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Precision Castparts Corp. (NYSE:PCP)

Q2 FY09 Earnings Call

October 21, 2008, 10:00 AM ET

Executives

Mark Donegan - Chairman and CEO

Shawn R. Hagel - Sr. VP and CFO

Analysts

J.B. Groh - D.A. Davidson

Robert Stallard - Macquarie

Howard Rubel - Jefferies and Company

Robert Spingarn - Credit Suisse

David Strauss - UBS

Ronald Epstein - Merrill Lynch

Peter Arment - American Technology Research

Cai von Rumohr - Cowen and Company

Joe Nadol - JP Morgan

Eric Hugel - Stephens, Inc.

Operator

Good morning and welcome to Precision Castparts' Webcast and Conference Call to discuss Second Quarter Earnings for Fiscal 2009. As a reminder, you may listen to this morning's presentation and view the accompanying slides in real time by going to www.vcall.com and locating Precision Castparts Corp. in the investor events calendar.

Additionally, this event is being recorded and will be available on Precision Castparts' website at www.precast.com shortly after the conclusion of the presentation and discussion. After the remarks by members of PCC Management, the dial-in access lines will be open for questions. [Operator Instructions].

And now, I'll turn the floor over to Mr. Mark Donegan, Chairman and Chief Executive Officer of Precision Castparts.

Mark Donegan - Chairman and Chief Executive Officer

Thank you. I want to thank you all for listening in. I'm sure you're all familiar with the forward-looking statement and you need to take it into consideration when you are analyzing the following information.

Looking to Q2, certainly a quarter that provides us with a number of challenges both, planned and unplanned and we will be going into some of the detail into the individual segments.

But in general, I think the Group head on with the challenges over there and delivered a solid quarter for year-on-year improvement. If you look at the sales, it came in just over 6% and year-on-year growth from $1.7 billion last year just under $1.82 billion this year.

We saw 10% growth in operating income going from $316 million of last year to $405 million this year. We saw margins expand from 21.4% to 22.3%. Results generating an EPS of $1.8... $1.89 from this year versus $1.67 last year.

If you look at the major drivers for the company, certainly as you expect service continue to see significant sales growth in our two major end markets, both aerospace and power. We saw good growth in investment cast and fasteners up pace in the market, both growing by greater than 12% again look at those in detail in following pages.

And we'll break forgings out, but they had overcoming number of challenges both planned outages and unplanned outages plus Hurricane Ike. So forging certainly had a number of items to overcome in Q2.

From operating income, we saw solid improvement year-on-year in both castings and forgings, and again we move back the detail out of what impact did forgings in the particular quarter.

A chart that we showed the last time, we continue to show, has been looking at our market by end markets.

Now looking where Q2 finished up, 51% of our sales came from aerospace, 23% from power, 21% from general industrial and 5% from auto and I've said this in the past and if I look at part of our market that we have today versus where we've been in the past, I certainly think it continues to allow us an opportunity and to attack the changing environment to win right now head on and certainly better position we have been an 8.5%.

So again, I think the strength of our company along with the operational side is the market presence we have across our three primary end markets.

If I take a close look at each segment, beginning with investment cast products, again I think they saw a good growth. Our fasteners pace in the end markets. They saw a growth of roughly 15.2% year-over-year from $531 million last year to $612 million this year.

So, a good operating income growth of 24.3% from $125 million at last year to $156 million this year. We saw a solid margin expansion going from 23.6 last year to 25.5 this year.

If you look at the primary drivers in investment casts, as you'd expect again, aerospace and IGT; with the aerospace it was coming from both the OEM and the aftermarket, and again this was prior to the Boeing strike, but we will get into the Boeing strike later on in the presentation.

And IGT continues to see significant growth. Today it's being driven a lot from the international side.

If I look forward, on the IGT front, now where we are going to benefit from the growing market in the world. So, we are going to be coming into a time as we come into our Q4 and moving in the next year, we're going to be expanding our customer base through. Trying to get a double hit from that particular position of our company.

The IGT expansions are right on track. Deer Creek is now complete and our Ohio facility is in the process of qualifying the new equipment. We are beyond schedule in the budget and we are moving in to full production in our Q4. And this is a, certainly a asset that we've been fighting for the need or for the last 12 months.

So, this will be highly accepted by us that we are going to support the customer demand.

I think investment cast continues to do a very, very solid job of driving their margins and the good thing is its coming on all fronts, coming from productivity, yields, volume, revert.

So you have an operation in a group of people that are focused clearly on attacking everything that is after I can continue to drive the margins. Having said that, there are still opportunities in all of our operations in it. So we are not at the point that we can say that our margins can't continue to expand. So still I think everyone of our managers would tell you that there is still plenty of opportunity to continue to expand those margins.

Moving in forged products again, we stated that we certainly had a number of challenges to overcome. And if I can begin with sales, they said sales reductions just under 4% versus last year going from $813 million last year to $781 million this year.

If I take a closer look at those sales and compare to last year, there are a number of elements that thing we certainly need to look at. Compared to last year, we had lower nickel prices in our external total sales and increase in internal sales totaling $85 million.

One of the main goals requested and count during to be able to get access to low cost revert and pull it back into our particular operation and I think we've done a good job of doing that. We're now able to divert a lot more of cal done into our internal loathing sources SMC, structural calf and then air flows and that at about a $40 million delta versus last year.

We had lower contractual material pass through in the Wyman-Gordon operations last year of $9 million.

In a way lower sales from the effects of Hurricane Ike. If I look on an apples-to-apples comparison then we would've seen growth of roughly that 12% range. So, again the number of things that changed but our goal is try to continue to provide clarity as to where that delta is coming from.

If I look at the key drivers, behind where that growth would have come from, certainly coming end of the strike we had very strong demand across our aerospace businesses.

Even today, on the non-Boeing business, the base remains extremely strong. We'd expect, at this point in time, when Boeing comes back off of strike to provide back the solid basis where we were, and then we see the, certainly the effects of the 787 which is kind of across all of our businesses being accelerated to kind of that base line as we move in the mid to end of calendar year '09.

Power, continued to show very, very robust growth with seamless price growing by greater than 20% year-on-year. And even with that growth, we stored a back, we have backlog now in excess of 24 months.

In Forged Products segment with did begin to see the effects of the Boeing strike as we exited Q2. And this is which we'd expect if there are longest lead items.

Moving into operating income; we saw 13% reduction versus last year going from $176 million and $153 million this year. Again, to kind of put some clarity around that what the affect of those events were. We had planned major press outage on our forged press this year. It was roughly $12 million of EBIT.

We had significant unplanned events basically in the two categories, the second ISO press went down, as we stated the very end of last quarter.

And similarly, we had Hurricane Ike, a combination of those were roughly $10 million. It's difficult to measure all the effects of Ike. That number would include some of the direct that we could say, or what the shipments were, and what the margin was in that, and some of the hours that are down. But to look at the effects of, basically a two week disruption from... the plant being fully shutdown to operating a 20% and coming back up over the two week period of time to 100%.

And then again that impact that the Boeing strike across the you have reached, somewhere in that $4 million to $5 million range. So, and a number of events that certainly they had to fight their way through and for the team spirit I think they certainly took the challenges head on.

If I look forward, and now I am kind of get through the Q2 repairs on the ISO press, is now coming back up online the, dissect did in fact come in when the process of bringing that back up now. And hopefully no more hurricanes. If I get a look to Q4 which is a full complimented days and Boeing strike should be behind us.

I would expect to be able to use Q1 as a baseline and expand the margins from there.

So again, I don't see anything that precludes them from growing up of that in a normal environment.

Moving on to fastener products, I think fastener products had a very solid quarter. It saw a sales increase of 13.8% versus last year going from $374 million to $426 million this year.

So, operating income increased by 31.4% versus last year going from $91 million last year to just under a $120 million this year. And continues to see good margin expansion going for 24.3% last year 28% this year.

If I look at key drivers, certainly, again as you'd expect on the sales side, the primary driver is a significant growth. And the aerospace, where the aerospace fasteners grew by roughly 19% on year-on-year, which is again well on access kind of the market growth.

We saw basically flat general industrial sales and we saw a declining automotive sales and again for us, you'd expect this since we are tied almost directly to the North American power sales growth.

Again I think very, very solid growth in the aerospace, with still more opportunity to go.

Operationally, I think they continued to see solid performance, and again if I look at our aerospace plants, you got a group of people that are kind of attacking their cost model on of all parts, materials, yields, productivity.

So, on one end I think the team can sit back and feel proud of what their comments would have been and on the other hand there is not a single team member that would also sit and tell you that there's not still opportunities and a lot to do in those particularly businesses.

I think that, we've seen good growth in the fastener again, out pacing the market but if I look moving forward and when the strike would come to an end. This continues to be an area of opportunities for us for growth. It continues to be a number of opportunities on our critical aerospace fasteners side. So, this will... be an area that we will continue to stay focused on and really attract the growth model.

In the corner, we announced the acquisitions of Airdrome and Fatigue Technologies, again we've talked in the past some of these properties or process we've been in conversations for a very long period of time these two certainly fall to that category.

The good news about these is not only they add to our base in terms of what we are doing today, but they also open up additional markets. So, they are providing a technology or capability we do not have today. And as a lot of the acquisitions we have done over the course of last two years, in way I see it, it sure would all provided the same type of opportunities for us and this will fall under that same category.

Moving on to the Boeing strike and where I think we are today and what the impact would be. Boeing represents roughly 15% to 16% of our total sales and that is all volume. So, it's volume either going direct to Boeing, going indirect into the engine manufacturers, the landing gear manufacturers or going through the distribution. So it will be any product that goes on to a Boeing related platform.

As I stated, at the end of Q2 we started seeing affects of the strike and forge every move into Q3, we are seeing across all of our segments at this point in time.

We have stated in the past and I think that is holding sure today its kind of what we... what we would expect to be so we take that 16% of our sales. And the third thing, okay we roll through the process, what we basically said is relative three, we see they have no effect. And we moved into, we slide [ph] would see 30% reduction in our schedules. Week 5, 6, 7, 8 we called that 50% to 60% reduction and removed and we came beyond, we are looking at 80%.

Those numbers are holding very true, but they kind of look as we roll into week 6 and we fall almost right into kind of that range that we thought it was going to be in.

If it goes beyond eight weeks, again we will have to continue to look at it and see what the effects of the losses, strange type to be it. Certainly a significant amount of our product that would have to run to some degree to make sure that we stay qualified. But we continue to look at that as it was on.

I think we're trying to be very prudent at this point of time. We are cutting back on the areas that I think don't cut into the meet operation. We're cutting back an over time very quickly. We've eliminated our temporary pool. I think we're able to move some of the less skilled work for itself.

But, we're also staying very conscious that last we want to do is to cut in to the skilled work force and coming to strength that then in going back to rage pre-strike and then find ourselves in a need to re-train employees.

So, I think we're being as prudent as possible of being aggressive but we're making sure we're not going to take a very, very, very short term view in serious of problem as we move in the hopefully Q4.

Cash, again it's an area that we continued to stay very, very, very focused on. We generated roughly $134 million of free cash in Q2.

In the quarter, we also had two tax bills for the quarter that we picked up two. We ended with $532 million of cash on hand and debt of $309 million. And certainly our goal is going to be to continue to position that balance sheet. I think for two reasons, something give us a tremendous amount of flexibility and putting no pressure at all on it in terms of our day-to-day operations. I mean in these extremely turbulent financial markets and it allows to take advantage of the opportunity that come up like an Airdrome and Fatigue Technologies where we basically can pay out of cash on hand.

So, it's an area that we're not going to let up on, and looking to continue to drive cash on to the balance sheet.

So in summary, I think that again our base programs, excluding the Boeing strike and looking beyond that point, remain strong and solid. Aerospace coming in the strike with, the demand was extremely steady.

On the power side, we are continuing to see growing demand and lot of that's coming from the global market at this point in time.

To that and we know we talk about this but that 787 for us is a very, very significant platform. Whether it's additive to stable base rates which would reaccelerate our growth rates or if it would be there for any softening expect that one 787 has a value for the 4 to 5 narrow bodies, really give us a extremely strong position.

And then to that we would also A380 that didn't move to a production bill rate.

We continue to see growth opportunities on all areas. And if you look at some of the businesses we have been in for long period of time, structural cast, and air flows.

Even if contracts roll around today, we still see opportunities. So, we have growth opportunities in all of our operations. But certainly an area that we continue focus on very-very heavily, see the ability to kind of out pace the market is on our critical aerospace fasteners and on the non-aerospace alloy, basically is on chemical, oil and gas, and the power side of the business.

Again I think we have margin expansion opportunity in all areas. As you well know, we grow...I just got a review... you can rest assure there is not one facility that is steeling as though there is not opportunity and that we are not focused on it. And that we are not re-sourcing as a proper way to capitalize all those opportunities.

I think again in today's turbulent market one of the best things we've done is that cash on our balance sheet and that enabled us to really not see any probability to do given again today's situation.

And I think we have stayed keenly focused on Boeing and what the developments are and we will respond accordingly.

With that I'll open it up for questions.

Question And Answer

Operator

[Operator Instructions]. Now I will take our first question from J.B. Groh with D.A. Davidson.

J.B. Groh - D.A. Davidson

Good morning, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Hey J.B. how are you doing?

J.B. Groh - D.A. Davidson

Doing good. Hey could you maybe address the credit availability, obviously acquisitions they are going to be a part of your strategy going forward and you guys have a done a great job there. Could you talk about conversations you've had with your bank in terms of credit availability and that sort of thing?

Mark Donegan - Chairman and Chief Executive Officer

Yes, acouple of things, first of all, we have $1 billion and that has very, very reasonable terms that we can tap into at any point in time and that is basically untapped right now. We have also had our banks in here, on my lead bank we had conversations and I guess to put him in nutshells, saying that yes, there is money available to the degree that you need to do, what you need to do. If the opportunities pop up, so either rates, would be a little lighter than what we are paying today but I guess and the basic response is that we are certainly a business that has proven the ability and they are willing to lend us money do when we need to do. Should that opportunity come up.

J.B. Groh - D.A. Davidson

Then can you discuss kind of stuff coming across you guys I think in the past you talked about potential for capital gains increases and perhaps that spurring some more activity from private business owners, may be talk about volume of deal flow that you are seeing and sort of asking multiples how that's changed over the last 90 days?

Mark Donegan - Chairman and Chief Executive Officer

And again I think the two assets from the start we know that that we got, now those of... we have been working for roughly two years. So, again they were targeted assets, they were great for us, they gave us technical capabilities we don't have today. They are extremely solid assets too.

So, if I look at that they are well run businesses, very strong in their marketplaces. And again I think some of the reason why we are able to get those to occur right now is, kind of where they think the market is and so it is from a capital gains standpoint. So, for the things those are there.

There are other opportunities that are certainly coming up that are available. I think we've kind of have accelerated, so I think that there was a reasonableness on the expectations that one could go in that markets kind of swung the other way.

Now it's a process that's kind of readjusting those slides. I think that 6, 7 weeks ago we probably saw that we are on an alignment and then probably the last 6, 7 weeks we're probably seeing again a little spreading but we want to see what happens over the next two or three months type of number.

J.B. Groh - D.A. Davidson

So, speaking of bargain shopping--

Mark Donegan - Chairman and Chief Executive Officer

We find very, very, very well run still assets that they all we find.

J.B. Groh - D.A. Davidson

I know, I know. But given kind of what's happened with the overall market and the stock. Any thoughts on the buyback? I mean, given the balance sheet and the multiple you are trading at now which doesn't seem to sort of capture the future opportunity?

Mark Donegan - Chairman and Chief Executive Officer

No. obviously, as I go out to the market, conversation ends up frequently. And some of the comments I've heard is these were ups can you go get 7, 8 times and my responses well if you look today, you maybe right but if you go back and if you look at the smaller ones from AIC, Sherlock and you think of swinging back to SMC and SBS.

When you look at the multiples today I mean, there is no comparison when we get the right assets, what the best value to our shareholders is. I also think that in today's world, let's say we've gone and we had done $500 million, $600 million of stock buybacks of the previous eight to nine months.

And then Fatigue came up or Airdrome came up or you come up against, whatever that we need to run our business. I'm glad that where we are right now. So, I would say that as long as we continue to see the availability of the right properties. And not just eight acquisitions but the right profits for PCC, I think our goal would be to make sure that we are putting the cash on the balance sheets, if they do come up we can fully take advantage of what's out there.

I don't want find myself short, I want to be able to do what we need to do inside or wherever financial markets would kind of moving around at this point of time.

J.B. Groh - D.A. Davidson

I think what ever you are saying is a given the margin improvement you got out of those last few acquisitions, the multiple is much, much lower than.

Mark Donegan - Chairman and Chief Executive Officer

Yes, I don't think you want me, as... you particularly, but I don't think our shareholders want us, that's why take a short term view. I think that what we have proven is being prudent. I think we are proven to be very prudent with the shareholders' money looking at things on a very long-term that goes from our pricing models to the acquisitions. And that has been a kind of a very conscious effort that we've gone out just to make sure we don't look at thing just for today, tomorrow or a month, two months out there.

We'll make sure we are making the right positioning for the company in the long haul. What I would hate to do is, I would hate the glove, buyback stock, give a short term bump and then had the right acquisition come up and then either financial also we can do it. The markets are too volatile or that the price to do is going to just be hugely different from what it was given that we can do, what we are around. I think that that's again a longer term respective.

J.B. Groh - D.A. Davidson

Great. Hey thanks for your time Mark.

Mark Donegan - Chairman and Chief Executive Officer

Okay. Appreciate it JB.

Operator

And we'll take our next question from Robert Stallard with Macquarie.

Mark Donegan - Chairman and Chief Executive Officer

Hey Rob.

Robert Stallard - Macquarie

Hi guys. Now, first of all on investment cast turbines. I wonder if you could comment on some of the factors that have been driving the overseas growth and also how sustainable do you think this growth is given the economic slowdown and credit issues?

Mark Donegan - Chairman and Chief Executive Officer

Yes, there is a couple instance we have the advantage of we get to kind of cross... couple of our different business and what I mean from that if you look at our place and what's out there and that kind of delivered to the same global market today that the IGT is delivering in. and we get a good shot at that and that's got a two year horizon on it so if look at the IGT. At this point of time we are not seeing any softening from the credit markets and again a lot of its coming from the Middle East, China and India.

So today what I would say is that looking at both the plate side and the gas turbine side we are not seeing any significant changes from where we have been our backlog is still holding strong. Opportunity are still coming in credit are still going through. So from that standpoint, again we are getting kind of cross section that if I saw a pipe falling off and IGT wasn't, pipe tends to be a longer lead time item. And I think it's a good leading indicator for us into that rest of the world that is fulfilling their power needs and today it's holding certainly strong.

Robert Stallard - Macquarie

Okay. And on the aerospace side, we noticed that the fasteners are up 19% on the aerospace side. What do you think is driving this above average growth here? And again how sustainable position this is?

Mark Donegan - Chairman and Chief Executive Officer

Well, I think that Steve, and his entire team and I wish I could list every single one of them, I mean, it's a group that I am just continually extremely proud of. They were able to really go after the share as the shares come up. So, whether it's been, being able to step in on critical programs and solve the technical solution, that's been the base line for that.

Or whether it's been establishing a cost position that's enabled us to come back around and lock in a and longer term contracts or it's been a kind of the assets, the acquisitions that we've done, giving us a fuller portfolio. It's certainly been a help to us. So I think it's a combination of all of those. Basically, as the market shares come up, I think the team's done a very, very good job of supplying what the customer needs and I think we continue to move that in the market share.

Robert Stallard - Macquarie

Just finally and given the kind of economic times that we are in, how sustainable do you think your operating margins are likely to be if and when you start seeing Boeing pressure turning down?

Mark Donegan - Chairman and Chief Executive Officer

I could answer that in two pieces of the puzzle. And what today, or even make sure I said today. What makes us feel different is, if I didn't have a 787 platform out there. With such significant contribution across all of our, it touches every single one of our businesses segment equally.

Then it has such content that number one, if you look at some softening, lets say 2000 and to '10 or '11 whatever, we start softening a little bit in the narrow body. And you start looking at a bill rate, again if you look at a bill rate, that's just two amounts.

Nice that say at a bill rate of two month and you can take out 8 to 10 narrow bodies. It doesn't take long, you say that 787 sustains a lot of softening in the base market. So on one end, and let me say that give any reasonable either that doesn't not be growing. It can be stable base rate looking forward with an added to 787. I think the margins move without any problem at all or reasonable softening in the narrow body or base rate in the 787 comes on, lets the margins continue to expand.

So, from what I see today. Certainly through next couple of years I see the ability to continue expand in those margins. Now if there is a complete collapse, obviously what they revisit that again.

Robert Stallard - Macquarie

Okay, thanks very much.

Mark Donegan - Chairman and Chief Executive Officer

Okay Rob.

Operator

And we will take our next question from Howard Rubel with Jeffries.

Howard Rubel - Jefferies and Company

Thank you very much. Just a couple of things and a follow up on. Mark. One is that, when you talk about where you are with respect to the Boeing strike. If we look at how you are adjusting production rates, are two things happening, one is you are starting to build some inventory and then second, if we look at this as an 8 or 10 week strike, does that mean that it will be another quarter plus before you get back to kind of normal output or will it be... how do you sort of look at schedules going forward?

Mark Donegan - Chairman and Chief Executive Officer

I'd say right now Howard, lets say it would be an eight week strike, we would probably absorb the full impact into Q3, with some roll over in may be January of Q4. Although I think if there were be eight week strike I think that'd be marginal. As they would move more into the 8 to 12, certainly again we would take... we absorb the full impact in Q3 and then we are probably move into January type of number and then beef up from there.

What, I told all the operations is, I want to make sure that we reflect the strike so I don't want to try to pull in any sales, I want to effectively present what is out there. So, we got... as it comes, we are going to take it. So we are not building inventory as a result of the Boeing strike.

We have some operations where we actually have a substantial Q4 and if I look at where we are in Q3 and we go on the Q4, we couldn't handle that jump up. So, in those particular situations we are balancing out Q3 and Q4. But we are not building inventory, to buffer the Boeing strike.

Howard Rubel - Jefferies and Company

So, with the declines in volumes though we will see some pressure in operating margins... so it that fair?

Mark Donegan - Chairman and Chief Executive Officer

Correct. Yes, it is fair.

Howard Rubel - Jefferies and Company

The second thing is that, with all of the airplanes that are being taken out and sort of my senses are the fastener were being a little bit on pins and needles. We've probably seen the best growth we are going to see in the fastener world acquisitions for also a couple of quarters?

Mark Donegan - Chairman and Chief Executive Officer

I don't... well, again, let me ask a question. Assuming Boeing is not on strike?

Howard Rubel - Jefferies and Company

Pardon me. If you go back and if we look with '09 just for the sake of the argument we are kind of binds or kind of flattish the 787?

Mark Donegan - Chairman and Chief Executive Officer

No, I think there we, I think again, assuming Boeing is off strike and we are to build rate comparable to where we were. Before the strike, I think that at the aero... that fastener world excluding the 787 still saw the ability to grow. And that comes from the backlog that they had coming into the strike, as well as the opportunities that they saw moving forward. And then, through that again they have a very, very, very dominant position, or they have a very solid position on the 787.

And again, that would be a real accelerator. So, if the Boeing strike didn't happen in the you'd ask could we continue the grow? The answer would be yes, we could continue to grow.

Howard Rubel - Jefferies and Company

It's as top right, it's just harder. And then...?

Mark Donegan - Chairman and Chief Executive Officer

Yes, it is, I mean, again the math is harder. 20 on 20, on 20 on 20, the math is harder, but there is still the ability to grow.

Howard Rubel - Jefferies and Company

You've done a nice job of managing inventory on balance. And the last couple of quarters you actually had some LIFO gains or benefits. In this quarter was there a little bit of light reversal of that?

Mark Donegan - Chairman and Chief Executive Officer

I'm looking at my CFO and she is saying no.

Howard Rubel - Jefferies and Company

So, you had a LIFO benefit again in the quarter?

Shawn R. Hagel - Senior Vice President and Chief Financial Officer

No, This is relatively flat.

Howard Rubel - Jefferies and Company

Okay, good. Thank you.

Mark Donegan - Chairman and Chief Executive Officer

Hey, I know I have more thing Howard, again if any operations are listening, I'm not satisfied with where we are from an inventory standpoint either. So, we still have a lot of room to move and I have couple of minutes of room and making sure they're getting clearly.

Howard Rubel - Jefferies and Company

Thanks, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Thanks.

Operator

And we'll take our next question from Robert Spingarn with Credit Suisse.

Robert Spingarn - Credit Suisse

Good morning Mark.

Mark Donegan - Chairman and Chief Executive Officer

Hi,

Robert Spingarn - Credit Suisse

Wanted to go back to the 787 you've talked about it quite a bit obviously a very important program for the company. Could you walk us through current not withstanding the strike but the kind of rate levels that you pin at would expect to be at going forward assuming the strike and the potential impact in this aircraft getting pushed to the right by a couple of quarters?

Mark Donegan - Chairman and Chief Executive Officer

Yes, I would agree that if I look at, if you look out two or three years and you say what, what would keep me up and now it is, 787 not moving into production certainly is a significant item for us, it is a very, very, very important platform for us moving forward. If I look at where we were, we were probably at best maybe a half a plane a month, probably less than that, kind of our average. I think a lot of the kind of drop in work that we had seen in Q4, Q1 has kind of sustained again as they move more towards a production rate, production platform or then from a proper sources.

Again we saw in their ordering a much more consistent linear reasonable type of ordering trend. So I would say, on average across all of our businesses as we entered this... kind of guiding this, August time frame we are probably half at best.

Robert Spingarn - Credit Suisse

Should we think about you are shifting today being in concert with they have got in every terms of their past in work. They have got four test airplanes there and if shift ahead of that?

Mark Donegan - Chairman and Chief Executive Officer

You know we can't sell, I mean it would vary by operation I mean some would probably ship 10 set, some we've ship 8 set, some we ship may be 15 that's, but what we don't know a lot of that also goes into testing. So if you look at what we may ship in our engine manufacturer. You know it may be before piece hand, before even get into the engine.

As destructive test may goes on the ground and then may be redesigns. So, we may have more set out there but they went in all varying different applications. In terms of the fastener world, some of the products we ship may have not even ended up being the final configuration that's going to go into the assembly of the platform. So, I guess, I don't know Rob, it kind of what feels to me as we probably have on average maybe 10 to 12 sets of production hardware out there. That would be kind of a slag.

Robert Spingarn - Credit Suisse

So Mark, you really have to get there, like one and half a month in calendar '09 for them to even get close to doing what they want, but they are on record saying they are going to do it. Now we all realize?

Mark Donegan - Chairman and Chief Executive Officer

But again you got to realize for us on a platform like this. We are going to need backup 6 to 9 months. So, as you start ending calendar year '09 for us, you are going to be in to their production rates of mid to fall of 10.

Robert Spingarn - Credit Suisse

Right. So what I am saying is, if you have to ramp relatively quickly once this strike ends, and do you see that happening?

Mark Donegan - Chairman and Chief Executive Officer

Well, we have the ability to do it. And we spend a lot of time talking about where are we? What its going to look like? How we are going to overlay the top of the business we head? Again, if I took the rates that our customers wanted and then start laying in the 787. But yes, we spent a huge amount of time talking about how we are going to go from a rate of zero to a half to two to four to a six number. So, yeah I think we have the ability to do it. Somebody walked in right away on day one and said we want to go from zero to six.

Robert Spingarn - Credit Suisse

Right.

Mark Donegan - Chairman and Chief Executive Officer

So, we end our ramp up in one quarter for two and then next quarter going to three to four and the quarter after that going to four to five. Yes, we can handle something like that.

Robert Spingarn - Credit Suisse

Okay. And then the other thing I wanted to ask about is, can you give us some more detail around these new fastener acquisition? In terms of some more numbers?

Mark Donegan - Chairman and Chief Executive Officer

Probably not.

Robert Spingarn - Credit Suisse

How about just magnitude, relative?

Mark Donegan - Chairman and Chief Executive Officer

I got to be, they, the... let me, the Airdrome market is about a $200 million market. And they are one of probably three or four. So, if I look at the market size we're going after, I think we have the ability to go gain something, 50%, 60%, 70% of that overtime. And the players are fairly well equal.

If I look at Fatigue, Fatigue is serving a particular, they don't... they serve a problem. That are coming up with a technical solution in a number of different applications that is providing ability to work a whole of that fasteners subsequently will go into. They are the leader in the marketplace. They are very well in operation, that's all I want to say at this point in time.

Robert Spingarn - Credit Suisse

Okay. Thanks very much.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Operator

Now we will take our next question from David Strauss with UBS.

David Strauss - UBS

Hi, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Hi, David. How are you?

David Strauss - UBS

Good. Based on what has happened with metal prices since we last spoke, could you give us an update on what you are thinking about pass through and also just in general the impact of lower metal prices on retail?

Mark Donegan - Chairman and Chief Executive Officer

We, and I guess it's important to note, it's not a spot-to-spot. So, what I mean from that is as the nickel went up to 20, using that as an example, a nickel went up to $24, we probably never really passed on $24. We passed on some blended rates, because it's an overlay of hedges that 16, 18, 20, 22.

As we're coming down, we're not at market right now. Because again, there's hedges going the other way. So there's still probably remnants of hedges at 20. And there's remnants of hedges at 60, and so on down the road. So, I think that there still is going to be probably for the next two or three quarters, that will continue to unravel itself. So, I think you'll continue to see year-over-year, whether it's pass through or lower nickel selling price, that will continue to come down over the course of the next couple quarters.

Now, it's important to note, though too, that sometimes people just want to hold around nickel. Again, it's a cake mix. In that cake mix is cobalt, uranium, chrome, alumina, titanium. And there may be elements of that they may move and we look at the blended rate. So, when we give you that, it's not necessarily just nickel. We had chrome that kind of went up.

There's times when cobalt comes up, goes down. But I would expect to see the material moving forward for the two or three quarters, continue to come down as compared to year-over-year.

David Strauss - UBS

What was your average nickel price in the quarter?

Mark Donegan - Chairman and Chief Executive Officer

I don't have that, do you have that? Hold on. If you give me just a minute and maybe I will answer that.

David Strauss - UBS

Okay. And then while you are looking for that, on the seamless pipe side, you said that the huge backlog that runs out for two years, what kind of confidence should we have in that backlog that that's going to hold, given, given the environment that we're in today? In other words, what is the ability of customers actually coming in and potentially cancel that backlog or defer it?

Mark Donegan - Chairman and Chief Executive Officer

Well, the way it works is our pipe tends to be an item that comes on once a power plant is under process. So, we're not a leading item. At the time somebody is linking to drawing and not our ordering a piece of pipe. So, as a construction side begins, the pipe starts to be ordered and that kind of goes to that particular thing. So typically we're ordering to a construction site and you can see installation. Can I say that we will never see that backlog, some of it not appear, no, I couldn't predict that. But for what I see today and the way the backlog has behaved and the way it's going to a particular platform I'll say that, it sustains that good backlog, is a good backlog.

David Strauss - UBS

Okay. And last one, the 20% that of your invested of your business is industrial, we don't hear that much about. What's going on there? I would think that would be times of most economically sensitive part of your business?

Mark Donegan - Chairman and Chief Executive Officer

Well, the industrial for us, again for us what falls in that category is the aerospace I mean the automotive. North America so it's it is more. What have caused in there would be the tooling that we make a lot of thread eyes for the automotive fastener world that it is more. Moving out of that, you have the channel which is more to paper and pulp that's itself flat. It's been steady flat looks like it going to looks like we're kind of holding its own match standpoint.

The biggest thing is driving that in a wrong way is the old IPG, the industrial price group which would be the true link thread dye manufacturers and the automotive fastener are the one's just... we are just kind of fall rate by the North America.

David Strauss - UBS

Okay, thanks. You get that nickel price certainly now.

Mark Donegan - Chairman and Chief Executive Officer

Thank you. I think I have it. 17 bucks.

David Strauss - UBS

Great thanks.

Operator

And we will take our next question from Ronald Epstein with Merrill Lynch

Ronald Epstein - Merrill Lynch

Hey good morning Mark how are you?

Mark Donegan - Chairman and Chief Executive Officer

Great.

Ronald Epstein - Merrill Lynch

So you eluted to that may be you will see an aerospace downturn by 2010 - 2011 in that time frame. If something like that were to occur.

Mark Donegan - Chairman and Chief Executive Officer

Hold on, I didn't elude, what I said is that schedules today hold firm and that if we ever saw any softening that 787 would overlay at that point in time. So.

Ronald Epstein - Merrill Lynch

Okay, well say if we ever saw any softening. Let me put it that way.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Ronald Epstein - Merrill Lynch

How would you run the business differently.

Mark Donegan - Chairman and Chief Executive Officer

Well again, it depends on what level of softening that you talk about. If you assume a 15%, 20%, 25% softening, the 787 comes in and sucks up all those assets and would use the people. So, from that standpoint, a bill rate of four would take care of 16 to 20 narrow bodies. So, from that standpoint, you find that it uses the same resources, same assets, same people, same skills set. So it's not that I have one set of skills for a 787. And another set of skills for the balance or equipment for the 787.

The nice thing is, it's spinning into the same envelope, the time when we get into trouble is when for instance, it this was a GE 90 application, where we built brand new facilities for size or some sort of technology that we can't use somewhere else it would be a problem. But the fact that they are all interchangeable, for an air foil blade, it doesn't matter to me whether we're putting through a 787 or a 737, Airbus 318, it's irrelevant.

So, again from that standpoint, that enables us to sustain quite a bit of down draft should it occur, that we've never had at any point of cycle. Usually when you are coming into a down cycle, you don't have a new platform. The fact that this new platform hanging there is, to some extent we haven't had. If it gets to the point that, a bill rate of four or five can't sustain the softening and I think, where we start directly manage the way we've managed in the past. And I think if you kind of look at what we did as an organization during the last downturn, those... those, those leverage is still available to us in the base operations and fasteners have never been through a downturn with us.

So we have the same leverage to pull we pulled in the last downturn. We still have the SMC's elements through with downturn with us, we have the leverage to pull.

So, I mean we just managed the way we've kind of attack cost where we attack them in the past, but again I think we think we've a history of knowing what to do, and using the last downturn is there but you know, this team is one that will figure out how to go after. And then the last piece for put in that is, you love to say that you are effective on all fronts.

So if you are in a booming economy, you are delivering all that value of the shareholders and your every person is a 100% productive and you are utilizing 100% revert. The fact of matter is when you're in a growth curve, you do challenge that you handle the growth you are training people, you are trying to hold your productivity flat, your revert usage may go from 80% to 60% because you can't get as much reverts as you want to.

You get your engineers, divert it to developing new product and maybe not as efficient as you'd like on hitting the production scrap rates. When you make any flip, you merely focus everything on, again you tradeoff. So, when you are not growing you instead of saying flat productivity to small increasing productivity, okay and I start saying I expect double-digit productivity growth because I am not retraining people.

I am not watering down my highly skilled employees. I have got a workforce that's much more cross trained, it can move back and forth. I may able to go from 60% revert utilization to 70% labor utilization. So, again you have different cost drivers and you balance them all the way up and you balance them all the way down.

Ronald Epstein - Merrill Lynch

Okay, great. And then, maybe just one more question. Have you seen any impact at all in terms of falling energy prices and falling growth in China and talk of slowing growth around the world on your power gen business?

Mark Donegan - Chairman and Chief Executive Officer

No, to date, we have not seen any.

Ronald Epstein - Merrill Lynch

Okay, great, thank you.

Operator

And we'll take our nest question from Peter Arment with American Technology Research.

Peter Arment - American Technology Research

Hey, good morning, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Hey, Peter.

Peter Arment - American Technology Research

Speaking of levers being pulled, can you just give us a little bit more color on, in terms of like the air foils on the aftermarket side in the last downturn. What was the lag in terms of what you saw once the downturn began?

Mark Donegan - Chairman and Chief Executive Officer

I happen to have the gentleman here who runs that particular operation. So I got Ken Buck here with me. The question is what type of leading indication did we get? So, when the aftermarket started to roll over during the last downturn, when did you before. When did you start seeing start seeing? How far did you start seeing the market get soft? He said about nine months.

Peter Arment - American Technology Research

Nine months. So you are in at the moment, you are not seeing you haven't been seeing a downturn you are still indicating you are seeing relatively strong growth with the aerospace?

Mark Donegan - Chairman and Chief Executive Officer

Yes, again what's difficult, we are seeing strong growth in aerospace. What's difficult to cross is again, we do not sell DMA so we sell to the engine primes.

Peter Arment - American Technology Research

Right.

Mark Donegan - Chairman and Chief Executive Officer

So, we have to kind of add everything together and then we back away and what that that aftermarket business is. So, the combination of the assets that's still holding solid.

Peter Arment - American Technology Research

Okay. And then just one quick one on just pension. Can you give us a quick update on where things stand there and if there are any issues?

Mark Donegan - Chairman and Chief Executive Officer

Well, I guess Shawn, question is in terms of--

Shawn R. Hagel - Senior Vice President and Chief Financial Officer

In terms of evaluations or--

Peter Arment - American Technology Research

In terms of what the potential impact would be and when you measurement dates are?

Shawn R. Hagel - Senior Vice President and Chief Financial Officer

Our measurement dates are... will be as of March 30th this year because we have to grow over, in target of 1231. But where this is required is to now measured at year end. And with the latest market softening obviously we've seen some decline in our assets. But we were relatively well positioned going into it. With most of our pension staying fully funded. So although we are seeing declines in that its not going to impact our cost going forward all that much.

Peter Arment - American Technology Research

Great. Thank you, very much Mark.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Operator

And we'll take our next question from Cai von Rumohr, with Cowen and Company.

Mark Donegan - Chairman and Chief Executive Officer

Hey Cai.

Cai von Rumohr - Cowen and Company

Hey, thank you very much. At first the technical one, you mentioned you had two tax payments, what were your cash taxes in the quarter?

Shawn R. Hagel - Senior Vice President and Chief Financial Officer

Our cash taxes in the quarter were $210 million.

Cai von Rumohr - Cowen and Company

And, Mark are you seeing any stresses among either your suppliers or your customers and what are doing to kind of monitor in that potential situation?

Mark Donegan - Chairman and Chief Executive Officer

Well, I... from our supplier... no; at this point in time, we're not seeing any problems. The way we would monitor it probably on the looking up is in terms of they're trying to stretch receivables, are they trying to change terms, are they trying to do something out of the contractual obligations from that cash flow standpoint?

Out of what they are contractually allowed to do. And to date, I'd say nobody's trying to do anything necessarily contractually out of what they're trying to do, out of the ordinary. I mean you're always fighting the battle of where chasing your cash is a full-time job. And I don't think it was any different three years ago. It doesn't feel any different today. We're still chasing cash. And on that side, I think our receivables are holding pretty constant to where they were. So, we're not seeing any significant push or any slide in our receivables.

Cai von Rumohr - Cowen and Company

Okay. And you had indicated, about how big your Boeing volume is. Could you give us an approximate percentage in terms of how it splits between your three reporting segments?

Mark Donegan - Chairman and Chief Executive Officer

Give me just one second to answer that. I've got to put my glasses on. It would be, Wyman-Gordon would be probably 25% and this is the percent of their sales.

Cai von Rumohr - Cowen and Company

That's right. What's that percent of... okay.

Mark Donegan - Chairman and Chief Executive Officer

The percent of the Wyman-Gordon sales and then I'd say the elements of cash in are in that 15% to 16% range.

Cai von Rumohr - Cowen and Company

And then fasteners?

Mark Donegan - Chairman and Chief Executive Officer

And then fasteners, its tough for us to tell, I would say probably 50% because again some of the product we shipped there extra, we ship in to, I guess... just a moment, hold on a second, Cai. The fastener piece that goes into distribution can go any place, so but I think its probably kind of pretty fair assessment to say probably half and half, give or take 5%, 10% max, half Airbus based platforms have Boeing based platforms.

Cai von Rumohr - Cowen and Company

But, did you say half of fasteners would be for Boeing?

Mark Donegan - Chairman and Chief Executive Officer

Half of aerospace fasteners would be Boeing related.

Cai von Rumohr - Cowen and Company

But how much is of your fasteners, how much is Boeing, so we can kind of tell if we take you sold us its like 20 million a week a little bit more than that as we put it in that three pockets?

Mark Donegan - Chairman and Chief Executive Officer

I don't think we've broken out the aerospace so we haven't given specific aerospace number so that I can give you... the entire segment, so on the entire fastener segment I probably 65% to 70% is aerospace, and then of that 50% and again I am... these are kind of my numbers, but they are probably in some range it may be 40, it may be 55, is Boeing/Airbus.

Cai von Rumohr - Cowen and Company

Okay, that's terrific. And could you give us a little--

Mark Donegan - Chairman and Chief Executive Officer

Wait, wait, wait, excuse me what about the one of the other pieces of puzzle I have to be kind of alluded to but the other piece I don't know, I do not know how much goes into aftermarket, because there is a significant piece of the aftermarket, too, that we just don't know.

Cai von Rumohr - Cowen and Company

Got it.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Cai von Rumohr - Cowen and Company

And as we look at this, should we assume on average a detrimental margin of about 30% greater?

Mark Donegan - Chairman and Chief Executive Officer

No, I would say for now that's probably a good reason because we probably will not be as aggressive with a strike as we would be a downturn. So, yes, I'd say we'll get rid of some, but we'll hold on to what we need to hold on to make sure we can respond back. That's probably a pretty good number.

Cai von Rumohr - Cowen and Company

Okay.And then could you give us a little more color on the tone of business. I mean, you say pipe is strong and yet the backlog didn't grow. You say auto and industrial, in your words are terrible. What does that mean in terms of how far were they down in the quarter and, should we look further even bigger declines going forward?

Mark Donegan - Chairman and Chief Executive Officer

Well, the only thing I would add to your first comment on pipe is that you got to realize our shipments are up 20% plus. And the backlog is holding or slightly growing, all we say is that it's greater than $900 million. So, you are not eating into the backlog to ship product.

Cai von Rumohr - Cowen and Company

Okay.

Mark Donegan - Chairman and Chief Executive Officer

Again... I think your comment would be more valid in place if my sales were flat and as backlogging say, Jesus, it's not really growing. But the fact that I am growing the output by 20% plus and my backlog is staying the same. It kind of tells you that the markets continue to kind of move on. If I go back to where we were, November '07, our backlog was $500 million. So, if you look at, we are up 20% plus in upward and the backlog in output in the backlogs, here doubling. I would say that's a growing market.

Cai von Rumohr - Cowen and Company

Okay.

Mark Donegan - Chairman and Chief Executive Officer

On the automotive side... hold on one minute. We're down about 4% to 5%. How much worse can it get? As bad as the other North American automotive can get, we can go right along with them.

Cai von Rumohr - Cowen and Company

Okay. Hey, that's great. Thank you, very much.

Mark Donegan - Chairman and Chief Executive Officer

Okay, guys.

Operator

Now we will take our next question form Joe Nadol with JP Morgan.

Mark Donegan - Chairman and Chief Executive Officer

Hi, Joe.

Joe Nadol - JP Morgan

Thanks, good morning, Mark. Just wanted to dig into -- you give some good detail on the items that hit forged in the quarter. But I wanted to dwell into it a little bit more?

Mark Donegan - Chairman and Chief Executive Officer

Sure.

Joe Nadol - JP Morgan

Because you had the planned maintenance a year ago and that was half of the impact. You take the other half, you add it back. I guess I'm still trying to understand the other pressures on margins that are aside from the few items that you called out?

Mark Donegan - Chairman and Chief Executive Officer

I think again one of the ones I can't completely qualify is I can't qualify to the degree that you would probably like me to be, Hurricane Ike. And when we come in at, we were down Friday, Saturday, Sunday, Monday then came back on Tuesday, Wednesday and Thursday like 20%.

We had people that were writing in press release that probably weren't the best people. And it took us through all of the next week. So, we had efficiencies that I just can't put as much clarity to it, either that I like or that you would like to have at this point in time. So, there was certainly a significant piece from that standpoint. And the other piece of the puzzle on the SMC side is, it's difficult for me to attack pound for pound how much is caused by the Boeing strike on our aerospace raw material side. And again I gave you number and that I think is fairly conservative from that standpoint.

Joe Nadol - JP Morgan

Okay, you guys seeing some significant degradation [ph] somewhere that is aside from the maintenance and shut down in the hurricane, whether it is on SNC and with the nickel price, doesn't know what they have done. If I would have put your incremental margins and plot them against nickel, it could be a pretty strong correlation over the last two years. Is there and there is nothing to that I am trying to get a better graph for this.

Mark Donegan - Chairman and Chief Executive Officer

Well, if I look to your way I think Q4 and I look at all of this softening, and I say Q1, and I start looking what we should be putting through and margins should grow. Q4 on a clean quarter, kind of calls more what you are saying?

So from my standpoint that looks at, at our base line and is saying is there anything still hidden in there that we are not extracting out. And again, I think that Q4 gets me where I need to get to and says okay. I got to get these things behind me. So, does that answer your question?

Joe Nadol - JP Morgan

Well, I guess it's tough without breaking out SMC from Wyman-Gordon, its tough to--

Mark Donegan - Chairman and Chief Executive Officer

And as you know, we don't do that.

Joe Nadol - JP Morgan

Yeah, I know you don't, but that's what I guess I am struggling with and trying to understand what's really driving the margins. But you have your reasons for not giving in disclosure. And then another question in terms of cash flow. Do you expect, Boeing strike aside, do you expect a figure, a number in the back half of the year as the cash taxes don't have the same impact etc.

Mark Donegan - Chairman and Chief Executive Officer

Yes, the back half of the year for us would always be on a stronger year. We get... and we get all the bonuses are paid out in Q1, and we get taxes in Q2, and then start coming in to Q3 and Q4, we kind of... that's stronger quarter than those.

Joe Nadol - JP Morgan

Okay. And I just back on the other one, I just want to be clear you said that in Q3, for the Q3 or Q4 that you expect to build off of the Q1?

Mark Donegan - Chairman and Chief Executive Officer

Q4, because Q3 we have the Boeing strike.

Joe Nadol - JP Morgan

Yeah.

Mark Donegan - Chairman and Chief Executive Officer

And we have less days. For Q4 is a kind of day with a full production days, no planned maintenance and hopefully no effects from the Boeing strike.

Joe Nadol - JP Morgan

Right, understood. Okay, thank you.

Mark Donegan - Chairman and Chief Executive Officer

All right.

Operator

And we'll take our final question from the Eric Hugel with Stephens.

Eric Hugel - Stephens, Inc.

Hey, good morning guys.

Mark Donegan - Chairman and Chief Executive Officer

Hey Eric.

Eric Hugel - Stephens, Inc.

Hey Mark, can you talk about, I guess last quarter you talked about the A380 production schedule being still kind of iffy shaky type of, on and off again. Has there been any improvement in that over the last quarter?

Mark Donegan - Chairman and Chief Executive Officer

Not really.

Eric Hugel - Stephens, Inc.

Okay.

Mark Donegan - Chairman and Chief Executive Officer

I think that we're still seeing, we're not seeing any consistent production signal. We get some demand, but there's not an established bill rate that we are building to at this point in time.

Eric Hugel - Stephens, Inc.

Okay. Just to follow up, just to be clear, that number you threw out there in the presentation, that 15% of your production is Boeing. That would be all just sort of Boeing products. That would include aftermarket, correct? So its not 15%, because Boeing shut down, because --?

Mark Donegan - Chairman and Chief Executive Officer

No. No, that would not include aftermarket.

Eric Hugel - Stephens, Inc.

Okay. Sothat's just Boeing OEM?

Mark Donegan - Chairman and Chief Executive Officer

Correct.

Eric Hugel - Stephens, Inc.

Okay.

Mark Donegan - Chairman and Chief Executive Officer

Because what it is, I think that, I think what we say is roughly 30% to 33% is OEM and then we have an aftermarket piece and we have a 10 [Ph] and then we have a low 30s and that gets us to that 51%. So, that 15% was just OEM.

Eric Hugel - Stephens, Inc.

Okay. So that's a good number to try and relate to [Ph] when we are trying to calculate. Okay.

Mark Donegan - Chairman and Chief Executive Officer

I mean it's...again I think that 15% and kind of that range I gave you that's about how our schedules are rolling in.

Eric Hugel - Stephens, Inc.

Can you comment on your any update on your CapEx spending plans for this year next?

Mark Donegan - Chairman and Chief Executive Officer

This year we're probably going to be in a $200 million range. I think that we probably came in thinking the plans stopping at a little higher. But I think it's kind of rolling about the $200 million and if I look at it next year, excluding an additional IGT facility in Ohio, I would say we probably be under that $200 million next year.

Eric Hugel - Stephens, Inc.

Okay. Any benefit from, in terms of your tax rate or one-time benefit from R&D tax credit?

Mark Donegan - Chairman and Chief Executive Officer

No.

Eric Hugel - Stephens, Inc.

Okay. I guess my last question, where are you, I guess, one of the levers that you have talked about in the past with regards to SMC, is as you ramp production up, you can move a lot more of that over to Wyoming. Where are you in relation to sort of what Wyoming uses coming from SMC and so that how much more lever do you have there?

Mark Donegan - Chairman and Chief Executive Officer

We are probably about 45 to 50 right now.

Shawn R. Hagel - Senior Vice President and Chief Financial Officer

So, essentially 50% more headwind?

Eric Hugel - Stephens, Inc.

Hey, great. Thanks a lot Mark.

Mark Donegan - Chairman and Chief Executive Officer

Okay Eric.

Operator

On behalf of Precision Castparts, Mr. Donegan and PCC Management, I would like to thank you for joining the call today. As a reminder, the webcast and call has been recorded and will be available on Precision Castparts' website at www.precasts.com for approximately 30 days.

This concludes today's meeting. .

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Source: Precision Castparts Corp. F2Q09 (Qtr. End 09/30/08) Earnings Conference Call Transcript
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