Materion Corp (MTRN) 2011 Q2 法說會逐字稿

Greetings, and welcome to the Materion Corporation second quarter 2011 earnings conference call. (Operator Instructions). It is my pleasure to introduce (inaudible) Mr. Michael Hasychak, Vice President, Treasurer and Corporate Secretary. Thank you, Mr. Hasychak, you may begin.

Good morning. This is Mike Hasychak. With me 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 2011 results and the outlook, and Dick Hipple will provide a market update and comments. Thereafter, we will open up the teleconference call for questions.

A recorded play back of this call will be available until August 8, by dialling 877-660-6853, account number 286 and conference ID375913. The call will also be archived on the Company's website, materion.com. To access the replay, click on events and presentations on the investor relations 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, and welcome to the teleconference to review the results for the second quarter of 2011, and our outlook for the balance of the year. Thanks for taking the time to join us this morning. Today's agenda is identical to that of our past calls. I will review the results and then comment on the outlook. Following my comments, Dick Hipple will review the state of our key markets and then we'll open the call for questions.

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 quarter. Then as I normally do, I'll cover the factors affecting the reported sales growth, isolating real or organic growth from the effect of pass through metal prices. I will also comment on sales by market, comparing the second quarter to both the second quarter of the prior year and sequentially to the first quarter of this year, highlighting some of the key changes. I will also review the status of the costs associated with the two principal non recurring programs that we had previously announced. Those being the start-up of the new beryllium plant and the Company renaming and rebranding initiative. In addition, I'll review margins and in particular, value-added margins, that is margins excluding high value metals from sales. I'll comment on the balance sheet and finally I'll review the outlook for the balance of 2011 as we see it unfolding at this time.

With that as an introduction, let's begin with a summary of the quarter. This morning, we reported that the second quarter was another solid quarter for the Company, and we confirmed our outlook for the year. Overall, business conditions and earnings were slightly better than we expected. We are pleased with the progress we are seeing in our markets and the benefits that the breadth of the markets that we serve and our product offerings continue to demonstrate.

Sales set a new record, surpassing the previous record set in first quarter of the year. The value-added margins in the aggregate were above the prior year levels, after considering the impact of the two non recurring programs, those being the start-up of the new beryllium plant and the Company renaming and rebranding initiative.

Our balance sheet continued to get stronger due to solid cash flows in the quarter. In addition, we solidified our long-term financing capacity and operating flexibility by entering into a new five-year expanded revolving credit facility.

Sales for the second quarter were up approximately $99 million or 30% to the $425 million level when comparing to the prior-year second quarter. Comparing sequentially to the first quarter of the year, sales were up approximately $50 million or 13%. Sales have set new records in each of the last three quarters and in five of the six most recent quarters.

The reported earnings for the second quarter were $0.67 a share, which compares sequentially to the EPS of $0.57 a share in first quarter of the year. The second quarter EPS included $0.08 per share of cost related to the new beryllium plant start-up and the Company renaming. For the first half, sales were up approximately $179 million or 29% to approximately $800 million compared to the $621 million for the first half of last year.

Reported EPS for the first half is up 23% to $1.23 a share which includes approximately $0.18 a share of cost related to the new beryllium plant start-up and the Company name change.

Let's review sales in a bit more detail. The reported 30% increase in sales compared to the second quarter of the prior year and the 13% sequential growth from the first quarter of the current year are both due to continued broad-based, strong demand in most of our key markets, including telecom infrastructure, energy, medical, industrial components and commercial aerospace, heavy equipment, and automotive electronics. These markets all showed solid growth versus both the first quarter of the year and the second quarter of the prior year. Demand continued to be solid in consumer electronics as well.

Dick will comment more on demand levels during his review of the current state of our markets, and I will provide some specifics on sequential changes in growth by market in a moment.

Pass through 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 $63 million of the $99 million of sales growth in the second quarter compared to the prior year, and approximately $19 million of the $50 million of sales growth when comparing sequentially to the first quarter of the year.

Organic growth was a very healthy $36 million or approximately 11% compared to the prior year second quarter. Year to date, organic growth is approximately $71 million, also 11%. What is especially pleasing about the 11% organic growth in the second quarter comparing to the second quarter of the prior year is that that growth occurred while supply chain inventories were being drawn down during the quarter, whereas in the second quarter of the prior year, supply chain inventories were building, especially in consumer electronics.

Now, let's review sales by market. In the second quarter of this year, comparing to the second quarter of last year, our value-added sales increased significantly in a number of our markets. Energy was up 12%. Automotive electronics was up 34%. Telecom infrastructure was up 33%. Medical was up 37% and the industrial components and commercial aerospace market was up 35%. Defense and science reflected the ongoing softness in that market, but was still up 3%.

Value-added sales in consumer electronics were down 6% year over year in the quarter, reflecting the heavy supply chain inventory builds that drove sales up in the prior year's second quarter. In the current year, supply chain inventories in this market decreased in the quarter.

Sequentially comparing to the first quarter of the year, consumer electronics was up 3%. In addition, energy was up 3%. Automotive electronic was up 16%, telecom infrastructure was up 22% and medical was up 11%. Defense was up 21%, and the industrial and commercial aerospace market was up 28% comparing sequentially the first to second quarter of the year to the first quarter.

This is where the value of our market and product diversity is visibility. In an environment where our key markets, such as consumer electronics which represents 23% of the Company's value-added sales, was essentially flat due to supply-side inventory adjustments, the Company continued to deliver double digit growth.

You will recall that we had previously announced that the Company expected higher costs in 2011, due to certain specific initiatives. These include among other things, start-up of the Company's new beryllium plant, the Company renaming and rebranding, a number of organizational and development initiative targeted at long-term cost reduction and margin improvement opportunities, higher pension and healthcare costs and higher metal financing fees.

We had originally estimated that these costs would be in the range of $0.35 to $0.40 a share for the year. The actual impact on the reported second quarter results was approximately $0.15 a share. With, as I noted earlier, and as recognized in the press release, $0.08 of the $0.15 being related to the two principal factors, again the start-up of the new beryllium plant and the Company renaming and rebranding initiative.

As I noted earlier in my comments and as stated in the press release, these two factors totaled about $0.18 a share in the first half.

Our current estimate is for the beryllium plant start-up and the Company renaming initiative to be in the range of $0.26 to $0.29 per share for the year. The negative effect of these factors will be lower in the second half of the year, and in the range of $0.08 to $0.11 per share which in turn will certainly help to offset any market softness or supply chain inventory reductions that might continue to occur in the third and fourth quarters.

I'd like to now turn to margins. Our margin performance in the second quarter continued to reflect the value of our organic sales growth, as well as the structural changes the Company has undertaken over the years and the related mix shifts to higher value, higher margin markets and applications along with better pricing and cost reductions.

It is always very important to note that for our Company, having significant amounts of precious metal in the top line has the effect of diluting reported margin percentages and lowering them to levels below what one would normally expect to see from advanced materials companies. The precious metal content of our sales has increased significantly over the past several quarters due to our growth, the Academy acquisition in 2010, and the pass-through metal price increases. These factors affected both the first and second quarters of the year significantly, due to more rapid increases in the prices of gold, silver and other precious metals.

Factors such as these can at times result in reported margin percentages that appear to be decreasing or conversely not increasing as much as they really are. These factors affected the reported margin percentages for the Company in the aggregate as well as reported margins for the Company's advanced materials segment.

Internally, we measure margins with the high value pass through metals excluded from the top line. While we do not disclose the specifics for competitive reasons we do track and monitor our margin percentages on this basis. In looking at margins this way, the Company gross profit percent in the second quarter was approximately 40% as opposed to the reported 14.8%.

Similarly, as noted in the past, operating profit percent of value-added revenue for the Company was in the low to mid teens as opposed to the reported 4.9%.

Our margins continued to expand in the quarter. In our advanced materials technology segment, margins on this basis were up 230 basis points compared to the prior year second quarter, and on a year to date basis are up 220 basis points.

In our performance alloy segment, margins were up about 100 basis points in the second quarter comparing to the prior year, and on a year to date basis are up 450 basis points compared to the prior year. These increases reflect the results of the continued emphasis we are placing on growing the higher value-added segments of our business and supplementing that growth with cost reductions and pricing improvements.

I'd like to now turn talk about the balance sheet and cash flow. Cash flow on the balance sheet, both the balance sheet and the statement of cash flows are attached to the press release. The Company began 2011 with a very strong balance sheet, in spite of the difficult macroeconomic environment experienced during 2009 and early 2010, the strength of the Company's balance sheet and its cash flow provided the flexibility to take advantage of the opportunity to complete two acquisitions. The two -- the total investment for the two acquisitions was approximately $76 million.

Over the past five years we have invested over $175 million in strategic opportunities and yet finished 2010 with debt to total cap in the range of 18%.

In the second quarter of 2011, debt decreased by approximately $10 million. Debt to total cap at the end of the second quarter was approximately 18%.

We anticipate strong positive cash flows in each of the remaining two quarters of the year and expect to see debt to total cap reduced to the 11% to 13% level by year end.

The projected positive cash flows through the remaining quarters would, as in the past, be used to reduce debt or support acquisitions.

The new revolving credit agreement recently put in place provides us with a five-year, $325 million committed facility. The facility is expandable by up to $100 million under certain circumstances.

The quality of the balance sheet and the related credit facilities continue to be a source of pride and are strategic assets for the Company. We're pleased to have the liquidity we have and the flexibility to support our current and expected double digit growth plus important strategic initiatives such as acquisitions.

I'll now comment on the outlook. As noted in the press release, and from my earlier comments, while there is macroeconomic uncertainty unfolding for the second half of the year, and we are cautious, we are confirming our previously published outlook for the year.

After a record sales year in 2010, the Company began 2011 with a healthy backlog and the overall level of business activity in the Company's key strategic markets has remained strong as evidenced by the consecutive first and second quarter of 2011 record sales levels as well as the double digit organic growth that I explained earlier.

Order entry in the second quarter increased over the first quarter. Order entry in the second quarter did soften in the latter weeks. Taking the above into account and assuming no significant change in metal prices or order entry patterns from current levels, the Company presently expects sales for 2011 to be approximately $1.6 billion. Up approximately 25% compared to 2010. We still expect organic growth to be in the 9% to 11% range for the year. That's what we published earlier in the year.

Given these factors the Company is maintaining its earnings outlook for the full year 2011, which as previously announced is in the range of $2.35 to $2.60 per share. This range includes $0.26 to $0.29 per share in the aggregate of cost associated with the start-up of the company's new beryllium plant and the company name change.

Given the normal seasonal patterns we would at this time expect the third quarter to be similar to the second and the fourth quarter similar to the first.

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

Thank you, John. And thank you to the Materion employees for delivering another record quarter. Our management team also recently had the opportunity to ring the closing bell on the New York Stock Exchange to celebrate our 80 years in business and to celebrate our new name change. It was an honor to have the opportunity to represent our employees and our Company. And the timing could not have been better as this quarter was coming to a close.

During the quarter, we saw strong year to year growth across numerous key markets such as industrial components up 35%, telecom infrastructure up 33%,medical up 37%, automotive up 33%, energy up 12%. Whereas consumer electronics was flat to slightly down from last year, reflecting an inventory adjustment that is underway.

Our growth has been balanced across several key secular growth markets which certainly brings us better stability during economic cycles.

In the quarter, we also made good progress with our production start-up at our new beryllium pebbles plant in Elmore, Ohio. We expect to be operating at full production requirements by the end of the year.

And as we complete our phase one rebranding efforts in Materion, which has been focused on all of the activities of officially changing our name, including a strong customer communication program and new consolidated website, we are now moving to phase two where we will be focused on leveraging our internal strengths in areas such as best practices and operations, accelerating common systems in finance and IT, developing opportunities in technology, markets and customers, that cuts across multiple divisions. And driving down costs to leveraging procurement actions. We have crossed division leaders -- leadersformed and teams to attack these many opportunities. All of which will help drive our costs down and provide new customer opportunities through unique products and services. We are very excited about new, unfolding capabilities and are driven to become our customers' first choice.

I would also like to welcome two new directors on the Materion board, Dr. Solomon -- Darlene Solomon is Chief Technology Officer for Agilent Technologies, based in Santa Clara, California. Agilent Technologies is the world's premiere measurement company, and a technology leader in chemical analysis, life sciences, electronics and communications. And Mr. Geoff Wild is Chief Executive Officer and a Director of Luxembourg-based AZ Electronic Materials and he is based in Hong Kong. AZ Electronic Materials produces high quality, high purity specialty chemicals and materials for use in integrated circuits and devices, flat panel displays, light-emitting diodes or LED's and photolithographic printing. The stock is trading on the London Stock Exchange. They both bring decades of executive management experience and industry leadership enabling innovation across the advanced technologies and materials spectrums including some of the high-growth global markets served by Materion. We expect their insights will be very valuable to our ability to build on Materion's record of success, in the years to come.

And I'd also like to thank Albert Bersticker and William G. Pryor, who retired from the Company's board upon the completion of their terms in May, 2011, for their many years of services and guidance.

So as we look forward to the balance of the year, we are cautious as we see signs of global economies slowing down which can always result in inventory adjustment cycles, even in fast-growing markets. Meanwhile, our internal head winds from the pebbles plant start-up and rebranding costs will be declining as we move through the balance of the year. And as John indicated this will help offset the impact of any softness that develops in the second half.

And thank you and we will now be taking questions.

Thank you. (Operator instructions). Our first question is coming from Avinash Kant of D.A. Davidson and Company.

Good morning, Dick and John.

Good morning, Avinash.

Good morning.

First question, you did talk about a little bit of weakness that you have seen later in the quarter. Could you point out which segments have been seeing that weakness, any (inaudible) end markets?

Well, particularly softness in the electronics sector. So we certainly saw some of that in the performance alloys division and our AMTS division.

So is the electronics soft -- is it coming from cell phone or disk drives?

I think we're seeing -- and I've talked about this many times, you can't go a straight line up. I think we're just seeing an inventory adjustment. Because at the same time, you've got rapidly growing secular growth rates in the 4G buildouts and telecom, but just I think we have had an inventory adjustment going on. That's what we're hearing from our customers at this point in time.

Okay. And on the other hand, it looks like the (inaudible)the opportunities seems to be growing pretty fast. How do you see that growing with all the data points from the commercial aerospace side look positive at this point?

I agree with you, Avinash, and we expect the same. They're finally getting off the ground withtheir new platform builds and starting to ship airplanes. So that's all good. And we will certainly see that growth, both with the Boeing and the Airbus platforms.

Okay. And I'd also would like to get some idea about should how we think of -- and I know you've tried to explain this in the past, but the new (inaudible) beryllium facility, the operations, how are they adding to revenues at this time or are they or not at this point?

No, the new pebbles plant will not add any revenues to the Company because it's an inside process that's being replaced. As we have been receiving our -- some of our raw materials essentially from the government's strategic stockpile so when we start this new beryllium stockup, we will be self supplying our own materials from our mine in Utah.

All right, so will that at least help you --

But I will add to that, we actually with the new plant, we have added to our capacity , so that at that time that, let's say the market for special reasons may increase dramatically for beryllium products we will be able to respond to a much higher level than we have in the past. So we do have more kick there with the new facility.

But in the meantime, is the pricing working out better for you now that you do it yourself versus buying it or is it pretty much the same?

It's actually quite frankly a little bit negative because we have a little bit higher overhead cost with the new facility. Versus buying the raw material directly.

Okay. And if the government were to start stockpiling this thing again in that case this plant would add to revenues, right?

Oh, absolutely. Yes. And that's certainly a distinct possibility. Some time in the next several years that they will replace that strategic stockpile and we would enjoy that in addition to any other business that we have. So that would be all add on gravy to that particular business unit.

And when that were to happen, which business segment will see the revenue from that, the beryllium and the composites?

Yes. Beryllium and beryllium composites.

Okay, one final question and I'll leave you after that. The depreciation seems like it took a pretty big jump this quarter. How should we think of CapEx and depreciation going forward?

I think you can consider CapEx to be the same, $25 million to $35 million for the year in total, perhaps on the low end of the range that we had provided earlier, and total amortization for the year about $48 million to $50 million.

Perfect. Thanks so much.

Our next question is coming from Chuck Murphy at Sidoti & Company.

Good morning, guys.

Good morning.

Good morning.

Avinash asked most of the questions I had in mind, but one for you regarding performance alloy. Saw a nice up tick sequentially in revenues, but the margin came down a bit. Why was that?

The margin did not come down on a value-added --

Value-added, okay. So that's what I wanted to know.

Right. And I --

So it was metals prices --

Were you there when I quoted that, Chuck, or should I reinforce it?

Yes, can you read that again, please.

Yes. The -- let me pull it out. The year to date, the segment is 450 basis points over prior year. In the second quarter they were up 100 basis points.

So the value-added margins?

Value-added margins. So it's metal.

Okay. Got it. I'm guessing mostly copper?

Of course, yes. Copper.

Got you.

And there may be a little mix in there. But it's primarily copper.

Okay. What would it have been on a sequential basis? For the value-added margin side?

First quarter, second quarter, sequentially since a year to date is significantly higher than that. Sequentially they may have been about flat, actually. Looking at them now. They're flat.

Flat, okay. Gotcha. Okay. And other question was just, you talked about telecom infrastructure being one of your stronger markets. Just kind of wondering what kind of customers we're talking about there given kind of the negative news recently out of Juniper and Cisco.

Customers would be -- the customers would be like an [Annex P]. We have -- could be an Amphenol. Coming into the connector-supplier base. That would be two examples.

Yes. I mean, they wouldn't then be selling to a Juniper or a Cisco?

They -- in the case -- a lot of these are going to be go out of the wireless base stations, so I don't think that Juniper and Cisco are in that segment.

Okay.

Although you're right. I mean, their equipment does find its way into those sectors.

Yes. Okay. All right. Thanks.

Thank you. Our next question is coming from Rob Young of William Smith & Company.

Hi guys, good morning.

Good morning.

Good morning.

Congratulations on another -- on a record quarter.

Well, thank you.

Thank you

I was hoping that with the several first weeks of Q3 have passed you could comment a little bit on the order entry that you have seen so far?

The pattern that existed -- that began in mid Q2 carried throughout the end of Q2 and into the beginning of Q3. There hasn't been any significant movement up or down from that level, considering one other factor. That is when you get into early Q3 you also get into holiday shut down periods and you get into the slow period in Europe.

Okay.

I included that in my comments so typically we would expect to see weaker July orders and then lifts in August and early September.

Okay now, is that across the board or is that mainly in consumer electronics?

That's mainly in the performance alloy business and it would be across the board.

Okay.

In that case it's all markets.

Okay. Do you know how long by chance the inventory adjustment is for the consumer electronics? Have you had any insight into how much longer that will take and whether or not --

It's -- that's a really tough question, but if you just go with kind of history, usually that's a quarter. A few months.

Okay. So we might start seeing it pick back up next quarter or into Q4?

Yes, actually, we would expect it to be -- typically you get a lot of the holiday season, builds start to go on.

Right.

So you start to see it in -- certainly like a September time frame would be typical.

Start to see a lift for the holiday season.

Okay. Is there any other market that you might be seeing a correction come around?

No, that's the key one.

That's the key one. Okay. I was hoping just lastly you could comment a little bit on medical and kind of the end market that you see there, the growth potential and the time line of that growth potential possibly moving forward.

Yes, the biggest place we play in medical, there's a couple of areas, but I'll just talk about the biggest area. The reason why we had such high year to year growth there was that if you spin the clock back a ways, we did have some production issues in that space that required us to get some requalification going on at one of our critical customers. That has been done and we're back up and running fully with that customer. So that's why you see that growth. So that's a really good story. And then as we go forward, this is in the diabetes or glucose testing market, and we do expect that to be robustly growing over the next several years because we believe the technology is coming into our space so that you have some customers that use this technology. But others are now running a lot of product from us as they would shift into the precious metal plated test strips. Because they provide more accuracy from a medical standpoint. So that is -- that would shift into some additional customers, let's say in 2012, 2013, we have some high hopes there for that segment to grow.

Okay. Now, is this a segment that could possibly become one of your larger segments or is that still going to stay maybe closer to the bottom?

It will grow. It's not going to become a$200 million segment for that kind of product.

Right.

But it -- that's what's fun about the Company. We have a lot of neat

Right.

segments and products that can grow very nicely and we're not dependent in any one area. So we get a lot of growth across the board on the poker table here and it just helps everywhere.

Okay. And so you just mentioned that you might be testing with some other customers in that market. Do you know how long that testing is expected to take?

Yes, that's what -- the medical is a great market. One of the negatives is it's a very long gestation period --

Okay. for full qualification. So that's why I said we could be looking into 2012 to maybe early 2013 before that might be kicking in. Okay. Perfect. Perfect. Thanks very much.

Thank you. The next question comes from Mike Parr of KeyBanc.

Good morning.

Good morning, Mark.

Good morning.

I was wondering if you could give us an update -- I'm not sure if you mentioned this or not. But what was the book to bill in the second quarter and how did that compare with the first quarter?

The book to bill in the first quarter was -- the ratio was 1.05 and in the second quarter it was 0.95.

Okay. Is that -- you think that is fully explainable by just the inventory correction or is there some normal seasonality associated with that?

I think there are two factors. I don't know if I'd think about seasonality. One, there was inventory correction but secondly we shipped in the quarter some programs from the beryllium composites business that would have been orders last year or even prior to that.

Okay. All right. Terrific. Thanks, John. Good luck on the third quarter.

Thank you.

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

That's Shaker Investments. Thank you for taking my question.

Good morning.

Good morning. Two items on -- in Q3, you said I believe that Q3 you expected to look like Q2. Was that in terms of top-line growth or top-line sales or the margins? I mean, I wasn't quite sure what you meant by that?

Reflecting the comment on -- we were referring to earnings.

I see. And also, you also made the comment that the $0.08 to $0.11 -- you expected an $0.08 to $0.11 charge in the second half. Is that per quarter or in total?

No, no, that's the total.

That's the total.

The costs -- I don't look at it as a charge, but the costs for --

For the beryllium plant and the name change.

Right. Bringing the total for the year to the range that we published.

I see. Okay. Thank you very much for clearing that up.

You're welcome.

Thank you. (Operator Instructions). Our next question is coming from Brad Evans of Heartland.

Good morning, everybody.

Good morning.

Thank you for taking the questions as well. Just curious if you could maybe just qualify your first half 2011 design win activity in the aggregate versus your expectations or perhaps maybe versus the prior year. Or however you might want to benchmark it.

Well, I think -- I can't give you specific data on that, but the design wins on the first half of this year would be much higher than then, because we were just coming out of the recession at that point in time. Everybody was scrambling. So there was a lift in the market, there was not a lot of product development going on at that time in 2009 when everything was cratering. So there's a lot of new programs and platforms that we're currently working on and we were nowhere near as busy at that a year ago. So it's good because it's all going to be hitting secular, nice secular growth for us as we look forward to the next couple years.

And that's partially reflected in the higher R&D levels that we're seeing in absolute dollars?

That's correct.

That's great. John, do you I have it right, youhave about $55 million drawn on the revolver?

That's correct.

Okay. I appreciate that guidance on the continued debt paydown. With where the Company is valued today, at roughly 6.5 times thatadjusted cash flow, can you find acquisitions that are as attractive as yourself at this point and I guess, kind of a loaded question. I'm just curious if you're thinking about free cash generation in the second half, you have obviously talked about paying down debt, but does buying back your stock make sense?

Well, again, we -- that's constantly being evaluated versus the other options and obviously against strategic growth in the Company. So I mean, that's constantly being balanced.

And to answer your question, there are -- all of the acquisitions that we have done in the last five years have been done at a multiple below that.

Okay. There's not a buy back currently authorized, is that correct?

No, there is a buy back authorized.

Oh, there is?

Yes.

Can you refresh my memory as to what's available on that buy back?

It's the offset for the employee stock and director's stock plans.

The authorization total was (inaudible - multiple speakers) million shares, I believe. And 70% or more of that is still available.

Right.

But heretofore, you have just felt that it was -- that's just to offset option dilution and not really -- it just seems with 21 million shares outstanding, you can really move the needle on the denominator by maybe accelerating that a little bit with some --

There's always that debate, of course, as you know, Brad, but the opportunity's on the acquisition front of creating far more value than that in certainly in the last four to five years. And as long as we see those opportunities, both domestically and internationally, we are going to take advantage of them. And there's the balance sheet to do it and the opportunities are out there.

Duly noted. And that's a good dovetail into that acquisition pipeline today, how does that look today versus six months ago?

Well, I mean, we're very active. And again, as I stated before that they've got to be right. So you wind up working a lot of things and we expect to continue on with the evidence of our acquisitions that we have done in the last several years. And it's an active area for us.

By the way, I wanted to make a comment, Brad, that the revolver is actually $42 million.

$42 million.

Yes, and revolver draw, using the math in the forecast that I presented would suggest that potentially it's nothing by the end of the year.

Okay. And just what -- we kind of kicked this dog to death in terms of this little inventory correction you're seeing, is there any geographic concentration to it, maybe Europe or Asia or is it pretty broad based?

No, it's broad band.

Okay. Great quarter. Thanks, guys.

Thank you.

Thank you. We do have a question coming from Martin Heilbrunn of Winchester Group.

Hi, you fellows are doing remarkably well, having followed the company for a few years.

Thank you. Thank you.

One question is of your cash, how much of it is overseas?

Very little.

Oh. In other words, you have been able to bring it back to the United States and pay taxes on it? I'm not saying that's wrong.

Yes, we have been able to design the structure of our overseas operations, how we price product, how we have structured the legal ownership of our entities, et cetera, to allow the efficient movement of cash back to the United States.

Okay.

We also have been investing overseas, minor amounts as well. Put that cash to use.

Well, basic question is cash flow. Buying companies in this country, and something which I always like to see but unfortunately for many reasons you know better than I, you haven't paid dividends for a long time and I believe to me as a long-time investor, dividends are an important function of a Company, especially in the period which I think this country and maybe some of the rest of the world is going to enter. So you do have the cash to pay some dividends. I remember back in the 1980's you were paying a dollar a share. But I do realize you want to expand by acquisition.

Right. Had we not made that shift, we wouldn't be the Company we are today.

I know, I know. But you don't have to pay $1.40 like you once did. But -- there certainly should be some dividends. But again, that's one person's opinion. Second -- and I have a few operating questions really dealing with the overseas. What kind of an effect did you have and any possible improvement because of the earthquake/tsunami effect on the automotive and lesser extent on the industries?

I think I was personally a little surprised of the lack of impact on this Company with the Japanese situation.

Yes.

We seemed to sail through that without a major impact and obviously automotive was a key area that we watched. Quite frankly, I think we might have picked up some business because of that. Because people are now concerned about being solely reliant upon a Japanese-only supply base. So that we may compete with some companies in Japan and as they diversify their supplier base and need other people to supply things that may have been in the shorter situation during that time, I think we actually net-net, it didn't hurt us. Certainly we lost some sales in Japan because of reduced supply there, but at the same time, I think we picked up business because of the situation. So I think net-net it was kind of neutral to the Company. Although certainly when that first occurred I thought it was going to be a negative.

Thank you. Now, in recent weeks the European operation, (inaudible) economy, some of them, especially France, have begun to slow down a little bit and China also has been operating at a reduced rate of growth. I was wondering whether you had seen some of these effects and whether it looks like Europe especially could hit you to some extent?

Well, I'll tell you the US GDP wasn't too exciting either if you want to add to the fire.

Fully aware

Okay. Well, I think that's why we do -- any time that you go from a more rapid growth level to a slower growth level, that's when you have an inventory adjustment. And that's what I think we're seeing.

Well, that's been particularly in TV sets.

Well, I mean, I don't -- you can pick on TVs, but there's a lot of other things that people buy.

Yes. No no, that's where you've been hit the hardest. But anyway, thank you.

Automotive sales I think have declined, so you're going to see an inventory adjustment reflecting a slower growth rate across the globe.

Well, thank you.

That doesn't take away from -- we're still participating in a lot of strong secular growth markets but as I pointed out in my discussion that if you're going from -- even if you go from 20% growth to 12% growth, when that occurs you're still going to have an inventory adjustment. So it doesn't matter where you are on a curve. Any kind of slowdown will have a -- maybe a three-month inventory adjustment associated with it. You settle out and then you continue to grow.

No, I understand. Anyway, thank you very much. Again, I think you're doing a fabulous job.

Well, thank you.

Thank you. Your next question is coming from Avinash Kant from D.A. Davidson and Company.

Just to follow-up. I don't know, maybe Dick, you gave this one. I think you talked about the sequential growth or year over year growth in different end markets like consumer electronics defense and (inaudible) and all that. Did you give the percentage of revenues they were for the quarter?

We -- are you asking the percentage of the -- of each of those markets to the total?

Yes.

The revenue percent or the VA percent --

VA -- whichever you want. VA will be preferable, but whichever way you --

Yes, we didn't share that today, but we'll be publishing that.

Okay, this will be on investor --

It appears in the investor presentation, and as soon as that new presentation is posted , the data will be there.

Will it be up today?

No. No.

Okay. Thanks.

Soon.

Okay, thanks.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management.

Yes, this is Mike Hasychak, we would like to thank all of you for participating on the call today. I'll be around for the remainder of the afternoon to answer any questions. My direct dial number is216-383-6823. Thank you very much.

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