Curtiss-Wright Corp (CW) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to your Curtiss-Wright 2004 financial results conference call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host Mr. Martin Benante, Chairman and CEO of Curtiss-Wright. Sir, the floor is yours.

Thank you. This may be the second time we're going through this, but I'd like to welcome everybody to our 2004 full-year and fourth-quarter earnings conference. Mr. Glenn Tynan, our CFO, will begin our forum today.

Thank you again, Marty. If you do not have a copy of the earnings release which was issued (technical difficulty) 4712, and she will be happy to the e-mail or fax a copy to you and add you to the current advice distribution list for all future press releases.

Before we began, we will make certain forward-looking statements on today's call, such as statements about the Company's confidence and strategies or expectations about the results of operations, future contracts, or market opportunity. While we believe that our operating plans are based upon 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 Securities Reform Act of 1995 and involve risks and uncertainties that may produce results or achievements that are materially different from those express or implied during this discussion.

Such risks and uncertainties include those factors that generally affect the business of aerospace defense, electronics, marine and industrial companies. Please refer to our SEC filings under the Securities Exchange Act of 1934 as amended for more thorough discussion of risks and uncertainties, as well as further information relating to our business.

For our agenda today, Marty will open our discussion with an overview of Curtiss-Wright's 2004 operating performance. Then, I will provide a more detailed discussion of segment performance and financial position. And, finally, Marty will conclude our discussion with a brief overview of the proposed share class consolidation, comments on the proposed Department of Defense budget cuts, and our 2005 guidance. After that, we will open the call for questions.

Before I turn the call over to Marty, let me take a brief moment to remind everyone how we evaluate our acquisition and organic business performance.

For quarterly reporting purposes, acquisitions are segregated from our organic growth calculations for a full year or, in the more likely event of a made quarter acquisition, 5 quarters. For year-to-date reporting purposes, acquisitions remain segregated for 2 years. An acquisition is included in our organic growth when the reporting period includes fully comparable current and prior period data. Therefore, for the fourth quarter, our organic growth excludes the 14 acquisitions made since the third quarter of 2003. And for the full-year 2004, our organic growth excludes all 18 acquisitions made since January 1, 2003. I now would like to turn the call back over to Marty. Marty?

Thank you, Glenn. I'm pleased to report our 9th consecutive year of increased growth and profitability. During 2004, we increased sales by 28 percent to 955 million, operating income by 29 percent to 115 million, and net earnings by 30 percent to 68 million or $3.14 per diluted share. Excluding 13 cents of nonrecurring tax benefits not included in our guidance, EPS of $3.01 per share came in at the top of our guidance range.

2004 has been a great year for a number of reasons. First of all, we made significant progress toward our goal of increasing our base businesses, despite continued softness in the global economy and, in particular, the commercial aerospace sector. Overall, we achieved slightly over 7 percent organic sales growth in 2004 and 18 percent organic sales growth through the fourth quarter. This is the result of achieving double-digit growth in most of our market sectors. In particular, we had a robust performance in our defense, commercial power generation, oil and gas, automotive, and general industrial markets. When we expect a continuation of this strong operating performance across our markets in 2005.

We received new orders of nearly $1 billion in 2004, an increase of 34 percent, and our backlog increased 24 percent to a new record high of 628 million at the end of 2004. Let me take a moment to highlight a few of our recent orders and development programs, which we feel will set the groundwork for another healthy year of growth for 2005.

In our Flow Control Segment, we announced a $10 million contract for submarine retrofits with our advanced ball valve technology. As you know, we currently have over $60 million of content on every newly built submarine, and we are constantly working to increase our content on other critical Navy platforms. This new contract, combined with our acquisition of FlowServe's Navy pump business in November of 2004, demonstrates our continued long-term commitment to the Navy program. We intend to remain on the cutting edge of new technology in this market. To that end, we announced a $5 million contract for development work on advanced marine propulsion technology for the U.S. Navy. Earlier this year we shipped a prototype main generator, which provides electrical power for propulsion weapons and other ship services.

On the commercial side, our Flow Control segment just announced a new contract this week to supply our replacement reactor vessel's closure head and control ride drive mechanisms to Texas Utilities from (indiscernible) electric station for approximately 8 million. Curtiss-Wright's unique technology introduces a one-piece design, which will significantly enhance reliability for the customer because there are no welded connections. The award represents a significant milestone for expansion and growth of our commercial power business.

In our Motion Control segment, we announced $47 million in new orders for the U.S. Air Force's F-22, F-16, and F-18 production and spares program. And we won $55 million of new contracts for electronic upgrades on the Bradley Fighting Vehicle and helicopters for the U.S. Army.

While the U.S. Army's future combat system program has moved out to the right, we are currently providing solutions to upgrade capabilities of current platforms as well as tracking new development programs. In July, our Flow Control segment announced a $30 million development contract for the U.S. Army's next-generation electromagnetic gun. This builds upon the expertise of our flow control segment in developing electromagnetic technologies for the Navy.

Our Metal Treatment segment reported a strong uptick in its commercial automotive business for shot-peening, coating, and heat-treating services. We also saw an improvement in commercial aerospace business and expect further improvements in the sector 2005, as both Boeing and Airbus have indicated increases in aircraft production in 2005. In addition, projected increase in the overall air traffic should stimulate additional growth in overhaul and repair business of our Motion Control segment.

While our organic businesses are enjoying solid growth, our acquisition program also remains active, with a total of 11 acquisitions in 2004, a total purchase price of approximately $260 million. Paramount to this growth, our integration process is achieving solid results. In Motion Control, the embedded computing businesses have been reorganized, consolidating the 6 recent acquisitions under the Curtiss-Wright controls embedded computing brand. This consolidation has created a single sales channel and a centralized marketing and communications organization. We believe this progress will provide customers with a seamless transition on current businesses, as well as an attractive product portfolio to accommodate the offering of full, integrated interoperable systems.

I've also made several organization changes in our Flow Control and Metal Treatment segments that further integrate our acquisitions and better align our businesses with their end market and customers.

On our financial basis, despite the continuation of the impact of amortization results from our acquisitions, we feel our targeted revenue margins over the next 2 years will result in overall returns, in line with our long-term goals. I will now turn the call over to Glenn to discuss our 2004 segment performance and financial position in detail.

Thank you, Marty. Our 2004 financial results continue to reflect strong performance in each of our business segments and markets, and as Marty mentioned, we did achieve the high end of our guidance for sales, operating income, and earnings per share -- including the nonrecurring tax benefits. Overall, our defense business grew 30 percent, and our commercial business grew 26 percent in 2004, both through product innovations and select acquisitions. We achieved organic sales growth of over 7 percent for the full year of 2004 and 18 percent in the fourth quarter.

From an operating income standpoint, we achieved organic growth of 19 percent for the year and 33 percent in the fourth quarter. Overall, operating margins were 13.8 percent in the fourth quarter and 12.1 percent for the year. Without amortization, operating margins would have been 14.7 percent in the fourth quarter and 12.9 percent for the year.

In our Flow Control segment, sales were up 14 percent for the full year and 51 percent in the fourth quarter, versus the prior year, due to strong organic growth -- in particular, 29 percent in the fourth quarter and contributions from our acquisitions of Nova, (indiscernible), Imes, and GMBU during 2004. Organic sales growth of 5 percent for the year was due, in large part, to increased sales of electronic products to the U.S. Navy and valves and pumps to the commercial power and oil and gas markets.

Overall operating income increased 12 percent during 2004 and 58 percent in the fourth quarter, over the comparable prior year amounts. Organic operating income growth was 9 percent for the year and 42 percent in the fourth quarter. These results were primarily due to the higher sales volumes, tight cost in operating controls, and certain write-offs in 2003 that did not recur in 2004.

In our Motion Control segment, sales increased 46 percent for the full year and 49 percent in the fourth quarter, principally due to our 2004 acquisitions of Dy-4, Primagraphics, and Synergy and the full-year impact of our 2003 acquisitions of Systran, Novatronics, and Pickering. Our base businesses achieved 4-percent organic growth in 2004 and 6 percent in the fourth quarter, primarily from increased aftermarket sales to the commercial, aerospace market and increased electronic upgrades to the defense market. Overall operating income increased 48 percent for the full year and 40 percent in the fourth quarter, as compared to the comparable prior year amounts.

Organic operating income growth was 22 percent for the year and 18 percent in the fourth quarter. These results were due to the increased sales volumes, as well as the effect of cost control initiatives previously implemented.

Operating margin was 14 percent in the fourth quarter and 11.6 percent for the year. Without amortization, operating margins for this segment would have been 15.6 percent in the fourth quarter and 13.2 percent for the year.

In our Metal Treatment segment, sales were up 28 percent and 24 percent for the full year and fourth quarter respectively. And operating income increased 48 percent and 23 percent for the full year and fourth quarter respectively. Organic sales growth of 21 percent for 2004 was driven by significant improvements in the global aerospace, automotive and industrial markets. Organic operating income growth was 55 percent for the year and 20 percent in the fourth quarter, driven primarily by the higher sales volumes.

There has certainly been much speculation as to the timing and power of the turnaround in the commercial aerospace market. And while we're seeing an early uptick in this market, the driver for our metal segment is currently the automotive and industrial markets. We do anticipate further strengthening of all of these markets in 2005 and, in particularly, the projected increases in Airbus A380 production will certainly benefit this segment.

In 2004, free cash flow, defined as net income plus depreciation and amortization -- less capital expenditures, was 76 million. Depreciation and amortization was approximately 41 million, and capital expenditures were approximately 33 million. Beginning with our 2005 guidance, we will defined and report are free cash flow as cash flow from operations -- less capital expenditures. For 2005, we expect our free cash-flow, under the new definition, to be between 55 and 60 million. This includes approximately 45 million in depreciation and amortization and capital expenditures and an estimated $10 million cash contribution to the MV pension plan.

Our balance sheet remains strong, with working capital of 212 million as of year end 2004. Total debt outstanding was 342 million, and our total debt-to-capitalization ratio was 37 percent at year end. Our current liquidity provides us with the flexibility to continue our acquisition program of strategic niche businesses that brought in our technological capabilities product offerings and market penetration. We plan to maintain our target debt capitalization at or below 45 percent. I will now turn the call back over to Marty for some closing remarks before we open the call for your questions. Marty?

Thank you, Glenn. Over the last 5 years, Curtiss-Wright has delivered a compound annual growth rate in sales of 27 percent, operating income of 22 percent, and earnings per share of 20 percent. During this timeframe, our total shareholder return was 28 percent, which is much better than the relative indices and at the top of the aerospace and defense industries. Achievement of these results, in the timeframe during which we acquired over 30 businesses, is a strong indication of our ability to integrate acquisitions very quickly and profitably. We begin 2005 confident in our ability to continue to build our solid business foundation and generate long-term shareholder value.

In addition to strong operating fundamentals, we continue to work towards the consolidation of Curtiss-Wright's dual-class stock to simplify the capital structure and enhance liquidity for all of our shareholders. We announced earlier this week that our Board of Directors has authorized and recommends that shareholders approve recapitalization proposals to merge the common stock and class B common stock into a single class of common stock on a 1-for-1 share exchange ratio.

Recapitalization proposal requires the majority vote of both classes of stock voting as a single class and will be presented at the upcoming annual meeting scheduled for April 29, 2005. The recapitalization also requires a ruling from the IRS, and we have already submitted a formal request on January 11, 2005. Assuming we receive a favorable ruling from the IRS and a favorable shareholder vote, the anticipated timing for completion of the proposed recapitalization would be the second quarter of 2005.

Now, one final topic I would like to address before providing our 2005 guidance is the impact of the proposed DoD budget cuts. That was the subject of much speculation in January. First, the proposed retirement of the Kennedy Aircraft Carrier, which is a nonnuclear carrier, has no financial impact on our existing fleet support business. Second, the proposed maintenance of an annual nuclear submarine build rate at 1 per year, as opposed 2 beginning in 2009, would also have no financial impact on our existing business, since our business plans never included the additional submarine in the first place.

The only proposed program cut that would financially impact Curtiss-Wright would be the possible reduction in the F-22 production program. Our analysis of the proposed cuts of the F-22 program indicates that the proposed cut, if enacted, would result in a potential loss of revenue for our Motion Control segment, beginning with a small reduction in 2008, approximately $26 million in 2009, and roughly $50 million from 2010 through 2012.

This worst-case scenario analysis of the proposed budget cuts does not take into consideration any new development programs or shifts in funding to other current platforms that Curtiss-Wright has counted on. For instance, the budget proposal includes approximately 25 billion in additional funding for the Army. Although the detailed program funding is not yet clear, we have a significant position on many U.S. Army programs -- specifically in embedded computer applications for ground vehicle programs, which could be a recipient of a portion of the increased funds.

So, based on our initial review of the available information, we do not anticipate a material financial impact from the proposal. Further, we believe it is highly premature to seriously contemplate the proposed cuts for several reasons. First -- this proposal will go through a significant venting process prior to approval, which could result in a number of changes. For this reason, we do not generally speculate on proposed information but, instead, rely on information and contracts received directly and explicitly from our customers. When we do receive such information, we will disseminate the news to our shareholders in a public and timely fashion.

Second -- the majority of the proposed cuts are not anticipated to begin until the year 2008 and beyond. Should these cuts be implemented, we would have significant leadtime to adjust our business and operations to minimize the impact of our financial performance. Lastly, defense contracts represent approximately 50 percent of Curtiss-Wright's overall sales, and that 50 percent includes content on a variety of defense programs for every branch of the military. In addition, any material proposed cuts may result in spending shifts from one platform to another, which we would also have content on.

I would like to provide guidance for our anticipated 2005 performance. We anticipate total revenues in 2005 to be in the range of 1,050,000,000 and 1.1 billion, an increase of between 10 and 15 percent over 2004. We anticipate operating income in the range of 130 to 138 million, including 2 million of pension expense, which approximates a 15-to-20-percent increase over 2004. And we're forecasting earnings per share between $3.24 and $3.45 per diluted share, which would approximate an increase of 10 to 15 percent, excluding the 16 cents per share of taxed nonrecurring benefits included in our 2004 results.

Our earnings per share guidance also assumes an average of 22 million shares outstanding for the year 2005. In terms of how we see 2005 laying out, we see the first quarter being light and each quarter increasing sequentially, with the fourth quarter being the strongest. We look forward to generating solid profitable growth in 2005 and to provide our investors with superior returns. With that, I would like to now open the floor for questions.

(Operator Instructions). Jay Khetani, SG Cowen & Co.

Nice quarter. You had talked about, in the press release, a reduction in reserve acquirement in the European censor business. Can you quantify that for us? And then secondly, were there any other contract adjustments or closeouts on the defense business in the quarter?

The reserve reductions were approximately 1.5 million, and it consisted of a combination of inventory and warranties -- mostly warranty -- specific reserves we had set up the previous year for specific items that either come in a lot lower in cost or we eliminated the problem.

And were there any other adjustments or one-time items in the defense area companywide? In the quarter?

No. Not to my knowledge.

Second question is can you tell us what the sales for embedded systems were in 2004? And then, how are you thinking about growth for that area, in particular, as you go into 2005?

In our embedded computing area, we're looking for a 23-percent growth, and about 14 percent of that is organic. We have 14 percent organic growth. However, one of these things you have to understand -- when we talk about our organic growth, because of the way organic growth is calculated -- you take a company like Vista, which we purchased about 3 years ago -- when we originally bought that company, it was $12 million. Last year, it was 24 million. This year, it's going to 30 million. So, we lose a lot of organic growth during the timeframe of which you would calculate that organic growth. We have that pretty much in the other 4 embedded computing businesses. We're seeing good growth, but that would not contribute to organic growth right now.

And the difference between the 23 and the 14 is because you are excluding Dy-4, Primagraphics, and Synergy?

That's correct.

Correct.

Can you help us think about -- for the other broad areas -- and let's just talk about in terms of commercial aerospace defense and then commercial -- other commercial non-aerospace kind of growth rates for those businesses that you're looking for in '05.

In our defense electronics -- about 25 percent growth rate, of which 12 is organic. In our total electronics, which is about a third of our business, we see a 15-percent growth, of which about 8 is organic. And our embedded computing systems -- we have -- there is about 20 percent of the Company, which is in a, as I said before, a 23-percent growth and 14 percent organic. Commercial aircraft, which is about 17 percent of our Company -- we see a 12 percent growth. All of it is organic. The MRO business we see as being pretty robust. It's really starting to grow. We see a 23-percent increase in the repair and overhaul. We have a very nice margin increase there. Gas and oil -- about a 25-percent growth. About 16 percent of it is organic. The power side -- we see 16 percent growth, but we actually see a negative organic growth in that area. A lot of that is placing orders and shipping. So we don't have long-term contracts there.

And then, the on the military side, we see a nice pickup in growth, but we don't see a lot of organic growth -- just a lot of shifting of contracts. We have a lot of new programs, which are development programs, which are doing well. However, we have a slight reduction in our Navy also in the aerospace shipments. We had a large F-16 contract last year. We don't see the same this year, but we do expect to see some additional spare contracts coming through, based on the war effort and maintenance of those platforms. So, that's about it in a nutshell.

That's great. That's very helpful. One last question. In metals, the incremental margin from the third to the fourth quarter was about 20 percent, which is a bit lower than what I would expect, as you had some volume growth there. Are you still -- are you facing still the rolloff of that -- what, I guess, was a profitable one-time heat-treat kind of that happened in the first 9 months, or is it perpetuation of higher medical costs? What should we be looking for as that business grows into 2005, with regards to margin performance there?

Right now, we ended somewhere close to 16 percent last year. We are anticipating going to about 17, 18 percent this year -- say about a 10- percent growth, of which 8 percent is organic. But the organic profit improvement is double that at 16 percent -- somewhere in that area. So, you're starting to see, as we have increased incremental sales, that the metal profit is going up -- associated with metal improvement. One of the things you also have to realize about metal improvement -- and I talked about before -- is we're spending money on research and development. We're doing a lot of development programs for the Department of Energy, the Army on helicopters, and we also participate in that research and development. We have good pay for research and development. We also put our own money in. So, we are still going through and are going to continue to have a buildup of development programs in metal improvement.

The other thing is that on the aerospace side on metal improvement, Airbus has original projections of going up some 27 percent. We've received contractual information that it's going up 23 percent. However, we always cut that back because we have a history with Airbus where they don't seem to hit the numbers that they project. So, we also conservatize that number.

And that is reflected -- that more conservative outlook is reflected in the 8-percent topline growth in metal?

That's correct. And also, Boeing just came out with their new -- anticipated new orders in 2006, which would impact somewhat in 2005, and we haven't put any of that in the commercial aerospace sector.

One last question, Marty. I'm sorry. Can you offer -- you've talked about metal growth and margin targets. What about Flow and Motion?

Right now -- flow -- we're looking between 13 and 15-percent growth and the same thing with Motion Control, both of them having the same type of growth.

That's organic or that's full all in?

Oh, that's just all in. We really haven't broken that out for those 2 companies.

Okay. How about margin?

Margin -- we expect between 11.5 to 12 on both the Motion Control and Flow Control. One of the things that you also have to remember there, Jay, is when you look at those numbers that I just gave you, a lot of the purchase accounting comes into effect, which reduces the operating margin. From a corporate standpoint, we have one full point of operating margin taken away with the purchase accounting. We have almost 2 percentage points in the Motion Control area. You have 0.6 of a point in the Flow Control and also the MIC. So, some of those numbers tend to be a little bit disjointed, based on the fact that this year we have about $11.5 million of purchase accounting, versus about a 8.5 last year.

Chris Donay, SunTrust Robinson Humphrey.

Good morning and great quarter, guys. Just getting back to the Motion Control segment and the EBIT margin -- trying to reconcile the reserve requirements of 1.5 million and amortization. Just from an apples-to-apples comparison basis, I'm getting like 14.3 percent operating margin for that segment, excluding amortization but also excluding the charge. Does that sound about right?

I didn't do the math. I know we had given a number without the amortization, Chris, that was about that amount of 13 and change, right?

Right.

I didn't do the calculation, but if you used 1.5 million, I would assume that would work out right.

Okay. And I was calculating about 1.9 million in amortization expense in that quarter. Does that reflect all the acquisitions that have been made in that segment so far? How should we look at that for 2005?

Just for that segment?

Yes. Just the Motion Control.

Yes, just for Motion Control.

It's about 11.5, overall. The majority of the increase is at -- it's about 8 million just for that segment. But the majority of the increase year-over-year is in that segment -- Motion Control segment.

Right. And a question just on acquisition pipeline -- relative priority there -- is Motion Control still going to be the primary focus of your acquisition strategy going forward?

We have strategies for all 3. We just happened to -- it seems like every year it changes on who seems to be primary. We have acquisition strategies for all 3 divisions.

Okay. And then one last question, Glen. You were talking about the new definition of free cash flow. Is there an equivalent 2004 number based on the new definition?

Yes. 2004 -- if we were to do 2004, the new definition would have been about 70 million -- a little less -- about 69.5.

Peter Arment, JSA Research.

Nice quarter, and most of my questions have been answered at this point. You mentioned the MRO segment, though -- if I could just touch upon that -- not the segment but that area of the business -- up something like 23 percent. How much is that in terms of total Company sales?

Right now, we're looking at about $33 million. So $33 million over the $1,100,000,000 billion -- 3 percent something in that area (multiple speakers). But I think one of the interesting things about it is everybody, even now, when they go to the airport, has -- they are on full flights and the amount of passengers is going up. And you're going to first see it in that area. So to me, it's just an indication that things are improving.

Right. And you've cut the data in terms of sort of the end users. What about in terms of the services regarding your defense and the Navy still 40 percent of your overall service mix, or how does the Army breakdown?

The Army is -- because of our embedded computers, the Army is gaining ground. Also, we have that new electromagnetic gun program. So, the Navy and the Air Force or a little bit down this year, and the Army is actually picking up quite a bit.

And is the Army, what, 20 percent of your sales or so?

Don't have that -- Peter, I don't have that broken out.

Okay. And then, just regarding the embedded computing systems. You've been very aggressive there in terms of acquiring and building out your different exposure there. Is there -- how does that look in terms of gas -- in terms of your product areas that you focused on -- whether it's the single, I guess, computing technology versus the other -- I guess let's say Digital.

Digital. Right. We don't see any gas. Are we going to continue to add to the portfolio? I believe so. I think we do have very good strength their right now. We see very nice pickups in those areas. We're also getting a lot more on military aircraft -- our content on both commercial airlines and military airlines. And tanks are going up quite a bit. So we see -- it's just doing what we expected it to do, quite frankly.

Eric Hugel, Stephens Inc.

Can we delve a little into your laser peening business? What's the status of your new lasers, and how much revenue did you do in '04? What are you expensing in '05?

The status of the new lasers is #6, which is the modulating head laser. It is being deployed now down to Chester area. There are 15 A-380s in the build schedule this year for Airbus, and we know they are going to be using that technology to help form those wings. The 7th laser, which is the -- I'm sorry. Actually, it's our 6th laser, which is the mobile laser. That's being developed, and that should be rolled out next quarter. It should be done by the end of this quarter and start producing revenues next quarter.

The other thing -- as far as the sales are concerned, last year we did slightly under 10, and this year, as we've indicated, we're going to be somewhere around -- I think we're going to be around 15 million.

Great. Glenn, can you give some kind of ballpark -- and your guidance doesn't reflect the impact of options -- option expensing. And I know it's sort of a bit early to try to figure, but can you give us sort of a ballpark -- I mean is it bigger than a breadbox in terms of impact?

No. Impact -- Eric, I can give you a little insight on that. Our long-term compensation is 70 percent cash and 30 percent options. So, we've been expensing options -- at least 70 percent of them -- forever. The thing is we see an impact -- an estimate of about $2.5 million, based on the way we see expensing options now. That would have been 10 million had we not expensed 70 percent of it now. So, we don't really see that as being that big of an impact. In fact, we're probably one of the least impacted companies on that.

So $2.5 million due to net income or to operating income?

2.5 million pretax, and that's on an annual basis, Eric -- similar to the way we've disclosed now in our SEC reporting under the pro forma disclosures. It's unclear to us because, obviously, it hits in July going forward, and whether that full amount would -- our estimate would hit us this year -- if it's half of that or part of that or what. So we're still evaluating. At this point, it's not in our guidance right now. We're not totally locked down on that calculation yet.

Okay. Can you talk about sort of maybe contracts that are upcoming? I know we were expecting something on the arresting gear contract. And any other sizable contract awards that we could expect coming forward -- going to come soon?

Well, the winner of the arresting gear program has been put off until next month. So I would imagine that it would probably be at the end of the quarter. But not right now. We don't really have anything that sizable. A lot of the competitions were taking place last year. We do have content on 77s. We expect more contracts on the 77.

Marty, can you talk about, in your guidance, sort of for Flow Control --what's the -- sort of your thoughts and what's baked in with regards to the carrier for timingwise? Is it going to be an '07 event, an '08 event? And with regards to the refueling? Next refueling?

Well, the thing is that our contracts, with this aircraft carrier that we're producing, were changed. We took a little bit of a hit this year, but it's been spread out for another year. So we're going to have good sales for the next 4 years associated with the aircraft carrier. As far as the refueling is concerned, for our JP 5-valve -- which we were indicating that we would have hit around a $15 million mark if the aircraft carrier came in -- which was the Vinson -- and had been refueled -- we are somewhere in the area of about 3 to 4 right now. Obviously, the discretionary funds are moving a little bit to the right, but it's still better than what we've done on the JP 5 last year.

So what you guys are still expecting is for the carrier to be an '08 procurement?

I'm sorry. The '08? -- our -- (multiple speakers).

For the next carrier? In your plans, it's still expected to be an '08 procurement versus an '07 procurement?

Yes.

Okay. And my final question is with regards to your tax rate assumption for '05.

Yes, Eric. We think it's -- we're still evaluating the impact, obviously, of the new tax law, but we look like it's probably going to be around 37 percent.

Great. Any plans to -- I know you have some international businesses. Do you have any cash over there that you would maybe expect to bring back?

Well, sure. Of course, if they are going to give us and 85-percent exclusion, it would obviously make that pretty attractive. The only indication -- again, we are still evaluating that. That's not contemplated in the 37 percent yet but -- because it's actually a hit -- could end up being an increase to our effective tax rate. So, we're still evaluating how much potential cash versus cost on that one.

Great. Thanks a lot, guys, and great quarter again.

John Walthausen, Paradigm Capital.

A couple of quick questions. In embedded computing, it's a little bit hard for me to get my arms around -- maybe because these are little things instead of big things. But can you talk about what part of that is military, what part is commercial, and whether it comes in sort of big lumps or small lumps and -- if they are big lumps -- what those are?

The embedded computing -- the contracts come in just about every year. They do come in lumps, and a lot of it is on the military side -- about -- most of our sales are in the military area. We are the largest supplier of embedded computers to the military. And there, a lot of it is used on tanks. We also have a large installed base on commercial aircraft. We also have submarines, aircraft carriers. Basically, embedded computers are used on all high-performance platforms, whether they be commercial or military.

Good. It sounds like there's no one or two particular programs that we have to focus on in evaluating. It's just look at the overall spend rate.

They are basically on everything.

Good. Now, you've done a great job of growing this Company, both internally but by a fairly rapid pace of acquisitions. We've now put the Company so its, I guess, debt to total cap is in the 35-to-40-percent type of range. Is that a good target going forward, or do you expect to leverage the Company to a higher level?

Our internal target or -- I should say cap. It's not really a target. A target implies you're trying to get to that point. Our cap is about 45 percent -- book at the capitalization. And as I indicated, we like to stay at or below that.

Right. So, that implies -- off the top of my head -- that you probably still -- you have 0.25 billion more, given what you expect to earn this year -- to work with.

Correct. In and around there. Right.

Yes. Okay. That sounds real good. And then finally -- this is kind of going way back. Early on in the valve business, I think you had some thoughts that maybe petro-chem would be a field for you. Now that it looks like -- at least from the engineering construction companies -- that spending in chemical and refining plants is going to pick up over the next few years -- is that a market which may open up for you?

Well, right now, John, we have about -- this year -- going to be up about 114, $115 million in gas and oil. That's, as I indicated, 25-percent growth and organically about 16 percent. So, we've been doing very, very well in that area. I mean, we've talked about the promise of Delta Valve. That's another company we bought three years ago with about 6 million in sales. We're now projecting it to be somewhere -- less than 3 years later -- of about $27 million. So, we've done very, very well there. And we think that that's going to be a very good market going --and we also think the power side is going do very well, too.

When you really look at -- during this commercial or military buildup, our commercial sales still outpace military, and that's during a sluggish economy. So we have definitely been growing more rapidly in commercial sectors that are actually experiencing downturns. So, hopefully, when it picks up, we're going to go right with them, too.

Good. Thanks a lot guys.

Jim Foung, Gabelli & Company.

Good quarter. Just a couple of small questions because most of it's been done now. What do you expect amortization expense to be in 2005?

About 11.5 million.

Okay. I thought that was 2004. So, that's going to be the same then, right?

We were 8.5 last year.

Oh. Okay. Oh, I see. So, I got that wrong. So, you were 8.5 in '04 and then 11.5 in '05. Okay.

Right.

And then, I guess I was a little puzzled. In your Motion Control, you said there was some softness in the commercial OEM market and I -- commercial aerospace OEM. And I thought you were building into the '05 production rate by now. So, could you just kind of -- .

No. I said there was some softness in the power generation.

But in your press release, it's commercial aircraft OEM. You said that was kind of weak, too.

No -- for the year. In other words, it was down from 2004.

Oh. But for the quarter is up?

Yes. For the last quarter, it was up.

Oh, okay -- in the commercial -- yes. Okay (multiple speakers)

So, we're going from a year to a quarter basis.

Okay. So you're just -- okay so we mentioned year over year. Okay. Then lastly, the President talked a lot about alternative energy in his speech a couple days ago. Is there anything there that you see that could be a real nice increment to your business because your comps are really into a lot of nuclear plants and other power generation sites.

There's a lot of work being done in China, as far as the prime -- GE -- the Westinghouse -- proposing nuclear power plants there. That could be very interesting for us. We have very nice install base, and if you're looking at new or different types of nuclear power plants, they can be very, very interesting. So, I'll just leave it at that. So, we think that it will do well there, and we will be a part of that situation.

And your business in China would be like 20 million -- is it something like that? Is that kind of the right ballpark we should be seeing?

No, I don't think so.

No? Too high?

Yes. I don't think we (multiple speakers)

We sell valves there, but we don't really keep track of what that quantity is. It's not that significant.

Okay. But you can have the potential growth there. Okay. Alright. Great. Thanks a lot.

Robert Feller, Banc of America.

Also, I would like to thank you for very much for good numbers this morning.

Well, we said they would be there.

I've just got a couple of last questions for you. First of all, could you let us know what your foreign exchange assumptions are, with regard to 2005?

We basically use a blended forecast consensus rate for 2005, which is based on the exact input from 250 financial and economic forecasters. So, we set our rates pretty in line with those forecasts. Actually, we usually set them a little bit more conservative than the forecast, but that's how they're set.

So, I don't have access to all those numbers? What are you looking at with U.S. dollar to UK pound, for example?

I don't have that rate -- the exact rates we're using for 2005 -- at my fingertips.

There's no radicals strengthening or weakening you've got projected in here?

No-no. In any of our currencies, there's no radical change.

Yes, okay. And, just finally, on the acquisition front, you mentioned you're looking at opportunities across each of the divisions. How is the pipeline looking with regard to the multiples being asked at the moment?

I think that the multiples have increased a little bit this year. I don't think that they are that much greater than the year before. I just -- there's much more optimism in business and especially in technology. So, the companies that have better technologies always have been at a greater multiple, but that multiple has increased. I think the opportunities have increased, too, but I don't think it's outside the range -- I don't think they're getting that bad (ph). Let's put it that way.

Yes. And you said you had around 250 million of firepower, based on current liquidity?

Currently, yes.

There appear to be no further questions at this time.

I would just like to make one other statement. I know people have been congratulating Curtiss-Wright on a good quarter, but I think what people have to understand -- and what we've noted in the past -- is that based on our customers contracts is how we deliver. When you look at our peer group in the third quarter, our peer group had a very good third quarter, and we had and okay third quarter. But we did indicate that our fourth quarter would be where it is. We are at the upper end of the range. We meet our customers' commitments. So to see spotty quarters or up-and-down variable quarters in our year is something that we don't do. It's what our customers ask us and how to perform.

I think it's very interesting that if you look at the fourth quarter, our earnings per share went up 44 percent over our best quarter last year. That's what the capability of Curtiss-Wright is. The thing is that since we have less commodity items in our portfolio, having a down quarter is not an indication of having weak demand or falling or having a problem with your products. It's just a matter of us shipping to our customers' contracts.

With that, I'd like to thank everybody for coming in today. I look forward to the first-quarter results in a couple of months. Thanks a lot.

Ladies and gentlemen. This does conclude today's teleconference.