Barrick Mining Corp (B) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Barnes Group, Inc. first-quarter 2007 earnings conference call. My name is [Tawanda] and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Brian Koppy, Director of Investor Relations. Please proceed, sir.

Good afternoon. Thank you for joining Barnes Group's first-quarter 2007 earnings call and webcast. This is Brian Koppy, Director of Investor Relations for Barnes Group. With me this afternoon are Barnes Group's President and CEO, Greg Milzcik, and Senior VP of Finance and Chief Financial Officer, Bill Denninger. Following our prepared remarks, we will be happy to answer your questions.

In addition, I want to remind everyone that certain statements we make on today's call, both during the formal presentation and during the question-and-answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the financial statements. We encourage everyone to consider these risks and uncertainties that are described in our periodic filings with the Securities and Exchange Commission, which are available through the Investor Relations section of our corporate Web site at BarnesGroupinc.com.

Our discussion today will reference schedules that are also available on our Web site. If you would please turn to Schedule 1, I will now turn the call over to Greg.

Thanks, Brian. Good afternoon.

Barnes Group outperformed our expectations again this quarter with particularly solid growth in our Aerospace segment. Demand for our products and services and enterprise-wide operational improvements continued to drive enhanced results. Our first-quarter results further demonstrate our improved business diversification and geographic balance.

Before I detail the highlights of the quarter, I would like to mention that we recently announced the renaming of the Associated Spring business segment to Barnes Industrial. The name change more accurately identifies the end markets and customers, the individual businesses within Barnes Industrial. The change to Barnes Industrial brings the name of the business segment in parallel with Barnes Group Inc.'s other two business segments, Barnes Aerospace and Barnes Distribution.

Now, turning to the quarterly highlights, they include, first, revenues of 360 million grew 20% over the first quarter of last year, the highest growth rate since 2003 and reflect the 17th quarter of double-digit sales growth. Second, total company operating margin for the first quarter was 12%, a 2.6 percentage point improvement. Operational improvement initiatives throughout the Company are generating sustainable results, particularly in Barnes Aerospace and Barnes Industrial. Process improvement is one of our key corporate priorities. To build on operational improvements, we are making investments to expand our lien program, which is being rolled out business-wide. These investments in our lien program are critical to drive our business activities to new levels of efficiency and effectiveness.

Third, our solid revenue growth and profit-centric focus generated net income of 27.7 million, an increase of 50%, with EPS growth of 39% to $0.50 per diluted share. Furthermore, as first-quarter performance exceeded our expectations, we are increasing our full-year estimate of diluted earnings per share to $1.74 to $1.83 from the previous estimate of $1.53 to $1.60. This significant increase is a result of the combined momentum of our sales growth and operational improvements.

Main drivers of this success were within Barnes Aerospace and Barnes Industrial. While we are pleased with our first-quarter results, I mentioned last quarter that continued profitable growth requires long-term investments and hard work. To accelerate the pace of improvement within Barnes distribution, we have initiated Project Catalyst. The goal of this project is to, first, service our customers as effectively and efficiently as possible; second, leverage our expertise with our vendor-managed inventory model within specific markets that traditionally require our high-value, consultative approach to inventory management; third, achieve a $[0.10] or better operating margin each next year; and equally important, position our business for sustainable, profitable growth. To accomplish this will certainly require determined and rigorous effort. I am confident that we have the right management team in place and the highly skilled and talented workforce to achieve the goal.

Project Catalyst consists of four initiatives -- first, global product sourcing. We will be making significant investments to greatly accelerate our global procurement initiative. The investment will center on the development of a rigorous quality assurance system, coupled with an extensive network of reliable suppliers. We believe we can improve the quality of our products for our customers while reducing our cost on the targeted products.

Second, logistics network optimization -- our efforts will focus on improving service delivery and reducing costs by streamlining our network. We plan to examine the potential consolidation of distribution centers to further drive improvement in customer service and overall savings. We will also improve the operational efficiency of our distribution centers with the implementation of a new warehouse management system which we have already initiated.

Third, sales and margin improvement -- we believe we have a very compelling value proposition for our customers. Our goal is to segment the market and grow the most profitable components requiring our high-value vendor-managed inventory model. We will use our extensive research and field operations knowledge to more properly price our products and services in accordance with specific market conditions. We will investment in sales force tools to drive profitable sales, including sales force automation, market-focused sales lead programs, and other sales drivers.

Finally, European market development -- we will complete the integration of our KENT acquisition while leveraging the breadth of Barnes Distribution's product offerings and sourcing solutions to improve the overall business profitability.

Project Catalyst stresses the importance of the existing business. As a result, we are establishing a moratorium on acquisitions within Barnes Distribution until operating margins show acceptable levels of improvement. The focus will be on the four initiatives that I mentioned. These initiatives will streamline Barnes Distribution's operations, improve sales, accelerate profitability, and lead to even greater customer satisfaction and delivery metrics for our customers while positioning the segment for continued growth and financial improvement.

As we implement Project Catalyst, we expect some volatility in results. But it is imperative that we take the necessary steps to achieve our desired outcome. At the end of the second quarter, we expect to be able to share with you key metrics and progress towards achieving our goals.

Now, turning to Schedule 2, within Barnes Aerospace, all elements of the business are performing well. Our OEM business remains robust with a backlog of over $400 million, and aftermarket activity continues at high levels. Our well-run operations and successful lean initiatives are driving higher growth and higher customer satisfaction. Our on-time deliveries within OEM and turnaround times within our aftermarket businesses are raising the bar even with unprecedented production activity. Industry demand will continue to test Barnes Aerospace's proven ability to manage volumes with disciplined capacity expansion, transition of workload to other facilities such a Singapore, and continuous improvement in productivity and key operational processes.

Barnes Distribution was focused on integration of the KENT acquisition, which is ongoing. Key milestones were the closure of the Elancourt, France distribution center and the opening of an expanded DC in Fleurs, France. Initial steps towards implementing Project Catalyst are also underway.

Barnes Industrial made significant operational improvements during the quarter. Sales per employee and operating profit per employee were up 13% and 60%, respectively. Barnes Industrial's commitment to operational improvement initiatives, coupled with a profit-centric focus, positions Barnes industrial to grow profitably and expand its global presence and customer base.

Now, I will turn the call over to Bill for the financial update.

Thank you, Greg, and good afternoon, everyone. Turn please to Schedule 3.

The 20% first-quarter sales growth rate is comprised of about 8% from organic growth, primarily at Barnes Aerospace, 8% from Barnes Distribution's KENT acquisition, and 3% from Barnes Industrial's Heinz Hanggi acquisition. Current changes added another 1%. I will go into more detail on sales when I discuss the results for each business in a few moments.

The benefit of our double-digit sales growth was compounded by 2.3 percentage point improvement in gross margin as constant sales improved to 61.3% compared from 63.6% last year with improvement realized in all three segments but primarily driven by Barnes Aerospace and Barnes Industrial. The higher gross margin was due primarily to increased sales from higher-margin businesses, higher sales prices and operating efficiencies.

SG&A as a percent of sales was slightly lower at 26.8% and operating income increased 54% with an increase in operating income margin of 2.6 percentage points to 12%.

Interest expense of 7 million was up 59%, primarily due to higher average borrowings, which increased 152 million over the prior year to fund acquisitions and organic growth initiatives.

The first-quarter effective tax rate was 23.4%. Changes in our tax rate are largely dependent on the mix between domestic and international earnings. We are projecting our full-year 2007 rate to be in line with the first quarter.

Net income for the first quarter was in 27.7 million, a 50% increase over last year's net income of 18.5 million, and diluted EPS was $0.50, a 39% increase. EPS growth was adversely affected by a 9% increase in diluted shares to 55.2 million. The anticipated, weighted average diluted share count for the full-year 2007 is approximately 56 million.

Turning to Schedule 4, I will review the results of each of the businesses, starting with Barnes Aerospace, which continued to achieve record results. First-quarter sales of 91.2 million were up 36%, and operating profit improved 97%. Total OEM sales for the first quarter were up 26% to 61.7 million. Total commercial sales were 48.6 million, which included a 71% increase to 24.4 million, and sales of components for the GE90 engine family. Military sales were 13.2 million.

Barnes Aerospace orders for the quarter were 103.7 million, up about 43% from the prior-year level of 72.5 million. Backlog increased 51% from a year ago to a record 415.6 million, of which about 61% is scheduled to ship in the next 12 months.

Total commercial orders of 64 million were up 49% from a year ago. Total commercial backlog of 323 million was up 54%. Military orders in backlog in the first quarter were 10.2 million and 86.6 million, respectively. Aftermarket sales increased 63% to 29.5 million for the quarter, including MRO sales of 18.4 million and aftermarket RSP sales of 11 million. Aftermarket activity during the quarter was driven by strong industry fundamentals, as well as additional demand carried over from the fourth quarter. Aftermarket activity will be positively impacted going forward as a result of an additional revenue-sharing program that was entered into at the end of the first quarter. The commitment for this aftermarket RSP agreement is 36.5 million. These aftermarket RSPs continue to meet our expectations and are an excellent complement to our maintenance repair and overall operations.

Barnes Aerospace has now produced quarter-over-quarter growth in operating profit for 13 consecutive quarters. First-quarter results reflect record operating profit of 16.8 million with an operating margin of 18.5%, up from 12.8% in 2006. This improvement was primarily driven by higher sales volume and the increased percentage of aftermarket activity. As discussed last quarter, a significant initiative this year will be to expand our large fabrication business to support the long-term (technical difficulty) prospects of for the GEnx and Trent 1000 engines.

Expenses related to our large fabrication expansion are estimated at approximately 1 million in 2007 with additional costs in 2008. Our goal is to enhance our operational performance and global competitiveness to deliver sustainable, profitable growth. Considering Barnes Aerospace costs associated with capacity expansion, transfer of production, and new product introductions, the full-year 2007 estimated operating margin is projected to be about 17%.

Turning now to Barnes Distribution, sales for the quarter of 152.5 million were up approximately 23%. Organic sales growth was about 3%, driven primarily by North America with contributions from the Raymond business. The KENT acquisition of contributed 22 (technical difficulty) million in sales or 18% and currency changes provided 1.7 million or about 1%.

Barnes Distribution's operating profit was 10.2 million, up 14% from last year's 9 million, and resulted in an operating margin of 6.7%. Operating margin decreased in the first quarter of 2007 as compared to first quarter 2006 primarily due to lower margins at KENT acquisition, which included approximately 700,000 of integration costs. Full-year integration expenses are projected to be approximately 1.8 million. The full-year 2007 operating margin at Barnes Distribution is expected to be about 7% and takes into consideration the costs associated with the KENT integration and Project Catalyst.

Barnes Industrial sales of 119.6 million were up 18% from the prior year. The sales growth results included 8.6 million from the Hanggi acquisition, and a favorable impact of 2.4 million from foreign exchange.

Barnes Industrial continues to be focused on profitable growth. Excluding acquisitions and the impact from foreign exchange, base revenues were down slightly over the prior year. Operating profit, however, increased to 16.2 million, a 52% increase over the corresponding improvement in operating margin of 3.9 percentage points to 13.5%. The higher operating profit primarily resulted from Heinz Hanggi and operational improvement, especially in the engineered springs business.

Barnes Industrial's end markets remain very competitive, and pricing pressures from customers are increasing. In addition, we have experienced a number of customer sales and order delays due to these customers relocating manufacturing facilities from the U.S. and Europe to low-cost countries. Also, the quarterly progression of the heavy-duty truck market now looks to be slightly different from our expectations at the beginning of the year. The first-quarter activity was stronger than anticipated; the balance of the year is expected to be slightly weaker than we originally thought. The full-year 2007 operating margin for Barnes Industrial is expected to be around 12%.

Turning now to Schedule 5, cash was 25 million at the end of the quarter. Our ability to maintain a lower cash balance is being driven by the success of our international financial restructuring that was completed last year.

During the first quarter, we successfully completed a 100 million, 3.375% senior subordinated convertible debt offering. Consistent with our prior convertible, this offering was structured in a manner that limits current stockholders' dilution by providing a net share settlement feature. The proceeds were used to repay debt on our outstanding revolver. The debt to capitalization ratio was 45% at the end of the quarter, at the high end of our targeted range, primarily due to recent acquisitions. Our debt-to-EBITDA ratio was 2.48 times, versus a total debt covenant of 4 times, giving us additional borrowing capacity of at least 275 million.

Capital expenditures for the first quarter were approximately 11.6 million. Our full-year capital expenditure forecast is 45 million to 50 million. These investments are directed primarily towards capacity and operational improvements.

Depreciation is expected to be around 35 million. The estimated amortization of intangible assets is projected to be around 11 million.

In summary, Barnes Aerospace and Barnes Industrial continue to perform well, and we are confident in our ability to achieve the Project Catalyst initiatives to accelerate improvement of Barnes Distribution. We're pleased with our overall sound financial results for the first quarter, which provide a very strong start to the rest of the year.

Thank you. I will now turn the call back to Brian.

Thank you, Bill. We will now open the call to your questions. We ask that you limit yourself to one question and one follow-up, so that as many individuals as possible have an opportunity to ask their questions. Operator, the first question, please.

(OPERATOR INSTRUCTIONS). Karl Oehlschlaeger, Banc of America.

Good afternoon, guys, and congratulations on your great quarter. Just a couple of quick questions. Thank you for the margin guidance, but you know, I want to talk a little bit about the growth rates, specifically that you had in Aerospace. Can you talk about how we should be thinking about that going forward, you know, with our aftermarket being so strong and how we should be thinking about the impact from RSPs?

Well, first of all, we are very pleased with the performance in Aerospace this quarter. They have done a very good job with turning revenue growth into (inaudible) growth which I think is very important. But you have to recognize that the aftermarket is more volatile than the original equipment manufacturing side of the business in the sense that you could look at the backlog, which is predominantly OEM-focused, and look and get a better feel for what's going on, longer-term.

The more volatility is basically due to just the fact that you have changes in airline passenger program or maintenance programs, etc., but if you look at macro drivers, things like revenue, passenger miles, the aging of the fleet, things of that nature, it will give you an idea of what's going on with the fleet in general (technical difficulty) macro.

On more of a microlevel, some of our revenue growth has been greater than the overall market growth simply because we've added additional maintenance, prepare and overhaul agreements as well as additional revenue-sharing partnerships. I think the guidance that we've given you is taking all of that into account.

You know, aftermarket is volatile but do you have a sense of what sort of would be the base growth in that business, the aftermarket business?

Well, I think I would have to model that because it's not just the overall growth. It's the growth of specific platforms that we've targeted, and I think that we've been looking at it more in aggregate.

Okay. If we could turn to distribution and the margins that you're targeting 10% next year. Now, is that for the full year or you hope to get to that by the end of '08?

Yes. We are targeting 10% for the full year, although we expect a fair amount of volatility through the year.

Because this year at 7%, it seems like probably not going to have too much improvements and maybe -- can you talk to what extent you might think you would have some impact from closing down or consolidating the distribution centers?

First of all, in 2007 there's a significant expenditure. There are some savings, and they tend to offset; that's our current projections. That could change and may change, and that those vary by quarter. We are not yet (technical difficulty) enough in the Project Catalyst work to be able to identify which, if any, distribution centers will be shut down. That's part of the study that's underway.

Okay. Then just finally, on FX, can you remind us how the -- you talked about the impact to sales in two of the divisions. It was fairly small but how does that flow through to operating income?

It's certainly offset, for the most part, by if sales were up, costs were up and there's no real significance or operating profit impact.

Thank you very much.

Yvonne Varano, Jeffries & Co.

Hello, Yvonne, are you there? How are you? It's Brian.

Where are you in terms of ramping up to supply the GEnx engines?

We've already delivered prototype parts, so we are fully onboard as far as the first [interest] tests, etc. So, we don't foresee any current problems to support the program.

Okay. How quickly do you see that increasing?

Well, I think that they way both General Electric and Boeing have forecasted currently is that they expect the first flight in August and the first delivery next year, in May of next year. So, I think that that's really the pacing item. We're certainly not the long pole in the tent and I think everything would tie to that. But our backlog currently is about 18.5 million of GEnx, up from 5.6 last year, if that gives you any help.

Okay. Then on the Industrial side, in terms of core organic growth or maybe lack of it, are you expecting, with heavy-duty truck coming down in the prior quarters, that your organic growth will actually be down for the remainder of the year?

Let me address that. Overall, in Barnes Industrial, there was virtually no organic growth in the quarter. Traditional business was down a bit; the specialty ops were up a bit. What was dragging traditional was, for the most part, heavy-duty truck, which is down about 13% in the quarter. We had originally projected something closer to 40, but we do expect to see a worsening of heavy-duty truck in the last three months of the year compared to our earlier outlook.

Okay. Do you think that's going to be enough of a drag to keep 2Q below 1Q results?

I really don't know.

Okay. I know, Bill, you gave some numbers on the commercial, and I think the backlog. I just missed it. I caught the MRO and the RFPs, but right before that --.

One second please.

The backlog I think was 416 million.

But you broke it out I think by--.

Yes, you want the break-out (multiple speakers) (technical difficulty) commercial backlog? Yes, the commercial backlog was 323 million. Then the military backlog is about 86.6 million.

Okay, I wrote the numbers down. That was military, and the 18.2 was --?

That was GEnx.

GEnx, okay, perfect. Thanks very much.

John Haushalter, Robert W. Baird.

Good afternoon. Just kind of two questions for you. First, on the Barnes Distribution business, if I remember right, back in 2003, there were some operational hiccups when you guys tried to integrate car products rather quickly kind of into your existing distribution business at that time. I mean, what's different this time in terms of your ability to do that? I know there's new management teams in place, but just what kind of confidence do you have that the hiccups will be kind of contained within 2007?

You are referring to KENT?

No. Car products back in 2003.

But we're not going through an acquisition integration in the same way. Project Catalyst is about improving customer service; it's about lowering our cost of products (technical difficulty); it's about improving the efficiency of our operations. So I think that there's a distinct difference between that project and what we are involved in for 2007-2008. I think that difference is striking.

Okay. All right, and then moving onto I guess the other acquisition you guys have done, which it looks like is doing very well, is the Heinz Hanggi acquisition. Kind of a targeted goal there, if I remember right, was to grow sales of that business where you guys thought there was potential to take that business and grow it. Has that worked according to plan?

I think, at this point in the plan, which is building the infrastructure to support that type of growth, is going along very nicely. We've hired sales folks; we put administrative infrastructures in place; we've got North American coverage, etc. So I would say, initially, it's going as we expected. The heavy lifting is starting to take place.

John, to be clear, we haven't seen the growth yet. We're building the infrastructure, as Greg says, to get there.

It takes some time.

Okay, thank you.

Holden Lewis, BB&T.

You know, when you talked about sort of the costs in the Aerospace, where you had a great Q1, you know, if you're talking about sort of $1 million in expenses, that doesn't seem to get you to the type of drop-off that you imply by saying that despite an 18.5 margin in Q1, you are expecting 17 for the full year. Can you give a little bit more color? Because I mean just that 1 million doesn't seem to even come close to doing it. Can you give a little color directionally about that?

Well, let me do that if I may? First off, as Greg said, the repair and overhaul business is volatile. We don't really expect (technical difficulty) the first quarter. We do have the $1 million spend for (technical difficulty) expansion. We have a fairly significant investment across Aerospace as we do on the other businesses for lien. There's also a significant transfer of work going on within a couple of the Aerospace businesses, which is expensive. Finally, there is a pretty significant workload on NPI, on new product introductions. You put that all together and we come out at about (technical difficulty).

Okay, and like the new product introductions, all that is ramping as the (multiple speakers)?

As it relates to the Goodrich project, there are a number of new products coming in and they are all ramping up during the year, including GEnx (multiple speakers).

Trent 1000, etc., so there's a lot of new programs, which is all good news too.

That wasn't a real significant component to the margin in Q1? It just wasn't in there in the same degree it's going to be?

(inaudible).

Okay. Then, as it relates to your capacity expansions, you know, presumably one of the things you are doing now, if you are capacity constrained, that's sort of the catalyst here -- is sort of picking and choosing the projects that you can do. What's sort of the give-and-take on adding capacity? I mean, on the one hand, do you add capacity and therefore you are able to sort of blend maybe lower-margin products in and pull the margin down, and then sort of the upshot is that you can deliver your backlog more rapidly? I mean, how should we look at that once it sort of comes on?

First of all, we have a very deliberate product strategy when it comes to our Aerospace product line. It would be real easy for us to go out and expand and double our business in Aerospace, but we would not do it as effectively from a cost of capital perspective. So when we target product in Aerospace, it's usually product that's exotic materials, difficult to fabricate, difficult to machine, components. So our market size and targeted market is very distinct.

The second thing -- when we look at capacity discipline, it comes always with the knowledge that we want to maintain profitability, even if the market declines by, let's say, 30%. So we recognize that some time and I believe in this case it will be long in the future, we have to manage the capacity accordingly.

The third thing is that, when we look at the capacity, we look at the long-term nature of the program. So for example, we won't surrender capacity to a declining program when we have a long-term opportunity with the GEnx or with the Tent 1000 or even the GE9115. So there's a series of discipline decisions that go into determining how we dole out our capacity. But we are also expanding are capacity. Our investments in the Singapore operation, our investments in the (inaudible) operations are significant.

Okay. Then on the Industrial side, can you just give a sense? How much of the margin improvement was just a function of the Heinz Hanggi being in there?

About a little bit over half.

Okay, so half is Heinz Hanggi, half is just the productivity?

Productivity, pricing, operating improvements, lien, yes.

Sort of where does the productivity in pricing and lien and all of that sort of take us? I mean obviously, you are at 13.5 in the quarter. I mean, just based on what you've got in sort of play today, what can that margin get to (multiple speakers)?

(multiple speakers) this year, Holden, is 12%. Keep in mind, within Barnes Industrial, we do have, again, significant investment in lien, we've got seasonality within that business which reduces the second half. Finally, we have the impact of heavy-duty truck.

All right, great. Thanks, guys.

Matt Summerville, KeyBanc.

Since you just mentioned truck, I will start there. How big was your heavy truck business last year?

About 25 million, 27 million.

Yes, somewhere around there.

You would expect that just to be roughly cut in half this year?

Well, we said 35, 40%.

Okay. Moving over to Aerospace I guess, Greg, would you characterize the first quarter then as having a much richer mix of aftermarket than you would have thought? I mean, I guess was there pull forward into the first quarter? I mean --.

I think it was richer, and it was also -- our efforts in the last half of the year for flow-through, making sure that we were capturing the profitability and sales growth was very effective. I think it's a real tribute to the team we have over at the Aerospace division. So it surprised us a little bit on the positive side, but I could handle a couple of surprises like that.

When you talk about I think the first 787 deliveries slated for May --

Right.

I think you mentioned that you had been shipping prototype parts already I guess. When do you start to see meaningful production volumes?

Well, I don't have the schedule in front of me but we could provide that. It's all basically open data, so we've already talked about what our ship set delivery rates are for the 787s, and you could simply tie that into the external public data on 787s.

The thing that surprises me, I will say publicly, is I'm very impressed so far with Boeing and their disciplined schedule. When you look at the new technologies that are being brought forth in the 787, it is astonishing that they are on schedule the way they are. In my mind, I had always pounced that with about a year delay, and so far, I haven't seen that. So my hats off to the Boeing team.

Just switching over to Distribution, you've talked about low-cost sourcing in that business before. Where are you in terms of a run-rate now? As a component, I guess, of this profit improvement plan that you talking about, say, where do you need to get to have sort of the sourcing component fit into your 10% margin target for --?

What we are going to do is we've laid out the goal for next year and the initiatives. In the second quarter, we will have refined our specific metrics to the point where we will be able to discuss that much more broadly and openly. I don't want to comment right now because we haven't finished a couple of the finer points, but we have pretty good ideas that we will get to our number collectively. We have to put a little bit more polish on some of the metrics in order to make sure that it is meaningful to you over a period of time.

Okay. Bill, you had mentioned you anticipate spending some money in distribution as a component of this. Before taking into account whether you consolidate DCs or not, just based on what you're looking at today, you mentioned I think in Aerospace $1 million worth of related spend. What is it and Distribution for 2007?

(inaudible)

I guess it's baked into the 7% margin guidance you are providing.

Yes, I mean, as I think I said earlier, we have a net close to 0 in terms of any spend this year will be offset by related savings. Then you do, see in 2008, a net savings that's fairly significant to get us towards the 10%.

I think it was part of your comments earlier, Bill, with respect to the Industrial business. I think you mentioned this; I was too busy writing. Are there parts of the business you are seeing pricing pressure? What are some of the trends you mentioned with respect to your customers either deferring or pushing out there? Can you go into more detail?

That's really in the specialty business, and it relates primarily to Barnes' decision (technical difficulty) whether (technical difficulty) number of their key customers moving production either out of Europe or out of the U.S. to Asia primarily. That set us back a little but in terms of the incoming order rates. So we're working on that. But that's really the primary issue there.

How is the nitrogen gas business doing? I know, in the second quarter, you have a very easy comp there.

Yes, nitrogen gas in the first quarter was about flat, but we were encouraged by a significant increase in the orders. It was the highest order rate for any quarter since I think early 2003.

Okay, so that should start to translate then in the second quarter for sure?

Yes, it should.

Okay, I will get back in queue. Thank you.

(OPERATOR INSTRUCTIONS). Gregory Macosko, Lord Abbett.

Yes, thank you. With regard to the Aerospace business, could you talk a little bit about the contracts in the aftermarket? Have you seen some ramp up there?

(multiple speakers) ramp up primarily from our effort. We've had a very deliberate effort to enter into agreements for maintenance, repair and overhaul activity around the world. I think we've been very successful. We have a very determined team when it comes to sorting this out, and it's with a broad range of customers. It's not overly dominant in one area. We up with all the various engine manufacturers and support, etc. So I think it's well-balanced and a very positive trend.

But I mean, I would expect that, as a result, we might see a somewhat smoother growth rate in the aftermarket (multiple speakers).

Well, that's a very interesting question, because as I mentioned, it is volatile, but what you'd have to look at is the percentage of long-term agreements versus the shorter-term agreements, and then work into the seasonality as well as the shift of the core customers. It would be too complex of an algorithm for me to come up with.

But the point is that the high growth was not necessarily due to any fulfilling or ramp up of a long-term agreement.

No. There was new customer (multiple speakers) or additional customer activity during the first quarter compared to the fourth or compared to a year ago, Greg.

But it didn't make that significant jump, so --.

The other positive factor in the first quarter was the fact that, over the holidays, most airlines do not to maintenance and then we think we saw a bit of a plus in the January-February timeframe.

It makes sense, good. With regard to the Industrial business, on a core basis, then, on an organic basis, volume basis, the revenues were down. Is that right?

They were basically flat.

Flat. Then in the industrial distribution business, they were also flat or were they down (multiple speakers)?

No, they were up about 3% in Barnes Industrial.

But wasn't that pricing?

Distribution, sorry.

Distribution, that's what I meant.

Some of that could have been pricing, yes. It certainly wasn't negative.

So it was flat to slightly up then in that area?

Yes.

You mentioned that the margin in Distribution was brought down by KENT.

Correct.

But yet KENT, relative to Europe, is a better margin, am I right?

You're absolutely correct, but it's just a bit lower than the North American margin.

Okay. How is that going and what is your expectation there? I mean --.

We're on track with the integration program. As Greg said, we closed a DC. We've moved a bunch of people and let some folks do. We're looking to finalize that in the third quarter.

Then with regard to the Project Catalyst, just talk about the sales force. Is there anything there? I mean, how many people do you have? Are you going to keep as many as you have? Are you going to add?

We hope to add over time. I mean, this is not a slash-and-burn strategy. In fact, if anything, we're going to continue to recruit very heavily because we want to add sales folks; we want to give them tools that will make the more effective. We want to improve the customer service side of the business. So there's a lot of different aspects to the program. As time goes on, we will be able to find this a little bit better [with] the metrics during the second-quarter conference call.

Despite my questions, very nice call. Thank you.

At this time, there are no further questions in the queue. I would now like to turn the call over to Mr. Brian Koppy for the closing remarks.

Thank you, operator. If there are any additional questions about matters discussed this afternoon, please feel free to contact the Investor Relations Department. Again, thank you for joining us today.

Ladies and gentlemen, that concludes the presentation. You may now disconnect, and have a great day.