Precision Castparts (PCP) Q2 2011 Earnings Call October 21, 2010 10:00 AM ET
Executives
Shawn Hagel - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Assistant Secretary
Mark Donegan - Chairman, Chief Executive Officer and President
Analysts
Kenneth Herbert - Wedbush Securities Inc.
Cai Von Rumohr - Cowen and Company, LLC
J. B. Groh - D.A. Davidson & Co.
Howard Rubel - Jefferies & Company, Inc.
Joseph Nadol - JP Morgan Chase & Co
Ronald Epstein - BofA Merrill Lynch
Robert Spingarn - Crédit Suisse AG
Noah Poponak - Goldman Sachs Group Inc.
Samuel Pearlstein - Wells Fargo Securities, LLC
Rob Stallard - Banc of America Securities
David Strauss - UBS Investment Bank
Peter Arment - Gleacher & Company, Inc.
Operator
Good morning, and welcome to Precision Castparts' Webcast And Conference Call to discuss its second quarter earnings for fiscal 2011. This event is being recorded and will be available on PCC's company website at www.precast.com shortly after the conclusion of the presentation and discussion. Following remarks by members of PCC management, the dial-in access lines will be open for questions. [Operator Instructions] Now I will turn the floor over to Mr. Mark Donegan, Chairman and Chief Executive Officer of Precision Castparts.
Mark Donegan
Thank you, operator. I'm sure by this time, you're all very familiar with our forward-looking statements and you take it to consideration when you're listening to the presentation. I think in general, Q2 is another quarter we just continued to claw our way back from the bottom a year ago. We saw some very solid sales growth versus a year ago, and there's a number of moving pieces that we'll certainly get into as we get into the segments.
In total, we saw sales growth for the company of 16.8% growth versus last year, going from just under $1.3 billion last year to $1.5 billion this year. We saw operating income grow by 7.5% last year going from $337 million last year to $362.6 million this year. We saw operating margins decreased from 26.1% last year to 24% this year. We'll cover the two primary drivers, but they're kind of the same story that they were last quarter in terms of the margin. The significant reduction of seamless pipe and the core structural fasteners, but again, we'll get into that as we get into the segments.
In all, this generated an EPS of $1.70 this year versus $1.54 last year. The key drivers: on sales year-on-year, we saw very solid aerospace growth of roughly 30% versus last year and again, in both our castings and the forges we saw significant closure of that gap that we were seeing from the de-stocking.
On the other end, we saw a 5% reduction in our Aerospace Fastener businesses, but more importantly, and you're going to see as we get into the segment, we're still not seeing any recovery and we saw a significant year-on-year reduction in the draw of our core structure Fastener business. We have gained share in other product lines, which will carry forward, but they are not in that core.
If you look at SMC, we saw solid growth in our general industrial of 30% versus last year, but this is again comparing to kind of the bottom of the bottom of the financial crisis. But the most significant item we had to overcome in the year-on-year analysis, as it was in Q1, was a 50% reduction versus last year in seamless extruded pipe.
If I look sequentially, we continue to see, for the company, good aerospace growth versus Q1 of 5%. On pipe, we did see some marginal recovery on our seamless pipe. Qe grew by 10%, but again, this is up relatively a kind of a low point that we were in Q1, but we are starting to head back in the right direction, and again, we'll get into this in more detail as we get into the forging. And on the other two primary drivers, we saw flat sales on both general industrial and IGT compared to Q1. And again, in the distribution side of our Fastener business, we've not seen that closure to the build rates as a result of the consolidation.
If I look at the operating income for the company, year-on-year, kind of as we move to the segments, you're going to see that we got strong leverage on our aerospace growth. But again, in the segment, we had two primary drivers, the significant reductions in seamless pipe and the replacement of our core product fasteners continue to give us the headwind.
In the quarter, we also took a small severance charge for our U.K. IGT operation. We've been pausing and trying to see where that European IGT base is going to go due to the cause of downsizing in Europe. As we look forward for the next couple of quarters, we basically saw flat, so we did take a severance charge and rightsize our operation during the quarter. Sequentially, the primary differences versus Q1 were our seasonal preventive maintenance in our forging operations, and again, the European extended vacations across all of our operations.
If I look forward, I think we have a number of significant drivers. Those drivers continue to kind of be sitting in front of us. I think we are extremely well-positioned to capitalize on the increasing build rates. So as I look at the narrow-bodies going up in '12 and look at the 777, they're the right programs for us and we're positioned extremely well. And again, the 787 is a huge growth catalyst for us. I will get into more detail as we get in the segments on the current state of 787, and we are seeing the orders coming in and we do begin to recover.
Kind of as we said the last time we were together at the end of Q4, we start accelerating in Q1 and Q2. And looking on that planning arise, we'll also see the long-anticipated fastener recovery and we will go over these in more detail.
If I move from there and look at our sales by market segment, certainly we saw solid aerospace growth versus last year going from 53% last year to 57% this year. But again, in that IGT pipe world, provided headwind as our power went from 20% last year to 22% this year. And compared to last year, we saw very solid growth in the general industrial going from 19% last year to 21% this year.
If I move on to the segments, and beginning with Investment Cast, we saw a very solid sales growth of 15.4% last year going from $441 million last year to $512 million this year to operating income growth of 20% going from $135.4 million last year to $162 million this year. And we saw very solid margin expansion growing from $30.5 million last year to $31.7 million this year.
If I look at the primary drivers for castings, year-on-year on sales, again, there's two primary. We did begin to recover compared to last year. The bulk of the de-stocking in our aerospace now more closely aligns the build rates. We saw a sales increase of 25% versus last year. If I look back at what we've been saying kind of during the crux of the de-stocking, we felt as though there was a disconnect in our casting world of roughly 25% to 30%. You can see that we significantly closed the gap, kind of in that world looking year-on-year.
On IGT versus last year, we saw a 4% drop. And comparing to last year in Q2, the main driver has been kind of that European customer de-stocking. Sequentially, we continue to see the aerospace growth. We saw growth of 4% and again, this is continuing to close that gap from the de-stocking at this point in time. And IGT did see some growth of roughly 4%. And this is I think coming off kind of the bottom appear to be Q1. And again, at least we're starting to move in the right direction on the IGT at this point in time.
If I look at all these transmitted to the operating profit, year-on-year we saw solid operating performance, but if I look at kind of what we've been talking about over the course of the last two or three quarters and getting that incremental drop through, I think that castings continued to kind of demonstrate our capability. We saw a 40% incremental drop through on the sales versus last year. And again, the key driver is getting those sales across the cost structure and holding on and driving that volume across that cost structure. And this is something that this organization gets, we're going to stay focused on it, we're going to make sure we get that value drop through. I think it also looks at the capability as the potential looking into next year as the key accelerators start coming in as to what some of the capabilities we have.
On the negative side again, we talked about the severance and the European IGT pension to the line. To give you a value, it was roughly $1.1 million in the quarter.
Looking forward, I think if I look over the next two quarters, we'd complete closing the gap and our base rates recovering to aligning to the build rates. I think we're looking at something at about the 3% to 5% to continue to close that off. Looking beyond that, I think we get some significant accelerators, certainly going into next year. By far the most significant accelerator we have is the 787.
If I look, we're expecting that to begin in late Q3, accelerating into Q4 and continue from there through '12. We have seen in the course of this quarter roughly a quarter's worth of next calendar year demand taken out of our calendar. The bulk of that wants to occur in Q4. We'll work with our customers now to try to more level load that. But if I look at the way that now feels, it looks like what was Q3-driven, the 787 volume is now coming into Q4. Q4 has moved to Q1. Kind of goes the same way like that until our fiscal year Q4 when we match up to where we thought we were going to be, and then we continue to accelerate through '12 to support the build rates. So again it is a change, it's something that's been going on in the course of this quarter and we're going to move from there.
If I look at the other key accelerators on top of that, certainly we need to start as we get into the end of our Q4 and Q1. We need to start supporting the demand for the higher increasing build rates on both the narrow-body and the 777. And again, I think that we'd continue to accelerate mid-next year into the end of the year to be able to support that.
Moving on to Forge. On sales, we saw a 29.5% increase versus last year going from $516.7 million last year to $668.7 million this year. We saw operating income increase 8.5% going from $120 million last year to $130 million this year and we saw margins going from 23.2% last year to 19.5% this year. And again, it's going to be historic consistent with what Q1 was, and we'll get through that, but it's mainly driven by the pipe.
If I look at the key drivers, on sales year-on-year, as with castings we saw a solid aerospace growth, so roughly a 40% year-on-year increase on our aerospace. I think it's driven by two primary events. Again, as with castings, we saw a significant closure versus last year of that de-stocking and matching more aligning with the rates. And Carlton certainly was a significant contributor in this year since they were not in Q2 of last year, and were in Q2 of this year. So again, I think Carlton continues to be a very strong contributor to Precision Castparts.
Coming off the bottom, general industrial versus last year saw a 40% growth. So again, I think that the general industrials continue to rebound nicely. But as with Q1, we saw significant pressure being put on by the seamless extruded pipe being down 50% year-on-year. So again, I think, there's some very positive growth, and pipe kind of year-on-year gave us the biggest challenge.
Kind of rounding out and going back to a common baseline, we saw flat contractual material pricing pass through and we had higher average nickel pricing at selling price at our mills.
Sequentially, we saw solid aerospace growth of 10%. So again, as with castings, we saw a good, continued growth in that aerospace world in the Forging side. And on seamless extruded pipe, we did see growth off the bottom. So no doubt about it; the Q1 was the bottom. We saw a 10% growth versus Q1, but again, this is off a significantly reduced Q1, but we did see growth. Industrial sales maintained and were flat to Q1.
Operationally, in Forged, we saw a solid leverage on our aerospace components sales, and as with castings, we're able to drive 40% leverage on that growth. So same story, capitalizing on that improved cost structure and holding on to that as we get these sales moving across is something we go over every single solitary day.
And again, I talked about Carlton earlier. We kind of get a double effect from Carlton in the quarter. If I look at it, we certainly got the added volume and margin at the time that we bought it. So if I take their performance and pull it forward, certainly that was one of the drivers. But we've also seen very, very solid improvement over the course of the three quarters that we've now had Carlton in driving that margin improvement. So we kind of got a double dip with Carlton. We got the base line and then we got the improvement going across growing volume too. So Carlton, like I say, continues to be a significant contributor. And then putting significant pressure on that again was the year-on-year lost pipe volume.
Moving forward, in Q3, Q4, I think the aerospace dynamics mirror casting. The 787 effect is the same schedule, and the engine side are identical across both operations. So kind of same effect. Q3 was Q3 is going to Q4, Q4 to Q1 and so on carry through into the forging world. But I think we also do continue to completely close off of the de-stocking that we saw, and I think we do continue to see slight improvement in pipe into Q3. And in the end of Q4, we started to accelerate and certainly, as we move beyond that, we pick up quite a bit of growth from there.
In Q3, we do have one last event from our major press failure in Houston in 2008. We are taking the 29,000-ton press down to replace the temporary column, so at the time of the failure, we put into two temporary columns that we have as backup. We've been using those. The new columns just arrive. It would've been nice had the columns been able to arrive during the last maintenance, but they came in just now. The event will occur around December 15. We did put $4 million of inventory on the ground. So from a sales standpoint, our sales are protected. We will add some loss absorption of roughly two weeks on that one single press. And again, we do have orders coming in from recovery of the seamless pipe starting to ship in Q4 and accelerating in Q1 and beyond.
Finally in Fasteners. We saw sales basically remain flat versus last year going from $330 million last year to $327 million this year. We saw operating expense reduced from $110.7 million last year to $97 million this year. And we saw a margin decrease from 33.5% last year to 29.7%, or just under 30% this year.
If I look at the key drivers, looking at sales year-on-year, in total we saw aerospace sales declined by 5% versus last year, but the significant headwind we've talked about this last quarter, that we continue to overcome, we had roughly a 50% reduction in our core structural Fastener business kind of as a result of that whole consolidation of the distribution base. And again, this is at our two major facilities. Offsetting that, I think we've done a good job. We've gotten solid share gain in our, I call them non-core. They're markets that we've been working to go after with the qualified products, so it's a process we've been on for the last two years. We had it in place to be able to capture it, but again, it is lower complexity product that we're replacing it.
We also did see industrial was up 15% year-on-year. That was mainly driven by the automotive coming off, almost no volume at the same time last year. And again this is volume that we've worked to get share we wanted to gain, and it's also something that we'll carry forward and build on as our base starts coming back. If I look sequentially, basically it was a pretty static story. We saw no traction on the OEM and the distribution side. And again, we continue to see growth in the non-core, but not in our core.
Operationally, the biggest challenge was in fact overcoming that lower margin on less complex fasteners. I think the factories had to be able to come up with a number of cost reduction ideas to kind of overcome that margin effect. I think they've done a good job, but again, certainly getting that volume going across the current cost structure and additive to the baseline we've gotten will be a benefit as we move forward.
If I look forward, again, I think we've established a solid position in our non-core areas. Again, these are markets that we have identified for growth. We just expect them to be growth, not offsetting our core. At the time, we're looking at kind expanding into those markets. As our core business returns, I think we have the capability to build on that. If I look at where we are now and what our expectation, the best line to say we have is somewhere between mid-Q4, so that February timeframe and the end of Q1. So I think we're now looking at that February to June timeframe of kind of which we crossed into the world that, that core comes back. So then, we're going to fight, claw and scratch for every opportunity and just build on what we've got.
If I now move on to segments and on to cash, if I look our cash on hand increased from $124 million versus Q1 to close at $410.6 million and debt decreased during the same time period by 13.4% ending at $237.6 million. We had total positive cash change of $137.6 million, but in the quarter, we had a second tax payment that was roughly $90 million and we had a $38 million payment on a post-retirement medical benefit. And this is a hangover from really the acquisition at SMC. It's something we've been working since that period of time. So one-time payment we have to relieve all future ongoing obligations with that retirement, medical plan. And that was $38 million. So if I kind of look at what I would say kind of the realized cash from our operations, we're in a range of about $265 million for the quarter.
So with that, I'm going to let Shawn go over it. We kind of said we want to try to provide you more clarity into the inventory so there's not any misperceptions out there. So I'm going to let Shawn kind of lead through what our inventory position was versus last quarter.
Shawn Hagel
Thank you. Good morning. As you're aware, we did provide a lot more detail last quarter with regard to our inventory position. And what we've done this morning is to show you how that inventory has changed from the first quarter close in June to the September close just now. Our inventory has increased just slightly, about $8 million off of the Q1 rates, and I've provided some detail with regard to what that represents.
As you know, we've committed to try and maintain inventory at a flat level as sales grow through the fiscal year, and at this point we are seeing some stabilization of that, but there are some things that are making changes within the balances. As we continue to qualify Chengde pipe and leverage that new investment, we put an additional $21 million worth of inventory into process in Q2. That increases the total value of inventory now in the qualification process to $25 million. But that was a big increase in the quarter that was offset by other items that reduced it.
We also, as Mark mentioned, put $4 million of inventory on the ground at our Houston plant in anticipation of the forge repairs that will be taking place in December, so that we don't lose sales with regard to that press at the time. We had a reduction in our LIFO balance during the quarter, which is the result of the increase in metal costs during the quarter, drove FIFO inventories to a higher value, which required us to bring our LIFO debit reserve balance down to more closely approximate that FIFO net number.
As that number did not necessarily impact us from a P&L perspective, because it is covered by material pass through and pricing effect contracts that we have as we move forward. And then finally, overall, even despite the fact that sales went up almost 5% on the quarter, we were able to drive inventories down about $6 million in total, besides these changes that we've got going on and that I've already lined out. So as you can see, we finished up the quarter right at $1.5 billion and plan on holding and reducing that inventory as we finish out through the fiscal 2011 year.
Mark Donegan
Okay. So I'm sure some of you all have some comments for Shawn on that chart. So if I kind of look in summary, I think Q2, we saw a strong commercial OEM growth year-on-year at both Investment Cast and Forged Products, and we also saw a further sequential increases. In the structural aerospace fasteners, we, year-on-year, saw declines. Kind of went through some of the major declines that we saw in our core, but having said that, we're able to kind of supplement that with kind of our non-core market share gains and again, we're kind of flat sequentially.
Power, year-on-year, again the story's the same. We saw a 50% year-on-year decrease, but we did see modest sequential growth. We are seeing continuing increasing order activity. Primary driver is India with China coming second this point in time. So again, we're seeing good solid traction in India. On IGT, we saw year-on-year weakness, but again, we kind of did see some growth in that sequential side. And again in general industrial, solid year-on-year growth off the bottom, which was Q2 of last year, and sequentially the demand was stable.
Moving into Q3. I think again, we continue to complete the closure of that de-stocking and align to the build rates. I think Q3 has minimal activity on the 787. Again we kind of talked about that, what was Q3 is now moving into Q4. I think we do continue to see low single-digit growth on the seamless extruded pipe and low single-digit growth in the general industrial and again, that flat fasteners sales at roughly the same mix.
Moving into Q4 and kind of beyond. I think we certainly start to see, I mean to support some of those build rates. So if I kind of get the end of our Q4 and certainly moving to Q1, we're going to have to start positioning ourselves to handle the narrow-body and the 777 build rates ramping up. The 787, talked about that kind of with Q3, Q4. I think what's kind of as we go through beyond that period of time, get into calendar year Q3 and Q4 and then I think we're looking at a second ramp as we go into calendar year '12. I think we have the one ramp this year and then, certainly, we have another step up to take to support those rates as the aircraft rates go from there. And again, I think in that Q4, Q1 horizon, we don't know the exact point, but I think at that point in time, we do see kind of that consolidation effect going away and begin ramping up to support really on all fronts. So it will be the consolidation of the distribution side of the business going away, support in the 787 ramping up and support in the narrow-body. So I think fasteners kind of in that Q1, Q2 timeframe of fiscal year '12 have a lot of drivers that are going to be kind of coming at them. And I think general industrial kind of tends to grow with the GDP. So that's what I had at this point in time, so with that, I guess, we'll open it up to questions.
Question-and-Answer Session
Operator
[Operator Instructions] And first we'll go to Robert Stallard with Royal Bank of Canada.
Rob Stallard - Banc of America Securities
First of all, on incremental margins, you saw a 40% incremental drop through in the commercial aerospace side of the business this quarter. Previously, you talked about 30% to 35% as your target. Do you think you would be comfortable with us moving our targets towards 40% as those volumes start coming through in the next 12 months?
Mark Donegan
I think you had some sweet spots. We've kind of talked, I think there are points in time that we can drive margins at this level, both in castings and forgings. I think a lot of it depends on the rate of ramp, kind of if you look at that at that sequential, that's 4%, 5%, that's a very good number for us to grow at sequentially. So I think that a lot is dependent. If you see those start to accelerate to 8% to 10%, I think we probably go more into the range of kind of that 30%, 35%. So there's nothing abnormal in that 40%. Again, when we can grow at a controlled manner at a cost structure where we are hunkering down and really stingily doing anything in adding costs, I think we can do that. And again on Forged, what you see is Forged tends to come in incremental cost and what I mean is, you bring out a Forged crew, you turn on an additional oven. So you run at it, you kind of go as aggressively as you can and not adding, and then when you add, you brining on an incremental cost so you probably drop back down. And then, as you get more volume of going across that cost, you start going higher the margins again. So I think there's nothing abnormal in it, and I think it's driven by those two things.
Rob Stallard - Banc of America Securities
And does the potential increase in pass-throughs affect your comfort level on this? If this nickel starts going up, you're passing on more, that does have a dampening impact on the margin?
Mark Donegan
Yes, it does. Again, we'll have to explain that. But again, I think that we protect the operating income. It does get into a math model. So if nickel continues to rise, yes, we will pass through a higher percent without any profit on that. But the underlying performance of the operations will still be able to drop through. But yes, the math model will make the margin go the other way. Or go the other way is a wrong statement, they'll put pressure, they'll let you let have less upside on the math model.
Rob Stallard - Banc of America Securities
And then secondly, you didn't comment about M&A. And I was wondering if you can give us an update on what sort of opportunities there are out there, particularly what sort of prices these assets are asking at the moment?
Mark Donegan
Yes, I think that we're coming in a period of time that we're seeing some activity, we're seeing some opportunities. I don't think there is a set formula for pricing. So I don't think we're looking at runaway pricing. I think that, on the flip-side, we never looked at bargain shopping. So we're never a bottom feeder. We're never out there. I think our model works pretty consistently, I think we adhere to it very rigorously. I think there's good opportunities out there in our world for that type of thing. But yes, I think we could be coming into a period of time in the next 12 months where there's some good opportunities.
Rob Stallard - Banc of America Securities
And what's the sort of the scale of the assets you're seeing? Are they larger than maybe some of the more recent acquisition?
Mark Donegan
They vary. I think we can get to the high side and certainly be above $1 billion and you could be as low as $100 million.
Operator
And next we'll go to J.B. Groh with D.A. Davidson.
J. B. Groh - D.A. Davidson & Co.
Just in the Forged, with the addition of Carlton, is there any cost in there that caused that margin to drop as you would consider that kind of one-time in nature?
Mark Donegan
No, the biggest thing that put pressure on the margins in Forged was just the loss of the seamless pipe. With the 50% drop in an area that was quite frankly that one of the richest margins we have in the company, it just became tough to overcome that. So there's nothing, no one-time charges, nothing in there. It was just really kind of replacing the general industrial sales with the pipe sales with general industrial at a drastically different kind of margin and then the aerospace continued to perform well. So I think it's kind of where we were in Q1. You're still comparing off of very high pipe sales, Q2 versus Q2, and I just think it's just kind of we just haven't been able to recover that magnitude of that pipe fall-off.
J. B. Groh - D.A. Davidson & Co.
But I can't recall if you mentioned the backlog in the seamless pipe business. Can you talk about that?
Mark Donegan
Yes, it's continuing to grow and continuing orders and it's continuing to be steady. So if I look at the future order book, I mean, we're seeing good solid traction. Again, most of it is coming out of India and then China second. So we're seeing solid growth, but the problem is with those orders that come in, again there's that six to nine month lag. So the fact that we're winning them last quarter, Q2, is just saying that we really get started moving those out beyond the Q4, Q1 and Q2 of next year. So it's just the way the orders work. Whereas some of the other side of the business, we get a more immediate effect as it moves up. This tend to be projects that are planned over a long period of time. We just don't have the ability to aggressively pull those in and kind of move the pipeline faster.
J. B. Groh - D.A. Davidson & Co.
And then on the Fastener side, what sort of things should we be looking at? I mean, it seems like when you look at traffic and capacity, those kinds of things, those are all moving in the right direction. Do you feel like we're close to the bottom on the sort of de-stocking on the Fastener side? Or when do we start hitting some reorder points in that turnaround?
Mark Donegan
I think we have hit the bottom. So we haven't seen it get worse. We haven't seen it get any easier. I think that you're right. All the macroeconomics you'd want are in place. You got a 787 coming in next year then we got a tremendous position on the Fastener side. You got increasing build rates on the narrow-body with both the major customers, you've got, to some degree, coming off of nothing, you've got the recovery or build rates going on in the biz jet world. So all the macros are great. And the one thing we know is our customers are saying, "By this time next year, they're all going to be kicking in." And we're going to have to be supporting that. The one that made it so difficult is the consolidation of that distribution base. So besides de-stocking, the de-stocking that was going on across the industry, you also have a compounding effect of that consolidation really up three down to one. Actually it's five down to three right now majors. Until that inventory gets sucked up, we're just not seeing the order growth from that side of the business. And again, we know that by this time next year, we're in the heart of supplying it, and we know where we are right now. Like I said, right now it feels like it's somewhere around February, May, June is when that switch kind of turns. And typically when it turns, it turns fairly aggressively.
J. B. Groh - D.A. Davidson & Co.
So we've got timing issues at all?
Mark Donegan
That's it.
Operator
And now, we'll go to Peter Arment with Gleacher & Company.
Peter Arment - Gleacher & Company, Inc.
So first question, just on the cadence going forward in terms of the way you see 3Q and 4Q, it sounds like what you're saying is we're not seeing a real step function next quarter. It's a slight uptick and then Q4 should be modestly better. But it sounds like it's Q1 fiscal '12 when we begin to see the real material ramp?
Mark Donegan
Again, I think the de-stocking has gone away. So that feels pretty good, we're getting good growth there. But there's no doubt about it that we're going to start seeing some decent volume in Q3 from the kind of the engine guys and that 787 and then accelerating pretty aggressively into Q4. And you're right, everything just pushed out a quarter. So I think your assumption is pretty accurate.
Peter Arment - Gleacher & Company, Inc.
And then just regarding the engine guys, I mean, you've talked about 2012 looking like nirvana, based on volume. The engine OEMs, they seem to still could be concerned about the production ramp in terms of the volumes are getting big. Where do you think it stand on like contract negotiations with them?
Mark Donegan
We are pretty much through our majors. We haven't signed and dotted, but I'd say we're through kind of the hard parts for most cases now through '14, '15, it's kind of where we are at this point in time.
Peter Arment - Gleacher & Company, Inc.
But the contracts, they're stretching out over a longer period?
Mark Donegan
Yes. If I kind of go back over the last 10 years. We used to go two year, it was a long deal. Then we went to three-year. I'd say kind of the general rule is we're certainly looking at four to five years now.
Peter Arment - Gleacher & Company, Inc.
And then just a quick one, on the nickel prices, the $33 million, is it gain from the, I guess increasing nickel prices? A lot of that, you don't benefit on the aero contracts, but in general industrial, it's more spot market, is that correct?
Mark Donegan
That is just matching our sales price to the market price at the time we, usually it's 60 days before we deliver that order we set that. So that's kind of a price in effect number. So there's no margin on that. That's basically taking a predetermined, agreed-upon pricing model and then putting a nickel price at it. So that's really kind of just the cost matching up on the sales line, and it's just kind of a wash.
Operator
And next, we'll go to Howard Rubel with Jefferies & Company.
Howard Rubel - Jefferies & Company, Inc.
Just with sort of your look at demand starting to step up. When do you need to think about capital spending increases?
Mark Donegan
Again, if I kind of go back to where we were and looking to where we thought '08 and '09 were going to be, we put tremendous amount of capital, and we had two extremely high years in '07 and '08. So that capital was put in place to handle a narrow-body bill rate close to where the now-projected rates are going to be and a build rate of 787 will probably seven a month and a GSF probably around 75. So we put a lot of capital in to handle that. So the answer is I think that carries us all the way through this year, probably in the mid-next year, and I think we're looking at an incremental of probably $25 million to get to a bill rate of 10 or 12 a month in the 787 and any reasonable future narrow-body. So we're not looking at major capital at all.
Howard Rubel - Jefferies & Company, Inc.
No, I get it, I see that, so the leverage is pretty straightforward.
Mark Donegan
Right.
Howard Rubel - Jefferies & Company, Inc.
Just two more items. One, with respect to the nickel prices that you have started to see and benefit from. As we look forward, there should be fairly, in addition to unit volume gains, we should see pricing because nickel's staying around $11 as opposed to $8, is that fair? I mean, this is kind of the low point and we're going to see some acceleration over the next couple of quarters on the topline, even though I know it doesn't drop through, per se?
Mark Donegan
Yes, and again, you got to remember that a significant piece of our business has overlays in it. So where the nickel -- let's say the spot buy maybe at $11.25 or whatever it is, we have sales prices in material in hand at $9.50. We have it at $10.25, we have it at $11.10 and so on. So the only one we really hit a spot is kind of in the SMC side of the business where we have pricing effect. The rest of our business is probably, on both ways, material is escalating, it's probably slower and if material is going down, it's not going down as rapidly. So yes, you are correct, they will go, but it's probably got a slower longer trajectory than maybe a one quarter, two quarter. It's going to extend, and we have material on order now, in some cases through our calendar year, our calendar '11, we have some material hedges put in place.
Howard Rubel - Jefferies & Company, Inc.
And then last, I mean the call out of mill products is interesting because that's a first time it's been positive as opposed to negative. Is it broad-based as you look at the customer list? Is there anything there in terms of unit volume that gives you encouragement in terms of operating the facility and some of the operating leverage that, that will give you in Forged Products?
Mark Donegan
Yes, I think that if we could have had the same product mix we had last year, I think we would have driven some very, very, very solid numbers. So I think Forged Products has done a lot of things really well. And to overcome kind of that whole headwind of that margin from that lost pipe was huge. So in some degrees, I feel as though forging is kind of getting shorted a little bit because they had overcome so much. If I look at what Ken and that whole team are doing, yes, they get some really good things that will continue to drive through, especially as you start moving into mid-next year when you get that 787 volume and the build rates going across. I mean that's core products for them. So I mean, those are all good things, but there's not one particularly thing. I think that, again we go back, revert utilization, Caledonia, butterfly [ph] (43:24), I mean I think they've hit all fronts and they're not giving it back. Like I said, if you look optically, in reality, that pipe just can't overcome at this point in time. A lot of what they're doing is to kind of overcome that headwind.
Operator
And now we'll go to Ron Epstein with Bank of America.
Ronald Epstein - BofA Merrill Lynch
When you mentioned the potential about two ramps and kind of the first ramp and the following ramp, where do you see potential bottlenecks with regard to that from your suppliers?
Mark Donegan
Well from our suppliers, I don't think I do. Because if you look, we really control all each separate team. The enemy is us. So if I look at where is it, we make our own material for castings, we make all of our own nickel for the forging side of our business. So in my supply chain, 90% of it is me. So the only one that's out there is titanium, and at this point in time, I think that titanium, we cut it, we know it's out there, we got a long lead time, we get a good look at it, we have orders put in hand and we've also done some things to help ourselves in titanium too. But so where I see the stress coming for us is, should there be a desire to, again, we were planning on one ramp and then that we basically lost a quarter, so now we'll plan for that. But at some point in time, they come back and say, "Oh no, we want that quarter back and we want right now." I think our real problem comes if somebody wants to do that, I think then we get into a people problem. So our real constraint is people. And again, if you show 4% growth, something like that, we're good. If you start growing at 8% to 10%, it starts getting difficult for us to get people. So in our company, it's really the people side of the equation, how quick can you bring them in and train them more than it is equipment or material at this point in time.
Ronald Epstein - BofA Merrill Lynch
How's it going at Chengde? Can you give us an update on how...
Mark Donegan
Yes, it's actually -- we're going along with the qualification. I'd say that we're pretty much where we expect to be in qualification. They haven't gotten qualified. A lot of the orders were waiting will be diverted over to Chengde. So I'd say it's on track. What it's enabling us to do, and I think the important thing if I look out the next 12 months is we're able to look at our assets in Houston now, and look at markets that are great markets that we could not go after because we had to dedicate the capacity to seamless extruded pipe. What we have the ability now is to look and say, okay, can we utilize those Houston assets to grow other markets that we couldn't that have good potential, good sales, good margin, and now we can have the ability to do that because it get Chengde coming off the line. So yes, Chengde is doing pretty darn well right now.
Operator
The following question comes from Cai Von Rumohr with Cowen and Company.
Cai Von Rumohr - Cowen and Company, LLC
So I guess you've talked about the disconnect between OE rates and what you're shipping, particularly in Fasteners where the 787, I guess, you're going close to zero and pretty close to that on the 747-A. Could you comment at Fasteners, as well as kind of across the rest of the business where you think your rates are still well below the manufacturers and where you think your rates are kind of in line with the manufacturer rates that are going up?
Mark Donegan
Sure. I think we probably have another 3% to 5% in castings and forging to regain. So I think we probably pick up half of that this quarter and we close the gap completely in Q4 in terms of that closure. So again, we talked about a number in that 25% to 30% range on the downside where we recovered on average probably 22% to 25% right now. So I think we got to recover back to 30%. I think Fasteners, on our core, we're probably still under by 20%. So I think that they were late to the party. So if I look, Fasteners really had two strong quarters after we saw the kind of that massive whack we took in castings and forgings. And then I think we're still looking certainly all of Q3, I don't see any particular growth. And right now, whether we start picking some at the back half of Q4, but certainly I think as we get into Q1 by then, we're going to start picking up, and then I think certainly by Q2, it's picked up. So I think we've somehow closed that gap. If I take where we are today and go to Q2 of next year, by Q2, I think we've closed that gap. But again, I think Fasteners tends to come more in a, I don't want to say a way, but it certainly comes as more exponential than castings and forgings do at this point in time. So I think that's still the big -- and I think there's a reason for it. I think that consolidation was huge out there in that distribution base.
Cai Von Rumohr - Cowen and Company, LLC
Now you've mentioned that you're well ahead of the manufacturers. So I guess you catch up in castings and forgings, and then you kind of build with them. Given the Boeing, I guess, they get to 38 a month on the 37 in 2013, how much in advance are you going to be? I mean, when will you hit that rate as opposed to Boeing?
Mark Donegan
Six to nine months.
Cai Von Rumohr - Cowen and Company, LLC
And then on nickel prices, this $33 million, how much of that was higher prices at SMC? And where do SMC prices higher than in Q1? Because nickel prices dipped down in that quarter specifically?
Mark Donegan
First of all, that $33 million is all SMC. The rest of any contractual pass through is referred to in the segment reporting as contractual material pass through and for all, I think for most of it, it was pretty benign in both castings and in line with forging. So that was all SMC. And again, we're about 60 days off of kind of the spot price is what basically occurs, because we're typically setting that material price 60 days before the ship date. So there is...
Cai Von Rumohr - Cowen and Company, LLC
You'll get hit with the fact that nickel prices were down in that quarter in the third quarter, we'll start to see you'll be less than the 33 assuming nickel prices...
Mark Donegan
Nickel's been going up so if I look at nickel in Q3, calendar Q3, nickel continued to escalate pretty significantly through. Now, it's kind of held flat it's bouncing between $10.80 and $11.25. Those type of changes won't have a major impact. So it would probably look somewhat similar to Q2 at this point in time. And I don't know what the comparisons would be Q3 to Q3.
Cai Von Rumohr - Cowen and Company, LLC
And then the last question, you mentioned that you'd had a second tax payment of $90 million. What was the first tax payment? Or what were total taxes paid in the quarter?
Mark Donegan
$180 million was the total tax payment. Q2 lines up that we always have two tax payments in Q2.
Operator
And now, we'll go to Robert Spingarn with Credit Suisse.
Robert Spingarn - Crédit Suisse AG
I'm going to ask a question that I've asked before, but when you talk about your major drivers and you may have already addressed this, but the 787 ramp, the joint strike fighter, the return of pipe and so on, chronologically, how should we think of each of those?
Mark Donegan
Well, the biggest impact for us is going to be the 787. And it's just because of the content and the anticipated bill rate. So if you start saying that 787 had a bill rate of 710 a month times $5.5 million, $6 million, it's a huge, huge, huge catalyst. So 787 is always going to be the biggest thing. Having said that, the rate increases are great. 777 going up is a very good platform for us. Late generation 737 and A320s, they are great platforms for us. So any growth and all growth is good but the single biggest one is the 787 by far. And again it's just because of the content, the position, the value of the materials, the complexity of the product, it's all extremely just a great program for us. So it has been for the last year and a half the biggest single catalyst that's out there and it will continue to be that. It's just too big of a program.
Robert Spingarn - Crédit Suisse AG
Is it fair to say that we've been looking for a lot of this to come in next summer? Call it the fiscal first, fiscal second quarters. But now with the latest on 787, that catalyst may lag the 737, 777 and so it's a flatter growth recovery?
Mark Donegan
Well, I think that again, it's lost opportunity for us. It's not as though we're losing anything in the 787 at this point in time. It's when does that accelerator to kick in. And think before the latest engine shift that we got over the course of the last 10 weeks, we're going to start seeing a kind of eke into Q3, we're going to start to see it pick up pretty good in Q4, and then we're going to accelerate from there and then as we got into supporting calendar year '12 build rates, we're going to see the second step. But what we're seeing certainly was kind of that pullout of a quarter's worth and it wants to come in our Q4, so I think what we're going to see potentially is pretty much nothing in Q3. Q3 what we're expecting Q3 is going to come into Q4 and then we to start to go Q1, Q2, Q3 and continue to build from there.
Robert Spingarn - Crédit Suisse AG
I guess where I'm going is I think 787, it's seven to 10 per month, but Q3, Q4, that's going to be too early and even Q1, Q2 next year. Don't you think at this point?
Mark Donegan
Could we? Are we prepared? Do we have equipment? Could we do it? The answer is yes. A lot of that's going to come down to kind of what is Boeing at this point in time. I'd say to go from zero, which let's say that's kind of where we are today to a rate of seven a month, I probably need three quarters. So if Boeing does want to get to a rate of seven, let's say by Q1 of or Q2 of calendar year '12, so let's say by June, they want to be at seven in '12. That means by October, November of 11, I got to be at that rate. Could I do that? Absolutely, as long as I have time to ramp up. But it's just getting that ramp up to find, it's kind of like we're ready, we just got to go.
Robert Spingarn - Crédit Suisse AG
They haven't even negotiated there, eight, nine and ten per month with suppliers. I assume that will come through to you as well, so I just see it as being further rather than sooner.
Mark Donegan
Yes.
Robert Spingarn - Crédit Suisse AG
The other thing I wanted to ask you quickly on M&A...
Mark Donegan
To be fair to Boeing, what they have said is how do you handle these rates? So we have had to demonstrate, and we have to spend a lot of time talking to them about how are we going to handle those rates. So I think from the standpoint of can we, the answer is yes. It's just now a matter of okay, when do you want us to?
Robert Spingarn - Crédit Suisse AG
Well, I think to your credit, you're not going to be their weak link in the chain, right? So you're going to get the 10 likely without trouble. The problem is everybody else or at least certain others who will slow it down for everyone.
Mark Donegan
Yes, I can only answer myself, and I can tell you that, if that rate starts coming at me, you can rest assured that if I have to go out and run the presses to make sure that we handle that rate, we'll do it. I mean it's that important to this company that we'll do as a company whatever it takes to handle that growth.
Robert Spingarn - Crédit Suisse AG
Well they might get there if you start doing carbon fiber aero structures.
Mark Donegan
I don't think I'll run those machines. I know how to run castings and forgings, I don't know how to run carbon fiber machines.
Robert Spingarn - Crédit Suisse AG
One last thing on M&A. You talked I think earlier on pricing, could you talk about target markets like fasteners, especially after this McKechnie deal, which...
Mark Donegan
Yes, absolutely. I think that fasteners continues to be an area. There's businesses that we think make a lot of sense that we've been looking at and talking to, so I think that would certainly be a key area. I think there is other opportunities kind of in the power world. So we're not at a loss. I think this casting, this casting businesses, that make sense for us, so we're not in a loss of ideas. And again, I feel as though the opportunity is coming up in the next 12 months that some of these will break loose. I think we'll be disciplined. I think that, that's our model.
Robert Spingarn - Crédit Suisse AG
You already have been, right?
Mark Donegan
Yes, that's our model and I'm just not going to vary from that. It works for us, we are a disciplined group of people. Everything we do is very structured, it's very methodical, it's got a rhythmic drumbeat to it and I think that we've made some great acquisitions. If I look at Carlton, I'll tell you, Carlton is going to end up being a phenomenal business for us. But that was a very patient, it's almost like the a baton death march. Just kept waiting, waiting and waiting and I think it worked out well for us. So I think we need to make sure we do that.
Operator
And now, we'll go to Joseph Nadol with JPMorgan.
Joseph Nadol - JP Morgan Chase & Co
So a couple of numbers questions. On the Fastener side, I guess this is a kind of a numbers question, but a little bit more of about the mix, why are your core structural fasteners down 50%, but only 20% to go kind of on the upside from de-stocking if rates really haven't moved?
Mark Donegan
That 20% would be for the overall fastener effects of the consolidation/de-stocking. That 50% is on a specific segment in our fasteners. So that's the one we've seen the biggest drop in, but when I say that's 20% overall, I think we have to recover kind of in the Fastener side of the business.
Joseph Nadol - JP Morgan Chase & Co
So it includes what you consider to be non-core?
Mark Donegan
Yes. Well, we have another group. So we have what we consider kind of the sweet spot because it's the highest technology, toughest parts to make. That's kind of what we're good at, you have that. Then you have what I would consider good everyday products that we make that's not quite as complex as a center wing box or an engine-mounting type of product. But it's still sub-structures, that type of product. Then you have this non-core, which gets more into the boats or other markets we're trying to compete in. That's kind of why I'd put it in those three categories. The 50% was that at real sweet spot in those kind of two major facilities, those large structural wing box 787 type of product line, that's that. But the 20% was kind of an overall number for all of that.
Joseph Nadol - JP Morgan Chase & Co
So it is fair then to say then to say that the core, the 50% bucket, does that go more through the distributors than the other part of the business?
Mark Donegan
It goes to both. It goes to both direct and indirect. And we typically supply about 50-50 both ways and we've seen softness in both the OEM and the distribution base. They were all over-stocked. But lagging and continuing to lag is that consolidation where we were supplying the same product to an MNM, a BE and a Honeywell, that was all out there in the chain. That all has to be consolidated before the new combined group on the BE starts ordering the same product again.
Joseph Nadol - JP Morgan Chase & Co
On the pipe, is the backlog up sequentially? Can you at least give us that? You gave us the number last quarter?
Mark Donegan
The backlog is reasonably in the same type of numbers it was last quarter.
Joseph Nadol - JP Morgan Chase & Co
$550 million, $600 million or something like that? And you had said before that China was going through sort of the bathtub as they switch the type of plant they were building. Is that coming back or why is it shifting more to India?
Mark Donegan
Well, it always had a plan to shift to India. So if you kind of look at what we did, if you go back to 2007 when we laid our growth strategy, China we did a number power plants on the drawing board, in China it was going to be 80%. As we started moving in the late '08 and '09, we started talking about we had to qualify ourselves in India because we saw India as the next giant growth. So India was always going to be the next big growth rate for us as China, China was not going to grow year after year, after year, after year at the rate they were growing. So we knew we had to continue. So India, the growth we're seeing in India was always kind of in our plan and expected. What we didn't expect to see was the rapid change that we saw in China kind of going from that blend of 386 and a thousand megawatts to more of just a six to thousand megawatt. But India was always, always going to be kind of a growth driver and if you go back, we talked probably a couple of years ago saying we're starting to qualify India and we're starting to see some growth from there.
Joseph Nadol - JP Morgan Chase & Co
I understand that. I'm just saying, in China specifically, are you seeing the pick up that you anticipated six months ago?
Mark Donegan
It's coming but it's probably not coming at the rate we expected to see yet.
Joseph Nadol - JP Morgan Chase & Co
On Carlton, there were a couple times that things are going well and that you have to double whammy from both adding it up financially and then getting the margin expansion. So I think you've started out there with margins that were below the sector average but close in the margins in the segment, the four segments have been down a bit. Is it fair to say that, that business is not generating margins above the segment average?
Mark Donegan
Yes.
Operator
Moving on to Sam Pearlstein with Wells Fargo.
Samuel Pearlstein - Wells Fargo Securities, LLC
Mark, I know you don't like to give guidance, but in the past you talked about how Q4, Q1, Q2 should all be relatively be flat. Now things have shifted out some. Does that mean Q3 should be flattish again?
Mark Donegan
No. I do think it's flattish. I think we have some opportunities. I think we continue to see some recovery in that de-stocking and the forging castings. I think we see small gains in the pipe. So no, I don't think it's flattish. Having said that, we're not going to see the accelerator that we thought we're going to be seeing in the 787, which is on the engine side which was pretty big nut. But no, I wouldn't say it's flattish. But I wouldn't say it's a runaway train. I think it's got reasonable sequential improvement to it.
Samuel Pearlstein - Wells Fargo Securities, LLC
And so is the big step up in Q1 of next year?
Mark Donegan
Right now, what it looks like is Q1, the way it stands today, is when Fastener starts coming back. That 787 is the engine guide out on the bill rate, we're going to have to be supporting that 777 bill rate at that point in time. See, I think that's kind of what it feels right now.
Joseph Nadol - JP Morgan Chase & Co
And what is the trigger on that Fasteners to close the gap right now? Is it simply using up the inventory that's in the channel or is there something else that we can see?
Mark Donegan
That's all it is. It's using up that consolidation as those three and the over-ordering that the OEMs did. So it strictly using it up. The build rates are there. When I go out to the customers, they'll tell you they're there. And they'll all tell you by next year this time, we're going to be at the heart of it. They just can't give me the exact date on when we're going to crossover. So they know by next year, by now, I'm going to be in the heart of it. I know I am now, it's just that getting that inflection point.
Samuel Pearlstein - Wells Fargo Securities, LLC
In the last Q, you talked about getting CapEx should be relatively flat with last year. You're already running pretty well below it in the first half of the year. Is there anything we should be seeing in CapEx in the second half of the year?
Mark Donegan
Well, our CapEx tends to pick up some pace in the second half of the year, but there's nothing we're holding back on. We're stingy, we're always stingy. We're still using the same mindset, I guess the threshold is, you can't have it, now tell me why you need it. So I don't think anything abnormal. Will we accelerate a little bit? Yes. Do I see us quadrupling? No. I don't.
Operator
And now, we'll go to Ken Herbert with Wedbush.
Kenneth Herbert - Wedbush Securities Inc.
I just wanted to follow-up on the IGT business and specifically in Europe, can you talk about the timing and it seems like this continues to be relatively weak. What your hearing from customers on the timing of the pickup and as things continue to pick up, is it more for OE or original equipment or is it more on the aftermarket side there that you expect initially to see the pickup?
Mark Donegan
Well, typically the aftermarket comes sooner because what that means is they're running the power plants more, they're burning the parts out, and then once they start doing that, then they start saying we need more power. So typically, the early indications come on the aftermarket, and then you follow through. Now there are situations more macro-driven where if you kind of go back to the last boom we got, where Saudi Arabia and Dubai, we're going into this massive growth and needed power plants. So you get those particular events in the world that make that different. But if you look at a general demand, what typically happens is that the power reserve comes down, they start firing up the gas turbines, the aftermarket picks up and then the demand comes in. The one thing I'll say that, I think in the long haul bodes well for gas turbine is the price of natural gas and the abundance of it at this point in time and the long-term projection that natural gas stays down, I think it's still is the quickest, most immediate means of generating power. There was a time where there was going to be no natural gas left and I think that, that's different dynamics. But if I look at the long haul or next couple of years, I think gas turbines still will be the immediate means of kind of supplying the power.
Kenneth Herbert - Wedbush Securities Inc.
So I know you had, I think it was sequentially an increase in the second quarter. Can you talk about 4% as you head into the second half of the year, should we be thinking about mid-single-digit kind of sequential increases in that business or you think there's opportunity for it to be stronger?
Mark Donegan
No, I think that low to mid is probably a reasonable number. So again, going from where we were where it was flat, flat, flat, flat, flat, I think the fact that we're seeing some growth is a positive thing. Do I see some major change coming now? No, I don't. If you kind of look at it, what they'll basically say is kind of '12 may be the point in time that that happens. But I think that between the aftermarket and some opportunities, I think we have the ability to grow. But I think that low to mid is over the next couple quarters is a good number to use.
Kenneth Herbert - Wedbush Securities Inc.
Within IGT, are you seeing anything, any incremental pressure on pricing now?
Mark Donegan
No. I mean again, our pricing is established. We're under contracts, we have predetermined deflation in there, we have metal protection. So we're not, in the bulk of our world, out there necessarily responding to what's going on. We're executing contracts that have been put in place for quite a while.
Operator
Now we'll go with Noah Poponak with Goldman Sachs.
Noah Poponak - Goldman Sachs Group Inc.
Mark, when I look at the balance sheet, you have a small net cash position. There have been times in history of the company where you had some net debt position. We're seeing high-quality companies issue net debt at rather attractive terms. Given the M&A track record you have and the accretion you've been able to generate without that component, how do you think about taking on that strategy, levering up a little bit to do a meaningful deal?
Mark Donegan
I think Shawn and her team constantly are out there meeting and knowing what's available to us. I think we have to be cognizant of kind of the pricing that's available today. We have to balance that off against the cash we're going to generate and kind of what we see out there as kind of transactions. So I think that the answer to your question is I'm not going to say no, I think we have to pay attention. We're kicking off $275 million, $300 million kind of a quarter. So we're putting good cash on the balance sheet I think we got a look at. What we see, think we'll have better clarity over the course of the next three to four months as to what will be actionable, what won't be actionable. And I think we do carry on those conversations, and I think we just have to balance it all out. Do I have an answer for you right now? No. Am I opposed to doing that, given where the rates are today and if I had something? No, I'm not opposed to it at all.
Noah Poponak - Goldman Sachs Group Inc.
And then on 787, the latest delay was driven by some challenges with the engine. I just wonder, as a company that's obviously very close to the engine, if you had a view on what's specifically gone on there in the extent to which they've got their arms around it versus you internally being concerned that this can drag on as a continued issue?
Mark Donegan
Haven't seen any panic, haven't seen any "God, I have to completely redesign everything known to man." We were already involved with a number of changes that have been put in place. So what I see is a continuing execution of that. I haven't seen any urgent; what I have seen is can we pull some of those changes forward that we're already planning on and that's okay. We can do those types of things. So I'm not seeing brand new tools, new redesigns, go to this urgently. Like I said, there were changes from the engine guys that are already in play for cost and weight and a number of other things that we are being asked can we pull some of that in?
Operator
We'll take the last question from David Strauss with UBS.
David Strauss - UBS Investment Bank
On the pipe side, you talked about the six to nine months lag between booking newers and it actually coming through. I think this pipe was up $500 million to $550 million business at the peak. Looks like it's running about half of that level now. When would you think we get back to that $500 million to $550 million level?
Mark Donegan
I think that we started accelerating in fiscal Q1. I think as we go into, Q2 is always a challenging quarter because it brings prices down, so I'd say probably Q3.
David Strauss - UBS Investment Bank
Q3 of '12?
Mark Donegan
Yes.
Operator
And that concludes our question-and-answer session. On behalf of Precision Castparts, Mr. Donegan and PCC Management, I would like to say thank you for joining today's call. As a reminder, the webcast and call has been recorded and will be available on Precision Castpart's website at www.precast.com for approximately 30 days. This concludes today's meeting.
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