Brush Engineered Materials Inc. Q3 2008 Earnings Call Transcript

| About: Materion Corporation (MTRN)

Brush Engineered Materials Inc. (NYSE:BW)

Q3 2008 Earnings Call Transcript

October 30, 2008, 11:00 am ET

Executives

Michael Hasychak – VP, Treasurer and Secretary

John Grampa – SVP of Finance and CFO

Dick Hipple – Chairman, President and CEO

Jim Marrotte – VP and Controller

Analysts

Anthony Sorrentino – Sorrentino Metals

Robert Dushaal [ph] – Dushaal Management Group [ph]

Rob Young – WM Smith & Company

Chuck Murphy – Sidoti & Company

Phil Gibbs – KeyBanc Capital

Operator

Greetings, ladies and gentlemen, and welcome to the Brush Engineered Materials third quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Hasychak, Vice President, Treasurer and Secretary. Thank you. Mr. Hasychak, you may begin.

Michael Hasychak

Good morning. With me today is Dick Hipple, President, Chairman and CEO; John Grampa, Senior Vice President, Finance, and Chief Financial Officer; and Jim Marrotte, Vice President and Corporate Controller. Our format for today’s conference call is as follows. John Grampa will comment on the third quarter 2008 results and the outlook and Dick Hipple will give a market update. Thereafter, we will open up the teleconference call for questions.

A recorded playback of this call will be available until November 14 by dialing area code 877, number 660-6853, account number 286 and conference ID 299961. The call will also be archived on the company’s website, beminc.com. To access the replay, click on Quarterly Earnings Conference Call under the Investors page. The broadcast requires RealPlayer software, which is available as a free download from the icon as indicated.

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 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.

John Grampa

Thank you, Mike. Good morning, everyone, and welcome to our third quarter 2008 call. And thanks for joining us today. Today’s format is the same as that of past calls. I’ll review the quarter and then comment on the outlook. And following my prepared comments, Dick Hipple will provide you with a market update. Dick will be focusing on the effect that the recent economic developments are having on our businesses. And then we’ll open the call for questions. I’ll focus on several of the key points that were identified in the press release, covering both the quarter as well as the outlook. I’ll also attempt to pre-answer certain specific questions, some of which we have already received.

First I’ll cover the factors affecting the reported sales compared to the prior year, including the progress that is embedded in those numbers once you remove the influence of metal price and the media market factors. Then I’ll review the factors affecting the reported profit comparison, especially the prior year non-recurring gains, the current year level of lower cost of market charges and the third quarter discrete tax item. These items do distort the operating performance comparisons and need to be understood.

Third, I’ll provide some specifics on the trends in the media. And as most of you know, here significant swings in ruthenium material prices, material sources and demand factors, new product qualifications as well as re-qualifications, and market ramp rates can and have dramatically affected our comparisons. Dick will be updating you on both the status of our product re-qualification process and where we have made good progress and the unfortunate problem that developed with a material supplier late in the third quarter.

Four, I’ll review our balance sheet, which is very strong, strengthened further in the third quarter and is expected to continue to strengthen. And fifth, I’ll update you on the status of our share repurchase authorization, including the specifics of the repurchase to date. Following my comments in those five points, I’ll review the outlook identified in the press release and along the way I’ll cover an anticipated question or two in each of these areas.

As I begin the review of these points, let me call your attention to the table in the non-GAAP financial measures section on page five of the press release. In this table, we reinforce what most of you should already know. And that is that the third quarter and nine-month comparisons to the prior year are affected by a number of factors that cloud the performance of the company’s baseline business. We’ve discussed these in the past and present them here again for reference.

The most impactful is last year’s sizable benefit from the sale of ruthenium based materials into the media launch that included a sizable non-repeat cash gain related to a significant and sudden increase in the market price of ruthenium that had been purchased in 2006 at a much lower cost. This factor generated a $0.04 per share gain in the third quarter of the prior year and a $0.70 per share gain in the first nine months of the prior year.

Also to be noted in that table is the lower cost or market charges taken in specific subsequent quarters of both prior years, as ruthenium prices have fallen significantly. In effect, we’ve given back $0.31 of the $0.70 per share gain. My comments today will focus on the operating run rate, which excludes these and the other factors identified in the table. Let’s begin.

Related to the factors affecting sales, as you know this morning, we reported sales for the third quarter that we are about $10 million or 4% ahead of the prior year’s third quarter level. Metal price inflation or, said differently, that portion of both precious and non-precious metal price increases that we were able to pass on to our customers rate sales approximately 7 percentage points for the quarter and 8 percentage points for the nine months. As in the first two quarters, a major factor that negatively affected our growth was lower shipments to the media market, which is directly linked to the re-qualification process we’ve been reporting to you on.

In the third quarter, sales due to this factor were approximately $28 million below the prior year. Approximately $5 million of this is due to lower ruthenium metal prices and the balance $23 million related to lower volume. The media fall-off negatively affected the sales comparisons by 12 percentage points in the third quarter and 15 percentage points for the nine months. Net of these factors, that is excluding both the metal price and media effects, sales increased in the company by 9% in the quarter and on the same basis, the year-to-date growth is approximately 7%.

Now let’s review the factors affecting the profit comparisons. The earnings we reported this morning were on a GAAP basis equal to the prior year at $0.48 a share diluted. Excluding the previously reported prior year ruthenium benefit and accounts receivable correction, and this year’s discrete tax item, the operating run rate for the quarter was $0.41 a share compared to $0.39 a share in the prior year. The operating run rate of $0.41 a share was higher than our expectations for the quarter as revised in our October 2nd press release. The important was due to margins – better margins and lower expenses.

Ruthenium prices dropped in the second quarter from $415 an ounce to $300 an ounce, resulting in a $6 million charge taken then. In the third quarter, ruthenium prices were reasonably stable and had only a minor effect on the results for the quarter. However, since the end of the third quarter, ruthenium prices have fallen to below the $250 an ounce level. If that price level holds through year-end and assuming now significant change in inventory levels, the company will incur a lower cost of market inventory charge in the range of $0.07 a share in the fourth quarter.

In the third quarter of the current year, the company recorded a discrete tax benefit of approximately $0.07 a share. This was anticipated and was due to specific one-time events, including adjustments to the company’s tax reserves related to prior year tax returns. In the fourth quarter, the tax rate is expected to return to the second quarter levels and be in the 33% to 34% range. Again, in the press release issued this morning, we’ve embedded a table that illustrates the impact of these non-operating factors. And again, I call your attention to this table as we consider the presentation of the operating results in this manner to be a better representation of our baseline business or our operating run rate.

Now turning to media. As you know, the most significant factor that drove our growth in 2007 as well as the expected growth in 2008 is the growth of our new magnetic media materials for the perpendicular media recording segment of the data storage market. The growth here is dependent on the rate at which the market and the customers we serve transition to the new perpendicular media recording technology and our ability to both capture and maintain the share of that business with our new products and our production capabilities.

If you recall, the rapid product launch resulted in a very high sales and profit levels in the first half of 2007. Then, as previously announced, during the fourth quarter of 2007, the company experienced a significant setback in this market. The setback was driven primarily by a change in material specification at our largest media customer, which in turn resulted in necessary manufacturing process changes and a lengthy product re-qualification process. This resulted in lower shipments while the re-qualification process was underway.

Media volumes were approximately 20% of the prior year’s volume in the first quarter of this year and began to recover reaching approximately 70% of the prior year’s volume in the second quarter. Volumes in the second quarter were 60% ahead of the first quarter volumes, as the length re-qualification process progressed. We entered the third quarter expecting the level of business to continue to increase. Late in the third quarter, we temporarily suspended shipments to a key customer due to a problem with a raw material supplier. While we expect that this problem will be resolved, it is not clear when the substantial shipments will resume. And at this time, we do not expect significant shipments to occur in the fourth quarter. Dick Hipple will provide additional information on the media market in a moment.

I’ll now comment on the balance sheet. The company’s balance sheet has been strong and continued to improve in the third quarter. Even considering the acquisition made earlier in the year, the company continues to have significant financial flexibility. Our debt to debt-plus-equity ratio remains very healthy at 13%. While the Techni-Met acquisition was approximately $87 million, balance sheet debt has increased by only $23 million to date.

The company came into the year having increased its precious metal consignment lines by $85 million and its revolving credit agreement by $15 million to the $240 million level, adding both financing capacity and significant flexibility. The increased capacity and flexibility adds to the liquidity to support the expected organic growth and to take advantage of acquisition and augmentation opportunities, plus other capital considerations as they surface, including the announced share repurchase plan. And certainly we’re pleased to have a liquidity that we do and the flexibility that we have to support our strategic initiatives, as we enter these uncertain economic times.

That completes my comments on the third quarter. I will now comment on the share repurchase plan and then the outlook. As previously announced, the company’s Board of Directors has authorized the company to repurchase up to 1 million shares or 5% of the company’s outstanding shares of common stock. The primary purpose of the repurchase is to offset the dilution created to shares issued under company’s stock-based compensation plans. The authorization provides the company the flexibility to use its balance sheet to repurchase shares over time while maintaining an appropriate level of liquidity to support the company’s primary strategic goals, which include utilizing available capital for organic growth and strategic acquisition opportunities.

The presence of this plan to repurchase shares does not represent a deviation from the company’s strategic focus and the company does not see any change in its long-term growth expectations and acquisition opportunities at this time. The stock repurchases will be made from time to time through brokers on the New York Stock Exchange. The repurchase program may be suspended or discontinued at any time. To date, we have repurchased approximately 12% of the authorized amount. Looking ahead, there are no changes at this time in our stated intentions, which are to repurchase up to 1 million shares over time to offset the dilutive effect of employee and director stock ownership plans.

We are mindful of the current stock price. We are also mindful of our liquidity and do expect that it will continue to grow. And we have confidence in our business model. However, the current economic environment can threaten the performance of organizations that do not have strong balance sheet. This environment can also provide extraordinary opportunities to those of us that do. We will be diligent through this period and cautious in the use of our cash and debt capacity. To comment any further at this point on our repurchase plans would be too speculative.

I’ll now turn to the outlook. As you know, the specific guidance we’ve provided in the press release today is unchanged from the update that was provided on October 2. As you might expect, the current global financial crisis and related economic downturn is making it extremely difficult to forecast the near-term. Following a strong and encouraging beginning to the second half, a significant decline in our business levels began to appear in our order book later in the third quarter.

We began to see widespread weakness in the global consumer electronics, telecom and automotive markets that was affecting demand in both the Specialty Engineered Alloys and Engineered Materials Systems segments of the company. Historically, following the slower seasonal summer period, order entry in these segments increases in the late summer and early fall as manufacturers increased production levels and electronics producers prepare for the holiday season. Rather than an increase, we noted a significant decline, which affected the third quarter performance. The third quarter was also affected somewhat by reduced shipments to the oil and gas market due to the impact of Hurricane Ike and shipments to the commercial aerospace market due to the Boeing strike. This will affect fourth quarter performance as well.

At this time, assuming no additional decline in the company’s key markets other than that anticipated in the guidance previously provided, the company expects earnings for the full year to be in the range of $1.15 to $1.30 per share on a GAAP basis. This includes the negative effect of the charges taken in the first and second quarters of the year and a positive effect of the discrete tax items recorded in the third quarter. Excluding these factors, the operating run rate for the full year is in the range of $1.45 to $1.60 per share.

It is important to continue to reiterate that though the company’s earnings estimates are subject to significant variability, metal price changes, metal supply conditions, fluctuations in demand levels driven by such factors as customer inventory swings, product qualification rates, and new product ramp-up rates are critical in markets such as the media market and can have a significant effect on actual results.

The outlook for the remainder of the year is based on the company’s best estimates at this time and is subject to significant fluctuations due to these factors as well as other factors.

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

Dick Hipple

Thank you, John. I’d like to address our general market conditions that impacted our lowering the earnings estimate on October 2nd for 2008. As John mentioned, usually coming out of the summer season we see our general order book pickup heading into the Christmas consumer product build cycle. This year this did not happen. Due to the turmoil in the housing and financial markets and concern regarding consumer spending, I am sure that consumer products manufacturers are not planning nor building products for a particularly robust holiday season. And if recent auto sales are a precursor of consumer sentiment and buying patterns, then caution is certainly understandable.

We were also hit with several transitory and temporary reduced sales and order patterns in the quarter. Sales and orders into the oil and gas sector declined after Hurricane Ike substantially wiped out the Houston area’s ability to transact business for a significant period of time. And to a lesser degree of impact, the Boeing strike reduced sales and orders into the commercial aerospace market. And as you are well aware, the Boeing strike was recently settled and the negative impacts of Hurricane Ike in Houston are now waning. And obviously depending on where energy prices settle out, we’ll ultimately determine the robustness of growth in the oil and gas sector.

Meanwhile, many of our other markets have either remained stable or in fact are still growing. Our defense, optics, medical, and selected electronic markets such as the LED and undersea cable market, all remain robust. Please keep in mind that in spite of all the great market turmoil, we realized 9% organic growth quarter-to-quarter from last year outside the impact of the media market, which I will now discuss.

With regard to the media market, we have obviously had another major setback with an incoming raw material processor. As soon as we discovered the nature of the problem, we took immediate action to seize ruthenium target supply for any product that might affect our customers. We have taken aggressive steps to find alternative sourcing and to rectify the reliability issue at our current supplier. I must say our customers commended us for our fast action in this regard to protect them from any problems.

We have been able to – in the meantime, we have been able to successfully continue our qualification trials on our new ruthenium product during this timeframe. In fact, we are shipping our first production trial orders in the fourth quarter to the anticipation of ongoing production orders in the first quarter. However, I am not prepared at this time to discuss forecasted media business, and so we are well established back into the media marketplace.

So in summary, while the near-term outlook may be uncertain in the full impact of the global economic crisis, I’m clear one thing is certain, is that our company is well positioned to weather a storm and to take advantage of opportunities that might surface. Our business base is broad in terms of products, customers, and markets, as well as geographic reach. Our balance sheet is very strong and we have significant liquidity and significant flexibility with even more improvement expected. At these difficult times, our strong financial position should be appreciated and we are also acting with speed to take out cost where appropriate and while at the same time pursuing many exciting growth opportunities that remain in front of us.

Michael Hasychak

Okay. Operator, we’ll turn the call over now for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) Our first question is coming from Anthony Sorrentino with Sorrentino Metals. Please state your question.

Anthony Sorrentino – Sorrentino Metals

Good morning, everyone.

John Grampa

Good morning.

Dick Hipple

Good morning.

Anthony Sorrentino – Sorrentino Metals

Now that copper prices are declining, are you adjusting your copper-based product prices downward?

Dick Hipple

Yes. Majority of our copper-based businesses pass through copper. So it does go down accordingly.

Anthony Sorrentino – Sorrentino Metals

Okay. And is there any lag effect on the way down in the same way that there was a little bit of a lag effect on the way out?

Dick Hipple

Yes, there is always – yes, you have a couple months lag both ways.

Anthony Sorrentino – Sorrentino Metals

Okay. And –

Dick Hipple

And if you remember, Anthony, we are our able to change our model about two, three years ago where either – particularly if it went up, it really hurt us and – but now that it's all kind of pass-through, we’re kind of independent from an OP standpoint of copper.

Anthony Sorrentino – Sorrentino Metals

Okay, fine. At what average prices were the shares repurchased?

John Grampa

We’d have to take that number out for you. Let me find it. It’s somewhere around $20.

Anthony Sorrentino – Sorrentino Metals

Okay. And one final question, have you drawn down any of the $240 million revolving line of credit?

John Grampa

No. Actually –

Dick Hipple

Is your question whether or not it was drawn against it?

Anthony Sorrentino – Sorrentino Metals

Yes.

Dick Hipple

Or is your question, has debt come down?

Anthony Sorrentino – Sorrentino Metals

No, have you drawn against the $240 million revolving line of credit?

John Grampa

Our debt has come down.

Anthony Sorrentino – Sorrentino Metals

Okay.

John Grampa

But we do have about $15 million drawn on the revolver presently.

Anthony Sorrentino – Sorrentino Metals

Okay. And what are the terms of the revolver? What interest rate is it tied to?

John Grampa

LIBOR. And 62.5 points above LIBOR we’re borrowing it right now.

Dick Hipple

LIBOR plus 62.5.

Anthony Sorrentino – Sorrentino Metals

Okay. 62.5 basis points. Okay, very good. Thank you very much.

Operator

Our next question is coming from Robert Dushaal [ph] with Dushaal Management Group [ph]. Please state your question.

Robert Dushaal – Dushaal Management Group

Good morning. I’m a new shareholder.

Dick Hipple

Good morning.

Robert Dushaal – Dushaal Management Group

I've been buying your stock as it proceeds downwards. My question is, do you pay any dividends at all? I’ve seen no notification about that.

John Grampa

No, we do not.

Robert Dushaal – Dushaal Management Group

Okay, thank you.

Operator

Our next question is coming from Rob Young with WM Smith & Company. Please state your question.

Rob Young – WM Smith & Company

Hi, good morning. Just curious, what’s the qualification timeline between you and the supplier for the media business?

Dick Hipple

You mean what’s typical timeline?

Rob Young – WM Smith & Company

Right.

Dick Hipple

Starting to – probably four to five months.

Rob Young – WM Smith & Company

And that’s from your end to qualify their raw material.

Dick Hipple

No, no, no. I thought you meant for – for a visit, I would say about a quarter.

Rob Young – WM Smith & Company

A quarter? Okay. And then at this economic environment, are you seeing any positive implications on your acquisition pipeline?

Dick Hipple

Well, we are active there and we would expect multiples will be coming down in this environment, so we would certainly hope to have an acquisition in a more attractive rate than we would have six months ago. So it gets an active area for us, and again as I’ve stated many times, it’s got to right. Just because something is cheap now may not be the right thing for us. It’s got to fit strategically also.

Rob Young – WM Smith & Company

Okay. And would this be primarily as a bolt-on to help existing business or –?

Dick Hipple

I mean, we’re very flexible. I mean, so far what we’ve been doing has been augmenting our business units and we’ve been augmenting particularly on the technology side and also market side. So we’ve been able to expand what I call our total opportunity for the future by doing that. So you can – when you go into new technologies or new markets that – and you apply our particularly business model to it, we’ve been able to really leverage up our acquisitions.

Rob Young – WM Smith & Company

Okay. And then in this environment, are you looking to spend any less on acquisitions over the next year than you may looking forward in future years?

Dick Hipple

No, no.

Rob Young – WM Smith & Company

Okay. And just trying to get a little handle on Q4, and I know that’s difficult to predict that near-term guidance. But is there anything that has materially occurred since your 8-K at the beginning of the month that would significantly sway your opinion on Q4 earnings?

John Grampa

No. The only point that I would reference – or really the two points that I made in my introduction to the conference call, and that is, one, that the range that we provided for the year is based on the business level assumptions that we made when we published on October 2nd. And our assumption here is that since our estimate has remained unchanged, there has been no change to the level of business. And then secondly, I did mention in my discussions the one-time charge that we occasionally see from lower cost of market from ruthenium, and as – if you recall, I talked about the – that since the end of the quarter, the market price of ruthenium has fallen to below $250 an ounce from the $300 an ounce level. And at that if it holds at those kinds of levels would represent a charge in the quarter of about $0.07 a share.

Rob Young – WM Smith & Company

Right, okay. And then just one last one on – relating to a previous question. Given the lag of the two months or so that it takes for pricing increases or decreases and given that majority of the metal indicators have been falling, would there be any possibilities to margin expansion relative to previous levels?

Dick Hipple

The answer to that is yes, but recognize that they do move around. They move up and down depending upon what piece of business. But generally there would be some lag, and as the price is dropping, some favorable benefit. On the other hand, you may not see margin differences in reported results because volume is dropping.

Rob Young – WM Smith & Company

Okay. Well, that’s great. That’s all I have. Thank you.

Operator

Our next question is coming from Chuck Murphy with Sidoti & Company. Please state your questions.

Chuck Murphy – Sidoti & Company

Good morning, guys.

Dick Hipple

Good morning.

John Grampa

Good morning, Chuck.

Chuck Murphy – Sidoti & Company

Just trying to get a sense for what you are thinking as far as sales for the fourth quarter so we can kind of build the model up from there? I mean, what do you think – I mean, why do the EPS guidance in those sales guidance?

John Grampa

Well, Chuck, I think if you well know, the sales number is volatile depending upon metal price. So in the company if we would sit here and say, expect sales level in the fourth quarter to be similar to third quarter levels, that would be making an assumption that metal prices aren’t going to move around. And as you know, they do move around dramatically.

Dick Hipple

Copper is down, gold is down, platinum is down.

John Grampa

Ruthenium is down. And the other side of that – the other side of that is the source of the metal. As you know, in our business, we run from copper – not copper – ruthenium supplied by customer to ruthenium supplied by us, gold supplied by customer to gold supplied by us. And when it’s supplied by us, it’s in the top line or in the revenue line. When it’s supplied by the customer, it is not. So we could see the same profit levels with significant swings in the revenue number. And it’s a difficult number to also forecast. But if you want to make an assumption based on all that we’ve said, why would assume that fourth quarter sales ought to be reasonably similar to third quarter borrowing any significant movement in that metal mix and metal price.

Chuck Murphy – Sidoti & Company

Okay. And you mentioned that the media, the sales were down about $109 million for the first nine months year-over-year. Can you say what they were for the first nine months of last year or what they are in the first nine months of this year?

John Grampa

Roughly?

Chuck Murphy – Sidoti & Company

Yes.

John Grampa

Do you have it there, Jim?

Jim Marrotte

I have to look it up.

John Grampa

Why don’t you go with your next question and we’ll dig out the detail and come back to you on that.

Chuck Murphy – Sidoti & Company

Okay, okay. You mentioned that potential $0.07 charge for the ruthenium being lower, is that baked into the guidance or –?

John Grampa

It’s baked into the GAAP guidance, yes.

Chuck Murphy – Sidoti & Company

Okay, okay. And I guess I’m just trying to figure out with anything – I mean, what are the chances that media sales are up in 2009?

John Grampa

Compared to 2008?

Chuck Murphy – Sidoti & Company

Yes.

John Grampa

Given that the levels are as low there in 2008, we would certainly hope being maybe a (inaudible) certainly expect based on what we know, they would be up.

Dick Hipple

Absolutely.

John Grampa

And hopefully up significantly.

Chuck Murphy – Sidoti & Company

Okay. And I guess like any other parts of your business that you feel good that would kind of be able to sustain the downturn given market penetration or market share gains kind of thing?

Dick Hipple

I mean, there is a good number, anywhere from the medical markets to our growth in the solar. You get the media there and then the LED materials. The oil and gas market I still think is going to grow for us even with lower pricing out there simply the fact because of our growth in applications that are still coming. So anyway, there’s numerous areas that we feel very good about. And the defense market is still – we expect to have that to be – that’s a very good area for us in 2009.

Chuck Murphy – Sidoti & Company

Okay.

Jim Marrotte

And the media sale number for this year for the first nine months is about $6.2 million.

Chuck Murphy – Sidoti & Company

Okay. All right. That helps. And I guess it’s kind of hard to go much lower than that.

Dick Hipple

Yes, (inaudible) chunk of that drop-off too is that this year, most of the – a large portion of the ruthenium sales are based on customer’s supply, where last year it was our material.

Chuck Murphy – Sidoti & Company

I got you.

John Grampa

What’s really going to become more relevant there is the volume into the market and not the sales dollar again because of last year, if you recall, some of those sales were – we averaged over $600 an ounce in the top line in metal price last year. And this year prices are under $300 an ounce. So you get an immediate 50% drop based on that loan if you are the metal provide. And then secondly, if the customer is providing his metal, all we’re going to see in the top line is going to be the value-add. We’ll comment on that as quarters progress to try to keep it as clear – make it as clear as possible for everyone.

Chuck Murphy – Sidoti & Company

I got you. So – but it sounds like, I mean, $6 million was probably like less than 5% of Williams’ sales, and it sounds like the rest of Williams is growing at pretty strong rates. I mean, with William –

Dick Hipple

Right, absolutely.

John Grampa

There is a comment in the press release about that. Okay? The –

Chuck Murphy – Sidoti & Company

22%.

John Grampa

22% – the growth in the rest of the business has been extraordinary.

Chuck Murphy – Sidoti & Company

So I mean, I guess that is pretty much washed out and so looking out into 2009, you really wouldn’t have the media sales offsetting the growth of the rest of the business like you have for this year. Is that fair to say?

John Grampa

Rest of the business offsetting the media growth?

Chuck Murphy – Sidoti & Company

Well, media coming down so much and in a way –

John Grampa

Yes, you’re right.

Chuck Murphy – Sidoti & Company

Okay. All right. That’s all I had. Thanks, guys.

Operator

(Operator instructions) Our next question is coming from Mark Parr with KeyBanc Capital. Please state your question.

Phil Gibbs – KeyBanc Capital

Hey, this is Phil Gibbs for Mark. Mark is actually in Chicago at conference. How is everyone doing?

Dick Hipple

Doing okay, Phil. Good morning.

Phil Gibbs – KeyBanc Capital

Good. Good morning. I just had a question in the Williams business, given the slowdown in the media market and a lot of this has been alluded to on the call thus far, where are your efforts in lieu of the near-term graph being kind of redeployed more vigorously in that segment of the business and kind of make up for the weakness we have seen in media in the near-term here?

Dick Hipple

Say it again.

Phil Gibbs – KeyBanc Capital

Are there opportunities in Williams, the business looked pretty strong there, excluding –?

Dick Hipple

The question is outside of the media business.

Phil Gibbs – KeyBanc Capital

Yes, exactly.

Dick Hipple

Okay. Well, outside of the media business is some of the things that I mentioned a little bit earlier was the advancement in the solar market, the LED materials, which is a very strong growth area right now, is for energy conservation for life [ph]. And we’re – we participate in the high intensity area. I would like to tell the story that if you’ve watched the Chinese Olympics at the opening ceremony and all the fancy LED lights that were going all over the stage in the floor, that was our materials in there, for example, to give an indication. The medical market is growing very nicely actually through – our two acquisitions that we've made in the last couple of years that we see the medical market growing at north of 10% a year for us. And then we are actually – Williams is actually developing a very nice defense business right now particularly in the optics area. That’s very, very strong right now. We expect that to continue on very robustly through next year. So there’s lots of very interesting segments. And some of this has actually all been evolved through our acquisition strategy.

Phil Gibbs – KeyBanc Capital

Great. And I see that the beryllium business was very strong in the quarter?

Dick Hipple

Yes, the high beryllium is doing very well right now.

Phil Gibbs – KeyBanc Capital

And you expect that to continue?

Dick Hipple

Yes, we have – it’s actually our only business that we can look out a little bit. Okay? Just the nature of the business, the backlog and the forward-look on the book on that one is – we feel pretty confident we could almost look through mid-2009 and know that that business is real solid for us.

Phil Gibbs – KeyBanc Capital

Okay, perfect. Thanks, guys. Have a good day.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to Michael Hasychak for closing comments.

Michael Hasychak

We’d like to thank all of you for participating on the call this morning. I’d be around this afternoon to answer any further questions. My direct dial number is 216-383-6823. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!