Crane Co (CR) 2005 Q4 法說會逐字稿

Good day everyone and welcome to the Crane Company 2005 earnings conference call. Today's call is being recorded. At this time I would like to turn the call over to the Director of Investor Relations, Mr. Richard Koch. Please go ahead, sir.

Thank you, operator. Good morning everyone. Welcome to Crane's fourth quarter 2005 earnings release conference call. I'm Dick Koch Director of Investor Relations. On our call this morning we have Eric Fast, our President and CEO and Bob Vipond, our Vice President and CFO.

We will start off our call with a few prepared remarks after which we will respond to questions. Just as a reminder, the comments we make on this call may include some forward-looking statements. We would refer you to the cautionary language at the bottom of our earnings release and also in our annual report, 10- K, and subsequent filings pertaining to forward-looking statements.

Also, during the call we will be using some non-GAAP numbers which are reconciled to the comparable GAAP numbers in a table at the end of our press release which is available on our web site at www.craneco.com in the investor relation section. Now let me turn the call over to Eric.

Thank you, Dick. I'm pleased with the company's performance in the fourth quarter. Earnings per share are $0.58 with the high end of the guidance up 12% from the fourth quarter of 2004 excluding the reduction in asbestos liability and the gain on the divestiture of [Bitolic] last year. Strong core sales growth to 5%, excluding foreign currency, improving margins, and very good cash flow were all evidence of continued solid improvement. Our 12% growth in earnings per share reflects the improved performance in fluid handling and engineered materials. Four of our five business segments posted increases in operating profit while merchandising systems operating profit was impacted by weak, industry wide demands in the second half of the year.

Unlike 2004, price increases have offset material price inflation in fluid handling and engineered materials. Stainless, titanium, styrene, and resins continue to be important raw material inputs to our businesses, but current price levels are in our plans for 2006. Quarterly cash flow from operating activities increased 66% over the prior year period. Our inventories are down nearly 12 million from where they were at December 31, 2004 and our receivables are down about 19 million. This is particularly noteworthy because our four year, 2005 sales are up over 171 million over 2004.

Reflecting our confidence in the company's prospects, we raised our dividends by 25% in July of this year. Our 2005 full year earnings per share were $2.25 compared with $1.98 excluding the asbestos and environmental charges and the gain on the [Bitolic] sale in 2004. First quarter 2006 guidance is $0.46 to $0.56 per share, including $0.02 for option expense versus $0.42 in the first quarter of 2005. I would remind you that the first quarter is typically our lowest earnings per share quarter of the year.

At the end of 2005, our net debt to capital was a very conservative 13% with 180 million of cash and a $300 million revolving credit facility available for acquisitions. We spent 86 million for the acquisition of CashCode, which we announced last week. We continue to look for additional acquisitions to strengthen the company's portfolio of businesses, although I would note that the marketplace remains highly competitive. Turning now to specific segment comments.

In the aerospace and electronics segment, fourth quarter operating profit was up 500,000 over the fourth quarter of 2004 on a 6.4 million improvement in sales. The aerospace group's fourth quarter 2005 operating profit was higher than last year's fourth quarter. And this is the first time in 2005 that aerospace quarterly profit margins exceeded the comparable prior year period.

In the fourth quarter of 2005, after market and OEM sales were both higher than last year with OEM sales accounting for the majority of the aerospace group's 11% sales increase. The OEM/after market mix was 5941, virtually the same as last year's mix of 58%, 42%.

There has been excellent market acceptance of Porter seed actuation systems and margins are now at more acceptable levels as a result of value engineering the product , higher prices, and the completion of the closure of the Porter facility. We continue to spend heavily on engineering, program management and R & D for new products and program wins with revenue streams largely beginning in the 2006 to 2008 period. Even with this heavy engineering spend for future growth, we expect solid improvement in 2006 sales, operating profit and margins for the aerospace group.

In the electronics group, margins have recovered from where they were in the first two quarters of 2005. They are now at a satisfactory level, but were slightly lower than they were in the third quarter of 2005 and the fourth quarter of 2004.

Electronic group sales were flat with the third quarter of 2005 and were down from the fourth quarter of 2004, primarily because of weak orders in electronic manufacturing solutions. The margin pressure was due to lower volume and higher engineering, selling, and administration costs. Overall electronics group backlog is up 11% versus last year. And approximately equal to the third quarter of 2005. While we are encouraged with the electronic's group performance in the second half of 2005, we need to make continued progress to realize its full potential. These efforts include strengthening the management team, expanded engineering resources, and continued focus on our lean, manufacturing initiatives. As you know in December 2005, David Bender joined Crane as President of the Electronics Group as a key step in this process.

At engineering materials, we had another excellent quarter. Sales increased 10%, operating profit increased 28%, the margins improved to 17.5% compared with 15.1% in the fourth quarter of 2004. The impact of higher resin and styrene material costs and slightly lower unit buy-ins was more than offset by price increases and OPEX improvements in material utilization.

The RV market was up 4.3% overall and 7.4% in the total segment. The growth in the quarter reflected FEMA orders for the Gulf Coast hurricane relief efforts. On the strength of the FEMA orders, the RV industry will likely set a new record for deliveries in 2005. The transportation segment was up 1.4% in the fourth quarter and up 5.4% in the refrigerated trailer segment. Demand is expected to have flat to modest growth in 2006, as trucking fleet purchases shift from trailers to engines to comply with EPA emission requirements for 2007 engines. Our business plan for 2006 anticipates that the RV demand will be flat to slightly down as FEMA orders decline somewhat in 2006, but that we expect to increase our overall sales and profits with new products, such as our decorative panels and [Zenicon] thermo plastic products. Market share growth, international expansion, and heavy investment in additional sales in marketing personnel to support these growth initiatives.

In merchandising systems, as noted in our October conference call and at our investor day presentation on December 13, industrywide demand for vending machines has been soft in the second half of 2005. Weak orders resulted in decline in sales and operating profits compared with the fourth quarter of '04. The weak orders overall stem from route operators, higher costs for gasoline and confectionary food coupled with continued weakness in their end markets, particularly manufacturing.

Orders from the southern part of the United States continue to be depressed because of the hurricanes earlier this year. Operating profit declined $500,000 as effective cost control helped mitigate a 6.8 million decrease in sales. Despite a softness in your end markets, we remain confident about our business model and that we are maintaining market share.

In addition, last week we announced the acquisition of CashCode Company, Inc. to further strengthen our business and provide a further platform for further growth. CashCode is a privately held company specializing in niche applications for bank note validation, storage, and recycling devices for use in vending, gaming, retail, and transportation applications. The purchase price was 86 million in cash. CashCode had sales of approximately 48 million in 2005. We expect CashCode will be modestly accretive to our 2006 earnings with the accretion coming in the second half of 2006.

Let me explain the rationale for acquiring CashCode. Carne's NRI business, which is a coin validation business, headquartered in Europe, has a very strong brand. NRI is known for its technology and high quality and is used in vending, amusement, and gaming applications with a strong presence in Western Europe. CashCode has an excellent bill validation technology serving a global marketplace with the majority of its sales in Europe and Russia. We feel that the combination of CashCode's bill validation with Crane's coin technology and our operational excellent business model make an outstanding platform for growth.

In the future we expect to synergies available to us. In the longer term we will need to invest in product development and additional capacity at our Toronto location. A key area for product development is in the vending area where we now have a combined package of coin and bill payment options that are preferred by our customer base. As we mentioned at our investor meeting in New York on December 13th, our rough estimate of the coin validation market is 200 million on a worldwide basis and the bill validation is about 1.3 billion. We feel we are well positioned for growth. We also noted at the meeting that our for the vending industry is the only payment system capable of giving change in bills and coins and has shown good market penetration in 2005. Because this was a privately held company and for competitive reasons we will not be providing additional financial information about CashCode other than to say that the business is growing and it has good margins.

Fluid handling. I was pleased to see the core sales increase of 8% reflecting both good markets and our strong brands. Foreign currency translation negatively impacted our sales for the quarter by 2%. Operating profit and operating margin were the highest of any quarter of 2005. Operating profit was 22 million up 78% from the fourth quarter of 2004. Fluid handling cash flow provided from operations was 77 million in 2005 compared with 26 million in 2004. The improvement in fluid handling was led by the valve group performance with operating profit up 93% and margins doubling to 8.0%. Key factors included improved pricing discipline, maturing low cost country supply chain and operational excellence activities. We continue to be focused on operational improvements throughout fluid handling. Our progress in fluid handling in general reflects improving markets, strong brands, stable front end resources, reduced physical footprint, and a constant focus on production efficiencies.

Our plan for 2006 is for segment sales to increase 45 million to 1 billion. Margins to improve from 8 to 9% and for profits to grow 14 million to 90 million. I want to remind everyone that as is our practice, we do not intend to comment on our estimate of the company's asbestos liability beyond what we have said in our form 8-K. I encourage you to read the disclosures carefully as we are making every effort to make them complete and informative.

Now let me turn the call over to Bob Vipond, our Chief Financial Officer.

Thank you, Eric, As Eric mentioned, we are pleased with our fourth quarter results. Let me share with you several other IMs about our financial performance. Our corporate expenses, as you can see by our financial statements, of about 8.5 million were slightly higher than the 8 million quarterly average for the year. Our costs were, in the corporate line, about $4 million higher than the fourth quarter of 2004. In part, the difference is due to our performance-based incentive compensation plan and the disciplining performance that we had in 2004.

On another line, miscellaneous income was lower than the fourth quarter of 2004 primarily because of the 9.5 million pretax and 6.5 million after-tax gain on the sale of [Bitolic] that is mentioned in the financial statements. In the fourth quarter of 2005 our effective tax rate was 31% as we expected it would be. The fourth quarter rate was about equal to 2004 excluding the effect of asbestos reserve and the gain on [Bitolic]. We expect your first quarter 2006 rate to be 32%. As you know, each 1% change in the quarterly tax rate is approximately $0.01 per share in our quarterly earnings. The depreciation and amortization for our fourth quarter was about one million lower than the prior year mainly, because of the impact of fully depreciated assets in the later half of '05. On the capital expenditure side, our capital expenditures were up about 2.7 million in the fourth quarter, mainly because of new air pollution control equipment for our Kemlite business.

Our pre-cash flow was strong in the fourth quarter at 68 million versus 40 million in the prior year fourth quarter. Please see the non-GAAP financial matrix table for details of our pretax flow. Lastly, as we had previously stated, Crane's adoption of [FASTY 123R] on options expensing is effective as of January 1, 2006. We estimate option expense will be approximately $0.09 per share for 2006 or about $0.02 per quarter. The company has previously disclosed its option costs in a footnote to its financial statements which have ranged from $0.07 to $0.09 per share per year during the last three years. Now let me turn it back to it Dick.

Thank you, Bob. This marks the end of our prepared comments. Before we open the call for your questions, remember that we take questions in the order received. As a courtesy to your colleagues, we ask that each of you limit the number of your questions to just one or two at a time in order to give others a chance to ask questions. You're welcome to get in the queue again with additional questions. Operator, you may now open the line for questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Gentlemen, we'll take our first question from Scott Graham with Bear Stearns.

Yes, good morning. Couple of questions. The merchandising business, the softness in the second half of the year, what are some of the underlying order trends, Eric, that you guys are seeing right now that maybe suggest, or maybe better, when or how bad it can get the first quarter, first half of the year? Is there any sign of improvement, you know, at some point for 2006 in this business?

I don't think we're in a position here, Scott to call the turn. We clearly have some disruption in one of our most important territories in the south because of the hurricanes. And we remain concerned about the decline in revenues. But for planning purposes next year, we're looking for revenues to be stable. And I think our sense with our current product set and our success, some of the successes we're having in payment systems and the stabilization of revenues in Europe, that we're okay with that plan.

Okay. Next question relates to the aerospace business. You and I have, in the past, talked about when the after market sort of catches up to the OEM for you guys on a year-over-year growth basis. The last couple of quarters, it looks like we've maybe turned in that direction. Are you willing to say at this point that you think that the after market - - the slowdown in the after market that we saw for about a year and a half there because of some of the older planes being in the desert, that maybe we are now catching up to the market and that's maybe a sustainable growth situation in the after market?

Well the facts are, that in the third quarter our after market was flat in '05 to '04. And In the fourth quarter it was up a bit from the fourth quarter '05. And for planning purposes for next year, we see it flat to slightly up. You got to be careful because the military verses the commercial spares, but certainly the commercial spares business in our view should be at least flat if not slightly up. We remain committed for our aerospace group to manage and drive our business to get back to the - - our goal of a 20% OP margin and we're aggressively doing that in spite of our current plan which has got our engineering spend at 12% of sales. I think we have good OEM momentum and it looks like the after market is at worst stable here.

Okay, last question. You've talked about the acquisition environment. You've closed one this quarter. Looks like it's pretty synergistic for you guys, but given how competitive things are - - your seeing out there in the areas that you're looking for, would it be - - if we are, six months from now, at a point where we haven't closed anything else, would you turn to share repurchases?

I think that the December conference, and I'll leave it like that, is we intend to more aggressively deploy the excess capital that we have. And the places that you deploy it is acquisitions, dividends, and share repurchases. Our policy is not to preannounce anything in that regard.

All right, very good. Thank you.

Take our next question from Wendy Caplan with Wachovia .

Good morning.

Morning.

In your fluid handling segment, can you address end market, speak to a specific end market strength and weakness that's helping or hurting the company, the segment?

We see the chemical processing industry globally continues to be pretty good, Wendy.. The power business globally is good. We may even get some benefit here in the nuclear segment of the power market. But certainly the call in the southeast Asia activity, so I would say ethanol's been a good market in the U.S. We see your end markets as okay in fluid handling. If you look at the 8% quarter to quarter growth in fluid handling before you get to negative foreign exchange, that feels pretty good to us.

Okay, and another follow-up. When you look at the pricing in fluid handling specifically, you mention in your release and remarks about more favorable pricing, is that covering additional material costs? Should we view it more as a pricing pass-through or are you getting, quote, kind of real pricing in fluid handling?

We were able in 2005 to more than recover our material costs through disciplined pricing initiatives. Some cases shorter lead time so that we could get the pricing, so that we benefited in terms of real price improvement to use [inaudible]. I think that for next year, we're planning on getting less from price now that we've got a positive price verses material balance that we're looking at.

Okay, and finally, Eric, can you talk about - - you referred several times to lower, as you globally source your materials from low cast regions that benefit. Can you speak to that in fluid handling specifically, but in the company in general, in terms of how much of your - - how much is being outsourced today, what your expectation is for '06, etc.

Wendy, I don't have that data at the - - with me here today, but if you'll check back with Dick Koch, we''re happy to give you some general guidelines. We've got a detail in there, every one of the group's plans.

Okay, thank you very much.

We'll go next to Matt Summerville at Key Banc.

Good morning. Couple of questions. First back to fluid handling, the revenue increase you're budgeting for, $45 million for the segment for the year, Eric, how much of that then would you say is price verses volume and then how much negative affects are you building into that number?

I think overall - - I don't think fluid handling is too different than the rest of our businesses. We're looking next year, like what is it, 4% volume, 1% price, and negative 1% affects. And I think that's generally true for fluid handling also. We don't see as much benefit from the price next year.

So if you're looking at 4% volume, how fast are you anticipating your end markets to grow? Are you anticipating growing on par with them, in excess of them, do you see where the market is growing slower than that 4%?

I feel very uncomfortable after four years of focusing on the customer through our - - I'm not satisfied with they are yet, but in terms of on time delivery, competitive lead times, we have, if anything, reinforced our front end, substantially reinforced our marketing efforts, that we are maintaining, if not improving, market share pretty much across the business units in fluid handling.

Okay, and then switching over to engineered materials, are there any more pricing actions that you're contemplating for 2006 in that business and then can you also talk about recent raw material trends there? I don't think you mentioned the building products portion of engineered materials in terms of demand trends there. If you could talk about that outlook.

The three end markets in the fourth quarter in engineered materials are RVs, except for RV's, but transportation and building materials, the unit volumes were flat to slightly down with the revenues all coming from price. Next year, we do not anticipate that. We expect that price will - - at the current level, our prices and material costs are in balance. And we think where we need to get the growth is through the new product introductions [Zenicon], FRP Design Solutions. We're substantially adding to our front end to get better discipline in the distribution channel for building products. We're spending some money for international sales. It's - - we're going to have to work harder for that growth.

Okay, thank you.

Mm-hmm.

We'll take our next question from Ned Armstrong with FBR.

Thank you. Good morning.

Morning.

Can you talk a little bit about in the electronic manufacturing solutions as to why you encountered difficulty there? Was that more of a seasonal thing or a larger trend? Can you elaborate a little bit?

We have a small contract manufacturing business that was part of the electronic issues. And early last year, and while we were working through those issues and getting the past due out, we had - - our order rate declined and we're now back in the process of trying to build that order rate. It's that simple.

Okay, you just punted the bad business and you're trying to rebuild a better book now, so to speak.

That's correct.

Okay, and then on your guidance, which you set at 246 to 260, I believe, is that exclusive of any accretion from the acquisition of CashCode?

We didn't change - - the guidance is 245 to 260. We expect CashCode to be modestly accretive, mostly in the second half because of the amortization of some of the intangibles, quickly But we didn't change the guidance. We might be a little conservative there, but we purposely didn't change the guidance.

Okay, good. Thank you.

Mm-hmm.

We'll go next to Jeff [Song] at Gabelli and Company

Hi, good morning. I guess with CashCode, what's the anticipated growth rate of that business with the market center of a billion dollars? What do you think you can grow at and will you able to pick up share in that business?

I'm not going to give you a specific growth rate. First off, it has been growing without us very nicely. We now have an opportunity to leverage their sales force with the strong NRI presence in Western Europe where they weren't as strong. We get to leverage some of their presence in some of the North American channels. And then together, Crane Merchandising Systems, and that - - with their access to the vending channel, we should be able to sell both [CoinMech] and bill validators directing in the vending channel. I think, as you know, Jim, Brad Ellis talked about this at the December conference in March of this year. For the first time we started selling a package of CoinMechs and bill validators with our vending machines and we've had very good success at doing that.

Okay, it looks like it's a nice tuck-in and good acquisition and you can integrate that within NRI.

Correct.

Just shifting over to the electronics business in aerospace, what do you think the - - when I look out three to five years, what do you think the margin, the normal margin is for this business? I know you had some one-time issues in 2005 and fourth - -

Our guidance for 2006 is to take the '05 margin up to 17.2%. So what is that, a point and a half over '05, something like that. So that's a first step at demonstrating where the progress that we think we're going to make. We - - , I don't honestly feel that we're going to do too much better than a 20% margin in the aerospace group.

Okay.

We're managing a business to do that. And frankly, the pressure is on this engineering spend. And we are aggressively taking on programs that are going to allow the aerospace group to grow for a long time. I mean, Boeing's got a backlog of 2,000 planes, Airbus has got a comparable backlog and they ship together, what, 800 planes or something.

Right.

And our participation of long-term programs is excellent. And the tension that we've got is the short term returns to shareholders and we're kind of managing the business to balance that at 20% margins. We'll take all the growth that we with can get at 20% margins. I don't think long-term, and I've been consistent in this, that the electronics group is going to run those margins, but we certainly expect them to be, if you will, kind of in the mid-teens an,d when you blend the two together, it should be 17, 18% in that area. That's our thinking. Both groups should show good, strong growth here over the next several years on the top line.

Okay, that's great. And then, how much, I guess, engineering spending are you expensing this year over --

10%.

10%?

I think it was 10% in '05 and it's going to be 12%, maybe not quite 12% if we're efficient about it, and in spite of that, our goal is to do 20% OP margin in the aerospace group.

Okay, and when do you see that coming down? Is it kind of like '08 kind of time frame, like '07, '08?

It depends on how many new awards we decide to win in '06. Right?

Okay, Okay, so --

That's the balance.

Okay, all right. But barring any new awards, would it kind of just stay level at the '06 rate, that 12%?

Jim, I don't have a handle on that.

Okay, all right, good. And just one last question. At the investor conference a month ago, has anything changed? Are you concerned about any of your markets or, you know, any - -

I think if you go back and look at the guidance, we gave at the investor conference was pretty much spot on which you would expect since that was in early December.

Right.

We have been concerned really through - - all the second half of this year on the end markets in merchandising assistance and remain concerned about that. But, Jeff is confident about our position in the marketplace. So other than that, I don't see any - - I don't see any change in our thinking or on our outlook and feel very comfortable with the kind of detailed guidance we gave by segment at that time.

Terrific. You hit all your numbers at the high end, so good job.

Thank you.

We'll go next to David Smith at Citigroup.

Good morning, guys. Can you hear me?

Yes.

Okay.

Good morning.

I just want some questions on engineering materials. Specifically, it looks like you got 8 to 10% net real price improvement in the quarter. Would that be fair to say?

All the - - almost all the volume you see there is price.

Okay, so just under 2% of - - okay, 1 to 2% in volume?

Mm-hmm. Okay. As far as the end markets go in '06, would it be fair to say you expect the most out of the commercial piece of the business? As far as the market increase? Again I think that - - we think that the RV market could be down a little bit. On the other hand, we're, in some respects, changing how we go to that market. We going direct versus for a larger percentage of our business. We are, number one, number two in transportation. We expect that to be okay and pretty stable. So we feel okay in transportation. In the case of building materials, we're adding front-end sales people to give us a more disciplined in the distribution channels. So we think we can get some benefit there. A key part of our growth is - - I'm going to say that we're adding eight or nine front-end sales people just to sell the new FRP Design Solutions product. This is a specified product, so you might get it specified today and it might take six months, but this is a substantial investment that provides some growth there. [Zeincon], which we spent $3.5 - $4 million in the P & L this year as a new product, our thermal plastics is going to be introduced in the first half of next year and will provide some sales for us. So, we're investing heavily to grow this business and, as you know, David, this is an extraordinarily well run business. Our customer metrics are absolutely flawless here.

Okay, so how does the impact play through on the mix side in '06 in this business? Does it change with the heavier weighing on commercial?

No, I think we're okay. We're looking to hold margins here.

And as far as the commercial construction outlook goes right now, are you seeing in terms of your backlog, is that business seem to be coming back, at least the market side of it?

I had - - there has been no noise here in the second half of this year about problems with non- residential construction. And as you know, we're not in the residential piece.

Right.

So our Crane supply in Canada has been strong, our commercial product valve offering in North America has been strong, as well as what I would call the lower end of our industrial valves, some of the high performance butterfly valves that go in the high-rises. Pretty solid.

Okay, and the last question there, on the CashCode side. As far as the guidance goes in the first quarter, does that include an impact as far as inventory and other charges on CashCode?

We're - - I think CashCode in our first quarter, in our minds, we looked at as neutral.

Okay.

This has been a privately owned company, it's a young company that's grown quickly. There's infrastructure and support that we have to put in. And there's some very rapid amortization of some of the intangibles early on. So kind of we've kind of seen it as neutral here in the early part of the year.

That's great, thanks.

We want to grow the business, not harvest it.

Okay, thanks.

Thank you.

Take our next question from Deane Dray of Goldman Sachs.

Thank you, good morning.

Good morning, Deane

I'd like to get some additional detail on the '06 assumptions to make sure I've got this right. So for core growth you're looking for 4% overall and I think we got the details by segment, but just to make sure, you've given out a couple of different items so far on the call regarding the expectations of core growth by segment. Just make sure I've got those.

It's un - - our core growth by segment is no different than what we laid out in detail in the December meeting.

Okay, good. So I've got that.

We're nailed on that. And we see unit growth of 4% overall, plus 1% price, less 1% affects.

Good, and then on that 1% price, is that a net against what you're expecting for raw material cost?

No, it's gross.

Okay, that's gross. So what are you expecting --

That price increase is what we're doing in relation to where we see current material costs.

I understand.

To the extent that we if we get material costs - - additional material costs coming through here. I think we've got -- we're good at this now. And we've got excellent discipline. And I expect the market share to hold those margins. It's not easy, but I think the discipline's there. But we don't get a big wind at our back from price which we had going through this year.

So the expectation is that 1% price increase will be enough to offset raw material costs or - -?

Yes.

Okay.

As we currently see it and we've incorporated that in our plans and our low cost sourcing runs all the way through the plan.

Good. And then guidance on free cash flow, for the fourth quarter you got a big benefit from working capital improvements, both inventory and receivables that really made the bulk of that, so what's the outlook for '06 with regard to working capital improvement? [inaudible] there?

As you saw, I think I, at the December conference, I said that year end cash was going to be 170 million and it came in at 180 million. So we did a really good job on discipline of making sure that the profits went to cash for the shareholders as opposed to inventory at rest on the balance sheet. And I'm very pleased to see that discipline. We've kept our cash flow guidance, the same free cash flow is up 165, up from, even though free cash flow this year was off. That may be conservative, but we're confident about the number we put out there.

Okay. And then could you update us on your pension assumptions?

That's a good - - has anybody got that handy?

No. Why don't you say more Deane, in terms of what?

Interest rate?

Right, discount rate.

I think it's 8.75 in the domestic plan.

And what do we have - - the assumption will be in our press release, I mean in our annual report coming out here shortly.

No changes, Deane.

Okay, good. And then on CashCode, what were you using before for bill validation? Was that internal or did you have to outsource that?

That's a good question. We used the JCM bill validator and we expect to continue to use it in the vending channel here in the United States.

But it will be outside the U.S. where the CashCode - - ?

Our relationship with JCM on the vending is strictly in the U.S. vending channel and this will give us the ability to use the CashCode bill validator globally

So, are you not able to get out of the JCM, is that a contractual requirement that you use that in the U.S.? No, I think that we're both looking to continue that relationship here in the U.S. I understand. What does CashCode give you in terms of new, adjacent markets? You mentioned a couple. Is there any like nontraditional vending that we would look for in terms of potential synergies.

It's more, I would say, in automated retail where you go to the grocery store and it's a fully automated checkout. I think it allows NRI to enter U.S. markets easier, such as gaming, because now there's a bill validator to go with the CoinMech. This could be great to gaming, as well as in our case if we apply to the grade three level. So, I think there's numerous opportunities in different channels and different markets, in vending globally, in gaming globally, and in the amusement business. Great.

Last question, Eric, can you comment on the new director?

Yes. Over the last year to 18 months here, this is the third new director that we've had. And I think we all feel good about Karen Dykstra, who is the Chief Financial Officer of ADP came on the board a little over a year ago. General Don Cook, who's a Four Star General in the Air Force, who ran all the recruiting and training, just retired and has just recently joined our board six months ago and Ron McKenna who, as I'm sure you know Ron, Deane, was President - - ,Chief Executive Officer of Hamilton Sundstrand, a major subsidiary of United Technologies joined our board yesterday. We're just absolutely delighted to have his aerospace expertise as a board member.

Any other changes to the board contemplated?

We've got a full board at this point. I think those are all good, really terrific additions and we're excited about it.

Thank you.

Mm-hmm.

[OPERATOR INSTRUCTIONS] We'll take our next question from Scott [Usicheck] of [Addage] Capitol.

My question has been answered. Thank you.

Gentlemen, there appear to be no further questions at this time. I'd like to turn back to Mr. Koch for additional or closing comments

Thank you very much. We're out of time for this scheduled call and we thank you for your time and continued investment in Craneco.

That does concludes today's call. We thank you for your participation and you may disconnect at this time.