Curtiss-Wright Corp (CW) 2008 Q4 法說會逐字稿

Good day, everyone and welcome to the Curtiss-Wright 2008 financial results conference call. As a reminder, today's call is being recorded. At this time I would like to turn the conference over to the Chairman and Chief Executive Officer, Mr. Martin Benante. Please go ahead, sir.

Well, thank you, Christina, and and good morning everyone. Welcome to our 2008 year end earnings conference call. Joining me on the call today is Mr. Glenn Tynan, our CFO, who will begin our forum today. Glenn? Thank you Marty.

If you do not have a copy of the Earnings Release that was issued yesterday, please call Ms. Deborah Torrey, at 973-597-4712, and she'll be happy to e-mail or fax a copy to you.

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 provision of the Security Reform Act of 1995, and involves 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 Securities 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 fourth quarter 2008 operating performance, and then Marty will discuss our strategic markets and 2009 outlook. After the formal remarks, Marty will open the call for questions.

Curtiss-Wright had consolidated sales of $508 million during the fourth quarter of 2008, an increase of 2% over the fourth quarter of 2007. Our fourth quarter sales growth was led by our Flow Control segment, which achieved 8% growth, offset by sales declines in our Motion Control and Metal Treatment segment sales of 3% and 6%, respectively.

In our Flow Control segment, sales of $274 million generated sales growth of 8%, all of which was organic, and primarily related to revenues from our AP1000 reactor coolant pumps, which are being constructed for new nuclear power plants in China and the United States. The growth in our Power Generation market was partially offset by weaker demand in our Oil and Gas segment, in particular, for our secondary processing equipment, which was down 22% in the quarter, due to our customer's restricted access to capital and reduced demand for petroleum products in general.

In our Motion Control segment, fourth quarter sales of $173 million were 3% lower than the comparable period in 2007. Lower sales in this segment were primarily caused by the Boeing strike, extended delays in new Commercial Aerospace programs, unfavorable foreign currency translation of $6 million, and the divestiture of our Repair and Overhaul business earlier in the year. Excluding the divestiture and negative FX impact, sales were up 2%. This sales increase was primarily due to the incremental sales from our 2008 acquisition of $16 million, offset by the negative impact of the Boeing strike and extended delays on the Boeing 787 and Eclipse programs.

Fourth quarter sales in our Metal Treatment segment of $61 million decreased 6% from the prior year, all of which was related to the negative impact of foreign currency translation of $5 million in the fourth quarter. Excluding foreign currency, our Metal Treatment business generated a sales increase of 1% during the fourth quarter. Increased sales to the Commercial Aerospace market were offset partially by lower sales to the Automotive market.

Our consolidated operating income of $61 million in the fourth quarter of 2008 was essentially flat as compared to the prior year period. Our Flow Control and Motion Control segments generated organic growth of 12% and 11% respectively, which were mostly offset by a 13% decline in our Metal Treatment segment. Our consolidated operating margin of 11.9% decreased 40 basis minutes to the fourth quarter, 2008, as compared to the prior year, due primarily to higher corporate and other expenses, including $1.4 million of foreign exchange losses, related to our acquisition of VMETRO, higher pension expense, and higher medical costs.

Segment margins actually improved 40 basis points, to 14.1% for the quarter. Flow Control's fourth quarter operating income increased 12% over the prior year, all of which was organic. Higher sales, improved profitability on several long-term contracts, and lower AP1000 design costs, all contributed to the operating income improvement. Overall operating margin for the fourth quarter was 14.2%, a 60 basis point improvement over the prior year quarter.

FX adjusted margin was 13.8% in the fourth quarter, up 20 basis points from the prior year quarter. In addition, this segment is participating in several next generation programs, such as the CVN78, which generates a drag on margins in the short term, but should lead to healthy growth and increased profitability in the future.

In our Motion Control segment, fourth quarter operating income of $22 million was 4% higher than the prior year period. Organic operating income growth was 11%, which was partially offset by an incremental operating loss of $1 million, from our 2008 acquisitions. Overall, operating margin improved 90 basis points to 12.8%, versus 11.9% in the prior year. However, foreign currency translations had a $5 million favorable impact on this segment's operating income in the fourth quarter.

Excluding the FX impact, Motion Control's operating income was down 20% from the prior year quarter, and operating margin was approximately 10%, down over 200 basis points from the prior year. Motion Control's operating income was negatively impacted by the divestiture of its Commercial Aerospace Overhaul and Repair business earlier in the year, the impact of the Boeing strike, delays in the new programs, and operating loss at newly acquired VMETRO, as well as a bad debt write-off related to the Eclipse bankruptcy, and costs related to the cancellation of a development contract.

In Metal Treatment, operating income declined $1.6 million in the fourth quarter of 2008, as compared to the prior year period, primarily due to significant headwinds from lower sales to the automotive market. In addition, Metal Treatment had $2 million of unfavorable foreign currency translation during the fourth quarter, resulting from the strengthening dollar's impact on its European Shot-Peening operation. Excluding the FX, Metal Treatment's operating income and margin were essentially flat with prior year.

Consolidated net earnings of $35 million, or $0.76 per diluted share in the fourth quarter, were 9% lower than the prior year, due mainly to a higher effective tax rate of 35%, versus 28.4% in the prior year quarter. In the fourth quarter of 2007, net earnings benefited from a lower effective tax rate due to changes in various foreign tax laws. New orders received in 2008 were $2.2 billion, up nearly 20% year-over-year, of which 13% was organic. We ended the year with a backlog of $1.7 billion, up nearly 30% from year-end 2007, of which 28% was organic. Our new orders yielded a strong book-to-bill ratio of 1.2 for the year, with all three segments at or above one.

Now, I will review our liquidity and financial position. In 2008, our free cash flow, defined as cash flow from operations less capital expenditures, was $76 million for the year. Our cash flow from operations was up $40 million from the prior year, but was offset by higher capital expenditures of approximately $40 million, related primarily to the new manufacturing facility in Cheswick, the AP1000 Nuclear Power Program. Depreciation and amortization was approximately $74 million in 2008, and capital expenditures were approximately $104 million. Our balance sheet remains strong, with $61 million in cash, working capital of $352 million, and total debt outstanding of $517 million, for a net debt to book capitalization of 32%.

Now let me turn to our pension plan performance in 2008. The overall equity market performance significantly affected our pension plan's funded status. Our 2009 expense for the Curtiss-Wright domestic plan is expected to be $10.3 million, an increase of $2.3 million from 2008. Approximately $1.1 million of this increase is due to a settlement charge associated with the retirement of an Executive Officer.

In addition, the CW EMD pension plan is now 78% funded on a financial accounting basis, down from 124% funding at the end of 2007. This resulted in a negative equity adjustment of approximately $80 million as of year-end. This accounting adjustment will not impact our ability to pay dividends or comply with our debt covenants. In addition, while we are not required to make a cash contribution to the pension plan in 2009, we do currently expect to make an estimated $20 million cash contribution in 2010.

I will now turn the call over to Marty to discuss our strategic market performance and full year guidance. Marty?

Thank you, Glen. This has certainly been a challenging year for us on many fronts, and I am proud of our 2008 performance overall. We achieved double-digit sales and operating income growth, due to strong demand for our unique, high performance products, in our highly diversified markets.

For the full year 2008, our Defense businesses generated healthy organic growth of 5%, and our Commercial markets achieved 7% organic growth. Our defense market growth was driven by our Aerospace and Ground Defense markets, 8% and 18% respectively, which was partially offset by stable revenues from our Naval Defense market, which was down slightly from the prior year.

While the change in administration may cloud the outlook for some long-term military programs, we are confident that the demand for our Defense products will continue to be healthy as Congress looks to refurbish and replenish the current forces. Our diversified exposure to nearly every jet fighter, military helicopter, ground vehicle, and nuclear Navy program ensures that we are not materially exposed to any single line item in the defense budget.

While some programs for Curtiss-Wright are potentially approaching the end of their production, such as the DDG1000, we look forward to next generation programs, such as the F35, Global Hawk, and [P88], which are just at the beginning of their production cycles. In addition, we are committed to supporting [foreign] militaries, as well as the continued development of future combat systems. In 2009 we expect our overall defense budget to grow mid single digits, similar to 2008. As you know by now, we take a long-term view of the Defense market, positioning ourselves on development programs several years in advance of production, and it is the intimate knowledge of those programs and requirements that drives our confidence in our technologies and future performance.

In our Commercial market, the new construction Renaissance for nuclear power plants generated organic growth of nearly 50% in 2008, as we ramped up production of our first reactor coolant pump for the AP1000 reactors in China and the US. In addition to the flagship orders for our reactor coolant pump, we are beginning to see initial orders for many of our other technologies that will support new plant construction here in the United States and abroad. These advanced orders signal commitment of utilities, construction of new nuclear power plants, and we are extremely pleased to be at the forefront of this Renaissance. We expect to see double-digit growth in this market in 2009.

Completing our Energy portfolio, our Oil and Gas market experienced a 4% organic sales decline year-over-year, due primarily to delay in capital spending that began during the fourth quarter, as a result of severe credit tightening and volatility in crude markets. It is not just the price of crude oil or spreads which drives the demand for our advanced technology, but also impacting our Gas and Oil business are the unprecedented price swings that create market uncertainty, as well as lower overall demand for energy products. While the energy market supply and demand dynamics appear to be more volatile than ever as we begin 2009, the large picture remains the same. Energy needs will continue to increase, and efforts to adjust both environmental concerns and domestic independence will drive demand for advanced technology.

Curtiss-Wright's industrial leading products provide unparalleled safety through automated technology, and also increase operational efficiency and limit emissions. Taking workers out of harm's way, providing the most reliable and reduced environmental emissions, are profound values, which drives our customers to our products, in global refining and petrochemical production. While the Oil and Gas market is experiencing tough conditions, we will certainly feel this pinch again in 2009. We feel it's a typical phenomenon, and will remain committed to producing advanced technologies for this market, such as our recently introduced isolation valve and cutting tools that complement our Coker valves and offer our customers a complete system solution.

In Commercial Aerospace, the aggregate impact of the Boeing strike and continued delays on new programs dampens full year results to essentially flat year-over-year performance. Fortunately, Curtiss-Wright is accustomed to swings in any one market. Redeployment of resources and other programs helped to mitigate the impact of our financial performance in 2008, while enabling us to continue to support our customers in a timely fashion. The outlook remains uncertain for Commercial Aerospace, but we expect 2009 to be in line with 2008, and due to our market diversification strategy, we are prepared to weather future business cycles in this market.

Finally, our General Industrial market, excluding Automobile, remains stable in 2008. As expected, we began to experience the impact of the global economic slowdown during the fourth quarter, most significantly, in our Automotive market which declined 34% in the quarter, due to lower customer demand and customer inventory reduction programs market-wide. For the full year 2008 Automotive was down 14%, and we expect this trend to continue in 2009.

Complimenting our organic growth, our disciplined acquisition program provided the addition of three new businesses in 2008, Parylene Coating Services, Mechatronics, and VMetro. In addition, we made substantial investments in our ongoing operations in support of new programs, such as the AP1000, subsea pumping systems, high-speed motors, CVN78, EMALS, Boeing 787 and 747-8, and a number of future combat system programs. Despite substantial weakness in the global economy, we remain confident in our ability to generate increased sales, operating income, and earnings per share in 2009, due to the continuous demand for our superior technologies, which deliver profound life cycle benefits to our customers and are key positioned in long-term programs.

To conclude our remarks today, I would like to review our guidance for the full year of 2009. We expect revenues in the range of $1.89 billion to $1.93 billion, which equates to 3% to 5% [pipeline] growth, operating income in the a range of $210 million to $217 million, or 5% to 9% growth, and a fully diluted earnings per share in the range of $2.48 to $2.58, which equates to a 1% to 5% growth in 2009. We have begun an aggressive cost control campaign throughout all of our businesses, including operation efficiency improvement, [thorough] lean initiatives, and factory rationalizations. We are taking the necessary steps to remain strong and competitive during this period of global economic weakness.

At this time, I'd like to open up the conference call for questions.

Thank you. (Operator Instructions). Our first question will come from Myles Walton with Oppenheimer and Company.

Thanks, good morning.

Good morning, how are you doing?

Good, good. I was hoping you could provide, thanks for the color by market; I was wondering if you could do quickly the same thing in terms of your 2009 outlook by segment, first off.

Okay. On the revenue side, Flow Control between [990 and a billion ten], Motion Control, 650 to 665, and Metal Treatment, 250 to 255. However, I do have to point out that those ranges include reallocation of our Indal business from the Motion Control segment to the Flow Control segment, and that's approximately $45 million in annual sales.

Okay. That makes sense. And then on the margin side?

On the margin side, Flow Control, between 10.5 and 10.75, Motion Control, around 11.75, and Metal Treatment around 17%, approximately.

And the two follow-ups to that, 11.75 in Motion Control, is that helped by the movement of Indal, or is that your expectation for pure improvement in that segment?

It's mostly improvement, but again, you've got to remember that 2008 was dampered by a whole host of different things, so it's partially eliminating all of the negative stuff that they got hit with in 2008, as well as improvements.

Okay, assuming that VMetro returns to breakeven or modest profitability and that the current peg stands where it is on a ForEx basis which is a little bit of a help, is the right thinking?

Right.

Okay, and then the 17% in Metal Treatment, it looks like ForEx, the translation effect of ForEx is 440 basis points in the quarter alone. Is that kind of the driver there, or are you seeing facilities starting to be underutilized and kind of weighing on the margins as well?

It's really - - let me just say, we did, just so we can try to explain the ForEx, we did build into our guidance a blended, I'd say a hedged forecast that we received from third party banks, is built into that. So to some degree, what you're seeing in the fourth quarter of 2008 is kind of built into our guidance to continue at least in the beginning of the year and then temper down throughout the year, but we did use the forecasted rates out into 2009. So the answer to that is part of it is that, and the other is just that business is volume sensitive, as you know, and as their - - we are forecasting down in volume, and part of it is just margin impact on that.

Okay.

And Myles, just let me add that we had some realignment of G&A expenses, so the [17%] MIC was benefited by a reduction of that. Really the 17% would be more like 16.4%. As a sanity check, we've gone back through previous recessions and taken a look at both the Aerospace and Automobile declines, which were very severe right after 9/11, 2001 and the changes in the operating margins are in line with what we've seen in the past.

But that declined from I guess 18 to 13.5 or so, '01 to '02, that's not what you're expecting right now.

No.

I guess what drove that, because it didn't look like volume moved much when that happened, was it just a few facilities that were underutilized that weighed heavily that won't happen this time, or maybe you could give us a little color on - -?

Actually during that time frame we acquired a lot of companies, so even though the top line remained flat, we had companies that obviously were less profitable at that time. We acquired a lot of Metal Treatment companies during that time frame.

Okay. Got it. And on that same topic of acquisition, Marty, the last downturn, you got to be extremely active on the M&A side, and arguably in the last couple of years the organic growth has clearly been strong. Would you say that you're weighting more towards getting more active in M&A, or I guess maybe just give us some color on what you're looking at for the M&A picture for the next 12 months or so.

Well, I think that the amount of opportunity in the M&A area is going to increase. It's becoming a buyer's market. I think you'll see that as credit starts to loosen up, you'll see a lot more activity there. We have a healthy balance sheet. There are some companies that we look out and see some that would be a nice fit to our portfolio, but it will be a buyer's market and we will benefit from any acquisition we make.

And then one other, on the outlook itself, in terms of how you guys roll it up and provide the outlook, I know that in November you have the strategic planning meeting. I'm just curious how much of the plan that's in the guidance today differs from what was rolled up in November?

Quite a bit.

Okay.

We've gone through two iterations of it, and it does change from November on, and we finalized yesterday at about 3:00, another version.

That's why you made us wait until 7:30 for the press release, I know. Can you quantify which of the items were the most volatile?

Well, obviously the Oil and Gas and the Automotive, even though Automotive is not as big. Those were the areas that we had. Or General Industrial, that was the area that we had some concern, and obviously we put it in the perspective that made a lot more sense to us, based on what we've seen in the past.

Okay. And the last one, I think I might have missed it, but what did you say for the Oil and Gas market in your 2009 guidance?

Right now, Oil and Gas is down about 8%.

Okay.

From last year.

And last year was down?

4%.

4%. Okay. Thanks.

All right.

And our next question will come from Chris Donaghey with SunTrust Robinson Humphrey.

Hi, good morning, guys.

Good morning, Chris.

Marty and this hopefully won't take too long, but I know you provided a lot of color around the markets, and I was getting a little confused between what was the Q4 growth rate versus the '08 growth rate, and what your expectations are for 2009. So I wonder if you could just quickly go through, say, the seven major areas, Aerospace Defense, Ground Defense, Naval Defense.

Okay.

Just what the growth rates were in 2008 and what your expectations are for 2009.

Okay. If you take a look at the Defense as overall, we are going up about 8%. If you look at Aerospace Defense, that's about 8% growth, it's about 12% of our total revenue. It's going to be fueled by increases in (inaudible), Global Hawk, and especially Army helicopters. Ground Defense is up 8%, that's represents about 9% of our total, and again, a very strong sales increase in Abram Stryker, and especially the Future Combat System. We're a little bit down on the Bradley, that we expect to pick up in 2010 and out.

Navy Defense is up 2% versus last year, it's about 13% of our business, strong increases in the Sub and Carrier programs, and we're down about $15 million drop in the Destroyer Program, the VVG1000. In Other Defense, which is 4% of our business, we actually put VMetro in there, because it's embedded computing is a little bit centered around Aerospace and Radar and some Ground, so we actually put a little bit more in the Other Defense category and that's up 34%. And that will give you about an 8% increase in our Defense market.

In our Commercial market, we expect to be flat. Commercial Aerospace, we see flat shipments to Boeing year-over-year, because last year we shipped about 305 737s, and we look at Commercial Aerospace from a Boeing side, it's really the 737 that drives our revenues, and last year because of the strike, we shipped about 305. This year, we're anticipating shipping around 315, and we expect the beginning of the year to be at 31 ship sets a month for the first six months, and then go down to about 21.5 ship sets for the last six months. And we expect Airbus to be down.

In Gas and Oil, looking to be down 25 - - 8%, I'm sorry. That's 16% of our business. We're still seeing strong orders for maintenance repair of both offshore refineries for valves and electronics, from our relief valves, and for our gate, plug, and butterfly valves. Our vessels are flat.

The main change is with delta valve (inaudible - microphone inaccessible), and they're down because programs are being pushed to the right because of the credit issues. And the fact that we've installed our first delta valve in 2001, and very little maintenance is going to be done on our installed base because the majority of our installed base has been out there three to four years, whereas some of of our other Gas and Oil product lines have been very mature and out there for - - and have significant installed base, they've got the benefit of maintenance repair, whereas the delta valve doesn't. So we're anticipating about $5 million in repair on the delta valve, and we're also introducing our isolation valve and cutting tools which offset a little bit of decline in delta valve.

Commercial Power is up 15% over last year, and that's a combination of both the US and China AP1000 program. We're also seeing some nice increases in our Spare business, and also we received $10 million last year in orders for new construction, and we anticipate about $30 million this year, and an about $11 million increase in sales in new programs. And in our Automotive, we see sales down 10%, that's about 4% of our business, and in General Industrial, which is about 10% of our business, we see down about 4%.

Okay. Great, thanks. And also, with the changes that you're expecting to see in the pension contribution, what's the expectation for corporate pension and other for the year?

Pension is about 10.3 and other is about 2.5.

Okay. And then just, as far as you can tell on the oil and gas market as a whole, what do you think needs to happen to get that back on a growth trajectory? Is it recovery in the price of oil? What are your customers telling you about that business and - - ?

It's not so much the price of oil. It's credit. We see significant opportunity out there in new construction, but it's the credit. So we need to see some increase in credit lines for our customers.

Okay. Great. Thanks.

And our next question will come from Michael Tramoley with Benning and Scattergood.

Hey guys, thanks for taking my call.

Hey, Michael. How you doing?

Pretty good. A little more specifically on the AP1000, if you can. Can you give us an update in terms of how many RCPs you have under contract? What's in the backlog there? And I guess you provided that revenue forecast, I guess it was on your Investor Day, probably in the '07 time frame. Are you still on track for roughly $75 million in revenues in '09, $110 million in 2010, could you just update us around the specifics there?

Okay. Michael, I'm sorry, you're talking about the 2009?

Yes.

2009, we are looking at somewhere - - did you say $110 million?

I had $75 million for '09.

No, we are looking at for new construction in the area of about $100 million.

Okay. And that's all related to the AP1000?

Well, 90 is about the AP1000, and the other 11 is new construction for not only AP1000, but also for other new power plants throughout the world.

Okay. And just on the new power plant, obviously these programs and reactors don't come online fairly quickly. Are you seeing any hesitation out there, or are some of these potentially new projects being pushed out to the right at all?

Well, the current programs, no, without a doubt, we're under order and that's in full swing and things are going very well, not only for our customers but also for ourselves. We did expect a new order in the first quarter of this year, and it's being pushed out to maybe the third quarter because of credit also.

Okay. Is that an international or domestic order?

That's a domestic order.

Okay. That's helpful. And then just in terms of the - - it was nice of you to outline the detail on the Commercial Aerospace with the moving parts of the 737 and what have you. The slowdown in the production there, is that baking in kind of the speculation that Boeing and Airbus will cut production, and then how are you factoring in 787 revenues into your Commercial Aerospace outlook for the year? And if you can also just give us an update on what your lead time is in terms of that project.

Well, on the 737, we're expecting that they're going to cut back at mid-year. In reality, we are producing that 21.5 ship set a month right now.

Okay.

Because we had inventory that we built up during the strike. Obviously, while Boeing was on strike, we kept our workforce and continued to build 737s. So we are on a production rate right now, and obviously if it was to stay at 31 longer than that, we can easily increase our production to meet that need. But that's our forecast right now.

Okay. And then what about the 787 program? How do you see that ramping towards I guess the end of 2009?

We are really not looking at any shipments in 2009, so really not in our plan.

Okay. That's helpful. And then last question, I'll get out of the way here. Can you give us the backlog by segment?

Sure. Flow Controls, sorry, Motion Controls, $575 million, and Flow Controls, a little over $1.1 billion.

Okay. And how much of that is shippable in the next 12 months?

I don't have that. But I would probably wager a guess at about 60% to 70%, a big chunk of the Flow Control backlog are the long-term nuclear contracts, so that's a chunk of it. I don't really know, but probably no more than 60% probably.

Okay, that's helpful. Thanks a lot, guys.

All right, thanks.

And our next question will come from Eric Hugel with Stephens.

Good morning, guys.

Good morning, how you doing?

I'm doing well. Marty, in the guidance, on the top line guidance that you gave us, the plus 3% to 5%, how much of that is organic?

We're projecting anywhere from 0% to 3%.

All right. Can you give us an update, I know unfortunately there's been sort of setbacks with Petrobras in terms of the deep sea pump, but I guess they were supposed to test it in January. Did that ever happen?

No, no. They just received funding to deploy it. They're going to deploy it in the May time frame and start production in June or July.

So you would get feedback, let's say, later on in the year and maybe orders next year? Is that sort of the time line that one should expect?

Right.

Can you update us on where things stand with the laser peening right now? I guess you got the machine into Boeing.

Right.

On the 747-8, and then obviously the strike happened. Can you give us any early feedback?

Well, the laser is working fine. That's going fine. As far as laser peening is concerned, we expect an increase of a few million dollars, anywhere between $14 million to $15 million this year, and we are, again, are working on a variety of new programs.

Can you just maybe more strategically, I mean, you hinted a little bit on it in your comments in terms of cost cutting and all that stuff, but in the current environment, when you sort of look more strategically, I mean, do you, or how do you operate differently in this kind of environment versus, let's say, the environment a year ago in terms of sort of strategically extending credit to customers, i.e., the Automotive guys, so just sort of an update there.

Well, you know, from our cost reductions, we've always had strong cost reduction program. How we're going to act it a little bit differently is, starting on Thursday, myself and both Dave and two COOs will be visiting all of our major companies to review their cost reduction program, and also thank them for the efforts that they've done over the last few years, which have been very, very good. But we're obviously going to be looking at reducing lead times, reducing material costs, and improving manufacturing efficiencies. And we will be going and visiting between now and over the next few months, and also visiting our plants in China.

Just do you have material exposure to the Auto Company, in terms of, I know it's 5% of your sales, but at any one given time, given sort of where they are right now, are you pretty much cash and carry, or is that a quick sort of, you don't have really have much of receivable exposure there?

We have similar receivable, but we do monitor monthly, they are paying on time and they are current. The top three. We monitor all our receivables that roll up in any way under the top three, and the minute they start to go south, that may change. But right now they're paying their bills.

But I guess at any one time if somebody just sort of said okay they're going bankrupt like Chrysler or something like that, would you have significant exposure there? They might pay eventually, but you would have to wait in line with everything else.

No, we would have a couple million dollars.

But not material.

No, not material.

Okay, thanks a lot, guys.

Our next question will come from Karl Oehlschlaeger with Macquarie Capital.

Good morning, guys. Thanks for all the detail you guys provided. Can you talk maybe a little bit more about the Nuclear business, and you gave a 15% I guess growth forecast for '09, but how should we be thinking about maybe flush out a little more the moving parts there, what should we be looking at more specifically in terms of projects going on in the US, and also maybe talk a little bit about what's the latest content for reactor that you have on the three different ones?

On the nuclear side, we are, from just our China involvement, basically even year-over-year, as we have explained and as time goes on, will be putting in about the same amount of input on China. The nice increase is domestic. We're increasing quite a bit from last year when we started out, and also we'll have margin improvement on the US content. The other portions associated with the (inaudible - microphone inaccessible) are domestic.

We have quite a few plants going to full outage, which will generate very good spares and repairs and engineering projects for us. But also significant is the new construction. We received some orders for the AP1000 in China, but also have received and will be shipping additional new content for other new construction throughout the world. Does that answer the question?

That's helpful. But on the AP1000 that's where you have the big share of the content. Can you talk about, if you're willing to, what the number is, with the content in dollars, and then what your content in dollars in terms of the other reactors.

It's about $25 million to $30 million on the other reactors, generally, Karl. That's if we got all of our products on a reactor. All of that would be competitive, though, versus the reactor coolant pumps which are not. The total potential content on an AP1000 is about $90 million, and the big difference there are the pumps. But we are starting to win content with our other products on a variety of designs, on all designs, AP1000 and whatnot in the United States, we are starting to win early lead time awards on new construction with our other products besides, which is the content I think you're referring to, right?

Right, right.

25 to 30 on any of the other ones.

Except for on Westinghouse, outside of our reactor coolant pumps, we also have about another 30 million to 40 million possibility.

Okay. All right, thank you.

Okay.

And our next question will come from Tyler Hojo with Sidoti & Company.

Hey, good morning, everybody.

Hi, Tyler.

Hey, just a quick question. In the press release you guys kind of implied that the guidance you provided was going to be a bit back half weighted, and obviously, historically, that's always been the case,so I mean, is it going to be a little bit moreso? Is that why you kind of highlighted it, or could you maybe just walk us through that?

Well, yes. Excuse me. Actually, the first quarter of this year will be significantly down from last year. We're going to have actually lower sales than last year. Obviously our customers are adjusting their inventories as well as we are. Sales will be down. We'll have higher unabsorbed overhead, so the overhead rates will tend to drift up in the first quarter.

We've always talked about our government procurement phenomenon, where we get large orders in the last quarter of last year and the first quarter of this year, that we don't realize the profitability until the fourth quarter. Also, we have amortization this year of, somebody hit on VMetro and Mechatronics. There's a $3 million absorption hit in the first quarter, and then we have a $3 million gain in the fourth quarter. So you'll see a shift just from that alone.

And also, we've had some higher development costs of the naval pumps for the CVN, that we will not be - - we'll see in the first quarter but will not see after that. We also have some severance costs that we have had in the first quarter, that we don't expect that we'll have throughout the other quarters.

If you look at our second quarter, it's going to be somewhat equal percentage-wise to our second quarter last year. We'll have higher shipments, and also we have our profitability associated with the domestic AP1000 will be up. Our third quarter, from percentage basis as far as EPS is concerned, will be slightly higher than last year. Again, we'll have higher shipments.

And also, we'll be hitting some milestones on the AP1000 for China. We'll start testing in the third quarter, and that will allow us to liquidate that portion of the contract. And in the fourth quarter, our percentage increase over last year will be about 20%, but the increase will be very much in line with 2007. Remember, 2008 was reduced, based on the strike and the Eclipse bankruptcy.

And also, if you take a look at the shipment differential between the first quarter and the last quarter, we had over $110 million more shipments in the fourth quarter than we have in the first quarter. So first quarter will be significantly down, and the next few quarters will be equivalent to last year's ratio, and the fourth quarter will be up versus last year, but very in line with what we have experienced in 2007.

Okay. Thanks for that color. And I mean, again, it says in the press release that part of the reason for being a back half weighted year is just because of the order slide, and I guess maybe if you could kind of weight the possibility that maybe those orders completely slide out of 2009 and it becomes more of a '10 event.

Again, most of our programs are long-term, and they end up within that year, within the year or so. Very seldom do we get that much slide out of the fourth quarter into the next year.

Okay. All right. And just a couple of clean-up items here. Glenn, could you provide us with the depreciation and CapEx for 2009, as well as interest expense?

D&A, $80 million.

Okay.

CapEx, $100 million.

Okay.

And interest expense, $31 million.

And on CapEx, if you had to guess, what do you think your maintenance CapEx level would be?

In that number, it's probably 70% of that number, meaning, $70 million, $75 million. The rest of it, we have some expansions planned this year. It's the last installment of the Cheswick building which is a small amount, about $15 million, and then we have international and other expansion initiatives that are in that number. So I'd say about 70%.

All right. Great. And just finally, what percentage of 2008 sales were related to nuclear power? I think you provided it, I just missed it.

What percentage of last year?

In 2008, yes.

Power was about 16%, versus 18% this year.

Okay. Thank you very much.

Okay.

And our next question will come from Stifel Nicolaus, we'll hear from Steve Levenson.

Thank you and good morning.

Hey Steve, good morning.

I've been flipping back, so I hope this isn't a redundant question, but do you want to give us your overall view on how the stimulus plan might impact Curtiss-Wright, both on the Nuclear Power side and on the Defense side?

Well on the Nuclear Power side, the Omnibus Stimulus Plan, which is about $1 trillion, contains about $18 billion for a loan guarantee for new construction for nuclear power plants. And obviously if that passes, that would be very good for some of the domestic reactor builders in the United States. And that's about it.

That's about it? Okay. On the Defense side, I guess not a big impact to what you're doing right now. But I'm interested as to the plan to build two subs a year instead of one, is it in a few years out? When might you expect to see the orders, because I would imagine it's pretty long lead time?

Well we already received our orders from our valve company, which is Target Rock for the multi-year procurement for the submarine. We are still in negotiations for both our pumps, both from EPD, and they are our large pumps from [CNV] are in negotiations, and we expect to get orders this year. As far as the carrier is concerned, we already received funding for the (inaudible) materials for the next carrier, at Target Rock, but are also in negotiations with the government from our both EPD and EMD division, which is obviously the EMD is a lot larger than Target Rock. So we're still in negotiations on the submarine.

Great, thank you, and with what seems to be a little bit of a renewed focus on intelligent surveillance reconnaissance, how is that impacting the computer business? Are you seeing more coming to you, or are they looking for less expensive generic solutions?

No, we have very, very healthy new orders in that area.

And even in Global Hawk, we make the mains, like controlled computers and sensor suites there, the Global Hawk is quite a bit (inaudible - microphone inaccessible).

Great, thank you very much.

Thanks.

(Operator Instructions) We do have a follow up question from Eric Hugel.

Hey, guys, Marty, - -

A second bit of the apple.

Exactly. You've always in the past given a pretty balanced guidance in terms of up side versus [equalling] risks. Given the deterioration in the market, I wanted to get a sense from you as to how much have you conservatized this guidance in terms of things are falling apart, in terms of the global economy. Maybe not in your markets per se, but in terms of the overall outlook?

Well, the way we conservatize it, not only do we take a [look at] our markets, but also our cost reduction program, which we expect benefits from, we have not included into this package. And the reason why, we do expect some occurrence to take place that we can't anticipate, and we expect to make that up based on our cost reduction program. And that's how we've conservatized it. The sales may vary a little bit, but we think that we can maintain the profitability.

Do you have any number, expectation of what kind of cost benefit you might be able to realize for you plans in this year and next year maybe?

The answer is we're not going to disclose that, but it's significant and we expect that we can reach quite a bit of it.

Great. Thanks a lot guys.

Thanks, Eric.

We do have a follow-up question from Chris Donaghey.

Hi Chris.

Hi, just real quick. If you're going to enter testing in Q3 for the China AP1000 pump, can you just walk us through the milestones that you're looking for there, and what your expectation is for when that pump should go into full rate production? Thanks.

Chris, I know it starts in July. I think it could be a four-month testing program, I don't really remember. But obviously we'll go into full rate production in 2010. We're also producing hardware right now. As a matter of fact, we intend to have an investor's conference in June at our Cheswick facility, in order to go through commercial power, where we are at, we will have a valve that obviously will be close to being tested, and we'll have quite a few parts being made in our new facility. So, if you wait until June, you can see it for yourself. All right, great, looking forward to it, thanks.

And at this time, there appears to be no further questions in the queue.

Okay, well I would like to thank you all for joining us today, and we look forward to seeing you at our first quarter conference call in April. Take care.

Bye bye now.

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