Kaman Corp (KAMN) 2006 Q2 法說會逐字稿

Good morning. My name is Felisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kaman Corporation 2006 second quarter 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 session. [OPERATOR INSTRUCTIONS]

At this time, I will turn the call over to Mr. Russell Jones, Senior Vice President of Kaman Corporation. Mr. Jones, you may begin your conference.

Thank you Felisha, and good morning everyone. This is Russ Jones of Kaman Corporation. I'd like to welcome you to the Company's 2006 second quarter results conference call. The conference is also being webcast over the Internet at www.kaman.com and an online archive of this broadcast will be available within hour of the conclusion of the call, and will be available until August 11th at this site.

Conducting the call today are Paul Kuhn, Chairman, President, and CEO, and Bob Garneau, Executive Vice President and Chief Financial Officer. Following their prepared remarks, they will take your questions.

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 assurance 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. These documents and the exhibits we will refer to in this morning's discussion, can also be accessed on the Company's website, which again is at www.kaman.com. The information contained in this conference call is accurate only on the date discussed.

Investors should not assume that the statements made in this conference call remain operative at a later time, and the Company undertakes no obligation to update any information discussed on this call.

With that said, we'll start with Exhibit 1. So if you would go to that now, I'll turn the call over to Paul. Paul?

Thank you Russ. Good morning. Yesterday afternoon, Kaman Corporation reported second quarter 2006 earnings per share of $0.31 diluted, compared to $0.12 per diluted share in the second quarter of 2005. It was another period of strong performance for Kaman, with nearly all of our operations contributing to our growth in the period. In summary, net sales for the second quarter of 2006 rose 8% to 293 million, from 271 million in the second quarter of 2005.

At the same time, operating income nearly doubled to 14 million. The quarter benefited from a $5 million, or nearly 40% reduction in corporate expenses this year. Last year, you may recall, corporate expenses had included amounts for stock appreciation rights and the recapitalization that drove the corporate expense to a higher than normal level.

On the bottom line, net income rose approximately 170% to 7.5 million, compared to 2.8 million a year ago. These include the negative impact of additional pre-tax loss reserves of 2.8 million, related to our SH-2G Australian helicopter program in the second quarter of 2006, and a $3.1 million charge in the second quarter of 2005.

If you would now turn to Exhibit 2. The positive business climate we had in the first quarter of 2006 continued in the second quarter for most of our business units. Second quarter 2006 sales in the Aerospace segment were down slightly from the second quarter of 2005, due to the sale in the prior year period of 2 K-MAX aircraft from our remaining inventories. This was not a normal event, and it masks the fact that our new subcontracting business base continued to develop during the quarter, and grew over the year ago period.

Aerospace segment profitability for the quarter increased double digits relative to a year ago. As with the first quarter, our Aerospace business benefited from the performance of our Aerostructures division, which saw sales rise 27% from year ago levels, driven by additional deliveries of BLACK HAWK cockpits to Sikorsky , as well as work on the C-17 program for Boeing, and other programs. Efficiencies at our Jacksonville facility continue to improve as work ramps up in this location.

For the Fuzing division, the results were a little mixed with sales down about 10% from the prior year period. Our legacy missile Fuzing program at the Middletown facility, and the joint programmable bomb fuze program at the Orlando facility, were on an uptick, but a temporary interruption of our 40mm program at Orlando, resulted in the lower sales figure for the quarter. Production on that line has since resumed.

In our Helicopters division, sales declined 35% in the second quarter of 2006, relative to the second quarter of 2005, due again to last year's K-MAX sales. There's actually only one previously leased K-MAX helicopter left available for sale. During the quarter, the division's subcontract sales began to increase in the year-over-year comparison. Obviously an important factor in the quarter was the additional $2.8 million charge related to our Australian SH-2 helicopter program.

There is a lot of detail about the program in the release and in the MD&A section of the 10-Q, also filed yesterday, and I won't get into it here. I want to say, however, that this contract has been a major undertaking, that is close to yielding a superior aircraft with very advanced capabilities for the Australian military. We are very confident that they will serve Australia, as well as our SH-2 series helicopters have previously served the United States, and right now are with the governments of Egypt, New Zealand, and Poland.

We are of course disappointed in the delay and the cost to complete the contract for Australia. The software development task that lies at the root of the issue, however, is now essentially completed. The software is in formal qualification testing. We have also addressed and resolved flight safety questions related to an air speed sensor anomaly, and with the customer we are developing an approach to resolve all of their concerns. We expect actual final acceptance procedures for the aircraft to get under way later this year.

Finally, for our Aerospace segment, sales at Kamatics including our German subsidiary RWG, grew just over 20% during the second quarter, compared to the second quarter of 2005, and remained a principal driver of segment results, with record levels of orders and shipments, driven by strong demand in the commercial aviation market. To meet the demand we're seeing in this market, we are expanding our production capacity at Kamatics.

Shifting gears now, the industrial distribution segment continued to perform strongly, with an 8% growth in net sales over the second quarter of 2005, all representing organic growth within the business, and very close to the all-time record sales of the first quarter of 2006. The segment achieved a 10% increase in operating income over the comparable prior year period. Market share initiatives have yielded increases in market share for the segment, and our national account business continued to grow, at approximately twice the rate of the rest of the businesses. So our efforts there are being rewarded.

Regionally, we saw growth across the spectrum, but particularly in the West. Customer industries that provided particular strength include mining, cement, energy exploration, and food processing, to name a few. I have to say that we've been pleased by the continuing robustness of the industrial markets, and I think we can look forward to reasonably good conditions persisting into the balance of the year.

Industrial distribution is a highly scalable business in which the larger players will tend to have higher margins. Consistent with this, the growth in sales was the principal driver of the increase in operating earnings for the segment in the quarter. I want to point out, however, that our ongoing cost control disciplines, and margin enhancement and Lean initiatives, also contributed to the quarter's earnings improvement.

For the Music segment, a number of factors, including excess inventories in our customer stores, and the impact of rising fuel costs and interest rates on consumer buying habits, impacted demand levels during the period. While sales for the segment were up, the increase was directly attributable to our August 2005 acquisition of Musicorp. The base business and profits were down from the second quarter of 2005.

Our integration of Musicorp has been executed as planned. With certain actions of the integration begin accelerated in reaction to current market conditions. We completed the closure of an additional Musicorp distribution center in July of 2006, and reduced additional head count. Musicorp has been impacted to a greater degree by the weakness in the musical instrument market than our base music business has been, as they sell to a larger concentration of the smaller retailers, who have been particularly hard hit by the downturn. Similarly, we would expect them to be the first to recover.

It's a little too soon to know how the traditional holiday selling season will shape up this year, but much will depend on consumer spending attitudes as we enter the final months of the year. As in the past, our expectation is that, even with the slowdown that we've been experiencing, sales and profits for the second half of the year will be substantially greater than for the first half of the year in this segment.

In summary, the Company took advantage of continued favorable conditions in most of the markets we are active in, and benefited from the realignment of the Aerospace segment. The Company has also benefited from continuous efforts to reduce costs and increase operating efficiencies in each segment. We achieved record sales for Kamatics in the Aerospace segment, very good progress for our Aerostructures division in both Jacksonville and Wichita, and a continuation of the strong performance of the Industrial Distribution segment.

With that, I'll turn the call over to Bob Garneau who will review our financial results in more detail.

Thanks Paul. Please go now to Exhibit 3. Although the numbers on the remainder of our exhibits are shown for both the three and six-month periods ended June 30th, I would only address the second quarter in my comments today. Total net sales for the 2006 second quarter were 293 million, compared with net sales of 271.3 million in the second quarter of 2005, an increase of 8%. Total gross profit was 80.5 million, or 27.5% of sales in the second quarter of 2006, compared to 70.7 million, or 26.1% of sales in the second quarter of 2005. The majority of the increase in overall gross profit as well as the gross margin, is due to sales growth and increased operating efficiencies during the quarter for certain key programs in the Aerospace segment, along with higher sales volume for the Industrial Distribution segment.

SG&A expenses increased to 67 million from 64 million a year ago. As a percentage of sales, however, SG&A declined to 22.9% in the 2006 second quarter from 23.6% in the same quarter last year. Factors in the higher dollars include the addition of Musicorp expense, which was absent from the numbers last year, as the acquisition was not made until August of 2005.

Also there were higher SG&A expenses, due to sales volume and industrial technologies, along with higher pension expense and employee-related expenses, that are partially attributable to an increase in head count. We also had higher commission expense in one of our Aerospace operating units, and an increase in IR&D.

Corporate SG&A, on the other hand, was down by 5 million, with a 4.7 million reduction in stock appreciation rights expense being the largest single factor in that. We have included a table on page 2 of last evening's press release that includes a breakout, detailing the principal increases and decreases in various corporate expense categories, so if you're interested, I would suggest taking a look at that.

In addition to the stock appreciation rights expense, the table shows recapitalization, consulting, and legal expenses, which were a million dollars in the second quarter of 2005, but for which we obtained a 500,000 legal expense recovery in the second quarter of 2006. So there was a swing there. The table will also help with pension expense, which was down by 400,000, supplemental retirement plan, which was up by 700,000, and stock option expense, which was at 300,000.

Operating income for 2006 second quarter was 14 million or 4.8% of sales, versus 7.3 million, or 2.7% of sales in the second quarter of last year, an increase of 92% for the quarter. This increase is due to increased operating income for the Aerospace and Industrial Distribution segments, as well as the lower corporate expenses. Operating income was lower for the Music segment, because the gross margin from the satisfies attributed to Musicorp were not sufficient to cover their operating costs for the quarter.

Interest expense was 1.6 million in the second quarter of 2006, versus 600,000 in the second quarter of last year, reflecting the additional borrowings related to our acquisition of Musicorp, the recapitalization of the company in 2005, and increased working capital needs to support our sales growth, as well as the impact of rising interest rates.

That brings us to net income for the second quarter of 2006 which was 7.5 million, or $0.31 per share diluted, compared to 2.8 million, or $0.12 per share diluted in the second quarter of 2005, an increase of 172% for the quarter. The 2006 earnings per share figure reflects the effect of 3.6% share dilution that resulted from the recapitalization we completed last November. For 2006, we are using an effective tax rate of 39.6%, which is a fairly normal tax rate for the Company compared to an effective tax rate of 48.2% in 2005, that was higher principally due to the non-deductibility of the stock depreciation rights, and the recapitalization expenses last year.

Now, if you would go to Exhibit 4, net sales in the Aerospace segment declined slightly to 74.4 million, from 76 million in the second quarter of last year, reflecting strong growth in the Aerostructures and Kamatics businesses, offset by lower sales in the Helicopter and Fuzing businesses. The lack of K-MAX sales in 2006, compared to 2 K-MAX sales for 7.3 million in the second quarter of 2005, is the major factor in the sales decline for this segment.

Operating income for the Aerospace segment rose 11.8%, which is 10.7 million, or 14.3% of sales in the second quarter of 2006, compared to 9.5 million, or 12.5% of sales in the year ago period. An important point to make is that results for the second quarters of 2006 and 2005, include 2.8 million and 3.1 million respectively, in charges associated with our Australian helicopter program, which amounts to approximately $0.07 per share and $0.08 per share respectively for those periods.

In our Industrial Distribution segment, net sales increased 8.3% to 170.5 million, from 157.5 million in the 2005 second quarter, all of which was organic growth in the business. Operating income rose 10.3%, to 9.3 million, or 5.4% of sales, versus 8.4 million, or 5.3% of sales in the second quarter of last year. In the quarter, operating income included good drop-through, generated by the higher sales levels we have been achieving, and the effects of operating cost controls partially offset by higher pension and employee-related expense.

Net sales in our Music segment were 48.1 million, compared to 37.8 million, an increase of 27.4% over the comparable period last year. Sales for the second quarter of 2006 include 11.2 million from the acquisition of Musicorp, which was completed in the third quarter of last year. The base business therefore was down slightly, reflecting the weaker market environment we have seen for musical instruments this year.

Operating income declined to 1.6 million, or 3.4% of sales, compared to 1.9 million, or 4.9% of sales a year ago, largely because of Musicorp. As we move into the traditionally stronger second half of the year, we would expect to see improvement the of Musicorp.

If you would turn to Exhibit 5, our bank debt, notes payable, and debenture borrowings at the end of the quarter, were about the same as they were at the first of the quarter at 101.4 million, down a small amount from the 103.5 million, and up from 64.8 million at the end of 2005. So most of the borrowing occurred in the first quarter. Working capital has been the biggest user of cash during the first half of the year, with accounts receivable being the largest item.

Shareholders equity at the end of the second quarter of 2006 was 281.1 million, compared to 274 million at the end of the first quarter, and 269.8 million at the end of 2005, with most of the difference due to earnings less dividends. Our long-term debt as a percentage of total capitalization was 26.5% at June 30th, 2006, so our leverage remains modest. Capital expenditures in the quarter were 5 million, while depreciation and amortization was 5.1 million in the period.

As a general guideline over the longer term, we try to keep our capital expenditures in balance with depreciation and amortization. This year expenditures are expected to be higher during the remainder of the year, with a potential acquisition of the Navy's facility in Bloomfield, the expansion of our Kamatics facilities, and to meet other capital needs of the business. If we do all the things in our capital expenditures budget for the year, expenditures would be higher for the remainder of the year. In summary, our financial performance was good, and our capital structure remains strong.

With that, I will turn it back to Russ.

Thanks Bob. That concludes our prepared remarks, and we'll now open the line for questions. We would like to accommodate as many as possible, and therefore ask that you limit yourself to one question and one follow-up. Operator, may we have the first question, please?

And your first question comes from Arnie Ursaner of CJS.

Good morning. The one question, since I can only have one, can you quantity the impact of the 40mm program in revenues in Q2? I guess I'll start with that.

We don't get into program by program, but the sales were down for Fuzing about 1.3 million quarter-to-quarter. They were down a bit more than that, and they were offset by a couple of other programs, including the JPF. So there was some offset. So it was more than the 1.3, but beyond that, we'll leave it.

And given I only have one, then maybe I'll jump back in queue for some others, a more strategic question. Last November, you completed the enormously complex and challenging recap plan. The whole purpose of that, I think, from the Company's point of view was to free you up for strategic opportunities. Since then, we've seen no acquisitions nor divestitures.

Can you comment perhaps on the thought process, why we haven't seen any actions, and what the goals of the Company are that perhaps you've streamlined your corporate structure, or added to any or all of your segments, where you've got pretty good acquisition opportunities?

Yes. This is Paul. With regards to our stated strategy of the last couple years, we are still focused on acquisitions in the corporation. We have not been able to complete any in the recent quarters, but that's not for a lack of attempting.

We're in discussions. We continue to look for the right opportunities, and as they present themselves, we aggressively research them, and our intentions are to complete some in the future.

With regards to the disposition, and I think I've made this comment in the past, none of our businesses are sacred. We continue to look at each of them, as not only as their current contributions to our earnings, but their potential contributions going forward, and we'll make decisions, prudent decisions, based on that.

So I think we're being consistent. I think our strategy is holding. As we go forward, I think you'll see us making more acquisitions.

I'll jump back in queue. Thank you.

Your next question comes from Robert Kirkpatrick, Cardinal Capital Management.

Good morning. Congratulations on your results. Let's see.

You mentioned that there was one K-MAX left for sale that had been previously leased. When did we see in 2005 second half, and how much revenue from previous sales of K-MAX?

Hi, Rob. I believe we sold one K-MAX in the first quarter, two in the second, and I think that was it for the year. So last year's second half did not have any K-MAX sales in it.

Okay. And secondly, to follow-up, Paul, you've just discussed acquisitions, and not being successful and not for lack of trying. Are you getting close to the finish line, and you're not able to get something over the goal line, or is it that we're not getting that far down the field to begin with, and if we're not getting it over the goal line, what is it? Is it over priced? Is it over the desire of the acquired company to be acquired? Help us understand some of the generic dynamics that are going on there.

The acquisitions that we've made in the past, and it took several years for them to get from the first discussions to consummation. That continues to be an issue. I mean, the kind of acquisitions that we've made, and specifically in the Industrial side are privately-owned companies, and there is quite a distance between the first time that we get into a discussion, where the individual seems willing to discuss us making that acquisition, to the time that we finally sit down at the table with a document. And although again, we have some that we think will go. We're just, it's not to the point that they won't happen. It's the fact that, we just have not been able to work all the details and get them there.

Great. Thank you. I'll get back in line.

[OPERATOR INSTRUCTIONS] Your next question is follow-up from Arnie Ursaner of CJS.

So I guess we dealt with all the people on the line, Rob and myself. A couple questions if I can as a follow-up real quick. On the cockpit deliveries, you only delivered 11 in the second quarter. That's a little lower than you've been running. Is there a line interruption or anything else? Because clearly you have to ramp it up more like 15 plus per month, I'm sorry per quarter, to get to your goal for the year.

Yes. There's a number of issues associated with the last couple of quarters of deliveries, and most of them have been driven by the customer, and their specific demands for our deliveries. I mean, they went through some pains coming out of their strike, and they're dealing with all of those.

So we've really been constrained by the customer. Our estimation, to give you a little color on that, we're tooled for 10 a month. We are planning for probably an average of 8 a month for the balance of this year, and throughout next year. I mean, there will be some up months and down months again, depending on how they demand the deliveries, but I think that's a pretty good average for us to expect.

My final second question in this round, going to the Aerospace margins, if we were to add back in the 2.8 million one-time charge, if we continue to view it as one-time, Although even you guys may view it as a lot more recurring than you'd like, but if you were to view that as a one-time item, and adjust back the Aerospace margin, we get a number in the [18]% range, and that's despite some of your segments not fully contributing even within Aerospace, but look towards the balance of the year, A) Is that the right thought of process?, and B) Is there anything structurally you can highlight [inaudible] maintenance, if not even an improvement in your adjusted Aerospace operating margin?

We've had this same conversation the last quarter, and as we look over the quarters and as we adjust, the adjusted margins do come up to the higher teens rather than the mid-teens, and so I guess it's hard to say that the higher teens are not a reasonable number for us to be operating in, if things are generally working right. And I think that, as we go through the year, I mean, there are some things that sometimes impact those one way or the other. But generally, if we take out the special items, we then are closer to your 18 or 19%.

And that's despite several programs still being in a ramp-up phase where margins --

And that's still where there are some pieces that we can make some improvement on.

I think, Arnie, that internally we just, because of some of these new programs that we're on, and the fact that these divisions are expanding from the standpoint of adding a lot of new head count. I don't have the confidence yet to project a number again that I've got a lot of confidence in, because of the training issues, because of the sophistication of our processes, and the potential and opportunities for issues that can close us down for a period of a week or two, and affect our operating margins on those programs, I mean, those are the kinds of things that we're working on, to get behind us, so that we have some confidence.

Bob is right, we have been doing a little bit better than what we had said. I think we had talked about getting into the 15 range. And I think that, you know, go forward, that we will do a little bit better than that.

As I said, what I think people sometimes ignore is that your operating margin relative to other Aerospace-related companies is not as good as what we're aware of in the public market. [inaudible-microphone inaccessible] -- Because actually the public is hidden through the fact that there's somewhat of a conglomerate -- [inaudible] extraordinarily high operating expenses.

Hanging on that for one more second, your revenue growth in Kamatics, what are the drivers of that? It is the highest we've seen it in quite a while. Correct me if I'm wrong, but that's prior to the capacity additions that we're talking about of 30,000 square feet?

Yes. We have not been constrained by our capacity. I mean, we have not turned down a single job, nor not been able to deliver it to any single customer, because we have run into capacity issues.

Our capacity growth is in preparation for continued growth, as you saw how we did in the quarter. I think we'll continue to see double digit growth in that division, based on the way the commercial Aerospace is going right now, and also the other things that we're doing on the defense side.

Final question from me. A look back, but within the Music segment margin, I'm assuming you absorbed at least a tiny amount of expense from Brook Mays, which went bankrupt, and also for some severance expense. Can you give us any quantification of those two items?

On the Brook Mays, Cal, we've been watching that for quite a while, so we really had a very small amount that was added to the reserve in the current quarter. In terms of severance, there has been some of the typical expense, that's not part of the, part that would have been accrued as part of the acquisition. Again, that has been small.

Thank you very much.

Your next question comes from Craig [Paringer] of Wells Capital Management.

Good morning. Upon the acceptance of the SH-2 by the Australian Navy presumably later this year, is there any cash flow or balance sheet or income statement effect, or is it just a function of less loss reserves?

Actually, there's more, hi, Craig. There's been more, there's more cash activity than P&L activity, because we've, of course, accrued for the losses.

And while that accrual has then increased over each of the last couple quarters here, pretty much because of the nature of the program, on the P&L side of course we've got a fixed price contract on one side, and we've got a time and materials element on the other side. So that's part of what's leading to our ongoing expenses. But there is a cash impact between now and the end of the year.

We would expect, upon completion, to collect in the neighborhood of between 20 and 25 million, and then a bit more next year, so there is a cash impact, and providing that the helicopter is accepted by the customer, that payment would most likely come in toward the very end of the year. If not, it would slip into the early part of next. In that neighborhood.

That's not insignificant. Changing gears totally. So Arnie was citing the corporate restructuring last year, and with an eye towards corporate activity, and you answered in the acquisition sense. Under what conditions would divestitures become more a focus of yours?

We've been looking at each one of our businesses, and each piece of each of those segments, in regards to their go forward growth on a top line, and earnings growth capabilities. I think what will finally force, there will be two things that would force me to push a button on one of those properties, and one would be that we would no longer see the ability to grow it, and that somebody else could do a better job with it than we could. That would be one.

The other one would be, if I saw an acquisition that would be of a larger scale than what we experienced in the past, and I wanted to use one of our current properties as currency for that acquisition, then I would consider it at that time.

Your next question is a follow-up from Robert Kirkpatrick, Cardinal Capital.

Could you take a minute, since we're having recurring, nonrecurring charges for the SH-2, and explain to us the process that you go through to determine those, and whether they cover all your remaining costs, or whether they're each period which you report, you kind of look at the incremental costs that have been incurred, and book that as a charge.

What we do at each quarter is we look at the and we look at the program, and we look at an estimate to complete in total, of what we believe at that particular time, it will take us to finish the program, and that becomes the basis for a loss accrual that we would add at that time.

And what happens, as we go through the program, and we're at the very near end, and we're going through the qualification process and hitting issues, we tend to again, it's an issue of we go through the software testing and qualification, and we see something that leads to a trouble report, and then we have to deal with that, and then we have to deal with the changes that that might drive through the system.

What we've been doing the last several quarters is going through that process, and so we essentially do an estimate to complete, and we take our best guess at that point, what it's going to take to get us through the completion of the contract, and that becomes the basis for the loss accrual, and we do that each quarter, and we will continue to do that. So each quarter we think that, if things go the way we believe they'll go at that time, that's what it'll take to finish the program.

And the loss accruals for the first half of this year have dealt with things like the air speed sensor?

Yes.

All right. And as a follow-up question, with Airbus cutting back its delivery production on a large new aircraft, how are you guys able to grow your business? And also be so bullish on the business, so as to be adding 30,000 square feet of capacity to your Bloomfield production area?

On the first question, with regards to the 380, again, the amount of sales that we've had on that program have been very, very small, because that plane really hasn't been in production as of yet. So we're not going to be hurt from our current level of production by that one being slowed down. I mean, it would affect some in the future, but again at the rates that they were going to be running in the near term, it's not that significant.

I think the other side of it is the fact that the rates at Boeing have been continuing to grow both in the 737 side, and the 777 side for current business, and the rates that they're starting to talk about expanding to on the new 787, when that comes into play. So I think, from the commercial side of it, it's very solid right now. I mean, this is going to be one of the longer cycles that we've seen, longer up cycles, and I would expect that rates will hold through the 2010 range. I me, that's everything that I'm reading.

But in addition to that specific work, we still have an awful lot of smaller projects that we're constantly working on, that are constantly adding the sales, a lot of which are on the military side, working with each of these major depots, maintenance activities where they identify problems that exist on current flying aircraft, and we go in and help them retrofit with a more sophisticated design, that gives them the life that they're looking for. A lot of them aren't large enough by themselves to make major note of, but when we accumulate them together, they're fairly substantial.

How does the revenue that Kamatics would earn on a 787, compare with how much revenue per aircraft you might earn on a 737 or a 777? On a relative basis.

I think it's going to be relatively comparable. Again, we're still working, the way that Boeing designed this aircraft, as you know or may know, they put out a lot of the development, the design and development work to their prime, their major subcontractors. And we've typically had our engineers sitting at Boeing, to make sure that our product gets into the application.

Now we're having to deal with it quite a number of different suppliers to Boeing, and that activity is still ongoing. So we really haven't fully identified all of the product that we're going to have on the 787. But we anticipate, based on the activity level that we've had so far, that it'll be on par.

And then finally, staying in Aerospace, what does if NAVAIR is acquired by Kaman, and you're asked to clean it up, what's the total cost of all that, #1? And 2, what does it let you do, so that this becomes, or this is viewed as a good use and a good allocation of capital?

Rob, we've been in that building for 40 some odd, 50 years, and so it really is a very important part of our operations. And we've been dealing with the government now for quite a while on this, in terms of coming up, and where we believe we are, is that we can clean it up for at or about the fair market value of the property.

And so we think that we are buying it right, and we think that one of the things in connection with it, is it's a spend that will take several, I mean, it's going to go out into the future. There are some immediate things that we'll do on the environmental side, and there are some things that will take us many, many years to monitor. And all of that, when we look at it, is we believe it's very close to what the fair market value of that property is, so we think it's the right thing for us to do.

I misspoke. It's not NAVAIR. It's [IWER] facility that we responded . The other thing is is that the utilities and a lot of the activities that occur on our side of the fence of that property, are tied to what's on the other side, and we took a look at what it would take for us to extricate ourselves from that facility.

And for the most part, it would be virtually the cost of the acquisition. So we were going to spend that kind of money anyway, so we might as well end up with the property.

And exactly what do you do on the property?

It actually is the flight line for our helicopters. The SH-2 is the hangar, the major hangar is over there. All of our flight tests occur over there. All of our instrumentation is over there. Our rotor whirligig test is over there. Virtually it is the basis of our SH-2 program.

Great. Thank you very much.

We have a chemical process line, an autoclave, waste water. We've got a lot of stuff there.

And there are no further questions at this time. Now I'll turn the call back over to Mr. Jones.

Well, thank you very much, Felicia, and everybody thanks for joining us for today's conference call, and we look forward to speaking with you again in the future. Good-bye.

This does conclude today's conference. You may now disconnect at this time. This concludes the conference call.