Kaman Corp (KAMN) 2006 Q1 法說會逐字稿

Good morning ladies and gentlemen. At this time, I would like to welcome everyone to the Kaman Corporation first quarter 2006 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to Russell Jones, Senior Vice President of Kaman Corporation. Sir you may begin.

Thank you and good morning everyone. This is Russ Jones of Kaman Corporation and I would like to welcome you to the Company's 2006 first quarter results conference call. The conference is also being webcast over the Internet at www.Kaman.com and an on-line archive of this broadcast will be available within one hour of the conclusion of the call and will be available until May 10th at this site. Conducting the call today are Paul Kuhn, Chairman, President, and CEO, and Bob Garneau, Executive Vice President and Chief Financial Officer.

Before we begin, let me take a moment to reference the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. This conference call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the Company. Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, we can give no insurance that such expectations or any of these forward-looking statements will prove to be correct.

Important risk factors that can cause actual results to differ materially from those reflected in the Company's forward-looking statements are included in our earnings release filed last evening and in the Company's filings with the Securities and Exchange Commission. In addition, the information contained in this conference call is accurate only on the date discussed. Investors should not assume statements made in this conference call remain operative at a later time. The Company undertakes no obligation to update any information discussed on the call.

In our discussion today, we will include certain non-GAAP measures related to Company performance. Reconciliation of this information is provided in the exhibits to this conference call and is available through the webcast section on our website. We will point these out when we get to them. With that said, we will start with our first exhibit. So if you would go to that now, Paul will take it from here.

Good morning everyone and welcome to our 2006 first quarter conference call. This marks the initiation of earnings conference calls for Kaman and we're very pleased to be hosting it. I'll start out by providing a brief overview of the quarter and our performance and then I will turn it over to Bob, who will run through our financial results. I will then come back on, wrap things up, and we'll take your questions.

The first quarter provided a solid start to 2006 and represented a continuation of the improving performance we saw in 2005. We generated significant improvements in both net sales and profitability across most of our businesses. While Bob will get into the financials in more detail, let me give you a brief overview of how we did.

Net sales rose nearly 13% to 296 million. Operating income rose just over 27% to 11.7 million. The end result was net earnings in the first quarter of 2006 of 5.9 million or $0.24 per diluted share compared with net income of 4.7 million or $0.21 per diluted share a year ago. There are a number of items included in these figures that produced a certain amount of noise in the quarter. That will be discussed in more depth later on.

But briefly, they include an additional charge related to our SH-2G Australian helicopter program and stock appreciation rates expenses due to the strong recent performance of our stock, partially offset by an adjustment to capitalize in-bound freight into inventory in the Industrial Distribution segment. Taking the net of these items into account, and Bob will get into that in his report, I think it becomes clear that Kaman performed very strongly in the first quarter.

If you will go to exhibit 2, as I mentioned, our financial results for the quarter were driven by continued improvements in performance across most of our businesses. A major driver of our results was the ongoing turnaround we have seen within our Aerospace segment. I want to be clear this is an ongoing process, but I think we have come far enough along to begin seeing what is possible for this business.

Through a combination of the actions we've taken over the past couple of years to better position the Company with its markets, a significant amount of cost reduction throughout this segment which has increased our ability to compete for the kind of work we want and good conditions in the markets we serve, the Aerospace segment saw sales increase 12% during the first quarter 2006. While operating income rose approximately 32% including the charge I mentioned related to the SH-2G program.

I think we can still do better. As I said in the press release, once we have all the parts working optimally, I think a mid-teens operating profit rate is doable for the Aerospace segment. Breaking this segment down into its four major operating units, and I cannot overemphasize how important it was for us to realign this segment into major operating units that have separate facilities and staff.

Particularly in Aerostructures Division, which is a subcontract operation, setting the division free of the burdensome overheads associated with full line prime aircraft manufacturing, has given them a lower cost base. And with our newly expanded efficiency -- efficient facilities in Jacksonville, we're making headway on our strategy to become the low-cost domestic source for the majors.

The first quarter of 2006 was the beginning of our second year since the realignment. And the Aerostructures Division achieved in 31% growth in net sales as we continued to ramp up a major contract for the production of Sikorsky Blackhawk cockpits at Jacksonville. We were also awarded new work in the quarter at our Wichita facility involving the new Boeing 787 Dreamliner and the Sikorsky MH-92 helicopter with the Canadian Maritime Defence Forces. These last two are smaller programs that will begin to work their way toward production with first articles going out later this year.

We also improve the performance of the Fuzing Division with sales up in excess of 40%. And here I want to make a comment that applies to most of our aerospace businesses. Timing of fairly large shipments can go one size or other of the end of a quarter, creating some lumpiness, and therefore at times it may be difficult to draw conclusions from comparisons of sequential or even year-over-year quarters.

Operations at our missile fuzing facility in Middletown continued to do well with a number of good, solid legacy programs. And at the Orlando bomb fuzing facility, we continue to work on manufacturing process and supply chain improvements for the Joint Programmable Fuze. I think most of you know that we acquired Dayron a few years ago to gain access to this product. It involves new technologies and that takes time to develop and produce; more time, in fact, than we had initially thought would be necessary.

But this has been described by the military as the fuze of the future and we believe the product will be an important one for us in the years ahead. We still have work to do to get production up to meet the growing government needs, but we did have a good increase in fuze deliveries in the first quarter.

Kamatics also continued to be a solid contributor to our performance as sales grew an additional 14% on the back of continue solid demands for our proprietary bearings in a broadly robust Aerospace sector. Kamatics has consistently been our Aerospace segment's strongest performer and orders, shipments, and backlogs for this business unit continued at record levels in the quarter.

I'm frequently asked about capacity constraints at Kamatics. So far, we have been able to meet our customers' tight delivery schedules. In fact, I think we have excelled in our ability to deliver our product on a timely basis and consider this to have been an important competitive advantage in extending our penetration of aeroframe bearing requirements.

We are currently in the process of adding capacity both through in addition to Kamatics' building in Bloomfield and by Connecticut -- and by moving some of their product lines to another existing and available facility at the Bloomfield campus. I'm just absolutely not seeing any softness in Kamatics' market right now.

Within our Helicopters Division, which is the smallest of the business units, revenues were down about 24% compared to a year ago. Last year's results included the sale of one of the last remaining K-MAX helicopters in our inventory, and that is where most of the difference lies. We're also still working toward completion of our helicopter program for Australia and needed to take an additional 2.5 million pre-tax charge during the quarter related to the software integration of these aircraft.

I think we're getting close to finishing, which is not to say there are no further challenges, but we currently expect to move into final acceptance process fairly soon. And then delivery of the first fully operational aircraft in the third quarter of this year. Our MD&A discussions in the 10-Q detail our latest information on all the range of matters reported in the release.

Finishing up with a final thought on the Helicopters Division, our work for the Egyptian military performing a major maintenance program on the aircraft we delivered to them a decade ago has been going very well. And we also brought on some new subcontract work from Sikorsky into the Bloomfield facility.

And a central point I want to make, and I made it at our annual meeting, is that our business model is better and we can look at the future with greater confidence than was possible just a few years ago. Throughout this segment, many millions of dollars of overhead costs have been eliminated while there has been a concurrent increase in focus on customers and markets, and the whole Company is benefiting.

I think it is very significant that three of the Aerospace segment business units have been able to develop a relationship with our near neighbor, Sikorsky Aircraft. Sikorsky is one of the highly respected names in the industry, and to add them to our customer base essentially for the first time in our history is an important achievement for us.

Moving on, Industrial Distribution continued to be a major contributor to results, with good organic growth driven by strong market conditions and competitive gains. Industrial production remains strong in the aggregate for the nation with some regional differences.

Overall, there was good alignment between the markets we serve and the markets that were strong, such as chemicals, mining, cement, building materials, food processing, high tech, and general export oriented industries. We also had the benefit of bringing on-line some national account wins from 2005. Sales were up 9%, setting a new record for this segment, and operating income was up nearly 27%.

The music business, however, saw a more challenging environment during the period. Our core music business is being impacted by a number of factors. A mixed holiday sales season resulted in inventory overhangs at a number of our customers. These had to be worked off during the quarter.

Also, we believe the and customers for our products are feeling the pinch of higher gasoline and heating prices, higher interest rates, and even the new higher minimum monthly payments on credit card debt. While revenues grew nearly 26% compared to year ago, this growth came from our acquisition of Musicorp, which we brought into the third -- which we bought in the third quarter of 2005.

Operating profits were down about 50% for this segment in the first quarter of 2006 versus the year ago quarter, and Bob will say more about that in the financial review. The integration of Musicorp is expensive, but moved forward nicely during the quarter. I think that acquisition will do very well for us in the long run. In the overall, I feel very good about the quarter and the continued trend that it represented in our earnings.

Now, I'd like to turn the call over to Bob, who will run through our financial results in greater detail.

Thanks, Paul. As Paul mentioned, we're pleased the results for the first quarter of 2006 and saw continued progress in terms of revenue and profitability growth. If you would go to exhibit 3, total net sales for the quarter were 296.6 million, an increase of 12.7% over net sales of 263.3 million in the first quarter of 2005. As Paul discussed, this represented sales growth across all of our segments. Although, as he said, sales growth for the Music segment was due to the acquisition we completed last August.

Total gross profit was 81.3 million or 27.4% of net sales compared to 71 million or 26.9% of sales in the first quarter of 2005, driven primarily by the sales growth in all of our reporting segments. Industrial Distribution provided the largest portion of the growth.

SG&A expense was 70.1 million compared to 62.2 million for the first quarter of 2005, with both years' expense coming in at 23.6% of sales. 3.2 million of the dollar increase relates to Musicorp and 2.9 million relates to the higher employee expense at Industrial Distribution, which is related to higher sales volume.

Taking all of this into account, operating income was up 27.1% to 11.7 million or 3.9% of net sales in the first quarter, from 9.2 million or 3.5% of sales in the first quarter of last year. Interest expense was 1.3 million versus 0.7 million in the first quarter of last year, reflecting both higher borrowings associated with our acquisition of Musicorp, the recapitalization and related expenses, and working capital growth to support the increased sales levels we generated. Interest rates are also higher, as we all know. Other expenses were minor and remained at about 300,000 for the first quarter both years.

That brings us to net earnings. As Paul said, the first quarter of 2006 net earnings were 5.9 million or $0.24 per share diluted compared to 4.7 million or $0.21 per share diluted in the first quarter of 2005. That is a 25.8% increase in net earnings over the prior year quarter. I think it's important to point out that our results for the quarter included various discrete items that impacted our profitability. These are on our GAAP reconciliation included as exhibit 4. If you look at that, I will run through them briefly.

Here, we begin with our as reported earnings and then had the following adjustments. In the quarter, we took an additional loss reserve of 2.5 million or approximately $0.06 per share diluted related to the SH-2G program for Australia. We also incurred 1.3 million or about $0.04 per share diluted of expense related to stock appreciation rights, and about two-thirds of that is nondeductible.

The expense is driven by increases in the price of the Kaman shares, which ended 2005 at $19.69 per share and rose nearly 28% to $25.16 at the end of the first quarter. No new stock appreciation rights have been granted since the early part of 2003 and most of them have now been exercised, so they are having a diminished impacted.

The third item to mention is a onetime gain of 1.6 million, or about $0.04 per share diluted, related to the adjustment to capitalize in-bound freight into inventory in our Industrial Distribution segment. If you add back the $0.06 for the Australian charge and the $0.04 for the stock appreciation right expense, and then deduct the $0.04 for the freight adjustment, earnings per share for the first quarter of 2006, which we believe creates a clearer comparison of our performance year-over-year, our earnings per share would have been $0.30 per share diluted rather than the $0.24 per share we reported.

The decline in earnings for the Music segment also impacted our earnings for the quarter, as did to a much smaller degree the 3.6 increase in the number of shares of outstanding following the recapitalization. If you go to exhibit 5, I will briefly go through the financial highlights in our operating segments.

Net sales in our operating segment, [growth] 12% to 73.6 million from 65.7 million a year ago. Operating income rose 31.1% to 10 million from 7.6 million a year ago. And the operating margin increased to 13.6% of net sales in the first quarter of 2006 from 11.6% a year ago. As discussed, this was driven by stronger performance across most of our businesses in the Aerospace segment.

Net sales in our Industrial Distribution segment rose 9.3% to 170.6 million from 156 million a year ago. Operating income for this segment rose 27.8% to 10.8 million from 8.5 million a year ago. The operating margin was 6.3% in the first quarter of 2006 compared to 5.4% of net sales in the first quarter of last year.

As previously discussed, included in our first quarter results for the Industrial Distribution segment is a 1.6 million positive adjustment for the write up of inventory for in-bound freight costs. This is consistent with the treatment freight costs for our other businesses. Excluding this adjustment, operating income in this segment would still have been a record at 9.2 million or 5.4% net sales.

I think it is also useful to mention that operating income for the first quarter of last year included the onetime effects of certain price increases and a higher level of realized vendor incentives in the form of rebates. The strong operating income level for 2006, on the other hand, gives a stronger signal of the benefit of increased sales on the operating results. Overall, we're very pleased with the performance of Industrial Distribution in the first quarter of 2006.

Our Music segment generated net sales of 52.4 million, representing growth of about 26% over net sales of 41.6 million in the first quarter of last year. Sales for Musicorp, acquired in the third quarter of 2005, represented 12.2 million of this increase, however, so the base business was down slightly from the prior year quarter for the various reasons outlined by Paul. Musicorp sales were below expectations for the period with a disproportionate effect on operating income. And this was an important factor in the operating income decline to 1.3 million from 2.6 million a year ago.

The operating margin was 2.4% in the first quarter of 2006, down from 6.2% a year earlier. We have moved along well with the integration of Musicorp into Kaman Music and as this continues with the consolidation of systems and facilities, we expect to be able to get additional costs out of the integrated whole.

Obviously, we are affected by the condition of consumer markets as Paul has said. We are dealing here with a useful slice of the population demographic that is likely feeling the pressure of increasing fuel prices and interest rates more than most. But the business model is sound. We're competing well within the market, and we expect the segment's operating margins will begin to recover over the next several months as we continue to realize cost savings from the Musicorp integration and as consumers adjust to higher energy costs.

Turning to our corporate expense, the corporate expense was 10.4 million in the first quarter of 2006 versus 9.5 million in the first quarter of 2005. A principal difference was the 1.3 million stock appreciation rights I mentioned a minute ago. There had been no stock appreciation rights expense for the first quarter of 2005. As a percentage of total sales, as noted in the footnote on the exhibit, corporate expense declined somewhat to 3.5 from 3.6% a year ago.

Summing up the totals again, sales for the first quarter of 2006 were 296.6 million, up 12.7 from 263.3 million in the first quarter of 2005. Operating income was 11.7 million, up 27.1% from 9.2 million. The operating margin therefore improved to 3.9% in the first quarter of this year from 3.5 in the first quarter of last year.

There are some additional financial highlights to give. And if you would go to exhibit 6, during the first quarter of 2006, our borrowings increased 38.6 million principally due to the use of 34 million in cash for operating activities. The main items included higher purchases to support consumer -- customer demand in the Industrial Distribution segment, along with a significant paydown of accounts payable in that segment.

Aerospace used cash associated primarily for the lost contract for Australia, and there was a cash outflow related to a larger payment for incentive compensation. Shareholders' equity declined in the period between March 31st and December 31st 2005 largely as a result of the exchange premiums paid on the successful conclusion of our recapitalization in November of 2005. Shareholder equity then increased in the first quarter 2006 to 274 point -- million, mainly as a result of adding additional earnings for the quarter less dividends.

Capital expenditures in the quarter were 1.7 million and depreciation and amortization was 2.5 million for the period. As a general guideline over the longer-term, we try to keep our capital and interest in balance with depreciation and amortization. This year, expenditures are likely to pick up during the remainder of the year and are expected are expected to exceed depreciation and amortization.

Long-term debt as a percent of total capitalization was 27.4% at the end of the quarter. Our leverage remains at modest levels and we remain within the balance of all of our borrowing covenants. Summing it up, the financial condition of the Company remains sound. With that, I'll turn the call back to Paul.

Thanks, Bob. As I said in our press release and as you heard this morning, with a few exceptions noted, the good business conditions that prevailed in our markets in 2005 carried over into the first quarter of 2006. The Aerostructures market is strong both on the commercial and military side, with the military helicopter market in particular looking attractive.

These conditions look sustainable for some time barring any severe shock to the economy. And with this and the solid progress we have made in the Aerospace segment through our own initiatives, we're encouraged that the conditions appear to exist for continued progress in this segment. I also think the U.S. industrial economy is in good shape to remain positive through at least the end of 2006. And this should continue to benefit the Industrial Distribution segment in the months ahead.

For music, we have a leadership position in our market, strengthened with our acquisition of the number two player, Musicorp. We have to see how the market develops through these traditionally softer months toward the primary selling seasons later in the year.

I have not mentioned the recapitalization that we completed in November. There's simply no question that removing the dual class structure is one of the most significant developments in the history of this Company. I think over time, it will open up new access to capital for growth and a greater opportunity for the stock to reflect our level of achievement. Overall, 2006 is off to a great start. With that, I think we are ready to take any questions you might have.

(OPERATOR INSTRUCTIONS). Arnie Ursaner, CJS Securities.

Good morning. First question I have is in reading your comment or guidance regarding the Aerospace margins for the balance of the year, I think the term you used is mid-teens, yet our adjusted EBITDA margin -- our adjusted operating margin in the segment, ex-ing out the one time for the helicopter write off, is 18. You also have described some very positive trends developing there. What negative items will be holding back margins from the actual Q1 level attained adjusting out for the helicopter?

I think what -- this is Bob. I think what we have said in the press release was that we expected to get to the mid-teens over time when everything was working optimally. And I think that's still a good overall place for us to be. In the first quarter, our margin was -- excuse me -- was 13.6 with the adjustment, and I think as the things were working, the pieces were working pretty well in the first quarter and so I think that they will get closer to that (multiple speakers) over time.

Bob, if you X out the one time, your margin was closer to 18% in the quarter. Are you implying in your guidance or in your view that you will continue to have write-offs from this and built that into your assumption? Otherwise, again, you were at a much higher level in Q1 adjusted.

I think that -- we will tend to get to the mid-teens. And there may be some things that make it go up and down from quarter to quarter, but generally over time, I think the mid-teens is a good place to assume those margins will be.

Again, I'm missing something. You're higher than that now. You've given us a very positive outlook for each of the components in that space. What are the negative factors that are causing it, in your view, to be lower? What -- are you building in the loss of a contract? Are you building in a negative margin on future business? You have to be a little more specific what would bring it down from where (multiple speakers)

I think there were some things in the first quarter -- I think in both the Aerostructures and the fuzing business we had some good margins. I won't call them exceptionally, but better than I think we would expect to see over the longer-term. So I, again, think that the mid-teens is a good place for us to use as a baseline.

Okay. And shifting gears for the obvious weakness in music, [would] cause a pretty big shortfall versus our estimate; you acquired a large company last year in Q3 and 4, and clearly because of seasonality, wouldn't have been very able to cut costs or eliminate duplicate expenses. Now that we're in the quieter phase of the year, can you be a little clearer about actions you may take to improve that business and [when] we might see them?

Arnie, this is Paul. The several events that we had planned for that business, it actually -- [we will] consummate it a little bit later in the year than we planned. So we -- and as you said, we had to hold off as we went through the holiday season before we began any major actions.

But that company came with a number of distribution centers beyond what I think they recognized they needed, and certainly we recognized they needed, and we've been in the process of identifying those and closing them down. We have already done two of them and we have another I think two to go. And those will all occur within the next I would say quarter and a half to two quarters.

At the same time, there's the redundancies from a people standpoint, and the process has [also] begun. And that also will be completed during that period. So I think as we head into the second half, we're going to be in pretty good shape and we will complete it before year-end.

Robert Kirkpatrick, Cardinal Capital.

Good morning. Congratulations on doing your first conference call, I think ever. Can you explain a little bit about what the idle facility costs are that you have made reference to in many of your releases and SEC filings over time? And how do we get those to go away? In other words, are these facilities that are being held to be disposed or are these facilities that we need either an additional line of business or additional business within our existing lines to be able to reduce those?

This is Bob. The idle facilities are generally in Connecticut -- well they're all in Connecticut and they generally are the facilities that we have here on the campus, and they're underutilized. There are principally in the helicopter division. So some of what you're seeing there is underutilization. What we're doing about that, of course, is adding base to the helicopter business. But we're also -- have some relocation things that we might do in terms of making some of these things either go away in their entirety or at least go down.

One of the things that we talk about is acquiring the facility behind the fence. For those of you who are not familiar with our campus, that's a piece of the campus here that is owned by the Navy and the government, and we've used over the years to do contracts for the military. Our plan is to acquire that and move into it and utilize it more fully. And that will make part of our idle facility go away, as well additional business. So we think it will go away, but it will be a year or two before that happens.

So you're going to by the facility that's behind the fence from the Navy, move your existing helicopter division over there, and -- but then won't you have just more idle facilities sitting on this side of the fence? What am I missing?

Well, we are putting on more business in the helicopter. We have the Egyptian program that's coming on-line. We've got some Sikorsky work that's coming on-line here. And that's going to help. That's going to be the thing that will let us take advantage of those facilities.

Okay. So it really is -- it's filling up the capacity and what you're saying is that you need the Navy facility to be able to take on this additional work from Egypt and Sikorsky?

We need it to do that work. Yes.

Okay. And the Sikorsky work that you are referring to that is coming on-line is not the cockpits. That's in the Aerostructures side. This is something else?

That's additional work we're doing. Yes.

Can you be a little more specific as to what that work is?

This is Paul. Last year we got a contract from Sikorsky to do sub assembly work for the same helicopter, the BlackHawk. And we've been working very closely with them as they have been moving packages, kitted work up to our assembly shop. And we've been putting it together and getting it back to them on an expedited basis.

They have been very, very pleased with our response regarding that and they have been giving as bigger and bigger packages to look at. We think that before the end of this year, we should have substantial amount of work that will impact the second half of this year, but even more importantly '07. So we're not fully there. We haven't identified all the packages, but we see that as a major opportunity for us going forward.

Okay. And is there additional work with Sikorsky on the heavy lift helicopter or is that not yet decided?

That's way too early in the program. We've had conversations with them. We have engineering capability to assist them in the early stages of it as well as the manufacturing, but I think that's out a ways.

Out a ways meaning two years or four years, something like that? Or out a ways meaning six months or year?

No, it won't be -- I would not assess that we would have anything this year, even from an engineering standpoint. And from manufacturing, it's out three years plus, four years.

All right. So it's of that magnitude. I was trying to understand. And then on the BlackHawk, you currently delivered about one-third of the initial 90 cockpits that are contracted for production. And what is the timetable for a decision to be made on the exercise of those follow-on options?

I don't have that right here at my fingertips, but there is nothing that's going on right now that would indicate that we will not be the supplier for that cockpit on a go forward basis. So it's our expectation that we will make all in the cockpits for Sikorsky going forward. (multiple speakers) [And that's those guys]. And so the other is just paperwork handling, but their -- at least stated intentions with us is for us to be the supplier of the cockpit.

Okay. And then you announced or you talked about in the Aerostructures section here in the press release, two composites contracts. And I'm wondering, is that really a new core competency for Kaman? If you could shed a little bit of light on what you are doing and why you were able to do it and where you are doing it, I think that -- (technical difficulty) Florida, that would help.

Actually it's in Wichita, Kansas. This is in relationship to [what] the acquisition that we made several years ago of PlasticFab out in Wichita. It's a relatively small division right now, running in the low teens in sales, but with some -- I think again some very good potential going forward.

We -- from a strategy standpoint again a couple of years ago, determined that -- trying to get into the machining side of aerospace products was not a direction that we wanted to go for couple of reasons, one being that airplanes are becoming more and more composite. So we stuck our toe in the water with regards to composite work by making that acquisition. It has been growing since we bought it. And on a go forward, it looks very strong.

And again, is there a particular specialty that they have in Wichita to be able to do things that nobody else can do? Is it mostly a labor cost argument, that it's lower-cost?

Yes, I think that's it yes. (technical difficulty) Currently, it's [our quest].

Okay great.

And the association with the Kaman engineering and other capabilities that would bring to it from our corporate office.

Okay. Great. I will get back in line. Thank you very much Paul.

(OPERATOR INSTRUCTIONS). Mario Gabelli, Gabelli & Co.

Just to echo some of the comments others have made, I am delighted to be on your call. Go to 30,000 feet, as they say, and look down and say the following -- you have accomplished a great deal in Kaman. You have won currency. You have made some acquisitions. You have broken out members on Kamatics.

As you look out over the next two or three years, kind of as you're looking at -- not the sunshine of your legacy, but looking at your legacy for the Company, what do you think we should use as benchmarks to see what you want to accomplish over the next three years?

Certainly, growth is our name of our game right now in all of our strategies of each of our companies. And that's been the case for the last couple of years. We have aggressively gone out and looked at acquisitions. We continue to do that across all three businesses. More likely going forward, there will be more in the Aerospace and in the Industrial side, again because we've already picked up the two major players on the music side.

I -- with the markets being where they are today, there is just no reason why we should not be able to continue at double-digit rate growth at least over the next several years across those businesses. And again, it's a caveat with regard to our own -- with regard to the industrial economy, but we continue to grow (indiscernible) the industrial side at a rate faster than historically we had been doing, which was generally at GDP type of growth.

We're doubling that and tripling that and I think that's an indication of the success of our strategy to get a better footprint across United States, so that we can compete better in the -- what do you call them -- the corporate account business, the large national accounts -- international account world. So I don't know if that answers your question, but I --

It's a good start and I'm -- we need to know how you develop more products that are proprietary like Kamatics as opposed to being an outsourcer of interesting products obviously with a high dollar content opportunity with Sikorsky, which is a terrific opportunity. And like any multiple product Company, we can look at the sum of the parts and say the company's worth a lot more if they sell off the company or it's worth a lot more in someone else's hands.

And so in addition to organic growth, the financial engineering I'm looking at, that hitchhikes on what you did with the [AB] stock. So I'll -- we'll talk off-line and just wanted to be on the call for this event and look forward to future ones. Thanks Paul.

Great. Thanks Mario.

Robert Kirkpatrick, Cardinal Capital.

I'm sorry. I had one follow-up which is when you use the -- you break of the items for corporate expenses, what determines which items you choose to break out in a particular quarter, because they seem to vary as we look at it quarter to quarter going back the last few reporting periods.

What we tried to do is to break out the expenses that we think are helpful to folks to understand what's going on. And for instance, the items that we broke out this quarter, of course the stock appreciation rights, but the pension expenses is one thing that has moved around for the Company. And our pension expense in total has gone up over the last three years, and you can see that when you look at the 10-Q when you look to see what the first quarter pension expense is, you can kind of see how the -- what it has done in total.

We actually do a second calculation. This gets a little bit complicated and perhaps beyond your question, but we do a second calculation for an IRS deductible amount and that's the amount that we push up into the Company for the most part because that's the part that goes to the operations. And the difference between those to items, and end up residing in corporate, so the amount that we actually pay and charge into the units goes pretty much in the operations.

The FASB expense that we come up with the bottom line and the difference makes corporate jump around a little bit. So for instance, that's one we put in there so that the reader can understand what's going on with that. Otherwise, we try to point out where there are differences. And if an item evens out so it smoothes out from quarter to quarter, we would drop it off the list. We hope it's helpful.

No, yes, it certainly is. Just trying to figure why you choose include certain things and why you don't. And then, were there costs associated with at KMC with severance and/or closure expenses of Charleston and Reno during the first quarter and can you quantify them please?

They were pretty small. They were -- I think most of that was accrued and so that was part of what was initially set up as liability, so there really weren't any costs that went through the first quarter. There might have been where we moved some inventory from one warehouse to another. That gets into operations, but the closing costs of the warehouse, for instance if you had to pay off a lease to get out of it or something, that would have gone against an accrual. There wasn't much in the P&L.

Super. Thank you.

We have no further questions at this time. I would like to turn the floor back over to management.

Thank you very much for joining us on today's conference call. We look forward to speaking with you again in the future. Thank you.

Thank you. This does conclude today's Kaman conference call. You may disconnect your lines and have a wonderful day.