Crane Co (CR) 2003 Q1 法說會逐字稿

Good day and welcome, everyone, to the Crane Co. first quarter 2003 earnings conference call.

Today's call is being recorded.

At this time I'd like to turn the call over to the director of investor relations. Ms. Pamela Styles.

Please go ahead, ma'am.

Thank you, Bill. And good morning, everyone.

Welcome to our Crane Co. first quarter 2003 earnings release conference call. I'm Pam Styles, director of investor relations and strategic planning.

Also with us this morning we have Eric Fast, our president and CEO. We also have joining us for the first time George Scimone , our new vice president and CFO.

The comments that we make on this call may include some forward-looking statements. We would refer you to the disclaimer language at the bottom of our earnings press release and also in our annual report and 10-K pertaining to the forward-looking statements. Also we anticipate commenting or our other press release of last evening with regards to our acquisition offer. I would refer you to the language in our press release regarding timing and commencement of the offer and cautionary language associated with it.

Now, let me turn this over to Eric.

Thank you, Pam.

I'd like to start with a few overview comments. I'll then introduce George and ask him to go through our financial highlights, and then I will return to provide additional color and respond to questions.

First of all, I'm very pleased to announce our intention to acquire Signal Technology Corporation, an all cash tender offer of $13.25 per share or approximately $135 million after net cash on the balance sheet. This is a very significant strategic acquisition that will strengthen our existing defense electronics business. I will provide more details after we review the operations.

From my perspective, the first quarter was okay operationally, but obviously difficult reflecting end (ph) market challenges. We earned 28 cents in the first quarter in line with our previous guidance of 27 to 29 cents, which included $5 million or six cents for severance cost. We are also reaffirming our full year 2003 earnings guidance of $1.65 to $1.75 per share with 40 to 45 cents for the second quarter.

Market conditions, frankly, remain difficult. In our major end markets we are expecting further deterioration in the traditional commercial aerospace market, particularly with regard to civil aircraft, exacerbated by the SARS virus. We are presently expecting a further 10 percent reduction in global capacity by commercial carriers. However, aggressive cost reduction, better than planned after market activity, particularly military and a solid defense electronics business will allow us to improve our aerospace guidance. We are also expecting continued softness in the chemical processing industry and temporary order weakness in the RV market and our engineer materials segment.

Efforts continue to right size our operations and continuously improve our operations procurement and souring, as well as to reduce overhead expenses, all of which helps us aggressively and flexibly mitigate impacts from adverse market conditions. At the same time, we are not cutting our investment in the future and continue to fully support new product development, engineering and our front end global sales force as we strive to take market share in these depressed market.

I'm very pleased to introduce you to George Scimone. George joined us about a month ago, brings extensive relevant leadership experience to Crane Co. with 28 years of increased responsibilities at General Electric and seven years at Reader's Digest, the last several of which he was chief financial officer.

. I'm very pleased to have George as a new business partner ,and I will let him give you the financial highlights.

Good morning. I'm happy to be here.

As you can imagine, I am focusing on getting to know our people in operations as rapidly as possible right now. I also look forward to meeting many of you as I grow in my understanding of Cane.

Our total company sales in the quarter were up a modest 1 percent from the prior year and operating profit was down $9million or 23 percent.

In the quarter, we recorded a $5 million pretax expense, of 6 cents per share for severance, which reduced head count by about 275 people. This is actually slightly more than the five cents per share the company previously suggested would be achieved in the first quarter.

The operating managers are committed to flexibly managing their businesses and cost structure to be responsive to difficult conditions in the end markets we serve, where appropriately they have and will continue to downsize to maintain reasonable margins while continuing to invest in our future growth, including sales and new products. Operating margins were 7.5 percent versus 9.9 percent last year.

Total aerospace segment sales increased 2 percent from the prior year. Operating profit was up 8 percent and margins improved 100 basis points to 19.3 percent. While sales in the traditional aerospace businesses were down slightly, electronic sales increased from the addition of General Technology Corporation acquired last November. Operating profits increased across both businesses.

During the quarter the tradition aerospace component business incurred $600,000 in severance cost to reduce its work force by over 40 people in conjunction with the change in their business model to operate the four businesses as one global commercial aerospace business. We expect this business model change to provide $8 million annual operating savings this year. Although after market orders have remained weak from historic perspective, they were stronger than anticipated in the first quarter. Electronics sales gains increased 20 percent, reflecting the GTC acquisition and margins improved 180 basis points to 15.1 percent.

We expect the commercial aerospace market to remain weak in 2003 with civil aircraft demand depressed but stronger military demand for the balance of the year. The company was very conservative in its expectations as it approached 2003. We now believe we can manage the business to maintain a 5 percent reduction in full year operating profits from 2002 as opposed to the previous anticipation of a 10 percent reduction. This is due in part to our successful efforts to resize the commercial aerospace business.

Within our forecast ,we recognize the OEM production levels continue to decline and do not expect the strong first quarter after market sales to be sustainable for several reasons, including slowdown of passenger traffic due to the war in Iraq and global health concerns surrounding SARS.

Engineer material sales increased 16 percent or 6 percent excluding acquisitions in divestitures. Operating profit increased 22 percent..

Kemlite sales increased 97 percent to the transportation market and 25 percent to the RV market versus the prior year first quarter. Sales into the industrial building market were also up strongly due to the Lasco acquisition. We did begin to see some hesitancy in RV-OEM orders at the end of the quarter as OEMs are waiting to see if RVs fell off the lot this spring. With early indications of potential RV demand softening and some potential raw material cost increases for styrene (ph) and resins (ph) , we have reduced our operating profit growth assumptions from an increase of 20 percent to an increase of 10 percent for the full year 2003.

Merchandising system sales declined 12 percent and sustained an operating loss of 2.1 million reflecting operating losses at NRI and $2.7 million in severance to downsize its work force. This segment experienced continued market weakness across-the-board for vending machines in North America, in Europe, and coin changes in Europe. That said, we do expect NRI to return to profitability following the first quarter resizing efforts. In market demand in the automated merchandising market in both the U.S. and Europe is expected to remain weak in 2003, resulting in only modest operating improvement from 2002.

Forward handling sales were even with last year, while operating profit was 40 percent below prior year, reflecting severance costs, plant closure costs and continued end market weakness. Forward handling incurred approximately $1.5 million in severance cost to reduce its work force by approximately 130 people during the quarter. Ongoing facility rationalizations include the Bay City Resistoflex closure in the move from Long Beach to Chichuahua, Mexico for valves. These facility moves should be largely completed in the second quarter.

While we are experiencing continued end market deterioration, we believe the additional savings from work force reductions on top of other cost reducing initiatives should allow us to achieve a 15 to 20 percent improvement in fluid handling operating profit in 2003.

Lastly, controlled sales were slightly below the first quarter last year. Modest operating profit was $0.4 million versus $0.8 million last year. We expect operating profit from our control segment to decease slightly in 2003 as we invest in new product applications.

Our financial position remains strong. We generated nearly $23 million in cash flow from operations during the quarter. And in addition to capital spending in dividends, we repurchased 346,000 shares at an average cost of $16.68 per share for a total of $6 million. We also received modest proceeds from the sale of our Kem (ph) pump unit during the quarter and we ended the quarter with a net debt to capital of just over 24 percent. Cost of sales in the quarter were $257.3 million; SG&A was $91 million, and included within these categories was depreciation amortization of $12.4 million.

With that, I'll turn the call back over to Eric.

Thank you, George.

I'd like to make a brief statement on asbestos, and then return to the signal acquisition.

On asbestos, we do not intend to comment quarterly on our estimate of the company's asbestos liability which was provided for in the fourth quarter of last year, and full details are in our annual filings. Details regarding claims filed and disposed of and the cost of defending and settling claims will be disclosed posed as in the past in our quarterly report on form TQ.

As previously stated, however, it should be noted that past trends and claims and related costs are not necessarily predictive of future trends and there maybe significant difference this is these amounts from quarter to quarter due to litigation trends in specific state and local jurisdictions, adverse court decisions, whether or not against the company, and legislative developments and other factors.

For that, I'd like to spend some time and talk about the single transaction we announced yesterday evening that we had signed a merger agreement to acquire Signal Technology Corporation. This is a very strategic acquisition for us, as it will also double our participation in the electronics market and significantly increase our presence in defense electronics. The total cost of acquiring the outstanding shares of the company and cashing out the in the money options is approximately $153 million. Net of cash and debt using December 31 balances of approximately $4.4 million of debt and $23 million of cash. The net cost to Crane Co. will be approximately $135 million.

We will finance a transaction using cash on hand and our existing bank facilities. We will need to obtain (inaudible) clearance for the transaction. We don't anticipate any other regulatory reviews.

Under the terms of the definitive agreement we intend to commence a tender offer shortly for all of the outstanding shares. Signal management and the board have already agreed to tender their shares. The tender offer is subject to a minimum condition of at least 51 percent of fully diluted shares being tendered. Once the tender offer is concluded, we will effect a cash merger for the shares not tendered.

This acquisition provides a terrific strategic fit which I'm going to elaborate on for a moment, and then I'll circle back to a few final valuation and aggregate performance expectations.

We believe Signal provides an exciting opportunity for the strategic and profitable growth of our aerospace electronics business, particularly in the area of defense electronics. Based on full year 2002, approximately 93 of Signal's revenues came from the US and international military sale. Signal sales are virtually all of the prime defense contractors in the United States and directly to the Department of Defense. Their products are used in electronic warfare, missiles, precision guidance and intelligence, surveillance and reconnaissance systems applications.

Importantly from our standpoint, Signal has a high quality, effective operating management team. Each of the division presidents is an engineer who has grown up in the defense electronics industry. They are supported by over 90 highly skilled engineers and others with strong design, manufacturing, finance and project management expertise. This team has produced excellent results with 2002 revenues from continuing operations of approximately $87 million, an increase of 9 percent over the prior year and an operating margin for 2002 of 12.44 percent for continuing operations; an increase of 220 basis points over the prior year.

Signal is currently made up of two businesses, power management products business and a radio frequency microwave component and subsystems business. Power management products contributed about one-third of 2002 revenues, while the (inaudible) microwave business contributed the remainder. In each of these businesses Signal provides components and subsystems operating at high levels of reliability and performance and exceedingly demanding environments. This is consistent with our own electronics emphasis. Approximately 50 percent of their revenue comes from essentially sole source products.

Signal produces power management products through its Kel Tech (ph) division. Kel Tech (ph) produces a range of custom designed, high and low voltage power supplies, including voltage conversion, amplification and filtering. This division also manufactures power supplies integrated with radar frequency transmitters providing a value added subsystem for customers. Power management, that is delivering the electricity at the crank voltage, power level and consistency determines the ultimate ability of the electronics system to perform. The current campaign in Iraq, Kel Tech (ph) has supplied power management products to weapons systems, including Tomahawk missiles, Patriot PAC-3 missiles, Global Hawk and the wind corrected munitions dispenser.

Signal's radio frequency and microwave components and subsystems businesses operate out of three facilities, Arizona, California, and Massachusetts, and provides a range of products critical to the successful operation of communication radar and other electronic warfare systems, signal intelligence applications an precision guidance systems. RF microwave products include state of the art oscillators, amplifiers, frequency synthesizers, converters, filters and switches.

In the current campaign in Iraq, these products were in several weapons systems and aircraft, including Patriot missiles and launchers (inaudible) missiles and the B-2 stealth bomber. Other systems using Signal product, including the harpoon and standard missiles for the US Navy and the U.K. Nimrod (ph) aircraft.

We intend to integrate Signal into Crane's aerospace electronics business, which focuses on high performance electric products and applications requiring a high degree of reliability locating in demanding environments, such as those found in aircraft, space and medical markets.

During 2002, we executed an internal merger of (inaudible) APP (ph) product lines, again a custom power management products business with Interpoint in this line of microelectronic (ph) power supply products. We also purchased General Technology Corporation in late 2002 for approximately $25 million to provide additional presence and capability in the defense markets. The combination of these three businesses created a $100 million revenue electronics platform which we continued to expand an invest in profitable growth. This Signal acquisition will also double the sides of this electronics platform.

From a strategic interest interrogation standpoint the Kel Tech (ph) operation will be integrated into our existing power management products business to create a one stop global business. Combined businesses will have a full range of products, commentary capabilities and application, and enjoy a wide range of close customer relationships. Both Kel Tech (ph) and our existing power business supply, custom low voltage power supply, but to different markets. We have historically focused on avionics and cock pit applications with a much larger relative participation in commercial markets. Kel Tech (ph) has emphasized missile, communications, radar and electronic countermeasure applications.

In addition, Kel Tech (ph) has a high voltage, high power custom power supply design capability and market presence which we have lacked. The RF microwave products will provide an exciting expansion of the solution sets offered by Crane Aerospace Electronics. The highly engineered nature of these products and the niche (ph) nature of customer demands clearly fit with our overall Crane Co. strategic approach. The managing processes and capabilities among Signal facilities and our existing Interpoint operations in (inaudible) Washington, Albuquerque, New Mexico and Taiwan will provide opportunities for continued development of our cost effective manufacturing strategy to economic sourcing of production and other facility initiatives. Interpoint's microelectronic (ph) packaging and capability and experience will also increase the range of packaging options for Signal.

On the corporate level, we estimate that there is approximately $5 million in annual Signal corporate expenses that we can eliminate through the elimination of public company expenses and the assumption of the remaining activities by our group and corporate office. We expect to achieve these savings by the end of the first quarter after closing the acquisition. With the anticipated performance of the signal businesses, the execution of our integration strategy and the realization of cost savings, we expect the acquisition to be moderately accretive for the remainder of 2003. In addition we expect accretion about 10 cents per share in 2004.

On a pro forma basis, we expect that the acquisition will initially increase our net debt to capitalization to a still conservative 34 percent, and with our free cash-flow should be approximately 25 percent by the end of the year.

Based on 2002 results from continuing operation the transaction on a reported EDITDA basis is 10.2 times, but adjusting for the anticipated corporate expense savings, the pro forma EBITDA multiple would be approximately 8 times.

And with that, Pam, I think we'll take questions.

Bill, we're done with our prepared comments. You want to open up the call for questions, please?

Thank you, Ms. Styles.

The question-and-answer session will be conducted electronically. If you would like to ask a question, you may do so by pressing the star key, followed by the digit one on your touch tone telephone. If you are on a speaker phone, please make sure the mute function is turned off to allow the signal to (inaudible). Once again, that is star one to ask a question. We'll proceed in the order that you signal. We'll take as many questions as time permits. We'll pause just a moment to assemble our roster.

And we'll take our first question from Deane Dray, Goldman Sachs.

Hi, good morning.

Our first question regarding the acquisition. Eric, you gave some good details there with regard to the accretion assumptions, but just a couple others.

What should we be using regarding cost of capital? You said you're going to be using cash and then some of your credit lines, but you expect to term that out.

We haven't made that decision. Our present intention is just to finance it short.

Okay. And then, what other costs synergy should we expect? You said the $5 million within the corporate public company expenses; there's a number of facilities within the organization. Any thoughts in terms of what sort of integration and savings you might get from that?

My first comment would be, we would not wanted to get particularly specific here for two reasons, Dean. First off, we're just getting ready to commence the tender offer and we need that to -- we need to complete that and finish that.

Secondly, though, we have had extensive discussions with the general management, operating management at Signal on a preliminary basis with respect to the direction the company and how it's going to be integrated in our businesses, but we will need to wait until the acquisition is consummated to sit down formally with them, which we would want to do, to make those plans formal moving ahead.

Okay. I can appreciate that.

Could you just more broadly get as comfortable with the thought that or the impression that Crane may be buying here at the peak? It looks like a fairly rich valuation, and given geopolitical circumstances it seems somewhat opportunistic, just on first pass, that you might be buying the peak here?

We're making the general assumption that you should see 4 to 6 percent growth here for at least several years in defense business generally. We're making a bet that where we are participating that industry is the growth area of the industry, that is smart intelligence, smart munitions and smart delivery of those systems. And we think this -- if there's anything that we have learned in this war, and I think just general reading of the papers, would suggest that the Defense Department clearly has learned and whether it's speed or knowing exactly what's going on on the about the battlefield is of paramount importance. And we think this positions us both because of the microwave and the power business squarely in the heart of where the future growth and developments are going to be.

Okay. Just two quick follow-up questions.

I also, Deane, don't feel that, you know, on a pro forma basis without looking at the other synergies that approximately eight times last year EBITDA is so egregious. .

Okay.

And then, Is there a breakup fee?

There is a breakup fee. It will be in the tender documents.

But -- can I say? -- it's $4.5 million.

Okay. And then, last question on the transaction is, what is the expected wrap up in operating margin and over what time frame? So your rate is somewhere close to 12.5 percent now?

Again, once we close the transaction and spend - again, go back over our plans again with all the operating management here, we'll be discussing in quarterly calls in our outlook.

I understand. I'll get back in line for questions. Thank you.

We'll take our next question from Wendy Caplan, Wachovia Securities.

Thanks. Good morning.

A little different question about the operating margin at signal. It's significantly lower than the Crane operating margin for your electronics business. Is there something that's characteristics of Signal that would imply a lower margin or is it simply an issue of it getting with the program in terms of your Crane operational program?

A couple of things, Wendy. They're burden by the full corporate overhead of a public company at a relatively small size, and they won't be burdened with that. And so, their 12 percent kind of pro forma operating model that they have today -- remember they've got this huge discontinued business -- we saw as satisfactory. We're talking about $5 million of corporate expenses that they have been burdened with, at least how they reported on it.

And again, I think that we are looking at this acquisition because we feel that the -- their businesses will materially strengthen our businesses. And I appreciate that we haven't gone through the pencilling out the synergies here, but we certainly will be doing that once we've closed the acquisition.

So just to clarify. The answer is, no, there's nothing characteristically different about the business that shouldn't imply higher margins, that would keep from it getting higher margins?

Well, again, they're at 12 percent now with $5 million of overhead on $90 million of sales.

Okay. And the severance costs that we saw in the quarter, can you give us some indication throughout the rest of the year what you're expecting?

We -- that's a good question, Wendy.

I think the severance is largely behind us. I do feel that there are, depending upon how we see some demands in some our short cycle business, we will not hesitate to cut costs as we see it. And I think we're comfortable that that's in our earnings guidance and what we've reaffirmed.

We said very positively in our press release that we felt that our merchandising systems in particular, that segment was size appropriately here for the current market conditions.

Okay. An done more Signal question. You implied it, but just to clarify. The management will be staying on?

Well, the key members of the operating management have agreed to stay on ,and we have spent a lot of time with them and are excited about working with them.

Okay. Thanks very much.

We'll take our next question from Scott Graham, Bear Stearns.

Hi, Eric. Hi, Pam. Welcome aboard, George.

A couple of questions on Signal, and then, quickly to others. What was the process like, Eric, how did this come into being? And to that end, do you expect potential -- somebody possibly coming in and maybe upstaging your bid?

First off, there will be full disclosure in the tendered document. And I'm certainly not going to speculate on whether, you know, what's going to happen here.

I would say that - and Signal has a conference call at 11:30. And I think Signal is prepared to say that they did higher a strategic advisor to examine all alternatives and our conversations and negotiations and visits with them have gone on for quite an extensive period, at least 6 months, probably even a little bit longer. And why don't I just leave it at that at this point.

Fair enough.

If you could also just give us detail of the severance this quarter, how much it hit business? You gave us a couple of the numbers, but they didn't come up with the total.

By segment, you mean?

By segment.

Yes, please

$5 million was the total; fluid handling, $1.5 million; aerospace $600,000; and the balance in merchandising -- small amount in controls, but the $2.8 million in merchandising systems.

Of which I think $2.7 was at NRI.

Okay. And you expect the total to benefit you by $8 million?

That was just an aerospace comment that I made.

Than how can $600,000 of severance get us $8 million of savings?

The $8 million includes the material cost savings that we're going to get by leveraging volume as one company. It includes the annualized impact of some head count that we took out in the fourth quarter. It includes head count that we took out in January. It's a potpourri of management initiatives to take advantage of the new business model and take out expenses, including some compensation, existing compensation and elimination of some bonus programs.

I was about to say, boy, maybe I should have been working in the aerospace business.

(Inaudible) about fluid handling, which obviously you're being a little bit more conservative now with what you're thinking on going forward. And what I'm wondering is, we also saw the chemical process industry weaken as the quarter progressed and a couple of other areas as well, particularly power, but that's a business that is roughly half the company and was really going to be a big driver for earnings range for the year. A lot of initiatives going on there. Has it been an end market thing, are the initiatives there still on track because they are so important?

I think some of it's an end market thing. I think some of it's our own fault. I think initiatives are in place. I think we just need to execute on them. And it was -- and we need to execute in an expeditious and flawless manner, and I think the management team understands that.

Is his a situation, Eric, where we might need to sell some additional pieces of that business?

I don't feel that way. I don't feel that way. I am the -- the businesses and the market positions of the businesses we're okay with. We were disappointed in the quarter, but I feel that a lot of the improvement that we need is up to us. It would be nice to get some help from the market for a change which we have not had for two years and certainly didn't have in the first quarter, but some of this improvement is up to us.

Again, there is a staggering number of initiatives here; George talked about. We have got two plant closures which we are going to finish up here in the second quarter. We had the challenges in Venezuela where receivables hit our 90-day mark, and when they hit 90 days we right off 100 percent. We have got shipments that are already made, finished goods to ship to Venezuela that we didn't ship because we weren't comfortable that we could get paid. I think it was $700,000 to $800,000 in severance. There's a lot going on here.

Okay. Last question is about merchandising. Can we say at this point or are you prepared to say at this point that national vendors maybe has hit the bottom? Sales cycle, is it sort of bouncing along the bottom or is it still declining, going forward I'm talking about really?

You just asked 2 pretty good questions.

Not totally clear, all right? National vendors business is based on commercial and the broadest sense is based on commercial office vacancies which are still going up. When that office space gets vacant, they give the machine back to the operator and number of manufacturing locations and shifts. And we expect those market conditions to remain very difficult, and certainly not improving, and we're hoping that may be have stabilized.

That being said, I think the mitigating factor is that we believe national vendors is, you know, a painfully taking market share here with the management team, with the new products, with focus with a directed sales model, just very hard to see here. So I think from a national vendor's point of view, we're running it to do - that operating results will be better this year. But again, I don't think it's because of any market improvement, I think it's because of our improvement in the business and a very, very disciplined cost and expense control.

Okay. Thanks.

We'll take our next question from David Smith, Smith Barney.

Good morning, guys.

On the acquisition, is there any sense of backlog that you can give us of that business (inaudible)? Will we just assume at this stage that the sales growth of that business is going to continue on the rate that we saw last year or does it look like it's picking up?

David, I'm sorry, but I'm just going to have to refer you to their published documents and the web site. And at this point in time I really can't comment.

Okay. One other thing on the acquisition. Were there any other bidders involved?

Again, other than my previous comment, which was they hired a strategic advisor and we have been involved in negotiations and visits and discussions for well over 6 months. I think I would refer that question to the Signal call at 11:30.

Okay. On the RV market, you talked about orders drawing up in March. As far as RV dealers go, are they seeing expanded inventories on their lot? Do you think this is a temporary thing or do you thinks it's driven by geopolitical events? I know in the auto market we're seeing a bit of falloff right now in this large ticket, consumer durable.

I would say, we're like everybody else. We don't really know. We don't think it's because of a tremendous buildup on excess inventory, we think it's a hesitancy to see whether it's going to sell off.

For our planning purposes, we're assuming that it, you know, that it hesitates here, but that it begins to recover in the second quarter and returns to a more positive levels in the third and fourth. So our forecast has a hesitant result in the second quarter for that business, if you will. (inaudible)

Okay. And then, on the truck trailer side...

By the way, David, I think a key driver there is gas prices and oil and it looks like with the decline in oil prices that will be a help.

Okay. That makes sense.

On truck trailers, are you seeing any -- I know you talked about for the full year but again you come back with diesel cost as far as running a truck fleet goes. I think a lot of maybe the rise that we're seeing on the trailer side may be driven by the pre-buy on the trucks last year. A, are you getting more content on trailers, and, B, can you just give us some of the reason for your enthusiasm there?

I think our enthusiasm is good current orders. And you've got the class A catch-up, which some of that is still going on, and continued decent orders for this. And hopefully you start to see a little bit of recovery in the economy now that the war risk is out of people's minds or at least receding.

Okay. And then the content?

I don't think our contents change. You know, we are continually fighting to get more of our translucent roofs versus aluminum. And we have 90 percent of FRP market for roofs, but I think it's, you know, a third of the market for total roofs. So it's always a fight for market share but I can't really attribute the first quarter or even this year to much of an increase in market share.

Okay. I think I missed this number. I think it was $8 million in savings you just mentioned, and I think you talked about during your comments. But can you just give me that number again, I think it's (inaudible) and then, extrapolate it to the rest of the company?

Again, we had $5 million of one-time severance cost in the first quarter for the whole company, and George pencilled that through the segment. In aerospace, and in particular our traditional aerospace commercial component businesses, we moved -- we took our four businesses, ELDEC, Hydro-Aire, Lear Romec and Reistoflex, and moved them to consolidate them with one management team and one structure.

In doing that in January, we have put together a business plan and took actions to take out on an annual -- in 2003 $8 million in cost. Some of that was people, some of that was procurement initiatives, some of that was, frankly, reduction in certain employee compensation plans. I mean, again, it runs a whole gamut of initiatives. But we felt we needed to -- in the aerospace management team took the lead her to aggressively size the business for what they saw as a difficult commercial OEM market. And that was the first bite at the apple.

Can you just kind of run through the rest of the company for us again, just to refresh?

Well, the $8 million is just in commercial aerospace. The severance is...

The $5 million, again, was $1.5 million in fluid handling.

I'm talking more on the savings side, what you're expecting.

David, we didn't articulate a savings across the company. We just gave that $8 million for aerospace.

No, we didn't. I actually don't have those numbers here with me, David.

Okay. (Inaudible) you may have given this, as well, but I think I missed the, cost of goods sold.

Yes, we have that.

Just a second, David, I'll get it.

Cost of sales was $257.3 million. The SG&A was $91 million, and within that depreciation and amortization was $12.4 million.

Thank you.

Once again, that is star one if you have a question.

We'll take a follow-up question from Deane Dray, Goldman Sachs.

Thank you.

I think this has been asked a different way, but if I could go back to fluid and look at the year over year decline in operating margin, to say it's 280 basis points, and you mentioned three factors. If we could calibrate or if you could calibrate for us the contribution to those, to the margin hits? So they were severance, which you said was...

Use this as (inaudible). Okay? I would say that severance is about $700,000. I would say that Venezuela, bad debts, is about the same amount, that is receivables going over 90 days, we automatically write them off. The plant closures is probably another -- in that same ballpark.

Of $700,000?

Yes.

I would say that we have -- it's $.15 million -- excuse me. $1.5 million of severance. (Inaudible) I think was about $700,000 in the valve business.

We have got probably -- I'm not calculator whether it was shipped or not shipped, but there's another close to half a million dollars of finish goods, operating profit and finished goods that we didn't ship because of Venezuela and/or other letter of credit concerns in our (inaudible) business where we didn't get the letter of credit from the shipyard to ship it. It's a dog's breakfast of reason's, Dean.

Eric, what about the dollar impact from plant closures within fluid?

Well, you've got two plants. You have got Marion (ph), Bay City and the Marion (ph) of Resistoflex, and you've got the Long Beach moving down to Chichuahua, both of which will finish up in the second quarter. We've got a couple of other small operations which we are downsizing.

Do you have the actual number, George, with the two plants?

Deane, I've got that for you. I'm going to guess it's about...

Deane, you're looking for the cost of those?

In the quarter.

Yes. Actually, what I'm trying to get to is, I want to strip out some of proactive decisions that you have done with severance and plant closures to kind of hone in on the end market weakness, and then to see if we can split out how much is volume and maybe how much is price so that we can really get a sense of the decremental margin on the decline in revenues.

Let me try to give you some top line numbers on that. In the quarter over quarter dealt (ph) a $1.5 million to severance; $1.1 million is related to plant closures, consolidations, moving of product lines between businesses.

Okay.

And then, there's another half a million dollars that is related to our bad debt expense in Venezuela.

Does that include the finished goods that didn't...

No.

And that doesn't include the delay in the shipments of the products from first quarter to later in the year.

Is that just timing, George, is that still going to be shipped?

No. It will get shipped once we start getting paid.

And that's both Venezuela and in the marine business. At least a half million in OP (ph).

That's correct. I think it's at least a half a million.

Those are the major items associated with that.

Okay. And is there any pricing on top of that, price we weakness, deflation?

These markets are very price competitive today. And, you know, it's a constant balance for volume and price and realizing shipment.

All I will tell you is, Dean, we're very sensitive about it. But clearly there's no ability to get pricing power here.

And then, I just have to ask a clarification on the position now going forward on asbestos. You said you will not comment on either quarterly conference calls or in press releases some of the key information that we were getting previously?

Right. We're going to put it all in the queue for everybody to get it at the same time, you get all the information that you have always got. We're just not going to sit here and talk about the adequacy of the reserve on a quarterly basis. I would expect that a more formal note on that, at least on an annual basis.

So you'll commenting on it annually. And so, we have to wait until the queue before we see the ...

Before you see the details, yes.

Okay. But you won't comment on any change from the last quarter?

I'm not going to do it because you run the risk of partial information or not complete information. And we think we provided for it fully last year at least based on recent experience.

Okay. And you're still comfortable with the adequacy of the reserve?

Again, we are not going to comment on the reserve or the reserve adequacy accept, I guess, at the end of the -- once a year I think we should probably do that (ph).

Good. I apologize. I do have one other question.

That was on your guidance for the second quarter. And I think you may have addressed this. Is there any restructuring charges assumed that you will be floating (ph) your operating P&L that relates to that 40 or 45?

Nothing that wasn't in the existing plan for the year.

Great. Thank you

... it appears we have no further questions at this time. I would like to turn the conference back over to you for any additional or closing remarks.

Thank you very much, everyone. And that you for your time and interest in Crane.

Feel free to give me a call directly if you have any follow-up questions. And we'll look forward to speaking with you soon. Take care now.

That includes today's Crane Co. first quarter 2003 earnings conference call. We thank you for your participation. You may disconnect at this time.