Curtiss-Wright Corp (CW) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Curtiss-Wright second quarter 2008 financial conference call. Today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Chairman and CEO Mr. Martin Benante. Please go ahead, sir.

Thank you, Shawn. Good morning, everyone. Welcome to our 2008 second quarter earnings conference call. Joining me on the call today is our CFO, Glenn Tynan, who will begin our forum today. Glenn?

Thank you, Marty. If you do not have a copy of the earnings release which was issued yesterday please call Ms. Deborah Torre at 973-597-4712 and she will be happy to e-mail 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 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 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 I will provide an overview of Curtiss-Wright's second quarter 2008 operating performance, and then Marty will discuss our strategic markets and full year outlook. After the formal remarks we will open the call for questions. So let's get started.

Curtiss-Wright had consolidated sales of $454 million during the second quarter of 2008, an increase of 24% over the second quarter of 2007, including solid organic growth of 11%. Our organic sales growth was driven by contributions from all three segments, including 11% at Flow Control and Metal Treatment, and 10% at Motion Control. From a market perspective when our commercial markets grew 36% overall and 14% organically, including 36% organic growth in the commercial power generation market and 18% in the oil and gas market. In addition, our defense business grew a healthy 6% organically in the quarter led by 18% organic growth in ground defense and 17% organic growth in aerospace defense, partially offset by lower naval defense due to the timing of their procurement cycles.

In our Flow Control segment, sales increased 39% due to strong organic growth of 11% and the contributions from our 2007 acquisitions of Benshaw, Scientech, and Valve Systems and Controls. From a market perspective, the sales improvement was primarily driven by strong organic growth in our commercial power generation and oil and gas businesses, slightly offset by lower sales to the US Navy, primarily submarine and aircraft carrier work due to the timing of the procurement cycles. The strong commercial markets are also evident in Flow Control's backlog, which is 80% commercial and 20% government at June 30th.

In our Motion Control segment, sales increased 13%, the majority of which was organic. The key driver was strong sales to the aerospace defense market, driven by higher sales on the F-16, F-22, V-22, Global Hawk, and various military helicopter programs. In addition, we had higher sales of embedded computing products to the ground defense market primarily for the Bradley Fighting Vehicle. We also had solid commercial aerospace OEM sales, primarily on Boeing programs, which were partially offset by lower repair and overhaul sales due to the divesture in the quarter of our third-party [R&O] business. In addition, we had strong sales of integrated sensing products to the aerospace defense market. Motion Control's backlog is balanced with approximately two-thirds government and one-third commercial at June 30th.

Sales in our Metal Treatment segment were up 11% from the prior year, all of which was organic. Higher sales to most of our commercial markets, including commercial aerospace, power generation and general industrial, as well as the aerospace defense market including helicopters, all drove double-digit growth. Partially offsetting the strong performance in those markets was continued softness in the automotive market.

Our consolidated operating income of $50 million in the second quarter of 2008 increased 29% over the prior year, including 25% organic growth. The organic operating income growth was driven by our Flow Control segment, which experienced a very strong organic growth of 95% and our metal treatment segment was 15%. Our consolidated operating margin in the second quarter was 11%, was a 50 basis point improvement over the prior year, and resulted from strong segment performance. Flow Control's operating income improved 112% overall, including an exceptional 95% organic growth in the quarter as compared to the prior year. Operating margin improved 330 basis points overall, including 460 basis points organically in the quarter versus the prior year quarter. The prior year quarter included nonrecurring cost overruns on our development program for the Navy CBN21 carrier program and business consolidation costs. Overall our commercial businesses are generating strong margins while our defense businesses are at lower than normal margins due to the lower procurement of our traditional Navy work and higher development work from the CVN-78 and the DDG-1000 programs.

In our Motion Control segment, operating income increased 3%, primarily hampered by the negative impacts of foreign currency translation. Foreign currency translation negatively impacted operating income by $800,000 or 70 basis points on margin in the quarter. Also impacting margins were lower sales for our turret stabilization systems due to the timing of the contract receipt that occurred later than expected and will resolve itself in the second half of the year. Operationally, demand for our embedded computing and integrated sensing products produced solid results that were partially offset by strategic R&D investments by our embedded computing group.

In our Metal Treatment segment, operating income was up 15% from the prior year, generating an 80 basis point margin improvement, all of which was organic. The higher sales volume overall, including a large project for Westinghouse in the nuclear power market, drove the solid performance.

Consolidated net earnings of $27 million or $0.60 per diluted share for the second quarter of 2008 equates to 27% growth over the prior year. This bottom line performance was achieved despite absorbing a 41% increase in corporate pension expense and 26% increase in interest expense. New orders received in the second quarter of 2008 were $877 million, up 141% from the prior year quarter and our backlog reached a new record level of $1.7 billion, up 34% from the 2007 year-end. Overall, our book to bill ratio was 1.9 times in the second quarter. In addition, for our Flow Control and Motion Control segments, approximately 80% of the second half year sales are in our backlog as of June 30th.

For the second quarter, our free cash flow, defined as cash flow from operations less capital expenditures, was $55 million versus $49 million in the prior year, primarily due to working capital improvements, specifically in accounts receivable and inventories. Depreciation and amortization was approximately $19 million and capital expenditures were approximately $23 million during the second quarter. As noted in the press release, we have increased our 2008 free cash flow guidance to be in the range of between $90 million and $100 million. Our balance sheet remains strong with $85 million in cash, working capital of $403 million, and total debt outstanding of $510 million as of June 30th, 2008, for a net debt to book capitalization of approximately 30%. I will now turn the call over to Marty to discuss our strategic market performance and full year guidance.

Thank you, Glenn. I'm very pleased to report our strong second quarter performance, which is the result of the strong demand for our advanced technologies as well as the robust markets that we operate in. In although the equity margins have been quite volatile I think the anxiety some observers have of future events has caused them to underestimate the strength of our products, technologies, and markets today and in particular our strategic diversification. While we're not immune to the economic market challenges, we are well positioned in all of our markets and confident we will continue to provide solid profitable growth in the coming years as we have over the past several years. To illustrate,I'll walk you through some of the activities in our core markets -- defense, energy and commercial aerospace.

Starting with defense, which represents just over one-third of our consolidated revenues, we achieved a solid increase in revenue of 6% in the second quarter and 8% year-to-date. Our defense revenues are fairly balanced between aerospace, ground, and naval platforms. In the second quarter, a ramp-up in aerospace defense of 17% was driven by increased sales across the board, including the F-22, F-16, V-22, Global Hawk and military helicopters.

In ground defense, orders of the Bradley Fighting Vehicle more than doubled. As many of you saw firsthand at our investors conference in Ottawa, we are laying the groundwork for tomorrow's platform through strategic investments on future combat systems programs, primarily from our embedded computing technologies. Although all the details of the FCS programs have yet to be determined, we have already positioned ourselves on several critical vehicles with our servo motor controllers, which have become a large program for Curtiss-Wright in the future.

Navy presents a the challenge in the short term as our US naval revenues are down 10% in the second quarter and 3% year-to-date, primarily due to the anticipated and previously indicated low point in the procurement cycle for the nuclear submarine and aircraft carrier programs in which we have significant content. Long term, we see opportunity with the Navy. We expect to receive funding for the Virginia class submarines beginning in the fourth quarter of 2008 and we expect that the procurement strategy to ramp up to a multi-ship buy in the 2009 to 2010 timeframe. Similarly, in the CVN aircraft carrier, we expect the next order to begin in 2010. This suggests an inflection point in our revenues as early as 2009 or 2010 on the outside. In addition, we have greatly enhanced our naval defense portfolio with new content on the helicopter's landing systems that support a number of surface ship programs in the US as well as foreign militaries, and the development and production work on the destroyer program is steadily progressing.

In the commercial markets, our 36% growth reflects double-digit organic increases in our energy market and solid contributions from our 2007 acquisitions. All of our 2007 acquisitions are performing well and according to plan.

Starting with the commercial nuclear power market, we generated 36% organic growth in the second quarter, largely related to the startup of the AP-1000 China program. In May we announced another award from Westinghouse in excess of $300 million for the new domestic construction of three power plants, the first new nuclear plants built in the United States in 30 years. The awards include an option for a fourth power plant and there are currently three more planned for a total of seven AP-1000 plants that are either in licensing process currently or expected to be in the near future in the US. Internationally Canada, South Africa and the UK are also giving strong consideration to new nuclear power plants construction.

There is plenty of growth to come in this new construction market because we have only begun tapping our portfolio of over 150 products, with the initial product being our reactor coolant pumps, which are long lead items procured in the very early stages of the procurement cycle. In addition, we have greatly enhanced our portfolio of product offerings to this market with our 2007 acquisition of Scientech including monitoring systems and process control instrumentation. These technology enables legacy nuclear plants to operate more efficiently and safely.

In oil and gas the high price of oil and resultant increase in capital expenditure by the refineries is driving strong demand for all of our products, which makes the efficiency secondary processing more attractive as well as our aftermarket services due to high utilization rates at the refineries. In particular, our coker deheading valve continues to be the market leader, generating some strong growth in the second quarter which equates to a 34% global market share on the bottom valves. Most recently, we were awarded the largest single contract for 10 tops and bottom coker valves for installations in India.

In addition, we continue to make progress developing the market for our isolation valves and cutting tools. We currently have eight isolation valves installed and 14 more in progress. In June, we sold our first cutting tool. Our 2007 acquisition valve systems and controls is performing well with record quotation levels. The combination of their control systems with our coker products has created complete system solution for our customers and we continue to grow our position as a market leader in this area. Demand for our systems package has been accelerating and should provide good growth opportunities looking forward.

Finally, it is particularly noteworthy within our oil and gas portfolio that our pressure relief valve continues to be an impressive contributor. Our portfolio of pressure release valves has been in high demand from the overall global processing market including oil and gas production; refining; as well as chemical, petrochemical, industrial gas and pharmaceutical markets. International demand is accelerating as a percentage of total sales, which is a trend we expect to continue. Major petrochemical projects are being built outside the US, primarily in the Middle East and Asia, which is the [premier] reason we established our presence in China both from a proximity, customer and lean manufacturing strategy.

As a final note on gas and oil, I want to provide an update of our subsea pump. This unit is en route to the platform. After the deployment, [Petrobras] will make the flow line arrangements and electrical connections. [It will be] a couple of months before all production will commence.

Beyond nuclear power and refinery, we're proud to be participating in ultimate energy technology through the addition of our 2007 acquisition of Benshaw. In particular we've been working with UTC, a geothermal power generation where we provide a control box for the electric motor and machine control.

Commercial aerospace is also up slightly 10% year-to-date. The market dynamics are somewhat hampered by large new programs coming online slower than anticipated such as the A380, 787 and Eclipse, and conservatism in demand forecast are going forward. Year-to-date, our OEM work is up nearly 20%, but repair and overhaul and spare work were definitely limited by market dynamics. Third-party repair work has never been a core business for us. As a result, we divested our third-party overhaul and repair business in May. We will continue to provide product support to Boeing and our airline customers. On a go forward basis, commercial aerospace after market will be less than $20 million.

We're excited about the growth in other areas of commercial aerospace. We have discussed our rotary ice protection system or RIPS previously as the only fully automated technology certified by the major world governing agency to enable safe helicopter flight to known ice conditions. Our initial market customer was Sikorsky, and we have sold approximately 80 systems to date on the S-92. We've also been selected by Sikorsky for their S76D helicopter. Most recently we have been awarded a contract by Korea Aerospace Industries to provide a suite of ice protection electronics to protect the engine air inlets, windshields, and main and tail rotor blades on their new utility helicopter. We expect to start delivery in 2009 in support of the qualification efforts, and ultimately this contract can extend a dozen years. Initially it's for military helicopters, but there are discussions in support of other military variations and commercial aircraft as well.

Going forward, we are in pursuit of a number of new opportunities in the US and globally. In particular, we see significant growth opportunities for RIPS as energy demand and prices keep oil platforms and pipelines working 24/7. Not only are the helicopters the best vehicle to transport men and equipment to remote locations, aborting a helicopter flight due to ice conditions is extremely costly from both an equipment and economic perspective.

To wrap up my remarks today, I'd like to reiterate how pleased with are in our performance the first half of 2008. We estimated that less than half of our sales would occur by this point of the year. In fact, we have locked in approximately 47% to 48% year-to-date, so we're on target. As in the past, expect a ramp-up the second half of the year. In addition, we have delivered approximately 42% of our targeted earnings per share guidance year-to-date which is in line with our expectations. As noted in our press release, we're maintaining our full year's guidance for revenues, operating income and earnings per share, but we have increased our expectation for free cash flow. We do not expect to generate material revenues on the recently received domestic AP-1000 contract until 2009 with qualification testing on the initial pump order for China is well underway. Overall, 2008 is shaping up to be another very good year for Curtiss-Wright, and now I'd like to open up the conference call for questions.

(OPERATOR INSTRUCTIONS) We'll go first to Myles Walton with Oppenheimer & Co.

Good morning.

Good morning, Myles. How you doing?

Question for -- let's start with Glenn. On the cash flow guidance, is that increased primarily off the advances from the nuclear orders in the quarter given there were no other adjustments in the guidance?

Partially, and partially due to working capital improvement, yes, anticipated.

Okay. And, Marty, you mentioned some of the progress you're making on the RCT, not just the manufacturing side but the qual test. Could you give us some flavor for the calendar in terms of major milestones, risk reduction getting kind of your feet through that process the first time, by which time you'd feel more comfortable with the outlook not only your manufacturing ability, but your pricing and such?

Well, Myles, as you know, we're building our newbuilding which will include our test loop. Right now we are building the first pump. We anticipate that the test range will be ready first quarter of next year and we will start our qualification testing. So I think by the middle of next year we'll have a better understanding of where we are as far as the program as a whole.

Okay. That's helpful. And then with respect to the other equipment I think the other major piece is the control drive mechanisms that you're looking to compete on the AP-1000. There's also ancillary products that you'd sell into any of the power plants. Can you give us some perspective on the lead times that are involved on those two by the products you sell?

So the lead time for control ride drive mechanisms and -- which would also be out of EMV, and relief valves which would be out of Target Rock -- the request for codes, you should start seeing them somewhere in the 2009 timeframe for award either in late 2009 or early 2010. And then what will happen is you'll start to see as 2010 goes on, we will see more and more requests for quotes on some of the other hardware that we have.

Those initial RFQs in '09 are for the China and then it would maybe take into 2010 for those looking to build in the US? Is that the right way to think about it?

I think so, yes.

Okay. And the sales guidance remains unchanged here organic strength in the first half obviously pretty good. Just conceptually the way looking at your guidance is it fair to think that you're feeling really good about sales and then maybe you're going to be fighting a little bit harder to make some of your initial margin targets?

Well, I think first of all, you have to look at the fact that we did sell our Miami unit and that was $0.03. Between and among the AP -- I'm sorry, the A-380, the 787 and Eclipse program that shaves another few cents off of our guidance. It's not material, but all these little things do add up. From a very positive note, obviously we're doing extremely well in all of the markets that we're in and the thing is that the buildup of the new pumps for the aircraft carrier and also the AP-1000 is revenues and more profit as we continue to get into the milestone schedules that we'll be able to see in the second half. So it not that we're that concerned about the profitability going forward. It's just that like most of our years -- in particular this year is very similar to what we've experienced since 2004, that we get about 42% of our earnings per share in the first half and we'll get the remainder in the second half. As a matter of fact, the third quarter will be a little bit less than the second quarter by a few cents and then we'll finish it up with a strong fourth quarter.

Okay. And remind me, what was the size of the Miami cell you divested?

Oh, it was about $25 million in sales, somewhere in that area.

$25 million in annual rev. And then last one, there's talk in the press in Washington about the plans for naval surface destroyer construction and potential switching of priorities from DDG 1000 to DDG 51 and just wanted to know from a hypothetical perspective what that means pluses and minuses for Curtiss-Wright.

Right now if you're looking to DDG 1000, we have about $30 million of installed base there. If you're looking at DDG 51, we have approximately $7 million. So let's just say the program gets cut. We would have no revenue impact or profit impact until 2010. However, there is strong sentiment that the DDG 1000 is safe. However, if the 51 comes in, it's indicated it requires additional radar capabilities, and with that they would require more power, and they would require new updates for electrical power generation that we would be competitive of. So with those retrofit changes with the DDG 51 [are] successful, our revenues would almost be the same. So we would see very little impact off of the destroyer change if there is one. I think everybody has to think that a lot of this in the defense bill -- there's going to be a lot of speculation between now and when it finally gets passed. So I don't think that the DDG 51 being switched to it is going to be -- is going to hurt us that much, if anything.

All right. Thanks. That's really helpful.

All right, Myles.

Our next question comes from Chris Donaghey, SunTrust Robinson Humphrey.

Hi, good morning, guys, nice job on the quarter.

Thanks, Chris.

How you doing?

On the commercial nuclear business, you now have I think about 42 pumps under contract, and excluding the options. And if we go back to the investor presentation from the 2007 analyst meeting, it showed kind of a forecasted production rate of somewhere between six and seven pumps a year starting in around 2010. And it's my understanding if I remember correctly that the facility itself that you're building is going to have capacity capacity of about 16 pumps a year. So can you just walk us through, if you can, what you think the volume is going -- the build is going to look like over the next few years?

I think that the volume might be a little bit better than the six or seven a year, starting 2010 to 2011 timeframe. Based on the demand that have been expressed by the UK where the prime minister Brown commissions eight new plants and saw there was no upper limit to the amount of plants that Britain will produce in the future -- South Africa, Canada, additional demand in the United States. I think that obviously the requirement for additional pumps is going to improve steadily. As far as the capacity is concerned, we're going to build capacity to meet the demand. There's no doubt about that. So there are ways of improving capacity by doing some workarounds in other portions of our plant, but if we build into the test loop, that would increase the productivity. So I don't look at that as being a limited factor. I think we're well suited right now for what's anticipated in the nuclear industry for the time being.

And my question was more along the lines of are you going to have enough capacity at only 16 pumps a year if Westinghouse really becomes one of the primary dominant suppliers? And especially if the Chinese can't develop the industrial base to build the pumps themselves, to some extent it almost seems like you could end up in a situation where you're capacity constrained, granted not within the next two or three years, but a little bit further out.

But the thing is we'll build more capacity.

Okay, great. And --

You need to understand there's one thing about -- we have the technology. So the thing is that we will aid our customers in whatever they are looking for and the thing is if it takes another investment, obviously the investments we're making compared to the prices and the size of the contracts we're getting, that's a small incremental increase even though it was considered to be -- seems like a lot of money, compared to the amount of future dollars that are associated with those pumps.

Right. I would agree with that, too. On the commercial aerospace side, with the sale of the [R&O] business, can you quantify now what your total aftermarket exposure is in commercial aerospace?

About $20 million. Most of that is for our own proprietary design products.

Okay. Great. And then the last question is on the oil and gas market, with some of the production issues out of Mexico for the heavy mine, is that having any impact on your Texas exposure, number one, and number two, do you have any visibility yet into what the Saudis' plans are for heavy crude refining capacity?

The answer as far as the amount of production that's being processed by refineries, I don't think that the Mexican situation is going to -- it's not the fact that we can't find the oil. The thing is we find a lot of crude oil which can only be refined by cokers and secondary processes such as that. We're not finding the light oil. So as far as that's concerned, I don't see any change. That's why they're building so many new programs throughout the world, new cokers, and as far as Saudi, no. The answer is I do not. We do not know that right now.

Okay. Great. Thanks, Marty.

Thank you, Chris.

Our next question comes from Eric Hugel of Stephens, Incorporated.

Good morning, guys, good quarter.

Thanks. How you doing?

Hey, just a follow-up on Chris's question. Is the main driver of sort of like the oil and gas refinery upgrade? Is it just sort of their margins are being squeezed so they need to offset costs? Is that how we should think about it in addition to additional units being put in?

Well, the thing is that additional units are being put out throughout the world. So what may be somewhat restricted in the United States in which we already have most of the market may not be restrictive in foreign countries which is now where a lot more of the new coker customers are being looked at. So right now and you also have to remember is every five years they have to go and rebuild their coker systems which allows them at that particular point in time to make a crossover. So if they haven't made a crossover yet and you're still going to get five, four more years out of production on the current tank that they have and in four years when they have to rebuild that, that would be a natural time to switch over. So we don't see the demand for our coker product going down and haven't seen it go down. In fact, it's gone up.

That's great. So there's a natural cycle that this thing will progress, because over let's say a relatively five year period, it's a pretty easy sell for you guys when they're taking their cokers down to sort of have this equipment put on?

Without a doubt and not only that, the cokers that we already have equipment on, that valve will be refurbished which is going to also be additional revenues, incremental revenues and profitability that we have not really seen because that situation really hasn't come up in a large scale yet.

They pretty much have to do that. They can't sort of not do that. They would blow up their plants, right?

That's correct. You have to refurbish them based on the amount of cycles you put on those tanks.

Okay. Can we talk about, I -- just for clarification I guess the Myles question. When are the first AP-1000 pumps for China? I mean I understand you don't want to build up a lot of inventory and find out oops, we've got to make a bunch of changes across a bunch of other pumps, too. I mean when would you expect certification? I guess who certifies it, the Nuclear Regulatory Commission, Westinghouse? Who actually certifies that and what's sort of the timeframe for that?

The NRC certifies it but obviously it's to specs that have been agreed upon with Westinghouse and the NRC. So it's the NRC that does the qualifications for us. Our first deliveries are in 2012 and we would expect qualifications -- since there's many different requirements within that qualification that you have to meet, we'll start doing qual testing in 2009 and we'll continue on.

Okay. But you would start to build I mean I guess from my conversations in the past I guess what you said is you weren't really going to start to build nonChina coolant, reactor coolant pumps until 2009, and that's because you'll have it constructed and then start building it? Or are you going to wait longer until you get farther down the qual?

We just got orders for that and we have to get the raw material in before we can make it. Right now we have raw material in from China and we're progressing and going forward on China.

So that's really the pacing item is your long lead times in getting things? It's not really wanting to have a pump sort of qualified before you go and start building?

No. Because there's -- certain aspects of the pump are design changes that we're well familiar with and the thing is the remainders of the pumps can be made basically almost no risk. So it's not like it's holding us up. It's the raw lean materials that take a long time to get in. These are not small pieces and you're not -- and they're built specifically obviously for us. So that's what takes the time. The time is to get the raw material in and then we start into the production cycle.

What would be sort of that longest sort of lead time item, type of -- is it the castings, the forgings I mean?

Yes.

And is that domestic, international? Is there only one supplier pretty much?

Pretty much, yes. It's more domestic.

Okay. Is there opportunity for additional suppliers to come on board that could squeeze that lead time?

Right now we're not anticipating that.

Okay.

And it's not so much the lead time, because realistically we start so far in advance of nuclear build cycle. I mean it just takes that long for the licenses to be approved and the plant goes to [put out order]. When you look at just the construction of the foundations for these things and [extreming] out. So we have more than enough lead time between knowing when something's coming in to start the cycle and to be able to manufacture the pumps in the required period of time.

Fair enough. Hey, one of the names of the countries that you left off your list was India. I guess you just made progress --

There's some nuclear -- there's some regulation problems there. So I don't think -- we do know and we've indicated that India has a large requirement for nuclear power plants. And I guess there's just some regulation processes that have to go through between the United States and India for us to be able to participate in that market.

Well, I mean I guess my understanding is the Indian government just sort of approved this treaty. It's going to get approved by the IEA and the Nuclear Suppliers Group pretty soon and then hopefully Congress will approve the treaty. So once that goes through, have you had any sort of preliminary sort of discussions with Westinghouse -- maybe because I know they're in discussions with India about how that market might look? Would it be more potentially like a China deal where you would have to do a technology transfer agreement or might you build those pumps internally or has that just completely not been resolved yet?

That has not been resolved at all yet.

Okay. Fair enough. Can you give us an update with regards to laser peening, where you are in terms of -- first of all, I guess how are things going with the new Boeing laser and sort of any other additional sort of contract wins that you had during the quarter?

No. We did install the laser at Boeing. Things are going fine. The production started in May and right now we have not had any major win on laser peening since last quarter.

Okay. With regards to the RIPS business, I guess one thing now is just thinking you're on the S-92, S-76. I would think that a kind of obvious application would be on the military side for like a Blackhawk. I mean huge opportunities here. Can you sort of give us maybe a little more granular opportunity? I mean is that retrofittable to something that's already flying today or could it only go on sort of newly built aircraft? And why wouldn't you be talking to guys like Sikorski for things like a Blackhawk or other major military programs?

Some of the Blackhawks are being built with the options to be put into it and the thing is as you know, the Blackhawk is going through major overhaul. And we're hoping as those overhauls take place that we would be installing the RIPS options and then you're able to put the system in later on.

All right. So it would be certified to go on that aircraft? Is that how it works? You would be certified on a specific helicopter or it can just pretty much go on different -- ?

No. It has to be certified to a specific helicopter because there are some nuances. It's basically the same box, but there are some nuances associated with each individual helicopter.

So you are certified right now for the Blackhawk?

No, we are not.

Okay.

That's what we expect to take place, we're hoping to take place.

In relatively near term? What sort of timeframe would one expect that?

Don't know.

Don't know right now.

Thanks, guys.

(OPERATOR INSTRUCTIONS) We'll go next to Steve Levenson with Stifel Nicolaus.

Good morning, how are you?

Fine, thank you.

Hey, Steve.

Just in terms of the coke deheading valves, do you have a sort of market size estimate? With the refurbishments going forward, do you see potential for this to sort of reach a steady growth state and is that in the teens or the 20s?

Well, right now it's been in the teens and 20s. I mean this is a business that since 2002 started out at $5 million and we're [well] over $100 million right now and we continue to see a strong demand for the product. So the market keeps growing because the amount of crude oil. And the thing is that right now there are 700 cokers in the world and there are another 50 coming online. So the market size will be about 750 cokers, of which right now I think the bottom we have 34% of the market. And that's the bottoms and not the tops. And the thing is that people have to start thinking about this business from the systems standpoint. We sell a system solution now. We have with valve systems and controls, we have the control package. We're starting now to put together the isolation valves, the cutting tools. We now sell really a systems solution, not just the valve. So the valve definitely has been the mainstay of what we've been doing and will probably continue for a period of time. But I think these overall systems will eventually be more desirable for our customers just as much as the delta valve is.

So that means there's actually potential for a little acceleration here?

Yes. We indicated that during the conversation that we are receiving a lot of quotations not only for the delta valve, but also system -- but also for other upgrades within plants that would improve the safety of the plant.

Great, thanks. On the reactor coolant pumps, I know there's some special materials required. How do you see the supply situation there? I know I've spoken to a few of the suppliers. They seem to be adding capacity. Are you all in sync?

Everybody is in sync. Everything is going fine.

And on the A350, with a lot more of the plane being made out of composite, do you see the metal treatment opportunity there more on engine parts or are there still some metal parts and actuators where you'll be able to get contact and where do you see Curtiss-Wright end composites?

Well, again planes are still being built out of composites that we still see continue to grow. Which says that the requirements for all of the sundry items, where we have most of our work anyway in all of the gears, most of all of the gears and highly stressed parts, we will continue to Shot-Peen and also laser peening. Now as far as the wing components is concerned not all of it is composite. Some of it is still metal so. As time goes on and just in all industries, things, items, become -- transmissions become more and more stressed. We continue to find additional market growth in those areas. If you take a look at MIC right now, the automotive was down 12%, but yet when you look at agriculture with the amount of increase in food production, especially with corn being used as ethanol, we have a good market there. We just set a nuclear project -- one thing that most people don't realize and since it's been a while which as a nuclear renaissance takes place, there's more additional Shot-Peening requirements on a nuclear power plant. We do a lot of the pipes and joints and things like that. So composites have come in and other opportunities will come up.

Sounds good. On the M&A pipeline, what do you see? What's on your wish list?

We see some good activity out there. We see some companies that we are -- think we can add very good technologies to our portfolio mostly in the commercial area right now -- a couple in military but mostly in commercial -- and see some very nice companies out there.

Any particular sector?

No comment.

Okay. Thanks very much.

Thanks, Steve.

Take care, Steve.

We'll come back to Myles Walton with Oppenheimer & Co.

Thanks. A couple quick follow-ups, if I could.

This isn't three for $1.

I'll pay you later. On the nuclear side, back in September at the Energy Analyst Day you'd talked about the three year outlook for revenue or actually the longer term outlook for revenue there. And just in the near term it was $60 million in '08, $70 million in '09, $110 million in 2010. Relative to now having pretty much all the backlog under your belt at least on the RCP side of the house, are those targets holding or are you running above those targets?

We think 2009 will be a little bit better than that.

Okay.

So obviously as far as the revenues are concerned.

And I guess a follow-up on the last question on M&A, what are the size of those deals that you're looking at at this point in time?

Well within our capacity to handle.

Okay. No other color than that?

That's as far as the color's going.

How about in line with recent deal action?

In line with recent deal action?

In line with your historical deal prices?

Yes.

Okay. And then the last one -- backlog in bookings by segment, or I guess Motion Control and Flow Control, if you can give me those two?

Sure. For Motion Control, backlog's about $580 million. For Flow Control, it's about $1.160 billion. You want the new orders as well?

If you look at backlog for Motion Control, right, everybody looks at the pumps and --

Flow Control.

Did I say Motion Control? I'm sorry. Now if you were to take out acquisitions and you were to take out the pumps they still would have grown 19%. Which shows you that the real demand for some of our products outside of what everybody thinks that they were the pumps that made the backlog grow, well, it had a major impact. But at the same time we have demand for a lot of other of our products.

I think that's helpful and it looks like Motion Control book to build there was pretty good, too, 1.3. Was there larger bookings in the quarter than that?

Well, the thing is when you really take a look at our embedded computing, sales there grew year-over-year 20%. Actually our profits went up greater than that. Sensors are growing at almost a 20% clip. So over and above the aerospace, I mean, the embedded computing and sensors is doing extremely well.

Okay. Thanks again.

We have no further questions on the phone at this time. I'd like to turn things back over to speakers for any additional or closing remarks.

I'm sorry, Shawn, thank you. Well, we want to thank everybody for participating with us today and we look forward to our third quarter conference call in October. Thank you very much and everybody take care.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may disconnect at this time.