Greetings and welcome to the Materion Corporation Fourth Quarter and Year End 2013 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. I would now like to turn the conference over to your host, Michael Hasychak. Thank you, Mr. Hasychak. You may begin.

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; Joe Kelley, Vice President of Finance; and Jim Marrotte, Vice President and Corporate Controller. Our format for today's conference call is as follows; John Grampa will comment on the fourth quarter and full year 2013 results and the outlook, and Dick Hipple will give a market update and comments. Thereafter, we will open up for teleconference call for questions. A recorded playback of this call will be available until March 14, by dialing area code 877-660-6853 or by dialing area code 201-612-7415, conference ID number 13575400. The call will also be archived on the company's website, materion.com. To access the replay, click on Events and 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 his comments.

Thank you, Mike. Good morning everyone, thanks for taking the time to join us this morning. This morning we will deviate somewhat from our traditional agenda, to allow time upfront, to review the events that led to yesterday's filing of the 8-K. That filing identifies a necessary correction to the reported results of two of the company's earlier quarters of 2013. Of particular note, is the correction to the second quarter of the year. Following that review, I will then return to the traditional agenda and review the results of the fourth quarter, including a review of value added sales by market, margins, a more detail on costs and benefits of the facility consolidation and product line rationalizations, our cash flow and the stock repurchase program that we have initiated. I will also add some color on the performance of the advanced materials technology segment. I will conclude with an update on the outlook for 2014, which as you already know, is expected to be much stronger due to the significant progress that the company is seeing on a number of fronts, including market improvements, new product initiatives, progress with the ramp up of the beryllium pebble facility, and the benefit of the cost reductions and margin improvement initiatives that were undertaken in the fourth quarter of 2013. Following my comments, Dick Hipple will review the current state of our key markets, and provide his perspective on certain specific key new product initiatives. There is a good bit of encouraging news on this front. Let's begin with a review of the Form 8-K. To be clear, nothing that we say or imply during the course of today's call, is to make excuses, minimize or rationalize the occurrence of events leading to this filing. This is an unfortunate event that should…

Thank you, John. First of all, allow me to begin by expressing my disappointment in the events that John described that led to the need to restate the second and third quarters. As John said, we have not taken this lightly, and corrective actions are in place, to ensure that something of this nature does not occur again. On the business front, I am encouraged by the increase in sales in the fourth quarter versus last year, and our sequential growth from the third quarter; and with 10% stronger bookings versus last year at this time, we are off to a good start this year, towards our objective of at least 6% organic growth in 2014. Of note, as we finish this year, is another record year in our tough net sales, in 17% over 2012. The majority of our markets are now gaining strength. A few are seeing some inventory adjustments in the first quarter, such as Automotive and Medical, after a very strong year in 2013. But these are not same and systemic issues going forward. Our consumer electronics bookings are holding up in the first quarter, which is actually not what is normally seen at this time of the year. I am also very encouraged that we are putting behind several operating challenges, that has held our performance and margins back during the last six months. Our beryllium pebbles plant continues to ramp, and should be reaching over 75% of our targeted production rate in the first quarter, heading towards 90% in the second quarter. Also, we have struggled with some production yield issues in our performance alloy division. The root causes have been identified and resolved, setting us up for good performance in the second quarter. As John mentioned, our new restructuring actions were essentially completed…

Thank you. (Operator Instructions). Our first question is coming from the line of Martin Engler with Jefferies. Please proceed with your question.

Hi. Good morning everyone.

Good morning.

Regarding the first quarter earnings guidance of $0.20 to $0.25 per share on a GAAP basis, outside of the weather impact, are there any other extraordinary items or costs that you are expecting in those numbers?

No, there is only actually a penny or two per share associated with the carryover costs of the fourth quarter restructuring activities. So there may be up to $0.02 in that number for some of those carryover costs. But other than that, there is nothing extraordinary.

Okay. And that would be something that you would call out, as you typically do in the release?

I think we could do that, if it turns out to be that significant, yes of course.

Okay. And then, regarding the weather related impact there, can you talk about the facilities or maybe what would be more helpful to segments, which ones you expect to be most impacted, due to the facility shutdowns?

Yeah, that's a fair question. The largest impact will be on the performance alloys business. It has a very large facility near Toledo, Ohio that has been dramatically affected through the course of the past few weeks. That, as well as the beryllium composite segment, both of those in the same facility. The remaining activity is also associated with the facilities in the Northeast, and those are bridged to the certainty against materials technology segment. So I would say, if you wanted a model, maybe 70% to 75% of the impact would be on the Performance Alloys and beryllium composite segment, and the balance would be the Advanced Materials technology.

If you think about the other facilities, its just kind of unbelievable where they are. We have, the ones that John just mentioned and then we have Buffalo, New York and Boston and Providence, Rhode Island, seem to be epicenters for where this snow has come. So that's where our facilities are.

Typically what happens is, we have had instances where you actually have entire factory shutdown for multiple days, because people literally can't get to work. So those are higher costs. And you have lost shipment days that go on, but on the shipping side, you do start with the costs, when the plants aren't running. But then from the shipments, we should be getting those back. There should not be lot of shipments and we should start to see that in the second quarter, anything that hasn't been lost here; because of all the supply chain issues going on, either from our suppliers, not being able to get materials. It goes on and on. So there is certainly an impact in the first quarter for manufacturers in certain areas of the country.

Thanks. That's helpful. And then, regarding the value added sales, forecasted growth that was 5% to 7%, is that correct, for 2014?

That's correct.

Can you talk about major end markets, may be top two or three that you expect to contribute to that growth, and roughly, about what portion?

I think the overall -- our assumptions for this year, as we expect very slow, modest GDP type growth, so let's call that 2.5, and again globally, its not United States, 2.5% to 3%, and the balance which would be kind of double the rate of GDP, we are looking forward to see the high levels of growth would be in Commercial Aerospace. We would see it in our Optics business, because we have a lot of new product ramps. We will see it in some of our niches on the electronics business, with phosphorous and the LEDs, those would be examples. And we do expect also that the Oil and Gas market is going to see some higher than GDP growth this year too. So I think, Commercial Aerospace, Oil and Gas, certain niches in the electronics area, is where we are going to see the more significant growth, and our specific niche launches in the optics business.

Okay. And nothing that you are seeing at this point with those kind of three buckets, as far as inventory issues or potential for destocking, at least on the horizon?

No the ones that I had mentioned earlier on, the one that surprised me a bit was the softness that we had seen in Automotive late 2013 and into this first quarter. But again, if you look at the big picture, I just think there is just an inventory adjustment that's going on. We had a building year, last year in Automotive. We were up 12%, 15% in Automotive. So you're going to have some adjustments expected in that. So I expect Automotives would be back more than a steady player here in the second quarter.

Okay. And if I could, one last question on the share repurchase quarter-to-date. Do you have an estimate about how many shares you've repurchased thus far?

We have repurchased less than 100,000 shares at this point.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Edward Marshall of Sidoti and Company. Please proceed with your question.

Good morning guys.

Good morning.

Where do I start here? If I could just follow-up on that repurchase question that was just asked, what was the share count at December 31? I am presuming that you bought shares back throughout the quarter, I know it was modest, but, the share count was up in the fourth quarter, so I was just curious [indiscernible] end of the year share count?

Year end diluted shares were 20.9 million.

Okay. So the ERP system was installed in 2010. You changed I guess the report that came out of it? When did that -- the audit took place in the fourth quarter, when did the actual change take place --?

Let me add a little more to that for you Ed. I thought I was clear, but perhaps I was not. This was a new report put in place in early 2013 to replace a manual portion of the reconciliation process in the typical inventory itself. So there was a manual process that we were using. The new report was put into place to replace that and it was an extracted data from our systems into this new report, and as it turned out, the report was accurate, it was just misused. So its an error that's clerical in nature, using the report properly will prevent -- this should prevent this problem from occurring again. Does that help?

Yeah. So you took measures to kind of remedy it. This was in the Buffalo facility you said. Wasn't it at the same facility you had the test, and is that related to anything that was --?

No, no, no, it was not the facility that [indiscernible] a year ago. That facility was Albuquerque, New Mexico, it was a different metal, it was silver, and not gold, platinum or palladium, which is generally -- which is what is processed in Buffalo, and the facility -- this was not that. That was Albuquerque related, one year ago.

Okay. And then so, you caught the error, you will restate the earnings. Is there a risk to any prior quarters? I am assuming there is not, as you kind of continue with this audit, is there risk to any of the other quarters, than what was stated in the Q?

We do not believe so. We just don't.

Okay. And if I look at last quarter, there was a $3.5 million revenue, and roughly $0.06 a share from the beryllium facility on the missed shipment. Was that shipped in Q4? Looks like it was?

We had demand levels improved in the fourth quarter. There were three shipments that were delayed -- three or four shipments that were delayed at the end of the third quarter. Two of those have already shipped -- three of them have already shipped, two in the fourth quarter, one in the first quarter, and the remaining one is yet to ship.

Okay. As I look at where your guidance is placed for 2014, and I went back and I looked at the 2013 guidance given on the fourth quarter call. It's roughly the same, I guess, the high end you are down roughly in nickel. I think your guidance range was $1.70 to $2, now its $1.75 to $1.95, but you have roughly $0.30 of restructuring benefits in that number. It looks like the pebble plant as well is going to give you kind of a tailwind there. By my own math, it looks like about $0.30. So are we starting 2014 materially, from a demand perspective and end market perspective, outside of your own control, much worse than what 2013 looked like, or what's the differential?

Well actually not, actually the opposite. 2013, we came into the year, we had demand levels that were higher than what they turned out to be very quickly in the year, across the number of markets, demand levels fell off. Coming into 2014, looking at demand levels versus the same period of a year ago, were up about 10%. Its just the opposite.

Okay. So you are just aggressive? You're saying last year in the guidance?

Last year turned out to be, that we were aggressive. Market fell off significantly quicker.

When I think about the fourth -- you said that close the gap the $4.3 million in kind of the audit change to the second quarter results, what's the result between the GAAP -- between reported earnings and your guidance? Does that think about it, or would you be double counting that loss, because I assume that you pick it up throughout the third and the fourth quarter, as that starts to realized and you kind of adjust the costs going forward. When you pick that $4.3 million back up in the fourth -- third and fourth quarter as well, it will start matching costs to kind of revenue?

In the third and fourth quarter of 2014?

2013.

I am not understanding your question.

May be we can follow-up on that later.

Okay.

Thank you.

Our next question is from the line of Avinash Kant of D. A. Davidson. Please go ahead with your question.

Good morning Dick and John.

Good morning.

So question on the liquid metal market that you put some press release about recently. What kind of opportunity are we looking at, and what kind of profitability profile [indiscernible]?

So that's a great question Avinash, we are at the very beginning of our market. What's interesting is liquid metal has been out there for quite a while. It hasn't really gone anywhere, and I think the fundamental reason is, that there hasn't been a robust supply chain, meaning that -- it’s a nascent [ph] product, you need reliable high volume die casting technology, is really what's required. And that's -- we have developed the alloys to support this die casting technology, which actually, alloy development is very critical to help the reliability and the production of high volumes. So what's happening is, I think with our technology advancements, in combination with technology advancement in die casting, we are now set up in a total supply chain, that we can actually develop these markets more robustly. So, I think, from a near term perspective over the next couple of years, this market could be in a $5 million to $10 million range. It has to evolve than normal cycles of qualifications, people [indiscernible], always takes a little bit longer upfront, and then you can start to play mental games with yourself, that's going to be much larger; because depending on where the product ultimately goes, it can go in some very high volume size applications and if the metal is very attractive, it has forming characteristics that require minimizing or eliminating machining, and has strength and stiffness ratios that are out of this world. So [indiscernible] with yourself of how big it could get, I'd rather not do that, I'd rather say that, in the near term, I feel comfortable that the supply chain is coming around right now, that we can support and early market developments of this product, and I see a long term horizon that's pretty exciting. But in the short term, I would say that over the next several years, we could develop the market in the $5 million to $10 million range, and then beyond that, it could be much more exciting than that. That's practicality.

If I remember the history of this one, lots of patents were bought by Apple actually from liquid metals. Now, would you be making the material for Apple or not at this point?

It would depend on Apple's decision making process.

That's not final yes, right?

It would depend on Apple's decision making process.

Okay. I understand. So the next question turning to the pebble plant. You did say that you expect to get to 75% by Q1. Could you give us -- what percentage utilization did you exit the year at?

We exited the year, probably closer to 50%, 55%.

50%, 55%? And maybe John can talk a little bit about this one. So what kind of margin improvement this could result to, when we get to 90% utilization that you are talking about, right? Q3.

We are not so much thinking about margin improvement, as your year-over-year change in profits in this segment -- the year-over-year changes profits in that segment that we have consistently discussed, was up to $5 million year-over-year, in that range, up to $5 million would still be an accurate range.

I was trying to figure out, just the utilization rate going up alone, could add how much? If you went from 60% to 90%?

$2 million to $3 million to that, for a decent range. I don't have the precision here in front of me, but $2 million to $3 million.

That's a good range.

$2 million to $3 million on a quarterly basis?

No, no, no, no. The year-over-year impact, $2 million to $3 million.

So the thing is that, when we get to 90% utilization here, in pebble client, the year ago would have been something different. So what I am trying to figure out is that for 50% improvement in utilization, what kind of margin impact it is, or something like that, you see what I'm saying?

I think I have answered that. $2 million to $3 million would be that number.

Okay.

In terms of -- you want to translate it into basis points, it would be, maybe 200 to 300 basis points in that segment. I don't have that data in front of me either.

Okay. Okay. That's a good idea. Okay. And in the 2014 guidance, I think you talked a little bit about, what's the expectation about, in the electronics side, what kind of growth are you expecting on the Consumer Electronics market in 2014?

I think, the reports that I see, and I will comment from a general industry standpoint, I would say, it appears that the electronic market should be -- a growth of about 4% to 5% next year. It has not been growing. So at this point in time versus last year, it should be in that range.

Perfect. Thank you so much.

Our next question is from the line of Marco Rodriguez at Stonegate Securities. Please proceed with your question.

Good morning guys. Thank you for taking my questions. I was wondering if you could talk a little bit more about your fiscal 2014 guidance? I know you provided some general color in that. You obviously have the restructuring initiatives that are going to give you positive impact, market improvements for [indiscernible] ramp up and new product initiatives. I was wondering, if you could put may be some more color on the market, beryllium and new products and how you see those making up, the difference between that 30%, that $0.30 and the remaining implied EPS within your guidance for fiscal 2014?

I think you had two questions there, one was what percentage of growth might be new products versus market in general?

Yeah. I am just trying to get a sense of -- we obviously can do the math there on the $0.30 what you have given us. But then there is an additional $0.35 to $0.55 in your -- implied your guidance that's coming from those other areas, right, through the market, beryllium. So just any kind of color that you can put around, that will be helpful?

Yeah, let me rec out the year a little bit for you, for all of you; because there are a couple of things that may not be quite obvious. First of all, the tax rate difference between the two years is probably worth about may be $0.15 a share, if you look at 30%, the number I provided for 2014, and then some discrete items and other benefits that we had in 2013. So you have a negative impact year-over-year on tax. You also have a negative impact year-over-year in a variety of incentive compensation plans, because of the assumption that we have in our guidance is, that we will make plan in 2014. We obviously did not in 2013. If you begin with the one-offs that we have already acknowledged and then try to bridge from there, you have the pebbles plant benefit, we had some benefits from the savings that we have already, from the restructurings that we had already indicated. And then the rest of the difference, if you will, is a combination of the growth in the company about, and that's worth about $0.30, about half of that or less, slightly less than half is the new products and the remainder would be market growth in general. Does that help you?

Yeah, that's helpful. Okay. And then, Dick, maybe from a larger viewpoint, perhaps you can talk a little bit about what are your top strategic focal points for fiscal 2014, and also, if you could talk about what the top risks are, that you are kind of watching out for?

That's pretty simple, the top priorities are really two. One is the, make absolutely sure we drive and accomplish and get the $0.30, all of the restructuring activities, and that's well executed and all that is [indiscernible] at the bottom line. That's priority one. And then priority two, is to make sure, we are back on a greater GDP growth platform at this point in time, driving with the new products that we have. Those are the two top priorities, and then once you go beyond that, we have got a lot of blocking and tackling in the company of driving other costs out. Lean sigma initiatives and procurement initiatives and to get our margins up. But so it’s a combination of the efficiency of the company, and getting some of these new products into market as fast as we can from the growth side of it.

Got it. And the new product launches, is there anything special that you are doing from a marketing standpoint, or is this just kind of a bigger focus on the blocking and tackling, if you will?

Each one is unique with which customer you are working with, and its really how fast you support the customers with what I call, turnaround cycles on the development side, that's the key. And so, what we have done in the last couple of years, has been to invest in some improved infrastructure in the company to be a lot more responsive on the product development side of -- its one thing to come up with a new idea and a new product, and you develop it. But typically, when you do that, there is always going to be 10 variations before you get to the end line with the customer. So its that ability to take the idea, take the concept, and then be able to drive it quickly with variations, until you get it finally to a point that really drives home the acceptability of the customer. To that side, we found that that's where it’s the secret to help accelerate the product introductions.

Got it. Thanks. And last quick question here, kind of a housekeeping item, do you by chance have the gross margin by segment for Q4 2013?

Yes we do. For Advanced Materials, if we are looking at gross margin as a percent of value add, Advanced Materials is around 36%, Performance Alloys is around 27%, the Beryllium is 23, and Technical Materials was seeing over 40%.

Over 40%?

Yes.

Okay. And then with the restatement for Q2 and Q3, is that all in the Advanced Materials? So if I wanted to kind of go back and back into, what will be the restated gross margin there? Would I be doing the math correctly there, or is there a different number?

Yeah. That was all in the Advanced Materials segment.

Got it. Thanks a lot guys.

This is Mike Hasychak. We are out of time for questions. I am going to be around the rest of the day to answer any of your questions. My direct line is 216-383-6823 and we thank all of you for participating today.

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