Curtiss-Wright Corp (CW) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to Curtiss-Wright Corporation's first-quarter 2008 earnings conference call. Just as a reminder, today's call is being recorded and will be posted by Martin R. Benante, Chairman and CEO of Curtiss-Wright, and Glenn E. Tynan, Vice President and CFO. The call will be in a listen-only mode while the Company presents its recent financial results and then the Company will take your questions. I would now like to turn the conference over to Mr. Martin Benante. Please go ahead, sir.

Thank you, Christina, and good morning, everyone. Welcome to our 2008 first-quarter earnings conference call. Starting our forum today will be our CFO, Mr. Glenn Tynan.

Thank you, Marty. If you do not have a copy of the earnings release which was issued yesterday, please call Ms. Deborah Torrey at 973-597-4712 and she will be happy to email or fax a 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 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 on reasonable assumptions, we cannot guarantee that we will meet any expectations that might arise from these forward-looking statements or their underlying assumptions.

Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Securities 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 risk 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 a 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 first-quarter 2008 operating performance and then Marty will discuss our strategic markets and full-year outlook. After the formal remarks Marty will open the call for questions. So let's get started.

Curtiss-Wright had consolidated sales of $433 million during the first quarter of 2008, an increase of 30% over the first quarter of 2007 including 10% organic growth. Our organic sales growth was driven by contributions from all three segments led by our Motion Control segment at 13%, Flow Control at 9% and Metal Treatment at 6%.

In our Flow Control segment sales increased 53%, 9% of which was organic. Flow Control had solid contributions from its three 2007 acquisitions which contributed $61 million in incremental sales in the first quarter. The organic growth was led by 30% growth in the power generation market driven by sales of our 81,000 reactor coolant pumps for China and also a solid 12% organic growth in the oil and gas market, including strong demand for our coke deheading systems. These increased sales were partially offset by lower defense sales due to the timing of their procurement cycles.

In our Motion Control segment sales grew 18%, 13% of which was organic. The organic sales were driven primarily by increased sales to the ground defense market led by strong demand for our embedded computing products, primarily for the Bradley Fighting Vehicle, and higher sales of our actuation products to Boeing in the commercial aerospace market. In addition, we had increased sales in the military aerospace market, in particular on the Global Hawk and military helicopter programs.

Sales in our Metal Treatment segment were up 6% from the prior year, all of which was organic. Higher sales of global shot peening services to the commercial aerospace and power generation markets and strong performance by our coatings business in the commercial aerospace and general industrial markets led the organic growth. This growth was somewhat tempered by a slower U.S. automotive market and lower laser peening sales, primarily due to the wind down on existing programs, and the transition to the start-up of our new programs with Siemens and Boeing.

Our consolidated operating income of $41 million in the first quarter of 2008 increased 16% over the prior year including ate% organic growth. The organic growth was led by our Flow Control segment at 12% followed by Motion Control at 6% and Metal Treatment at 1%.

Our consolidated operating margin was 9.4%, a decline of 120 basis points from the prior year quarter. This decline is primarily due to the margin drag from our 2007 acquisition, lower margins from the planned ramp up of our China AP1000 program, less favorable sales mix and unfavorable foreign currency translation. The adverse impact of the foreign currency translation amounted to approximately $2 million mainly in our Motion Control segment. The performance of our 2007 acquisitions includes approximately $4 million of amortization expense in the first quarter of 2008 mainly in our Flow Control's segment.

Flow Control's operating income increased 40% over the prior year quarter of which 12% was organic. This performance reflects the higher sales and the benefit of the business consolidation completed during the first half of 2007.

Operating margins in this segment are lower than the prior year primarily due to the margin drag from their 2007 acquisitions and the material procurement for our China AP1000 program which produced lower margins this quarter, but will steadily improve as we begin to manufacture and perform under the technology transfer contract beginning later this year. The performance of the 2007 acquisitions in this segment included approximately $3.1 million of intangible amortization expense in the first quarter of 2008.

In our Motion Control segment operating income increased 7%, nearly all of which was organic. This performance was achieved despite absorbing $2 million of unfavorable foreign currency translation and increased R&D expenses in our embedded computing group in support of strategic initiatives.

Operating margins were down 100 basis points from the prior year; however, the foreign currency translation issue alone had a 130 basis point adverse impact on our margins in the first quarter as compared to the prior year.

In our Metal Treatment segment operating income was up slightly from the prior year. The higher sales volume was slightly offset by startup costs for new facilities and lower laser peening margins due to the wind down of existing programs and the transition to the ramp up of two new programs. Consolidated net earnings of $21.8 million or $0.48 per diluted share for the first quarter of 2008 increased 12% from $19.5 million or $0.44 per diluted share in the first quarter of 2007.

We had higher interest expense in the first quarter as compared to the prior year due to increased borrowings resulting from the four acquisitions we made in 2007 which was partially offset by lower interest rates. New orders received in the first quarter of 2008 were $451 million and our backlog was at $1.3 billion at March 31st.

For the first quarter 2008 our free cash flow, defined as cash flow from operations less capital expenditures, was negative $42 million versus negative $20 million last year. The first quarter is historically negative for us due to significant cash expenditures for annual payments that are accrued throughout the previous year and also we typically build inventory in the first quarter due to long lead-time material purchases in preparation for increased sales levels for the remainder of the year.

Additionally, our free cash flow in the first quarter 2008 was negatively impacted by $15 million for the ramp up of the China AP1000 program. For the first quarter depreciation and amortization was approximately $19 million and capital expenditures were approximately $24 million. We reaffirm our 2008 free cash flow guidance of between $70 million and $80 million with the largest quarter being the fourth quarter, similar to our earnings.

Our balance sheet remains strong with $65 million in cash, working capital of $412 million and total debt outstanding of $548 million as of March 31st for a total booked debt to capitalization of 37%. I now turn the call over to Marty to discuss our strategic market performance and full-year guidance. Marty?

Thank you, Glenn. I am pleased to report solid performance in all of our markets during the first quarter and a very strong outlook for the balance of 2008 and beyond. We are experiencing double-digit growth in each of our major markets with the exception of naval defense which is primarily the result of contract timing.

Our aerospace defense market was up 11% year-over-year primarily related to higher sales of the Global Hawk, increased helicopter volume in particularly the Black Hawk and increased embedded computing sales across all of their markets. Ground defense sales were up 36% led by significantly higher sales of the Bradley Fighting Vehicle as well as an increase in the striker programs.

Our naval defense sales were up a solid 5% mostly due to the ramp up of the DDG 1000 program which is slightly offset by lower aircraft carrier and submarine sales as we near completion on the current contracts. In April we received initial orders for the next Virginia class submarines reflecting the (inaudible) material for the increased production of submarines from one to two per year commencing in 2009 for Curtiss-Wright. This is truly a noteworthy event in the shipbuilding industry which, combined with multiyear procurement programs, will generate significant growth for Curtiss-Wright in a market known for its long-term stability.

In March we announced the contracts for our helicopter handling systems to be integrated on board on the next generation Japanese destroyer program. This is a terrific program for us in that we have continued to successfully achieve the technology currently in operation with the Japanese, Canadian, US, Australia, Spain and Taiwanese navies. We anticipate our system will become standard equipment on all-new Japanese destroyer class which is expected to include four ships over the next five years.

In addition, just this week we reached an agreement with [Franken Tekuna] for helicopter lending systems on the Italian [PREM] program which is the latest state-of-the-art European frigate program. The initial contract is for two ships, but six ships have been already authorized by the Italian government and we anticipate our helicopter landing system will become standard equipment on all 10 ships forecasted for this program. In aggregate our defense businesses were up 8% organically in the first quarter which is a strong start for the year.

In the commercial aerospace market we generated a 12% organic sales growth due to higher volumes of Boeing, from Boeing in particular, on its 737 program. While there has been significant discussion related to the 787 schedule, we do not anticipate any material impact to our guidance related to changes in Boeing's revised delivery schedule. In addition, we had a nice pickup in Airbus production offset by slightly lower repair and overhaul sales.

In the oil and gas market we achieved an organic sales increase of 12%. Worldwide construction activity and domestic refinery expansion continued to drive orders and in particular (inaudible) advanced technologies are driving increased capital spending to upgrade equipment for efficiency, safety and environmental regulations. We currently have a 32% market share for (inaudible) of the estimated 700 coke drums worldwide. That base number will continue to increase with the capital expansion program at the refineries.

In addition, we just began to tap the market for [top valves] with only 15% of that market, as well as the introduction of our isolation valves and coke cutting tool in 2008. As we said in September of 2007, the coke deheading market alone is an estimated $2 billion global coker market in which Curtiss-Wright is the established market leader worldwide.

In our commercial nuclear power market we achieved 30% organic sales growth due to the startup of our AP1000 program for China. But this is only the beginning of the ramp in this market. In March we announced an award from Tennessee Valley Authority for Watts Bar nuclear plant which would be our 105th operating reactor in the United States. This is a generation two plant which was near completing and the restart of this project is a strong signal that nuclear power will be a major player in meeting the growing demand for energy in the United States.

Since then three separate awards for new construction of AP1000 powerplants have been announced by Progress Energy, South Carolina Electric & Gas and Southern Company, representing the first engineering procurement and construction contract for a nuclear power plant in 30 years. In total there are 17 companies pursuing licenses for approximately 33 new reactors in the United States with the first class expected to be online in 2014.

We're currently negotiating a blanket order which is in excess of 24 pumps and expect an order this year as we indicated at our investors' conference last year. The new construction renaissance is underway here in the United States and the international market is in lockstep with additional demand. Negotiations are in progress in a number of other countries for new construction of both conventional generation two plants as well as the next generation AP1000.

For the first quarter we were awarded significant aftermarket orders from South Korea where we have an installed base on the Korean reactor design. Curtiss-Wright has been a significant player in this market for at least 50 years and our superior engineering expertise and advanced technologies will continue to play a significant role in this competitive market.

Wrapping of our discussion today, I would like to confirm our defense outlook to be very strong as Congress continues to provide supplemental funding to replenish the forces experiencing heavy utilization. And we continue to gain new content and development opportunities for our advanced technologies.

In particular, our embedded computing technologies are making investments in new programs such as we did during the fourth quarter of 2007 providing us with the ability to win significant long-term contracts on programs such as Northrop Grumman's Ground/Air Task Oriented Radar, or G/ATOR program for the United States Marine Corps.

We have a pipeline of anticipated additional awards in the works and in particular today we'd like to congratulate Northrop Grumman on their most recent $1.2 billion win on the Broad Area Maritime Surveillance or BAMS drones which is based on the Global Hawk. We have been proud to support Northrop on the Global Hawk from the beginning and we look forward to continued participation as a major supplier of the BAMS program.

For a closer look at Curtiss-Wright involvement in the embedded computing market, including the basics of what embedded and organization really mean, we have invited our investors to our facility in Ottawa, Canada on May 15. If you need more details on this event, please contact Alexandra Deignan after the call today.

We are very optimistic on the execution of our strategic plan and are maintaining our guidance for the full year. We expect to achieve 2008 revenue in the range of $1.83 billion to $1.85 billion, operating income in a range of $215 million to $220 million, and fully diluted earnings per share between $2.55 and $2.65. This guidance equates to sales growth of approximately 15%, operating income growth of 20 to 24%, and earnings per share growth of 15 to 20% excluding the nonrecurring tax benefit we recorded in 2007.

Our guidance reflects our expectation of double-digit growth in our commercial markets as well as solid growth in our defense markets. At this time I'd like to open up the conference call for questions.

(OPERATOR INSTRUCTIONS). Myles Walton, Oppenheimer.

Good morning. So on the last call we tackled the hedging program [biting] in the fourth quarter and I guess did it again here in the first quarter kind of eating maybe 60 basis points. Is there any way that that hedging program is starting to take hold and neutralize maybe the headwinds you might face in the proceeding nine months? Or what exactly are you building into your expectations for ForEx for the rest of the year?

Well, two things. One thing is that you're referring to the translation adjustment -- we are hedging transaction and on a -- let me just break those two out. On a transaction basis you'll notice -- well, you may not notice, but in our corporate and other line there is about $1 million of net FX hedging gains in the first quarter. As you know, we went the opposite way in the fourth quarter last year, but it reversed itself here in the first quarter. That's on the both forecasted and actual transactions.

The translation is somewhat of a different issue, so we are hedging the actual cash transactions. (multiple speakers) translation is something that's a little bit rougher to do, but we do anticipate two things. In terms of translation, we expect those rates to change throughout the year, so we're expecting it reversed throughout the year. That's our current forecast for the change in the rates.

It's not going to completely reverse, but we're forecasting the translation issue to get better, specifically in controls, for the remainder of the year. We hope to see that reverse. The $1 million gain, that swings a little bit. So our objective on the hedging program is to be neutral so that we don't really have to talk about it, that's the objective of any hedging program. So we have some successes and some not so successes.

So net net it was $1 million that the ForEx -- the Canadian Loonie was $1 million headwind in the quarter, $2 million headwind in the operations and $1 million plus in the corporate?

About $1 million in the corporate.

And if you looked back to your last conference call, you were kind of thinking $0.42 to $0.43 here in the first quarter. What in addition to that hedging benefit was in corporate that may have been a surprise or were there other surprises across the business that drove the better EPS results in the quarter?

It was better results in the operations. Obviously we had looking at the down first quarter because of startup of our China program, whereas we were taking material in we associated very little profit with that. And obviously as we are right now manufacturing that contract you'll start to see improvement in profitability. But the biggest thing is we receive very good returns from embedded computing, sensors, (inaudible). So --

So the margin performance you saw in the first quarter across the segments, that wasn't surprising to you and you're not backing off from the full-year margin guidance?

As a matter-of-fact, we thought it was better, we thought our first quarter margins were better than we anticipated. And by no means are we backing off our guidance for the year.

Great. And then in terms of the China work, maybe it was $12 million in the quarter, is that about right?

Correct.

And so I guess without that Flow Control was flat but you had oil and gas at 12% growth. So was maybe nuclear down double digits?

Maybe nuclear right now is just out 6% down, yes -- close to about 7%.

Okay. So does that reverse this year pretty --?

No, is actually reverses next year. We said that in the last call that this is the lowest add that we will have. We'll start getting our contract for the multiyear procurement for the submarines at the end of this year and you're going to see a much different picture in 2009 as far as the Naval sales are concerned.

Okay, okay.

It's just a timing thing.

And with respect to the bookings, usually 1Q is your strongest. From your opening comments, Marty, it sounded like 2Q might turn out to be your strongest of the year. Is that a correct assessment?

That's correct. We seem to have just gotten a flurry of orders. In fact we expected some of them last quarter. Now as I indicated, we are now currently negotiating for a blanket order for pumps for builds in the United States and we expect an order in second quarter on that.

And that's 24 pumps?

The thing is it's a blanket order for 24; it could be all of the 24 or in excess of 24.

Okay. And they're about $10 million a pop, is that right?

They're closer to about $15 million.

It's good to see the price going up. Let me see if there's anything else. No, I think that's it. I'll get back in the queue. Thanks.

Thanks.

Chris Donaghey, SunTrust Robinson.

Good morning, guys. I want to talk first of all on the seasonality expectations for the year. I think on the last call you said first quarter was going to represent somewhere around 15 to 16% of 2008 earnings. What are your expectations for that now after this very strong first quarter?

We're going to maintain the same 40 to 60% split which says that we would be taking something out of the second quarter, since we're not raising guidance at this point in time.

Okay, great. And second of all, on the Global Hawk. Can you remind us, what is your content on the Global Hawk in the ship set value?

(technical difficulty) conservatively about $500,000.

Okay. And then the last thing, and I apologize, I missed this. What did you say your bottom valve percentage market penetration is?

32%.

And what's the production capacity of coke deheading valves currently and are you increasing that?

We have been increasing that steadily over the years. Obviously that business segment is close to $100 million and growing. So and it started out about five or six years ago. So we've always been increasing our capacity for building valves. Most of that is outsourced. We do more of the assembly and test. So our ability to increase utilization or capacity is very easy.

Okay, great. And I think you also said 700 coke drums worldwide. Do you have any kind of projection -- or 700 coke drums out there? Do you have any projection for new capacity volume?

Yes, there are going to be about 50 more that will be built over the next five years.

Okay, great. Thank you.

Tyler Hojo, Sidoti & Co.

Good morning, guys. A quick question just in terms of the segment guidance you provided during the fourth-quarter conference call. Does that all still stand?

Yes.

Okay. Just in terms of both revenue and margin?

Yes.

Okay, great. And if you wouldn't mind, the backlog by segment as well?

Controls $524 million, Flow Control $793 million.

And the balance? Metal, okay?

(inaudible)

Okay. And just in terms of the press release, I just want to understand this. Was AP1000 kind of how you were expecting both in terms of revenue and margin or was it a little bit worse?

No, exactly what we expected. Whenever we have a (inaudible) sale in any of our contracts, as you take material in we do not associate much profit with that. The more risks that we encounter and steer through the more profit we take. What you're seeing is an aberration of having the first large contract and normally what will happen is as you get follow-on contracts you'll get an averaging effect. All programs are going to start out with very low profitability, very low cash flow and they'll build themselves up to a point where you ship them. And as you expect more contracts to come on later on we'll get an averaging effect but right now you're seeing it's the aberration of a large contract that (technical difficulty) sales.

Okay, great. And just a follow-on to that. It seems like having said that kind of the guidance that you provided during your investor day in '07 in regards to AP1000 still stands, is that right?

I think that when all is said and done that that will be a conservative estimate of what we said at our investor conference.

Great. All right, thanks.

Eric Hugel, Stephens Co.

Just to delve a little deeper into this U.S. AP1000, you said you're expecting to secure that order in the second quarter, correct?

That's correct.

And after you actually secure an order what's sort of the time frame as to when you would actually start to recognize revenue on this stuff, pretty quick?

We're going to start recognizing revenue probably by the end of the year, but very little from material receipt. We'll really start getting into it in 2009.

And if that's the case, you're working through the startup costs now on the China stuff. Would you be that far ahead of the game in terms of -- because you're already doing a lot of the learning curve building here, as you start building these U.S. pumps they should inherently be higher margin than what you're seeing, you shouldn't see as big of a hit, right?

No, because what's happened again, when we first start out the contract we're going to get a lot of material receipt. So it's when you start to manufacture is when you start to build up that profitability. And once we have the contracts and the delivery dates we'll be in a better position to go through and update probably what we did at the investor's conference.

But this will be the first orders of what we will get from the U.S. There are a lot of orders or companies that are lining up. It's kind of like an airplane rollout. Nobody wants to be first, but then nobody wants to be last. So we expect a flurry of activity this year in excess of what we anticipated or projected at our investor's conference.

If I remember correctly you had about $10 million of revenues in '09 projected for China. So that (multiple speakers) extremely conservative.

You're using the word "extremely".

I'm sorry; I know that's not good. Nicely conservative. With regard to your Metal Treatment business, can you sort of define it? It looks like you're looking at 21% margins in that business and you said you weren't changing that. This quarter was pretty low; it looks like you had a lot of startup costs in that business. I remember you talk about building the China plant. Can you quantify what that impact is?

The impact is a few tenths of a percent, but I think the other items is that our laser business -- our new laser business, as we talked about previously, is going to startup and it was a little bit in a lower sales volume in the first quarter. The other thing is there was a strike by one of our major customers that put a damper on some of our order (inaudible) sales that once they come back from strike that will help the situation out. So you'll see improved returns as time goes on.

And can you talk about -- you talked about on the laser peening business one customer winding down. I thought your major customer for that up until you started winning all these orders was pretty much Rolls-Royce.

Yes. When we say it was winding down, it's a lot of the refurbishment of engines that were out or fan blades that were out in service.

Okay. So they're working through their backlog there?

That's correct.

And Marty, can you update us sort of -- I got on a few minutes late, maybe I missed it. But can you walk us through your guidance here for the year in terms of by markets? I think you said what you were looking for -- what you did in the quarter. Did you go through the market for what you're expecting for the year?

Yes.

Yes, Eric, this is Glenn. I think defense overall we're looking at 4 to 5% for the year, that was our guidance. Obviously we're higher in the first quarter; we had a good start on that. Commercial aerospace about 10%, oil and gas midteens, power generation could be in the 30% plus, and those are our major markets.

And lastly, and then I'll get back into the queue. I know there are some major -- I know -- I think BP and Aramco are talking about like a $7 billion refinery capacity expansion down in Texas. Is that something that we should think about that is sort of a prime opportunity for you guys? And can you also may be address in terms of the coker business sort of competition coming into that market?

Yes. It's obviously oil refineries that have coking (inaudible) cracking offers opportunity for us. Yes, we do have a competitor there that's entered the market. They have received some business, but overall it has not disturbed our growth or where we think we're going in the marketplace.

Great, thanks.

(OPERATOR INSTRUCTIONS). [Jim Hueng], [Dinali] Co.

Good morning. Marty, I guess when I look at the margins was there any kind of onetime item impacting margins in the quarter that won't be repeated later on?

I think a lot of it was China and some of its timing. Let me bring you through a couple of the "for instances". When you look at Motion Control, first of all that aspect impacted about 130 basis points. So they would pretty much be on par with last year. There are a couple of things that took place and they drive technology the Company in Switzerland. We supply marine valves to was (inaudible) and that was what (inaudible) then sold to their customers. We now have a direct channel to (inaudible) and that actually delayed our new order for that.

The other thing is that we just signed a large contract with South Africa that we were expecting in the first quarter. So there is a company that went and had a good first quarter last year, actually this quarter they lost some money. So we're going to make up all the distance of hitting our annual plan between now in the end of the year.

The other thing is there's a marine defense business out of Motion Control. We had a very good first quarter last year. We didn't have as good a first quarter this year and we just signed some new contracts for their equipment that we had expected a little bit earlier. So they're going to start ramping up and improve their sales and profitability next year.

Flow Control we talked about. China, we actually have a second Chinese award for airlocks, therefore a different plant but the same phenomenon takes place, that is we have materials equipment that's come in and we will be making those airlocks and shipping them out by the end of the year which we'll gain good additional profitability from. So that's basically the reason for the -- our guidance and where we are the first quarter. And then some of it is just timing and some of it was anticipated.

I guess with that kind of a sense of your small business, what gives you confidence that you'll be able to make your guidance for the full year? Because a lot of this is timing coming out in the second half of the year where you see some of the fruits of your contracts?

Without a doubt. We already have the contract, so it's not like we're anticipating something to take place. Now it's just a matter of execution.

Right, so you see the possibility coming in more in the back half of the year.

Without a doubt.

Okay. And just one other question. In terms of this blanket order, (inaudible) so just refresh, what do you think the ramp rate as you start shipping into '09, what do you think the (inaudible) might be?

It's going to be depending on the quantity and when we get the contract we will go through that. I don't know whether, Jim, we want to speculate right now. There are a lot of things that are taking place. So anything I said today will be past history in a very short period of time and I'd rather wait until we are granted the contract and we can come out and go through it in a much more thorough atmosphere.

Okay. Fair enough. I'll come back to you when it comes out then. Thank you.

Steven Wortman, Lord Abbett.

Good morning. It's Bob Fetch actually. Can you elaborate a little bit further on your -- you mentioned their content on the nuclear side for four navies and you specifically mentioned Japan, what the content might be and the number of ships that they're thinking about building?

Japan is going to be a total of 10 and it's about $7 million a copy for that system.

And what sort of timeframe are they looking to build the ships in?

Over the next 10 years.

Okay. Can you update us on the restraining systems for aircraft carriers, whether the retrofit is about to start yet?

There is not going to be a retrofit on the -- you mean on the advanced arresting gear?

Yes.

That has not started. Right now because of the funds being shifted over to Iraq that's probably not going to start for a little while.

Does that suggest years or months?

Years.

Okay, thank you. Can you update us on your thoughts and projections for CapEx and depreciation for this year or next?

(multiple speakers) The rest of the year is not in any of our -- we do not anticipate having any of those systems.

Okay, thanks. And CapEx and depreciation this year and next?

CapEx $115 million which includes $40 million for our expansion in Pennsylvania, and depreciation and amortization about $87 million approximately -- $87 million to $90 million, somewhere in that area.

Okay. And will be requirement likely go up on the CapEx next year as some of the nuclear orders come in the door?

We don't expect it to. Right now that $40 million is a little tail off into '09, but we should come back down in '09. Unless we get all kinds of great orders and we have to build more facilities, but that's what we're expecting, the $40 million is our largest incremental year.

And granted on the peening side you're expecting to see some nice growth on the aerospace side. Would you expect automotive though to grow over the next three to five years?

The thing is that even though there hasn't been growth in the industry, we continue to get more work per car. I don't see that growing really over the next five years.

Okay, thanks.

At this time there appears to be no further questions in the queue. (OPERATOR INSTRUCTIONS)

Okay, well, thank you very much for joining us today. And please, as a reminder for those of you who have not already RSVP'd for the embedded computing facility tour in May, please do so. I think it will be a great opportunity to get a firsthand look at our vast array of products, customers and programs.

In addition, we look forward to our second-quarter conference call in July. Thank you very much. Take care.

That does conclude our teleconference for today. We'd like to thank everyone for your participation and have a wonderful day.