Curtiss-Wright Corp (CW) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Curtiss-Wright 2011 and financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

(Operator Instructions)

As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Mr. Martin Benante, Chairman and CEO. Please go ahead.

Thank you, Allison, and good morning, everyone.

Welcome to our fourth-quarter and full-year 2011 earnings conference call. Joining me on the call today is our CFO, Mr. Glenn E. Tynan, who will begin our forum.

As you will see this morning, Curtiss-Wright delivered another solid performance in 2011, as once again our profits grew faster than our sales. Organically, operating income increased 17% on a 3% increase in sales, driven by gains in both our commercial and defense markets, despite a challenging operating environment in certain areas of our gas and oil business. Furthermore, the successful execution of our strategy enabled us to generate double digit all-world gains in operating income and earnings per share, driven by a solid organic growth, as well as an addition of seven new Businesses to our technological portfolio. In 2012, we are looking at organic operating income growth rates of between 14% and 16% on our operating income, and a 6% to 8% increase in organic sales. Our recent performance, along with our outlook for our end markets, provided for [the lot of estimate] in going into 2012.

I will now turn the conference over to Glenn.

Thank you, Marty, and good morning, everyone.

Our call today is being webcast. And the press release, as well as a copy of today's financial presentation, are available for download through the Investor Relations section of our company website at www.curtisswright.com. And a replay of this call can also be found on the website.

Please note today's discussion will include certain projections and statements that are forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on Management's current expectations, and are not guarantees of future performance. Forward-looking statements always involve risks and uncertainties, and we detail those risks and uncertainties in our public filings with the SEC. In addition, certain non-GAAP financial measures will be discussed on the call today. A reconciliation is available in the earnings release and at the end of this presentation, and will be available on the Company's website.

For our agenda today, I will provide you with an overview of Curtiss-Wright's 2011 performance, along with our 2012 guidance; followed by Marty, who will discuss our strategic markets and outlook, and then open the call for questions.

As Marty noted, we are pleased with our 2011 performance, as our sales were driven by increases in all three of our segments, while operating income was primarily led by strong performance in our Metal Treatment segment. Our results reflect solid performance in most of our commercial markets, most notably in commercial aerospace, based on our position as a key supplier to both Boeing and Airbus. We also experienced solid improvement in our general industrial markets, based on the turnaround in the more economically-sensitive markets in which we participate, as the global economy continues to improve. Our performance was also driven by the diversification of our business model and our ability to overcome several challenges, including the residual impact of several large program terminations, such as the F-22 and Future Combat Systems. However, we offset these challenges with strength in our aerospace defense market, primarily due to increased demand for our defense electronics technologies. And despite these headwinds, we have produced a solid 4% overall growth in defense in 2011.

We also had a significantly lower than expected performance in our oil and gas market, primarily due to the continued delays in capital spending on large international projects, which resulted in significantly lower sales and profitability. And despite that performance, our overall commercial markets grew 12% in 2011. For our full-year 2011 results, segment organic operating income rose 11%, while segment organic operating margin increased 80 basis points to 12%. That is, a strong performance in our Metal Treatment segment, and growth in our Motion Control segment offset the reduced profitability in the Flow Control segment. We also produced solid double-digit growth in net earnings, up 22%; and diluted earnings per share, up 21% to $2.77 per share.

New orders exceeded $2 billion in 2011, growing 8% year-over-year, based on strong demand in the commercial aerospace and power generation markets; as well as increased demand for our MRO products in our oil and gas market. This resulted in a strong backlog of approximately $1.7 billion at December 31, 2011, split approximately 70% in Flow Control and 30% in Motion Control. Our strength in new orders, along with our solid backlog at year-end, gives us confidence across all three segments heading into 2012. And meanwhile, our overall book-to-bill was 1.01 for 2011, led by a 1.08 ratio in our commercial markets.

Moving on to our segments -- we will begin with Flow Control, where oil and gas played a major role in the segment's performance in 2011. The driving force continues to be the delays in capital spending on large international projects, which negatively impacted our sales and profitability in 2011. In addition, we experienced lower margins during the startup phase in our new super vessels Business; however, we expect these margins to improve as the sales volume continues to increase.

We also experienced higher costs of approximately $10 million on the AP1000 China contract in our power generation market, due to the modification and successful correction of our previously disclosed localized temperature issue, discovered during final testing of our reactor coolant pumps. This issue alone negatively impacted our 2011 earnings per share by approximately $0.14 per share. It's interesting to note that excluding oil and gas, the remainder of our Flow Control business performed well in 2011, with operating income of 20% on a 6% increase in sales.

Next, we will turn to Motion Control, where our operating income rose 1% in 2011 on a 10% increase in sales. As expected, and consistent with the trends experienced throughout most of the year, our full-year profitability was impacted by unfavorable foreign currency translation, which amounted to nearly $4 million. In addition, operating income was negatively impacted by acquisition, most notably related to the first-year dilution from our acquisition of ACRA, offset somewhat by a small gain related to the third-quarter divestiture of a non-core product line, which also amounted to $4 million net. The net effect of these two items negatively impacted operating margins in the Motion Control segment by 180 basis points. Excluding the effects of these items, organic operating income increased 11% on a 4% increase in sales, while organic operating margin was 13.2% -- an 80-basis-point increase from the prior-year period, due to higher sales of our sensor and control products and the benefits of our business restructuring and cost-reduction efforts.

Moving on to Metal Treatment, which concluded a strong 2011 with a solid fourth-quarter performance, benefiting from notably higher sales to the commercial aerospace and general industrial markets. Overall, this segment experienced higher sales volumes across all major product lines, service lines, and markets, due to the improving global economy. Operating income increased 70% for the full year, 57% of which was organic, due to the increased operating leverage on a higher sales volume. Meanwhile, organic operating margin was 16.2%, an increase of 450 basis points from the prior year, as a result of the strong sales performance in 2011.

Next, I will discuss our overall end markets. Please note that the percentages that you see in the pie chart on this slide relate to the full-year 2011 sales for each of our end markets. Defense markets represented approximately 40% of our 2011 sales, while commercial markets represented 60%. Our strong sales growth in the commercial markets was achieved despite the weaker than expected performance in our oil and gas markets. Meanwhile, sales growth in our defense markets reflect higher sales of embedded computing and sensor products to the aerospace defense market, partially offset by lower sales in ground defense, and a decline in naval defense primarily due to timing on certain long-term contracts, as some funding has shifted into 2012.

We will begin with a look at our defense market, which had a solid sales growth in 2011, led by embedded computing and sensor products supporting numerous domestic and international aerospace defense programs, as well as solid growth in Virginia class submarines revenues. However, these gains were partially offset by the winding down of the CVN-78 aircraft carrier, along with the continued impact of several large program cancellations. In 2012, we expect to see a ramp-up in sales on the F-35 Joint Strike Fighter, as well as continued strong demand for our embedded computing and sensor products supporting C4ISR applications.

We also remain optimistic about our naval defense market, as we expect a ramp-up on the CVN-79 aircraft carrier, increased retrofit activity on the DDG-51 destroyer, and solid demand for our aircraft and cable handling systems for international programs. Meanwhile, within our ground defense market, we continue to experience a somewhat uncertain funding environment as it pertains to the timing of future ground vehicle upgrades and modernization programs for the US Army. Overall, we are projecting sales to be up 3% to 5% in our defense market for 2012.

In commercial aerospace, we continue to benefit from the ramp-up in the commercial aerospace market, where the performance led all of our end markets in 2011 due to solid organic growth of 12%, supplemented by our acquisitions of Douglas, ACRA, and BASF. As a result, we experienced increased sales across all major Boeing and Airbus platforms. In addition, we experienced healthy demand for sensor and control products on various commercial aircraft. We expect this momentum to continue into 2012. Curtiss-Wright is well-positioned for increased sales, supported by the multi-year production upcycle anticipated in the commercial aerospace market, as we are a key provider of critical structural and electronic components and various Metal Treatment services to both Boeing and Airbus. Therefore, we are projecting sales in our commercial aerospace markets to grow 18% to 20% in 2012.

In our oil and gas market, despite sales growth in both the US refinery-related MRO products and large super vessels in 2011, our business supporting large capital projects continued to be particularly soft, primarily for international customers. As we have previously noted, none of these projects slated for 2011 have been canceled; and in fact, we have increased content on several of them. However, they continue to move to the right into 2012 and beyond, in some cases. As a result, we are cautiously optimistic that some of these projects will come to fruition in 2012. Additionally, we expect to see continued modest but steady growth in demand for our US refinery-related MRO products and our large super vessels. And overall, we are projecting sales in our oil and gas markets to grow 7% to 9% in 2012.

Next, we will discuss the power generation market, which benefited from higher revenues on both US and China AP1000 projects in 2011, as well as increased aftermarket sales supporting existing operating reactors. We also experienced solid sales on the BASF Business acquired earlier in the year, which had solid demand for its thermal spray-coatings capabilities, primarily on turbines for non-nuclear electric power generation. Our strong outlook for 2012 is based on the ramp-up in sales for the US AP1000 projects in Georgia and South Carolina, as well as continued solid organic growth for our aftermarket business supporting operating nuclear reactors worldwide. As a result, we are projecting sales in our power generation market to grow 18% to 20% in 2012.

And lastly, we will turn to our general industrial market, which produced a solid 2011, based on the continuing improvements in worldwide economic conditions, leading to higher volumes and overall stronger demand for Metal Treatment services. Sales to the automotive and transportation industries were particularly strong globally, as were sales to the commercial HVAC market. While we expect some of this demand to continue into 2012, particularly for our HVAC business, pockets of economic uncertainty remain in some of the regions which we serve. As a result, we are projecting sales in our general industrial market to grow 6% to 8% in 2012.

Summing up, based on our rationale and expectations across all of our end markets, we are projecting overall growth of 3% to 5% in defense and 13% to 15% in commercial; exceeding the relative comparisons for the nominal 2012 defense budget and annual GDP, which are expected to grow approximately 1% to 2%, respectively. These market expectations support our outlook for total [first-rate] sales growth of 9% to 11% in 2012.

Let me now cover our guidance for our segments, which reflects a solid operating performance and margin expansion across all three segments for 2012. Starting with Flow Control -- our overall sales guidance is based on strong new orders and increased demand, primarily in our power generation and oil and gas markets. We are also expecting to see solid improvements in Flow Control's overall profitability, as we expect that the learning curve costs associated with the initial AP1000 pumps for China are behind us; and that there will be significant improvement in their oil and gas business, due to improved absorption from higher sales on large projects and vessels. This will result in higher operating income and an approximately 50- to 60-basis point improvement in operating margin, to a range of 10.2% to 10.3% in 2012.

Our sales guidance in Motion Control primarily reflects the strong demand expected in our commercial aerospace market in 2012. In addition, we anticipate improvements in operating income as we move beyond the initial dilution caused by our mid-2011 acquisition of ACRA, which should provide solid year-over-year margin improvement. We also expect strong operational improvements and benefits from our cost-reduction and restructuring programs to continue into 2012. As a result, we expect Motion Control's operating margins to improve nearly 200 basis points, to a range of 13.3% to 13.4% in 2012.

And finally, the sales guidance for our Metal Treatment segment reflects the improved outlook in all of their markets; which, as a result, will lead to higher operating income and operating margin in 2012. Therefore, we expect their operating margin to increase 100 to 110 basis points, to a range of 16.5% to 16.6% in 2012. And finally, our forecast for corporate and other expenses is approximately $31 million, primarily due to higher pension expense as compared to 2011. In addition to our solid sales growth, we expect overall operating income to grow 17% to 21% in 2012, and consolidated operating margin to increase 70 to 90 basis points, to a range of 10.7% to 10.9%. We expect these gains as a result of our continued focus on business restructuring, cost reduction, and margin improvement.

Meanwhile, we expect diluted EPS to grow 6% to 10% over 2011 on a reported basis. However, if you exclude the nonrecurring R&D tax credit of $4 million or $0.09 per share, from our 2011 results, our operational diluted earnings per share for 2011 was $2.68 per share. Our EPS guidance range for 2012, up $2.95 to $3.05, reflects another double-digit increase of 10% to 14% over 2011. In 2012, higher sales and operating margin improvements resulting from our continued business restructuring and cost-reduction program are expected to contribute $0.57 to $0.67 per share to our diluted earnings per share, resulting in a 21% to 25% increase from 2011 pro forma EPS. However, these improvements will be partially offset by significantly higher interest and pension costs in 2012.

The interest increase is due to our $300 million private placement debt offering from the fourth quarter 2011. We issued this new long-term debt to strategically align our capital structure with our strategic plans to continue to grow through acquisitions, geographic expansion, and organic growth; and also to take advantage of historically low long-term interest rates. In addition, we will be negotiating a new revolving credit agreement in the third quarter of 2012, which will most likely result in a higher interest rate than we currently have. However, overall, we maintain one of the lowest costs of debt in our industry. And lastly, pension costs have increased as a result of the decrease in the discount rate.

Looking ahead to the first quarter of 2012, we expect our year-over-year EPS to be lower than 2011, ranging from $0.40 to $0.44, primarily due to the impact of the higher interest, which amounts to $0.05 per diluted share; higher pension, which amounts to $0.03 per diluted share; and restructuring costs within our Motion Control segment, which amounts to $0.05 per diluted share, which will benefit profits in the latter half of the year; and also from the timing of large capital projects in Flow Control's oil and gas Business, which is skewed to the second half of the year. As a result, we expect to generate approximately 62% of our full-year EPS in the second half of the year, with the fourth quarter being the largest, as we have done historically.

Here are some additional financial guidance metrics for 2012 -- we expect our free cash flow to range from $90 million to $100 million, which puts us at a free cash flow conversion rate of nearly 70%. This includes approximately $11 million in additional pension contributions, and $12 million in higher interest payments in 2012. We expect that our G&A will be slightly higher than 2011, while our capital expenditures are expected to increase to approximately $90 million to $95 million. 2012 pension expense for the Curtiss-Wright corporate plan is expected to be roughly $27 million, an increase of approximately $5 million from 2011, driven primarily by the lower discount rate.

Now I would like to turn the call back over to Marty for his final comments before we wrap up the call. Marty?

Thank you, Glenn.

As we have discussed thus far today, we concluded 2011 with solid sales and stronger profitability, based on the continuing strong showing in most of our commercial and end markets, and our ability to overcome several headwinds in defense. And we are well-positioned heading into 2012, with growth forecasted across our defense and commercial markets. Given that outlook, I am pleased to say that we are projecting a triple-double for 2012 -- we will double-digit growth in sales, operating income, and adjusted earnings per share, which should provide our investors with further confidence in our future outlook.

As we have continually noted, we expect to benefit from improved market conditions across most of our end markets, as demand for Curtiss-Wright products and services will result in sales growth rates over and above the anticipated growth rates in most of the markets in which we participate. This includes a solid performance in commercial aerospace, nuclear power generation, and in overall defense; among with it a modest rebound expected in our oil and gas business in 2012. Note that we are remaining somewhat cautious in our guidance in the general industrial market, which reflects our sensitivity to the ongoing global macroeconomic risks, particularly in Europe.

In addition, we will continue to build our Company through acquisition and our organic investments, and also expand our unique portfolio of highly engineered advanced technologies. We added seven additional companies in 2011, which contributed approximately $74 million in sales. And we will continue to actively pursue acquisition candidates that both fit our technological requirements and provide a distinct competitive advantage. We also continue to expand our global footprint, with international sales now representing 30% of our total business.

Looking at our markets, I will begin in power generation and update on recent events influencing our Business and the industry. Over the course of the past few months, Curtiss-Wright and the industry as a whole have experienced a number of positives. Most notably, the NRC has granted it [fill] regulatory approval for the AP1000 reactor designed in the United States, paving the way for future construction of the leading Gen III+ design. This led to NRC approval just last Thursday for Georgia's Vogtle AP1000 nuclear power plant, the first nuclear power plant approved in 34 years. Construction of the two US AP1000 nuclear plants in South Carolina and Georgia remain on schedule. The Department of Energy announced their support for the development of small module reactors in the US, through the establishment of cost-sharing agreements with private industry to support the design and licensing of these reactors. Though they're not a tremendous percentage of our future expected outlook and future revenue this decade, we intend to have a presence, however, in their development.

In China, construction essentially remains on schedule for the plants currently under development -- particularly, the world's first Westinghouse AP1000 reactor at Sanmen, which is expected to be operational in 2013. In addition, China has announced it expects to restart reactor construction approval later this year. Next, an update on the AP1000 program -- the first production pumps were modified to correct the localized high-temperature issue, and it's currently undergoing endurance testing. So far, the test results have shown that the [state or winding] temperature is well within acceptable tolerances for both China and domestic projects, and no further design changes are expected at this time. Endurance testing will continue throughout the first quarter of 2012 and remain on schedule for delivery of the first four pumps in the second quarter. Thus far, we have completed 34 out of the 50 service cycles, and 340 operating hours out of 500 total hours required. Furthermore, I would like to remind everyone that this delivery date meets our customer's requirements, and we expect it not to impact the overall [pro A] construction schedule.

Finally, we expect our next major AP1000 order to come from China this year. Although 2011 negotiations were delayed, we anticipate that the contract-negotiated award should take place later this year, following the successful completion of the endurance testing and the initial delivery of our reactor coolant pumps. Please note that the potential impact of this order is not included in our current guidance. Overall, our long-term view on our new build nuclear reactor generation business, both in the United States and across the globe, remains favorable. Meanwhile, our content on existing operating reactors worldwide remains strong, and will continue to expand over the long run, as further assessment and analysis from Fukushima, as well as future regulations from the NRC, drive safety and reliability improvements -- which, as we noted, is a sweet spot for Curtiss-Wright.

Our long history and expertise in power generation industry will lead to increased opportunities worldwide for our vast portfolio of advanced nuclear technologies. Also, as a reminder, based on the lessons learned from Fukushima and the required engineering and regulatory framework designated by the NRC, we would expect to see a shift from our typical MRO project and upgrade sales to orders that will meet the new requirements. Therefore, due to the timing of the releases of these regulations, it would result in shifts of some orders from our first quarter to later in the year.

In addition, the NRC task force prioritized the reactions into three tiers, with the earliest tier, Tier 1, actions expected to begin this year, followed by additional requirements expected to take place over the next four to five years. As a result, this could result in significant hardware upgrade orders for Curtiss-Wright beginning in 2013 through 2015. Based on all the aforementioned positives driving our power generation business, it's interesting to note that it's projected to represent Curtiss-Wright's largest single end market by the end of 2012, with 20% of our total sales.

Within our oil and gas market, stronger domestic MRO sales and new order growth in 2011 are expected to be key drivers in 2012, which is a positive sign that typically perceives increased spending by refineries on major capital projects. We remain cautiously optimistic that these projects related to sales will rebound in both our domestic and international markets this year. Although we have made considerable consolidation and restructuring within this Business, the volume on large capital projects have been about two-thirds of what was expected, resulting in reduced sales and significantly lower profitability that have exceeded the savings that we generated. As a result, we will continue to improve the profitability in this business with further consolidation and restructuring, in order to size our oil and gas business accordingly as we progress through 2012.

Furthermore, our new super vessel business continues to ramp up to meet increased new orders. While we are certainly pleased with the higher sales as a result, we have experienced lower margins associated with learning curves in the first year of operation. However, we do expect to see improved absorption and higher operating leverage moving forward. Long-term, we remain confident in our overall gas and oil business, based on the projected increase of overall energy demand and expectation that capital spending levels on global projects will be down in the future.

Turning to defense -- similar to our peers, we are certainly mindful of the potential changes affecting the defense industry as a whole and the role that Curtiss-Wright plays. And we realize that our sales are not bulletproof from the DOD spending constraints expected in the short and long term. However, our overall optimism in our defense business stems from our view provided at our May 11 Investor Day, where we expressed our confidence in our current and future outlook, even during years of flat DOD or declining budgets.

This includes the following points -- we remain very well-positioned on key current and future defense platforms, both domestically and abroad, that will continue to support our growth well into the future. Our largest defense programs, aircraft carriers and submarines, continue to be supported in defense budget projections over the long term, as well as newer incremental programs such as the refueling and complex overhaul for RCOH for the Navy. Based on the intent of the diversification of our business model, no other single defense program by itself is material of Curtiss-Wright financials as a result. We expect to benefit from increased demand for ISR and electronic warfare capabilities in the battlefield, both of which are expected to be strong contributors to our future growth. We expect to overcome several defense headwinds that have weighed down our sales and profitability for the past few years, including large program cancellations as well as other programs nearing the end of their production life.

Let me expand on the last point for a moment. As Glenn mentioned earlier, we produced 4% overall growth in defense in 2011. However, we accomplished this by overcoming more than 4% loss of sales due to significant program cancellations, including the F-22, FCS, and DDG-1000. Excluding the impact of these programs, our 2011 defense sales would have grown a solid growth of 8% overall. Meanwhile, the recent release of the initial fiscal year 2013 DOD budget request is expected to play a key role in shaping future military budgets, as [an indicator of] smaller and leaner force structured moving forward to what is consistent with the strategy laid out by the President in early January.

Overall, the Pentagon requested a slight decline to $525 billion for its base budget in 2013, along, with a lower than expected $88 billion in wartime funding. The budget release focused heavily on cost-reduction initiatives, including a reduction in certain unperforming military programs, slowdown of production in others, and as well as substantial force size reductions over the next five years. Given our diversification, I want to briefly discuss the impact of the fiscal year 2013 request on our defense market.

In the naval defense, we expect to benefit from the continued strong support for the expansions of the Navy shipbuilding program. As you know, we maintain key positions on the Ford class aircraft carrier and Virginia class submarine programs. The recent budget release also highlighted significant increases in funding for the carrier repair and complex overhaul, where our content is expected to be between $33 million to $57 million per ship set, depending on the amount of AAG work involved; as well as the DDG-51 destroyer program, where we have up to $10 million in content. We are particularly pleased with the Administration's position to maintain a fleet of 11 aircraft carriers, as it represents our largest single defense program at $250 million per carrier, and it's a significant contributor to our total sales.

The move of one Virginia class submarine from 2014 to 2018 will have an impact by moving sales associated with that hull three to four years later, but it remains in the plan [to block four]. Long-term, it appears that the Ohio class submarine replacement program shifted out by two years, from 2019 through 2021. The overall impact to our naval defense market appears to be positive.

In aerospace defense, the impact of Curtiss-Wright appears to be somewhat mixed, with the decision made to cut the Global Hawk Block 30, the Block 40 and [ban] Navy variants continues to be supported, in addition to three new NATO orders in the 2013 budget request. Additionally, F-35 production levels were held steady, while procurement for nearly 180 aircraft were pushed out beyond 2017. However, there will be additional foreign military sales in this program starting in 2013. Elsewhere, funding for the P-8 Poseidon increased in the 2013 request, offset by a decline in the V-22 Osprey funding. For helicopters, decreased funding for the Black Hawk helicopter is expected to be offset by the increase in the Apache funding. At this point, we expect the results of these program changes being somewhat positive, but could be positive if you could include the foreign military sales.

In addition to the major programs I have highlighted, we expect to benefit from the increased focus on new ISR electronic warfare and communication capabilities. They remain key areas of increased investment dollars in current and future year defense spending plans, and we will continue to spur our sales growth in defense. In ground defense, continued productions cuts for programs such as the Bradley, Abrams, and Stryker program are likely to impact the results in 2013 and in future years, as these programs await future modernization funding. However, it appears that the Ground Combat Vehicle program, although delayed, is now active; and funding in the future years does not appear to be at risk. Additionally, the Joint Lightweight Tactical Vehicle program is about to enter the next phase with strong Army commitment. We expect to benefit from this program, going forward. We also expect to benefit from the increased support for newer intelligence programs, such as the WIN-T Network battlefield program for the Army. Overall, we remain cautiously optimistic about the overall opportunities that a diverse portfolio of defense products provides Curtiss-Wright.

Turning to other matters -- we were active in the marketplace during the fourth quarter of 2011, actively repurchasing about 261,000 shares of Curtiss-Wright stock at an average stock price of $31.30. While we have not repurchased any additional stock since that time, we continually monitor the level of our stock price and also evaluate the best use of our free cash. Looking ahead, future stock repurchases will depend upon changing market conditions; and we will be active, if and when appropriate.

Finally, our constant focus on strategic investments, diversification, and improved operating efficiency has positioned us to continue to grow our profits faster than sales and increase the long-term competitiveness of our Businesses. We have succeeded in producing solid operating income growth during the past two years, rebounding from the difficult operating environment that impacted our results in 2009. And this pattern is expected to continue in 2012.

Overall, our 2011 results and future outlook also reflect our disciplined capital deployment strategy, consisting of continued investment in new product development, facility expansions, reinvestment in our Business, and growth through acquisition; combined with our commitment to return cash to shareholders through solid earnings per share growth, dividends, and share repurchases. We believe that the future is very bright for Curtiss-Wright.

And at this time, I would like to open the conference for questions.

(Operator Instructions) Ken Herbert, Wedbush.

The first question, if I could, on the power generation guidance, you indicated that the potential second order out of China is not in the guidance. Can you break down the guidance by new reactor versus -- new original equipment versus operating reactor, versus what sounds like a piece of the business from the BASF deal is in that segment, as well?

Yes. For new construction for both the United States and China, we have about $120 million. And we have about -- a little over $260 million in other retrofits for existing reactors.

Those are the -- that is the implied guidance for 2012?

We also have other businesses. I was just talking about the major -- our major contracts.

Okay. So, it sounds like a lot of the growth is still coming from the existing reactor, operating reactor sales.

That is correct.

And then, acquisition -- Anatec acquisition is also in that category. That is about $30 million of incremental sales in 2012, Ken.

Okay.

Right. Within our guidance is about $120 million for new reactors and about $330 million for the existing plants.

When do you need to see the order from China for it to have any incremental revenue impact in 2012?

We would have to get it by the second -- a little after the second quarter. I don't think that is going to take place. If anything, it will have some improvement in cash flow, but I don't think that we will get much sales profit out of it.

Okay, great. That is helpful. If I could, related -- on the Motion Control segment, you are obviously looking for really nice incremental margins and step-up in '12 over '11 in this segment. And I know you went through some of the moving pieces. But is that -- how much of that is the cost reductions, versus finally ACRA now becoming accretive, versus some of the other moving parts? Can you just give a little more granularity on that? It look like it should give really nice --

Well, you have $10 million between [FX] in ACRA, so that is -- going from the $80 million to $100 million, that is $10 million of it; and then, $10 million of it from increased volume and also cost reductions.

Okay. And similarly for -- just one final question on Metal Treatment -- the incrementals in the guidance look good at about 25%. It's a little lower than what we had seen in prior cycles, and the pick-up. Is BASF still going to be a headwind, in terms of the margins in this segment in '12? And how should I think about potential upside to Metal Treatment in the margins, relative to the guidance?

Ken, if you look at our two acquisitions, both BASF and IMR, it will be a drag on the operating earnings by about 1.5 percentage points -- or 150 basis points. The other thing is, we also have several new plants going in, which is about 60 basis points. So, the real -- if you were to exclude acquisitions and if you were to exclude start-ups, [MIC] would be somewhere around 18%.

Yes, so that is getting closer to historically where the business has been able to perform.

That is right. And I think that what you are going to see a little bit different in this cycle is that we will continue to open plants in India and China, as we are going to do this year, because that is obviously where a lot of manufacturing is. And that will be a drag for a little while; and then, as time goes on, we will have marked improvements there.

Ken, if you adjust the last three years for acquisition in greenfields, we average about 40% incremental margin on the sales.

Right.

Once you normalize that out.

Yes -- no, that is what I think. This business clearly has phenomenal leverage. And so, just curious -- anxious to see -- I'm assuming there will be additional acquisitions, potentially; but it's good to see BASF and the other deals turning a corner, and the continued growth here, because it should be a solid business.

Yes, without a doubt.

Great. Thank you very much.

Eric Hugel, Stephens Inc.

In terms of the subs and the carriers, are the $250 million and the $60 million content values still good numbers to think about? Or have those changed?

No, that is still good. When we -- the submarine is -- would be more closer when we have two [boats], closer to $50 million.

Okay.

There was some cost reductions given to the Navy when we went to two boats.

Okay. And given your lead times on that cut, if the budget goes forward and '14 dropped down to one boat from two -- given your longer lead times, when would you start to feel that?

2015. But at the same time, one of the things that was put in was the overhaul. And the overhaul, at a minimum, is $33 million. Now, if they do -- if they overhaul the boat and put on the new advanced [arresting] gear, that would be an additional $24 million; so, that would be $57 million right there.

No, I'm talking about the Virginia submarine. When does -- are you two years ahead, in terms of the reactor stuff on the subs? Is that a way to think about it?

Yes, and I'm saying that will take --

But that will be offset?

To about 2015, which will be offset by the overhaul.

So, the -- I don't understand that. If they are cutting a sub out of '14, that should affect you before '14, right?

Right. But we are going to see -- you would see, based on other programs and how they are moving, you are going to see more of a shift in '15. And I am saying that the overhaul will probably take its place.

Okay, fair enough. Can you update us -- in the operating margin section of Flow Control, it talked about you guys experiencing some more cost growth in the quarter on the AP1000 program, on the China stuff. Can you talk about -- it sounds like right now where things stand, you are pretty good; but can you talk to us about what that additional cost growth was, and what happened there?

We said it was $10 million for the year. We didn't really break it down by the last quarter.

Yes, it wasn't a material amount in the last quarter.

Right.

There was some lingering costs to fix the temperature issue, (multiple speakers) that to the fourth quarter. But it wasn't material.

Okay.

The cost per pump has gone up because of those changes.

Right. Okay. And Marty, lastly, and maybe from a more strategic standpoint, M&A standpoint -- right now you are at about 15% commercial aerospace. When you look at the portfolio of the business and you look at the outlook for commercial aerospace, the backlogs at Boeing and Airbus and everybody else -- is that a good percentage that you want to stay at? Or would you entertain -- are you actively looking at increasing that percentage of the business, given the underlying health of the business? Of the market?

You know, Eric, we always look for outstanding technology. So -- and normally, whenever we acquire does have some percentage in the aerospace area. But the answer to the question is -- yes, we are looking for additional technologies that would help. I think our commercial aerospace sales is lagging a little bit, compared to what our other markets are going. And to keep ourselves as diversified as I would like to have it, I think we would like to increase our commercial aerospace percentage.

Great. Thanks a lot, guys.

Myles Walton, Deutsche Bank.

Could you -- maybe Marty first. The $200 million on the balance sheet, that is among the highest, I think, you have had sitting there in a while. And obviously, you had the debt drawdown in the fourth quarter, some use for the acquisition, the fourth quarter, and if you could tell us that? But also, it seems like that is a lot of cash to have on hand. And I'm curious, do you have M&A teed up and ready to go? Or what was the strategy there?

So, the strategy is we always look toward the long term. I think that the rates that we got for the $300 million, it's well worth having that kind of firepower, which will probably last us quite a few years. Obviously, we are always looking to make acquisitions if we think the right company comes along.

So, the actual level, though, isn't necessarily indicative that the pipeline is full and about to be -- that that cash is about to be utilized?

(Laughter) We would love to use that cash. (inaudible) [call you in a little bit]. No, we have -- we always are looking at quite a few companies. Which ones, and how they end up, if they get acquired, is somewhat variable. I just know from a long-term look at what our future cash needs will be. We weren't that aggressive with the amount of money we borrowed.

Okay. What was the size of the acquisitions in the fourth quarter?

That was ACRA, it's a $30 million company. Probably paid $40 million, I think. That is roughly -- I don't have the exact figure.

Okay.

We paid $61 million.

Anatec, I meant, not ACRA. Sorry, Anatec was a fourth-quarter acquisition.

So, Anatec plus [LMT] was about $60 million?

Yes. Combined, yes.

Okay. And then, on the backlog, I know you are at $1.7 billion versus $1.67 billion last year. But you have bought some businesses through the course of the year. If you compared organic backlog year on year, how much was it down? And was it -- was that only because of the burnoff of AP1000?

Well, our backlog is up 2%, organically.

Organically. So, did the acquisitions bring any backlog?

They did bring some. Just trying to see here -- hold on a minute. I should say about $90 million of the backlog at December 31 was due to acquisitions -- the 2011 acquisitions. Approximately $90 million.

Okay. So, about flat year on year? Maybe slightly --

Yes, that was slightly up. 2% may have been [in a bit] high. But it's slightly up, I think, last (inaudible).

Okay. But -- so, how much -- when you get an order from the AP1000 -- two questions. One is -- what do you think the size would be? And then, secondly -- what is the materiality to the cash flow and from an advance perspectives?

I really don't want to comment on that. Not because -- there has been a lot of different numbers that have been talked about between ourselves and China, so we will have a little bit more information later on in the year.

As we can -- as we get through the negotiations.

Okay. And then, the other question was on the HVAC growth that you alluded to in 2011, which I think the industry saw. But then, you also talked about strong growth in -- or growth in 2012. Geographically, is that concentrated? Or is it your business specifically? Because others are looking more at some tougher comps in certain areas. And just kind of curious what is driving your outlook for growth in HVAC in '12.

We have long-term contracts signed with the customers. And normally, based on those long-term contracts, we can project pretty well where we are going. And we are increasing quite a bit.

And what -- do you have a growth rate, by any chance, in that market?

No, not offhand.

No?

I think it's somewhere about 18%.

Inclusive of whatever acquisitions you have done?

No, no. We are talking about just the HVAC, right?

Yes.

I think it's somewhere around 18%.

Okay. And then, last one -- and this is maybe -- slide 14, when you have the guidance by end market, do you happen to have the organic comparison as opposed to the total? Also, the total sales growth year on year, is there about -- three or four points in there of acquisitions, is that about right?

That sounds about right. We don't have the organic by market [sales].

Okay. What about defense and commercial, as just the two big markets? Do you have that?

No, we don't.

Okay. All right. Well, I will ask it again next time. Okay, thanks.

(multiple speakers) We'll be ready next time. (laughter)

Michael Ciarmoli, KeyBanc.

Just to follow up -- or just to probe a little deeper on defense -- given the release of the budget, what we have seen here with some of the cuts and the longer-term plan, has your outlook changed in your ability to grow those revenues? I think on the Analyst Day you were talking about a 6% to 8% CAGR in defense. You are guiding below that right out of the gate here, kind of 3% to 5%.

Right.

Is it reasonable to think you can grow 6% to 8%, especially as maybe some of the procurement dollars start to hit these budgets, and contracts get renegotiated in the coming years?

I don't think -- we are going to be slightly below that. I think we have the ability to grow 4% to 5% a year. You really have to take a look at some of the timing. We actually, when you go to balance it out, the DDG-51 got full support, it's going to go to two destroyers, that is $20 million for us. The Apache helicopter, which was a surprise, offset the Black Hawk. We actually have more content on the Apache helicopter, by almost about $40,000 [a ship set]. BAMS we have -- we are on the BAMS, we have the same amount of content, slightly more on BAMS than we did on Global Hawk. And the Global Hawk does have three [NETO] airplanes in it for next year.

We also -- one of our larger programs now is the P-8 Poseidon, where we have over $800,000 a ship -- on the airplane. And that starts being -- rolling out in 2013, and it starts accumulating. The carrier refueling, which was a nice surprise, adds to that growth scenario. Even though the F-35 is being somewhat level over the next couple of years, it's still going to ramp up; and we still have the nice content on that. And again, when you look at the United States budget, that doesn't include foreign military sales -- which there is a lot of interest in the F-35, as well as there is a lot of interest in the BAMS. There is over 14 countries that are interested in that. So, it's really going to come down to the timing on some of the orders; but I think we (inaudible) in saying 4% to 6%, somewhere in that area of growth, yes.

Okay. So -- but that is down. You guys were calling for 6% to 8% earlier.

I know, it's down. There was a couple of surprises that were in there that caught us by surprise.

Okay. So, it was the surprises just recently kind of release, nothing -- that is where the, basically, the downtick came from, from this release of this budget, you are saying.

Right.

Okay, okay. That is fair. Just in terms of looking at commercial aerospace, what are you seeing on the 787 program? And then, what is baked into your assumptions for 2012? I know Boeing is still sitting on a lot of inventory. They are probably going to deliver some of those planes that are sitting idle. Can you give us a sense of where you are, in terms of shipping product to Boeing?

We are looking somewhere about 40 ships out. And one of the reasons why, also, is they are going to go from 2.5 to 3.5 later in the year; and then, next year, they are going to be five aircraft a month. And obviously, we are going to be ahead of their shipment. So, we are looking at about 40 ships out.

Okay, perfect. And then, last question for me -- the nuclear, the power generation, on the retrofit and aftermarket side -- there has been some chatter out there that in order to retrofit some of these older plants to deal with potential seismic activity, it could be just too cost-prohibitive; they might just close them. I don't know where they are going to get that extra capacity. But are you seeing any delays or evaluations with that market, in terms of aftermarket activity, as they might -- the NRC and some of these operators think about the costs in relation to keeping these plants going?

We are seeing always some delays, because they are going to -- the industry is going to spend a lot of money on some of these upgrades. We don't hear anybody saying that they are going to shut down. But based on what really, totally comes out of the NRC, could put some of those plants in jeopardy.

Okay.

But we haven't heard anything about that. I read the same article too, and you have to take a lot of things that are written by people not in the industry with a grain of salt.

Right, right. Okay. Thanks a lot.

Tyler Hojo, Sidoti & Company.

I was wondering if you could first provide the backlog by segment. I didn't see it in the release.

The backlog by segment -- about $1.150 billion for Flow Control.

Okay.

About $540 million for Motion Control.

Okay, great. And then, the other thing I wanted to ask you about. Just in regards to the super vessels business -- I'm just kind of wondering, what is the size of that business today? And -- I'm trying to conceptualize where it could go. How big do you think that business could ultimately become?

I will tell you in '11, we did about, I think, $20 million in sales in its first partial year. They have a pretty good backlog going into next year. I think we have said before, our capacity in the building that we just built is about $75 million.

It's $50 million for what we built, and we can add on to that and make it $75 million.

Okay, great. And just more broadly, when you look at the oil and gas market -- I know you said you were planning on doing some restructuring in the early innings of 2012. What kind of visibility do you have into the back half pick-up that you are looking for within that market?

We know of all the potential companies looking at putting in facilities. Some of those facilities and that timing moved. So, we don't have a very large increase in large capital procurement in our budget ahead of last year; but last year is the lowest it has ever been, so there is going to be some improvement. And we see some increase in our quoting activities, but we are actually going to see better increases in our other related products, such as vessels, relief valves, MRO. So, we were not conservative, I shouldn't say, but we didn't put in large increases in the other valve markets.

Okay, all right. And just in regards to some of the sales that slipped out of 2011 -- those have been delayed into the back half of the year, is that the right way to think of it?

They been delayed into [2000]. So, we are happy to put it in our back half of the year, but it might be a little bit more symmetrical than that.

Okay, okay. All right, great. Thanks for the additional color.

Stephen Levenson, Stifel Nicholas.

I thought there would be a little bit more discussion of the southern companies Georgia plants. Do you have any idea what the timetable might be, and where things start to kick in for Curtiss-Wright?

Well, right now our input on -- when we were talking about the new construction?

Yes.

We actually have more input on the United States contract than we do on China. It's almost like two to one. And they are going along very nicely.

Sounds good.

We did mention this year, Steve, that we will have increased -- we are shipping from China to more on the US contracts in 2012. The shipments, though I think start in 2013 sometime, the first steps.

Right.

They go like four a quarter forever, is kind of our schedule now, once we get out the first set to China. So, that is mostly shipment; but we are going to start to ramp up the revenue recognition process on the US projects this year.

Thank you. And do you have a broad view on the other pending license applications? Does the fact that this one has now been approved make it easier for the next guys on the list?

Oh, without a doubt.

And those are what -- still six months to a year away before you start to hear?

That we are not sure of.

[Not sure], yes.

What we are saying is that it -- obviously, if the NRC has approved the plant and then approved the licensing, that is some very positive steps. As the demand for power goes up, obviously, the -- nuclear power is going to be a percentage of it.

Got it. Thank you. On the Metal Treatment side, how much higher can build rates go before you need to make capital investments to meet demand? Or do you have enough capacity?

No, we have enough capacity. We are just putting in new plants throughout the world. As the manufacturing shifts from the United States into China and India, they are going to need -- or our customers who are there, they would be the same ones we have in the United States, need the same type of service that we have provided to them.

Okay. And do you think you have a possibility of getting additional content on revisions of legacy models -- for example, 737 and maybe 777, if that one comes to pass?

I'm sorry, I didn't really get that question.

I didn't know if you have a chance to get -- or if you could tell us if you have a chance to get additional content on revisions of legacy airplane models, like 737 and potentially on 777, if that one comes to pass.

Yes, I would think, just because of the way the trends have been going, like with the 787, Steve -- the more technologies we have, the more content we have been getting. So I think if they -- and our relationship with Boeing has been really good. So, I think if they do revisions, we would have a chance to replace people and gain additional content. Absolutely.

Thank you very much.

Eric Hugel, Stephens Inc.

Glenn, for your tax rate, the -- what was it, the 32% -- does that reflect an extension of the R&D tax credit, or not?

It does not.

Okay.

I would expect it at about a 0.5 point reduction in the rate, if the R&D credit gets [approved].

And secondly, on the AP1000, the negotiations that you are having with regards to this next Chinese order -- can you maybe clarify exactly what you are negotiating? Are you just negotiating with effectively Westinghouse on manufacturing stuff? Or is there a negotiation directly with China regarding the technology transfer and all that stuff going on, also?

No, it's more with China. Our negotiations are directly with China on the next order. There is no tech transfer. We already went through that in the first contract. There could be possibly some additional work, going forward, for tech transfer.

So, Marty, China buys the reactor coolant pumps directly from you? You don't sell them to Westinghouse?

Not in the next go-around, no.

Interesting. Okay. Thanks a lot, guys.

Ken Herbert.

Just one follow-up on oil and gas -- it has been a couple of quarters that you have been talking about increased MRO activity and optimism, because it's typically a leading indicator for some of the bigger projects in the international work. Has your confidence in these larger products and your outlook changed at all in the last three to six months? Or where is your -- what is your confidence level now on the turn that we -- obviously, the outlook in terms of sales is significantly better in 2012, but how is your confidence around this business?

We are very confident about it. We have always produced very good technological products, except in the -- in the industry, we have quite a few new designs that we have designed for oil and gas, that is currently going through their acceptance. The MRO has picked up. Our -- all the business, other than our DeltaValve and our TEI valves, were showing some modest growth, which would be below 2010 levels, a little bit higher than 2011. So, we are confident that we can hit those numbers.

Okay. So, there is no structural or fundamental change in the industry that would make you think that the cycle, as it plays out, could be any different than prior cycles?

That is correct.

Okay, great. Thanks for the clarification.

Michael Ciarmoli, KeyBanc.

I may have missed it -- did you guys give an organic revenue growth number for next year? Or a growth rate --

You mean for this year?

For '12, yes, sorry.

We said -- it was early in my comments. It was 6% to 8% organic growth.

For 2012.

In sales. And 14% to 16% in operating income.

All right, perfect. Thanks, guys.

I'm showing no further questions at this time. And I would like to turn the conference back over to Management for any closing remarks.

Thank you for joining us today. And I look forward to speaking with everyone again at our first-quarter 2012 earnings report. Take care, and thank you.

Good day.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.