Post on 20-Dec-2015
1
Crane Co.Crane Co.
Citi 21Citi 21stst Annual Global Industrial Annual Global IndustrialManufacturing ConferenceManufacturing Conference
March 4, 2008
Eric C. Fast
President & CEO
Crane Co.
2
I. Strategy and Overview
II. ’08 Guidance
III. Segment Comments
3
Crane Co.Crane Co.
Strategy for Profitable GrowthStrategy for Profitable Growth
■ Diversified manufacturer of engineered industrial products.- Substantial presence in focused niche markets
- Businesses with high returns and excess cash flow
■ Above all conduct business with integrity and honest dealings.
■ Transitioning to a more integrated Operating Co.
to
Grow EVA.
■ Acquisitions to strengthen existing businesses.
4
Crane Co. Crane Co.
Strategy for Profitable GrowthStrategy for Profitable Growth
Materially Improving Operations• Leveraging Intellectual Capital• Improving Customer Focus• Executing Operational Excellence
Strategic Linkages• Portfolio Trimming• Internal Mergers
Synergistic Acquisitions
Grow Profits from Existing Operations
Redeploy Free Cash Flow for Acquisitions
Integrated Operating Company
Strengthen Existing Business Units
5
Crane Co. GrowthCrane Co. Growth
Operating Profit
163 169186
214
243
290
$0
$100
$200
$300
$400
2002* 2003 2004* 2005 2006* 2007*
Sales
1,5161,635
1,890
2,061
2,257
2,619
$1,000
$1,500
$2,000
$2,500
$3,000
2002 2003 2004 2005 2006 2007
* Operating profit before charges for asbestos, environmental, gain on restructuring foundry operations and other special items in 2002, 2004, 2006 and 2007. For further details see non-GAAP reconciliation on Crane website at www.craneco.com.
’07 vs. ’06 OP +19%
Growth 12% / yr
Growth 12% / yr
’07 vs. ’06 Sales +16%
($ millions)
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Strategy for Profitable GrowthStrategy for Profitable Growth
1. Acquisitions completed in ’02-’07
Solid internal & acquisition growth
Core growth 6% / yr
Net Sales
-
500
1,000
1,500
2,000
2,500
3,000
2002 2003 2004 2005 2006 2007
($ M
illi
on
s)
Core Business Acquisitions
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Grow Existing BusinessesGrow Existing BusinessesCrane Business SystemCrane Business System
Integrated Operating Companywith a common
Culture
Intellectual Capital Process
Prescriptive Operational Excellence
Reporting Cycle & Review Process
8
0
2
4
6
8
10
12
14
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07*
Fluid Handling OP Margins
Operational ExcellenceOperational Excellence
Broad-based improvement across units Significant opportunity remains
Op
erat
ing
Mar
gin
%
6%
12%
* Operating profit excludes the gain on the Foundry Restructuring in 4Q’07.
9
More Integrated Operating Co.More Integrated Operating Co.
Operational ExcellenceOperational Excellence
10
12
14
16
18
20
22
24
26
2002 2003 2004 2005 2006 2007
Working Capital % of Sales*
* Inventory, receivables, payables
Cash from working capital ’02-’07= $130M
24%
23%22%
21%20%
19%
10
More Integrated Operating CompanyMore Integrated Operating Company
Strategic LinkagesStrategic Linkages
Portfolio Trimming• 2006
• Westad Valves – Norway / 50 people / Marine Market• Resistoflex Aerospace –flexible fittings / 100 people• $26M cash proceeds / net gain
• 2007• Ipswich, England – Land and Building sale, foundry restructuring• Industrial Motion Control, JV with Emerson Electric• $70 million cash proceeds / net gain
Internal Mergers % Complete• Aerospace Group 100%• Engineered Materials 75%• Merchandising Systems / Electronics 50% • Fluid Handling 25%
Benefits• Smaller number of larger units• Stronger / deeper management teams• Prioritize growth opportunities• Reduce costs
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XomoxXomox CPFTCPFTResistoflexResistoflex CVNACVNAPacificPacificValvesValves
Crane Valve GroupCrane Valve GroupIntegrated Operating CompanyIntegrated Operating Company
AustraliaAustralia
Distributor of industrial
brands and products
Chemical / Pharmaceutical Oil, Gas & Power
Crane Valve Crane Valve ServicesServices
(Industrial)
Crane Fluid Crane Fluid SystemsSystems
(Commercial)
Center Line RS
8 businesses to 4
Organized by Chemical/Pharmaceutical and Oil, Gas & Power focuses
UK Services
12
Strategic AcquisitionsStrategic Acquisitions
0
50
100
150
200
250
300
'01 '02 '03 '04 '05 '06 '07
($ millions) Annual Acquisition Spending
Xomox Saunders
F.H.
Significant Acquisitions
Segment
Lasco
Eng. Mat.
Signal Tech.Etex
Elect. F.H.
P.L. PorterHattersley
Aero.
Edlon
F.H.
Cash CodeAPTelequipNobleDixie
M.S.Eng. Mat
DolchFabwel
.ControlsEng. Mat.
13
2006 Acquisitions Summary2006 Acquisitions Summary
Invested $283 million for five strategic acquisitions
• Merchandising Systems - $209 Million
• Engineered Materials - $74 Million
Strong 2007 financial performance from 2006 acquisitions
• Sales $264 Million
• Operating Profit $ 39 Million
• Operating Margin 14.8%
• EBITDA $ 55 Million
Achieved significant consolidation within merchandising industry
Expanding Noble Composites facility to accommodate strong product demand
Price =
5.1 x EBITDA
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Crane Vending Solutions positioned Crane Vending Solutions positioned for long-term growth and profitabilityfor long-term growth and profitability
Vending Machines #1• Bottle / Can #1• Snack #1• Food #1• Coffee #1• Frozen #2• Combo #3
Payment Systems #4
Vending Management Software #1
Crane’s market position
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2006 – 2007 Financials2006 – 2007 FinancialsBefore Special ItemsBefore Special Items
Change '06-'07($ millions) 2006 2007 $ %
Sales 2,257$ 2,619$ 362$ 16%
Operating Profit * 243 290 47$ 19% % to Sales 10.8% 11.1%
Net Income * 161$ 195$ 34$ 21%
EPS * 2.59$ 3.19$ 0.60$ 23%
Sales effectively leveraged to operating profit
Operating profit driven by Fluid Handling, Merchandising Systems and Engineered Materials
Record EPS in 2007 before special items.
* Before special items. See Non-GAAP table for details
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2007 Special Items2007 Special Items
After-Tax EPSProvisions & Charges $M $ / sh
Asbestos Provisions Extended ($254) ($4.22)
Environmental Provision for Super Fund Site to 2014 (12) (0.20)
Tax Provision on Undistributed Foreign Earnings (10) (0.17)
Government Settlement (5) (0.09)
Gains
Foundry Restructuring 18 0.31
Sale of Partnership Interest 6 0.10
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Crane Co.Crane Co.
Late Cycle PortfolioLate Cycle Portfolio
2007 Segment Sales
67% of Portfolio Late Cycle
• Aerospace & Electronics
• Commercial OEM
• Defense Electronics
• Fluid Handling
–Chemical Process Industry
–Oil & Gas Industry
–Non Residential ConstructionFluid Handling
43%
Aerospace & Electronics 24%
Controls
5%
Merch. Sys.
15%Engr. Mat.
13%
Late Cycle
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2008 Guidance (Non-GAAP)2008 Guidance (Non-GAAP)
Change '07-'08($ thousands) 2007 2008 $ %
Sales $2,619 $2,830 $211 8%
Operating Profit 290 * 332 $42 14% % to Sales 11.10% 11.70%
Interest Inc./(Exp) (21) (15) $6 29%Misc'l / net 6 (1) ($7) na
Income Before tax 275 * 316 $41 15% Tax Rate 29% 31%
Net Income $195 * $218 $23 12%
Diluted Shares 61 62
EPS $3.19 * $3.52 $0.33 10%
EBITDA $372 * $418
• Table is based on the midpoint of the guidance of 2008 EPS of $3.45-$3.60 and EBITDA of $411-$425 million
* Non-GAAP
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Crane Co. Crane Co.
2008 Sales Guidance vs. ‘072008 Sales Guidance vs. ‘07
FXAcq. / Disp.
2007 2008ECore
+$131 M
$2619 M
$2830 M
+10+$40M
Sales Bridge
+$40M5%
1.5%
1.5%
8% Growth
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Crane Co. Crane Co.
2008 Guidance vs. ‘072008 Guidance vs. ‘07
(1) 2007 included a number of special items. See Non-GAAP table for details.
Fluid Handling
Merchandising Systems
Engineered Materials
Controls2007 2008EAerospace &
Electronics
Corporate
+10M
+5M
-$4M
2006E
$290M
$332M+5
+10
+4M
+5M
+22M
Operating Profit Bridge (Non-GAAP)
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Aerospace and ElectronicsAerospace and Electronics
Aerospace Group
Strong Niche Market Shares
Heavy Investment in New Programs
Long Term Margin goal: 20%
($ in Millions)
2004 2005 2006 2007 2008E
Aerospace Sales 308$ 339$ 368$ 421$ 450$ Electronics Sales 189 198 198 208$ 215$ Total Sales 497$ 537$ 566$ 629$ 665$ Operating Profit 91$ 85$ 99$ 86$ 96$ Operating Margin 18.3% 15.8% 17.5% 13.7% 14.4%
Electronics Group
Strong Custom Power Position
Strengthened Management Team
AEP Transfer to Electronics in ‘08
• ’08: Engr. Spending Starts to Decline in 2H’08 as 787 and A400M Completed
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Engineered MaterialsEngineered Materials
($ in Millions)
2004 2005 2006 2007 2008E
Sales 276$ 305$ 309$ 331$ 360$ Operating Profit 54$ 63$ 50$ 58$ 63$ Operating Margin 19.6% 20.7% 16.2% 17.6% 17.5%
Mid Cycle Business with Soft End Markets
Strong Market Shares & Metrics• Acquired Noble Composites ($72 million) Sep.’06• Acquired Owens Corning Composites ($38 million) Sep.’07
Improved Margins in ’07:• Reduced Customer Support Costs• Higher Productivity and Yields • Noble Performance
• ’08: OP increases from RV share gains, productivity initiatives and price increases
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Merchandising SystemsMerchandising Systems
($ in Millions)
2004 2005 2006 2007 2008E
Sales 169$ 166$ 258$ 388$ 420$ Operating Profit 10$ 13$ 18$ 40$ 45$ Operating Margin 5.7% 7.7% 6.8% 10.2% 10.7%
4 Acquisitions in ’06 Totaling $209 million• Two Vending - $76 million
• Two Payment Systems - $131 million
The Industry Leader in Vending• AP Consolidation & Dixie Narco Integration• Quality & New Product Development Focus• Solutions to Revitalize $24B Distribution Channel
Solid Payment Systems Results• Vending Channel Payment System
• ’08: Execution of growth initiatives & market share gains drive OP increase
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Fluid HandlingFluid Handling
($ in Millions)
2004 2005 2006 2007 2008E
Sales 846$ 937$ 1,000$ 1,136$ 1,225$ Operating Profit 53$ 76$ 107$ 140$ 162$ Operating Margin 6.3% 8.1% 10.7% 12.3% 13.2%
Robust Global Demand – Chem Pharma / Energy / Commercial Construction
Improved Performance & Margins Across Units
• New Goal: 15% Operating Margin
• Foundry restructuring started in ‘07
More Integrated Operating Co. / Align to End- Market Focus
• People / New Products / ERP investments
* Excludes $19M gain on Foundry Restructuring
• ’08: Global demand continues from infrastructure build, targeted end-market focus, new products and continued productivity improvement
*
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ControlsControls
($ in Millions)
2004 2005 2006 2007 2008E
Sales 103$ 117$ 124$ 135$ 160$ Operating Profit 6$ 8$ 10$ 10$ 14$ Operating Margin 5.8% 7.1% 8.1% 7.3% 8.8%
Management Teams & Customer Metrics in Place Growth Focus
Mobile Rugged Business (computers) Acquired Aug.’07
• $27 M – ’07 integration costs $1.2 M
Investment in New Product & New Geography
•’08: Full year of MRB and broad based growth initiative drive OP increase
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2008 Cash Flow Guidance 2008 Cash Flow Guidance
($ millions) 2007 2008 Change
Cash Flow provided $243 $275 $32 by operating activities
Asbestos-related payments net of insurance (42) (55)
Equitas Receipts 32 - ($32)
Cash provided from operating activites 233 220 ($13)
Capital Expenditures (47) (50)
Free Cash Flow $186 $170 ($16)
See Non-GAAP table for impact of special items
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Crane Co.Crane Co.
Investing for Future GrowthInvesting for Future Growth
Capital Expenditures
0
10
20
30
40
50
60
2006 2007 2008E
Safety & Env. Productivity Growth
($ millions)
’08 vs. ’07
• New products
• Machine center
• ERP
• Noble expansion
• Ipswich integration to WOFE
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Capital StructureCapital Structure
($ millions) 2006 2007 2008
Cash $139 $283 $400
Debt 408 399 400Shareholders' Equity 919 885 1115 Total Capitalization $1,327 $1,284 $1,515
Debt/Capitalization 30.7% 31.1% 26.4%Net Debt/Net Capitalization 22.6% 11.6% -
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DividendsDividends Crane Co. has increased its quarterly dividend for the past 3 years:
2007 Dividend payout ratio of 21% (before special items) is in line with peer group
Dividend yield of 1.7% is competitive with peers
Quarterly Dividend Rate
18¢
15¢
12.5¢
10¢
Q3 04 Q3 05 Q3 06 Q3 07
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Share RepurchaseShare Repurchase Share repurchases have roughly offset the impact of incentive stock
plan related activity
Open Market Share Repurchases
$43
$0
$60$50
$0
$50
$100
2004 2005 2006 2007
(MM)
Shares Outstanding
59.759.2
60.4 60.5 60.2
55
60
65
2003 2004 2005 2006 2007
(MM)
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Asbestos BackgroundAsbestos Background
Crane never manufactured asbestos• Certain valves, pumps and boilers contained gaskets, packing
and seals manufactured by others with asbestos
In 2004, liability estimated through 2011 • After-tax liability of $204 million remaining• Insurance estimated to cover 40% of liability
In 2007, reserve extended to 2017• Additional after tax provision of $250 million• Includes insurance recoveries of 33%
Net asbestos payments after insurance are tax-deductible at 35% rate
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Impact of Asbestos ProvisionImpact of Asbestos Provision
Liability Thru 2011 @ 9/30/07
3Q 2007 Provision
Balance @ 9/30/07
Asbestos Liability 469$ 586$ 1,055$
Insurance Receivable (155) (196) (351)
Net Asbestos Liability 314 390 704
Tax Benefit (110) (140) (250)
After-Tax Asbestos Liability 204$ 250$ 454$
Impact to Extend Liability to 2017
($ Millions)
More Stable Outlook
• Substantial Decline In Claims Filed / Judge Jack Decision
• State Tort Reform
• Reflects National Trends
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$36
$7$26$23$25$1 $5
$206 $192
$181 $178
$114
$173
$140
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2002
2003
2004
2005
2006
2007
2008
E
Ample Cash Flow To Fund GrowthAmple Cash Flow To Fund Growth
Cash Flow from Operations, after capital expenditures, before asbestos (net of taxes and insurance)
Asbestos Payments after insurance and taxes
Free Cash Flow after Asbestos
(a) – Includes insurance settlements of $42 million, pre-tax
• Guidance: Asbestos after insurance and taxes $30-$40 million per year ‘08-’17
FCF =
$170M
(a)
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Crane Co. SummaryCrane Co. Summary
2007
Positive Momentum• ’06 EPS - $2.59 *
• ’07 EPS - $3.19 *
• Free Cash Flow $186 M
Capital Deployed• Dividend increased 20%• Stock repurchases $50M• Acquisitions - $65M
Investing for Growth• Capital expenditures
• Aerospace engineering
2008
Significant Room For Future Growth
* excl. special items
EPS Growth Continues• ’08 EPS - $3.45-$3.60• Increase of 8 – 13%
• Free Cash Flow $170 M
OP Increases in all segments
Continuing Growth Investments• Capital expenditures
• Aerospace engineering
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$-
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
2003 2004 2005 2006 2007 2008E
Earnings Per ShareEarnings Per Share
$1.75 $1.98
$2.25$2.59
$3.19
Note: 2002, 2004, 2006 and 2007 before special items. For further details see non-GAAP reconciliation on Crane website at
www.craneco.com.
$3.45 - $3.60
Year to Year
% Improvement13% 14% 15% 23% 8-13%
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37
Non-GAAP Reconciliation Non-GAAP Reconciliation for Net Incomefor Net Income
$ 000's $ / share $ 000's $ / shareNet Income (Loss) - GAAP 165,887 2.67$ (62,342) (1.04)$
Special Items impacting Net Income:
Asbestos Provision - Net of Tax - 253,597 4.22
Environmental Provision - Net of Tax - 12,293 0.20
Environmental Reimbursement - Net of Tax (3,185) (0.05) -
Foundry Restructuring Gain - Net of Tax - (18,402) (0.31)
Government Settlement - Net of Tax - 5,396 0.09
Gain on Sale of Partnership Interest - Net of Tax - (5,846) (0.10)
Tax Provision on Undistributed Foreign Earnings - 10,400 0.17
Net Gain on Divestitures - Net of Tax (1,779) (0.03) -
Net Income before Special Items - Non-GAAP 160,923 195,096
Per Basic Share 2.64$ 3.25$
Per Diluted Share 2.59$ 3.19$
2006 2007Twelve Months Ended December 31,
38
Non-GAAP Reconciliation forNon-GAAP Reconciliation for Crane Co. Operating Profit Crane Co. Operating Profit
Twelve Months
2002 2004 2006 2007
Net Sales 1,516,347$ 1,890,335$ $2,256,889 $2,619,171
Operating Profit (Loss) - GAAP 39,671.0 (161,490)$ $247,936 ($107,656)Special Items impacting Operating Profit:Asbestos Provision - Pre-Tax 115,285 307,794 - 390,150 Environmental Provision 7,673 40,000 - 18,912 Environmental Reimbursement (4,900) - Foundry Restructuring Gain - Pre-Tax - (19,083) Government Settlement - Pre-Tax - 7,600
162,629$ 186,304$ $243,036 $289,923
Percentage of Sales 10.7% 9.9% 10.8% 11.1%
Note: There were no special items in 2005 and there was a $600,000 environmental charge in 2003
INCOME ITEMS Ended December 31
Operating Profit before Special Items
39
Free Cash Flow ChartFree Cash Flow ChartNon-GAAP ReconciliationNon-GAAP Reconciliation
2002 2003 2004 2005 2006 2007 2008 E
Cash provided from Operations 197,441 162,728 110,964 181,545 181,695 232,833 220,000
Capital expenditures (25,496) (28,128) (22,507) (27,164) (27,171) (47,169) (50,000)
Free Cash Flow 171,945 134,600 88,457 154,381 154,524 185,664 170,000
Payments for asbestos-related fees and costs, net of insurance recoveries 1,885 7,938 28,056 45,338 40,563 10,198 55,000
Payment/(refund) associated with terminated Master Settlement Agreement - - 10,000 (9,925) - - -
Net payments for asbestos-related fees and costs 1,885 7,938 38,056 35,413 40,563 10,198 55,000
Tax rate 35% 35% 35% 35% 35% 35% 35%
Payments for asbestos-related fees and costs, net of insurance recoveries and tax 1,225 5,160 24,736 23,018 26,366 6,629 35,750
Free Cash Flow before payments for asbestos-related fees and costs, net of insurance recoveries and tax 173,170 139,760 113,193 177,399 180,890 192,293 205,750
• In 2007 The Company received an asbestos-related insurance from Equitas for $31.5 M, which lowered the payments in that year to $10.2M.
40
Non-GAAP Reconciliation Non-GAAP Reconciliation for Free Cash Flowfor Free Cash Flow
Twelve Months Ended Full YearDecember 31 Guidance
2007 2006 2008
CASH FLOW ITEMSCash Provided from Operating Activities before Asbestos - Related Payments, Net of Insurance 243,031$ 222,258$ 275,000$ Asbestos Related Payments, Net of Insurance Recoveries (41,698) (40,563) (55,000) Equitas Receipts 31,500 - - Cash Provided from Operating Activities 232,833 181,695 220,000Less: Capital Expenditures (47,169) (27,171) (50,000) Free Cash Flow 185,664$ 154,524$ 170,000$
41
Non-GAAP Reconciliation for Non-GAAP Reconciliation for Segment Operating ProfitSegment Operating Profit
Operating Profit (Loss): 2007Aerospace & Electronics 86,176$ Engineered Materials 58,339Merchandising Systems 39,684
Fluid Handling Excl. Foundry Restructuring 140,168 Foundry Restructuring 19,083Total Fluid Handling 159,251Controls 9,901Corporate (51,945)Environmental Provision (18,912)Asbestos Provision (390,150) Total Operating Profit (Loss), as reported (107,656) Add back:Corporate 51,945Environmental Provision 18,912Asbestos Provision 390,150SubtractGain on Foundry Restructuring (19,083) Adjusted Segment Operating Profit 334,268$
Operating Profit % Adj. Seg. OP
Aerospace & Electronics 86,176$ 26%Engineered Materials 58,339$ 17%Merchandising Systems 39,684$ 12%Fluid Handling Excl. Foundry Restructuring 140,168$ 42%Controls 9,901$ 3%
334,268$ 100%
42
2008 EBITDA Guidance2008 EBITDA Guidance
Twelve Months EndedDecember 31,
EBITDA (Non-GAAP) 2006 2007 Low High
Net Income (Loss) $165,887 ($62,342) $214,500 $224,000
Non-GAAP Adjustments:Depreciation and amortization 54,285 61,310 69,000 69,000 Amortization of stock based compensation 14,883 15,247 15,700 15,700 Asbestos provision - pre-tax - 390,150 - - Environmental provision - 18,912 - - Environmental reimbrusement (4,900) - - - Foundry restructuring gain - pre-tax - (19,083) - - Government settlement - pre-tax - 7,600 - - Gain on sale of partnership interest - pre-tax - (4,144) - - Interest expense, net 18,076 21,145 15,300 15,300 Provision for income taxes 73,447 (56,553) 96,400 100,600
EBITDA $321,678 $372,242 $410,900 $424,600
Full Year2008 Guidance Range