Good day, ladies and gentlemen, and welcome to the Curtiss-Wright Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] Later, we'll conduct a question-and-answer session [Operator Instructions]. As a reminder, this conference call is being recorded. I'd now like to turn the conference over to your host, Martin Benante. You may begin, sir.

Well, thank you, Martsy, and good morning, everyone. Welcome to our third quarter 2012 earnings conference call. Joining me on the call today is Mr. Glenn Tynan, our CFO. Dave Adams, our newly appointed President and Chief Operating Officer, would have been here, if it was not for a lack of hotel space due to Hurricane Sandy. In the early October, we told you that our third quarter operating results would be negatively impacted by several factors. This included the labor strike at our facility that produces pumps for the nuclear Navy for the AP1000 program, additional investment required to support the first of a kind nuclear pump technology and reduced order activity in a couple of our end markets. As we communicated last night, our third quarter results included $11 million related to the strike, and $12 million in additional investments at the AP1000 program. Excluding these charges, as well as the restructuring activity during the third quarter, adjusted operating income would have increased 5% from the prior year. Overall, as we move past the third quarter, we continue to take our actions to improve our operational efficiencies and fine-tune our portfolio and end marketing mix to better position our business for future growth. Furthermore, based on the steps we've taken so far, including the restructuring actions across all of our segments and trimming of non-core operations, we continue to reposition Curtiss-Wright for improved operating income growth and margin expansion. Now, I'd like to turn the conference call over to Glenn.

Thank you, Marty. I remind everyone that 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. A replay of this call can also be found on the website. Please note that 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 2012 third quarter performance, along with updates to our guidance, followed by Marty, who will discuss our strategic markets and outlook, and then open the call for questions. This was a challenging quarter for Curtiss-Wright. Based on the various items impacting our third quarter results, we experienced year-over-year declines in sales, operating income and EPS. However, there were a few bright spots worth mentioning. First, our results reflect continued growth in Commercial Aerospace, based upon our position as a key supplier for both Boeing and Airbus. Second, we experienced a strong performance in MRO-related sales in our oil and gas segment, a trend that has continued throughout 2012, which offset the reduced order activity in our large international projects business. Third, there were a few pockets of strength in defense, most notably, for the increased revenues…

Well, thank you, Glenn. As we have discussed thus far today, this was a challenging quarter for Curtiss-Wright. Having said that, we are and have aggressively focused our restructuring and cost-reduction method -- measures throughout all levels of Curtiss-Wright, continue looking our operating efficiencies in order to drive more growth to the bottom line. We also expect to continue making strategic investments and acquisitions to aid the future growth and profitability of our business. Next, I'd like to focus on the key impacts of some of our core end markets, followed by some additional color supporting our confidence in obtaining our long-term financial goals. In commercial aerospace, which continues to be the leading growth driver amongst our diverse end markets. As we are benefiting from production rate increases across numerous Boeing and Airbus platforms, this performance includes continued strong sales of sensors and controls, and peening services to both of our key customers, as well as increased sales opportunities being generated by our emergent operations facility in support of the Boeing 787 program, which is ramping up from 4 airplanes to 5 per month in the fourth quarter. Looking ahead, we continue to expect that the OEM cycle will remain healthy for several more years. And as a result, our growth outlook in this market remains strong. In our oil and gas, where we experienced solid sales growth in our MRO products, offset by the continued weakness in large capital projects. Just as a reminder, with these large international projects, the customer, which in most cases are national oil companies, may be ready to move forward. However, they are subject to delays in obtaining government approvals, which as a result, there are certain projects moving up beyond our initial expectations. Therefore, as you heard from Glenn, we have further reduced…

[Operator Instructions] Our first question comes from Ken Herbert from Imperial Capital.

Just appreciate the additional detail. Just first, a high-level question. Marty, as you -- you've highlighted some increased sort of pressure on some of your end markets here. You've obviously done a number of acquisitions recently and a few in the works. As you look to 2013, what kind of top line growth, both organically and through acquisitions, is the right way to think about the year. And I know obviously, you're not giving guidance, so just any color you can provide on '13 and sort of where you're thinking now, and where you think the company will be that year?

We have some preliminary numbers on '13 that I'm not ready to go into. Obviously, the acquisitions are going to help rebalance Curtiss-Wright being a little bit more industrial and reducing our defense exposure. But the real opportunities of the acquisitions that we have is, when we look at sensors and we were predominantly in positioned sensors, and quite frankly, had a good healthy portion of the market, associated with airplanes, helicopters, real high-performance platforms, these companies offer a lot more space for us to expand into. So they're going to obviously improve our top line growth in 2013, and commercial aerospace will do well. And defense, although it's not going to be robust, we still see some limited growth there. We're going to, obviously, have an improved top line.

Okay, okay, that's helpful. If I look at commercial aerospace, the growth this quarter was a big step down from what we've seen over the last several quarters. You highlighted that the original equipment was good, up 12%, I believe. Was the aftermarket for you in the quarter down and within commercial aerospace? And can you just provide a little more detail on the trends in that market?

We did not include in our analysis the Flow Controls commercial aerospace, but our repair and overhaul are doing well. And that's about the only thing -- the reason why you may think the numbers are wrong.

Okay, okay, that's helpful. And then just finally, when we back out the impact within Flow in the quarter. Sequentially, you've had a nice step-up here, and it looks like fourth quarter guidance implies some steadiness there. Again, can you just talk about now that you've come out of this quarter, some of the other moving pieces and some of what you're doing that will help with margins, specifically, within Flow moving forward?

Okay. As far as the fourth quarter is concerned, when you look at fourth quarter, obviously, it's much larger than the third quarter. But when you compare it to last year's fourth quarter, we have improved sales of about $40 million. That would allot about $9 million to profitability. We have improvement in our acquisitions. Last year, they were losses; this year, they're gains and that will add between $5 million and $6 million. Our cost-reduction programs are going to add an additional $8 million, and some other corporate expenses will be lower, which will add, too. As far as the oil and gas, what we're projecting is actually what we have in backlog. We're not really projecting any new orders. We have done quite a bit of consolidation. We now have our MRO business in our valve facility, which helps with absorption, but also helps in transferring of people. We also are designing new products that will help in future sales growth in that business in 2013. So we're not really projecting in 2013 any market improvement. It's just the cost reductions that we're able -- and consolidations that we've been able to put into the business, which will stabilize that business.

No, no that's good. It sounds like then there's -- you're taking a conservative approach from the top line, but you've got opportunity from the margin as you move forward into '13, in particular, with -- hopefully, as a result of what you've done and been through over last quarter.

Yes, it's been a very big learning experience, believe me.

And the next question comes from Amit Mehrotra from Deutsche Bank.

It's Amit Mehrotra here for Myles Walton at Deutsche Bank. Marty, just following up on the learning experience. Can you give us some color on how you're going to approach initial guidance for 2013 given the revisions so far this year? Can we assume it will be a much more conservative approach or anything you can provide in terms of how you approach it will be helpful this year....

Quite frankly if you take out the strike and the additional investments in AP1000, we basically would have hit our guidance for this quarter. And that doesn't even take into account some weakness in some of our other end markets. We're not going to be that cautious, we're going to go out in what we think is correct, and we're going to look at, obviously, top growth and margin improvement. Not only because we're going to improve not having the onetime hits anymore, but also just from margin expansion. So realistically, if you take a look at our third quarter, just add back in the problem we had with the AP1000 and the strike, you basically hit the quarter.

Okay, just one follow-up on acquisitions. The acquisitions that you guys announced or closed during the third quarter, I think if my math's correct, that's about 7% or equates to 7% of your 2012 revenue. I know you don't want to talk about Simran, but can we see mid-teens type top line growth next year, before any assumption of organic growth and maybe you just want to take this opportunity to repeat the triple, double phrase you coined last year?

I'm not making that phrase anymore, but you have a reasonable expectation for our top line growth next year.

Our next question comes from Tyler Hojo from Sidoti & Company.

Just firstly -- but when we look at the WMCO deal, just trying to get a better sense of kind of purchase price paid or offered, looks like based on their 2011 EBITDA, the valuation multiple comes at around 16x. I know, historically, you paid about 8 to 10 for properties.

Tyler, what did you base that on?

2011 EBITDA.

For the current year, the EBITDA is based -- it would be based, it will be 12.6 multiple and on forward, it's about 10.5. Those are the numbers we're looking at.

Okay. And I mean, Glenn, could you maybe talk a little bit about willingness to maybe pay a little bit of a higher multiple for seemingly higher growth deals? I mean, is that kind of what we should be thinking here?

Yes, I mean when you look at things from a -- I was looking it from an interesting [ph] standpoint. This company adds a lot of depth to us. When you basically look, as I said before, we were more of a component supplier and did some joysticks. And then we're going to add Penny and Giles, if you don't mind, because remember our first initial entree into sensors was Penny and Giles. These were 2 sister division that were launched together. You can almost say it was a 10-year offering because we've actually looked to acquire this back in 2002, while we did -- when we acquired Penny and Giles. So it all comes up a much bigger market space for us. When we look at Williams, we look at them as a cornerstone. They are on more advanced subsystems, which is the area we wanted to grow in. I mean look at the market space that opens, it's in the billion compared to where our market space was. And it adds a substantive capability that we do not have, so that's an area we wanted to go into. Whenever I've been asked about where I'd like to see Curtiss-Wright grow, it is always one of the first answers I've always said was in the sensor and sensor-related products. And these are 2 companies that fit that need. We don't feel that we've overspent for the business. We paid a multiple that's consistent with high end or I would consider this real high end electronics companies, with what high-end electronic companies go for.

Got it. Okay, great...

It was a public offering. So obviously, we had to outbid somebody else.

All right...

And we always overpay, whether it would be $0.01 or whatever number it may be.

And also Tyler, the major markets they're in are forecasted to grow, double-digit rates. The powered wheelchair markets, it's almost in the 20s, that's for PG Drives and Williams Controls. And the off-highway vehicles forecasted to grow 30% over the next couple of years, so they are in high-growth markets as well, as you pointed out.

Even though Williams have seen a little bit of softness, but I think that's just economic condition.

Okay, great. And just moving on to something else. I was hoping maybe you could talk a little bit more about your embedded computing business. Just in context with the fact that your big competitor there posted some pretty substantial declines in terms of the top line in their September quarter. I think they were down something like 30%. I mean, are you seeing kind of similar weakness, and if you can just broadly comment.

No, are you talking about Mercury [ph]?

I am, yes.

No, we have not seen that by any stretch of the imagination. No, our sales have been down. But nowhere near that level.

Okay. All right, great. And just lastly...

You should remember, one of the other things is we consolidated that business at the very beginning of the year. And remember I said that Motion Control was posting an additional profitability based off of cost reductions. That is that cost reduction. And we're also anticipating, obviously, some sequestration and started taking action last year associated with that.

Okay, great...

We might have had a sales decline where our profitability has remained very stable.

Yes, that's certainly showing up in the results. And just lastly for me. I was hoping you could maybe talk a little bit more about super vessel. I understand kind of some of that stuff is getting pushed out. But I'm just wondering, I mean are there awards that are actually being made here, and you're not winning?

Yes, yes. I mean super vessel, there's a lot of business at super vessel. One is, we just entered the market not too long ago. But the second thing is our learning curve has not come to where we thought it should have been after the first 2 years. Even though our models showed we would lose money in the first 2 years of the operation, stocks would have been a little bit more [indiscernible]. We have lost the money, but it's been really worse. It's basically learning curve, it's coming up to speed. I think that we're getting a lot of the kinks out of the operation. And there is demand there. There's quite a bit of demand for vessels.

I mean, is this a function of you don't want to take on additional business until you...

No, it's confidence level of the customers. So we're the new kid on the block. So it takes a little while for them to have the confidence level. So it's not like the work that we're having problems with, the problem that you're having is lack of profitable work, and we will solve that problem.

Okay.

We know what we need to do. Now it's a matter of doing it.

And with that said, do you think we should be thinking about this as a growth market over the next, say, 2 to 3, maybe 4 quarters?

I think the vessels can grow. I think the other valves and coking processes is not going to improve. With shale oil, the discovery of shale or shale gas or gasoline products, it requires a lot less coking and/or frac-ing. And that's why there's not a great demand for some of the typical products that we have. So we expect that, that market, portion of the market, is not going to really grow. It's not going to do deliver over the next few years. And that's how we're sizing the business. And that's one of the reasons why oil and gas isn't doing well is frac-ing has really been taking a major portion of gas products in the United States.

Got it...

There's been a lot of talk about the reindustrialization of United States based on cheap natural gas.

Our next question comes from Kevin Ciabattoni from KeyBanc Capital Markets.

Staying on the super vessel topic here. I was wondering if you guys can just talk about some of the lessons learned on the AP1000, maybe how you apply those to kind of the super vessel program in terms of startup cost. And then discuss maybe how much risk is left in that program, in terms of cost overruns, development cost, et cetera.

The super vessel and the AP1000 really don't have anything in common, but it had some of the same principle. Even though we've built vessels in the past, building certain super vessels have a little different new ones associated with it. But when you talk about the AP1000, even though we build pumps and reactor coolant pumps every day, the -- if you remember, the China requirement was 25% bigger than any pump we had made, and we also had to have some design capabilities associated and make it intrinsically safe that added quite a few technical nuances associated with it. We had not built a new pump in quite some time, especially commercial. And that learning is just learning of having a generation of people who had not made a new one previously. I mean, the last item to get the pumps shipped where we took a $12 million hit was packing and some of the preparations you have to do to take the poll apart, clean it, ship it, going through the quality requirements that it had. Now all of that has already been incorporated into our cost structure for any other China requirement that we would have. So that is a learning curve based on the first build that you have. You can learn very quickly. Obviously, we solved all the problems. And a lot of it was not technical issues. A lot of it is just first time handling, which we will definitely resolve from further on. Because we now have the experience of shipping to out the door, we understand the cost. We're monitoring the cost of all the rest of them. We're doing pretty good. We don't think there's much risk except that there could be a process problem, somewhere down the road. But it should be related only to 1 pump, which would be a normal risk item. [Audio Gap]

We may be experiencing some technical difficulty, for anyone who can hear us.

[Operator Instructions]

By realizing that they were technically different, the AP1000 than the super vessel, I guess I was just wondering from the non-technical side, you talked about shipping, et cetera, whether those lessons were -- could be applied to the super vessel program, kind of derisk that a little bit.

No, a whole different. Totally different.

And then my second...

A super vessel makes of pump which is huge look like a small piece of equipment.

Yes, my second question, looking at the domestic nuclear business, I know you mentioned in the slide. In terms of operating reactors, that declined a little bit as the result of the NRC regulations. And Marty, you did touch on this a little bit. But is that expected to continue into 4Q, should we see it, should we expect to see a pick up there, is that more of a '13 event ?

I think that you'll see a pickup. I think one of the things you see is something that Dave mentioned about companies are saving to put the Fukushima requirements that the NRC has put out, which is going to cost them a lot of money. So you're starting to see them put off some maintenance, which they can, but eventually going to have to refurbish and/or maintenance the equipment that you've put off. But they need to save some money in order to -- because the Fukushima initiative that the NRC's asking the current reactor builders -- reactors to -- adhere to is going to be very expensive. But you'll start to see those new products, we have a lot of outstanding quotations for these new products that we've designed. For us to see those orders start to come in, you're going to start to see our revenues generating the fourth quarter for those new requirements. Okay, but we don't expect to see that going forward.

[Operator Instructions] Our next question comes from Yair Reiner from Oppenheimer.

Can you just walk us through the main drivers for the operating margin improvement at Motion Control? So if I back into fourth quarter margins I guess something around 20%, which is considerably higher than what we've seen in the last 2 quarters. And it seems like this is a record level, so if you could just give us some more color on that, that will be great.

Yes, yes, yes, it's actually fairly simpler. As you know, the sales are -- if we go quarter, fourth quarter to '12 to fourth quarter '11, the sales are about the same. But the profitability up, and it's split between 2 items. One is the acquisitions, primarily ACRA and [indiscernible] which I think as Marty indicated were operating losses last year due to the write off purchase accounting. And this year, the profitability, so it's about a $5 million to $6 million swing. And the other half of it is the benefits from the restructuring and cost reductions initiatives which again is another $5 million to $6 million.

Supply chain.

So flat sales and kind of $11 million improvement in operating profit in the fourth quarter.

We have no more questions in queue. I'll now turn the call over to Mr. Benante to -- for closing remarks.

Well, thank you, Martsy, and thank you, everybody, for joining us today. I look forward to speaking to you again during our fourth quarter and year end earnings call. Thank you very much for attending. Have a good day.

Bye.

Ladies and gentlemen, this does concludes today's conference. You may now disconnect. Thank you.