Park Aerospace Corp (PKE) 2008 Q1 法說會逐字稿

Good day, everyone. Welcome to the first quarter fiscal year 2008 earnings call hosted by Park Electrochemical Corporation. Today's conference is being recorded.

At this time, I would like to turn the call over to Brian Shore. Please go ahead.

Thank you, operator. This is Brian Shore. Good morning, everybody. I am the President and CEO of Park. With me, Jim Kelly. As usual, Vice President planning and taxes, I believe. Anyway, we'll do our normal call here which means that Jim and I will offer some introductory remarks, and then we'll take some questions. Jim, why don't you go ahead and get started with the financial commentary.

Thank you, Brian. Good morning, everyone. Certain statements we may make during the course of this discussion which do not relate to historical financial information may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations. We have set forth in our most recent annual report on Form 10-K for the fiscal year-ended February 25, 2007, various factors that could affect future results. Those factors are found in Item 1A and after Item 7 of that Form 10-K. Any forward-looking statements we may make are subject to those factors.

I would first like to summarize the financial information included in the news release for the first quarter ended May 27, 2007. Net sales for the 2008 fiscal year first quarter ended May 27, 2007, were 57.1 million compared to net sales of 62.8 million for the prior fiscal year first quarter. Net earnings for the 2008 fiscal year first quarter were 7.4 million compared to net earnings of 8.9 million for the prior year first quarter. Basic and diluted earnings per share for the 2008 fiscal year first quarter were $0.37 compared to basic and diluted earnings per share of $0.44 for the prior year first quarter.

Now I would like to review some of the significant items in our first quarter P&L. Sales volumes decreased 17% in North America, decreased 22% in Europe, and increased 12% in Asia during the fiscal year 2008 first quarter compared to the sales for the same period in the prior year. Sales of high temperature laminate and prepreg materials comprised 99% of total laminate and prepreg sales during the first quarter of fiscal 2008 compared to 97% during the prior year's first quarter. Sales of Park's high performance, non-FR-4 printed circuit materials which are a sub set of high temperature printed circuit materials were 50% of total laminate and prepreg materials sales in the first quarter of fiscal 2008 compared to 42% in the first quarter of the prior year. Sales of Park's advanced composite materials comprised 9% of total sales in the first quarter of fiscal 2008 compared to 8% in the first quarter of the prior year. The gross profit percentage for the first quarter of fiscal 2008 was 24.7% compared to 26% for the prior year first quarter. The gross profit percentage was lower for the fiscal 2008 first quarter compared to the prior year first quarter mainly due to the decrease in manufacturing unit volumes. Selling, general and administrative expenses were 11.5% of net sales for the 2008 fiscal year first quarter compared to 10.7% for the prior year's comparable period. The increase in these operating expenses as a percentage of sales was primarily due to the decrease in sales volumes.

During the 2008 fiscal year first quarter the Company recorded a pre-tax expense of 350,000 relating to the amortization of previously granted employee stock options pursuant to the provisions of FAS 123-R compared to 295,000 from last year's first quarter. Investment income for the first quarter was 2.3 million or 4% of net sales as compared to 1.9 million or 2.7% of net sales for the first quarter of 2007. The increase in investment income was attributable to increases in prevailing interest rates and available cash. Earnings before income taxes declined to 17.3% of net sales in the 2008 first quarter compared to 18.4% for the prior year's first quarter. The effective tax rate for the 2008 first quarter was 24.7% compared to a 23% effective tax rate for the prior fiscal year first quarter. Turning to go Park's balance sheet, cash and marketable securities increased to 224.6 million at May 27, 2007, from 208.8 million at the end of the prior fiscal year. We continue to invest the available funds on a conservative basis in highly rated fifth income securities and money market funds. Working capital was 245.9 million at the end of the 2008 first quarter compared to 237.3 million at the end of the prior fiscal year. Capital expenditures were 1.8 million for the 2008 first quarter compared to 0.5 million for the prior year comparable period. Depreciation expense was 2 million for the 2008 first quarter compared to 2.3 million for the prior year first quarter. Stockholders equity was 272.7 million at May 27, 2007 compared to 264.2 million at the end of the prior fiscal year. Finally, stockholders equity per share increased to $13.50 at May 27, 2007, compared to $13.08 at the end of the prior fiscal year.

Thank you very much, Jim. Nice job. This is Brian again. It is really nice to do the first quarter because there are less comparisons and also we don't have any special items in this year's first quarter or last year's first quarter, so it helps our -- helps us keep our commentary a little shorter.

Let me just help out a little bit here if I can add some perspective. First with a little analysis. I think there is something that at least for us important to understand when doing the first quarter and first quarter comparisons and even doing Q1 to Q4 and Q4 of last year to Q1 of this year, and this is something that is important. You see there is a drop in top line from Q1 of this year as compared to Q1 of last year, but what you need to also factor in terms of understanding the difference in gross profit is the impact of the what we call pass through or adders related to our selling prices which resulted from significant increases in copper foil. We have been talking about this for probably five quarters now. Remember what we did is we had increases in our copper foil costs we increased our selling prices pretty much on a dollar for dollar basis by applying adders to our selling prices from laminates. If you take that into account because the increase in our selling prices don't drop to the bottom line at all. They just cover our cost increases. You can take that into account, the real comparison would be effectively 53.8 million compared to 62.8 million in the Q1 of '07. The adjusted Q1 top line of '08 would be 53.8 million, and that's again taking into account adage for the copper. That's a $9 million difference in top line.

There is another thing Jim pointed to which I think we'll touch on a couple times during the call, and this is going the other way, and that is that our high performance mix, the percentage of high performance sales as compared to all electronic sales is 50%, 50. That's pretty important. That's a big deal. That's a land landmark. Obviously that's a plus. That's a little offset, and that would be a positive but when you take those two faction stores into account and do the math, and we've done it very carefully of course, it almost explains exactly to almost the last dollar the difference in bottom line gross profit especially quarter 1 of '07 to quarter 1 of '08. That copper factor is important to understand because we've covered the cost increase in terms of our price increases or via our price increases, but the sales dollars are effectively inflated when you do a Q1 '08 to Q1 '07 comparison. Hopefully you understand what we're talking about, but the equivalent is about a $9 million difference in sales, a $9 million drop in sales if you apples-to-apples it. The offset obe would be the high performance mix which Jim mentioned as well.

Actually, if you want to go back and compare Q4 to Q1, that also would be explainable by those two factors completely. By the way, the Q1 high performance percentage from Q1 of '07 was 42% and went from 42 to 50, but how about this one, the Q4 percentage just the prior quarter was 45% not 50%, so the high performance percentage is ramping up as a percentage of all electronic sales which of course is what we want. That's our strategy. That's our target market rather than the commodity FR-4 market. Now, one other little piece of information I will share with you regarding copper. Our friendly copper suppliers are kind of at it again even though the co-meg and LME has been leveling off maybe even a little down, and we received another increase for copper foil, and as we've done in the past, we are passing that increase in our costs onto our customers, but as we always do, a little lag, because we want to give our customers time to figure out what to do, et cetera. That's going to impact Q2 by approximately $400,000 negative. Ultimately we'll cover that, but there is always that lag, and I want you to understand Q2 that's a pre-tax impact of about negative -- correction, negative $400,000 as compared to Q1 if you want.

Let's see. What's going on here, the electronics industry, the movement continues to Asia, and that's something we talk about pretty much every quarter. That's not changing. There are some ups and downs, temporary I guess ups and downs within the industry, but I think the long-term trend is just moving more and more production to Asia. That means that our manufacturing footprint in the western world is -- was under scrutiny. I really doubt that the -- there are going to be significant increases in the market -- in the western market for electronics products going forward. The current environment -- let me before I go to the current environment, I just want to highlight something for you. When the market weakens, of course what happens is that the locations which already more marginal, they start doing even worse, and they end up getting more of our attention, and recently in the last couple of quarters, especially the last maybe four or five months, our operation in France that makes the digital electronic materials is doing very badly, and I want to be clear about this because we have two operations in France. The one I'm referring to is the Dijon area. We have another operation in southern France in a town called Lannemezan, which you haven't heard of probable except maybe through us but it's down towards the Pyrenees. That operation is different. That operation manufacturers PTFE based materials for RF/microwave wireless. That was doing okay. No big problem there, but the operation that is under some distress now is the operation in Mirebeau in the Dijon area, and it is only because of what I said, the migration of the western electronic manufacturing industry to Asia. The market of opportunity is just diminished and diminished in Europe, and we're considering all of our alternatives with respect to the operation. You know very well we don't make adjustment to our business base or manufacturing base based upon short-term trends. We're not chasing quarters here. We don't run our business that way. However, we have to face reality. We always have been pretty good about that, and we feel that there is something that's permanent, we deal with it. Because it doesn't help anybody, nobody, to be in denial and put our heads in the sand. We're not going to be getting to into any of the specifics about what we're considering except to say we're considering all of our alternatives because that operation is doing badly, so we explain the difference. Big picture Q1 and Q1 in terms of copper and high performance, but if you break it down by location, that location is doing badly, and that locations also dragged our earnings down considerably in the last quarter.

The current environment, I know some of you are interested in that. We have four weeks in the books, and Q2 as we speak, and for reasons that really don't understand, the market has -- our bookings have recovered. Our bookings have improved meaningfully in the last couple of weeks, and we have no idea what to make of that. Maybe that's a two-week wonder and it will all go away, but I know you always like to know how we're doing up to the last minute, and we give you the information we have. We're not going to speculate as to whether that's a trend or whether it is going to continue or whether it is not going to continue. We just don't know. We don't have a clue. For the first time in awhile, the bookings have improved meaningfully the last couple weeks, and that's information, that's factual. We're happy to share that with you. We share with you what we know. We're not going to speculate about what we don't know. We just don't think it is worth our time or your time. Okay?

Just a couple of things and we'll go to questions. Okay. Just wanted to go back and emphasize that that 50% mark for high performance materials as a percentage of electronic material sales, that's landmark we think. That's a big deal. That was probably 10 years ago and almost nothing, and that's really important for our future for the Company. The two things that are important for our future for the Company in terms of our current product line are of course the advanced composite material product line that where we sell into the aircraft structures market and of course the high performance materials for electronics where we feel we have uniqueness and we feel we have margins. It is a nice thing. I think we also talked to you not too long ago about a new product we introduced sometime in the last year. I don't remember exactly called Dash 13 EP. EP stands for enhanced performance. That's a follow on to Dash 13, and so far it seems like that's had a very good OEM attention and interest, and the sales are actually coming around now, so we're not generally people who are quite optimist, but I would tell you we're feeling pretty good about that product and feeling optimistic about it, and again it is a follow-onto our Dash 13 product which is one of our very strong product lines in the Company. I think we already told you that last year our Dash 13 product line did $770 million in sales, but the fiscal year that just ended. With the percentages Jim referred to, that's only going up.

Okay. What about our projects just to give you an update? We have been talking about our Kansas project for a quarter or two, and let me assure you there is a significant amount of effort that we're putting into that project just a couple doors down in the office here we have a group of people, about half dozen people going through the plant layout, and we're still in the final phases of site selections. We're just going to buy land and build a factory, so the plant layout can be done before we even decide which site to go to. We're still narrowing that field down. It is a little more involved than we thought it was going to be, but I think we said last time at least somewhere in that Wichita, that greater Wichita area within an hour or so drive from the Wichita, Kansas area which is the center of the universe for general aviation, aircraft manufacturing, which is the target market for our advanced composite product line. So that's something that we feel pretty excited about actually. The Pioneer Plant in Singapore we talked about that. That's our new plant that we're building. Also a (Inaudible) advanced product line for aircraft structures, that's part of our future, we believe, as a company. That's a strategic -- that's one of the key strategic parts of our business, let's put it that way. That plant should be done by the end of the year.

Just a little change I wanted to highlight to you, we've discussed previously that we're installing PTFE manufacturing in Singapore. PTFE is an electronic material that we used for RF/microwave wireless that we sold to the RF/microwave wireless communications market which is we believe a high growth market in Asia. Why? Because countries like China and India don't want to take the time and spend the money to put the ground infrastructure in, so the communications systems are set up in a wireless fashion, but we decided to locate that equipment in our China plant, the new China plant rather than in our Singapore plant, so it is the same basic equipment, the same basic strategy, the facts of life are that the customers are not in Singapore. They're in China, maybe in Korea, but they are really not in Singapore so we felt we would be better off locating that equipment, that manufacturing capability in our China planted rather than our Singapore plant. In terms of updates, that really covers it from our end, so, operator, I think we're ready to take some questions.

(OPERATOR INSTRUCTIONS) We'll go first to Rich Kugele with Needham & Company.

Thank you. Good morning, Brian. Quickly, I understand the significance of the increasing non-FR-4 and have been monitoring that for a long time. Obviously you're making progress on the aviation side and Nelco continues to be about 9%, but I guess you've also commented more on how M&A over the years in the advanced composite side did not make sense because a lot of those guys were asking for exorbitant prices, but we haven't probably asked about in awhile the consolidation on the core business. Is there any opportunity to go and drive the growth higher there or do you think that it is more just a matter of getting your mix higher than the 50% to drive your results higher so same revenue but gross margins higher?

Yes. That's an interesting question. I think we'll stand by what we said, but what you're also pointing out is that there is -- there seems to be more consolidation, and the western market especially, just because there really isn't that much opportunity, and in the market in general that could sometimes create other opportunities. We're not looking to buy competitor if -- I think that's one of the implied questions. That's just not really something we're interested in a competitor for our electronic product line, but the consolidation is interesting. We're not looking for market share really, especially for the FR-4 product line, but it seems like we've had a couple of opportunities recently which surprise us a little bit, but when things change opportunities sometimes present themselves. There is a shakeout, whatever, but the key thing is that we need to make sure that our cost structure, our manufacturing base, our foot footprint is correct for the market opportunity, and I am not talking making adjustment for quarter. We don't believe in that. We need to face reality, and as the market continues to contract, at least my opinion it will in the western world, we need to make those adjustments. The opportunity for us is probably not really top line. It is bottom line, and that's just by continuing to drive our high performance, and, you know, that's -- I guess I would have to say that we're happy with how that's going. It is not easy. Sometimes it is not very much fun, but the results are pretty much what we would want, and it is an important base for our business, an important earnings base. We're not walking away from that electronics industry at all or turning our backs on it. We really don't look the electronics market for top line growth as you implied. Subject to these little kind of quirky things that come up every now and then which we look at.

And I guess any changes to your top customers in the quarter?

Yes, actually, and maybe Jim will go over that for us, Jim Kelly.

Sure. As far as the customers for the quarter, we have two 10% customers. That's been Sanmina and Pegasus, being number 1 and number 2, rounding out the top 5 would be Tapco, TTM and Multek. In terms of percentages top 5 is 51%, the top 10 is 70% of sales and the top 20 is 79% of sales.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS) We'll go next to Jiwon Lee with Sidoti and Company.

Good morning, Brian.

Hello, Jiwon.

I came in a little later in the call, and I know you made some reference to the copper pricing, the foil pricing going up. Again, could you sort of kind of go through those things again? I apologize for missing that.

Well, what you probably should do is call us off line after, and we can go through what we've already discussed, and in more detail, but just to give you a quick snapshot, what we're saying is if you take into account the price increases that we've put through, selling price increases we've put through over the last year, and adjust our top line to take into account those selling price increases, the difference in top line Q1 of '07 to Q1 of '08 is actually $9 million because all the price increases -- none of the price increases -- the price increases resulted in additional sales but none of that increase related to price increase dropped to the bottom line. That was just to cover our costs. I think it would be better because it is a little involved if we spoke off line later and review what we already discussed with the rest of the audience so we don't have to have to listen to it all over again.

Okay. You did mention that the copper foil pricing has recently gone up again which should impact your second quarter numbers about $400,000.

Yes. You heard that part of it, yes. That's the lag effect we always talk about, so we've already communicated to our customers what we're doing, but there is usually a one month lag effect, six-week lag effect because we always give them a little time to get adjusted. We already put plans in place to cover that if you will with our prices, but we're dealing with a lag effect in Q2 here.

Great. And in France, especially Dijon Plant, what was the sales contribution there?

We haven't broken it out in the past, the individual plant contributions in terms of top line. I don't think we want to get involved with that, but it is not doing well. The market -- European market, especially for high advanced digital circuit materials is weak. Also we have been really focused on one large customer. We have a number of customers, but we have one large customer in Europe that has been very strong part of our business there, and it seems like that customer is their business is way off or maybe their moving business to Asia as well.

I see. That customer buys your digital broadband materials?

They buy our full digital product line, the FR-4 as well as the end advanced product. And would that customer -- if they were to move to Asia, would they buy from you in Asia or -- Well, I didn't say they're moving to Asia, they're moving their business to Asia, but I don't want to say any more because I don't think it is appropriate. This is a good question, though, because I think that there is two answers. As some of our customers in the west just generally lose market share or businesses move to Asia, if it is FR-4 business, there is really a question mark as to whether we will retain that. High performance business, there is usually very little question at all about whether we will retain it because it is an OEM driven situation, and there is a very, very high likelihood we will retain the high performance business as it migrates to Asia.

Okay. You mentioned, Brian, bookings have improved in June, and that echos some of the other data points that we're gathering. Could you tell us as much as you could geographically or market wise where you're seeing some of the improvement?

Well, I would rather not get into a lot of detail because I am afraid people are going to make too much of this. I just want to tell people what we know, and if we go into lots of detail, incompetent it I think it is going to be -- my concern is people will make too much of it. We don't know whether it is going to last. Asia, and again the long-term trends we've been talking about are very obvious to us and very much in existence. Asia has been stronger of late, not just in the last couple weeks, stronger of late. The western markets that we're talking digital, circuit materials has been weaker. The strength in just very recently we're talking about has been in -- well, it is across the board. We're talking about this very recent phenomena we noticed just in the last couple of weeks in terms of our bookings. In terms of the longer term situation it is Asia stronger and western markets weaker. Jim Kelly I think gave the percentages for Asia. He said on a quarter to quarter basis where the top line was down quarter to quarter, North America was down, Europe was down quarter to quarter but guess what, Asia was actually up quarter over quarter even though the overall sales revenues were down.

And the mix shift that you're seeing, half of your circuit material sales are now high performance, but on a pure dollars basis, would you say quarter over quarter the trend was pretty positive?

Yes. In other words, high performance?

Yes.

The high performance number grew on a dollar basis not just a percentage basis quarter over quarter.

Okay. Moving onto your Kansas project, any update as to how much money you will be spend to go fully ramp up?

Kansas?

Yes.

Oh, yes, we're ballparking about 15, 1-5 million.

That's what you said before, it is about the same?

We don't expect any -- we had the plant concept pretty well set in terms of the equipment, size of the building, but we're just doing some fine tuning work now, but doubtful doubtful we'll see many surprises there in terms of the big picture spending number.

How many treaters would you be bringing in there roughly?

Four lines.

All right. Okay. And you have about two in Connecticut, I think, right?

Sorry?

You have how many do you have in Connecticut now?

Three basic lines.

You don't use one of them?

No. We use all three lines. One is a tape line, and we have two solvent type treaters in Connecticut. We use all three of those lines. There is a fourth line. You were up there once, weren't you?

Yes.

There is a fourth line that we haven't used for a couple of years.

Final question, how should we -- your tax rate in the first quarter was up a little bit. How should we look at that going forward, and what is attributing to this sort of modest increase in tax rate? Thank you.

Yes, every time that we have to talk about tax rate it is frustrating because it we seem to get more and more complex, and we also have this FIN 48 we had to go through. I don't know if you heard about that, but they say that's the Sarbanes of the tax world. I think what the best Jim and I could do is say we're not in a position to guide you up or down from what our current Q1 tax provision is about 24.8%. A lot of variables, a lot of factors, but we are not in a position to guide up or down at this point, so I guess by default almost what you might want to consider is using that rate.

One final question and I will jump right back to the queue. Your composite materials, obviously people are interested in a positive direction from there, and you do have relative customer concentration as to who you do business with now. Going forward, as you have all of this capacity up and running, do you have a higher hopes with your existing customers growing or retaining obviously new customers?

You're talking about for aircraft structures?

Correct.

Yes. You know what, let's go back and remember that we're the outsider looking in. We're the new kid on the block. We're not really under any significant aircraft structure programs at this time that are in production. Working on getting qualified, and I am very pleased with how it is going. I think I also shared with you -- I don't remember a couple quarters ago, that a couple things I missed about our advanced composite product line, one is that the quality of the operation in Connecticut was not as good as I thought it was. I don't know if you noted, but we just put -- not a new guy. We put one of our veteran operating guys up there because we feel we really need to improve the operating disciplines of that facility. It is our level of other facilities around the world. We to want make it a park facility, and that's really urge. The other thing we under estimated or miss judged is how long it takes to be qualified in aircraft programs. I think we discussed that maybe a couple quarters ago, but understanding those two items, actually we're pretty pleased. There is a real focus on the part of our marketing and sales group toward the aircraft structures area, and we're dealing with the big leagues, and we're working on getting qualified let's call it on a critical aircraft structure programs, and I think the reception -- I am pleased with the reception, but we're just getting started. Like I said, we're the outsider looking in. We're kind of new kids on the block, and we'll just have to see how that goes. I am personally optimistic about it.

Great. Thank you.

All right.

Thank you. (OPERATOR INSTRUCTIONS) We'll take our next question from Matt Sheerin with Thomas Weisel Partners.

Thank you. Just a quick follow up on your commentary regarding the price increases related to copper. Could you tell us more specifically what the increase will be?

What the increase will be?

Yes. The price increase that you're passing along to your customers? What percentage is that?

We would rather not get into that. I think the information that would be helpful is the $400,000 information. That's the impact on the second quarter, and that impact will go away by the end of the second quarter because the prices will be adjusted by then, but I think we generally have been reluctant to get involved in a specific percentages. What we've done with copper, actually, is we've done what we call adders, so if we pay X cents per square foot more for a specific style of copper that would be included in a copper clad laminate, and if let's say two sheets of that, two square feet of copper in that laminate, we will increase our prices by exactly that much.

That's already in contracts, then?

No. We don't work with contracts. We really don't. We have a lot of long-term customers that we've been working with for many, many, many years, but really not very many contracts. It is -- let's call it long-term relationships more than anything else, but unfortunately this copper situation has been becoming quite an event in the last let's say 16 months in the electronics industry, so all of our customers and the OEMs are very aware of what's going on. Nobody likes talking about it, nobody likes getting a phone call, but they understand that it is a very volatile situation. I think a lot of people in the electronics industry spend a lot more time looking at the LME in co-meg for copper than they ever did before. I guess what I am saying is there is a heightened awareness. The market is kind of conditioned to have these discussions. Everybody, including us, wishes that those discussions would go away, but so far they haven't.

Okay. All right. Great. Thanks very much.

Thank you. (OPERATOR INSTRUCTIONS) Our next question from Lynn Cooper, Private Investor.

High, Brian.

Hello, Lynn, how are you doing?

Pretty good. I missed the early part. It couldn't have been too good because the stock is down about 10%, I think, but I had a couple of questions. One, does that Wichita floor plan include tornado basements and things like that and is it low level?

We have a tornado shelter inside the plant. That's something we would, yes. I believe it is actually required but whether it is or not we already have it planned out for the number of people that would be in the plant.

Okay. You're placing a good bet on that Far East and the aircraft composite business. Is that a business that China is going to go into or is that something they're going to leave to western companies as a balance of trade equalizer?

I will give you my opinion. I believe that China will absolutely go into that area, and we have spent lots and lots of time visiting basically all the key Chinese aircraft manufacturers, and they're in the boon docks, believe me, because these are all old military aircraft manufacturers. China unlike Russia doesn't really have much of a civilian aircraft manufacturing industry, but they've been given mandates by the government they need to start covering their cost and that kind of things, and they're in funny places, cities and way in the boon docks for obvious reason because they're military bases, and they didn't want them in an area of (Inaudible) people, but we found them all and in some cases seven or eight times and we've had a lot of in-depth discussions. We're getting qualified. Some of the programs already, but they certainly seem to be very, very interested in developing a civilian aircraft manufacturing industry. My predictions is,10 years from now they will be making their own airplanes, and now they want to make stuff for the western manufacturers, but my predictions is that 10 years from now they'll have their own airplanes. It seems like the Chinese are in somewhat of a mission here to enter into a big way the aircraft manufacturing industry.

I admire the thoroughness of your research in this area. Could I ask whether you would consider this composites for aircraft a labor intensive process, in other words is labor a big part of the product?

Are you talking about our manufacturing process or the process of making the composite structures?

The portion of the business that we're interested in, is that a labor intensive --

I don't think it is. I think that it can be quite labor intensive to actually make the structures, but to make the materials, I would not consider that to be a labor intensive activity.

It doesn't rely on a big staff and a lot of man power?

No. It is more engineering talent. That's why we're doing the work, and our Asian work in Singapore. We're also interested in protecting our technology of course rather than China. It is not the type of thing where you have 1,000 hourly workers and not that at all. In terms of the actual manufacturing of the parts and the structures, I believe that is somewhat more labor intensive.

So for the Chinese government, for example, it is a prestige item more than a big employer?

I think you're absolutely right, it is a prestige item. I am not a great scholar of China, but I believe that's absolutely a big part of it, and I think they want to be a leading economy, and they want to do everything everybody else is doing, and that's why I also believe they're not going to be content for very long to make parts for others or make airplanes for others. They're going to have their own airplanes, and their own indigenous industry with their own products that they actually sell.

They're a whole market themselves.

That's right, but they're going to be looking to outside markets in my opinion.

Okay. Thank you, Brian. Keep up the good work.

Nice talking to you, Lynn.

Thank you. At this time it appears there are no further questions. I would like to turn the program back over to Mr. Shore for any additional or closing comments.

Okay. On behalf of Jim and Brian we thank you all for listening in. Nice talking to you, and call us if you have any questions. Jiwon, make sure you give us a call so we can fill you in on the copper story that we already discussed, and I will look forward to talking to you again soon. Have a great summer, everybody. Goodbye.

That does conclude today's conference. You may disconnect your lines at any time.