Curtiss-Wright Corp (CW) 2003 Q3 法說會逐字稿

Good morning, my name is Roderick and I will be your conference facilitator today. At this time I would like to welcome everyone to the Curtiss-Wright third-quarter 2003 results conference call. After the speakers remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Martin Benante, Chairman and CEO. Please go ahead.

Thank you Robert. Good morning everyone. Welcome to our 2003 third quarter performance conference call. Joining me today on the call is Mr. Glenn E. Tynan, our CFO who will begin our forum today.

Thank you Marty. If you do not have a copy of the earnings release which was issued yesterday, please call Ms. Joann Hoss at 973-597-4711 and she will be happy to a e-mail you or fax you a copy and add you to the Curtiss-Wright distribution lists for all future press releases and other communications.

Before we begin, I will mention that you will hear us make some forward-looking statements on today's call. We believe that our operating plans are based on reasonable assumptions. We cannot guarantee that we will meet any expectations that might arise from these forward-looking statements or their underlying assumptions. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Security Reform Act of 1995. And involve risks and uncertainties that may produce results better and materially different from those set forth during this discussion.

Such risks and uncertainties include those factors that generally affect the business of aerospace, defense, marine and industrial companies. Please refer to our SEC filings under the Security in Exchange Act of 1934 as amended for a more thorough discussion of risks and uncertainties as well as further information relating to our business. Now Marty will begin our discussion regarding Curtiss-Wright's financial and business performance for the third quarter of 2003.

Thanks Glenn. I am pleased to report record level sales in operating income for the third quarter and first nine months of 2003. We experienced solid organic growth in some of our base businesses as well as strong performance from our acquisitions.

Our nine-month net sales of 552,000 are up 63 percent over the comparable period last year. With acquisitions in 2002 and 2003 contributing 195 million in incremental sales.

Operating income in the first nine months of 2003 increased 52 percent over the comparable period in 2002, at 62 million and that net earnings increased 19 percent to 37.5 million or $3.60 per diluted share versus 31.4 million or $3.01 per diluted share in the comparable period of 2002.

For the third quarter, net sales of 190 million increased 58 percent over the comparable period in 2002 with acquisitions contributing approximately 61 million in incremental sales.

Operating income in the third quarter increased 66 percent to 21 million from the prior year.

Net earnings for the third quarter increased 11 percent to 12.5 million or $1.20 per diluted share from 11.3 million or $1.08 per diluted share for the same period in 2002. These excellent results are the product of our strategy to create high-quality sustainable operating earnings growth for our balance portfolio of products in the military, commercial and industrial sectors.

Our market leadership in existing technologies and product innovations as well as our geographic expansion continues to drive improved performance in each of our business segments.

New orders received in the first nine months of 2003 were 518 million, up 50 percent year-over-year with approximately 45 percent being military related.

Curtiss-Wright generated higher sales throughout 2002 and 2003 in markets where most companies have experienced major downturns. Specifically, the power generation, oil and gas processing and certain industrial markets. We have also experienced growth in our naval, military aerospace, land based military and laser peening markets. Achieving this growth in the current sluggish economic economy reflects our customer's preference to purchase are highly engineered technologically advanced products and services.

Our diversification and acquisition program over the past few years has provided us with the flexibility to offset declines in some of our markets with sales growth into other market segments.

The commercial aerospace market remains particular challenging. But, in 2003, our increased military aerospace sales has offset the commercial downturn. In addition, objective increase in military procurement spending should provide additional opportunities for us in the future.

We have expanded significantly in defense electronics and this expansion will add not going to do our OEM opportunities but also increase our ability to participate in the aftermarket as electronic systems go through multiple and relatively frequent stage of redesign and upgrade. This potential increase in our aftermarket business will reduce the overall cyclicality of our defense businesses.

Our position on many defense programs which include a balanced mix of products for aerospace, LAN-based and naval platforms remains very strong. This balanced blend of defense programs is expected to provide both short and long-term benefits to our shareholders.

We continue to be encouraged by our recent approval of the Navy's multi-year nuclear submarine procurement. However, the increased from one submarine per year to two has not yet been passed. We remain optimistic that the existing support will enable this initiative to be approved for 2004.

Similarly, we're anticipating the initial orders for the construction of the next generation aircraft carrier in the fourth-quarter. As each nuclear aircraft carrier contains approximately 180 million of (indiscernible) products.

We continue to strengthen our position in the defense sector as we are currently working with the Navy on development on new systems for the next generation naval craft.

Our leadership across the broad horizon of complementary strategic niche markets is reducing the balance that has led us to continue to achieve profitable growth from our business segments during a weak economic cycle. The successful integration of recent acquisitions have achieved better-than-expected results while increasing our market penetration particularly within the defense sector and expanding our geographical reach and technological capabilities.

We remain optimistic about the rest of this year as we expect to continue to ramp up in the number of our defense programs as well as increase sales from our new products such as our revolutionary coker valve and new services such as our state-of-the-art laser peening processes during the remainder of the year.

Finally, I am also very pleased to highlight that Curtiss-Wright was named by Defense News to the 50 fast-track list of fastest-growing defense firms in the world where Curtiss-Wright plays in the top 15 for both one year and three-year annual growth.

I will now turn the call over to Glenn to discuss more detailed segment performance as well as our liquidity and capitalization.

Thank you Marty. Our financial results continue to reflect a significant increase in operating earnings growth in each of our business segments. For the quarter and year-to-date and further support our goal of making 2003 our eighth consecutive year of sales growth and the fifth consecutive year of increased normalized earnings.

We have been successful in growing our business through strategically focused acquisitions and organic business developments. Excluding contributions from our acquisitions consummated in 2002 and 2003, we achieved organic sales growth of eight percent and five percent for the quarter and nine months ended September 30, respectively. This performance was achieved despite year-over-year reduction in our domestic commercial aerospace OEM and repair and overhaul businesses of 26 percent for the quarter and 22 percent year-to-date.

Additionally, our strong segment performance resulted in higher operating earnings in 2003 that more than offset the reduction in non-operating income which is primarily related to pension income and nonrecurring other income.

Comparing our 2003 results with the prior year, lower non-operating items excluding interest expense reduced net earnings in 2003 by 33 cents and 55 cents per diluted share for the third quarter and nine-month period respectively. This reduction in non-operating income was offset by increased business segment operating income of 7.1 million or 42 cents per diluted share for the quarter and 19.4 million or $1.16 per diluted share for the first nine months of 2003.

In addition, foreign currency translation favorably impacted sales by 2.3 million and 9.7 million for the third quarter and nine-month period respectively.

Now, let's turn to the strong performance in each of our business segments. In our Flow Control segment, third quarter sales of 84 million were up 174 percent over the comparable prior year period. The higher sales reflect the acquisition of EMD and Tapco in the fourth quarter of 2002. In addition to the benefit of these acquisitions, this segment experienced organic sales growth of 11 percent in the quarter, which was driven by stronger sales of products for the commercial power generation and non-nuclear naval markets.

Operating income for the Flow Control segment increased 118 percent for the third quarter over the prior year. Due in large part to EMD and Tapco acquisitions which had strong results.

Operating income from our base business was down from the prior year due primarily to onetime charges associated with nonrecurring costs overruns and inventory adjustments. Without these onetime charges, operating income for the base business of this segment would have been up 25 percent from the prior year for the quarter.

In our Motion Control segment, sales for the third quarter increased 13 percent to 70.2 million and over the comparable period in 2002. Due to the acquisition of Collins Technologies in February 2003, as well as a nine percent organic growth, the organic growth was driven mainly by strong domestic ground defense sales primarily related to the expedited deliveries for the Bradley fighting vehicles and an increase in sales of military aerospace product for the F-22, F-16 spares, JSF development and in the electronics.

These higher sales were partially offset by lower commercial aerospace OEM sales and lower sales associated with the overhaul and repair services provided to the commercial airline industry. And a slight drop in the European ground defense business.

Operating income in the Motion Control segment increased 51 percent for the third quarter of 2003 as compared it 2002. The improvement was driven by higher sales volume and a favorable sales mix due to be scheduled ramp ups in various military programs as indicated during our second quarter call. These improvements were partially offset by lower margins in the overhaul and repair business due to lower of volume and unfavorable sales mix in the European defense business.

In our Metal Treatment segment, sales increase 30 percent in the third quarter of 2003 to 35.3 million over the comparable period last year. The increase was driven by contributions from our recent acquisitions in 2002 and 2003, as well as organic growth from our shot-peening services and our new laser peening technology.

Operating income from our Metal Treatment segment increased two percent in the third quarter of 2003 over the comparable period of 2002, due to higher sales volume, cost reduction programs and favorable foreign currency translation. These gains were partially offset by the continued effect resulting from a customer bankruptcy, unfavorable sales mix, and a startup expenses at a new facility.

Our balance sheet remains strong with working capital 243 million as of September 30. Total debt outstanding was 224 million at September 30 which represents total debt to capitalization ratio of 33 percent. However, after consideration of 116 million of cash at September 30, the net debt is 108 million which represents a net debt to total capitalization of 16 percent.

On September 25, we announced the successful completion of a private placement of 200 million of Senior Notes consisting of 125 million of ten-year notes and 75 million of seven-year notes. Net proceeds of the offering were used to reduce borrowings under our revolving credit facilities and the remainder will be used to fund our ongoing strategic growth.

Due to the current interest rate environment, fixed interest costs of the notes is greater than the current variable rate on the revolver. And thus will initially result in higher interest expense. However, by locking in attractive long-term fixed interest rates, at or at historical lows, we expect to reduce our exposure to variable short-term rates which may rise significantly over time.

Our free cash flow defined as net earnings after-tax plus depreciation and amortization less capital expenditures was $11 million for the third quarter and is $36 million year-to-date. As of September 30, our depreciation and amortization was 23 million year-to-date and capital expenditures were 24.5 million.

I will now turn the call back over Marty for some closing remarks before we open the call to your questions. Marty.

Thank you Glenn. In summary, we are pleased to report record sales for the first nine months of 2003. Solid performance from our business segments and our acquisitions. Although the fourth quarter is likely to continue to present a challenging business environment, we expect to achieve our 2003 targets as indicated at the end of 2002, despite lower pension income, higher interest rates, onetime charges in the third quarter, and increase in research and development for new Naval programs.

Our recent performance has validated our diversification plan that we implemented several years ago. This strategy and our ongoing efforts to (indiscernible) technology will continue to bring growth opportunities in each of our three business segments. We have built a healthy core of profitable businesses and we intend to continue to do so in the future.

Before I open the call for any questions, I am pleased to announce that we will be hosting our first investors conference and technology demonstration on November 20 at our state-of-the-art laser peening facility located and Livermore, California. Anyone interested in further details just contact portfolio PR at telephone the number and our e-mail address indicated at the end of our press release.

In addition, before we speak again, we will be celebrating the 100th anniversary of the first flight by the Wright brothers on December 17th. Curtiss-Wright is a proud sponsor of the celebration that will be at Kitty Hawk for the festivities. Lastly, we will be at the New York Stock Exchange on December 12 to ring the closing bell in recognition of the special day, both in our corporate history and history of aviation. I will now open the call to any questions you may have.

(OPERATOR INSTRUCTIONS) Erick Hugel of Stephens Incorporated.

Good morning guys. Can you talk about in a little bit more detail the charges in the Flow Control business specifically I guess the size of them, why you took them, and what particularly they relate to?

Sure. We had an overran on our mainsing (ph) safety relief contract for London of about a little over a million dollars. We also had some inventory write-offs we put some new bond systems in one of our new acquisitions and unfortunately had some accounting problems if you will. We also had another write-off in our Target Rock which is both of them combined with about 1.6 million. Both of them we feel that the relief valves needed a redesigned. That is complete, and the valves are working fine, so that will not be a charge there. And the inventory writeup obviously you are not going to see that again either.

How much of that was cash versus non-cash? Do you have an idea?

The cost overrun is cash, the inventory adjustments are non-cash. So about 1.l would be cash, 1.6 would be non-cash. The total of the two were 2.7.

So margins in that business looked actually looked pretty nice excluding that charge?

Without a doubt. That is one of the reasons neither one of them are material obviously the reason why we put it out there is first of all we disclose everything that we think our shareholders should know. And the second thing is why did the margins come down? Obviously, like you said, without those charges, our operating income would be good. Which says that obviously we won't see that in the fourth quarter, so we anticipate strong sales from military in that fourth quarter, so obviously our returns should be very strong in the fourth quarter.

Great. Can you also talk about I guess the Metal Treatment business? Previously your targets for the year on the margin side were 14 to 15 percent. I guess obviously with this result in the current quarter in order to achieve that type of sales margin for the year, your margins would have to be around 18 percent. That doesn't look achievable. Can you sort of talk about what happened in the current quarter?

Normally what happens is the third quarter is slow because it is the summertime. We have always had the third quarter in the Metal Treatment and strong fourth quarters. We expect a strong fourth quarter whether or not we get up to 18 percent, may not happen, but we will be in and around that 14 percent.

That 12.3 margin was sheerly a result of volume and mix rather than anything else going on?

No, it just sheerly margin and mix and again the summertime tends to be slow.

I guess when you talked about bankruptcy impact, was that more for the nine-month than for the current quarter?

Yes, that was basically more for the nine-months than the quarter.

Okay. Can you go through and I guess talk about for -- update us for each of the businesses, I guess where for the year on a margin level and maybe if you could talk about on a revenue level you think you can achieve?

Let me go through the last conference call I indicated that we would have stronger sales and profitability in the second half. That we would have somewhat of a switch between controls business, you can see the margins have improved quite a bit there. As we indicated, we would have stronger margins in the control side versus the Flow Control slide. We still see ourselves ending up somewhere over 11.5 percent type of returns for the overall business.

I guess with regards to orders for the quarter, I guess it looked pretty light I guess the backlog came down. Is that more of a timing issue in Q4 when you book the carrier and saw that number is going to be up significantly?

Exactly. The funding was just released, so those orders have not been placed. We are anticipating quite a bit of orders in the fourth quarter and also in the first quarter of next year.

To your knowledge, with regards to the submarine, we are not going to see an order for two ship sets? We're only going to see I guess a long lead time funding for one ship set for the '07 builds?

We actually are going to receive more than just one ship set for this fiscal year. Probably more like a boat and a half. We do exceed the build schedule of the submarines, but our procurements will be a little heavier this year. We anticipated that this year would not be the year they would go to two submarines but they did get the multiyear procurement. I think that is the first positive step. I still think there is a lot of support for going those two submarines coming next year.

Okay. I will let other people ask questions.

John Walthausen (ph) of Paradigm Capital Management.

Good morning a lot of good questions were asked already. On the more positive side, the margins in Motion Control you had indicated they would good, but it is surprising to me that while you're facing a mix of poor commercial and high military that you're able to get good margins. Is that because of the maturation of some programs and not sustainable or is there something else going on?

The reason why is that our sales were light. You're getting two things at one time. You were getting a good mix of military programs and also greater absorption of overhead, in their facilities. So that is one of the reasons why does have come up and we expect those margins to continue to persist.

Okay. To clarify the issue about the order rates. I would construe from what you're saying about expect to make that up in the fourth quarter and first quarter that there is no reason why we should not be in a position from what we know now to enjoy growth in revenues exing acquisitions in the next year.

That is correct.

Okay. Is the refinancing that you did taking 200 million and leaving yourself a lot of cash an indicator that there are some things that we are close to on the acquisition side?

Thank you John. No comment.

You did not go out and have too many drinks with the bankers then, is that what I should construe?

Yes.

Okay, I will step aside. Thanks.

Tim Cura (ph) (indiscernible) Holding.

Hello. You mentioned in the Flow Control in the press release part of the strength in sales is related to commercial power generation. I guess that pretty clearly indicates it is not driven by commercial construction. What is it driven by?

Most of our power generation is in nuclear power plants. Regardless of the demand, even though the demand for the power happens to be down, the last thing a company is going to do or a power company is going to do is shut down their nuclear power plants. The other thing that is going on is that plants are requesting plant life extensions and when they do that there is a lot of items that need to be retrofitted and improved and we are benefiting from that taking place.

Okay. And Metal Treatment, can you review for me I think you may have already touched upon it, but what was the unfavorable sales mix? How much were the new facility startup expenses?

The unfavorable sales mix we seem to be have received less than anticipated wing skins from Airbus, which we do enjoy very good revenues and also margins on.

I see. The facility startup expenses?

I think it is about a half a million dollars year-to-date. Not a big number.

Okay. Is that an ongoing thing where that is always kind of running through the P&L?

We started planning up at least one a year. So, this year not only did we start up shot-peening plannable we also started up the laser peening plant.

On the orders, I am pretty sure you mentioned these sizes, but I did not write them down. As far as the carrier and the sub, if those orders are ultimately booked in the fourth quarter, what would be their approximate size?

They are not just booked in the fourth quarter. An aircraft carrier gets that is procured over three years. We have businesses that are three years away from the aircraft carrier two and one. So, it tends to be a mix for the next three years and then in submarines it is normally a one year differential in our businesses and we have a about $60 million per submarine. So you're going to see those procurements over the next three years.

Okay. So, in the fourth quarter, we could see 20 million for a sub?

At least. Probably more than 20 million. Right now, minimum we're looking at $70 million.

For the sub?

No. For the submarine and a partial aircraft carrier. It is going to be based on timing and how quickly some of the agencies that participate in the procurement of the sub can get us the orders.

Great. Thank you.

Jim Fong (ph) of Gabelli Asset Management.

Good morning. I guess on the last question, what do we for just as incremental revenues in the fourth quarter in 2004 from the aircraft carrier and sub?

In the fourth quarter of 2004?

Fourth quarter this year, and then throughout 2004. I was just trying to kind of model this in. What can we expect -- how should we look at in terms of incremental sales?

In the fourth quarter there is not going to be a great impact. There will be some impact. I think next year you're looking for incremental sales of approximately $40 million out of the aircraft carrier.

From the aircraft carrier only? How about the sub? Anything there?

The submarine is going to depend right now we are looking at about 1.5 subs, which would be an increase of about $30 million. But, that is going to be spread over a couple of years. So, maybe 15 incremental sales.

$15 million in '04 then. Okay. How about the F-22? Is that also ramping up and '04?

In '04 were going to be instead of 15 aircraft this year, it will be 22.

And then you get like one million --?

A million dollars in aircraft.

Right. So that is another incremental $7 million in '04 that you will not have this year. Just on the boost in the aircraft then. Okay. I guess, in regards to the orders, it was just down because of the timing and then as you get the orders in for the aircraft carrier, and the sub, we will see a pickup in the orders for the fourth quarter?

That is correct. In the first quarter of next year.

Okay. So, this quarter is just more of a timing issue rather than anything else then, right?

That is correct.

I guess when you talk about Flow Control, you said you expect a strong sales mix in the fourth quarter. Could you just kind of get more color to that? What are you see in the kind of this suggests that you have seen a better mix? Did you see more military business?

Yes. We will be seeing military business not only for Flow Control but also controls which had a very strong third quarter and you'll see a very strong fourth quarter also out of Control from the military side.

Okay. What is your -- I guess with the bond, with the new Senior Notes that you took out, what is your new EPS guidance for 2003? What was that range?

The range I think that is out there is anywhere between 475 and 511 that I know of. I think at this point, we still expect to be in that range.

We will be in that range.

Alright. Good.

One of the other things that people should also be aware of, we did disclose the fact that we have had one time charges in the third quarter, but also our research and development expenses have been up quite a bit. There are I believe significant opportunities that we have that can affect also '04 as we go forward. Obviously, we received that $61 million contract for our leakless valves, and we did announce the fact that we have been picked as a partner to general General Atomics on the arresting gear contract which we are in competition with Northrop Grumman on.

But the opportunity of that arresting gear can be between 12 and $20 million in aircraft carrier and right now we are looking at retrofitting eight aircraft carriers and that will be on a go-forward basis.

The other thing that we are developing right now with the Navy is Electro-Mechanical Aircraft Launching System which would be the new generation launching system which would go from all speed and type of catapult to electromagnetic catapult. And our opportunity there was about $50 million in aircraft carrier. There we are teamed with General Atomics, I'm sorry with Northrop Grumman.

So, you also have to look at the fact that our research and development costs are up and the reason why is I think that we have significant opportunities if we are picked as one the team on either one of those opportunities.

Okay. Did you provide a backlog number? I don't think I ever saw that?

The backlog number at September 30 was 445 million.

445 million? What does that compare to a year ago and in the second quarter?

It is down a little bit. I don't know what is from a year ago we don't normally go back a year ago. We usually go back to the prior year. It is down a bit from the year end, about 30 million that is the order of timing issue we were just talking about.

Okay. That's all I have for now. Thank you.

(OPERATOR INSTRUCTIONS) Peter Arment of JSA Research.

Good morning Marty and Glenn. Very well. Next quarter most of my questions have been addressed but maybe we could just explore a little further on the acquisitions. Marty without being too specific regarding just sort of the general size and maybe some of the -- which particular segments are getting the most attention right now? It is hard to see any glaring product gaps in your portfolio, but I wonder if you could just give us a little more color there?

We still like defense electronics. We are looking to electronics in general. You know, if you take a look at Curtiss-Wright and evolution over the last five years, we have basically gone from a mechanical to a mechanical electrical mechanical to also an electronics company. So, we still like electronics embedded computer is. We like on a Flow Control side, we continue to look at oil and gas and power generation. And on the Metal Treatment side, codings, codings type companies that we feel are highly engineered products.

So you still are seeing opportunities within each one of those segments?

Yes.

Roughly are we looking at sizes of deals that are similar to ones that you have recently? Are these smaller tuck in type companies?

A little bit of both.

Great. Thanks.

That's a lot of guidance. There is still a lot of opportunity out there in the marketplace. We don't see a slowdown in the amount of opportunities. Quite frankly, we see the pipeline as pretty healthy.

Great. Fair enough.

Edmond Griffin (ph) of Black Rock (ph).

Good morning. Could you break down your sales by end market and then looking further out into '04 and '05, how you expect that to change? Looking back at your financial back in '99, I guess you had an operating margin of around 17 percent. On a blended basis. I was wondering, is that somewhat of a target you look to reach again? Is that feasible or just your thoughts there?

Well, let me address your first question about how we see our business mix going forward in 2004. We will see an increase in the amount of defense business that we will be shipping. The commercial aerospace business, we don't anticipate a recovery for the next couple of years. So, I think that has bottomed out which would make a natural change in the ratio between defense and commercial. Right now, we are about 45 percent, 47 percent military, 55, 53 percent commercial. I think you're going to see that increase probably more like 60, 40 military, commercial come next year.

The blended operating income that we had at 17 percent and what was that in 1999 time frame, I don't see us achieving that. The reason why is that we have -- if you look at the corporation back then, we were in a lot more base business oriented, and we typically had those types of margins. However, as we have been acquiring businesses, and we continue to acquire we have improved them. When they first come into the fold, they drop our operating income down and as time goes on we continue to improve them.

If you take a look at last year at this time, on acquisitions, the operating income was about 7.8 percent, today they're at 10.8 percent. Our base business has dipped down a little bit because our commercial aerospace has been reduced, but remains strong in the 12 to 13 percent return on operating income. I hope I answered your question.

With regards to your acquisitions, what sort of financial metrics are you looking at when you acquire a company? Are you looking at margins, growth of their underlying business, or any return on invested cap expectations or --?

Our requirement is that they need to be accretive in the first year and return on invested capital of 12 percent by the third year. Obviously we do look at the markets that they are in. We normally buy companies that are very close to the industries that we serve. So, we are very familiar with how we expect those markets to turn out. We look for technical products. Obviously we don't buy anything unless we feel there is enough technology within the products that we think will have good futures to it.

Okay. Great. Thank you. That's all.

Eric Hugel.

Can you rewind a second, when you talked the arresting gear and the e-mails contract, can you sort of put some time frames around sort of down selects and when your stream would hit if you won those contracts?

Let's take the e-mails first. A selection is supposed to be made first quarter of next year. It possibly could go into the second quarter. Obviously if it is the first quarter of next year, you'll start to see an impact at the very end of '04. But, obviously it's going to be on the next carrier, it's got to pick up at the end of '04 and the beginning of '05. Because there is four launching systems per aircraft carrier.

Now the arresting gear, that selection will probably be made in the second quarter of next year, and that has a lot more short-term possibilities. Right now, the Navy has funding to retrofit five nuclear aircraft carriers. So, you would see new orders very soon and as they bring boats in for overhaul, obviously you'll see sales over the next three years starting in '04 and going through '05 and '06. Eventually, there will be not only new aircraft carriers, but they will do all eight current and in its class aircraft carriers.

Would they retrofit existing carriers with the e-mails?

No, not with e-mails, no with the arresting gear, yes.

What happens with the arresting gear it allows them to land much heavier and faster aircraft and also anticipating the lightweight unmanned vehicles that will probably be taking off from there. The other nice thing about it is that instead of having to change the arresting gear manually, for each type of aircraft that comes in other than slowing the aircraft carrier down or speeding it up depending on the type of airplane coming in, they can land any aircraft, just put the type of aircraft in there and the arresting gear will do the remainder of it. So it is a lot quicker retrieval of the aircraft.

Can you talk about probably more than issue for your motion and for your Motion Control business? Can you talk about -- have you started seeing any dollars flow I guess either in regards to land vehicle, retrofits, or aircraft retrofits that were for aircraft or for equipment that was deployed over to Iraq?

No not really.

Do you expect any?

No.

Okay.

In reality, when you think about it, there is going to be -- there were additional wear in tears of components. We do supply the sleds for the launching system for aircraft on aircraft carriers and there is a limited life there, but basically all of the armament that was that sent there will come back intact, which is great. And you will go through a normal replenishment cycle based on there was some pretty heavy usage. But there is not going to be anything in particular that will come out of that.

Okay. I guess my last question would be regards to the Vista business. I guess the margins on that business are still currently in the single digit range. Just sort of wanted to get a sense from you as to where you thought that after you've got that business fully sort of consolidated and integrated, where you thought -- were you think that you can get margins in that business and sort of the time frame to get there? To see if you have made any headway with regards to getting into different potential product areas that you were talking about?

Yes, the thing is the model when we purchased them we are still doing better than what our anticipations were. We did not expect a very high growth lie there because there is some substantial research and development that we put into the company for new programs. You know, the embedded computing systems are anticipated to grow at about 15 percent compounded annual growth rate over the next five years or so. Recently, we won some good programs for the Army, for our Pentium processor for the Army and for the naval communications systems.

So, we are more interested in getting our newer programs. We are going to spend some additional research and development money. That is some of the other research and development we have been doing. Our research and development is double what it was last year at this point in time.

I guess can you also address your tax rate? That 38 percent is kind of high is there any opportunity to reduce that?

We are looking at that as we speak. We have put a couple of the structures in place. I can't tell you what I think the rate will be but I suspect it will be lower than that by the end of the year.

Great. Thank you.

John Walthausen.

Yes a couple of follow up questions, quick ones. With regards to the fourth quarter in the Metal Treatment business, you expect to rebound, is that dependent upon a greater flow of materials out of Airbus?

Yes. We expect some additional out of Airbus, but again general industry which they serve quite a bit up during the summertime does slow down. So, we don't expect that in the fourth quarter.

We are seeing better flows in September and October?

Yes we are.

Okay. That is real helpful.

We start to see some minor rebounds in some of the general industry quite frankly, not enough to be optimistic that we think there is a turnaround there, but you know the shot-peening heat treating is a bellwether of how you start to see some of the different industries picking up since we do a lot of work for a lot of industrial companies.

Okay. Good. That's helpful. In the nuclear pump business, that was probably I guess your biggest acquisition. What have we done in terms of moving the margins up there in what is still left to be done?

I think that the margins have moved quite a bit. Going into general direction, we're looking at putting some additional capital equipment in there. I think, also, one of the good things there is again they have supplied a lot of equipment to the nuclear power plants that there could be some very interesting possibilities of retrofitting for plant life extension.

They should be playing in that. Are they doing a good job of servicing the customers there or are there still service issues that need to be addressed?

They're doing a better job about servicing the customer there.

If we benchmark them against Target Rock, are they --?

They're not as good yet.

So there is a ways to go still?

Yes, but I think that is opportunity. That has been one of the areas we have been concentrating quite a bit on a is trying to prove that market which we think they have very good potential in.

Right. That is something we should see some significant progress over 2004 in?

We hope some.

Good. Thanks.

Jim Fong.

Just on the Metal Treatment, I think you mentioned that you had some charges that was year-to-date, but what was it just for the third quarter though? In terms of the facility closing and I guess in the start of expense was there any in the third quarter?

No. Those were are all year-to-date issues.

Basically, what we've seen is a pretty clean number and just had a mix issue and --?

Just a slow third quarter.

We can expect the margin to rebound as Airbus, as the business from Airbus comes back.

Right.

When we talk about the inventory adjustment in Flow Control, let me see if understood this right. You redesigned the relief valve and as a result you rolled off some of the old inventory. Was that what the adjustment is?

What happened is we developed the valve, the main seam safety valve for Lungmen which is the nuclear power plants in Taiwan. It did not work the first time through and we had to retrofit the valves in order to make them work and that was the charge.

So it is just -- and then what about the inventory --?

The inventory issues were just basically accounting errors that we picked up along time along the way. One plant we are introducing Bondaye and we made some adjustment which resulted in some write-offs.

Lastly, the incremental revenue from acquisitions in this quarter you mentioned was $61 million. I'm looking about roughly 20 million in the fourth quarter and by the time you get into 2004, you are pretty much even there right? It would be apples-to-apples? Are those kind of ballparkish numbers?

We have still have a couple of acquisitions in the first quarter of 2003. That will still be in the acquisition category.

So that is under 10 million --?

It is fairly small.

I feel it is a very small number. Okay. So by the time you get into '04, it would be apples-to-apples pretty much? Except for those small acquisition? And then in the fourth quarter, should we be looking about 20 million in terms of incremental revenues?

From what?

From acquisitions that were not in the fourth quarter a year ago. That was not there a year ago.

That is hard to do but we had EMD for part of the quarter last year and you are going to have a full quarter, that alone could be a fairly big difference. I don't have it broken down that way by the acquisitions right now, but I could not tell you if 20 million is the right number.

Why don't I pick up with you later on off-line. Thank you.

At this time we have no further questions. Are there any closing remarks?

I just want to thank everybody for their participation today and look forward to our conversations for our year end conference call. Thank you.

This concludes today's Curtiss-Wright third quarter 2003 conference call. You may now disconnect.