Curtiss-Wright Corp (CW) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2006 Curtiss-Wright Corporation earnings conference call. [OPERATOR INSTRUCTIONS] This call is being recorded for replay purposes. I would now like to turn the call over to Mr. Martin Benante, Chairman and CEO; and Mr. Glenn Tynan, Vice President of Finance and CFO.

Thank you. Good morning, everyone. Welcome to our 2006 second-quarter earnings conference call. Joining me on the call today is Glenn 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 Miss Debra Torre at 973-597-4712, and she will be happy to e-mail or fax copy to you and add you to the Curtiss-Wright distribution list for all future press releases. Before we begin, please note that we will make certain forward-looking statements on today's call. Such statements about the Company's confidence and strategies or expectations about the results of operations, future contracts, or market opportunities. While 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 by 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 or achievements that are materially different from those expressed 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 Security and Exchange Act of 1934 as amended for a 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 second-quarter 2006 operating performance. Then I will review our segment performance and financial position, and finally Marty will conclude our discussion with an outlook for the second half of 2006 and open the call for any of your questions. Marty?

Thank you, Glenn. I'm pleased to report that in the second quarter of 2006, sales increased 9% over the prior year to 310 million, including 7% organic sales growth from our base businesses. Our strong sales growth during the second quarter was driven primarily by our commercial markets, in particular oil and gas, commercial aerospace, and automotive. Our operating income for the second quarter of 2006 was $33 million was essentially flat as compared to prior year. However, our consolidating operating margins of 10.7% was negatively impacted by 1 full percentage point due to FAS 123 expenses of $1.1 million and higher pension expenses of $1.9 million as compared to the prior year. Without these noncash items our second-quarter 2006 operating margin was 11.7%, and our operating income increased 9% over the prior year.

Our strong performance second quarter was driven by 14% overall growth in our commercial markets. In addition, we experienced 4% growth in our defense markets. Our sales growth was led by 35% growth in our oil and gas market, 25% of which was organic. In particular, our delta-valve Coker valve continues to attract new market share due to its revolutionary design and cost competitiveness. In October, we will fully inspect our first installed Coker valve, which has operated maintenance free for five years. This will be a very important milestone that we are excited to share with our customers.

Our commercial aerospace market was up 12% in Q2 as compared to the prior year. Our Boeing business was up significantly specifically on the 737 platform, due to both increased content and increased shipments. Last, we experienced strong growth in our automotive market due to a combination from our Allegheny acquisition, and an uptick in our European automotive programs.

The defense market remains steady, driven by early momentum in ground defense market sector, and a 9% sales increase in our embedded computer group. Our strong second-quarter performance results in net earnings of $21 million, or $0.48 per diluted share. Up 18% over the prior year. The quarter met our expectations despite some unanticipated obstacles such as unfavorable foreign currency translation, business consolidation costs, and higher material costs. In addition, our new orders increased 7% year to date, and our June backlog of 883 million increased 10% from the year end 2005. Now I'll turn the call over to Glenn to discuss our detailed segment performance and our current financial position.

Thank you, Marty. In our flow control segment, sales for the second quarter of 2006 of 129 million were up 13% over the prior-year quarter primarily due to strong organic growth of 10%. In our base business, we experienced strong demand for our oil and gas products across the board. In our defense market, higher sales of generators and electronics to the US Navy and higher development work on the EM-GUM program provided solid growth in this segment. Operating income for flow control decreased 5% compared to the prior year due to $700,000 of business consolidation costs associated with integrating our 2006 acquisition within the segment. Also R&D investments in our commercial nuclear power projects, higher material costs, and to some degree less favorable sales mix.

The operating margin for flow control for the second quarter was 9.3%. Excluding FAS 123 costs, the operating margin would be 9.5%. And if you adjust for the consolidation costs, operating margin would have been 10%.

In our motion control segment, sales of 123 million in the second quarter 2006 increased 5% over last year, which was all organic. Higher sales of embedded computing products, primarily to the ground and naval defense markets and increased sales of OEM products through the commercial aerospace market were partially offset by lower sales to the military aerospace market. Operating income for our motion control segment increased 3% in the second quarter 2006 over the prior year. The increase was driven primarily by higher volume and cost-reduction efforts, partially offset by $1.2 million of unfavorable foreign currency translation. A cost overrun on a specific program, production start-up costs relative to new Boeing programs, lower sales of higher margin products, and increased material costs. Our operating income improved significantly from the first quarter, primarily due to the higher sales level from our embedded computing group.

The operating margin for motion control was 10.6% for the quarter. Excluding FAS 123 costs the operating margin would be 11%, and adjusting for the FX, the adjusted operating margin would be nearly 12%. In our metal treatment segment, sales for the second quarter of 2006 of 57 million increased 12% over 2005, 8% organically. The improvement was driven by higher global shot-peening revenues in the automotive and aerospace markets along with strong demand for heat treating in the general industrial and automotive markets. Operating income increased 27% over the prior year, 24% organically. Primarily the result of the higher organic sales volume.

On the Corporate level, we had higher pension expense in the second quarter, primarily due to higher than anticipated lump sum pension payments. Significant offsetting the pension, we had tax benefits totaling 3.6 million in the second quarter. 2 million of these tax benefits related to Canadian R&D tax credits which will reoccur from time to time as we continue to reinvest in this business. The additional 1.6 million is primarily related to a change in Canadian tax law that was enacted at the end of the second quarter and is a one-time event.

Now, I will review our liquidity and financial position. Our free cash flow defined as cash flow from operations, less capital expenditures during the second quarter was 25 million. We also reaffirm our 2006 free cash flow guidance of between 65 and 70 million for the year, with the largest quarter being the fourth quarter, similar to our earnings. Depreciation and amortization in the second quarter was approximately 13 million, and capital expenditures were approximately 9 million. Our been sheet remains strong with working capital of 316 million, and total debt outstanding of 395 million as of June 30, 2006, for a total debt-to-book capitalization of 36%. I will now turn the call back over to Marty.

Thank you, Glenn. I am pleased with our solid performance during the first half of 2006. And we anticipate even stronger sales growth and profitability during the second half of 2006 as our defense and commercial markets ramp up and our margins expand with the higher volumes. With approximately three-quarters of our second-half sales in June the 30, backlog we are highly confident going into the second half of 2006.

Higher sales in the second half of the year will continue to be led by our commercial markets. In particular, oil and gas markets will continue its robust growth due to the sustained high oil prices which are prompting refiners to accelerate capital spending programs to achieve increased production as well as repair and maintenance projects.

In commercial power, planned outages for 2007 should provide strong orders in the second half of this year as most of the orders are made several months in advance. In addition, we anticipate increased activity from some customers who are returning to normal business levels after the destruction of the Gulf Coast hurricanes last year. In commercial aerospace, we expect a ramp up in Boeing sales, specifically on the 737 program, as well as initial shipments on the 787. In addition, we will begin shipments for the Eclipse 500 very light jet, which just received provisional flight syndication from the FAA yesterday. And we were awarded a new contract to provide a fire detection system for Secoy for its Russian regional jet which is currently in development.

Finally, sales in our roady ice protection systems or RIPs for the Sikorski helicopter has been highly successful, and we anticipate a continued expansion of market share for this product on additional programs. Growth in our defense market will be led by an acceleration of our military aerospace program such as the F-16 as well as continued ramp-up of ground defense programs served by embedded computer group. Additionally, we expect increased sales from both our aircraft carrier and submarine programs, as well as significantly higher global sales for our naval landing systems. The higher sales in the second half of the year will provide incremental profit margins as well as a few segment-specific items. In the second half of the year, flow-controls operating margin will benefit from higher margins realized upon time naval shipments which primarily occur in the fourth quarter and lower R&D investment on commercial nuclear programs. In motion control, operating margins in the second half of the year will benefit from more favorable cost absorption due to the increased volume primarily in our embedded computing group. Higher efficiencies other than growing programs and the benefit of cost-reduction initiatives implemented in the first half of the year. Finally, we expect metal treatment to continue its strong performance due to robust commercial aerospace and general industrial markets.

At this time, I would like to update our full-year guidance. We anticipate revenues in the range of 1.25 billion to 1.275 billion. This is a 25 million increase that incorporates our 2006 acquisitions. We are maintaining our operating income before pension range of 155 million to 162 million. Finally, we reiterate our fully diluted earning per share of between $1.80 to $1.90, which includes the tax benefit realized in the second quarter of 2006, as well as an increase in pension expense of 1 million an increase in interest expense of 2 million for the year. This guidance equates to sales growth of 10 to 13%, operating income growth of 10 to 15%, and earnings per share growth of 5 to 10%. The lower earnings per share growth is primarily related to an increase in pension and FAS 123 expenses. Our guidance reflects our expectation of double-digit growth in our commercial market as well as solid growth in our defense market.

We look forward to generate solid, profitable growth in 2006, and to provide our investors with superior returns. At this time, I would like to open up the conference call for questions.

[OPERATOR INSTRUCTIONS] Gentlemen, your first question comes from the line of Mr. Peter Arment with JSA Research. Please proceed, sir.

Good morning, Marty and Glenn.

Good morning, Peter.

Can I just ask about the guidance and just did your -- the one-time tack benefit, Glenn, which is 1.6 million, was that previously included, or is -- is that a new addition here?

No, it wasn't, Peter. It's new.

It's new.

It was not in the guidance. Not in the original guidance.

Not in the original guidance for the year. What is the offsetting factor to that? Is it just that ou've raised up higher pension or--?

It's both. It's pension we've raised now from -- I think we originally gave you 5 million for the year, it's going to be closer to 6 million. And also the interest, I think I previous guidance was 21, now we're estimating it's going to be about 23. Those are the two offsets. We're holding.

The 23 relates to just higher -- the higher rates that we're seeing out there?

It's primarily higher rates, yes.

How much of the area is floating in your debt?

Let's see. About 150 out of 400 is, let's see. Most of it's still fixed. I mean, we do have obviously some of the revolver with the new acquisitions. But most of the ticks, I don't have the exact percentage.

Okay. Fair enough. And Marty, could you give us maybe just a little more color on how -- where you're seeing just defense spending, the supplemental, the impact on Curtiss-Wright.

As far as the supplemental is concerned, a lot of the supplemental is for the Army, and about 25 -- 28% of our defense sales is in the light tanks and armored vehicle. So the supplemental's going to be pretty good for us. We saw a lot of variation in the defense spending. We've had programs move out to the right and obviously some of the ground vehicles move to the left. So the variation has basically been the same. We anticipate a 6% organic growth this year in the military side.

Okay.

As you know, they're also appropriating a supplemental for next year's budget.

That's right. And how about on the commercial market? You mentioned that you're starting to see significant increase I guess on the OEM side. And how about on the after-market also. Any changes there?

Not as much. We do get obviously on the commercial side, most of our commercial power sales are after market. And that's increasing, nice high double teen, double digit, organic this year. So obviously, the maintenance dollars are going up on the commercial side.

Okay. And you did mention the -- the Eclipse -- the business jets market for you is relatively small, correct?

That's correct.

Okay. Great. Thank you very much.

Yes. We have about 25,000 in airplane on that.

Okay. Great. Thank you.

Okay.

Thanks, Peter.

And gentlemen, your next question comes from line of Mr. Chris Donaghey with SunTrust, Robinson, Humphrey. Please proceed.

First of all, Marty, on the metal treatment segment, obviously a nice sequential increase in the margins on that segment. How should we think about that margin going forward, and can you just provide us an update on what -- what's going on with Airbus and how that's affecting that segment.

Okay. Normally if you take a look at history, our second and fourth quarters are normally the same and our third quarter's a little bit down because the summer is when a lot of the aerospace companies take vacation. I think that you'll see a good third quarter, very strong fourth quarter. As far as Airbus is concerned, they took some A-380s, and A-340s out of the schedule, but they put in 25 A-230. The change to us is a minus 11,000 pounds, which is basically insignificant. So it's really not hurting us.

Okay. Great. And Glenn, on the full-year tax rate, what should we be forecasting for the full-year tax rate now with the second quarter reduction?

Good question. The full-year rate is going to be in and around, right around 34%, we're expecting now, Chris.

Okay. Thank a lot, guys.

All right.

And gentlemen, your next question comes from the line of Myles Walton of CIBC World Markets. Please proceed, sir.

Great. Thanks. Good morning, guys.

Hi.

Good morning, Myles.

Could you elaborate a bit on the head winds you faced to some degree of float control, business consolidation costs, raw material costs, and just kind of elaborate on the persistence of those as you look out for the next six months in particular.

Okay. I'll hit both flow control and motion control. As far the consolidation cost is concerned, we just recently purchased Enpro. And we're putting together -- Tapco which is located in Houston and also Enpro. So the consolidation cost was about $700,000. And we see that downturning and really being done by the third quarter of this year with very, very little in the fourth quarter. So that's basically it's running itself out. As far the material costs are concerned, probably the biggest area that got hit is in our delta valve product. We've had less margins there because you have a 40,000-ton valve. And we take orders over a year in advance on a firm fiixed price basis. So we came up with a little bit of the shorts there, but it should work its way out in the second half of this year.

And so do you have firm hedging agreements in place for the raw materials that are most impacting--?

We've done material purchases, larger material purchases. One of the reasons why we have a little bit of drag on our cash flow. Also in our motion control business, we have the same situation in our long-term contracts with Boeing, which are also about firm, fixed price, with some escalation associated with it. And again, we took material positions there, which had a drag on our cash flow.

Okay. And then on the topic of cash flow, could -- Glenn, could you give just us a little bit of color on your expectations for the back half of the year on a free cash flow basis?

Yes. I mean, basically we are still holding -- holding our full-year guidance of between 65 and 70 for the year. Obviously a little bit behind where we'd like to be at this point. We were pretty much break even by this point last year. And we're about 16, 15, 16 million negative year to date now. Most of that's in inventory. Marty said, one -- we do have a build-up for the second half of the year, plus we're buying materials in advance because to some degree the cost increases. But that should work itself out in the second half of the year. We're still holding the year, we have not changed -- we're not changing the year. If you think last year -- we're break even as of June. And I think we ended up with about 62 million for the year. I mean, our cash flow was definitely back half loaded, and we see that again this year.

Okay. One then last one if I could. If interest rates hold here, I think your pension set dates are October, September maybe. Does '07 pension expense materially come down?

Well, there's no question I think we're going to have to adjust the discount rate this year. So I would absolutely -- again, there's two things. We're going -- that will affect pension going forward that I would expect. One would be the reset of the discount rate which should slower our pension expense. Also, I think I indicated when I gave the guidance at the beginning of the year, there's some rollouts, so the five-year amortization of losses and stuff from the '01. So the earlier years that go away after this year. So I would expect '07 pension to come down pretty much. Pretty well.

Great. Thanks.

Okay.

And gentlemen, your next question comes from the line of Robert Stallard with Banc of America. Please proceed, sir.

Good morning, everyone.

Good morning. How are you doing?

Fine, thanks. Glenn and Marty, I was wondering if you could give us a bit more color on your thoughts for the full year on a division-by-division basis. I know you've given us gross numbers and margin numbers in the past.

Okay. I think on our metal treatment we will obviously improve between the third and fourth quarter. We see flow control ending up closer to 12 when we gave guidance between 11.5 and 12, and actually motion control dropping down below 11.5. Just because of some of the FX hit them, and they've had an overrun on some of their programs.

On the flow control side, we see some nice pickups on the -- on our nuclear, commercial nuclear area. One of the things that affected us this quarter was that we are investing in the AP 1,000 reactor that's scheduled for -- possibly scheduled for China and also the US. We have a new start contract that we have Westinghouse, we added about an $1.4 million worth of investment this second quarter which will actually get funded and paid for by this new start program in the third quarter. So we actually had what looked like a $0.02 hit in this quarter for some of the development that we're doing that will eventually get funded. And there is some anticipation by these plans would get awarded in the third and fourth quarter, and that could also help flow control. If we are the recipients of that order. Or it's Westinghouse, I should say, is a recipient of that order, we automatically will get that order.

And just to recap, are you saying that the flow margin should be less than 11.5?

Oh, no. No. I said about 11.5.

Sorry. And motion you're saying is doing around 11.5 to 12, yes?

No. Motion control would be a little bit down.

Okay. Down. And what about metal, I know in the past you've said 18 to 20, that seems to be tracking ahead of that.

Yes. Well, it's tracking more toward the 20 than the 18 obviously.

Right.

But remember also, in metal treatment now, they have 1.3 full percentage points of absorption. So that's one of the things also you should consider.

I was wondering if I could delve a little bit more on your embedded computer business, in terms of what your expectations are for the full year in terms of revenues and profitability and how you see that going on into 2007.

Well, on embedded computers, we actually have 30% more sales in the second half, and as I indicated on the last call, we see a 10% increase in sales from this year to last year, and operating income going up nice double digits. And we continue to see that going into 2007. You got to remember, most of -- for ground defense, that's a big market for the embedded computer area. And I think that they'll do well into 2007.

So just as a rough ballpark number, what kind of margin is this embedded computer business expected to make on a full year?

We did not indicate that.

All right. But it is making money.

Oh, without a doubt. Well, it's making pretty good money.

But it does tend to be back end loaded?

It's always back end loaded. We've talked about this because of the fact they have a lot of add ships and very little progress payment contracts, all of their profits are realized in the second half. Yes. Even in our motion control business, when you take a look at even programs that are on -- progress payments, basically, until you ship the product, you're receiving very little profit. And that's why that business also tends to have a larger second half is because you're getting very little profits on an accrued basis, and then when you ship the product, your profit margins go up three times what it was when you were just accruing the sale.

All right. Okay. Thank you very much.

Okay.

Gentlemen, your next question comes from the line of Jim Foung of Gabelli and Company. Please proceed, sir.

Good morning, Marty, Glenn.

Good morning, Jimmy.

Could you just give me a little more color on this Westinghouse order that you might see in the third quarter. Is that--.

Third or fourth, right.

In the third or fourth quarter. Is that domestic quarter or is that like an international order?

That would be for China.

China. And that would be like the first, right, in a number of potential orders that may come from that.

That's correct.

Could you give us the order of magnitude what that means -- of that order -- is that a $30 million business for you?

Well, there's going to be four reactors. And we have a minimum conservatively of 30 million per reactor.

Okay. Anyway is that spread over three years, is that in terms of the timeline for that--?

I'm not really familiar what that timeline will be, Jimmy. But it would -- it would obviously start at the end this year if we got it in the third quarter. And I would say continue on for another four years or so.

Okay.

And at that time, the United States potential may start hitting at the end of that cycle.

Right. I mean, just -- that whole market is a potential big business per year with China, India, and in the domestic market. Particularly with the energy problems that we have today.

Without a doubt. Right now you have -- you have 6 customers and 12 sites or 12 reactors that have been -- that put in for this new start licensing position. So that would be 12 reactors.

Right.

So far.

Okay. All right. Good. And then I don't know if you are ready to quantify -- did you talk about the cost overrun in the motion control business? I think you had like a -- in one of your programs--?

It was about $1 million.

$1 million. Okay.

Yes.

That's pretty much all in the second quarter. Are we going to see anything in the third quarter?

Not really, no.

Okay. Okay. And then that's all I had. Thank you very much.

Thank you, Jim.

Thank you.

Gentlemen, your next question comes from the line of Mr. Eric Hugel of Stephens, Inc.

Good morning, guys.

Good morning.

Somebody asked, I guess Peter asked specifically about the 1.6 million Canadian credit, whatever it was, that it wasn't in the guidance. But there's that 2 million piece also. That wasn't in your original guidance either, was it?

Know. It was not.

Okay. Can you -- Marty, you updated the margin side of the segments. Can you go through on the revenue what you're expecting.

Well, we were--.

By segment.

Well, we did it by -- the total was about 1.275 of -- hold on just a second. On the flow control lever, we're looking between 520 and 525. Motion control between 505 and 520. And metal treatment between 225 and 230.

Okay. Great. The nuclear power opportunity, I guess the four reactors I guess that could be, knock on wood, computed, I mean, that's just -- my understanding is that's something -- the Chinese are looking to build huge numbers of these reactors. That would just sort of be this year's or the first tranche correct? That's not sort of that's it.

No, that's the first order, right. I indicated I think that they were looking for approximately 40 reactors or 40 plants over the next 20 years or something to that nature.

And is there any indication that, okay, fine, four reactors this year maybe -- I mean, would it be sort of an annual thing? Do you have any indication of that, or--?

No, we don't. But, for them to get the amount of plants that they're looking for and I'm trying to -- there are 30 plants that are planned by 2020. Just doing the math if you're looking at 2007 to 2020, and you have 30 reactors, you're talking about two reactors or so a year.

I wonder if the ENC capacity exists to build them or if that's sort of -- but your corporate and other expenses, I know that's just a lot of like small stuff. That's sort -- that sort of really spiked up in the quarter. I know that's sort of hard. Is there anything significant in there?

No. No, there isn't, Eric. We're usually a couple million dollars underabsorbed.

Hello?

Yes?

Should we expect that to basically -- where should we be looking for that to be sort of going forward in the third and fourth quarters? I mean, is that a zero number to sort of think about, or is there a normal expense associated with that?

No, we usually typically run about 2 million, where we're at now, I don't expect us to get any worse for the second half of the year. About 200 negative.

Per quarter?

Sorry, 2 million for the year.

So it should be somewhat zero for the rest of the year?

Yes. Let me just clarify something with you, Eric. I mean, you're looking at, just so you know, the corporate and the other in the press release includes the pension.

Yes. I understand, but the pension -- I mean, yes, you did 1.9 in pension for the quarter, and you did 1.7 in corporate and other, that's just sort of just the plug. That's a pretty high number well above sort of a run rate that I've seen any time in the past.

Yes. Putting the pension aside because I think we've covered that. The corporate will probably run somewhere around $2 million for the year. Unless something extraordinary happens. There's nothing I can think of in particular in there. Maybe some higher medical costs. That's about the only thing that sticks out to me that we haven't allocated out.

Okay. Marty, can you talk -- I guess you hit on it a little, but with regards to the supplementals, where -- are you seeing orders, are you seeing business for I guess vehicle retrofit, if so, can you maybe give us some quantification behind that? Or maybe across any of your products.

Right now we are, but it's been trickling in so I don't have any quantities that I could really talk about or dollar figures.

I guess my final question, can you sort of give us some indication should we expect third quarter to be in line with this quarter? I guess the $0.48 that you sort of came in? I mean, is that sort of a--?

Let me look at the second half of the year. Is that the -- it splits the remainder 40/60 between the third quarter and fourth quarter. It would be somewhere in that area.

Okay. Great. Thanks a lot, guys.

Gentlemen, your next question is a follow-up from Mr. Peter Arment of JSA Research.

Yes. Eric just hit what I wanted to ask you about corporate and other. But Marty, just to ask about that again. The guidance on the EPS end of things, did you say that you basically thought that the next to quarters would be relatively similar in terms of the--?

No, I said if you take the difference between where we are and -- by the end of the year and just split it around 40/60, 40% of the remainder in the third quarter and 60% in the fourth quarter.

I'm sorry. Thank you, that's all I had.

Okay. Peter.

Gentlemen, your final question comes from the line of Mr. Jim Foung and is a follow-up of Gabelli and Company.

I couldn't find my other questions earlier here. Just really quickly on this defense business, I guess some of the weakness in the defense market and motion control, was that just the timing of programs that caused Q2 to be a little weaker some.

No, it's the timing. We anticipated that timing. In fact, in the first quarter I said that the differential between the first half and second half of this year is actually greater than last year. So the 26% increase in shipments is -- was null. Or 29%. I'm sorry.

Okay.

I'm sorry, Jim, what?

No. Well no, I was going to say so by the second half, you would -- had all been caught up then, yes.

That's correct.

Okay. And then one other question on the tax rate for 2007. I think Glenn talked a little bit about that you might get some recurring benefits in the Canadian tax rate changes from time to time. What should we look for for a tax rate for '07?

We don't really have the tax rate for '07 yet. There will be some R&D credits that will flow through -- from now on, you know. But I don't know how much that is. We haven't looked at '07.

I should just use like historical rates then.

Yes, I would just do that for now. We'll obviously give you guidance on that later in the year when we get it calculated.

Okay. Fine, thank you.

All right.

Thanks, Jim.

And gentlemen, you have a follow-up question from the line of Eric Hugel.

Hey, Glenn, you talked about the AP 1,000 development that you're doing, I guess on your own dime right now and you're hoping to get a contract--?

No, we have a contract.

You have a contract. Now I guess sort of -- so if you have the contract now so -- okay, so it's just a cash item that would be coming in? Wouldn't really be a P&L?

No, it would be -- it would be both because--.

What's happening is we haven't capitalized these costs. They're running through our P&L. So when we receive -- it's both cash. When we receive the cash we will reduce our IR&D when we receive it.

Would that be sort of a cumulative catchup from what you've done to date and would expect a nice boost into flow control margins in the 2Q when you actually got it?

Yes. I mean, it's going to be obviously -- we got hit with the costs this quarter, and we're going to get the benefit next quarter.

Right. It would have been a nice boost to the -- obviously the flow controls, margins. That's one of the reasons why we brought it up is that we're actually had the cost but did not have the revenue or the profits in the quarter.

Right. Now, is this sort of development what you're talking about, I mean is this the extent like if you -- if Westinghouse wins the contracts and calls upon you guys to start building these -- the pumps and the valves, I mean, is this the extent of the development costs that would be incurred, or would there be more significant development costs incurred as you guys begin to ramp up production?

Oh, there would be no development costs if we receive the contract.

And would this, I guess this type of business as historically new reactor components has been pretty healthy margin for you guys because of your market position, I mean, would you expect those historical margin rates to be able to be achieved? Or is that sort of -- that's old and the new stuff would be at much lower rates?

We'll do -- I really don't want to comment but we'll do fine.

Okay. Thanks a lot.

Thank you.

And gentlemen, your final question comes from the line of Mr. Myles Walton of CIBC World Markets.

Thanks. I did just have a couple kind of cleanup items. Could you give the backlog, bookings by segment in the quarter.

Sure. Hold on just a second. I'm going to go to my statisticians here.

Sure.

Just for the quarter or?

Yes, just for the quarter would be great.

Let's see. I only have year to date orders. I don't really have the quarter.

Well, I can do the.

You can do the math. Okay. My statistician's breaking down here.

Maybe I guess while you're doing that, just a clarification, Marty. On the nuclear side, you say you expect a contract on the power plants in China or you expect the Chinese to make a decision on that competition in 3Q?

We expect the Chinese to make a decision, and we also feel pretty good about Westinghouse's chance of winning that contract.

Have you become more comfortable with them winning in the last six months?

I'm not lounging in a chair, but we feel pretty good.

All right. How's the statistician doing?

All right, Myles.

I don't know. Nothing we can help nowadays. You know that by now, come on.

Motion control year-to-date is about 246 million. Flow control is about 295. And metal treatment -- metal treatment is about 112.

Okay. Thanks.

Yes.

Gentlemen, there are no further questions in the queue at this time. I would now like to turn the call back over to management for any closing remarks.

Thank you. And I'd just like to thank everybody for joining us today. We look forward to our third-quarter conference call in October. Take care.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.