Crane Co (CR) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to Crane's earnings release 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 third quarter 2008 earnings release conference call. I am Richard Koch, Director of Investor Relations. On our call this morning we have Eric Fast, President and CEO and Tim MacCarrick, our Vice President of Finance and CFO, We will start off our call with a few prepared remarks, after which we'll 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 Non-GAAP numbers which are reconciled to the comparable GAAP numbers in the table at the end of our press release which is available on our website at www.craneco.com in the Investor Relations section. Now let me turn the call over to Eric.

Thank you, Dick. Last night we reported third quarter 2008 net income was $36.1 million or $0.60 per diluted share compared with the third quarter 2007 net loss of $196.9 million or $3.29 per share which included a $250 million after tax provision or $4.18 per share to extend the time horizon of the company's estimate of its asbestos liability from 2011 to 2017. Excluding the provision, third quarter 2007 earnings were $0.87 per diluted share. While I know you have read the press release, let me now highlight several key items in the third quarter. I am disappointed in our third quarter results, which reflected an unexpected sharp slowdown in orders beginning in August and several of our short cycle businesses. Further weakening in engineer materials and markets, and the continued high level of engineering spending in Aerospace. During the past six months we have taken significant steps to reduce costs in our early cycle vending and engineering materials businesses, by cutting head count by 16% and 32% respectively, and by taking a variety of other actions to shrink our cost base. Reflecting the shortfall in our third quarter earnings, and our expectations of a more difficult operating environment, we are taking further steps to reduce costs, a portion of which could result in a fourth quarter pre-tax charge of up to $25 million, primarily non-cash or $0.27 per share. These actions will include plant closures, workforce reductions, and stringent spending controls throughout the Company.

We are reducing our EPS guidance for the year from the low end of $3.45 to $3.60 range to $2.75 to $2.90, before the anticipated charge and $2.48, $2.63 post the charge. Principally reflecting the decline in earnings, free cash flow guidance is being reduced from $170 million to $130 million. With $278 million in cash, and $300 million available under bank revolving credit, we have a strong liquidity position which will allow us to continue to fund targeted growth opportunities and selectively continue to make acquisitions. We expect to emerge from this difficult economic period as an even stronger company.

Now turning to specific segment comments, starting with Aerospace and Electronics. Aerospace Group sales of a $101 million increased $4 million, or 4% from $97 million in the prior year period. OEM sales grew 8% compared to the third quarter last year, and aftermarket sales declined 1% on a comparable basis. The OEM aftermarket mix was 61%, 39%, compared to last year's third quarter of 59%, 41%. Operating profit in Aerospace declined $12.9 million, reflecting a $14.7 million increase in engineering expense, due to the heavy investments in the 787 and A400 and a higher OEM mix. Absent the heavy investment in new programs for future growth, operating margins were consistent with our long-term goal of 20%.

Our Aerospace engineering spending in the third quarter of 2008 was $33 million compared to the second quarter of 2008 of $26 million and $18 million in the third quarter of 2007. This increase in engineering spend, all of which is expensed is due to the heavy investment in 787 and A400 program. Both of these programs are expected to reach key milestones during the fourth quarter, including delivery of initial set of hardware and software for first flight. Our Aerospace engineering spending is running about 25% of sales in 2008 and will begin to be reduced in 2009 during a transition year in which we expect both the 787 and A400 will be completing their test flights and should approach 12% of sales in 2010.

Based on 2008 sales level, this will provide us with about a $50 million pretax tail wind to our operating profit during this period which will help mitigate the expected aftermarket decline. Our engineering spending on the Boeing 787 and A400M will account for about 65% of our engineering expenditures of approximately $113 million this year. As we mentioned on previous calls, we are in dialog with certain customers concerning cost recoveries for engineering work, and those discussions are continuing. Electronics group sales of $59 million decreased $3 million or 5% largely because of lower sales in the custom power business. While sales declined overall, the sales mix was favorable because of higher standard power sales which increased Electronics Group operating profit 10% compared to the third quarter of 2007, and provided improved operating margins.

In the third quarter, Engineering Materials core sales decreased $22.5 million or 28% reflecting substantially lower volumes in the Company's traditional recreational vehicle and transportation customers, and further deterioration from that experienced in the second quarter. In the third quarter of 2008 we saw a 29% -- excuse me, in the third quarter of 2008 we saw a 49% decline in sales to our recreational vehicle customers, off considerably from the 25% decline in the second quarter. A 22% decline in our sales to transportation related customers consistent with reduced trailer build rates and a 7% decline to our building products customers. The percentage decline in transportation and building products were in the same range as declines we saw in the second quarter. Operating profit declined 72% primarily as a result of lower volume.

In the first six months of the year our head count was reduced by 24%, and we took a further 8% reduction in the third quarter, so in total we are down 32% year-to-date. We have disciplined disciplined cost expense controls in place, and are actively reducing costs through better material utilization, product migration and more efficient machines, and various business model changes. We continue to explore additional cost reduction opportunities reflecting what is expected to be a continuing depressed market. We are determined to take the actions necessary to maintain attractive margins in these businesses, even in these difficult conditions. Longer term, the demographics of a growing number of baby boomers buying RVs remains favorable, and FRP product offers significant benefit of low weight, durability, and attractive appearance for transportation and building products applications.

We view the near term disruptions in the market place as opportunities to support our customers, win market share, and actively develop new products for both current and emerging applications such as fiberglass truck bodies and ocean-going containers. Merchandising systems. In spite of strong growth in payment systems sales and continued market shares gains in vending, overall segment sales declined 5% reflecting difficult market conditions in North American vending. Operating profit increased $1 million or 12% and operating margins approved 170 basis points to 11.6%, reflecting disciplined cost management and vending, and higher margin payment solution sales which improved our sales mix significantly.

Global demand for payment systems remains good, with increased market penetration and broad based acceptance of new product offerings particularly our new [Corenza] bill recycler: We recently introduced a number of vending products, including our new snack machine called Merchant, our best three can and bottle machine, our Corenza coin changer and Corenza clip for vending applications. We believe these new products will stimulate demand and help us to continue to grow market share.

In our July call we noted that we have responded to declining North American vending machine demand by reducing head count in our North American vending business by over 16%, as compared to January 2008, and we have minimized labor costs further by operating our plants consistent with demand during the third quarter. Despite difficult market conditions, I am pleased to note that Merchandising System is on place to post record earnings this year and should exceed the guidance we provided at our February Investor Day.

Fluid Handling which represents about 43% of Crane's total sales had mixed results for the quarter, but for the year we are still expecting record sales and operating profits. The muted third quarter of 2008 sales growth of 1% was more a reflection of issues related to getting product out the door, and certain customers extending shipment dates rather than a lack of demand. We estimate the third quarter sales were negatively impacted in excess of $10 million by these delays, but those shipments are expected to be made in the fourth quarter. Demand from the global chemical, pharmaceutical and energy industry and building products and services outside the United States, continues to grow, but not at quite the same growth rates as earlier this year.

Third quarter operating profit decreased $2.6 million or 7% and profit margin decreased 11.9% as a result of shipment delays, decline in foreign exchange due to the strong dollar, higher SG&A costs, and costs and disruptions associated with Hurricane Ike. I would note that Fluid Handling operating margins in the first half were extremely strong reaching 15.5% in both the first and second quarter. Third quarter margins were lower at 11.9% reflecting a modest decline in sales, due in part to the shipment delays, reduced benefits from price achievement versus material costs, and foreign currency headwinds as we have very strong operations in Europe and Canada. We do expect fourth quarter profit to increase from third quarter levels as we clear the delayed shipments.

February 2008 guidance for Fluid Handling reflected operating profit of $162 million from $140 million in 2007, and almost a full point of margin improvement from 12.3% in 2007 to 13.2%. We are on track to exceed this guidance. As we look forward to 2009, our foundry restructuring efforts are on schedule with the Ipswich, England foundry closed in June, and the Brantford, Canada facility on schedule for early 2009. These are important steps to increase our low cost country sourcing and improve profitability in 2009. We have previously disclosed the estimated impact of foundry closures and restructuring will increase these margins by approximately 75 basis points in 2009.

As we prepare for 2009, we are being disciplined to make sure costs are aligned with potentially a more challenging sales environment. In September, we acquired Delta Fluid products in England for $28 million. Delta designs and manufacturers products for the natural gas and building services market ,which are very complimentary to Crane's building services and utilities product lines formerly known as Crane Limited. This acquisition will broaden our product offering. Crane and Delta both have benefited from the infrastructure building and renovation in England and in Middle East countries where British gas and water fittings are widely used. This transaction is consistent with our strategy of making acquisitions which will strengthen our existing businesses. Now let me turn the call over to our CFO, Tim MacCarrick, who will provide additional details on our results and strong liquidity position.

Thank you, Eric. The third quarter reported tax rate was 30% compared to 38% in the third quarter of 2007 on an as reported basis and 27% excluding the effect of the asbestos provision. We anticipate the 2008 annual tax rate will approximate 29% reflecting higher R&D credits and lower high tax US income. This guidance includes the reinstatement of of the R&D tax credit retroactive to January 1st. Our balance sheet remains strong and the end of the quarter with $278 million in cash, because the company has substantial cash balances in euros, the strengthening of the US dollar during the third quarter of 2008, reduced the Company's reported cash position by $29 million.

We have no significant near term debt maturing, as half of our long-term debt of $398 million is due in 2013 and the other half is due in 2036. We have reduced our estimate of cash provided from operating activities before asbestos related payments from $275 million to $230 million. Our estimated asbestos related payments remain unchanged at $55 million. We reduced our estimated capital expenditures this year from $50 million to $45 million consistent with our cost reduction initiatives. This results in revised free cash flow guidance of $130 million down from $170 million, principally reflecting the decline in our projected earnings. We remain very focused on cash flow from operations during this time of economic uncertainty through continued diligence on credit, collections, and inventory management.

The Company has taken and will continue to take important steps to reduce costs, and these actions could result in a fourth quarter pretax charge of up to $25 million. We are evaluating productivity initiatives across the Company, and are committed to aligning our cost base with respective market conditions of each business. The initiatives currently being reviewed and analyzed include potential consolidation of several plants, driving further head count reductions over and above what we have done thus far, and systematically eliminating all spending of a noncritical nature. We will manage this process through the balance of 2008 and into 2009 to ensure our cost base is appropriately sized. We expect the savings in 2009 from these initiatives to exceed the amount of the fourth quarter charge.

It is now three months since I joined Crane Co, and this time has been spent learning our businesses operationally, financially, and from the perspective of our customers. Of course it is clear we're in a very challenging economic environment, but the diversity of our businesses, our demonstrated results, continued commitment to operational excellence, the deep commitment of our management team to our customers, and our strong balance sheet all represent strengths upon which we will continue to win in the marketplace and allow to us emerge well from these challenging times. Richard Koch and I look forward to ongoing dialog with you in the future as required. Now back to you.

Thank you, Eric and Tim. This marks the end of our prepared comments. Operator, we are now ready to take questions.

Thank you, sir. (OPERATOR INSTRUCTIONS)

Our first call comes from Deane Dray with Goldman Sachs.

Thank you. Good morning. Can we start in Fluid Handling, Eric, and maybe you can step through for us the drivers behind the shortfall. What we saw was a core revenue decline of only 1%, but seeing the profit down $12 million, so it just seems a little puzzling at why you would see such a margin hit, so if you could size for us SG&A, what the Ike factor was, the hurricane, and maybe the shipment delays if you could?

The way I would characterize it, Deane, is that price versus material was about roughly $5 million in decline, foreign exchange was 2 or 3 of the decline, delayed shipments if you take the $10 million, was another 2 or 3 of the decline. It is all in that order of magnitude. I would point out that the delayed shipments for the most part really weren't our fault. We had late delivery from some suppliers, and we had some customers postpone orders.

And those shipments will go in the fourth quarter?

Most of those will go in the fourth quarter.

And then broadly in terms of your order book, did you see any major cancellations during the course of the quarter?

We didn't see major cancellations on significant projects. What we saw was a slowdown in our short cycle, more commercial valve and pump business, certainly more than we anticipated.

And then how are you feeling today about Fluid margins? There was a lot of discussion earlier in the year how there had been the step function to go from the 12% range up to 15%, and do you still feel as though 15% is a normalized run rate, or do you think that back at 12% seems to be more appropriate given the current market outlook?

I feel very strongly that the 15% is the right goal? We made it clear when we had the first half of the year that we didn't expect margins to be at that level in the first half of the year, that I think I characterized it on the second quarter call that everything kind of hit -- just hit perfectly, and as I said in my prepared remarks, I mean, we're track to exceed our guidance in Fluid Handling, and it is steady as she goes here. In terms of the plans and prospects that we have, and I think we continue to execute in a very positive and sound way there.

And just quick question on the charge expecting for the fourth quarter. Can you split at this stage how much you expect in head count versus facility closures, and the fact that you said primarily non-cash, would that imply that there is going to be asset impairments and write downs?

Dean, this is Tim. Good morning. We're still evaluating a variety of options. We're really not in a position to give details of any split at this point, but as that becomes clearer, we'll certainly make that information available.

Dean, we characterize this, Tim in his remarks as several plants. We're really going through and detail, sizing all of the businesses appropriate for its markets, and we'll be spending November doing all of the plan review submissions which were just done.

We will be focusing on the infrastructure as Eric mentioned and also head count opportunities.

Thank you.

Our next question comes from Shannon O'Callaghan with Barclays Capital. Please go ahead.

Good morning, guys.

Good morning.

Eric, on your outlook you were already pretty bearish I would say on the North American economy when we talked in the past. What really surprised you in the quarter? I mean, sounds like (inaudible) RV and vending Fluid a little weaker, but you're sort of talking about the pushouts?

I think it is absolutely the spot-on question. As we went through July, July was okay, and really what we saw was a sharp fall off in orders pretty much across the board beginning in August, that are the business leaders didn't anticipate, and we hadn't anticipated, so Aerospace aftermarket, vending, both here and in Europe, RVs we have been chasing that market all year as have the industry participants. RV orders were down, you know, 50% as opposed to what was 25% or 26% in the second quarter, and then we've got the short cycle commercial part of our Fluid Handling business again really saw the impact in August, and continuing into September, so the surprise here really was not on the execution side, but on the orders and the volume side that we got -- that was unanticipated and that we got caught by.

Okay. And as you're looking to the fourth quarter, you're talking about Fluid being up sequentially, the guidance for EPS is pretty cautious to say the least, so what are the pieces you're really worried about in 4Q?

Well I think first off, fourth quarter is never a great quarter for us. It tends to be a little bit lower, and I worry about everything in this current economy. I mean, I have never seen this kind of volatility prior to this. I think we're being careful and cautious here, but you can see $0.03 or $0.04 in any given day move just on one day's worth of foreign currency change, so I think we've tried to take all of this into account. We tried to account for the Boeing strike, so we've tried to be careful and cautious in our guidance, but it is an uncertain environment.

And then on pricing, you should get some benefit, I guess, from some of these raws coming down at some point. Are you already seeing the impact on your pricing and when do you expect to see some benefit from the lower raws in your business?

We're doing everything that everybody else is doing, right, we're going back to our customers and in a number of cases we have long-term agreements. It takes a period of time. Sometimes it is six months, sometimes a year, sometimes three months until those roll off, but our customers are doing the same with us, so it is a very careful balancing act that we're going to go through here. I believe that the whole pricing environment is going to change from one of how do we get additional pricing to how do we hold kind of what we got. Our experience in the third quarter I think throughout the entire company excluding Fluid Handling, we basically were able to have price offset material, slightly negative, but almost not enough to even mention. In the case of Fluid Handling versus price versus material was very positive, albeit not as positive variance as it was in the second quarter.

Okay. I will leave it at that. Thanks a lot.

Thank you.

Our next question comes from Wendy Caplan with Wachovia.

Good morning.

Good morning, Wendy.

Could you as you did in Fluid Handling kind of walk through for us in Aerospace what the negatives were. The margin was significantly lower than what we had expected, and we had as you called out engineering expenses related to the new programs last year. Can you walk us through that in terms of contribution?

Again, Wendy, the operating profit in the Aerospace group was down $12.9 million, and our engineering expense was up $14.7 million quarter over quarter, so it is very clear answer. It is 100% engineering expense. The engineering expense is up, I don't know, almost entirely due to the A400 and the 787, and I have tried to characterize how we see that unfolding over the next two years. In the third quarter the Aerospace Group still ran at a 40% type of gross margin. Now, there is pressure on that as the OEM stays flat and aftermarket softens a little bit here which we expect, and that's clearly going to be one of our key challenges, but the explanation for the third quarter is the engineering expand on the 787 and the A400.

Okay. One more Fluid Handling clarification. The delays that you described, the $10 million, how much of that was the late supplier that you mentioned? How much of that delays that were requested by the customer, and are you worried that there will be future issues with projects out there in terms of further delays? How should we be thinking about that, please?

First off, I don't have the detailed breakdown. It is a little above those, probably a little bit of us, so let's be American about it, call it a third, third, third, two-thirds customer, third supplier, maybe a third us in terms of missing a shipment date. With big projects you run this risk at the end of every quarter that it slips over, and I don't know how else to characterize it. I think everybody in the world has that risk.

Sure. And finally, the question about the drop off in August. Were you, just to kind of get a feel for what you were thinking at that point, were you thinking that the vacation time in August in Europe was penalizing results in August, and you had some expectation that September would sort of bounce back or did you know at the time that things were turning south?

First off, I understand the direction of the question. Our policy with respect to earnings and announcing earnings, is we only give annual guidance, and we only update our annual guidance at the end of every quarter. That's a stated policy. We did it over eighteen months ago. That's our policy. In direct response to the question, we didn't know. This was the first time we had seen it. It was very different pattern than what we saw in July, and we frankly didn't know.

Okay. Thank you very much.

Our next question comes from Curt Woodworth with JPMorgan.

Hi. Good morning. Good morning.

What level of engineering expense are you forecasting for Aerospace in the fourth quarter?

$30 million.

30?

We said in my remarks $113 million for the year. If you add it up for the Aerospace Group through the nine months, it will be 83. We spent 33 in the third, and we're looking at approximately a 30 here in the fourth, even though there has been a Boeing strike and you're not shipping them OEM, the development work has continued.

Okay. So if you look at all the engineering expense to date, for some of these new OEM platforms, and you talked about I think $50 million of pretax EBIT tail wind through 2010, so what would the ultimate kind of payback or when do you expect to break even on all of these expenses that you've been booking?

I think the first thing is, we expense as we go so you don't have to worry about anything on the balance sheet. Secondly, this is a moving target. We need to finish these projects, and I think we're going to deliver first hardware and software here in fourth quarter, and you can expect it to go down as I articulated. We really don't give out as a matter of policy, what the profitability is of individual programs.

Okay. And then for 2009, what would you expect the (inaudible) engineering expense to be for Aerospace?

It would be our intention when we give the annual guidance, we give EPS in January, and then in our February investor conference we'll detail that out. All we've indicated is that it should start to decline, because they're going to be flying these half a dozen test planes all during 2009, and so people are going to be adjusting products, and there is a fair amount of work to go on, so it will decline but still at a higher level. But we do expect our overall Aerospace engineering spending to approach approximately 12% of sales in 2010, that is 2008 sales which are, what, $400 million plus.

Got it.

That's the way we characterize it. We're putting our -- the detailed plan together for next year. We'll have that next month.

Sure. So seems like it is safe to say that the $50 million you identified, the majority of that would fall into 2010?

I haven't characterized that way -- I am not going to characterize the shift between the two years until we have a good handle on the detailed numbers.

Okay. Fair enough. Back to the raw material issue and Fluid Handling, you commented that on a sequential basis about $5 million of the variance was price first raws.

Yeah.

And you said that --

Compared to the second quarter of this year.

Right. I think you said you were more or less at parity this quarter, so maybe you got a benefit spread of $5 million last quarter, so if you were to normalize for that you're at 13.8% margins, so gets back to Deane's question, as you think about a go-forward basis and you normalize for price, and we're clearly entering a period of what's probably going to be declining volume for Fluid Handling, would it be a pretty conservative assumption to assume that --

First off, I am not going to get into a forecast for segment profitability and margins for 2009.

Fair enough.

It is premature. Secondly, I don't want to be careful here. Price versus material was less than the third quarter than it was in the second quarter, but it is still very positive, and the group continues to do a very disciplined job on price versus material. Its just there was less benefit of it in the third quarter versus the second quarter.

Okay.

We have a lot of initiatives going on to improve margins other than price including foundry closures, et cetera.

Okay. And just one final question on Fluid Handling. What percent of your business would you consider late cycle versus short cycle there?

I don't have that at the tip of my fingers. What have we said, Dick? Generally 50/50.

Okay. Great. Thank you.

Thank you.

Our next question comes from Ron Epstein with Merrill Lynch.

Good morning, Eric.

Good morning, Ron.

Can you maybe walk through a little more detail what is the issue with development on both programs on the 787 and the A400? What's proven to be such the challenge, right?

I would say first off that we're in good company here, and the supply base both these planes is spending more than what they had anticipated. Secondly, as you can acutely well know, both of those planes are very late, so we're driving engineering here. Thirdly, there has been substantial kind of changes, in terms of that have come out of Boeing, in terms of systems and pieces that we have needed to change, and rework, and I think fourthly, we underestimated ourselves the cost of trying to drive the new technology and the solution that we presented, all of those factors.

Do you expect some form of reimbursement from Boeing and/or Airbus on the changes that came from them?

We have the contract is one that provides for some remuneration for significant changes, and that's a debate, and as I said in my prepared remarks, we have ongoing discussions with Boeing and GE on that.

Okay. Great. Thank you.

Thank you.

(Operator Instructions).

We'll take our next question from Matt Summerville with Key Banc.

Most of my questions have been answered, so just a couple things. First in the Merchandising Systems business, I guess, Eric, how do you feel about the sustainability of the growth you're seeing in payment systems and what is really driving that in this environment, and then can you remind us during the last economic downturn earlier this decade, how -- what did the drop off look like in your vending business?

First off, on payment systems business, it is truly a global business. We have world class technology. I think we're executing well in a number of different market verticals, gaming, kiosk, retail, transportation, so I feel good about it. I feel that we're obviously going to have some huge four [X] headwinds here in the emerging markets, and our overseas business, a lot of that business is outside, vast majority of that business is outside the United States, and I think we're going to see those emerging markets the rate of the growth slow, and I think that will impact our business. I think as we look out to 2009, we have enough we've got enough new product and enough growth initiatives that we should continue to see growth in our payment systems business. That would be my general characterization.

The -- in vending, it is hard for me to say because we used to be just one of a number of competitors, and today we are the by far the leading market share participant in North America, and I think the issue is whether we can, on our own stimulate growth in the industry as we modernize that distribution channel, so we have a lot of new product that we're introducing here which I touched upon. We have with the acquisitions covered both distribution and the direct sales channel. We've got a full product line offering now with the [Canon] bottles, with our snacks, so we're competitively in a very strong position. That being said, you can look at Coca-Cola Enterprises stock, I think its at $8, down from low 20s. Even some of our significant customers there are clearly going -- seeing headwinds in the marketplace, and I am confident about our strong leadership position. I am confident that we can take some market share here, but everything I see in the market has been more than challenging.

With respect to Engineered Materials, across the three major verticals, have you seen any signs at all of stabilization, I guess as we look at these year-over-year negative or declines in those three verticals? Do you feel like, based on what you're seeing now that's actually going to get worse before it gets better?

I feel that our team in Engineering Materials, like in Merchandising, like in Fluid Handling continues to execute well. They've worked at sizing the business. I see an intense customer focus, where one by one they're starting to take some market share, and that there is some interesting new product developments going on there. That being said, I don't see any improvement in the marketplace, and I am not one here to call the bottom.

Just last question, as you look across the portfolio, what are you thinking about if anything in terms of divestitures, and with your stock at somewhere in the range of $11 to $12 right now, how do you feel about buyback, given all the cash you have on the balance sheet?

We're not contemplating any divestitures really of any significance. We constantly trim around the edges as we have for the last five or six years, and we're in the fortunate position of having $278 million in cash and free cash flow business and not using our revolving credit so we have very strong liquidity position that doesn't force us to do anything. With respect to stock, as those of you who followed us for awhile, we never preannounce what our intentions are with respect to our stock. We just announced that after the quarter I might add, that most of the people that historically have preannounced have most of them have curtailed their program, so I don't think our policy is a bad one.

Okay. Thanks, Eric.

There are no further questions. I would like to turn the conference back over to our speakers for any additional or closing remarks.

Thank you, operator. Thank you to all of you for joining us this morning. Bye now.

That concludes today's teleconference. Thank you for your participation. Have a good day.