Curtiss-Wright Corp (CW) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the second quarter 2007 Curtiss-Wright Corporation earnings conference call. My name is Nicole, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating the Q&A session towards the end of this conference. (OPERATOR INSTRUCTIONS).

I would like to turn the presentation over to Mr. Martin Benante, Chairman and Chief Exectuive Officer. Please proceed.

Thank you, Nicole, and good morning, everyone. Welcome to our 2007 second quarter earnings conference call. Joining me on the call today is Mr. Glenn Tynan, our ,CFO, who will begin our forum today.

Thank you, Marty. If any of you do not have a copy of the press release which was issued yesterday, please call Miss Deborah Torrey, at 973-597-4712, and she will be happy to email or fax a copy to you, and add you to the Curtis-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 a statement 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 can not guarantee 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 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 more thorough discussion of risks and uncertainties, as well as further information relating to our business.

For our agenda today, I will provide an overview of Curtiss-Wright's second quarter 2007 operating performance, and then Marty will discuss our strategic markets and outlook. And of course, after the formal remarks, Marty will open the call for questions. So let's get started.

Curtis-Wright had consolidated sales of $366 million, during the second quarter of 2007 an increase of 18% over the second quarter of 2006, including organic sales growth of 12%. Our organic sales growth was driven by contributions of all three segments, including 14% at Flow Control, 13% at Motion Control, and 9% at Metal Treatment.

In our Flow Control segment, sales grew 26% in the second quarter of 2007, as compared to the prior year due to the strong 14% organic growth, as well as contributions from our acquisitions of Scientech, and Valve Systems in the quarter. From a market prospective, the sales improvement was driven by our oil and gas, and commercial power markets, slightly offset by lower sales to the U.S. Navy.

In the Motion Control segment, sales increased 13% in the second quarter of 2007, compared to the prior year, all of which was organic. The key driver, was higher OEM sales of actuation systems, and integrated sensors, to the commercial aerospace market, and higher sales of embedded computing products, to the ground defense market.

Sales in our Metal Treatment segment were up 11% from the prior year, including 9% organic growth. Higher sales of global shot peening services to the aerospace and general industrial markets, generated a double digit increase, and our specialty codings business had higher sales, particularly in the commercial aerospace, and automotive markets.

Our consolidated operating income of $38 million in the second quarter of 2007, increased 16% over the prior year, including a solid 13% organic growth. Consolidated operating margin, down 20 basis points in the second quarter as compared to the prior year, primarily resulting from lower margins, in our Flow Control segment.

Flow Control's operating income in the second quarter of 2007, was down 17% from the prior year quarter, reflecting continued labor inefficiencies, and business consolidation cost, at our Tapco Enpro facilities. Also unprotected material cost increases, due to design changes to our Coker valve product, as well as cost over runs on a fixed price development program, for the Navy's CVN-21 carrier program. In addition, this segment continues to invest on developments in certain program, which have an adverse impact on the margins in the short-term, but should provide opportunities in the future.

Regarding the carrier program, this is the first ship in the class, and we have had some issues with changing materials and design specifications. And although we have recorded the cost over runs this quarter, we expect to file a claim for reimbursement for some of these costs, by year-end. Please note that we will be the sole source supplier, in the production phase of this program, which is estimated at a $30 million of content, per carrier, which should result in very nice, and profitable program for us going forward.

And we continue to integrate our Tapco and Enpro businesses, but we've had operational issues that we anticipate will result in market improvement, in the second half of the year.

Regarding the material price escalation on our Coker valve product, these increases have been built into our newer contracts, so we expect this to be less of an issue going forward.

As a result of these issues, operating margin for this segment in the second quarter was 6.1% down significantly from the prior year. Without the cost over runs, which should not re-occur and the integration costs which should not continue, the operating margin in the second quarter, would have been 10%. However, these issues, combined with the drag caused by our recent acquisitions, which generate lower margins in the early years of ownership, have put pressure on our full year margin expectations and we are, therefore lowering our annual margin guidance, for the Flow Control segment, to a range of 10% to 10.5% from the previous guidance of 11% to 11.5%.

In our Motion Control segment, operating income in the second quarter, 2007, increased 19% from the prior year quarter, all of which was organic. This strong operating income performance, resulted from higher sales, and improved operating efficiencies, as well as, lower business consolidation costs. As a result, the overall margin for this segment improved 60 basis points in the second quarter, 2007, relative to the prior year quarter.

In our Metal Treatment segment, operating income was up 12% from the prior year, of which 11% was organic. The higher sales volume, as well as improved operating efficiencies, drove this strong performance.

Consolidated net earnings of $21 million or $0.48 per diluted share of 2007 were up slightly from the prior period. However the second quarter of 2006 included one time tax benefits of $3.6 million, or $0.8 per diluted share. Without this tax benefit in 2006, our net earnings for the second quarter, 2007, would have been up 22% from the comparable prior year period.

New orders received in the second quarter of 2007 were $366 million and our backlog reached a new record level of $1.042 billion, up 18% from 2006 year-end. For the second quarter 2007, our free cash flow, defined as cash flow from operations less capital expenditures was $49 million, versus $26 million last year. This strong performance was driven primarily from a $36 million cash advance, received in the quarter relative to the AP-1000 program.

Depreciation and amortization was approximately $14 million, and capital expenditures were approximately $12 million, during the second quarter. On a year-to-date basis, our free cash flow was $29 million, versus a negative $16 million last year. Year-to-date depreciation and amortization was $28 million, and capital expenditures were $24 million.

Primarily, as a result of the AP-1000 program, we are raising our free cash flow guidance, for the full year 2007 to a range of $90 million to $100 million. The increase results from the anticipated, unliquidated year-end balance of the advance payments received in 2007, of approximately $30 million offset, by capital expenditures expected to be made by year-end, of approximately $10 million. The capital expenditures are primarily for building expansion, and the purchase of large machinery and equipment.

Our balance sheet remains strong, with $67 million in cash, working capital of $298 million, and total debt outstanding of $410 million, as of June 30, 2007 for a net debt to book capitalization of 29%. I will now turn the call over to Marty, to discuss our strategic market performance, and our full year guidance.

Thank you, Glen. I'm very optimistic that we will achieve our performance goals for the balance of the year, for a number of reasons.

First, we are expecting double digit growth in our primary commercial markets, and we continue to expand our portfolio, through strategic acquisitions, and development of new technologies.

Second, we have very solid positions on critical military platforms. We expect spending to continue steadily for the next few years. On the whole, we have momentum in all of our markets. Let me give you an overview of what we are experiencing on a market basis.

In the commercial aerospace market, we had a 21% increase in the second quarter, due to higher volume at both our Motion Control, and Metal Treatment segments. The vast majority of this increase is due to higher shipments to Boeing, on the 737, 747, and 787 platforms. In addition, we had a nice ramp up, the regional jet, and helicopter sales. As well as a slight increase in our repair and overhaul revenues.

In our (inaudible) market, we achieved organic growth, sales growth of 53%. While Coker valve sales, have continued at a rapid pace, cost escalations from steel prices will continue to impact margins over the next few quarters, as long-term fixed price contracts cycle through. At the same time, we continue to it look for ways to reduce costs. For example, we implemented a significant design change in the bonett fabrication, which required an additional $2 million investment, most of which occurred in the second quarter. While we expect the U.S. market to remain steady, we anticipate growth in new refinery projects in Europe, South America, Asia, and the Middle East and are aggressively pursuing sales in those regions. In May, we secured our first order from Russia, for the UFA refinery valued at nearly $11 million.

Our stake in Reed valves already achieved success in these markets and we expect the strong demand for the Coker products as well.

As Glen mentioned, we are working on some of the operational issues and our expanding gas and oil business. The business has grown at a rate of 30% both organically and from acquisitions, for a number of years, and there are certainly some inefficiencies associated with such fast growth. Many of you will recall the issues we encountered the last year in integrating our six embedded computing businesses. While these issues were painful to work through, we're now starting to realize the benefits. We have a similar situation today in Flow Control consolidation, in the Tapco and Enpro business units.

In our commercial nuclear market we've made significant progress on the Chinese award for 4 AP-1000 reactors. On Tuesday, we announced approximately $250 million agreement with Westinghouse in China, for our products and technology. I'm very pleased with the outcome of the long-term project which covers the manufacturing of 18 pumps and associated technology transfer. There is a potential for further upside, both on the existing contract and with additional technologies. We will gain a better feel for the impact as the contracts progress.

In meantime, we achieved 26% sales growth, in the commercial power market in the second quarter, which includes contributions from our acquisitions from Scientech. Our current business remains solid and China is not expected to impact 2007 significantly, so we are maintaining our full year expectation for this market.

Our defense business, up 5% year-to-date due to continued demand in our aerospace and ground defense business. Our aerospace defense market is up 12% year-over-year, primarily related to higher sales in the the F-22 and military helicopters. An exciting opportunity for us in future quarters, will be our increased content, on helicopter platforms. Depending on recently announced sole rate production of the Swarovski Black Hawk upgrade program, and Curtiss-Wright anticipates following contracts from Swarovski, for the new Black Hawk M version.

We have approximately 129,000 per ship set at the current configuration, with the onset of the M version we expect the ship set value to increase to approximately 147,000 per ship set.

With the addition of our radar warning receiver system, sensors and embedded computing products, to nearly every military helicopter program, and combined with our after market sales, equates about $40 million in military helicopter revenues for 2007. Longer term, the outlook is very robust for both military and commercial helicopters. Very high level of utilization in tough operating environments, coupled with aging fleets, suggest a healthy growth in this market for some time.

Our ground defense market is up 25% due to primarily higher embedded computing shipments for the FCS, and striker programs. In an enabled defense market, we have indicated this is a low point in our production cycle for aircraft carrier and submarines, which will continue through 2008. We are seeing increasing floatation activity, for Virginia class submarines going to two per year. But this action still has a lot of political hurdles to clear. In the meantime, we continue to increase our content on similar high performance platform, such as the DDG 1000. We mentioned in our last call, that our Motion Control segment will supply helicopter landing systems for the DDG 1000 destroyer. In addition, our Flow Control segment is in the final stages of negotiations with Rolls-Royce Naval Marine, for a contract award for the main electrical generators, for the DDG integrated electronic drive system. This award, combined with the propulsion motors, and landing systems, equates to nearly $30 million content per ship. This award represented a significant expansion of our capabilities onto non-nuclear surface ships.

Typically, our operating income is heavily weighed in the second half of the year be n this year is no exception. Besides the typical high sales volume in Q4, which represents and sharply higher margins, we expect our gas and oil business to improve as a result of changing our integration process, and resolving certain operational issues. In addition, the CVN-21 cross overrun will be behind us, which will also contribute to the improved performance in the second half of the year, as compared to the first half.

To conclude our remarks today, I would like to update our guidance for the full year, 2007, to include the two recently announced acquisitions. We expect our revenue to be in the range of $1.5 billion to $1.52 billion, operating income in the range of $174 million to $181 million, and fully diluted earnings per share in the range of $2.10 to $2.20. The revised 2007 guidance includes minimal impact, resulting from the recently announced, AP-1000 contract award. At this time I would like to open up the conference for questions.

(OPERATOR INSTRUCTIONS). Questions will be taken in the order received. Your first question comes from the line of Myles Walton, with CIBC World Markets please proceed.

Thanks, good morning,.

Good morning, Myles.

Obviously you had strong sales in the quarter, and moved up your sales guidance $110 million and understand acquisitions played a role in that, but did you also see better performance through your core business that's motivating some of that increase.

Yes.

And is it particularly on the oil and gas side?

Definitely on the oil and gas. Definitely in the power generation market.

Okay and could you maybe give us a little more clarity on the nuclear contract, and how that would play out over the next four or five years in terms of construction. I know you're not through the T's and C's just yet but I have to imagine you have a pretty good picture. Is it conceptually a five year construction plan, and with the construction starting in earnest in '08?

Yep, that's about right, Myles, and just so we're clear, we did sign the technology transfer agreement, the hardware agreement with Westinghouse, we have a agreement in principal but we are still negotiating that. That's why some of the information I'm about to give you is still a little moving around, but overall if you break down the contract, the hardware is approximately $215 million, and right now, the way we're seeing that layout is heavily, between 2008 and 2012 and tailing off in 2013.

On the technology transfers, it would just approximate $70 million. If two pieces is a base fee which is approximately 60% of the total, and that's going to be -- right now in our assumptions is spread straight line over 15 years. The other pieces of the technology transfer, and there are many, is about 12 particular line items and they all have individual triggers points and multiple milestone. So it's difficult. But the other 40% will kind of follow the hardware as well, just to give you an overview of the revenue. From the OIA margin standpoint.

You know I was going to ask.

We go -- from the OI margin standpoint, which again hardware and the tech transfer other fees, on average we're saying, will be about 12% plus the $2.5 million per year, of the license fees. On average. It's going to vary from year to year, and it's going to start out slow, so 2008 will be our probably lowest year and it will sharply rise through the remainder of the five year period. That's mainly because the first year you're not doing as much value-added work, and we're receiving material, and so on and so forth, and then the out years we're doing most of the work, and it's much more profitable at that point, plus we have a bunch of up-front costs that hit us in the beginning of the contract. That being said, I think Marty already said 2007 is minimal, except for the cash flow, which we raised our guidance by a net $20 million.

2008 right now we're looking at revenue of approximately $50 million. With an OI margin of 9%, plus the $2.5 million license fee, so blends, to approximately 13%. And again, that will sharply rise through the remaining years. We do not have that all scheduled out beyond 2008 that we're comfortable with.

We do intend, and say here, we do intend to hold an investor conference in the fall. Right now we're looking at possibly the end of September, or possibly the beginning of October, which will be focussed on our energy businesses, and obviously, the AP-1000 is a big piece of that, and we fully intend to have a lot more detail for everybody at that point and time.

That's great, Glen, I'm guessing you anticipated that question with all that detail.

Do you think?

And could you maybe talk a bit to the cost overruns at Flow Control, and size those in the quarter and also, I think you said you asked for some pull back from the customer by year-end, is that -- should we consider that this was the kind of the ETC cumulative catchup adjustment, and we shouldn't see this kind of hit for the next couple of quarters.

Right, the development for the pumps for the new aircraft carrier was an ETC adjustment. It was about $3 million. We expect to recover most of that by the year-end. If you look at the potential there, that's out of our EMD business. It will be about $33 million a carrier. So it's about $6 million to $7 million a year, in new business for them. On a $27 million business.

That recovery's not built into your 10% to 10.5% guidance, or it is?

Excuse me?

Is the recovery built into your 10% to 10.5% guidance?

Yes , is. There's no doubt about the fact that we're entitled to recover it. The other thing about the Enpro -- Tapco, Enpro. Some of that is the consolidation of cost that we've talked about last quarter. The other is, growing at 30% this year in that business. As we were consolidating, in order to keep customers schedules. We did a lot of work around that -- required some additional costs, but one of the biggest things is we had a large program that required a different style of light welding, that we had never done before and it caused a lot of rework, and we're basically through that contract mow. So we do not expect the recurrence of

Okay. That's helpful and then maybe, I will ask one more, and get back in the queue, on the acquisition front, you've been more active this quarter obviously, and again focused on the commercial energy market.

Do you continue to see opportunity there in particular it looks like in the next couple of years your portfolio is going to be fairly balanced, where you have largely equivalent, scale defense, commercial energy, oil and gas, and then commercial aerospace rounding out the portfolio. Are you looking to put even more emphasis in commercial energy or do you think what you have is pretty much the weight that you would like to see?

No, I think we could stand more weight in that commercial energy. When I talk commercial energy, I'm talking about both gas and oil, and in nuclear, or in power. So I think we can definitely look -- we see the Chinese contract as just the beginning of the renaissance of nuclear power plants being built up throughout the world.

And maybe let me slide one more in. To follow up on that comment, when is the next kind of real AP-1000 opportunity for you, over the next 12, to 24 months.

We think there are good domestic opportunities and we won't go into that but we do believe that there will be additional opportunities within the next 12 months, coming out of the United States.

Great, thanks.

And miles, maybe to cap that off a little bit. One of the things we indicated is we have more potential in China, over and above just the pumps, and right now, we're looking at about $20 million of additional, possible potential revenue per plant, in the other technologies that we have.

So when you look domestically, remember, we made an investment of $2 million into the control (inaudible) mechanisms, and in our last investors conference we had an exhibit and showed people that reactor. That's an additional $18 million per reactor, and so we see good domestic possibilities, as far as increased sales in the United States.

Your next question comes from the line of Robert Stallard with Banc of America. Please proceed.

Good morning,.

Good morning, Rob.

Just wanted to follow-up on your comments there about China. Does the technology trounce the agreement you signed, meaning you won't have an opportunity to sell your pumps, on any future Chinese nuclear power stations?

That's basically the case, yes. As far as China's concerned.

And hopefully you'll be able to find other sales elsewhere around the world.

Well, we just signed a nuclear accord with India. We signed that same nuclear accord with China four years ago, so we expect sales would come out in India, but we also think, that the United States is getting ready to start placing orders too. Remember the last call, we talked about 33 plants being put in, for a licensing for new plants, in the United States. So you're going to start to see, I think, some of those take place over the next 12 months.

Right, when I went down to see the Houston plant a few months back, there was some talk down there, about the tough conditions getting hold of the right grade of steel for your valves. Is that still a problem, has this been part of the issue seen in Q2 of cost of flow control?

Actually the cost-- the material pricing increase is more at DeltaValve, and the lead times for the materials and prices have gone up, but that wasn't at the Tapco Enpro.

It's more at DeltaValve. We had a program over and above price increase. One of their casting subcontractors had a fire, and we were making a one piece bonett. We now spent $2 million to make a design change, to a two piece casting, which does a couple of thing for us. It reduces the cost, but also it allows more contractors, or casting contractors, to make a two-piece design that we weld together.

So, and you'll start to see some benefit of that design change, we'll recoup at least $1 million this year alone based on that investment that we made, that's really where we're seeing that increase where, we have long-term. Because of the amount of demand, for that DeltaValve product, the lead times had gone out quite a bit, in order for people to place orders, and we took the (inaudible) contract and Rob, we'll start to see that turn.

While we're on Delta, though, can you give us an update of where the backlog is on that product, and how the market's evolving, and what your penetration is, and I think you still have that legal case outstanding.

Right.

Rob, I have that on a piece of paper that I'm rifling through here -- currently, we have about 27% of the market for the top valve -- bottom valve and about 12% on the bottom valve. So we have still quite a bit of that market to go.

And the legal case?

We still have one legal case that we're going through as far as patent infringement is concerned.

Okay. Thanks so much.

Okay, Rob.

(OPERATOR INSTRUCTIONS). And I show no further questions at this time I would like to turn the call back over to Mr. Martin Benante -- actually I do have others that's just queued up. Your first question comes from the line of Taylor Hojo, of Sidoti & Company.

Hey, guys I was wondering, I know you updated the guidance for the flow segment, but I didn't catch motion or metal. Could you update that.

Yeah, Tyler we're not changing motion's margins. They remain at 11% to 11.5%, and metal treatment, 20%.

And the backlog per segment as well.

Backlog per segment as of June, Motion Control is $487 million, Flow Control $552 million, Metal Treatment $3 million.

Great. And just in terms of last conference call, I believe the commentary was just in terms of the second quarter and the third quarter was that, the quarters would track in the high $0.40 range. Obviously you made a couple of acquisitions. There's some issues you're working through in flow. Would you care to update just in terms of how you think Q3 and Q4 will track this year.

No different then what we indicated from the very beginning of the year that the first three quarters would be in the 40s similar to one another, and the last quarter will be the bump. Very, very similar to what we did last year.

Okay. Thanks a lot.

Okay, Tyler.

Your next questions from the line of Eric Hugel, with Stephens.

This is Eric, how are you doing.

We knew you were out there.

Yeah, I guess the operator initially said, hit star 0 so ask a question so I was doing that.

You're trying to tell us, if, you ask some questions?

With Tyler's question before I didn't hear, do you give sales guidance by segment or just margin?

No, I gave the margin guidance. I can give you the new sales guidance by segment Flow Control, 685 to 690. Motion Control 565 to 575, and Metal Treatment 250 to 255.

Great. Can you talk -- was there any? Maybe a little bit nitpicky, but the tax rate was a little bit lower then expected. Was there anything in there or just normal, sort of, ups and downs?

No, again, we expect the tax rate for the full year to be about 36%. We did have, I believe a small, within 48 adjustment, I believe or something, in the second quarter, and I don't think it was material, but it was the adoption of the new FAS-B was in the first quarter. We made a little adjustment to it in the second quarter, a little correction. That's all that happened, in the tax rate.

Also, it looks like -- I'm assuming, what are you guys running right now in terms of tension expense on a quarterly basis?

About $1.5 million a quarter.

About $1.5 million a quarter. Was there something other then pension, in the corporate and others, because it looked like that was pretty much break even offsetting that $1.5 million expense?

Yeah, I mean what happened in our cooperate others, it was two big things, last year, is we had huge spike in medical expenses from catastrophic cases, et cetera, that was in our corporate line, as you know we're self insured, and the other piece, was an adjustment to our pension expense, because people had retired and took some lump sum payments, and a couple of other things. What you're seeing year to year is we don't have that medical spike this year, and our pension's back to normal. That's really the reconciling item between the two years, if that helps.

So your corporate and other, is basically running at $1.5 million of income? Offsetting what your pension expense was?

We do have some favorable stuff in there. We do have some -- yes, I mean we do have some favorable stuff in there as well. Yep, it's basically break each right now.

There's some hedging gains and some of it has to do with the timing of our expenses, and when they get allocated out so we have credits here at corporate, but we're still holding at the end of the year. I think we've said we expect -- from your standpoint, the corporate expense to be about $2 million expense for the year. Some of it has to do with timing for us.

When you say that, that's combined corporate and pension? Or just corporate?

Just corporate.

What would you expect the pension to be?

$6 million.

Perfect. I guess maybe one question with regards to the technology transfer. I guess, I mean for China, these pumps are, I guess extremely, complex pieces of equipment that, I guess not anyone could build, and even just transferring the technology. Doesn't necessarily mean that the Chinese, could build them. I guess in terms of the contract. I guess sort of what kind of-- I guess sort of-- protections due have in there with regards if the Chinese can't build them, coming up back to you, and saying you didn't transfer all of the technology, because we can't build them. How is that structured from protecting you?

We have-- on the transfer as far as them being able to build pumps, they know that's a very intricate piece of equipment, and we have an effort basis, where we will guide them on how to make those pumps, but we don't guarantee that they will work, not from a standpoint of we will not transfer the technology.

There's an understanding there that realizes it's a very intricate piece of equipment. The possibilities of them making it, once we get done, are good. I think they will be able to make the pump, when all is said and done, I think we have pretty good protection as far as that's concerned.

Eric, there is an option, I believe in the contract for us to continue to manufacture if they can't get to where they need to be.

And that would be above and beyond and so you would see potentially a lot more.

On the scope of what we have.

Perfect. You mentioned, Marty, you mentioned about-- you thought there was some opportunity, in terms of U.S. nuclear orders over the next 12 months per say. When you're talking about that, are you thinking U.S. nuclear progress, or actually, you getting an order, to build more pump for AP-1000s from, let's say a U.S. nuclear plant going online?

I think that us getting contract within the next year. I think there will be contracts let to either a GE, or a Westinghouse, within that time frame, and I think we will actually get a contract, within that time frame.

Can you maybe give us some background as to how this whole process works. There's this whole regulatory approval process, that takes years and years, and then you have to have hearings and -- when does -- at what point in the process does somebody actually place an order, for the reactor, and you guys would start building because you guys have some long lead times.

The thing is they're already restarting (inaudible) obviously that's the first thing that will be a restart and there's opportunity for us there. We quoted the pumps there. The other thing is that you have to remember there were licenses that were pre-granted prior to, the nuclear business coming to a halt. So, the sites were already picked. It's a matter of putting their licenses in, which would be a little bit quicker, then if you were to start from the very beginning.

I'm looking on the NRC's website that yeah, it has sort of like '09 dates, of sort of the approval process, but then there's a long line out there, that has like hearings and things like that. Are these operators going to place orders before even the hearings are done?

Yes.

Okay.

You got to expect that you're not going to spend a tremendous amount of money, but you've got to start -- it's like building -- I wouldn't say like building a home, but you have to start the program, prior to going through all of those issues. I think that obviously the utilities know, that they have a very good chance of pushing them through, especially if they've been prelicensed.

And you would actually start building this stuff even ahead of that. Once you got the contract, that would be the go for you.

I don't know. We'll see how that works it's way out. It's one of those things where I think we'll get an order, when that actual production takes place. May not be for a little while, but I feel very confident, that orders will be placed for nuclear power plants, in the United States.

Okay. Can you update us. You talked about this next generation pumps on the carrier and stuff like that. I know you have the EMALS and the rest-- can you update us going forward on the next Gen carrier, sort of. I know you've been talking for a long time about, a $180 million a carrier. Can you update us where you stand on that?

We're above that. There's no doubt about that. One of the things that when you look at the EMALS program, that's about a $200 million program to retro fit. The DDX program, which is not an aircraft carrier, but let's go back to the pumps by, for EPD. That's another 33.

But you have the pumps on the existing. So it's not all incremental.

This is incremental. This is a brand new pump.

But weren't you building the pumps on the old ones?

Yes, but this is over and above those pumps.

So it's 33 beyond what the old pumps cost?

That's correct.

Oh, boy. Okay.

That's what we're trying to say is that, this is the first in class type of pump that was being built, and it's a significant opportunity there, obviously. So, when you talk about EMALS, events, arresting gear, new pumps, we got to be approaching at least 250, if not more. I just haven't sat down and actually counted it.

Great.

But I think, Eric, what that brings about. When we look at Flow Control, one of the things that I made mention on last call, is Curtis-Wright has over $60 million of paid for R&D. $30 million of that is in Flow Control. We have the AIG contract, the EM gun contract. The DDX. That's $30 million of sales we'll have this year, with very little return because, very little profit but if you looked at the E-miles program and AIG you're talking well in excess of $200 million.

The EM Gun we're looking at over $500 million through its life, and the DDX which, right now we have over $30 million of content on. The DDG 1000, there's going to be seven boats, and they will be followed by the CGX, which will be another 19 of which 14 will have the same propulsion plant as the DDG 1000. But you're talking just in the propulsion alone that's $500 million.

Right.

The last five are supposed to be nuclear which we obviously will play a role there, and then when you add in the resting gear and other equipment we have that's a $700 million program for us.

Great. Thanks a lot, guys.

That's what we work on in our spare time.

Okay, and I show no further questions at this time. I would like to go ahead and turn the call back to Mr. Martin Benante.

Okay. Before we close out, one of the things that Glen made mention of, is we intend to have an investors conference in the fall. Either late September or early October.

Obviously we will break out the China contract that we have, and any new information we may have on domestic build, or additional possibilities on the nuclear front, but one the things also that we think that we would like to bring to light, obviously, is some of the newer technologies that we have in gas and oil. One of the other things that we have experienced an increase cost on, even though our R&D is virtually the same. Most of the R&D is being spent by Flow Control. Over $1.5 million was spent in the last quarter for platform gas drilling. It was just a recent article yesterday in the "Wall Street Journal" on cash drilling undersea.

Undersea platforms, which is a business that's growing at 23% growth, for the last few years, and expected to grow over the next few years. And it indicates that Cameron, which we are in partnership, with on their platform program, says that Cameron International is currently working on more then 15 major sub sea projects uses motors and other components made by an aerospace industrial contractor, that happens to be Curtis-Wright.

So, there are investments that are being made in those programs, we have very good content for both the in-line compressor that we've announced, and also the sub sea pumping platform. And over and above the $2 million we've spent for the improvement in our bonett construction, we've also had DeltaValve heads spent, over $1 million in the last quarter in developing their isolation valve, which we currently have sales for, which is a totally new concept in isolation, for the Coker valves.

For -- in conjunction their automated valve, that it's in conjunction with our DeltaValve and also they spent quite a bit of money on their water-cutting tool, this is a revolutionary tool that is fully automated with automated sensing, and that goes for about $100,000 a cutting tool, and that's about a $30 million business. Over and above nuclear power we'll also go through some of the newer programs that we're developing for oil and gas. With that I would like to thank you for your participation today, and look forward to our third quarter conference in October. Thank you very much.

So long.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.