.

Thank you, John. My comments today will be fairly brief. I will start by saying that I'm very pleased with the Brush team of employees for achieving new milestones for the Company. We have rapidly recovered from last year's recessionary environment, and positioned the Company to participate in numerous strong secular growth markets. Also, we recently passed $1 billion in sales for the first time in our history, and we've greatly expanded our value-add margins as compared to where we were in 2008, prior to the downturn.

As John mentioned earlier, we began the year with robust growth from the wireless consumer electronics markets. The proliferation of new designs, devices, and complex applications is truly amazing. Following this timing, we began to see the telecom infrastructure demand return, and then our heavier industrial markets, such as oil and gas and consumer aerospace. And, all along, we have seen steady demand throughout the year in automotive and most of our defense-related applications.

The current situation in our markets is unfolding as we expected. I have mentioned in previous calls that, although the consumer electronics is a secular growth market, it is always subject to inventory adjustments from time to time, and sometimes these can be significant. We are now seeing some market softness in the order patterns, which is what we expected to see show up sometime in the latter half of 2010.

Meanwhile, we have seen increasing strength from our heavy industrial markets. This strength comes from a combination of new applications and strong market conditions, driven by the higher price of oil and other commodities. Also, the commercial aerospace industry is finally beginning to build the new platforms after significant launch delays. The automotive markets remain steady, and, since we have improved our application wins in global participation, we are enjoying global automotive growth -- not just relying just on the US market.

So, overall, we are excited about our key market sectors entering strong secular growth trends, which should continue to offer solid and sustainable growth opportunities as we bring the value to our customers. And I'd also like to add that the construction is fully complete at our new beryllium pebbles plant in Ohio, and we've now entered our detailed start-up phase. And we'd be ready for questions.

Thank you. We'll now be conducting a question and answer session.

(Operator Instructions)

Our first question comes from Avinash Kant from DA Davidson.

The first question I had was, recently you talked about some pricing increases that you could do in your alloy segment. Could you talk a little bit about extent of price increases and the impact of that on the margin?

The -- we actually cannot disclose too much relative to the specifics, market-by-market, segment-by-segment, within that business. The announcement that you're referring to is an increase in the -- I believe it was the September announcement on bulk price increases?

Right.

And that, what was it, 3% that was announced?

I think 5% or so.

Was it 5% that was announced?

Yes.

Yes, and, you know, the percentage of the business that is the bulk business, you can do the math on what the maximum would be -- impact would be if that was fully absorbed over time. The -- I don't have a calculation here that would give you any indication of what the total percentage from period to period in that business has been on pricing, although it has -- and we've never been public with that, although it has been significant over time.

But, again, that's -- you know, the market area's very strong, and we're quite confident that the majority of that will be -- will stick in the marketplace.

Right. And I missed the number. You said for the revenue you were talking about $1.24 billion to $1.28 billion now?

$1.24 billion to $1.26 billion.

$1.26 billion, right? And previously you had talked about, what, roughly $1.2 billion or so? And I was trying to see, in fact, has it changed -- how much of it has changed because of the metal pricing, and how much is it because of the fundamental demand?

Since the last call?

Yes.

Very little due to price.

Very little due to price?

Yes.

Okay. And also, I was wondering, do you use some rare earth metals in your applications? You know, there has been a lot of chatter about pricing going up there, and availability, and all that --

Very insignificant. It's very insignificant.

Very insignificant?

Insignificant.

I don't think we'll ever see it -- you know, we'll use a tiny bit, but it's not going to affect the Company, and you'll never see it.

And if you could give us some qualitative idea -- you talked about Q4, of course, some seasonality clearly in the electronics segment. But do you expect the aerospace and the defense segments to be steady or going higher in Q4?

Well, at this point in time, we see it being steady or to go higher.

Perfect. Thank you so much, Dick.

Now, the seasonality in the fourth quarter isn't just electronics. There's some added --

Yes, there's --

-- some added, but there's fewer shipping days in the fourth quarter --

Yes. What I'm talking about is the market situation. The fourth quarter is always softer from shipping days and other things. But you question, I'm interpreting, is how the market is.

Right, absolutely. Yes. Okay. And yes, two things. Single digit growth for the next year? For '11?

Right.

Yes.

Perfect. Thank you so much, Dick. Thank you so much, John.

Thank you. Our next question comes from Charles Murphy from Sidoti and Company.

Morning, guys. Nice quarter, particularly since you didn't really get much help from electronics.

Thank you.

So I had a few questions. First, just so I'm clear, if I kind of back into the numbers, and I right in thinking that the kind of implied fourth quarter EPS guidance is $0.35 to $0.45?

Yes, if you take the year and back off the current position, so yes, that's the GAAP number.

Okay. I just wanted to make sure. Great. And then, in terms of your different segments, what are your expectations for the fourth quarter for them? I know you kind of mentioned aerospace and defense. If you had to break it out, advanced materials versus alloy kind of thing.

Well, I think that the comment that we made relative to what happened in the third quarter probably still holds for the fourth quarter, sequentially to the third. There could be additional fall-off due to inventory corrections and seasonal factors in consumer electronics. I'm talking about, now, outside of the shipping day effect. And then helping to offset that would be a greater demand from energy, telecom infrastructure, defense, optics, the industrial and the aerospace markets as well, perhaps even a little bit in appliance and a couple of other areas. So it's not too -- our expectation is not too different from what really happened in the third quarter.

Right. And that's reflected in the range.

Got you. What about -- you know, you mentioned the single-digit growth for '11 -- how are you thinking about margins?

That's a fair question. I think that we still have plenty being done in the area of surgically examining pricing. We don't see costs being added back at any pace consistent with the revenue growth. We think that revenue growth will outpace cost add-backs. And I would say, at this point, assuming that there isn't anything that occurs from a macroeconomic perspective that is too negative, that margins in 2011 will be equal to or greater than 2010.

Okay. My last question was, I know you guys have kind of gotten better with your ability to pass through rising copper prices. But obviously they've jumped more than just a little bit in the past few months. How do you feel about that in terms of pass-throughs and it affecting margins near-term?

Sure. That's a good question. As you know, we changed the business model back in 2006 -- maybe it was late 2005 -- to where copper, for example, was a pass-through, like the precious metals. But, as you know, that pass-through is about 1 month delayed typically. And then, so you benefit when prices are falling a little bit, and then you gain a little bit, or, you lose a little bit when prices are increasing.

During the tight supply situation and the rapid growth of this current year, the lead times on the business stretched out a little bit, so the pass-through period extended maybe by up to, in some cases, 6 to 8 weeks. So we would have been, in this period of time, a little bit more exposed to increases, or get a little more benefit from the decreases that have occurred in that period of time. So, moving forward, if there would be a rapid increase in copper, we might suffer a little bit, but I wouldn't think that it would be significant.

Okay. That's all I had. Thanks.

Thank you. Our next question comes from Rob Young from William Smith and Company.

Hi guys, good morning. Just quickly, can you talk a little bit about the M&A environment? Is that something you're still looking at? Just the opportunities there.

Well, as you know, we are always active in the environment. I mean, we're constantly looking and looking for right opportunities and, hopefully, something will come along here that will fit nicely with the corporation, and we like to phase them in. We just had two acquisitions, and we like to make sure that we take the appropriate time, make sure that those are folding in, stable, etc., and then we kind of move on to the next. But it's not a pure linear game. So you always have to have your finger on the pulse of the market and be out there active. So we are, but, again, we're not doing acquisitions just to do acquisitions. They have to be nice, strategic augmentations. But the answer to your question -- Yes. We are certainly proactive in that area.

Okay. And then, with customer qualifications, can you give some data points on the comparability of what you're out there now trying to qualify at versus historical periods?

You're talking about the number of products?

Yes. Just, I mean, anything from a qualification standpoint.

Oh. Well, oh my goodness, I could talk for hours on that one. But the market is very, very busy across all of our divisions on new application submissions and qualifications.

So do you have a percentage on how many you're actually becoming qualified on at all?

No, I don't.

Okay. Last quarter you talked about how head count, I think, was down maybe 12% on a year-over-year comparison. Is that something that you're looking to maintain those levels? I know that you just mentioned that you're not expecting cost to come back with any great force, but is head count looking to remain at current levels?

That's a good question, Rob. We're actually down about -- just over 10%--

Okay.

-- from end of Q3 2008 levels, and feel that that level is something that will be maintained for a little while. And I'm excluding the acquisitions from that.

Right, right. And then, relative to your transformation, I know there's just been a lot of talk about how you've done various changes in order to reduce the cyclicality of the overall earnings environment, and I was just kind of hoping you could talk about how you're seeing it right now. You know, you implemented this guidance, or you adjusted this guidance upwards, and in an environment that has -- where you might go back down to the lower levels of the cyclical environment, what can you see happening from a margin, revenue, and earnings standpoint? It's kind of a long-winded question, but just trying to see the volatility from the peaks to the valleys.

Well I guess that, you know, that's been a key part of our strategy. And as you kind of see what some of these moving pieces are even accomplishing as we speak, from the perspective that we have really increased our footprint in several nice secular-growth markets that don't all move together, so now we're benefiting from some really nice growth in three or four markets as we may be fighting through some inventory adjustments in another one.

And we're still holding strong, and you're not seeing a big down-drift in the Company; whereas, you might see that in the past. So as we've restructured the Company in maybe, let's say, the alloy division, which used to take its cycles -- you know, it would have a much larger impact, we can take more variability there now without it driving us crazy on a results basis. So that's greatly improved, and then we've improved our market footprint. So this whole transformation -- it's working, and I think you're starting to see these results.

Definitely. Okay. And then, a quicker question, and then I'll jump off. Can you give an average price on the stock that you bought back in the quarter?

Sure. We bought back approximately 150,000 shares at an average price of about $23.52.

Okay. Well, good investment. Thank you very much.

Thank you. Our next question comes from Phil Gibbs from KeyBanc Capital Markets.

Dick, John, Mike, good morning. Can you update us on the medical requalification process?

Yes. That's taking a little bit longer than what we would like, but it's proceeding and we do fully expect, with a high confidence level, that first quarter we'll be back in the swing there. And, by the way, we actually are -- that's one particular customer we actually are really growing with two other customers at this point in time in that same market basket, if you will.

Okay. Can you give us a feel, as the way you see telecom infrastructure progressing, as we move into next year -- what type of growth you're looking for in that market place? It seems like a big driver, from what you've been indicating.

Yes, I'd say that that one is, as I've mentioned -- in the pure consumer electronics space at this point in time, we are seeing some inventory adjustments going on there; whereas, at this point in time, for us, the telecom infrastructure space is a little different. That seems to be a lot more steady. And I think it makes sense. I mean, if you think about it, telecom infrastructure -- that's your capital spending, which is less cyclical with consumer swings and guesses on inventory. Because people have to build out their systems. My forecast for that area is still going to be a nice sustainable growth as we go forward into 2011.

Okay, perfect. And I just have a couple quick quantitative questions. John, did you talk about value-added revenues for the business in the mid-teens in the quarter?

For the Company --

-- value-added operating margins? Excuse me.

For the Company in total?

Yes.

Yes. Did you not -- were you not on the call when I did that?

Did you say it was up 60 basis points sequentially?

Yes, up 60 basis points sequentially, correct.

Okay. Perfect. And then, just lastly, what was your book-to-bill approximately in the quarter?

1.03.

Perfect. Thanks, guys.

Thank you.

(Operator Instructions)

Our next question comes from Brad Evans from Heartland Communications.

Heartland Funds, that is. Good morning. I'm sorry if you mentioned this; I did not hear it. Could you just give us your current thinking in terms of capital spending for 2010 and into 2011 at this point?

It hasn't changed for 2010. It's in the $25 million range. I would think that 2011 would take it maybe to the $30 million range. It could be a little higher, it could be a little lower, depending upon how markets unfold next year, but not significantly different.

Okay. And just thinking about the strong recovery you've had this year, and very nice margin performance, could you just give us your thoughts in terms of where you think your longer-term margin goals are for the overall business as -- obviously as value-add and the mix continue to shift to higher-margin business for you?

Yes. That really hasn't changed a whole lot, Brad. The value-add margin, OP percent of VA, our goal has been 100 bps a year. We've accomplished that over the last three years, certainly, and would hope that, in a decent economic environment, we could continue to do that.

So that's 100 basis points of operating margin expansion per annum. Is that correct?

Operating profit percent of VA.

Okay. And then, just lastly for me, just in terms of debt structure at the end of the quarter, could you just give us the amount that was drawn on the revolver and the balance on the lease?

Sure. Mike, you have that?

Sure. Revolver was about $53 million.

Okay. And the lease is still around -- is it [$32 million]?

Yes.

Okay. Thank you very much.

Thank you. Our next question comes from Mark Parr from KeyBanc Capital Markets.

Hey guys, good morning. Okay, first, I'm sure -- I'm coming in here late, because we had -- you know, today was Cleveland Day, because we've got Graphtec, Brush Engineered Materials, and Timken all at 11.00, so it's like --

And here I thought you were going to talk about celebrating the Cavs. But that's another story.

Well, you know, I just -- I can't wait to see some more of that LB body language, you know, as he dances around in that Miami uniform, but --

I guess we'd better move on, because this is Inside Baseball.

Yes, okay, fine. Congratulations on the quarter, the progress. Clearly you're making good progress in the alloy business on a margin perspective, and that's really critical, I think, you know, and in additive to all the other good things going on. But, you know, Dick, you had mentioned a single-digit outlook for revenues in '11. What -- how can you frame that for us? Can you give us -- I mean, maybe you already did and I missed it. But I sure would like to get as much color as you're willing to share and kind of the components of that and how you get to that level, and what are the puts and takes and what are the bright spots and, you know, etc.

Well, I think it's a tough call, and, I think, at a very high macro level, the way we see it is, we should continue to see the overall heavy industrial side continue to grow next year. Plus, you know, we have the added benefit that our application base is also growing. And then, I also mentioned about the telecom infrastructure. Things are going to continue to grow next year. And then we have -- always the big unknown for us is, the big question is in the consumer electronics. So what we have is, we've got a big piece of growth. I do believe that consumer electronics next year will be growing. If you look at any kind of a macro forecast out there, the electronics business ought to be growing in general.

And I don't want -- you know, I'm not getting into the subsets, the smart phones and all this other stuff. But, in general, you know, that market probably should grow 6% to 8% a year. So if you put all that together, you'd say, okay, well, the numbers might be higher than what we just indicated. But what we don't really know here is, of the rapid growth particularly that occurred in the electronics area in 2010, how much of that is what I call the double order that goes on when you're building inventories for a very fast upturn?

So that's the one that's really hard to predict. And we don't really know the answer to that. Nobody does. So that we see that as kind of like the cyclical thing that swings around, and it's not unusual in the electronics business that you have a big booming year, and then the next year gets softer, although the market still climbs, because simply of inventory situations. So I think that's the big question mark that we can't answer, so we feel, you know, very good about next year and the growth, with this question mark of the cyclicality on the inventory build.

Okay. So your assumption on consumer right now is that it will grow on top of 2010 next year?

Yes. Because -- and the way I would put that is, just take a look at your normal -- you know, what would the normal indicators be? That would be your PC sales, your smart phone sales, the handset sales, all those kinds of things. Or, now, you can say handsets, or iPods, some of those devices. The amount of portable devices sold next year, you know, my opinion would certainly be it'll be higher than it was this year.

How would you view --

That's a global comment. That's not a US comment.

Okay. Any comments you can make about the supply chain for the new Verizon iPhone? I mean, how that's looking. Are they -- I mean, is that really helping you right now? Or do you look for that to help you more next year?

I think next year.

Okay. All right. So, I mean, that's certainly something that's going to be additive to the process and, you know, these new flat computers that don't open and close, like the iPad, that's another one, I would think.

Oh yes. I mean, just the proliferation of these devices. And what's neat about this is that, because of all the new designs, people will change and buy things just because they're new. It doesn't mean that just because you might already have an iPhone or a Blackberry or what have you, but something else comes along, and you'll have that device plus another one. I mean, that's the magic of the whole consumer electronics area.

Of course, the other side of that that none of us know about yet is to what extent some of those devices, especially the tablets, might find themselves in corporate use. That's not talked about a lot, and, you know, we don't have that in our --

Well, I think that that -- there's a lot of upside. There really is a lot of upside, when you get to the consumer electronics. Because you can start to talk yourself silly. Because, you know, I can share with you, within our own IT department, you go downstairs, and they're playing around with all these new devices, which is almost unheard of corporately. You know, normally, it's just laptops, where now these guys are fooling around with new stuff, and I'm sure that we're no different than many other corporations.

So all of a sudden you can have a whole new corporate spend going on with some of these new devices that can be very helpful to traveling salespeople, business people, and the convenience factor goes up tremendously. If you take a look at these new, let's say, iPads or other similar devices that operate like little mini-computers, they're instant start-up. I mean, it takes maybe ten to 15 seconds and you're online, versus this very long cycle that goes on with a normal PC once you -- from a shut-down mode. So the convenience factors are tremendous, being smaller, form factors, and everything else. So I'm just rambling on, but these are all unknowns that are out there that -- and generally there are more positives than negatives out there on potential upsides.

Okay. If I could just ask one more point of clarification. Do you see the mix between red and gold alloys shifting any more in '11 versus what you saw in '10?

Well, we're certainly focused to make that happen. So this doesn't -- it's not happening by circumstance, I mean, randomness. And then the other point is that as the devices -- the demand on the devices and the form factors get smaller, your tendency to need gold goes up. So that's also going for us. We're focused -- we really are focused on growing that value-add side of that business.

It was amazing when, you know, when 174 first came out and that was supposed to be the next great thing -- these new red alloys are going to kill the world. You know, it's really -- I think it's really comforting to an old guy like me to kind of see you get back to your roots, you know, these gold alloys, and see you doing so well. And just congratulations on that, and let's keep -- we're going to keep rooting for you, as far as keeping that growth momentum going next year. So that's awesome. Thank you very much.

Thank you. Our next question comes from Ray Rund from Shaker Investments.

Thank you. I had a question on international sales during the quarter. Can you tell us what percent of your total revenue they accounted for?

Yes, we're looking that up now.

We're about 30% in the quarter, to answer --

Excuse me?

Thirty percent for the quarter and 30% for the year.

Okay. So there really hasn't been too much movement in it.

Well, yes, let's be a little bit careful. The 30% figure represents direct what is billed and shipped directly into the international environment. We do have customers that we bill domestically that we ship international. The Company probably is closer to 50%.

You know, a couple of classic examples would be a shipment to RF Micro Devices out on the West Coast, you know, when they finish making their chips for the handsets or mobile devices, that goes all over the world. That's not really a US -- to us it's a US sale, but in reality they're probably sales of more than 50% overseas. So that's the thing that misses from our numbers. You really can't tell. Or if we ship to an oil and gas -- let's say, a big customer of ours would be Schlumberger, well, that's going all over the world, but it's a pure US sale in our books. So what really happens is, our pure sales internationally are 30%, but yet, in reality, we're much more driven by the global marketplace than that 30% indicates.

I see. And as a follow-up question, just out of curiosity, there's been a lot of talk about the Chinese limiting their export of rare earth elements. And I was wondering if this has potential to affect you in any way?

Well, for us, we've obviously taken a very close look at that. That will not really have an effect on this company, based on what we do. My concern would be more on a much broader basis. What does that do to general markets across the world? Who knows? I mean, I don't know what the impacts of all that are. But for our use of those specific materials, it's a non-factor.

I see. Okay. Thank you very much.

Thank you. Our next question comes is a follow-up from Avinash Kant from DA Davidson and Company.

Hi Dick and John. Once again, you have been talking about some of the growing segments in your business. You've been talking about revenues from LED, solar, and battery markets -- more clean technology kinds of end markets. Could you give us some idea in terms of how is the trend in those businesses at this point, in terms of growth, and would you also give us some idea about what percentage of overall sales are coming from these segments? Roughly.

Well, I think we have it published in our pie chart -- well, no, that's a mix. You're not going to see that, because you've got some of that LED stuff in the consumer electronics space. So I would be taking a flyer at that, but maybe it's 5%, 7% of the business at this point. And, in those different areas, the -- we're at some really ground-floor areas for the LED areas. We're not -- well, actually, the LED is a good space, solid space for us right now, but some of the next generation, let's say in bright lighting, if you will, which is kind of the next phase, that's still at its early phase, because it's got to get its cost down to really have a breakthrough there.

The electric battery market is still, quite frankly, it's in its infancy. There's a lot out there, there's a lot being built, but there's not a lot being sold. So that's another area that we'll be well-positioned in as that starts to take off. And then, in the solar, again, as you're aware, we're working, expanding in the thin-film solar area, both in the coatings, the TCO coatings, and also the possibility of participating in the actual putting on coatings of -- on thin-film flexible substrate itself through out coatings business. So, again it's all still infancy for us, with tremendous amount of applications and quals going on.

So, when you say 5% to 7%, you're talking about all these three markets combined roughly at this point?

Yes.

Okay. Good. Perfect. Thank you so much.

Thank you. At this time, we have no further questions. I'd like to turn this call back over to Mr. Hasychak for any closing comments.

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

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