Greetings. And welcome to the Materion Corporation Second Quarter 2012 Earnings Call. [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 for Materion Corporation. Thank you, Mr. Hasychak. You may begin.

Good morning. This is Mike Hasychak. With me today is Dick Hipple, Chairman, President 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 second quarter 2012 results and the outlook, and Dick Hipple will give a market update. Thereafter, we will open the teleconference call for your questions. A recorded playback of this call will be available until August 11th by dialing area code, 877, the number is 660-6853 or (201) 612-7415, account number, 286, and conference ID number 396978. The call will also be archived on the company's website, materion.com. To access the replay, click on Events & Presentations on the Investor Relations page. Any forward-looking statements made in this announcement, including those in the outlook section and during the question-and-answer portion, are based on current expectations. The company's actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. Those factors are listed in the earnings press release issued this morning. And now, I’ll turn it over to John Grampa for comments.

Thank you, Mike. Good morning, everyone. Thank you for taking the time to join us this morning. For your convenience, today’s agenda is unchanged from that of our past calls. I’ll review the results for the quarter and then comment on the outlook for the third quarter, as well as the balance of the year. And then following my comments, Dick Hipple will review the current state of our key markets, status of the startup and ramp up of the new beryllium plant and some of our new growth initiatives. Following Dick, we will open the call for your questions. I’ll begin with the usual brief summary of the key points that are in the press release. Then as I normally do, I'll cover the factors affecting the reported sales, highlighting the effect of pass-through metal price changes, which as most of you are already aware, can in our company cloud organic business level changes, particularly in an environment where pass-through metal prices are moving up or down significantly. I will also review the sales change by market comparing to the second quarter of the prior year and more importantly, comparing sequentially as well to the first quarter of this year highlighting the key changes, especially any significant changes in the trends. In addition, I’ll disclose the earnings per share impact of the cost associated with the startup and ramp up of the new beryllium plant, as well as the cost associated with the integration of the late 2007 EIS Optics acquisition and the cost related to the relocation of our microelectronic packagings business to Singapore. And I'll review the balance sheet, cash flow and our cash flow projections for the balance of the year as well. And then, I'll wrap up by reviewing our current view of the outlook…

Thank you, John. We certainly are in unpredictable times and taking a fundamental assessment of the global economy, we find ourselves with essentially the whole world slowing down as evidenced by the majority of PMI indexes being in negative territory. A lot of this I am sure is being driven by a slowdown in consumer spending led by both Western Europe and the U.S. At the beginning of the year, we had forecasted a stronger uplift than has occurred in the consumer electronics sector. Recent earnings reports by many of our customers bear this out including a rather flat forecast heading into the balance of the year. Another surprise has been the fairly depressed levels of the telecom infrastructure market versus last year. Also the defense sector has been soft in the first half seeing many pushouts although not cancelation of orders. On the positive front, we have record sales in 2 strategic markets in the first half. These were the commercial aerospace and the oil and gas markets. And we certainly expect these 2 markets to see ongoing strength throughout the balance of the year. As John reviewed with you, even given the unstable global situation, we still expect our second half sales and profits to be stronger than the first half. The stronger second half performance will be driven by several factors. First, our new pebbles plant continues to come up the production ramp. We are still on track to be at a production rate to meet our market requirements by the end of the year. In addition to an improvement in cost due to the higher operating level, our bookings are much stronger in the second half, which will result in a higher sales volume, the stronger bookings are in both our defense and medical markets. Second,…

[Operator Instructions] Our first question is from the line of Luke Folta of Jefferies & Company.

Got a question, Dick, you talked a lot about moving parts in the second half this year. I probably have to go back and read them again to get them all down but just from a more higher level, can you just talk about what the -- what was the biggest change in your outlook as it turns to why you dropped the guidance? Was it purely volume driven?

Yes. Volume driven and just slightly higher cost on the restructuring initiatives.

Okay. Can you talk about specifically, I know which market you’re saying are weak when it comes to revised second half forecast. Which market did you reduce your forecast for?

Fundamentally from the original plan, the electronics market.

Okay. And when you think about volumes, companywide and it’s probably up to gauge all of the diversification, when you think volumes in the second half versus the first half, directionally, are we headed higher or lower in your forecast?

We are a little bit higher.

Little bit higher. You talked about pricing improving in the second quarter. Can you give us any color on what products you were referring to and then you think that’s sustainable in the second half?

Yes. Actually, pricing is a pretty aggressive program for us right now. So we expect higher pricing in our alloy business. And we’re also taking actions really across the board and in the other divisions.

Okay. Any -- can you give us any sense of what the magnitude of that might be? If we -- I’m just trying to get a sense of what pricing is contributing this year?

Yes. I think that we referenced that in my dialogue where we have in the second quarter of this year, a benefit in that margin growth versus last year’s second quarter for pricing. That number’s order of magnitude, $2 million to $3 million year-over-year, dominated again by the performance of alloy’s business.

Okay. Just couple of quick ones. Advanced materials you talked in the press release about seeing a bit weaker product mix there. Is that -- can you give us some color on that? I think that’s a temporary thing or more long term?

Yes. We sure hope that’s its temporary. It’s driven by – our earlier expectations were the consumer electronics will be significantly stronger and it is driven by semiconductor consumer electronics primarily. So that’s really why the demand level there are giving us some caution. We also think it’s possible there might be some upside there depending upon where that market goes.

Okay. And then just on D&A, that’s down like I think $3.5 million, if my numbers are right here. I heard you -- for your forecast, just curious on what happened there?

That’s -- you talking about sequential in the first quarter or…

Yes.

Yes. We had a mine amortization in the first quarter was a little higher than the second quarter and then -- and our forecast just got down little bit there.

Our next question is from Avinash Kant of D. A. Davidson.

So the first question was you gave us some idea about the order pattern in the quarter. Could you give us -- what was the sequential decline in orders in Q2 compared to Q1?

I will look at up -- it was the few percentage points lower in the second quarter…

Versus the first quarter.

Right.

I think the Q1 was down roughly 12% you said, right, or was it up 12% or so?

The first quarter was up 12%.

12%, right. And then the Q2 dropped like 2%, 3%?

Yes. 4%, 5% I believe.

4% to 5%.

We don’t have the data in front of us. But...

Okay. That’s fine. Roughly in that order, right.

Yes.

Okay. And I think, John, you talked about the directionality for the rest of the year. I believe you mentioned that Q4 is going to be better than Q3, is that what you said?

That’s right. Slightly better than Q3, may be few cents.

And is that primarily because some of the different orders that you see and how were you modeling the electronics market?

Sure. A couple of things, yes, it’s not really related to necessarily monitoring electronics although. You do start to get a seasonality pattern in electronics beginning sometime mid-to-late August through October. But in the fourth quarter, the benefit of some of the cost reductions that Dick and I both mentioned appeared in the P&L fully with some of the cost to get there behind us. And the second thing that happens this year in the fourth quarter is that we will have a little stronger business coming from shipment of a -- expected shipment of hydroxide order to NGK. Those happens twice a year. This year, we think it will happen beginning of the fourth quarter.

What’s the order that -- what’s the magnitude of that order roughly, the NGK order that you are talking about?

The sales value roughly $4 million to $5 million.

That’s the reason, right. And that…

No. No. It’s a combination, the profit on that and the cost reduction.

And the cost reduction, okay. And you talked about the value added gross margin, you kind of stated in the quarter we’re roughly still in the 40% range, right. Could you talk about the operating margins, the value added operating margin in the quarter?

Yes. It was obviously below our historic 13% to 14% by roughly 150 basis points driven by that volume drop off for the current week last year.

It’s roughly 11.5%?

11.5% to 12%, closer to 12%, probably than 11.5%.

But you do expect that to come back up?

As the volume comes back and as the -- that’s correct. As costs continue to come down, we expect that to come back.

So you talked about second half being better than the first half. And you’re talking about Q4 being better than Q3. So basically, can we expect sequential growth in Q3 and Q4 both, is that what you are talking about?

Well, yes. I mean the Q4 growth is really because of the NGK order. If you take that out, I think sequentially probably, it will be about flat.

From Q3?

Q3 and Q4 will be essentially flat if you take the impact of the NGK order out.

But Q3 should be better than Q2?

And that’s correct and Q4 better than Q3.

[Operator Instructions] Our next question is coming from Hendi Susanto with Gabelli & Company.

First one, what is your estimate of break-even revenue in your beryllium business. Do you anticipate that business to reach break-even in 2013 considering anticipation of inventory build by the government?

Sure. Go ahead.

Yes. We would expect sequential improvement in that segment in 2013 and beyond, as the government begins to rebuild the stockpile. We can’t estimate at this time. It will be real premature to temporarily estimate the timing of that by quarter certainly and even by year.

I think…

We do expect a…

I did mention, we’re not sure, which ways it’s going to fall right now and may begin in 2013, it may being in 2014. It’s still yet to be determined. We’ll know that certainly by the end of the year.

Okay. Is there any estimate of the breakeven revenue level?

Well, it would in tens of millions of dollars.

Okay. Okay. Got it. And then what is your expectation of pass-through metal prices in the second half of 2012?

The numbers we presently have, we’re assuming second quarter levels. So obviously the revenue level might move around. But it doesn’t impact or will not affect our estimate of profit.

Got it. And then -- sorry if I miss revenue growth target, if it’s given earlier. If I’m not mistaken Materion was targeting organic growth of 3% to 6%. And then revenue growth of 5% to 10% in light of the new guidance, what is your current revenue growth target?

Well, we provided obviously the earnings guidance. But I would suggest that the second half revenue versus the first half revenue might be up $20 million greater.

Okay. But there is no like update on what type of organic growth you are looking?

Well, no. There would be no.

Roughly down from last year, obviously.

[Operator Instructions] Thank you. There are no further questions at this time. I would now like to turn the floor back to management for closing comments.

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

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