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Kaman Corporation (NYSE:KAMN)

Q1 2014 Earnings Conference Call

April 29, 2014 8:30 a.m. ET

Executives

Eric Remington - VP of Investor Relations

Neal Keating - CEO

Rob Starr - CFO

Analysts

Arnie Ursaner - CJS Securities

Matt Duncan - Stephens

Ed Marshall - Sidoti

Jeff Hammond – KeyBanc

Scott Graham – Jefferies

Steve Levenson – Stifel

Robert Kirkpatrick - Cardinal Capital

Operator

At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a remainder, this conference is being recorded for replay purposes.

I’ll now like to turn the conference over to Mr. Eric Remington, Vice President; Investor Relations. Please proceed.

Eric Remington

Good morning. Welcome to the Kaman Corporation first quarter 2014 conference call to discuss our earnings results. Conducting the call today are Neal Keating, Chairman, President, and Chief Executive Officer; and Rob Starr, Senior Vice President and Chief Financial Officer.

Before we begin this morning, please note that some of the information discussed during today’s call will consist of forward-looking statements setting forth our current expectations with respect to the future of our business, the economy and other future events. These include projections of revenue, earnings and other financial items, statements on the plans and objectives of the company or its management, statements of future economic performance and assumptions underlying these statements regarding the company and its business.

The company’s actual results could differ materially from those indicated in any forward-looking statements due to many factors, the most important of which are described in the company’s latest filings with the Securities and Exchange Commission, including the company’s 2013 Annual Report on Form 10-K and the current report on Form 8-K filed yesterday evening together with our earnings release.

In addition, in our press release and on this teleconference we’ll discuss certain financial measures and information that are non-GAAP financial measures. Reconciliations to the comparable GAAP measures is included in tables of our press release, which has been filed with the SEC and posted to the Investor Relations section of our Web site, which can be accessed at www.kaman.com.

With that, I’ll turn the call over to Neal Keating. Neal?

Neal Keating

Thank you, Eric. Good morning, everyone and thank you for joining us today. We were pleased to have opened 2014 at a strong note with solid performance across both our aerospace and distribution businesses. In line with our expectations, sales were up in both segments in about 6.7% overall.

We also delivered a significant improvement in consolidated operating profit, registering a 52% increase over the prior year. Net earnings per share were up 62% to $0.42 per share from $0.26 in the prior period.

Next, I’d like to provide additional color on the performance of each of our segments. Beginning with aerospace, sales were up approximately 14% driven by sales from our New Zealand SH-2 program, higher volume of Joint Programmable Fuze deliveries and increased sales from various composite structured programs.

We continued our strong execution on the New Zealand SH-2 program, and earlier this month achieved a significant milestone with the successful first flight of the aircraft.

The JPF program had a strong performance as well, with deliveries of approximately 5,200 fuzes, 600 more than last year. As expected, our mix of JPF sales shifted from last year with 95% of the fuzes delivered in the quarter going to the U.S. government. We received $52 million in contract awards during the quarter, including the first order under Option 11 of our air force contract and a direct commercial sale. These increased programs backlogged to $231 million.

Turning to other aerospace highlights, our bearing product lines performed well, driven by strong sales in orders and Boeing and airbus programs. The Boeing 747-8 Wing-to-Body Fairing program is moving forward, and the tooling recently arrived in Jacksonville from Boeing’s Winnipeg facility, and we remain on track to begin deliveries to Everett by the end of the year.

Our engineering services group began work for Boeing out of our new Charleston office and continues to actively pursue opportunities with other aerospace customers. And we continue to make progress at a number of other new structure programs, including the Learjet 85 passenger and over-wing exit doors, the fixed leading edge for the Bombardier G7000 and 8000 and the Gulfstream G280 Winglet program.

The last few months also saw the successful relocation of two facilities. During April, we completed the move to our new Specialty Bearing facility in Germany, and we have already begun shipping product. This new plant significantly expands our capacity to meet the growing demand of our European customer base. And we also opened our new U.K. tooling facility, which will significantly expand our capabilities and enable us to compete through our broader array of tooling programs.

Most importantly, through the hard work and dedication of our employees, we were able to maintain high level of customer service during these two relocations.

Today, aerospace is firmly positioned to continue to improve operational performance, successfully execute new programs and win additional work to provide steady long-term growth.

Moving on to distribution, consolidated sales per day were up 4.7% over the prior year with organic sales per day up about 2%. Sales in the quarter accelerated sharply in March as demand improved and weather-related disruptions we experienced in January and February receded.

Operating margin improved 240 basis points to 4.2%. Overall, we were pleased to see the second consecutive quarter of organic growth which gives us increased confidence that the industrial economy continues to gain traction.

Looking at the quarter’s performance by end market, we achieved higher sales growth in the MRO portion of our business with solid growth from customers in the cement and aggregate industries which had benefited from improvement in construction and housing starts.

We also saw strong demand in food processing and on several infrastructure projects. Out OEM business delivered positive growth in the quarter as well, albeit, at a slower pace relative to our MRO performance.

We remain extremely focused on increasing organic growth and year-to-date we have made good progress on our efforts to hire an additional 50 to 60 account managers. And last Friday, we closed the acquisition of B.W. Rogers, a critical transaction that will significantly strengthen our relationship with Parker Hannifin in the United States.

With the addition of B.W. Rogers we now have more than 40 locations authorized to distribute Parker product directly as well as an additional 200 locations through our national reseller agreement. This acquisition increases our exposure to end markets where we have previously been underrepresented including steel, shale gas and automotive.

In addition to fluid power, B.W. Rogers brings machine control and integration operations that align well with our automation control and energy product platform. Today, we have the opportunity to welcome all the members of the B.W. Rogers team to Kaman and we look forward to the contributions that you will make to our collective success going forward.

In summary, we are off to a good start in 2014 driven by strong performance at aerospace and are encouraged by the improving trends of distribution. Given our current momentum coupled with the acquisition of B.W. Rogers, we are well positioned to execute on our long-term strategy.

Now, I’d like to turn it over to Rob to provide you with some additional details and color. Rob?

Rob Starr

Thank you, Neal, and good morning everyone. As Neal highlighted, 2014 has begun well with four segments delivering year-over-year revenue and earnings growth. Our continued focus on operational performance led to 160 basis point improvements in our consolidated operating margins, 80 basis points after adjusting for the impact of the 2013 distribution restructuring charge. At aerospace, revenues increased 13.9% to 149 million and operating income increased 5% to 22 million. As expected, operating margins of aerospace were modestly lower than the prior year.

The primary factors impacting the year-over-year margin comparisons were an increased sales mix of lower margin aero structure programs, lower levels of non-recurring retrofit bearing projects and expenses associated with the opening of our new facilities in Germany and the U.K. We expect aerospace margin to improve through the course of the year driven by higher Specialty Bearing product line sales and with favorable mix of JPF sales and improving margins for our aero structure programs.

Distribution posted a solid quarter with sales increasing at 3% over the prior year to 265 million contributing to our margin improvement was continued organic growth in the absence of last year’s 3 million restructuring charge. I will likely touch our balance sheet and liquidity position in light of the B.W. Rogers acquisition. At the end of the first quarter, our debt to capitalization ratio stood at 35.9% relatively flat with our year end position as we saw improved year-over-year cash flow in earnings. We funded the acquisition repostings from our revolving credit facility and posted transaction continues to maintain a conservative financial profile.

Free cash flow in the quarter improved by 22.8 million over the prior year, driven by higher earnings and lower working capital requirements; this improvement was partially offset by higher pension contributions of 5 million as we completed our full year funding of 10 million during the quarter. Capital expenditure levels were in line with expectations as we continue our infrastructure in ERP investments during 2014.

I’d like to turn to our outlook which has been updated to reflect the B.W. Rogers transaction. Starting with revenues, we expect B.W. Rogers to contribute to 65 million and 70 million in 2014. On a GAAP basis, we anticipate B.W. Rogers operating profit margin to be neutral to our base business. However, both into the consumption are 1.5 million of one-time acquisition of rated items, and 1.7 million in non-cash intangible amortization expense we expect to incur in 2014.

Our increased interest expense projection reflects increased debt levels associated with the transactions, and lastly we expect B.W. Rogers to contribute approximately 3 million of free cash flow during the year. The transaction is expected to be modestly accretive on a GAAP and highly accretive after excluding one-time and future non-cash expenses.

Pro forma for the acquisition, we continue to maintain our view at approximately 16% of our full year consolidated net earnings will be recorded in the second half of the year with earnings building sequentially throughout the year. Overall, we are pleased with the start of the year and are confident we will deliver on our outlook.

With that I’ll turn it back over to Neal. Neal?

Neal Keating

Thanks, Rob. In closing, I would like to say that we are pleased with our first quarter results, and we may provide the foundation for improved performance as we move through the balance of the year.

With that I’ll turn the call back over to Eric. Eric?

Eric Remington

Thanks, Neal. Operator, may we have the first question please.

Question-and-Answer Session

Operator

Certainly (Operator Instructions) First question comes from the line of Arnie Ursaner at CJS Securities. Go ahead please.

Arnie Ursaner - CJS Securities

Hi, good morning. The obvious question is you mentioned that March saw a dramatic acceleration, can you comment on April?

Neal Keating

Sure, Arnie. Good morning, it’s Neal. We did have a significant acceleration in March as we commented. We haven’t finished April yet. We finished our month on Monday. We don’t have final results, but we are up in 2% to 3% organic growth range. Again, not final results, but we were pleased with continued strength that we saw through April.

Arnie Ursaner - CJS Securities

Okay. And my second question or follow-up is you on the last call mentioned the build out of your sales force targeting 50 to 60 during the course of the year. How many of it we added so far, and maybe give us your best sense of how this will build during the year?

Neal Keating

Arnie, good question. We finished -- in mid April we had added about 15 to 17 people, so we were about on tract. We would expect it to be linear through the year probably completing in early fourth quarter just so that we can bring people on in a stage basis and bring them to the on-boarding process, the training process effectively and get them out and get them effective. That may vary a little bit obviously based on if we find someday that’s clearly very talented and can add to our expertise in the field, we will go out and get those people right now.

Arnie Ursaner - CJS Securities

A quick follow-up if I can. What margin impact or negative impact from these builders embedded in your guidance for this year?

Rob Starr

Hi, Arnie. This is Rob. In terms of our guidance as we talked about on our year end call we expect to hopefully hit about a breakeven run rate on this initiative as we exit 2014. So it will have a negative drag. We haven’t quantified how much, but there will certainly be a negative drag on margins in ‘14 and we are hoping to turn that in late ‘14 or ‘15 to breakeven and obviously positive and going on beyond that.

Arnie Ursaner - CJS Securities

Thank you very much.

Operator

Thank you. The next question is from the line of Matt Duncan at Stephens Inc. Go ahead, please.

Matt Duncan - Stephens

Good morning, guys.

Neal Keating

Hi, Matt. How are you?

Rob Starr

Good morning, Matt.

Matt Duncan - Stephens

Very good, thanks.

Neal Keating

Rough day yesterday, huh?

Matt Duncan - Stephens

Yeah, it was a little rough here. Thanks (indiscernible) seems to be okay. So, Neal, just looking at the organic growth at KIT, I know you guys have commented on the last call that it was tracking I believe negative in January and February. You said you were up 2% to 3% so far in April, a couple of things to dig in here, how much was March up? And do you think there is any kind of drag in the month of April due to the timing of the Good Friday and Easter holiday falling in April this year versus March last year?

Neal Keating

I’ll start with how we start to trend through the first quarter. We were down slightly in January. We were down mid single-digits in February on an organic basis year-to-year mainly in the south, southeast and northeast. So, again we attribute a lot of that to the harsh weather conditions.

We were up strong single-digits in the month of March. And that’s what brought us to that 2% positive organic growth for the quarter. Actually this morning I was thinking of whether or not the Good Friday/Easter holiday may have impacted us. Matt, it may have a little, but I don’t know that we can really attribute much to that in the month of April.

Matt Duncan - Stephens

Okay, fair enough. Rob, just a couple of things on the guidance; it sounds like you are still expecting a pretty good ramp as we move through the year and really intend both segments especially the aerospace (indiscernible) distribution, typically just organic sales will be down a little bit in the 4Q from a 3Q. Can you help us maybe on the aerospace side looking at the ramp in your operating margin especially from the 14.8% you had this quarter. How should we think about how quickly you get into the guidance range for the full year? And I am assuming then that the fourth quarter is probably going to be above that full year guidance, 16.5 to 17, I am just trying to get a little bit of help if I can on sort of how that ramp is going to look.

Rob Starr

Sure. That’s a very good question. To your point, I mean we’ve maintained the guidance for the full year for aerospace between 640 and 650 revenue and 16.5% and 17% margin. So clearly the math is fairly clear that we added about 17.5% over the remainder of the year to achieve our outlook, the mid range of the outlook. We do anticipate in aerospace based upon anticipated increased sales of bearing products as we go through the year as well as timing on [BCF] (ph) sales that we will see the margins increase sequentially over the remainder of the year. There will certainly be higher margins in the second half of the year which is why we are estimating 60% of our consolidated net revenues will be earned in the second half or their consolidated earnings.

Matt Duncan - Stephens

Okay. Thanks, Rob.

Operator

Next question comes from the line of Ed Marshall at Sidoti & Company. Go ahead please.

Ed Marshall - Sidoti

Good morning, guys.

Neal Keating

Good morning, Ed.

Rob Starr

Good morning, Ed.

Ed Marshall - Sidoti

So I wanted to ask about the Jacksonville facility and the construction is going on in the Wing-to-Body program in Jacksonville. I am just curious if -- where we are on that, what the drag is potentially on the margin, and when that will subside?

Rob Starr

Ed, we just received the tooling from Boeing Winnipeg into our Jacksonville facility during the month of April. So we will begin placing it etcetera in the second quarter. We don’t anticipate making our initial deliveries until the fourth quarter of 2014. So we will have some operational drag and some overhead impacts, but very little revenue that would be realized in 2014.

I think what we can anticipate is as we begin to ramp that up through 2015, it would likely have somewhat of a negative impact on aerospace margins in the first half perhaps in 2015 as is typical when we have lower margins as we startup new programs. But I wouldn’t really expect any significant impact from to our revenue or earnings headwind in ‘14 simply because of the timing of when we will be starting up.

Ed Marshall - Sidoti

And the AH-1Z that’s running through that program as well?

Rob Starr

The AH-1Z is actually in the same facility in Jacksonville as well. That has begun to ramp up pretty nicely. I think actually we are in sub assembly of aircraft number 10, so we should begin hitting some fairly consistent delivery rates of about one a month going in towards the tail end of 2014.

Ed Marshall - Sidoti

So the guidance here just to clarify, you expect gradual improvement throughout the year. One is based on mix, but also as you start to get down the learning curve on some of these particular programs that you signed on over the last few years and you should gain some good momentum heading into 2015 albeit you will be carrying in some -- that 747-8?

Rob Starr

I think that that’s right, and we should think about it, Ed, in two ways. We will have certainly some continued acceleration in our underlying structures programs AH-1Z, Lear 85, the G280 Winglet, but also a big contributor to the increased margins in the third and fourth quarter in aerospace will be the mixed change as well as we have stronger bearing sales and also a higher percentage of our JPF product going to direct commercial customers at a higher margin.

Ed Marshall - Sidoti

What exactly is creating the seasonality in Q1 in aerospace that we have seen play out maybe over the last two to three years? Is it a mix and is it just timing of shipments and was there shifting customer demand or rather a customer that you had that pulls demand a little bit differently? What’s causing that first quarter kind of shift on mix?

Neal Keating

In Rob’s comments, Eddie, he tried to highlight a couple of those, but if we were to look year-to-year, the biggest change probably impacting our (indiscernible) reason Rob identified, but the biggest one was probably the non-recurring specialty bearing retrofits that we had in the first and second quarter of last year. I think we commented last year that we had something on the order of $10 million to $12 million of non-production retrofits that went through the facilities in the first half of last year. And while we get some of that each year, Ed, without question that was a very high number for us.

Also, one of the risks that we had coming into 2014 clearly was the relocations at two facilities. They are used specialty bearing facility in Germany as well as our new tooling facility in the U.K. We moved into each of those in the first quarter. We are ramping up production now during the second quarter. So again, that naturally causes us some headwind in the first quarter of this year as well.

Ed Marshall - Sidoti

Okay, thanks.

Neal Keating

Thank you, Ed.

Operator

Thank you. Your next question is from the line of Jeff Hammond at KeyBanc. Please proceed.

Jeff Hammond – KeyBanc

Hi, good morning, guys.

Neal Keating

Good morning, John.

Rob Starr

Good morning, John.

Jeff Hammond – KeyBanc

So just to be clear on the margin in Aero, it’s going to be much -- you will have some improvement in the 2Q, but it’s going to be much more second half weighted?

Rob Starr

Yeah. Jeff, I think that’s our assessment. We will see some improvement, we expect in the second quarter, but certainly the bulk of the uptake in margin will be seen in the second half.

Jeff Hammond – KeyBanc

And in the growth rate you had in the first quarter obviously very good in Aero relative to your full year guidance. Is that just timing around the SH-2G or how should we think about cadence of growth rates in Aero for the balance of the year?

Rob Starr

Yeah, I think the way to think about it is we will see some slight improvement quarter-over-quarter in aerospace top line, but certainly the larger acceleration will be on margin shift due to product mix.

Jeff Hammond – KeyBanc

Okay. And then on distribution, I think you said March was high single-digits and April was low single-digits.

Rob Starr

That’s right.

Jeff Hammond – KeyBanc

I mean, do you think there were some catch up in March from January and February and the underlying growth rate trend is kind of in that low single-digits or how should we think about that?

Rob Starr

I think you are right, Jeff. I think there had to be some catch-up in March and our return to the low single-digits in probably right. If you think about our outlook for the year, it’s between 3% and 6% organic growth. So that’s kind of -- that’s clearly our expectation.

Jeff Hammond – KeyBanc

Okay, great. And then any other kind of puts or takes within your Aero forecast or is it all kind of falling in line with how you thought that the year would shape up?

Rob Starr

Yeah. Jeff, I would say, given the number of programs that we are involved there is always some puts and takes during the course of the year especially as it relates to timing, because sometimes it’s difficult to tell when something will shift due to unforeseen circumstances. But I would say overall the year is progressing so far as we had anticipated.

Jeff Hammond – KeyBanc

Okay, great. Thanks, guys.

Rob Starr

Thank you.

Operator

Thanks. The next question is from Scott Graham at Jefferies. Go ahead please.

Scott Graham – Jefferies

Hi, good morning.

Neal Keating

Good morning, Scott.

Rob Starr

Good morning, Scott.

Scott Graham – Jefferies

I was hoping you would be able to give us that typical walkthrough you gave us on sort of updating you on programs that you are working on, things that you are hoping can potentially both in 2014 or 2015 are both on the commercial and defense sides?

Neal Keating

Well, Scott, it’s a good question. The key things for us are: 1) As we talked about the Boeing 747-8 wing-to-body fairing that we have recently been awarded is probably the best example of our effort to bring together the combined capabilities of our engineering, our composite to metallic, detailed parts manufacturing as well as complex assemblies. So we will have to be able to work more effectively with Boeing and win additional outsource work from them is probably our highest priority right now. We’ve also as you know opened a new engineering facility in Charleston, so we were very pleased to be able to win additional work with our engineering services business with Boeing as well. And clearly, within our specialty bearings business we continue to look across a broad range of platforms in particular our work with airbus continuing to grow content and A350 and actually a number of their helicopter programs now both in the U.S. and in Europe.

Then, as we kind of pick through some of the programs that we won that we expect to see ramping up, they would include the Boeing P-8. We kind of get on the success of Gulfstream G280 and that continues. And then, we also have recently worked with Boeing to extend our Boeing 767 and 777 content. So those are the kinds of programs and that of course that the K-MAX both unmanned and potentially manned as well. We targeted likely a range of 10 to 15 new orders to restart the line. We continue to look to see if there is sufficient market demand for us to do that, and work with our partner Lockheed Martin and the unmanned program as well. So a pretty broad list of programs. I think that that’s probably the strength of our portfolio of capabilities.

Scott Graham – Jefferies

That’s all I had. Thank you.

Neal Keating

Great. Thanks, Scott.

Rob Starr

Thank you, Scott.

Operator

Thanks. The next question is from the line of Steve Levenson at Stifel. Please proceed.

Steve Levenson – Stifel

Thanks. Good morning, everybody.

Neal Keating

Good morning, Steve.

Rob Starr

Good morning, Steve.

Steve Levenson – Stifel

Just to follow-up on K-MAX, I guess there was a demo recently, an unmanned demo with at least one other helicopter. Can you give us some update on that where you think that might lead?

Neal Keating

Sure. It was the latest program. In fact we are very pleased with our performance on that program. We got the aircraft back a couple of weeks ago. We are actually bringing it down for maintenance and we are fitting it for additional demonstrations in the future. Obviously there has been some recent press again about competition. Competition is a good thing. It proves to us that there is a market for it, and we think that the unique capabilities from a cost, both acquisition cost and operating cost, clearly from a performance perspective in terms of heavy lift. And finally has proven track record in Afghanistan puts us in a pretty good position on most competitions.

Steve Levenson – Stifel

Okay, thank you. Can you give us a little more update to on the outlook for Black Hawk? Is that sort of a volatile program these days?

Neal Keating

You are right, Steve. It’s an interesting one because over the past few years while our aerospace business has evolved, has grown pretty nicely. The unit output of Black Hawk has gone from about 177 back a couple of years ago to probably on the order of 100 this year. And that business continues to grow. So I think it underscores the strength of the diversity of capabilities in that business again. We think we are going to be in the 100-ish range, and probably will be for 2014, it might gradually go down over the course of the next couple of years. But we feel very good about that program. We recently in the last couple of quarters or end of last year shipped out 1000 units. I think that it proves that we are a really strong partner for Sikorsky. And truly that remains the aircraft of choice for the U.S. services.

Rob Starr

One other point that I would like to make there is we certainly pay close attention to what’s happening in a lot of these end markets, which is why we had invested in our regional sales director model that we have talked about on prior calls that we have a very active pipeline to basically absolutely punish those areas where we see potential declines in future demand.

Steve Levenson – Stifel

Thank you very much.

Neal Keating

Thank you, Steve.

Operator

(Operator Instructions) We have another question there from Arnie Ursaner at CJS Securities. Please proceed.

Arnie Ursaner - CJS Securities

Hi. Going back to JPF for a second, you mentioned 95% of the sales in Q1 were to the U.S. government which is your lowest margin business. As you look through the balance of the year, do you have any better feel for how the mix will likely shape up for the next couple of quarters?

Rob Starr

Sure. Arnie, this is Rob. Going forward, we do have a number of expected shipments later in the year on the [BCF] (ph), so we would expect that mix obviously come down from 95% that won’t be as high as last year based on our current outlook, but certainly the mix in the followed quarters will be perhaps more similar to what is similar in some of the quarters last year.

Arnie Ursaner - CJS Securities

Okay. And Sikorsky recently demonstrated an unmanned Black Hawk. How do you see that perhaps playing out as an opportunity for you?

Rob Starr

Arnie, that’s interesting. We obviously were also very interesting when we read that release. There is two parts of that. One, I go back to my earlier comment that I think it demonstrates that there is a number of companies, Sikorsky is one of them that realizes there is opportunity for unmanned cargo re-supply. The Black Hawk in unique, because for us we also build that aircraft in Jacksonville. So that’s very successful with the U.S. government for either manned or unmanned programs that hopefully will be good for us as well. And also as they continue to effectively market that aircraft internationally, if some of that demand is met by U.S. production, that’s a positive for Kaman as well.

Arnie Ursaner - CJS Securities

I don’t know if you mentioned that or not. Did you discuss the actual revenue from the SH-2G in the quarter?

Rob Starr

No, we didn’t. In the -- we shipped 21 sets in the first quarter, Arnie. Oh, SH-2, I apologize. I thought you mentioned …

Arnie Ursaner - CJS Securities

Now, we have an annual revenue goal, what was the revenue in the quarter?

Rob Starr

It was fairly in line with the guidance that we provided, Arnie, of about roughly $10 million a quarter.

Arnie Ursaner - CJS Securities

Okay, thank you.

Rob Starr

You are welcome.

Operator

Thanks. Your next question is from the line of Robert Kirkpatrick at Cardinal Capital. Go ahead please.

Robert Kirkpatrick - Cardinal Capital

Good morning. What are you going to do with the season and teen assets now that it looks like production is going to ramp completely down?

Neal Keating

Rob, another obviously a good question. Two parts to it, one, we got some really good mechanics to work on the C-17 line today. And the good news for us is that with the ramp up of the AH-1G we are able to transition a number of them over to the AH-1G line which is clearly a positive. We are trying to determine how we can best utilize the floor space that will come available in the facility as we ramp down the C-17. It’s not an enormous amount of floor space as you can imagine, because we have doing that for a long time and have really leaned out the area. But again it’s -- we are working really hard to win new work, so put into that Jacksonville facility, and we feel pretty confident about the pipeline that we have there. So it’s not a lot of floor space, we’ve got really talented folks that we can use on other programs. We may be able to utilize the equipment in another area, but overall we would anticipate that going away for a while, Rob, and while we had hoped originally for ten ship sets of the factor that comes into sell at seven for us for the year, isn’t that something that we are going to lose a lot of sleepover.

Robert Kirkpatrick - Cardinal Capital

Great. Thank you so much.

Operator

Gentlemen, there are no further question. So I would now like to turn the call back to Mr. Erick Remington for closing remarks.

Erick Remington

Thank you, Dave. Thank you all for joining us for today’s conference call. We look forward to speaking to you again when we report second quarter earnings in July.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.

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