Park Aerospace Corp (PKE) 2010 Q3 法說會逐字稿

Good morning. My name is Michelle and I'll be your conference operator today. At this time, I would like to welcome everyone to the Park Electrochemical Corporation third quarter 2010 earnings release conference call.

(Operator Instructions)

At this time, I will turn today's call over to Mr. Brian Shore, President and Chief Executive Officer. Mr. Shore, you may begin your conference.

Thank you, Michelle. This is Brian Shore, good morning, everybody, I'm the President and CEO of Park Electrochemical, as Michelle indicated. I have with me, Matt Farabaugh, Vice President and Controller. Welcome to our third quarter conference Call. And we'll do what we normally do which is Matt and I will start with introductory remarks, and then go into the question and answer portion of the call. And let me also remind you that Matt's comments which he's about to make, are already posted on our website. There's a lot of detailed information in Matt's comments and remarks, so if you miss anything you can check it on the website. Go ahead, Matt.

Thank you, Brian. Certain statements we may make during the course of this discussion which do not relate to historical financial information maybe 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 fourth in our most recent annual report and Form 10-K for the fiscal year ended March 1, 2009 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 make -- we may make are subject to those factors.

I would first like to summarize the financial information included in the news release for the third quarter ended November 29, 2009. Net sales for the 2010 fiscal year third quarter ended November 29, 2009, were $46.1 million compared to net sales of $49.2 million for the prior fiscal year's third quarter. Park's net sales for the first nine months were $125.3 million, compared to net sales of $164.6 million for last year's first nine months. Net earnings for the 2010 fiscal year third quarter were $7.2 million, compared to net earnings before special items of $3.5 million for the third quarter of last year. In the third quarter ended November 30, 2008, the Company recorded a charge of $570,000 for restructurings at certain of the Company's North American and European business units. Accordingly, net earnings were $2.9 million for the prior years third quarter.

Park's net earnings for the first nine months were $15 million, compared to net earnings before special items of $16 million for last year's nine month period. During the fiscal year 2009 first nine months the Company recorded the charge of $570,000 for the restructurings mentioned above. Accordingly, net earnings were $15.4 million per last year's first nine month period. Park reported basic and diluted earnings per share for the 2010 fiscal year third quarter and first nine months of $0.35 and $0.73 respectively. Compared to diluted earnings per share before special items of $0.17 and $0.78 respectively for the third quarter and nine month period ended November 30, 2008. The diluted earnings per share after special items were at $0.14 and $0.75 respectively for the third quarter and nine month period ended November 30, 2008. Now I'd like to briefly review some of the other significant items in our third quarter P&L. Comparing the current fiscal year's third quarter sales to last year's third quarter sales, Park's sales volumes decreased 16% in North America, 18% in Europe, and increased 11% in Asia.

During the current fiscal year's third quarter, North American sales were 48% of total sales, European sales were 9% of total sales, and Asian sales were 43% of total sales, compared with 54%, 10%. and 36% respectively for last year's third quarter. Sales of high temperature printed circuit materials comprised 100% of total printed circuit material sales during the third quarter of both fiscal year 2010 and fiscal year 2009. Sales of Park's high performance printed circuit materials, which are a subset of high temperature printed circuit materials, were 68% of total printed circuit material sales in the third quarter of fiscal year 2010, 61% in the third quarter of the prior year, and 63% in the second quarter of fiscal year 2010. Sales of Park's advanced composite materials and parts were $4.8 million in the third quarter of fiscal year 2010, $7.1 million in the third quarter of the prior year and $6.8 million in the second quarter of fiscal year 2010, and comprised 11% of total sales in the third quarter of fiscal year 2010, 14% in the third quarter of the prior year, and 16% in the second quarter of fiscal year 2010.

The gross profit percentage for the third quarter of fiscal year 2010 was 29.9%, compared to 19.9% for the prior year third quarter. Selling, general and administrative expenses were 13.3% of net sales for the 2010 fiscal year third quarter, compared to 12.6% for the prior year's comparable period. Investment income for the third quarter was $112,000 or 0.2% of net sales compared to $1.651 million or 3.3% of net sales for the third quarter of 2009. The decrease in investment income was primarily attributable to decreases in prevailing interest rates. As a result, pre-tax operating profit was 16.8% of net sales for the 2010 fiscal year third quarter, compared to pre-tax operating profit before special items of 10.6% for the prior year third quarter. The effective tax rate was 7.4% for the 2010 fiscal year third quarter, compared to an effective tax rate of 33% for the prior fiscal year third quarter.

Turning to Park's Balance Sheet. Cash and marketable securities were $234.4 million at November 29, 2009, compared to $225 million, excuse me, $225.3 million at the end of the prior fiscal year. Working capital was $253.4 million at the end of the 2010 third quarter, compared to $239.6 million at the end of the prior fiscal year. During the current years first nine month's, the Company had capital expenditures of $1.7 million, and depreciation expense of $5.2 million, compared to capital expenditures of $11.7 million, and depreciation expense of $5.9 million for the prior year's first nine month period. Stockholders equity was $308 million at November 29, 2009 compared to $295.7 million at the end of the prior fiscal year. Finally, stockholders equity per share at November 29, 2009, was $14.99 per share, compared to $14.45 per share at the end of the prior fiscal year.

Okay, thanks, Matt. This is Brian again, and let me try to give you a little more perspective on a few things. First of all, the tax rate, I'm sure you're wondering what that's about. The major -- the main reason for the tax rate being so low in the third quarter, is that we received a tax benefit from the government of Singapore, an incentive benefit relating to the Pioneer plant, which we constructed a couple years ago. That's the additional plant we built in Singapore that makes composite materials. And there's a retroactive portion of the benefit which drove the tax rate in the third quarter down quite a bit. There is another adjustment which was involved as well, and that's the main explanation. Now I think you should know that the normalized rate for the third quarter, which is taken into account, let's remove the retroactive portion of the reduced tax rate in Singapore, a normalized tax rate would have been 19.6%, 19.6% and that would have resulted in an EPS, diluted EPS of $0.30, okay? So those are numbers I think you'll want to remember, because the tax rate in the third quarter is obviously not sustainable. It's the correct tax rate, but it's not a sustainable tax rate. So again, you might want to think about these numbers, 19.6% would have been normalized tax rate for the third quarter, and that would have resulted in a $0.30 EPS, not a $0.35 EPS. Obviously very low tax rate drove the EPS up, but that's not sustainable.

Okay, a couple other comments. Sometimes you folks are interested copper. There really was very little impact Q2 to Q3 from copper. Q4, looking at a negative about $150,000 approximately. And remember, we have all of these timing differences and lag effects,and the copper has been bouncing around. As you know, the commodity copper, quite a bit and that reflects, that's reflected in the copper fall prices which we pay, which have significant impacts potentially on our P&L. Let's see, I don't know if you remember in our third quarter we comment -- , sorry, in our second quarter conference call, we commented that the SG&A was a little low. We have some adjustments and some reserves, and if you look at our SG&A Q3, I think it's about $6.1 million, and I think that's more of a normal SG&A rate. Obviously SG&A went up a little bit also, because of the revenues for instance, freight out, as it goes in SG&A, and the more freight -- the more shipments and freight, that's pretty simple. Much of the SG&A is fixed though, and not variable.

Let's see. You always asked this question, so I'll just tell you how is the fourth quarter look, we only have two weeks on the books now. We get our week three tonight, but we don't have that yet although we have some preliminary indications. And I would say the bookings rate for Q4 so far, is strong. And I always tell you that that doesn't mean it's going to be strong two weeks from now, or one week from now, or three weeks from now. We just report the facts. We don't speculate on what might happen in the future. Kansas still very expensive for us in Q3. It's about almost $950,000 a loss in Kansas, Q2 was $850,000. So not exactly getting better, it's taking a very slow process to ramp that factory up, and transfer business from Waterbury to Kansas so that's still quite weighty expense. And that's not an annualized number, I just want to remind you of that, that's actually the -- effectively the loss of the operation in Q3 was $944,000, and that goes right to our pre-tax.

Q4 not looking for major improvement, but we'll see about that. That depends on how much business is transferred over there because the costs are basically in place, we're not adding costs but we need to add revenue to obviously offset the cost. Investment income, it is what it is. It's in our -- it'sstated in our report and Matt commented on it, it's basically nothing. It's kind of amazing that we have $235 million of cash, and I think we earned almost zero on it in Q3. I think it's $1.5 million pre-tax delta Q3, compared to Q3 of the prior year. And Matt commented it's the high performance percentage is -- continues to come up. The composite materials and parts volumes are down as compared to Q2, not just the prior year. And that's disappointing of course. And I guess the best way I could explain that is the aircraft industry is I think in pretty rough shape right now. It's in some kind of deep recession. I think it's probably worse than the general economy in some ways. There's a lot of special factors that seem to be impacting the aircraft industry in a negative way. And as far as we're concerned, we still think it's the right industry for us to be focusing on for the future, but it could take a little while for it to recover.

The news with our earnings, if you consider compared to second quarter that the earnings were quite a bit improved from the second quarter, even after making the adjustment for the tax rate, and especially compared to the last year's third quarter where the revenues were actually down, the income in that is quite a bit up. It's really nothing we can, especially take credit for. The global economy seems to be better, and that's reflected in the electronics revenues. And it's global actually, it's not just in Asia. Seems to be in North America and in Europe as well, so obviously that's not our doing. That's the economic recovery. There's a lot of leverage in our P&L right now because our costs are fairly tightly controlled. So when the industry grows, it's going to drop a lot to the bottom line. What will happen in the future, that's for other people that are smarter than me to speculate and opine on. And I just really don't know. I don't know. But the explanation in terms of the improved earnings I think is fairly straightforward. It's the global economy. It isn't the aircraft product line obviously as Matt broke it down for you. The aircraft product line sales were off as compared to Q2. But the general revenues were up because of the global economy. And it relates more to the electronics product line and not to the airfare product line. So I think that covers it in terms of our introductory remarks. Operator, I think we're ready for

(Operator Instructions).

Your first question comes from the line of Sean Hannan.

Yes, good morning, thank you.

Hi, Sean.

Hi, Happy Holidays.

Thank you. Same to you, all the best.

Thank you. A quick question, so during the quarter, you would enter your relationship with Tabco. And I believe you were going to work through the process of basically determining what end customers of their's, you'll perhaps maintain as a direct relationship, while others may or may not be maintained. So I just want to see if I could circle around with you, and see if we could get a little color in terms of what we could expect from this as an impact either on the top line, and then does this have a margin impact? Does this effectively help you to push gross margins, perhaps even higher into the 30% range?

I think it's a little early to say, because it's still playing out. But what I would say, is that we're happy with their decision, and we think it's the right decision for Park. We have retained a number of the significant customers which you wanted to retain, that was our objective. And we'll have to see about that. I don't think it will be bottom line negative. And it's possibility could be bottom line positive, but I think it's a little early to make that -- to call that and make that judgment.

Okay. So when you look at your mix from the quarter, was there anything that was unique, related to the improvement in gross margin? Or can we assume generally at these revenue levels, that we should be able to be in the upper 20% range, somewhat close that the 30% threshold, and kind of tied to that leverage that you had talked about just a moment ago?

There's nothing special in the numbers. We talked about the tax provision. And other than that there's really nothing special in the numbers. We try to highlight the things that you should be aware of like the costs in Kansas for instance. But there's nothing special in these numbers, Matt talked about the high performance percentage, and that's always a real key thing to watch for us. But other than that, it is what it is, as they say.

And most of that loss that you absorb within Kansas, what is the break down of that in terms of either COGS and SG&A?

We don't have that for you. It's going to be mostly in cost of goods sold. But we don't have that break down for you at this time.

That's helpful, Brian. And then lastly and I'll hop off the line, if you can provide a top 20, ten and five percentages and also a break out of your top five customers?

I think Matt can do that.

Sure. We had our top customer was Sanmina at 14.9%, we had CTM at 11.2%, the remainder of the top five were [Pedasis], Multek and Wus. The total top five was 51.6%, total top ten was 71.8%, and the top 20 were 82.7%.

Yes, you know, I just want to always add that, let's see, [Asu Pedasis], very important Korean customer of ours. Wus is a Taiwanese/Chinese customer, and Multek is a division of Flextronics for those that are not aware of those facts. (inaudible) CTM and Sanmina are.

Great. Thank you very much.

Your next question comes from the line of Jiwon Lee.

Good morning. Thanks for taking my questions. Just kind of going back to the gross margin, Brian. So did I hear correctly, you know longer have the dual capacity running out of Kansas, or is it still negative numbers for your profit?

Okay, so again it's still quite negative. In Q3, we had a loss in Kansas by approximately $950,000. That just went right to the pre-tax P&L, because we have all of the costs in place there, and we haven't ramped up the revenues yet. The revenues are still fairly low. So obviously we need to ramp up the revenue to cover the cost. And then obviously eventually contribute to the bottom line. So no, we're far from out of the woods in Kansas, very slow process. And I commented about the aircraft product line sales being off from Q2. And let me just add to that. I just feel that the aircraft industry is in some kind of deep recession, and kind of a funk. And some of the customers in particular just seem to be in a survival mentality, very defensive mode, and maybe aren't in a position to, or not willing to really plan for the future. So with that environment it makes it even more difficult for us to bring the revenues up.

Now part of the story needs to be, is rather, that we need to transfer some of the existing business from Waterbury to Kansas. And even that's more difficult because we need to work with the aircraft companies and our engineering groups to qualify the Kansas plant. These are for programs we've been working on for maybe 10 years in some case,s or more. But nevertheless there needs to be plant qualification. And when your customer is in a funk, they just kind of -- they get into -- there's kind of a -- there could be a malaise effect. And I'm not talking about all of the aircraft customers, but I've noticed this. And it's difficult to get up the energy and the willpower to do qualification work. And that's kind of slowed things down. It's been a drag in our ability to transfer the business we plan to transfer from Waterbury to Kansas. Sorry, I have a little cold, so I apologize.

Oh no, that's okay. So then heading out to 2010, and you do have some visibility on the composite side, do you expect the revenue to be even more down?

Oh no -- I'm not going to -- we wouldn't forecast that kind of thing. I guess I would say, I hope not. I hope that some of these aircraft OEMs start to think themselves out of the funk they might be in. And I don't want to paint a broad brush, because there are still some OEMs that are still moving forward, and we're trying to focus our attention on them. I'm not going to name names, of course, that would be completely inappropriate and unfair, but I don't know what to say about that. We don't forecast what will happen in the future in terms of top line. But geez, I would say I hope that doesn't happen, and we haven't changed any of our plans. We still have very much of our future in the aircraft area. So I would say with Kansas, and as you know we're expanding the plant to make parts there as well.

Okay, so then with the PCB side of the business rebounding nicely for you, if the revenue were to stay on about a $45 million range, with the mix that you have now, you feel comfortable that the product margin side will stay at the range that you showed in the November quarter?

I'm not sure I understand exactly what you're asking, Jiwon. Could you ask that again, please?

Well your gross margin back again, is nearly 30%. And that's the highest that I could recall in quite some time. So the question is with the mix that you have, the PCB side of the business sort of coming up nicely. And then if those sales were to stay around $45 million, do you feel confident, that you can maintain this type of margin structure going forward?

I think the best way to answer that question is the same response that I gave to a question posed by the prior analyst. And that's there's nothing special in the third quarter numbers, especially related to gross margin. The one thing we did talk about is the tax provision. But obviously it doesn't affect gross margin. And there's nothing special in these numbers. There's no special one-time items. So I think the answer to your question would be yes, assuming everything stays the same that the mix is the same, the top line is the same, I'm not aware of any reason why the gross margin would be significantly different.

I believe it is that the 29.9%, is that what it was? I think that's a record at least as far as I've been in the Company, which is I think 20 years or so. But remember if you go back a year ago, we're talking about the restructurings we're doing. We talked about them. We talked about the impact they would have. And in the third quarter of last year, there was very little impact it had actually come through yet from the restructuring. And those -- that impact is obviously fully in our numbers at this point. So there's a lot of leverage in our bottom line with respect to top line growth.

Okay, terrific. And then on the copper pricing, Brian, there was a small negative impact in the November quarter P&L. And as the pricing may sort of tick up again, if the recovery were to continue on a macro basis, how do you feel about your ability to maintain that spread?

Okay, I think our comment would --- it's a complex matter, Jiwon, because there's all kind of things going up and down, but I think we're neutral in terms of bottom line impact in Q3, as compared to Q2 with respect to copper. I think we said we're looking for maybe $150,000 even up to $200,000 negative in Q4 as compared to Q3, alright? And that's again, because there are all these cross currents, and a lag effect. So the copper flow prices go up, maybe we pass it on, but there's always a lag in terms of how long it takes for us to do that. So there could be a negative or positive quarter to quarter based on these timing differences. I don't know, I mean the copper prices are high right now. And I read an analyst report that indicated that, quite a good analyst actually. And he thought that the copper prices would be down by the end of 2010. But as I would say that's for people who are a lot smarter than I am to figure that stuff out.

Okay, and then last quarter, I recall the [Asu Pedasis] was greater than 10% customer. Were they not in the November quarter?

I don't remember, were they a 10% customer in the last quarter?

Yes, they just made it over 10% in the last quarter.

Okay, so they were just a hair kind of a hair over, and now just a little bit below. I don't think there's any news there. That continues to be a very important customer.

Okay, and then if you think about these end markets that you sell these PCB materials to, Brian, is there any particular area that sort of kind of stands out that were a little bit different in the first half of this year, be that it may wireless, networking, anything you could comment?

Yes, I think it's networking, it's basically corporate type infrastructure. I mean, let's face it. People have been delaying and putting off their capital spending and budgets. You know how everybody is, the last thing to spend money on is IT stuff, I mean because even with us we've held off some of our IT spending. And we're now at the point where we have to go spend money to upgrade our servers, and that kind of thing. And I think a lot of companies have done the same thing. But they're at the point where they just really, unless they want to go out of business, they have to spend money on their networking and IT infrastructure. And I think that might be part of it. So a lot of what we sell go into capital budgets as you know, not into consumer type purchases. So when corporations start spending money on IT infrastructure (inaudible) for us. And I suspect that some time in the last six months, a lot of corporations had to kind of face the fact that they couldn't delay the spending anymore.

Okay, and lastly for me, is there any sort of numbers for your current capacity utilization on the PCB side of the business?

Oh, yes. We stopped tracking capacity so long ago, because it's kind of like almost theoretical. And in the US, we got a little short with our treaters capacity, and that's a temporary thing. We're bringing up one of the other treaters in California, and that will take another couple of weeks. But once another treater comes up, we really will not have capacity constraints. Remember, Jiwon, that 10 years ago, our revenues were what, $530 million. And we had spent a very significant amount of money back then to upgrade our facilities, but also add capacity to our facilities with automated equipment and everything else. And our equipment is still fairly modern and the capacity was built for a pretty large scale industry. And I don't really think in terms of, we don't think too much in terms of capacity utilization. If there was more business opportunity that had good margins to it. I don't think we would have an issue with taking it on because of capacity.

Okay, great. That's all for me, thank you.

(Operator Instructions)

Again, you do have a question from the line of Brad Evans.

Yes, with Heartland, Brian, good morning.

Hey, Brad, how you doing?

I'm doing well, thanks. Happy Holidays to you.

Happy Holidays to you.

Thank you. I'm just curious, Brian, with respect to the losses at Kansas, I appreciate you calling those out. Is that mostly going to be the amelioration of those losses in terms of the decline, will that be mostly predicated upon revenue from this point going forward? Or are there other levers you can pull to bring down those losses from a cost perspective?

No. It's really revenues. We put the cost of restructure in place, that's our investment in the future. And we try to be intelligent about that, obviously we don't want to overspend. But for us to start to reduce our engineering staff for instance, that would be that would be very short-sighted. And it would be kind of abandoning the plant for the future in a way, so I don't really see many opportunities there. It's really about revenue.

Okay. Do you -- did you -- just listening to your customers on the aerospace side, do you sense there's been an inventory destocking that's taken place that might help results as you go forward?

Inventory stocking, I think a lot of these guys got caught, I'm talking about the business jet companies in particular, with a lot of inventory toward the end of last year. And they've been selling off at pretty steep discounts, it's been a pretty difficult environment. There's a huge amount of very late model used airplanes in the market as well. And the company selling new aircraft have to compete against that. It's not you have two year old airplanes that are -- I don't know, but what people know, but airplanes are like cars. A two year old airplane is basically a new airplane. The airplanes fly for 20, 30 years with no problem. They have the avionics and engines that are overall upgraded, etc. But the airframes last for a long long time. So there's this big overhang.

And there's been issues with what some people call demonization of business aircraft fuse, and it all relates to the brilliant move the auto companies made when they flew their leaders to Washington last year to beg for money, to beg for our money, which I didn't appreciate. And I -- but it's now to me an overreaction. There are a lot of companies that are actually healthy companies that are doing well. I'm told corporations that have cancelled orders for business jets because they're afraid to be demonized, even though they're purely, legitimate business usages for these aircraft. It's unfortunate, and it's hurt the industry. My personal feeling is that at the end of the day, the legitimate uses will win out, and kind of hysteria and demonization stuff won't last. And to the extent they're having abuses, good for this, because the abuses should stop -- using corporate aircraft for inappropriate purposes. But for me fundamentally, I think there's a very clear and obvious long term need for corporate business aircraft.

I think they're useful tools, and I think it's hard to dispute that, when you take the emotion out of it. But that has had an effect. There's no question about it. It's had a real effect, this demonization, the government seems to want to pile on, which is very interesting, because it's one of the few things that we actually manufacture and export in this country is aircraft. So you figure out the government, I don't know. But there are a lot of interesting and complicated factors. But nevertheless, some of the companies, some of the aircraft manufacturers seem to be still looking forward to the future, and developing new products and things like that, and programs. And some that seem to be in a survival, kind of defensive mode. And maybe that's how it is with any difficult environment.

Well, if you were just to add back the losses at Kansas, which some people may or may not want to do, your pro forma operating income is almost $8.5 million, which would be an adjusted operating margin of 18.5%. So that's a pretty stout number on $3.5 million of weekly revenue, which is quite a bit below where you've been in the past, $4.5 million to $5 million of weekly revenue is not unheard of for your Company.

Okay.

Well, I guess exhibiting the leverage that you were talking about in terms of the leverage as revenues if they continue to improve.

Yes, I agree with that. That's the leverage factor. And also, as I mentioned, we're realizing the full benefit of the restructurings we've done toward the end of last year, which were all very painful and difficult. But none of which I think were, I mean every one of them I think was correct in kind of hindsight.

So you indicated that the first couple weeks in December have started off strong. Does that -- have you seen a further improvement towards a weekly revenue from what we saw in the third quarter? I guess has there been a further uptick in terms of weekly sales trends?

I understand the question. Yes, maybe a little bit, but (inaudible) it's just two weeks.

Understood. And just on the PCB side, Brian, just when you're talking to customers, do you sense that you're shipping to end market demand? Or do you think there's inventory restocking or what's happening in the supply chain in your view?

I think it's both, because there is the end market demand I commented on before, maybe with the corporate infrastructure, refurbishment, whatever you want to call it. But I think that it's probably coming back to more of a normalized stocking level, because when things were bad, remember at the beginning of the year people, I mean people talked about depression and things like that. It was pretty bleak and so much uncertainty and companies just didn't want to have anything on the shelves. They are just so afraid, and now there's a little less fear I think in the environment. I don't sense that it's being overdone. I think people are still quite cautious. But I sense that, maybe it's kind of more returning to a more normal level.

Let me just ask one more question, and I'll get back in queue. Just with respect to -- again congratulations, it's a great quarter and the balance sheet continues to be in great shape, and I think you lamented the current yield on the cash is pretty sad to say the least. You have a great track record of stewarding shareholders capital, Brian, and this balance sheet is obviously very strong. And you have paid one-time dividends in the past. How do you view that as a potential use of cash going forward?

Yes, the cash, good question. So, just to remember we did increase our regular dividend, I think last summer, I don't remember.

Yes.

Okay, not a significant impact in terms of $235 million or whatever it is. And we have paid special dividends, and they're considered really, not every Board meeting, but we certainly a couple times a year look at our dividend situation, and we look at the possibility of special dividends. But I also just want to go back to the point, that we continue to look at other areas we're investing the funds, particularly acquisitions and new programs, we need to continue to look at things that are -- in some cases a really big dollar items that are within our business model. We're not stretching to spend the money by going outside of our business model. So although we're stretching our business model, but these things are within our business model. So again, obviously, it's just talk at some point until something is announced, but those efforts have not abated at all. We're still working on those things. And again, I just want to say that some of these opportunities, I'd call them would involve some significant spending of money. Thank you, Brian, thank you.

Okay. Yes, thank you.

Your next question comes from the line of Tim O' Toole.

Hi, Brian. A couple things, actually, I may have missed this, although I've been on the call most of the time, just the very first part of it I think I missed. But what kind of revenue run rate are you running through Kansas? And what I'm trying to get at there is at what level, you have to make a few assumptions on mix, but at what level, what revenue level do you become, where you get towards breakeven, given that you're still trying to ramp capacity into that plant?

We didn't cover that and that's something we're not talking about. I would say that the revenue run rate is low, and we have a way to go to get to breakeven. So but I don't want to quantify. I think it's probably not something I want to get into. But with those kind of losses you can imagine that we're quite a ways off from breakeven.

Right and I was just trying to get some sense of tracking that as we go into the next year, to see where the crossover point is whether it's mid year, or whether it's really late year in 2011 or something.

I understand the reason for your question, but I still don't know the answer even. I mean I can tell you what the revenue rate is or what we think the breakeven, is but that's not going to give you an answer as to when we get to breakeven.

Right, I know, you still have to fill it.

Exactly.

And then the other question I had, and again this is I guess, taking it a little different look at some of what Brad was asking in a sense I guess. And I may have missed this, but could you discuss kind of bookings rates or book-to-bill, and maybe as they went through, as you went through the quarter -- and then I'm also interested if you can look at the aircraft aerospace related stuff versus the electronics and PCB stuff -- because the dynamics there seem like they're very different. And you may have book-to-bill may have been negative or close to one, on the one hand, and may have been plus one, I'm guessing it probably is, better than one on the PCB side. Could you put a little kind of flavor around that and a little color?

I think your assumption is correct to start with. But in terms of book-to-bill ratios it's not something we normally spend a lot of time talking about. And that's particularly in the electronics product line and sales, that the lead times are very, very short. So book-to-bill it's never going to be significant. We take an order and we ship it in three, four, five days. So for there to be a sustainable deviation between bookings and billings would be very, very significant event. If you have a lead time of three, four, five days it's just not going to happen. And the backlog use is also going to be very, very wide as a result. And that's not a new thing that is not a function of the industry being what a good state or a bad state. It's just the way the electronics industries operate for a long time with the aircraft industry and the aircraft product line. I think that's more of a down thing, from the second quarter lull. I don't want to quantify in terms of where we are now. I couldn't tell you -- someone already asked -- what's going to happen -- is it going to -- I think someone asked whether it's going to go down further, and I said, I can't say that, but I sure hope not. And I'm not looking at signs that we'll have it right now.

Fair enough on the book-to-bill and electronics side, but I wonder if you could talk about the tenor of business, and kind of the order trends, or order rates as you went through the quarter, did they improve and strengthen as you were coming to the back half of the quarter? Or was it fairly linear, or fairly steady as she goes as it went through the quarter?

I think it is -- was not -- did not improve, but it's not sliding -- either in the last couple of months. I think it kind of dropped to this level, and it just kind of is bouncing around at that slow level.

Okay, but so it seems like it's got a fairly solid base, at least in terms of what you can garner from right now. Okay, alright, thanks, Brian.

Yes, I just want to say I agree with that statement over the last couple few months. It's been kind of a difficult quarter, but we don't see any signs of it eroding or anything like that, and would not be having this for the bookings patterns.

Okay, thanks very much.

Thank you.

Your next question comes from the line of Brad Evans.

Just back for a couple of follow-ups, if I could. You've obviously tightened down the capital budget significantly this year, Brian. Can you just give us your thoughts for the full year of 2010, and what your thoughts are for 2011 in terms of capital spending?

Yes, Brad, that wasn't -- we didn't really intentionally tie it down because of the economy. It's just that the timing of some of the projects and investments that we've been making, because the Kansas project which is the first phase, was the first project I guess, was $15 million. And I think most of that money was spent by the end of last year and this we're we kind of got an in between year, and we have another project to expand that plant by $5 million. But I suspect that some of that spending will even carry over to next year. Matt, do we have any kind of forecast? I don't think, some of it relates to the timing as to whether the fourth quarter spills over to the first quarter. But it wasn't really an intentional tightening of the capital budget. Our attitude is in a down economy, it's a good time to invest. It's more of a timing of some of these projects we're working on.

As far as next year is concerned, we have the $5 million Kansas expansion and some of that will spill into next year. And we have some other capital projects we're working on. And we haven't announced them yet, maybe a couple of treater projects and one in the US, and one in Singapore they're working on. And those could be -- they could total $4 million, $5 million, $6 million that kind of thing. And some upgrades of equipment we're thinking about. I actually -- we're probably we are going to do this, but haven't made a final decision, putting in PTFE treating at Singapore. And those are not exactly sustained in capital, but they aren't big, big., big ticket items. And then of course the big variable is what other projects do we take on that we haven't announced yet, that we're still working on.

So we should be thinking directionally up in 2011, is that right?

Absolutely. It's so low in 2010, so it would have to go up, yes.

Would you be spending in excess of depreciation and amortization in 2011 do you think?

I don't know. I don't think so, but it really, based on all that we know now, let's put it that way, probably not. But it depends on some of these other projects that we're working on, that we haven't decided on yet. And I'm not talking about the ones that I just enumerated. Those are -- we haven't made final decisions on, but those are probably going to do. And if there's another category of projects that we're still looking into, that we have not, we haven't even decided even on a preliminary basis what we're going to do there.

And then lastly, the tax rate going forward, we should be using 19%; is that correct?

Well, that's your call, but I think we said what was it, the rate for Q3 would have been 19.6% and the normalized rate. So I don't know, that's approximately 20%. It's so jurisdictional -- jurisdictionally, if that's a word, and mix related. The tax rates vary quite a bit, as compared to Asia, Europe, and North America. So it really depends on where the money is made, and that -- and little swings can have an impact quarter on quarter on a tax provision, a real impact on it. So hard to really predict that very accurately.

Great. Thank you very much.

Thank you.

Your next question comes from Jiwon Lee.

My question has been answered, thank you.

Okay, and there are no further questions at this time.

All right, well thank you, operator, and I thank everybody for listening in, right before the holidays. I want to take this opportunity to wish all of you a happy holiday, and all of the best of luck in 2010, and we'll talk to you soon. You take care. Goodbye.

This concludes today's conference call. You may now disconnect.