James M. Ryan - Director of Investor Relations David C. Adams - Chief Executive Officer, President and Director Glenn E. Tynan - Chief Financial Officer and Vice President of Finance.

Michael F. Ciarmoli - KeyBanc Capital Markets Inc., Research Division.

Good day, ladies and gentlemen, and welcome to Curtiss-Wright's Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to hand the conference over to Mr. Jim Ryan, Director of Investor Relations. Sir, you may begin..

Thank you, Dave, and good morning, everyone. Welcome to the Curtiss-Wright's Second Quarter 2014 Earnings Conference Call. Joining me on the call today are Dave Adams, our President and Chief Executive Officer; and Glenn Tynan, our Vice President and Chief Financial Officer.

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

Please note today's discussion will include certain projections and statements that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance.

Forward-looking statements always involve risks and uncertainties, and we detail those risks and uncertainties in our public filings with the SEC. In addition, certain non-GAAP financial measures will be discussed on the call today.

A reconciliation is available in the earnings release and at the end of this presentation and will be available on the company's website. Now, I'd like to turn the call over to Dave to get things started.

Dave?.

Thank you, Jim, and good morning, everyone. For our agenda today, I'll provide a brief update on recent events followed by Glenn, who will review our second quarter financials and discuss the changes to our 2014 guidance.

Then I'll return to provide some additional color on our margin expansion progress and opportunities before we wrap up and open the call for questions. As you have seen by our press release, we reported strong second quarter results and increased several elements of our full year guidance.

During the course of the second quarter, we took some actions to reposition the portfolio and improve Curtiss Wright's overall profitability, which tracks with our stated intent to improve operating margins. This aligns with what we've been calling addition by subtraction.

First, in April, we divested our 3d-Radar business and our ground defense -- in our Defense segment, which was a smaller business focused on 3D ground-penetrating radar and put this in the hands of a leader in that market space.

Second, we sold our HVAC Controls business in our Defense segment as it never developed the critical mass we had expected to achieve. While this business has tremendous technologies, it was not in our mainstream and achieving the desired results of solid margin and market position would have taken considerably longer than desired.

This divestiture has resulted in improved margins for Curtiss-Wright, and we also picked up some additional cash in the transaction. Lastly, we classified our Super Vessels business within our Oil and Gas division in the Energy segment as assets held for sale, as we progress through the sale process.

Super Vessels market demand has not materialized as expected and this operating unit has been a drag on the downstream Oil and Gas business over the past few years. We are actively working with interested parties which we feel would be a better strategic fit for the business and we will update you in the future on the status of this divestiture.

The result of these portfolio rationalization actions is significant improvement in operating margins, EPS and ROIC for our ongoing results from continuing operations. These actions also reduce our volatility and will create more consistent results for Curtiss-Wright moving forward.

Now, I'd like to turn the call over to Glenn to provide a review of our quarterly performance and the financial details surrounding these actions..

$0.10 contribution from the benefits of our ongoing operational margin improvements, $0.10 net positive impact of moving certain businesses into discontinued operations, and $0.05 decline based on the lower sales force -- forecast in our Defense segment.

Looking ahead, sequentially, we're expecting a decline in EPS from continuing operations in the third quarter, with the fourth quarter being the highest, as we have done historically. Next, to our cash flow.

Aided by the solid second quarter performance, year-to-date, we have produced strong cash flow from operations of nearly $85 million, one of the strongest first halves in recent history. That led to $48 million in free cash flow during the first 6 months of 2014.

Both the quarter and year-to-date performance was driven by higher cash earnings and higher deferred revenues. And following the strong first-half performance, we increased our full-year free cash flow guidance to a new range of $180 million to $200 million. Based on expectations, we're working capital improvements in the latter half of the year.

This also raised our expected free cash flow conversion rate to a range of 105% to 113%, which tracks to our goal to maintain a conversion rate of at least 100%. And finally, the divestiture actions taken this quarter have produced a 70 basis point improvement in our overall return on invested capital.

Now, I'd like to turn the call back over to Dave to provide an update on our future outlook.

Dave?.

Thank you, Glenn. We're very pleased to see the benefits of our margin expansion initiatives as they continue to manifest themselves by virtue of solid year-to-date results. We are well on our way to achieving the results we set out in December of last year, becoming a top performer within our peer group.

I'll now take a few minutes to provide some updates and then I'll open up the call to Q&A. We remain on track thus far, with most operating margin improvement initiatives performing at or close to plan. Our operating teams are focused and aligned with the goal of driving toward top quartile operating margin performance compared to the peer group.

Clearly, the portfolio rationalization activities were a big highlight for this quarter. While we made some respectable changes over the past few months, we continue to review the entire portfolio for businesses or product lines, which may not be core to our future.

It's also worth noting that we have a few more irons in the fire, which could surface during the latter half of 2014. We also have various consolidation programs in the works beyond the aforementioned corporate realignment initiatives as we examine the global footprint for additional cost-savings opportunities.

As Glenn noted, our updated guidance reflects the benefits of some of these initiatives, and thus far, we are ahead of plan. In addition, we continue to evaluate numerous segment-focused opportunities where we are concentrating on our underperforming business units with the purpose of attaining their full potential.

We are devoting a considerable amount of attention to improving the operating performance of these businesses across each of our 3 segments. Over time, these and other segment-focused improvements will further contribute positively to our long-term performance.

Although I've only highlighted a few of our key initiatives today, overall, we maintain a high degree of confidence in achieving strong operating margin expansion. Some of these you saw in our first half results, and there's more to come in the future as we continue our drive to top quartile operating margin.

To recap, we remain on track for a strong year in terms of operating income, operating margin expansion, EPS, free cash flow and ROIC. The benefits of our divestitures and ongoing margin improvement activities are measurable and contributing to our margin expansion.

In addition, our continued efforts will drive strong double-digit increases in op income and earnings per share, along with solid free cash flow. Lastly, I wanted to highlight that we've repurchased $24 million in stock year-to-date through June 30 under our share buyback program and will remain active through the remainder of 2014.

This fall, we will reevaluate our cash position heading into 2015 and formulate a plan for the allocation of our capital. We remain committed to our goal to have more balanced capital allocation between capital expenditures, returns to shareholders and strategic bolt-on acquisitions.

Overall, we remain very confident that our continual efforts to improve margin expansion and free cash flow generation will produce long-term shareholder value. At this time, I would like to open up today's conference call for questions..

[Operator Instructions] And our first question comes from Michael Ciarmoli from KeyBanc Capital..

Just 2, maybe Dave, the Super Vessel business. I mean, as I understood it, that was started because it was a -- maybe there was one other large competitor out there and you guys were going to maybe take share on this side of the world.

How -- are there a lot of buyers out there for that potential business? Maybe if you could just walk us through what kind of dialogues you're having, or maybe if it's too early to discuss that.

But I mean, do you expect to find to sell-- a buyer for that business?.

Yes, Mike, I'm very positive about this. We're very optimistic that we will do something in the near term. And the outlook is good. So there are buyers out there very interested in this. And I think that it's going to go as planned..

Okay. And I'm assuming that obviously, revenues were minimal there and we can clearly see the benefits flowing through on the margins in Energy.

I mean, should we think of Energy at this 11% plus level as a new baseline going forward for this year and into next year? I mean, it seems like you've created a step function increase in the earnings profile of that group..

Anything -- going forward, as I said, we have several irons in the fire. But I think certainly going forward, obviously, we feel very good about where we're at today with the changes we've made, only to be further enhanced by the possibility of more that we're looking for, and we do have several irons in the fire.

So yes, I'm optimistic about the outlook in that regard as well, and I think that there are many opportunities for us..

Okay. And then just a last quick one here. Any progress on the domestic coker front? I know you talked about the international side and it seemed like you were keeping your fingers crossed maybe last quarter.

But anything you can speak of on that front?.

We've got a lot of interest in terms of quotations coming in and with regard to cokers. And I believe that, as I said last time, I was very, very cautiously optimistic. I still hold that. And if just by virtue of the opportunities that we see manifesting themselves, we think that there is some positive there.

And so that's another area of interest that I think the market is certainly showing a change..

[Operator Instructions] Gentlemen, I am showing no one else in queue at this time..

Thank you, all, for joining us today. We look forward to speaking with you again during our third quarter 2014 earnings call, and have a great day. Bye-bye..

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect, and have a wonderful day..