Materion Corporation
Q4 2008 Earnings Call Transcript

Published: 5 Feb 2009

[Operator:]

Greetings, and welcome to the Brush Engineered Materials Fourth Quarter 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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 for Brush Engineered Materials. Thank you. Mr. Hasychak, you may begin.

[Michael C. Hasychak:]

Good morning. This is Mike Hasychak. 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 D. Grampa:]

Thank you, Mike. Good morning everyone and welcome to our fourth quarter call. Thanks for taking the time to join 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 then following my comments, Dick Hipple will provide you with a market update and he will review of our key company factors. Dick will also comment on the effect that the economic developments of the past several months have had on our business as well as the aggressive actions that we've taken and will continue to take to ensure that the company remains healthy through the economic environment. Then we'll open the call for questions. I'll focus on some on some of the key points identified in the press release, covering both the quarter and the outlook. I'll comment only briefly on the year and I'll also attempt to pre-answer certain specific questions, some of which we have been receiving recently. First, I believe that it's important to review the non-GAAP operating run rate defined and presented in the press release, along with the key items affecting the comparisons to the prior periods. Then, I'll cover the factors affecting the reported sales compared to the prior year, including the impact that metal prices and our media market issues have had on reported sales and related comparisons for the prior period. And then, I'll review our balance sheet which is very strong, strengthened further in fourth quarter and is expected to continue to strengthen in 2009. And then following those comments, I'll review the outlook identified in the press release. Let's begin. We'll start with the review of the reconciliation of the non-GAAP operating run rate to the reported GAAP earnings. As I review the non-GAAP operating run rate, let met call your attention to the table in the non-GAAP financial measures section of the press release. The table is on page seven. In this table we reinforce what many of you already know, and that is that the fourth quarter and the full year comparisons to the prior year are affected by a number of factors that cloud the underlying performance of the company's baseline business. We reported on these and discuss these in past quarters and present them hear again for reference along with the related fourth quarter, non-cash $0.30 per share charge that was identified in the press release. The items identified in the table are factors that we wouldn't normally expect to occur in the ordinary course of business. And thus we believe that the presentation of our operating results, excluding both the positive and negative impact of these factors is a better representation of the performance of the company's baseline business. This is also more consisted with how management monitors performance internally. The most impactful of these is the sizable benefit from the sale of materials containing the raw material ruthenium to the media market during the initial stages of the significant perpendicular media product launch in early 2007. A significant and sudden increase in the market price of ruthenium then then resulted in our generating a pre-tax cash gain of $23 million or $0.70 a share after-tax due to our sales including materials that had been purchased in 2006 at a significantly lower price. Also to be noted in this table is the lower cost or market charges taken in specific quarters of 2008, as ruthenium prices return to historic levels. In the fourth quarter, the market price of ruthenium declined by approximately 70%, an unprecedented drop. This resulted in a non-cash charge of approximately $9.2 million pre-tax or $0.30 a share after-tax in the quarter. And the one final item in note in the table is that in the prior year fourth quarter we recorded an $8.7 million pre-tax or $0.27 a share gain related to a litigation settlement. Net of the charge taken in the fourth quarter of 2008, the non-GAAP operating run rate for the quarter was $0.16 a share, well ahead of the consensus estimate for the operating run rate, which was $0.07 a share. For the year 2008, considering these factors plus the other factors that are noted in the table, the non-GAAP operating run rate was $1.47 a share. Now, I'll turn to the factors affecting sales. As you know this morning, we reported sales for the fourth quarter that were about $45 million or 19% below those of the prior year. The fourth quarter sales were also below the third quarter by similar levels. Metal price deflation, or said differently, that portion of both precious and non-precious metal price declines that we normally pass on to customers lowered sales by approximately four percentage points in the quarter. For the year, metal price increases passed onto customers raised sales by about five percentage points. Therefore, while reported sales were down 19% in the fourth quarter, the real decline excluding metal price movements was about 15%. And for the year while reported sales were down 5% considering metal prices, the real decline was approximately 10%. As in the first three quarters of the year, another significant factor in the decline in sales in the fourth quarter and for the year in total was lower shipments of ruthenium containing materials to the perpendicular media segment of the magnetic media market. This is directly linked to the product and raw material supply qualification issues that we have been reporting on for the last couple of quarters. In the fourth quarter, sales here were approximately $27 million below the prior year. And for the year, sales here were approximately $142 million below the prior year. Approximately 25% of this drop is due to lower ruthenium metal prices and customers supplying their own metal and the balance, approximately 75%, is from lower volume. These factors affected the company's comparisons by 11 percentage points in the fourth quarter and 15 percentage points for the year. Net of both the metal price changes and media volume changes, sales decreased in the quarter by a 4% versus the reported 19%. And the year-to-date on this basis is a growth of approximately 5% versus a reported decline of about 5%. Dick Hipple will provide additional information on the media market in a moment. Now let's turn to the balance sheet. It is attached to the press release. Our balance sheet has been strong and continued to improve by an additional $28 million in the fourth quarter. Even considering the acquisition made earlier in the year, we continued to have significant financial flexibility. Our debt net of cash to debt plus equity ratio improved to a very healthy 6%. While the Techni-Met acquisition was approximately $87 million, balance sheet debt increased by only $6 million in the year. We ended the year with about 19 million of cash and about $2 million drawn on our revolver. We came into the year having significantly increased our precious metal consignment lines and we significantly increased our revolving credit agreement by about $115 million to $240 million, adding both financial capacity and significant flexibility. We're pleased to have the liquidity we do and the flexibility we have to support our strategic initiatives as we entered uncertain economic times. I'll now turn to the outlook. As noted in the press release the widespread weakness in the majority of our global markets has created an environment with minimal visibility. It is extremely difficult to predict the impact at these challenging market conditions on the outlook for the full year 2009. We had considered suspending our practice of providing annual guidance as many companies have, but we do feel that it is important to express our current view in spite of and considering the vagaries of the economic environment that we are still in. In most of our key markets, recent reports from customers and others are indicating that the fourth quarter actual and first quarter projected sales levels are well below what we experienced in the fourth quarter and many are indicating that improvements are not expected until the second quarter or approximately even into the second half of 2009, especially in the consumer oriented markets. We have seen that order levels in the later weeks of the fourth quarter were well below those of the earlier weeks, and that our order levels in the post-holiday period continue to weaken. Much of this we believe is due to massive inventory corrections in the supply chain. And we are therefore currently assuming no near term improvement. We are also assuming no further weakness as the first quarter progresses. As noted in the press release, we do believe that as a result of these conditions the company will show a loss in the first quarter of the year. Sales are currently expected to be in the range of 15 to 25% below those of the fourth quarter. From there, we currently expect revenue levels to improve sequentially as the year progresses. The full year is expected to be profitable. Assuming a new modest economic recovery beginning in the second quarter of the year, a profit of up to $0.75 per share diluted is currently expected. It's also important to continue to reiterate that the company's outlook is subject to significant variability, especially given the current economic environment. Changes in demand levels, metal price changes, metal supply conditions, new product qualifications, ramp-up rates, swings in customer inventory levels, changes in the financial health of key customers and other factors can have a significant effect on actually results. The outlook provided above is based on the company's best estimates at this time, and is subject to significant fluctuations due to these as well as other factors. I'll now turn the call over to Dick Hipple. Dick will provide you with the market update.

[Richard J. Hipple:]

Thanks John. Talking about the market today is almost like saying; I'd like to talk to you about my recent trip to the dentist who ran out of Novocain. And so far, I haven't found a dentist who has any Novocain in stock. Unfortunately we have not been spared the severe economic downturn that has been widespread across the economy, starting in the fourth quarter and continuing to escalate into the first quarter of 2009. I am proud of the management team and the work force as to how they have quickly responded to the rapidly changing conditions. The cost and inventory reductions have been rapid and effective. Our hourly work force has also been extremely flexible in finding ways to reduce the costs. Actions have been taken across the company to reduce costs and to ensure that the company's healthy balance sheet remain strong. Actions include head count reductions globally that have reduced total employment by more than 10%, since the end of the third quarter. The company has also implemented pay freezes, reduced work hours, suspended a portion of the 401(k) match, reduced discretionary spending, supplier costs and deferred lower priority initiatives. In addition, working capital is being diligently managed and targeted capital spending deferrals are being aggressively implemented to ensure that the company's balance sheet remains very healthy. As many of the company's markets continued to weaken through the early part of the first quarter of 2009, additional measured steps are being taken. All markets and all geographic areas of the world have been affected by this rapid downturn. The only exceptions have been the medical and defense markets. As I look forward into the first quarter of 2009, we see many customer order patterns from 50% to 80% down. With this being the case, we expect the first quarter to be the low point of 2009, as these order patterns reflect not only lower downstream demand conditions but rapid adjustments to inventory levels. So we believe that an upturn in order patterns should be realized in the second quarter when the impact of inventory adjustments should begin to wane. As we entered the slowdown, Brush's strategy executed during the last several years has borne fruit to provide a distinct advantage for the company. Both our balance sheet and liquidity are very strong. We have a broader geographic reach, more diversified markets which provide more growth opportunities. New products and better operation management systems that help to maximize productivity cost and inventory control. These advantages allow us to continue to execute on our go forward strategy of providing problem solving innovative products to our customers, with the objective of continuing to expand both our markets and geographic reach. For example, in the first quarter we finally are fully re-qualified and our shipping route target production orders to a major hard disk drive producer. Unfortunately, this market is undergoing a severe downturn as we speak. We expect to continue our recent progress at several other hard disk drive producers. As I mentioned earlier, several markets have remained solid for us and we have good growth initiatives behind them. In the medical area, we are advancing current product designs to help our customers lower their cost in the glucose testing area for diabetes. Our solar initiative continues to expand in the thin film area. Solar thin film technology is still in the beginning growth stage and we are working very hard in bringing specialty coating materials to markets. It includes powders, evaporators and sputtering targets, rotary targets and even a possibility of using out role-to-role sputtering process for flexible thin film coatings. We are looking to expand our reach in acoustic applications with the technical advantages beryllium foil has in high-end speaker technology. And these are just a few of the exciting areas for us. So as we go forward we will continue to work on both the top and bottom line to position this company as an early riser from these very turbulent waters that we are navigating. Operator, we will now take questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question is from Avinash Kant with D. A. Davidson. Please state your question.

[Avinash Kant:]

Good morning, John and Dick.

[Richard Hipple:]

Good morning.

[John Grampa:]

Good morning.

[Avinash Kant:]

A few questions. Am I right in understanding that if you did not take the charges related to ruthenium, your gross margin would have been roughly close to 18% or so?

[Richard Hipple:]

That's correct.

[Avinash Kant:]

Okay. And in terms of as the commentary was, your customers are seeing much steeper decline in revenue in the March quarter, you said in the order of 40, 50% or so. How is it that your revenue decline is going to be limited to the 25%? Is that partly because of the ruthenium sales that you are starting to do again?

[John Grampa:]

Could you repeat the question to make sure we capture the quarter reference correctly?

[Avinash Kant:]

Like your March guidance, the low end of the guidance is for down 25% in revenues, whereas in the prepared remarks you were talking about your customers, talking about the huge decline somewhere in the 40% to 50% range.

[Richard Hipple:]

Avinash, my comment was that many customers, not all customers.

[Avinash Kant:]

Okay. Now that basically, did you give out what was ruthenium sales for the quarter?

[John Grampa:]

I commented on the change between the two years.

[Avinash Kant:]

It was 27 million I believe.

[John Grampa:]

I think approximately $27 million. And that leaves a very small amount $4 million to $5 million in the fourth quarter.

[Avinash Kant:]

If I remember correctly your total sales for ruthenium in the last year 2007 were roughly $160 million?

[John Grampa:]

That would include sales into the head businesses. I was referring to sales onto the hard disk drive piece of that business being about a $140 million in the prior year.

[Avinash Kant:]

140. Okay, because at one point --

[Richard Hipple:]

150.

[Avinash Kant:]

150, yeah because at one point... okay, so now it make sense. Okay 150 down by 142 roughly?

[Richard Hipple:]

Right.

[Avinash Kant:]

So roughly 8 million. Okay, that makes sense. Okay. So, but you did say that you are starting... you did qualify the new materials again and you'll be starting to ship.

[Richard Hipple:]

We have started to ship.

[Avinash Kant:]

Already into fourth quarter, right?

[Richard Hipple:]

We have started to ship.

[Avinash Kant:]

Okay. That was in the fourth quarter or in the first quarter now?

[John Grampa:]

It already was in the first quarter.

[Avinash Kant:]

Okay, very good. And another question I had was, going forward of course you are talking about some sort of recovery, hoping for some recovery from the second quarter onwards. Usually what kind of visibility do you have? Like do you see these things at least three, four, five months ahead of time or is it more of a turn's business and you are kind of expecting it based on the decline that you have seen so far?

[Richard Hipple:]

Well, there is certainly not visibility three to four months in advance anywhere.

[Avinash Kant:]

Alright.

[Richard Hipple:]

So, it's dominated by what we see happening in a given month for example, half of business might to come to us in orders in that month.

[Avinash Kant:]

Okay. So on a monthly basis you do see things improving from February, March timeframe or beyond that?

[Richard Hipple:]

Well, no we do not. What I had said in my words is I am using some high level logic that basically says that some of these order patterns are so low that they don't really match with what the ultimate consumer pattern maybe. So, that is a sign of a massive inventory adjustment going on. So that given that, when that order pattern can only be sustained at that lower level for a period of time when ultimately the inventory adjustments are then made and then you see the order pattern pickup. An order pattern picking up to date does not necessarily mean that the economy has improved. It simply means that the inventory adjustments have waned.

[Avinash Kant:]

Maybe. And John on the operating side, would you say that the efforts that you have made, the full impact of that was not reflected in fourth quarter most likely will be starting this reflect in the Q1 or beyond?

[John Grampa:]

Very little of it would have affected the fourth quarter. There were some but not much. The majority of this will began to take route as the first quarter progresses.

[Avinash Kant:]

Right.

[John Grampa:]

Probably fully implemented at least what we are planning today, the full impact will be felt in the second quarter of the year, not even the first quarter; majority in the first, some coming in the second.

[Avinash Kant:]

So could you give us some idea about what's the magnitude of that impact, how do we model it going forward for the year, how much of a decline should we see in the operating expanses?

[Richard Hipple:]

Well, what we're looking at from these actions is around $25 million to $30 million a year, is what we expect to get out of them. And certainly, yes, if things unfold, we'll be looking for more.

[John Grampa:]

And that's not just in operating expenses, which you referenced that's everything from what happens inside operations above the gross profit line as well as GAAP income.

[Richard Hipple:]

Both overhead in operating

[John Grampa:]

Below the SG&A... below the gross profit line.

[Avinash Kant:]

Okay. And any idea in terms of assuming everything else being the same, metal prices and all that. When you talk about $0.75 in earning, what kind of revenue you have in mind. Any range there assuming the metal price being the same?

[John Grampa:]

I wouldn't want to comment too specifically because as you know, metal prices aren't remaining the same, and the mix of metals will not remain the same. So, up to $0.75 could take us up to a revenue rate thats well over $800 million. So it's a difficult number to try to be specific about.

[Avinash Kant:]

Okay. I'll let other try to question. And then I'll get back inline. Thanks.

[Operator:]

Thank you. Our next question is from Mr. Anthony Sorrentino with Sorrentino Metals. Please state your question.

[Anthony Sorrentino:]

Good morning, everyone.

[John Grampa:]

Good morning.

[Richard Hipple:]

Good morning

[Anthony Sorrentino:]

You said in the press release that because Brush has a strong financial position, it would be able to take advantage of strategic opportunities. Would these beat the usual tuck-in acquisitions or are you considering something larger?

[Richard Hipple:]

Well, again we've never limited ourselves. Obviously in today's environment I think I'd be a little bit more comfortable with tuck-in. But again you have to keep your eyes open if there would be a unique win-win opportunity with a larger company. I mean everything would be up for consideration.

[Anthony Sorrentino:]

Okay. And which areas or industries would you be looking to add to?

[Richard Hipple:]

Well, if you look at our pattern that we've had in recent history the last couple of years, what we've been doing is looking for acquisitions that provide a certain business model, and that business model is in high growth areas, high value-add, low capital intensity, good working capital turnover and businesses that provide some strategic advantages with our core businesses. And our core businesses, which is kind of interesting today are expanding. So our old core business is different than today's core business, which now gives us additional advantages as we look to expand the company.

[Anthony Sorrentino:]

Okay. Thank you very much.

[Operator:]

Thank you our next question is from Ms. Anne Riley with American Metal Market. Please state your question.

[Anne Riley:]

Hi. I'm interested in asking about staffing cuts over the quarter. It says in the release that about a 10% overall cut took place. I wonder if you have any specific numbers on how many that is by a head count.

[John Grampa:]

Well, the release didn't say that the full 10% occurred in the quarter. It reference, what we expect to be accomplished by early in the second quarter, the first quarter then New Year. At the end of the third quarter we had approximately 2,300 employees in the company.

[Anne Riley:]

Okay.

[John Grampa:]

So, you can apply that 10% to that number and we'd suggest that it would be,that number, maybe slightly larger.

[Anne Riley:]

Okay. You said 2,300?

[John Grampa:]

2,300.

[Anne Riley:]

Okay. Now, you are talking just now about the medical medicines industry is really being your strongest markets right now, maybe seeing some growth there. I am wondering whether we are going to see any pulling back in the other market, especially media, which you said just underperformed might we see more staff cuts, more project deferments there.

[John Grampa:]

For us or with them?

[Anne Riley:]

With you, with your department.

[John Grampa:]

We'll have this business right size for whatever the market conditions dictate.

[Anne Riley:]

Okay, great. Thanks for your help.

[Operator:]

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

[Rob Young:]

Hey, good morning guys.

[John Grampa:]

Good morning.

[Richard Hipple:]

Good morning.

[Rob Young:]

Congratulations on getting re-qualified.

[John Grampa:]

Thank you.

[Rob Young:]

I had a quick question regarding that. Are there any other outstanding ruthenium qualifications that you look to seek over the next quarter or so?

[John Grampa:]

Yes.

[Rob Young:]

Okay.

[John Grampa:]

Yeah, we haven't fully on the... there is about four critical customers, and we are over the hump on a couple of them.

[Rob Young:]

Okay. From a risk standpoint, are there any issues with losing market share or potential market share in the time of not being qualified to competitors that are qualified?

[John Grampa:]

Yes, we've already suffered from that.

[Rob Young:]

Okay. Is there any update on the oxide layered off?

[John Grampa:]

That's really... we've got prove our metal and this ruthenium layer.

[Rob Young:]

Okay. And then relative to the head count reductions, are you expecting any severance costs as a result of that?

[Richard Hipple:]

Yeah. Sure.

[John Grampa:]

Yeah, we would expect some in the first quarter.

[Rob Young:]

Some in the first quarter, okay. That's all I have, I appreciate it. Thank you very much.

[John Grampa:]

Thanks Young.

[Richard Hipple:]

Thank you.

[Operator:]

Thank you. Our next question is from Mr. Mark Parr with KeyBanc. Please state your question.

[Phil Gibbs:]

Hey guys. This is Phil Gibbs for Mark Parr. How are you?

[John Grampa:]

Hi Mark. Good morning Phil. How are you?

[Phil Gibbs:]

Pretty good. Your cost structure as it stands right now, can you give us some idea about how much of that is variable and how much of that is fixed approximately?

[John Grampa:]

We don't disclose that Phil. So no, we will not share that.

[Phil Gibbs:]

Okay. And Dick, did you say $25 million in cost reduction from the recent initiatives you've taken in 09?

[Richard Hipple:]

Yes.

[Phil Gibbs:]

And how much of that is going to showup in SG&A versus other areas of the business due rationalization?

[Richard Hipple:]

It's roughly 50-50.

[Phil Gibbs:]

50-50, okay. As far as in the margin impacts from lower copper prices we've seen lately, is there going to be a delay in the pass through or we're going to see in the first quarter or some sort of mismatch, how should we'd looking if that is part of the margin impact?

[Richard Hipple:]

There is a slight lag there as we talked in the past a month or two between the time of the the order of time of fulfillment. But obviously order levels are down now, so you are not going to see too great an impact in the first quarter. But, if copper prices continue decline we will see the benefit there.

[Phil Gibbs:]

Okay. You've alluded to the fact that the medical markets and the defense business have been strong. We've heard that on past calls that your defense business is been good enough, and I’ve heard from other companies that the defense business is been solid. Is there lot of that going to be baked into the beryllium business? Would you say that the strength that you saw as far as the solid margins, the above 15% margins in the solid sales growth, is that going to be sustainable through next year?

[John Grampa:]

The first question, yeah I think I'm glad you brought this up because generally this company has always talked about the defense business centered around our beryllium business and that is true for the beryllium business. So, what's interesting is that our footprint has expanded in the defense business really through our acquisitions. For example the business that we acquired out in California several years ago, the TFT we call it. Their primary business is defense and is growing very, very strongly. Our business, our inorganic chemical business that we bought up in Milwaukee, they are big suppliers of TFT. And they had a very nice core of defense business. So, actually our defense business footprint is expanding within the company.

[Phil Gibbs:]

Is that TFT business, is that the infrared business, is that right?

[John Grampa:]

No. The TFT... well, yeah. You are right. It's the filters, yeah. The coating for the filters, the infrared filters, that's correct.

[Phil Gibbs:]

Okay. But would you expect this strength in the beryllium business in the fourth quarter to continue our is that a depiction of some lumpiness?

[John Grampa:]

Well, I think let me put this way. We expect the good year in 2009, it's one of the few businesses that you have some, forward look to them because of the lead times. We did a very strong shipping quarter, in the fourth quarter in beryllium business. Now will we repeat that every quarter, I don't think so. But that's just a reflection of lumpy shipments. I think the business itself is solid for 2009.

[Phil Gibbs:]

Okay, fair enough. Thanks guys.

[Operator:]

Thank you. (Operator Instructions). Our next question is from Mr. Avinash Kant with D. A. Davidson. Please state your question.

[Avinash Kant:]

Just a quick follow-up. Any comments on the development on the new plant that was coming up to accommodate the beryllium plant?

[John Grampa:]

Yes, all the building steel is up, foundation is in, the building steel is up, it's on schedule. And I don't have its schedule committed to memory. But I think, our start-up is scheduled right around the end of the first quarter next year. And so everything is in order there.

[Avinash Kant:]

End of Q1?

[Richard Hipple:]

Yes, that's routine.

[Avinash Kant:]

Okay, perfect. And, of course, is that the production time, you'll start producing at the end of Q1 or?

[John Grampa:]

Yes, that's pretty much all the construction that would be completed right around probably April, then we'll go into a start-up mode. So I would expect us to be seeing some decent production at that facility certainly before the end of the year.

[Avinash Kant:]

Before the end of the year?

[John Grampa:]

Correct.

[Avinash Kant:]

Okay, perfect. Thanks so much John.

[Operator:]

(Operator Instructions). Our next question is from Mr. Mark Parr with KeyBanc. Please state your question.

[Mark Parr:]

Hi, just a real quick. Had you mentioned that your CapEx plans for next year?

[John Grampa:]

Thanks for asking that question. No we did not. But as you recall, we've been operating in the range of 25 to $30 million in the last couple of years. We would expect that in 2009 given some of the actions that we've taken that will be well below $20 million in CapEx. So, for a range effective range $15 million to $20 million.

[Mark Parr:]

Okay. And just the last question on the balance sheet; the retirement of pension benefits that went up about $40 million on the balance sheet in the quarter, can you give some color on that?

[Richard Hipple:]

Yeah, that's the peculiarities of pension accounting and that's the unrecognized loss that we had on our investments this year, plus changes in the various assumptions by the discount rate. So here in the fourth quarter we had to raise our liability. The offset there was a hit to what we call OCI within shareholders equity. I'm sure you're seeing that same type of adjustment from a lot of your other clients.

[Mark Parr:]

Right, right. Is there a pension fund status that you can lead us to?

[Richard Hipple:]

Sure. Our valuation of our pension fund as of the pension fund plan year end, which is May 31st, the last one was May 31st of 2008. And taking into consideration the cash that will be putting in during 2009, we would be up at the 80% funded rate. Of course, we'll have to redo that as of May 31st of 2009 to see what the shortfall maybe given the performance of the assets for the remainder of the year of 2008 and to May 31st of 2009.

[Mark Parr:]

Now, is there going to be a cash outlay that we're going to see?

[Richard Hipple:]

We'll be putting in about $18 million into the fund in 2009.

[Mark Parr:]

Okay. Perfect, thank you.

[John Grampa:]

Majority of that has been expected for quite sometime.

[Richard Hipple:]

Right.

[Mark Parr:]

Okay. Thank you.

[Operator:]

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

[Michael Hasychak:]

This is Michael Hasychak. We would like to thank all of you for participating on the call this morning. I'll be around for the remainder of the afternoon to answer any further questions. My direct dial number is area code 216, numbers 383-6823. Thank you very much.

[Operator:]

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