Barrick Mining Corp (B) 2009 Q2 法說會逐字稿

Welcome to the Barnes Group second quarter 2009 earnings conference call. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator instructions). I would now like to turn the presentation over to your host for today's call, Mr. Brian Koppy, Director of Investor Relations and Communications. Please proceed, sir.

Good morning and thank you for joining Barnes Group's second quarter 2009 earnings call and webcast. This is Brian Koppy, Director of Investor Relations and Communications for Barnes Group, and with me this morning are Barnes Group's President and CEO, Greg Milzcik, and Senior Vice President of Finance and Chief Financial Officer, Chris Stephens.

I want to remind everyone that certain statements we make on today's call, both during the opening remarks and during the question and answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the financial statements. Please consider these risks and uncertainties that are described in our period filings with the Securities and Exchange Commission and are available through the investor relations section of our corporate website at bginc.com.

We will begin today's call with brief opening statements by Greg, then Chris will provide some financial details, and then we will open the call up to answer your questions. Now let me turn the call over to Greg.

Thank you and good morning. Throughout the second quarter we continued to feel the effects of the challenging economic environment. The actions we have taken over the past 18 months have reduced our cost structure and allowed us to generate improvement in cash flow. Our leaner organization will provide a stable platform to build on as the economy starts to recover and customer demand for our products and services improves.

While we do not expect a rapid economic recovery, we are proactively investing in new products and services and expanding our sales force. We believe a new economic environment is emerging and will provide opportunities for profitable sales growth for those businesses that provide a superior value proposition for their customers. Utilizing the tools within the Barnes Enterprise System, we are continuing to improve our operating efficiencies.

Let me now detail some of the activities within each of our business segments for the quarter. In our Logistics and Manufacturing Service segment, [endings or] demand continued to be weak across our markets during the quarter. Our outlook remains very cautious as our customers are adjusting to the prolonged softness of the current economy.

Within the North American distribution business we are investing in the sales force and influencing the strategy to expand our presence within our targeted markets. While we have made great strides at improving the full-year financial performance outlook of our European distribution business, the market conditions remain challenging. We continued to solidify our market position and strategies in certain channels, but the severe economic downturn has increased pressure on our cost structure.

For the aerospace aftermarket business, demand has weakened as both passenger traffic and freight volumes have declined worldwide. Overall shop visits are down, and the engines that have come in for repair have been for a limited work scope, which results in lower sales volume. Operational improvements and a rigorous focus on cost controls are providing meaningful benefit to our aftermarket operations, and we remain encouraged by our long-term prospects within our aerospace market and the stability provided by our aerospace aftermarket business.

The lower sales volume has afforded us the opportunity to focus on further improvements in our superior customer service. Within North American distribution in our aerospace aftermarket facilities, we have maintained or improved upon our key customer service metrics. We are very pleased with these results, and they are a testament to the dedication of our hard-working employees and their commitment to delivering the highest levels of service to our customers.

We will continue to focus on delivering superior customer service, improving productivity through the implementation of lean activities and improving inventory management to position the businesses of Logistics and Manufacturing Services for the success when the market recovers.

Demand within our Precision Components segment was also weak during the second quarter as many of our customers continued their inventory compression efforts. The automotive market was severely impacted in the second quarter by shutdowns at General Motors and Chrysler. The aerospace OEM business continued to be adversely impacted by reductions in our customer inventory and production levels, particularly additional delays in the 787 program.

Our aerospace OEM backlog of $338.4 million declined 10% from year end, due to a decline in orders during the quarter. We are encouraged by the strong long-term demand within the aerospace market, but we maintain a cautious outlook in the near-term as demand is likely to remain soft. We have had some success gaining market share in a number of our markets, though this has come during a period of overall market contraction and encouraged by order levels across Precision Components' non-aerospace business, which increased 27% compared to the first quarter of 2009.

Market share gains, improved productivity levels and lower costs have put Precision Components in an enhanced positioned to profitably grow when demand recovers.

With respect to our guidance or outlook for 2009, we will continue to evaluate the changing market conditions and assess the visibility we have with customer demand to determine our ability to provide meaningful guidance. As we advance through the rest of 2009, we expect continued challenges, and we believe we can meet these obstacles while preparing to capitalize on the long-term recovery of demand. Our 2009 goals of driving cash generation and adjusting our cost structure are providing measurable, sustainable benefits to our businesses. These efforts, along with continued investment in our businesses, will help position Barnes Group for continued long-term success.

Now I'd like to turn the call over to Chris, who will run through some of the financial details. Chris?

Thank you, Greg. Good morning, everyone. What I would like to do for you this morning is provide details on the results of our second quarter and highlight specific actions we have taken to strengthen our financial position.

Starting with the top line, the Company reported second-quarter 2009 net sales of $255 million, a decrease of 33% from prior year and relatively flat to both the first quarter of 2009 and fourth quarter of 2008. Similar to the first quarter of the year, our ability to generate sales growth during the second quarter was impacted by a sharp decline in the global transportation and industrial markets as well as declining airline traffic, capacity cuts and supply chain adjustments in anticipation of reduced aircraft production.

Another driver to sales decline was the impact of foreign exchange, given the stronger US dollar. FX negatively impacted second-quarter sales by $10.3 million and $24.2 million for the first half of 2009. Throughout this year we have taken a number of decisive steps to reduce costs and strengthen our capital structure. In the second quarter we continue to reduce costs through workforce reductions and furloughs and continued reductions in discretionary spending. These reductions occurred while we continue to implement the principles of the Barnes Enterprise System to improve efficiency of our key business processes.

Operating margin for the Company came in at 5.5%, an 800-basis-point decline from the second quarter of 2008. For the first six months of 2009, operating margin was 6.7%, a 670-basis-point decline from the first half of 2008.

Turning now to cash flow, during 2009 we have been and we will continue to focus on driving operating cash flow generation through working capital reductions. For the quarter we generated $42.5 million of operating cash flow, bringing our six-month operating cash flow level to $47.9 million, a 19% increase over the first half of 2008. The operating cash flow improvement during the quarter of approximately $37 million relative to the first quarter is net of a $9.5 million cash contribution we made to the Company's pension plans during the quarter.

Inventory management remains a key goal for us this year. Consistent with our first-quarter improvement, we successfully reduced our inventory levels by nearly $17 million during the second quarter, bringing the year-to-date inventory improvement to $35 million compared to year-end 2008. We have made these achievements with no adverse effect to customer delivery metrics. Inventory as a percentage of sales also declined to approximately 21% compared to a level of 23% as of the fourth quarter of 2008.

We are confident we can continue to make progress reducing working capital as we move throughout 2009.

Moving onto capital expenditures, for the second quarter we had capital investments of $10 million, a 28% decrease from second quarter of 2008. Through the first six months of 2009, we reduced capital expenditures by 25% compared to the first half of 2008. We expect 2009 capital expenditures to be in the range of $30 million to $35 million, down from $51.9 million in 2008. Capital expenditures this year are primarily focused on growth initiatives such as the new centers of excellence for seals and segments and pistons and cylinders for our aerospace customers.

We are committed and we will continue to invest in capital projects that contribute to our long-term success. Depreciation and amortization are expected to be in the range of $50 million to $55 million in 2009.

Turning now to highlights on our balance sheet, with our strong operating cash flow generation we are focused on reducing our debt obligations. Debt for the second quarter of $450.9 million was reduced by $15.1 million compared to year-end 2008 and $29.1 million sequentially. Our debt to capitalization ratio was 42% at the end of the second quarter compared to 44% at the end of 2008 and 45% at the end of the first quarter of 2009.

At quarter end approximately $257 million had been borrowed against the Company's $400 million facility, which matures in September of 2012. The debt-to-EBITDA ratio on our credit facilities was 3.37 times versus our debt covenant of four times. Based on this ratio, our facilities would allow us an additional borrowing of approximately $88 million. The debt covenant ratio requirement will decrease to 3.75 times beginning with the end of the fourth quarter of 2009. The Company is keenly focused on monitoring compliance with our debt covenants, and we are implementing prudent actions to sustain compliance through strategies to increase EBITDA and reduce debt.

For example, during the quarter we repurchased $22.2 million face value of our convertible notes for $17.4 million in cash. This provided a net financial gain of $2.3 million pre-tax related to the buybacks during the second quarter.

In July we bought back another $7.5 million face value of convertible notes for $6.8 million in cash. This brought the total convertible note buyback to $29.7 million par value at an average discount to par of nearly 19%.

On July 1 we entered into a new $35 million term loan agreement. Last week we borrowed $17 million under this new facility to repay our revolver banks, who originally financed our convertible note repurchases in the second quarter. We plan to draw another $15.2 million from the new term loan to refinance the senior note payment that comes due in November of this year. We view this activity as prudent, as it reduces the amount of our debt, delivers financial gains and provides an attractive rate of returns to our stockholders.

Regarding the Board of Directors' recent action on the Company's dividend, Barnes Group recognizes the importance of the dividend to our stockholders. We have paid a dividend consistently since 1934 and remain committed to returning cash to our stockholders through regular dividends. In today's uncertain and challenging economic environment, however, we believe it is important to enhance both our liquidity and our ability to pay down debt in the short term. By lowering the quarterly dividend to $0.08, we will reduce cash outflows by approximately $4 million in the third quarter relative to prior dividend payout levels.

This action, along with lower capital expenditures and improved working capital management, will strengthen our balance sheet, improve our credit metrics and provide greater financial flexibility. This decision is consistent with the conservative financial approach we've maintained throughout this economic crisis, and we believe that it is in the best long-term interest of our stockholders.

Second-quarter diluted average share count outstanding decreased nearly 7% from the prior year of $53.6 million. The decrease was primarily due to stock buybacks in the fourth quarter of 2008 and the lower dilutive effect of potentially issuable shares under employee stock plans and convertible notes, which are impacted by the change in the Company's stock price. The decline in the diluted share count was partially offset by an increase of approximately 737,000 shares contributed to the pension plan in the quarter.

In closing, throughout the rest of 2009 we will take the steps necessary to manage our business through this uncertain market. This includes an intense focus on controlling costs, maximizing cash flow, ensuring liquidity and maintaining balance sheet strength to provide us the financial flexibility. Our financial strength and discipline provides us with a solid foundation for the future, especially in these difficult times.

Now I would like to turn the call back to Brian.

Thank you, Chris. We will now open the call to your questions.

(Operator instructions) Edward Marshall, Sidoti & Company.

The Precision products margins decreased somewhat significantly in the quarter relative to both last year and the first quarter sequentially. I was wondering if there was a charge in the segment or what was going on there.

There was a charge for reduction in force of a couple million dollars.

Ed, about $2.5 million was recorded in the second quarter on Precision Components related to severance actions.

Okay. And then, can you give us an update on the GEnx and the Trent 1000, what you are seeing flow through as we've seen a slowdown on the '87 here or a push-out on the '87?

The 787 -- there's a few things. One is the continued delays are having some impact on us, and it comes from several different directions. One is, as the 787 gets pushed down, what we are finding is that some of our OE customers are actually in-sourcing work, that they add excess capacity since the 787 was being pushed out. The second thing is, we found that our sub-tier customers, not necessarily Boeing but the customers that we deal with for the sub-components, actually have about a year's worth of production in inventory currently. So, as this delay continues, we are going to see this inventory compress as production starts, so we don't expect to see any 787 benefit to us until late into 2010.

And then the last question I wanted to discuss is the recent revolver and credit agreement that you signed in July. First, how much is available on the original revolver that you had that's extended in 2012?

We had at the end of -- yes, about --

I think there's about $89 million that we have available.

Yes; we had about $250 million or $255 million, $256 million total drawn against that revolver at the end of the second quarter.

That wasn't a $400 million revolver?

No, no, we had -- yes, total revolver is $400 million, of which we've drawn about that much in the second quarter, a slight change from the end of the first quarter.

So, if you have the availability under your original term loan or under your original revolver, my question, I guess, is why are we raising the cost of debt by taking out a second revolver where you're paying about 300 basis points more on the (multiple speakers)?

Sure. Let me just maybe go back. At the point in time when we initiated the process, we looked at that $35 million term loan as providing us with additional flexibility heading into what we saw in the second quarter and the balance of this year, plus we wanted to maintain capacity under that revolver to satisfy future needs. We've put that -- we are putting that term loan to use. We've bought back the convertible notes, as I mentioned in my opening comments, and we are going to help refinance that $15 million, that 7.8% note that it's due later this year. So there were specific targeted reasons why we took out that loan. And again, longer-term, we just want to maintain capacity on that $400 million facility to satisfy future needs.

Matt Summerville, KeyBanc.

A couple of questions. I had thought, if I recollect back to the last conference call, that Barnes did not anticipate any 777 GE90-related impact, obviously negative with production cuts looming in 2010, until very late this year. And it sounds like you've already started to see some negative impact. You mentioned it in the press release. Can you provide a little more color around that, Greg?

Yes, Matt. That did surprise us a little bit. The fact is that when we're six to nine months, typically, between the time we produce a part, goes to GE, GE puts it on an engine and it ends up on an aircraft. However, when we looked at the inventory of engines in the cycle, etc., and the dramatic decline, 30% decline in 777 production schedule, it hit us earlier than we thought. And I think this is consistent with a lot of what we are seeing with inventory compression, that people are very quick to reduce inventory to the new production flow levels.

So it did hit us earlier than we anticipated by about a quarter.

And then will the magnitude of impact, then, continue to be -- or will it get more substantial from here? Then, I guess, when does that level off? When will your business be reflective of the five planes per month build rate?

I think we're just about there. If I recall, we had about a 25% reduction in 777-related components. So we're almost there, if you look at a third reduction, 30% reduction and the 25% we've already been impacted. So we're just about there now.

With regards to your comment that, at least as it pertains to Barnes, you don't anticipate any 787 uplift until late 2010, when would that assume first flight occurs? What would be your assumption that underpins that late 2010 help from 787?

That's a really tough question as far as when is the aircraft actually going to fly. But I would expect that would happen sometime in Q3.

Okay. And then, with regards to the severance expense you highlighted, can you just remind us what the anticipated restructuring cost will be to Barnes in 2009, and whether or not that number has changed from your prior estimate?

Matt, let me just go back. There's really no change. The second quarter action -- let me just make a comment. Given, obviously, the automotive downturn that we saw more significant in the second quarter, given the plant shutdowns at GM and Chrysler, pretty much prompted us to take additional actions as well as the aerospace reductions that we anticipate towards the second half of this year. So those actions were acted on in the second quarter. When we look at the charge to the second quarter being $2.5 million, we do look at cost-benefits to the full year. So looking at the fourth-quarter charges, when we talk about this $40 million benefit, $15 million realized in the first half, which we did, in the second half $25 million in terms of savings on that fourth-quarter charge, we will experience additional benefits as a result of this second quarter action in the second half of the year, kind of bringing that total savings to roughly $30 million in the second half, which we are on track to do.

What would be, if we think about 2010, based on the actions you've take in this year, how much incremental cost savings should you see in 2010 just based on what's already been done?

Well, we talked about realizing a $40 million number for the full year. Like I said, we are on track. So we are going to be experiencing -- most of that $25 million would be in the fourth quarter. So from a run rate point of view, it's going to be, I'd say, between $10 million and $15 million coming out of the fourth quarter and annualizing that going into 2010. But it's early to tell. Obviously, the uncertain economic situation that we are in and additional actions or activity that goes on -- we'll have to see how the second half plays out.

With regards to I think it was maybe Greg's comment that within Precision you had seen a 27% uplift sequentially in incoming orders on a non-aero. First I want to clarify that I had that correctly. And then second, is that coming from just your auto business? Are you seeing that in other areas of general industrial? Can you talk about the end markets there?

Sure. First of all, our auto-oriented work has been flat on its back for some time, and we see no significant change in that to date. When we look at production versus sales volume, production is about half of the normalized annual production of about 15 million units. It's running around 7.5 million units. Sales are running around 9.5 million units to 10 million units, depending on how you want to count it. And the inventory is actually going below historical norms.

So, sooner or later, that inventory will -- compression will finish. So some time late third quarter into fourth quarter we expect the auto to recover, at least to the sales volume levels.

As far as the 27% improvement, that was largely our European manufacturing businesses. And keep in mind that that is the beginning of the end of inventory compression, in my opinion, because collectively the European manufacturing businesses are down about 50%. So that 27% improvement in orders is just a portion of the recovery that's necessary.

Okay, thank you for that color. And then just one final one and I'll back in queue. Chris, you went through a lot of detail on the debt and where you are from a balance sheet standpoint. Obviously, the toughest 12-month period will span the fourth quarter of '08 through the third quarter of '09, I would imagine. At the end of the third quarter, where do you think you are from a total debt to your GAAP EBITDA ratio?

First of all, the actions, Matt, that we've taken in the second quarter and, I would say, that operating cash flow generation of $48 million for the first half, we feel very good about. Obviously, a lot of working capital reduction happened in the second quarter. We anticipate that all the actions we've put into place since the beginning of the year, that that will continue. So continuing to generate that type of operating cash flow and helping us reduce our debt as well as the other actions that we've announced in terms of the dividend reduction -- we are very confident that we are going to be on track not to have a covenant problem.

However, we are in uncertain times and it's difficult to see 30-60 days out. But we are very pleased with the actions. We are not necessarily targeting a specific ratio, but we do feel we'll meet it.

Fred Buonocore, CJS Securities.

I just wanted to quickly ask about the tax rate and just talk about what went on there during the quarter, please.

Yes, Fred, just really kind of a catch-up to the year-to-date earnings that we saw in the full year. I guess the income that we saw in the first half from a geographic point of view obviously significantly changed. So those higher tax jurisdictions that we have, we obviously saw a lot of pressure, given mostly it's transportation related.

So the second quarter benefit on tax, which looks rather odd, is just nothing more than a catch-up to that year-to-date rate of roughly 9%, is how to look at that.

Got you, that makes sense. You also mentioned in Precision Components that you had been seeing some gains in market share in certain areas. Can you elaborate on that a little bit, please?

Sure. In specific, it's auto related. We are seeing some of our competitors that are struggling to meet the challenging environment, and we are actually gaining market share in specific areas. And we also think that this is good in a couple ways. One is, sooner or later, that 7.5 million production rate will turn to 15 million as the markets return to normal. How fast that will occur, I have no idea. But we look at it as every sales dollar we gain in that business is worth $2 in the future. So it's largely in the automotive area.

Great, that's helpful. And then, can you give us a sense for trends you are seeing so far in Q3, if you're seeing any change anywhere relative to the end of Q2?

The only specific thing I could say is the 27% improvement in orders we saw in Europe. And as I mentioned in earlier, I think that's more to do with inventory compression ending than it is with any particular pickup in markets. I really look around the business, and I don't see anything that I would point as a trend. So I expect Q3 to be equally difficult and inventory compression ending sometime during Q3. When I look at the net inventory of our customers, we should see a pickup in Q4, but only to a normalized rate. I don't see any of the markets recovering yet.

Got it. So relative to that and realizing that you have pulled the guidance for the time being, just directionally on the top line, would you expect Q3 to be up or down or -- ?

Right now, I don't expect any change right now. And while we are seeing more visibility than we did in Q2, it's still not solid enough to really give guidance that would be credible. And some of the reasons we pulled guidance to begin with was, we were getting delivery schedules from our customers that were pulled in the last month of the quarter. They were changing dramatically. It was all over the place. Our customers couldn't figure out their delivery schedules, so it was hard for us to estimate the top line in any credible way.

Fair enough. And then finally, in terms of distribution margins, to go back to a conversation we were having quarters ago, before the world started to crumble, if you look at North America versus Europe, is it meaningful to make a comparison there on margins? (multiple speakers)?

Our North American business continues to be profitable, but at the same time we intentionally did not reduce our workforce significantly. In fact, we're adding to it. And the reason why we're doing that is we know that North American industrial production, which is currently at the lowest capacity utilization on record, will improve. And we need a workforce in place to satisfy the demand as it recovers, so we are actually investing more. We're scheduled to hire additional sales folks by the end of the year. We're looking at significant investments in training and other development. So we are pretty optimistic that we could get back eventually to the double-digit margins that we had a year ago.

As far as Europe, I think we made significant progress with the discontinued ops that we completed in the fourth quarter. However, we've still got a ways to go. We saw a modest improvement in sales sequentially Q1 to Q2. But at the same time, we still have some work to do in Europe, but it is trending in the right direction.

Very good. Thank you very much, and we'll look forward to seeing you at our conference in a couple of weeks.

Peter Lisnic, Robert W. Baird.

Just on that last question on just European distribution, trending better but that sounded like a top-line comment. If you take away some of the volume pressure you saw in the first half, can you say structurally that business is better profitability-wise?

Year-over-year, absolutely, when you consider what we've done with the business. The operations that we discontinued in the fourth quarter, I think, yielded the results we were expecting. However, we need to do additional work in order to gain the type of production efficiency and the level of profitability that we really want. And that business should be profitable in the future; it's a matter of how quickly we could get it there.

And in terms of what sort of target or what threshold you're shooting for, can you give us a sense of what that might be and where you're at right now?

Well, historically we said that it's going to be 2 or 3 percentage points below what we would expect in North America, simply because the additional administrative cost for the multiple locations when you have different geographies and the laws associated with individual countries -- it's more costly administrative-wise to do business in Europe than it is in North America. And we've said historically that double-digit in North America was expected rate of return here.

Okay, great. And then, just in terms of the restructuring costs that you booked in the second quarter, I wasn't really clear on what we might be seeing in the second half. Can you give us a sense as to what the dollar amount might be in the second half?

Yes. Peter, we are looking at roughly a $5 million benefit, $5 million to $6 million benefit in the second half as a result of that 2Q action, again, just -- again.

I got that; I'm wondering whether or not there's any incremental cost in the second half.

No, there's not.

All right. And then, can you give us a sense as to what the cash flow statement looked like? What I'm wondering is what the second half cash generation might look like, particularly from working capital, and how we can model that relative to some of the debt covenant constraints that you might be running across.

Sure. I'm not going to put a specific number on it, but I would say, just the year to date performance in terms of that cash generation and operating cash flow of $48 million, the second quarter actions, we are very confident we'll be able to continue that level of activity going into the third quarter. Our teams have done a great job of really focusing on working capital improvements as we've put those incentives in place at the beginning of this year. It's clearly driving results. We saw the bulk of that in the second quarter, and we are very confident we'll continue that level of pace going into the third quarter.

So is there a number that you can give us out of that 42, what piece may have been working capital?

I specifically identify, in my comments on the inventory piece, was roughly $17 million for the second quarter.

And presumably a similar impact on the second half is kind of what I'm hearing?

We are very confident we can continue to reduce working capital in the second half.

(Operator instructions) Matt Summerville, KeyBanc.

Just three quick follow-ups first, and I apologize if I just didn't hear it. Chris, what effective tax rate should we be using in the third and fourth quarter?

Matt, the effective tax rate -- I guess the adjustment we made, the 8.9% year-to-date through June, a significant change in our, let's say, projected earnings outlook for the full year. I'd say we are not in a position necessarily to give you a range on that tax rate. We've seen, obviously, volatility, and in our earnings, one of the reasons why we've pulled guidance to that level of uncertainty. So it's difficult to calibrate that, Matt, but I'd say it's not -- it's something we're not going to be able to give guidance right now.

Maybe you can at least say this. Do you anticipate that it will be positive and not negative again?

Yes.

Okay. And then my second follow-up, with regards to Barnes Aerospace overall, can you give us color as to what the OE performance was, how much it was down and then how much the aftermarket business was down?

Sure. If I recall, the OE business was down about 20%-25% on the top line, and the aftermarket was about 20%, somewhere around that range. Overall, it was not too unexpected. I think that the MRO business is always subject to short-term volatilities, simply because you can defer maintenance, the number of flight hours that occur, etc. So that was projected, as well as the decline in 777 production that we saw earlier than we anticipated. So it was in line with what we were thinking.

On your automotive business within Precision, it doesn't sound like you've seen much of a sequential uptick. And I guess I'm wondering, with production rates theoretically where some of the forecasts are at, why, I guess, you haven't started to see that yet.

Well, it's simply because, one, the production rates haven't ticked up in general. They've been running at around 7.5 million annualized rate per month. As you know, 15 million or 16 million is historically the norm over a 15-year period. And what we are seeing, though, is that the sales volume is maintaining between 9.5 million and 10 million units, which means that 25% uptick has to occur sometime. When you look at the inventory levels, they are now at historical norms and they are actually going below historical norms. So we expect this to happen within the quarter, that we'll have to see some sort of uptick in production volumes.

And, with regards to your North American auto business, are you anticipating normal shutdown schedules in the back half of the year? And then, with regards to just your European general industrial businesses, how you're thinking about August shutdowns?

Well, first of all, I've learned in this year with the auto business that you can't plan on anything. But we do anticipate longer than -- or more delays than anticipated normally. Second of all, in Europe there's a couple different aspects that we are considering. One is a lot of our business in nitrogen gas products, for example, one of our European businesses, is based on capital projects. And there's a large number of capital projects that are on hold. And when they these capital projects will be released, then we will see an increase in that production volume. But overall, a lot of the business there is export-oriented. We export some of our products into China, etc. And as the inventory compression ends there and we have less visibility in those businesses than we do in the North American auto businesses, we anticipate that will happen sometime during the back half of the year as well, and we'll see an uptick then.

Holden Lewis, BB&T.

Can you comment as well -- within the automotive exposure in your Logistics business, what has been the impact, if any, of the closing down of dealerships and that sort of thing? Has that been a meaningful player in that business or not so much?

If I recall, dealerships accounted for 8% or 10% of the business. And it has had some effect, but it hasn't been a huge impact. But certainly, the reduction in industrial production in North America has had a significant impact on the North American distribution business.

And then can you just comment also -- you noted that within Aerospace aftermarket, that that business is always subjected to deferrals and that sort of thing. But it seems like we've been talking about deferrals now for four or five quarters; makes me really hesitant to get on a plane, frankly. But when do you expect that we're going to stop talking about these quarterly deferrals? How long can you conceivably keep going at these sort of cut-rate, I guess, maintenance schedules?

First of all, you could go a long time. I think we talked about them for a couple quarters, maybe two or three quarters. But largely, that was anticipatory, not necessarily actual. The actual fact is that you could defer maintenance for an extended period of time, and you largely sacrifice fuel efficiency. So there's a capital trade-off. Do you invest the dollars in maintaining the aircraft or getting fuel efficiency versus not?

Also there's something called life limited parts, which are required to be maintained. So there's an equation you could get into. But in the past we've talked about deferrals, in 2002, I believe. But it took 18 months to two years for it to be realized. The good part about it is, think of it like money in the bank. It's building up interest, and the fact is that when the deferred maintenances come home to roost, the bill is usually larger. And therefore, we anticipate that sometime in the future, and I can't predict when, we will have increased volume out of our maintenance fee [on our overhaul] business due to it.

And I guess, just onto your cost side of the things -- so it sounds like, for that $2.5 million charge that's in the quarter, you are expecting about $5 million in savings from that?

That's right, Holden.

Okay. Was there anything comparable in Q1, in terms of charges, or any additional savings on top of the 40 that would have generated from actions in Q1, if you can just refresh my memory?

No; we didn't take any additional actions in Q1 in terms of charges.

Okay, all right. So the total sum, you're thinking, is sort of in this $45 million range, in terms of the total savings?

Sure, of the full year; that's right.

As there are no further questions in cute at this time, I'd like to turn the call back over to Brian Koppy for closing remarks.

Before Brian wraps up, I'd just like to make a couple comments. One is, when I was thinking about why this business continues to be a good business, I was thinking about the talented employee base. And the fact is that we have demonstrated the ability to increase margins over time. We've improved the operating efficiency. Our cash flow has continued to improve, and we've also reduced our fixed costs and an equivalent sales volume in the future will certainly be more profitable.

In addition to that, we've made the investments that are necessary to grow a business. When you look at the investments in sales force, etc., and we continue to be very focused on improving our operating efficiency through lean and the like.

With that, Brian?

Great. Thanks, Greg. I would also like to apologize for any difficulty you may have had hearing today's call. We did experience some electronic feedback on our end, which made it difficult for us to hear. And as always, if there are any additional questions about any matters discussed today, please feel free to contact me. Once again, thank you for joining us.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, have a great day.