Greetings and welcome to the Materion Corporation Second Quarter 2014 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 Michael Hasychak. Thank you. You may begin.

Good morning, this is Mike Hasychak, Vice President, Treasurer and Secretary. 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; Joe Kelley will review the financial results for the quarter, then John Grampa will review the outlook for the remainder of 2014. Following John’s comments, Dick Hipple will review the current state of our key markets and provide his perspective on certain specific key new product initiatives and other developments. Following, we will open up the call for your questions. A recorded playback of this call will be available until August 8, by dialing area code 877, the number is 660-6853 or you can also dial area code 201 and the number is 612-7415, the conference ID number is 13586002. The call will also be archived on the company’s website, materion.com. To access the replay, just 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 that was issued this morning. And now, I’ll turn it over to Joe Kelly.

Thank you, Mike. I will cover the second quarter sales, value added sales, profit margins and earnings. I will review business profitability by segment, I will then review the changes in value-added sales by key end market. I will also make the brief comments on the balance sheet and cash flow. Looking at our second quarter 2014 financial performance, sales for the quarter were $288 million, down $18.1 million or 6% from second quarter 2013 levels, driven primarily by changes in precious metal market pricing and mix of customer supply material. Value-added sales which excludes pass-through metal costs for the second quarter were $159.6 million, up 5% over the prior year second quarter value-added sales, and up 10% sequentially over the first quarter of 2014 levels. The year-over-year growth in value-added sales is attributable to increased volumes into consumer electronics, primarily the semiconductor market phase and the increased volumes for medical applications. Value-added sales into these end markets grew approximately 16% over prior year second quarter levels. The above market growth rate in these two key industries was primarily offset by declining volumes in defense and automotive electronics. Gross margins in the second quarter was $49.8 million, up 8% from the prior year second quarter gross margin of $46 million. The gross margin expressed as a percent of value-added sales was 31% in the quarter, up 100 basis points over the prior year margins of 30%. Improved volumes leverage and manufacturing efficiencies related to the company’s late 2013 facility consolidation efforts resulted in improved profit margins year-over-year despite deterioration in product mix within several of our business segments. We are clearly starting to see the financial benefits from our facility closure and product line rationalization efforts which are on-track to deliver the annual benefit previously forecasted of $0.30 per share…

Thank you, Joe. Good morning, everybody. First, let me reinforce a couple of the key points that were made in the press release. Earnings in the quarter continue to gain momentum and we’re well above both, the prior year and the first quarter of the current year sequentially. Thus far in the year adjusted earnings are 23% ahead of the prior year on what was essentially flat to value-added sales. This excludes the favorable effects of the insurance settlement and the first quarter asset sale which in total add a benefit of $0.17 a share to GAAP earnings. For the six months earnings were a total – about $0.05 per share below, both the published street expectations and our own internal expectations. We were ahead by about $0.05 a share in the first quarter and off by about $0.09 a share in the second quarter. While a small portion of the second quarter shortfall can be attributed to late developing push out of certain specific beryllium and composites segment shipments, the principal issue that drove the second quarter and thus the first half, below our expectations, is the lower level of business in defense and automotive electronics. In the aggregate, shipments into these two markets were over $13 million below prior year with approximately $8 million of that occurring in the second quarter. As shipments to these markets have been flat to prior year rather than down significantly, our first half value-added sales would have grown by approximately 5% as opposed to being flat. In the second quarter, our value-added sales growth was approximately 5%, and shipments to these two markets have been flat rather than down our second quarter growth would have been above 10% year-over-year. The lower business levels in these two markets hurts our first half performance…

Thank you, John. I’m pleased with the year-over-year improvement, both in our earnings growth and margin expansion that we are delivering which is coming from the combination of new product introductions and restructuring cost savings. However, these results did fall short of our expectations – faced some unexpected and unplanned challenges in the marketplace. In the second quarter we had planned for the defense market who have bottomed from the weak 2013 and certainly have looked forward to growth in our automotive business. What actually happened was a further decline of our defense orders as we received push outs for 2015 of our F-35 business. Our automotive business remained down from 2013 while we had planned for the business to be up. The automotive weakness was a surprise as auto sales remained fairly solid. What we believe happened was an inventory adjustment driven by our customer. This inventory adjustment affected both, our alloy and tactical materials business. In fact, auto and light vehicle inventories were very high coming into the year, close to 90 days, and took over a quarter to work down to a more normalized basis of 60 days. We are now seeing strong order entry from our auto electronics customers heading into the second half. On the other hand, we expect a beryllium composite’s defense business to remain flat with the first half of 2014, and we’ll see a modest increase in our optics array defense business that is now being applied to UAV applications or drones for additional information gathering capability. Prior to this the array technology was used in satellites which is a market that has fallen off. In summary, our plans were to grow our sales in the second quarter but this was hampered based on the auto and defense markets. We did see…

(Operator Instructions) And our first question comes from the line of Avinash Kant with D.A. Davidson. Please proceed with your question. Avinash Kant – D.A. Davidson: Good morning, everyone. I had a quick question on – I don’t know if maybe John gave this on the call. Did you guys break down the percentage of value-added sales by segment, either on a quarterly basis or on the first half basis like consumer electronics, medical, and defense and all these – what percentage of value-added sales were these in the first half of the quarter?

The data is in the attachment to the press release Avinash. I think its attachment five or four of the press release, so it’s there. Avinash Kant – D.A. Davidson: Okay, thank you so much. And then…

The value-added sales by segment, did you wanted by end market though, Avinash? Avinash Kant – D.A. Davidson: Yes, I wanted end market actually.

Okay, well we can provide some insights to that now.

So consumer electronics in the second quarter – account comprised approximately 28% of our BA, industrial components was about 14%, medical was about 11%, automotive electronics was down to about 9%. Avinash Kant – D.A. Davidson: And do you breakdown defense and telecom infrastructure and all that?

Defense and telecom infrastructure combine to be slightly over 10% of our value-added sales. Avinash Kant – D.A. Davidson: 10%, right. So consumer electronic, industrials, medical, defense, telecom and auto electronics, right. So – of course the defense weakness that you saw, it looks like you’ve got some news during the quarter and F-35, do we have an idea of how much that could just contribute coming back in 2015, do you have a business level in that going forward or – there is not given anything?

The movement of the F-35 program represents approximately 20% of the fall off in the second half profitability and about 20% of the change in the guidance.

Roughly $0.05 a share. Avinash Kant – D.A. Davidson: But what I’m trying to understand is that – so this business that is being pushed out, do you know that this will remain at the same level when it comes back or do you know that your content or your contribution will go down?

Our content has not changed, in fact, it’s gone up a little bit, we do know the program has not been cancelled.

It’s a push out. Avinash Kant – D.A. Davidson: Okay. And also for the second half, of course you are talking about improved margins. If you look at full year though, it looks like we would hardly have any revenue growth in 2014 but if sticking with the $0.30 benefit in EPS given the cost cutting you had done, how should we think of margin leverage as we grow revenue?

Avinash, that’s not quite correct. The forecast for the second half revenue growth will bring the year to a value-added growth of a little bit north of 6% even despite the first half being flat. And I commented above margin expansion in the second half being approximately 200 basis points above first half levels. So given that kind of growth, we are – given the growth that we expect in the second half we do expect margin expansion. Avinash Kant – D.A. Davidson: Okay. Thank you so much.

You’re welcome.

Thank you. And our next question comes from the line of Luke Folta with Jefferies. Please proceed with your question. Luke Folta – Jefferies: Good morning, gentlemen.

Good morning, Luke. Luke Folta – Jefferies: I guess, just to talk on autos. I was bit surprised by the magnitude of weakness that you saw. And I guess, just thinking through it I mean how – are you certain that it’s a – I mean like, it’s sounds like mostly an inventory issue but is there any – do you think there is any change in share this year or anything else going on besides just supply?

No because what’s interesting or what’s not very interesting to me at all quite frankly but it was really across the board in both of our business units, almost identical numbers, and they are totally different application customers, it was not a market share loss. And the other thing is, it’s always easier when you look backwards. Look backwards we have very heavy sales in our automotive – I had said it late in third quarter, really fourth quarter last year, probably heavier than it should have been, if you know what I mean. So there was an inventory build and the cards build up and then just in our supply chain we saw a much larger adjustments than we would have expected. We see – it was shocking to us quite frankly that there where the automotive market, in fact we saw some weakness in the first quarter and we expected that to be flushed out in second but it didn’t happen and now we’re seeing it. So it’s just – really difficult sometimes to predict how those inventory cycles work. But as we all know, I mean fundamentally, car sales have been good. So I’m not concerned at all about the market itself, we haven’t lost share that we’re aware off, it’s just that we got smacked by an inventory cycle here that was worse than certainly we would have forecasted because as I mentioned – as I was discussing in my comments, that we had fundamentally forecasted the automotive market to be up in the first half and it was down. So that kind of a swing in our forecast was pretty big, so we kind of lost that traction. In fact, if the automotive market had been where we thought it should be, our earnings in the first half probably would have exceeded the street. I mean that’s the kind of quiver we get here. But anyway the automotive market is back, our bookings are up quite strong but – I will certainly say, Materion coped up [ph] for our forecast here and what happened in the automotive business, certainly it’s a surprise to me. Luke Folta – Jefferies: Okay. What’s your – can you give us some sense with the geographic distribution of auto sales are, I mean, just U.S. versus non-U.S.? I need any color that would help.

I think in total we’ll probably close – probably 60% U.S. and 40% overseas between Europe and Asia. Luke Folta – Jefferies: Okay. Alright, and then – I think it was said that overall activity on the whole was up about 13% over the last seven weeks or so year-over-year. Can you talk about exactly which markets are driving that?

Let me add little color to that. Clearly consumer electronics is continuing strong which puts it at stronger than prior year. Medical, which was already stronger than prior year has lifted for us over the last few weeks so we anticipate medical to be even stronger in the second half than it was in the first. Although we had a strong medical performance last year in the second half, we’re seeing an order level now first half that’s higher. So it will be about the same if not higher than we had in medical in the second half of last year. We’re seeing some lift in telecommunications infrastructure and we’re seeing – probably defense is flat and some lift in automotive finally. Luke Folta – Jefferies: Okay. And then on the Beryllium and Composites business, I think you might have said that – there was a lot of net business there, almost $2 million this quarter. How do we think about that in terms of – is that mostly the F-35 push out impacting that business? Can you maybe just give us some sense of what drilled the loss there? And then an update on the pebble’s plant ramp up would be helpful as well.

Sure, let me give you some insight to that business. I think you know Luke that we’ve mentioned quite often that this business can be choppy or can be lumpy and I think we talked about that a little bit in the – in those discussions this morning. We – the shipments are large and they carry high margin. And that’s really the nature of this business, large shipments – these shipments can move a few days or even weeks for a variety of reasons. Sometimes customers are not ready for delivery, sometimes the on-site inspection hazards been – a pre-shipment inspection hazards been completed by the customer in time or usually customer reasons and not ours. And from time to time programs get pushed, the customer simply doesn’t want the delivery as soon as he had initially suggested. Usually because other parts that he is matching the expensive material to aren’t ready at his shop but cancellations are rare. So cancellations are rare but delays are not. Year-over-year we think that – we’re forecasting a $4 million to $6 million year-over-year improvement in this business. So we see positive operating profits in the second half obviously, and we have the orders as Joe has mentioned, in house, that gives us the confidence that we’ll be able to deliver on that kind of year-over-year performance improvement. These pebble’s plant improved in the second quarter and is forecasted to continue to sequentially improve productive output, and that will favorably impact the cost and therefore margins as we move through the balance of the year and it’s the 2015 in this segment. Hopefully that covers your questions. Luke Folta – Jefferies: Yes, I have it in my notes but you guys might be running that plant full out by the end of the year, is that right, how you’re thinking about it?

Yes, that’s correct. And we’re on-track to do that. Luke Folta – Jefferies: Okay. And then just last one, as we think about cash flow you talked about D&A in CapEx, can you – I mean, I guess mutualising working capital, it looks like we’re – maybe still low to $50 million in entry cash this year. I guess, can you talk about working capital expectations in the year than anything else you think has a meaningful impact on the cash flow that we haven’t discussed?

Luke, you are correct. And our business typically in the first half of the year we invest in working capital, and then when you’re planning for Q3 maintenance downtime. And then going into Q4, our working capital we tend to liquidate that. So you are correct in assuming about it’s approximately $50 million free cash flow for the full year. So as we go through the second half of 2014 our working capital, we’ll start to liquidate that. Luke Folta – Jefferies: Thanks a lot.

And our next question comes from the line of Ed Marshall with Sidoti and Company. Please proceed with your question. Edward Marshall – Sidoti and Company: Good morning guys.

Good morning. Edward Marshall – Sidoti and Company: So let me just start – maybe I missed it, I was kind of hopping around, but the F-35 delays, what – is it specific to you that there are delays in the program or is it something that’s specific to maybe what your forecast and your guidance was, or your expectations for the year?

Yes, we had planned for this – our F-35 orders to be shipped this year and they moved our programs back into 2015. I think that there has been some push outs in the F-35 program, it’s very application specific. All particular applications are centered around what’s known as the E-OS program which is the optical targeting guidance optic systems. And in that case they have pushed that program back, I think some of it has to do with – they are transferring the technology into an investment casting technology which is a new technology and that’s what we’re shapening [ph] them. But I think that they are going through some gyrations, probably from an engineering standpoint as they change the design. So there might have been a little sub-category that has affected us due to the type of material that we’re shipping. It’s really good news in the long-term because as we’ve shifted our technology in the beryllium and composites over the year as it used to be that we would ship blocks of material and then we shipped what’s known as near net casting material saves a lot of material and less machining. And now we’ve shifted this technology to what’s known as investment cash which you really get almost pretty much the final shape with very modest machining required. So the efficiency is really going up with the kind of product and lowering our cost to ultimately expand the application base that we have. So this was a big cost saving part of the F-35 and I think just because of the opportunities here we may have seen some delays just – because of the totally different manufacturing process for them, and they have been working very hard with us to make this transition and it just maybe that this particular unit has been pushed back. Edward Marshall – Sidoti and Company: Is there something that they can’t build the plane without or how…

Correct, that’s correct. Edward Marshall – Sidoti and Company: Well, is it that they have shipped too much already and they are just kind of catching out or is it…

No, no. If you just listen to what I said, it was – it’s a new designed part that goes in there. So they have changed their engineering approach for this E-OS program that uses our materials from – frankly, we used to make it to a new way we make it. And I’m just speculating that maybe that was a part of the delay but – quite frankly, just – probably they’ve began some push outs on the F-35. Edward Marshall – Sidoti and Company: Yes, I mean – I’m reviewing their call as we kind of – we’re progressing to this one and I didn’t see any mentions of any delays or any change in the production schedule. So – I know there was a grounding recently and maybe it’s related to that but I’m just kind of trying to back into maybe what was potentially going on there. We could do more work and I’ll follow-up with you later on that. As far as it sounds like – and I’m not sure but it sounds like there was – I think the guidance that you just mentioned was $4 million to $6 million in the pebble plant for the year or leasing the beryllium and composites business. Are you lowering that number? Was it $6 million I think on the last conference call, and now are you looking for a lower profit run rate out of that business now or are you just giving a broader range?

No, actually not, that’s the same number. Edward Marshall – Sidoti and Company: Okay.

$4 million to $6 million year-over-year swing is the range. Edward Marshall – Sidoti and Company: Okay. And so, I mean on the low end of the range you’re basically just profitable I guess by roughly $1 million or so?

Correct. Edward Marshall – Sidoti and Company: So for $0.5 million is that the way to think about them?

Yes. Edward Marshall – Sidoti and Company: Okay. Inventory was significantly higher…

Let me just share the interesting point, I just want to – I don’t think we picked up on this in the call but if I were you I’d be asking the question how the heck you’re going to do that if you’ve got the F-35 push back on you. Well, what’s happening in that business is, we’re actually seeing stronger growth and forecast as in the non-defense area, and this is really to our nuclear business – for our nuclear medicine diagnosis materials, and that business is quite hot right now. So it’s actually a medical business that’s driving our forecast for us to maintain that even in spite of the defense coming down in the second half. So that’s really good news. Edward Marshall – Sidoti and Company: And on the inventory levels being significantly higher, and even on uncharacteristically from a seasonal pattern in years passed, is there anything in particular going on there?

There is the typical build in advance of some of the planned shutdowns in schedule for July which is normal. But if you’re looking at our financial statements and the inventory, there was a reclass from prepaid to inventory in terms of classification, it’s was about $20 million. That is simply a balance sheet reclass, it had nothing to do with the cash flow, and the classification of the hedge associated with our goal denominated loan [ph]. Depending on exactly what number you’re looking at that may have an impact on that. Edward Marshall – Sidoti and Company: You talked about building orders, do you know that – do you have the book-to-bill for Q2 and maybe where it stands post Q2?

No, we don’t have that. Edward Marshall – Sidoti and Company: You don’t have the book-to-bill number, I know you provided on prior calls.

No, we do not have it here in front of us. Edward Marshall – Sidoti and Company: Okay.

It is up as I mentioned to you – as I mentioned in my commentary, our order rate is up the last seven weeks, 13% ahead of where it was last year and not much of that was shipped. Edward Marshall – Sidoti and Company: 13%, where it was last year and what is it on a sequential basis, is there a way to look at it from maybe say, the last month or last two months of 2Q versus kind of the way we’re over the last seven weeks?

There is a way Ed, but unfortunately I don’t have that information in front of me. We can try to dig it out here… Edward Marshall – Sidoti and Company: Because I remember correctly, the second half kind of slowed significantly in the back half of the year last year, is that – is my memory correct?

Yes, your memory is correct depending on the business you’re talking about but sequentially, our Q2 – our order entry is up about 10%. Edward Marshall – Sidoti and Company: That’s great, thanks guys.

Thank you. And our next question comes from the line of Marco Rodriguez with Stonegate. Please proceed with your question.

Hi, this is actually Dan Treng [ph] sitting in for Marco Rodriguez. I’m wondering if you could talk about the capital allocation of your projected free cash flow for the remainder of 2014.

Yes, as you – I guess when you look at our capital allocation we have first of all our regular lease schedule quarterly dividend which actually we recently increased. And then secondly, as you are aware we have an authorization for share repurchases which we have been actively pursuing in the first half of the year and we’ll continue to offer domestically pursuing share repurchases. As you have your CapEx which I gave guidance on, it’s about $30 million. But then the other remaining cash flow, we are looking at and investigating strategic built on acquisitions to deploy that capital.

Okay. Any color for 2015 – color as into the capital allocation for 2015?

Yes, I would anticipate that we would maintain that course of returning cash to shareholders both in the form of share repurchases as well as dividends, and also continue to look at strategic acquisitions.

What are you seeing on the competitive landscape in the pricing environment?

Well I think that in our businesses you always have pricing pressure but we do have higher end products, so – that I would say that our pricing pressure is a little bit less because of the uniqueness of our products. So that – we have the discipline all the time and try to get even better at it as we move forward, it’s really extracting the value for products to make sure that we’re getting the pricing moving up versus going down which is where we try to push all the time is really the prices up versus down. But we do have some products where as you introduce new products, and I’ll give you an example of this, it would be our – in our chemicals business in our Fosters area where it’s very, very high volume business in the LEDs where we introduced a product early on with very, very high pricing, and then we drive that pricing down as the volume goes up but then we don’t sacrifice our margins because as we scale up our volume and lower our cost, we – you just have to time that. So I’m not saying that it’s not that our pricing are going down but sometime strategically that’s the right thing to do. And if you can able to maintain your margins, that’s the key and that’s where we try to play it. So where we do have new applications that are in areas where you have highly ramping volumes, you typically will get the pricing pressure overtime but typically, at least in our case, we’re able to keep our margins as we drive options [ph]. So it’s that balance but in general, I would say we’re under pricing pressure where we have higher volume type opportunities as the way I would describe it.

Okay. And lastly, can you provide an update on the acquisition landscape?

I think that you’re certainly aware that acquisitions at this point in time, the multiples have been climbing so you do have to be pretty careful. Money is cheap, then the multiples go up. So we surely won’t be doing anything stupid but – we’re trying to – quite frankly, we’re trying to rebuild our pipeline, I think that’s the best way to honestly put it, and we took a pause for couple of years because of the fixing that we need to do and the focus of the restructuring activities that we have plus the pebble’s plant. We’ve been really focusing on extracting the value that we had to get from those activities, and we pretty much have those things behind us, nice cash flow and we’re – we are actually working on rebuilding this pipeline for acquisitions and try to do it very smartly. Sometimes – since we normally have been dealing in a world of acquisitions [ph], you have – I think I have more opportunity to get things at lower multiples because typically you’re many times buying from privately held companies and there is little bit more flexibility when you’re dealing in that area. So, anyway I think the answer to your question is we’re rebuilding strategically the acquisition pipeline as we speak, and I would certainly see us moving forward on intelligent basis over the next six to nine months.

Alright, thank you.

Thank you. And it seems that we have no further questions at this time. I would 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’ll be around for the remainder of the day to answer any further questions. My direct dialing number is area code, 216, 3836823. Thank you very much.

Ladies and gentlemen, that concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.