Triumph Group Inc (TGI) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group conference call to discuss our fiscal year 2002 second-quarter earnings performance. You are in a listen-only mode. There will be a question-and-answer session following the introductory comments by management.

On behalf of the company I would like to read a following statement. Certain statements on this call constitute forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1985. These forward-looking statements include both known and unknown risks, uncertainties and other factors that may affect Triumph's results, performance and achievements in which the industry operates to be materially different than any expressed future results, performance and achievements expressed or implied in these forward-looking statements.

Please note this call is property of Triumph Group Incorporated and may not be recorded, rebroadcast or transcribed without express written approval.

I would like to introduce Richard Ill, the Company's President and Chief Executive Officer, and John Bartholdson, Chief Financial Officer and senior vice president of Triumph Group ,Inc. Go ahead, Mr. Bartholdson.

Good morning, welcome, everyone. I would like to briefly review the earnings release which hopefully you all have in front of you, add a couple more numbers before turning it over to Rick for his comments.

The first comment I would like to make about the numbers is since we were an early adopter of FASB 142, all of the numbers are comparable from the prior year periods and do not need to be adjusted for the elimination of amortization of good will. It is an apples-to-apples comparison.

Briefly, the second quarter ended the September 30th for the six months. Sales declined 3.6% to $303.5 million. Net income was $20.1 million, a decline of 12.9% from the prior year-to-date period. Earnings per share $1.26 versus $1.44 as reported in the prior six months. For the quarter, sales were $152.9 million, which was 5.3% below the prior year quarter. Net income was $10.1 million, one-half percent below the prior year quarter and earnings per share was 63 cents versus 63 cents in the prior year.

In the quarter in the year-to-date numbers last year, there was a special charge of $5 million, which was $3.2 million after tax or 20 cents a share, which related to the cancellation of the Airs Loadmaster program which was a special aircraft program we were working on in conjunction with FedEx.

Looking at the segment results, in the Aviation Segment, sales for the six months were $281.1 million, versus $289.5 million, a decline of 2.9% for the six-month period. Operating income, $40.6 million versus $50.9 million in the prior year. Margin of 14.5%. This year EBITDA was $52.4 million for the six months versus $60.6 in the prior year. For the quarter, sales were $141.3 million, a decline of 5.2%. Operating income was $20.4 million versus $25.1 million in the prior year, margin in the quarter was 14.4%. And EBITDA was $26.2 million versus the prior year's $30.6 million.

Our metal segment sales year-to-date were $22.4 million, operating income of a half a million. For the quarter, sales were $11.6 million and operating income of just over $100,000.

Turning now to the backlog. Our backlog at the end the September was $368 million versus $378 million at the beginning of the year. Our top five programs by backlog were -- remain the same five programs. 737, Airbus A320 family, Bombardier Regional Jet family, and the S-18 program, ENS, and C-17 programs at Boeing. Speaking about Boeing, Boeing remains our only customer that's in excess of 10% of our revenue, and for the six-month period, Boeing represented 13.5% of our consolidated sales.

Breaking down our revenue by market, the OEM market made up 53% of our Aviation Segment revenue. The maintenance repair and overhaul market was 30%, and IGT and other, industrial gas turbine business was 17%.

Looking at type of customer, breaking it out between the prior year, the full year of fiscal year '02 versus the six months of '03, commercial aircraft in fiscal year '02 represented 43% of revenue. For the six months of '03, it declined to 38%. Last year, military and space represented 26% of sales for the six-months this year it rose to 32%. Business aircraft in the prior year, 12 months was 11%. Declined to 9% for the six months of '03. Regional jets last year was 6%, represented 5% in the six-month period. And IGT and other last year was 14% of revenue in the first six months of this year it rose to 16%.

Speaking about the IGT business, IGT generated $45 million of revenue for us in fiscal year '02. Year-to-date this year it rose to $24.7 million.

Just a couple of comments on the balance sheet. Net debt to capital was 28%. At the end of September, we had borrowings of $150 million on our $350 million senior credit facility. Giving us $200 million of available liquidity.

And with that, I will turn it over to Rick for his comments. Rick.

Thank you, John. Good morning, everybody. As was mentioned in the press release, we are, in fact, very disappointed in the fall in the commercial, especially in the commercial and business jet build rates, as well as airline performance which is clearly driven by fewer passenger miles being flown. However, we do remain optimistic about our ability to continue our growth strategy, primarily due to our ability to provide a diverse -- a diversity of products and services to many customers.

We've talked about before, our strategy, which has been very consistent to provide products and services over a very diverse customer base, which has served us well on the past and I think will continue to serve us well in the future.

John referred to some of our markets, and I would like to comment on some of those markets specifically. Our disappointment in the commercial jet production, speaking primarily of Boeing and Airbus. The build rates is no secret in the industry. They are down significantly. Boeing is down 50%. Airbus, although sometimes Airbus numbers are hard to extrapolate, but are essentially flat, and, in fact, the build rate has dropped faster in the first six months of our fiscal year than we had, in fact, anticipated. The Business Jet Market is down just short of 25%.

John indicated in that our sales it went from about 11% of our sales to 9% of our sales. The Regional Jet Market is in fact, flat. Our backlog in total is now $368 million, down from $378 million in the beginning of the year. Primarily due to the pushouts and the business jet, primarily Boeing and the business jets.

Remember that our backlog is orders that we have in hand that will in fact, be shipped over the next two-year period of time.

The airlines continue to park planes on the desert. Passenger miles are down approximately 9% and seem to be stalled at that level and have been that level for the last quarter and we don't see that coming up very quickly.

The military end of our business is now up to about 32% of our sales. It's grown in the last quarter. As John mentioned the C-17 and F-18 are in still in our top five, and, in fact, growing. It's interesting to note that many years ago when we were 4% military, it was -- everybody was saying how come -- boy, you don't want to be any more than that.

Now people are saying, how can you be more than 32%. But it has grown significantly over the last year or so.

Cost and margin issues. We have significant margin pressure on our existing business, as you might guess, and it continues as we gain some market share. That pressure has come predominantly in two areas for us. One is a pressure issue from our customer base, and that's our Structural Products which account for about two-thirds of our margin decline.

The great percentage of the balance of our margin decline comes from the Industrial Gas Turbine business where we have not ramped up as fast as I would like, and we have discussed this and I will discuss that in just a second, specifically when we talk about IGT.

But the majority of our margin pressure comes from those two areas. In addition, we have health care on a year-to-year basis, which will go up somewhere in the neighborhood on a year-to-year, $3 million, $3.5 million from year-to-year. We will, however, contain costs through a commitment to our lien manufacturing and significant reduction in some costs and significant reduction in redundancies. An example of that is in Phoenix where in the next two or three months we will have a new building which will, in fact, consolidate a couple of buildings that we have in Phoenix and we will eliminate some redundancies there.

I mentioned the IGT business. The strategy within our IGT business has been and will remain, to grow the OEM business, and originally, we were going to grow that OEM business through 2003, early 2004, where, in fact, we saw the OEM business tapering off and then declining. At that point in time, we were going to replace that revenue with the new repair and overhaul business and the casting facility that we have in place. Unfortunately, the OEM business has fallen faster than we had expected, and our challenge is to ramp up the R & O business over the next balance of this year and going into next fiscal year. Our strategy basically has not changed. The timing has, in fact, changed so we have to emphasize that R & O business.

You might remember that in fiscal year 2000, we did about $3 million worth of business in that IGT, which grew to $30 million in 2001, $40 million to $45 million last year and we are currently on a run rate of about $50 million to $55 million, which is clearly short of our original projection of, in fact, $90 million, which is primarily due to the fact that our R & O business is not at the level that we had expected at this point in time.

A couple of comments on some balance sheet items. And issues. We are, in fact, proud of our balance sheet. We have a strong balance sheet. Our debt equities are about 28%. Our cash flow for the quarter was, in fact, positive. We generated about $14.6 million dollars from operations. We spent about $14.5 million on acquisitions. And we invested in CapEx, invested in the business about $8.9 million dollars.

Speaking of the acquisition area, we do have a number of acquisitions in the pipeline. There is a lot of activity. We feel that there is a number of opportunities short-term and clearly there will be a number of opportunities long-term.

The industry will continue to consolidate; however, we will, in fact, remain disciplined as to the pricing and acquire it where it assists our customer base and expanding products and services as our strategy has always dictated, in conjunction with the earning -- earnings announcement, we also had another press release which hopefully you have seen, very significant for us.

We have added to our Board of Directors George Simpson, who attended his first board meeting recently. We are very happy to have George on the board. He is a retired chief executive of Marconi PLC and formerly served as chief executive and executive Chairman of Rover, deputy chief executive of British Aerospace and chief executive of Lucas PLC. So he brings a lot of experience and we expect that George will assist us, and we are very happy to have him on the board.

In regards to some guidance going forward, in regards to our earnings, this is a lower number than we have previously guided anybody, but we are looking for the year, preacquisition, of a number that is approximately $2.50 to $2.60 for the year.

We expect that the third quarter, the quarter ending December 31st, will be a little lower than certainly our fourth quarter, primarily due to the fact that we get a lot of indication that the holidays, translated the month of December, will be very slow because will be a number of plant slowdowns due to the build rate and due to the things that I have talked about in the past. But I think that we are looking at that number of about $2.50 to $2.60 going forward.

At that, I would like to open it up for any questions you might have.

Thank you. At this time the officers of the company would like to open the forum to any questions that you may have. If you are using a speakerphone, please pick up handset before pushing any numbers. Should you have a question, please press the 1 key on your touchtone telephone. Should you wish to withdraw your question, please press the "pound" key. Your question will be taken in the order it is received.

Please stand by for our first question.

Our first question comes from Suzanne Kecmer. Please state your affiliation followed by your question.

Good morning, guys. Suzanne Kecmer, Merrill Lynch.

Hi, Sue.

Three quick questions. What do you think a good aftermarket growth rate is to use for this year, the remainder of the year in the 100-plus seat market.

The aftermarket growth rate?

Yep, flattish for the rest of the year?

We had expected, Sue, and had based our forecast for the year as we talked before that by April 1st, our assumption was we would be back to the pre 9/11 available seat mile level in the domestic market in the U.S. Today that doesn't look like that's going to happen. With the issues that Rick referred to with the airlines and the cutback on capacity, it looks like, as Rick said, that it has stalled at that 9% down level. And that's part of the reason why we are projecting a flat second half of the year.

Sue, we are also being very careful, if you were talking about growth rate, our growth rate, we are being very careful with some of the airlines in regards to our credit exposure. Albeit in most cases, we have their components in our shop, so we are protected to some degree, but we are concerned about the condition of some of the airlines. So we are being very careful in regards to how much we sell them and our exposure to them across our company.

Okay. Secondly, BE Aerospace put out a warning last night, and in that press release, they talked about shut downs at Bombardier. Are you seeing anything that is different from what Bombardier had already announced when they had lowered earnings? Are you seeing additional shutdowns of product lines?

No, we haven't seen -- you are referring to the announcement they made, oh, three weeks ago, four weeks ago?

It's Global Express, Challenger and Lear Jet.

Correct.

No, we haven't seen anything different in that. As a matter of fact, in one of the areas, that is of somewhat of a bright spot in some of the Bombardier issues, the CRJs where we have parts in systems on their aircraft that are coming out of warranty. So we do have some ability for a repair and overhaul and we are enthusiastic for that for the next six months. But we see there the Bombardier issue being pretty flat with us. I don't see anything different than what they announced at this point in time.

Okay. And finally, on the low cost supplier front. Are you seeing additional demand from airlines or what's the tone and tenor. Are they just feeding off of the inventory they already have on hand?

Well, I think that the -- I mentioned, number one, that they are -- they have parked and continue to park aircraft on the desert. In many cases, they are cannibalizing those aircraft on the desert. And in our end of the business write primarily those components taken off the aircraft, for the last six months, they have really been cannibalizing some of the product that's on that aircraft. And clearly, they are trying to live off as much inventory as is possible, which is a double-edge sword. I think it has hurt us the last nine months, but I think it will help us a little bit going forward, not withstanding the credit risks, but it will help us going forward because you can only cannibalize for a period of time. I think those planes that are flying, for example, Southwest Airlines continues to ship us a number of components that we are doing repair and overhaul on. So there are pockets of very positive news.

Okay. Last question. On the positive front, the Boeing IAM contract where they signed in this new inventories management proposal. Can you talk about potential opportunities that would be for you and how early we could see some -- how early we could see some additional work, you know, impact the bottom line for you guys?

The second part of your question is the hardest one to answer because answering the first part, it does give us a number of tremendous opportunities, and one of the major reasons for that, that Boeing was so concerned about that, is the ability of their suppliers and of which we are one that can provide these services. They wanted product translated assembly, sub-assemblies and in some cases just components delivered directly to the assembly line. That was one of the major issues where it used to come into the plants, sit on the shipping -- on the receiving floor, be handled two or three times, et cetera. So Boeing is clearly wanting to deliver right to the assembly line and it affords us any number of opportunities. We are in conversations as we speak with Boeing in that regard. We have talked before that we are in conversations in Seattle. We are in conversations in Wichita where we have a Wichita support center that is talking directly to the Boeing people. So I know there are a number of opportunities about which we are speaking now. The second part of your question and when it will hit the bottom line is hard to say, but Boeing is very serious about doing it but they are not doing it particularly quickly either. So far be it for me to blame anything on our major customer, but we are working very diligently with them, and I would say over the next year, we should have some benefits along those lines. We've already increased our market share on some of those assemblies or some assemblies we talked about, and we will continue to do so. I hope that answers your question.

Okay. Thanks a lot.

And, you know, another point, Sue, that when you look at what's happened to the build rate on the large commercial aircraft, over the last six quarters, we definitely have picked up market share in that period of time. And gotten more value, additional business, because of the relationship we have with both Boeing and Airbus, which is a strategy we are going to continue to pursue.

Okay. Thanks.

Thank you. Our next question comes from Chris Mecray. Please state your affiliation followed by your question.

Duetsche Banc. Hi, guys.

Hi, Chris.

On the IGT side, give us a little flavor of where the holdups are in terms of the product you are selling. For example, in the -- in the casting facility, are you producing parts there? Is it an issue of production or one of customer acceptance just being a little slower than you planned?

The answer is both. We are producing product at the casting facility, and we are repairing and overhauling products in our new Repair and Overhaul Building which is right next door to the casting facility. The idea, if you remember, was to have a one-location type of service to the customer base. But we're -- in many cases -- to give you one example. We have a significant potential at a customer, namely Nevada Power, where they are, in fact, testing product that we have produced at the casting facility and machined and coated, et cetera, et cetera. The testing time on these things -- frankly I forget the number of hours involved in it, but it's a great number of hours much more than you would experience in the aerospace end of our business. In order for them to approve the product. So we have a number of products out for approval in all the power plants that we have talked about within the southern Arizona, Nevada, Southern California, et cetera, so we are clearly behind in shipping the repair and overhaul on the products out of the casting facility. In addition to that, in the OEM area, at this point in time, we have not received -- and if you remember our major customer is Siemens Westinghouse. We have not received cancellation from Siemans Westinghouse. Those people that have done a good deal of business with GE have, in fact, received cancellations. We have not and we pressed them very hard to find out where we are going to be with Siemens Westinghouse. They have pushed some things out, but we, in fact, will ship a lot in the second part of the year and going into the next year. The other thing that is very true with Siemens Westinghouse, they have their own repair and overhaul facility, but their own repair and overhaul facility is, in fact, behind in shipping to themselves, so we are picking up business from them in that regard. So the answer basically because our business is primarily Siemens Westinghouse to a great extent, they have pushed back, and "B," we are, in fact, slow or behind our ramp-up schedule in regards to the repair and overall business, primarily due to testing, and I am not going to sugar coat it, we are also behind in getting orders that we said we thought we would get.

Okay. On the Bombardier side, obviously there was an anticipation of a pick-up post strike in the remainder of the year. Perhaps that is somewhat offset by their -- by their shutting down of facilities, particularly on the business jet side. How would you characterize the kind of revenue profile that you would expect this year, given all those things.

Well, if I understand your question correctly, I think that our revenue from Bombardier will remain approximately flat. We had some product, for example on the Lear Jet, but not a significant amount, you know, that will hurt us for the end of the year. As I mentioned, we also have the product coming off of warranty, the CRJ, that we will benefit from. So we look at our revenue there being essentially flat for the balance of the year.

But, Chris, it's down from a year ago. But going forward, it is going to be flat from where it is right now.

So is it up at all from the first quarter, though, because you -- you know, you did have an impact of a strike there?

No. Relatively flat from the first quarter. It did not -- there was not a -- with the exception of the items coming off of warranty, we have not gotten a bump-up after the strike.

I think that the decline in the business jet side has been backfilled by the restart on the RJs. And our profile is flat, and it looks flat going forward there.

Okay. Also on the cash flow front, year-to-date, not a lot of free cash. In a flatter revenue picture, one would expect cash to come through a little better. You know, is that going to pick up in the second half, do you think?

I think one of the issues you are know, you look at one of the issues is inventory. Or one of our inventory numbers -- you know, we were up in inventory to I think $200 million. Of that part, there was a great percentage that was in the acquisition end. We are up $18 million in inventory and $13 million was due to acquisitions made since 3/31. I would expect to see in the second part of the year us to generate some cash out of inventory as we go forward, ex any acquisitions obviously.

Chris, the cash flow from operating activities that Rick mentioned, was $14.6 million in quarter two and it was a negative $2.8 in quarter one. Quarter one having been primarily a lot of accrued expenses that were paid in quarter one and accrued income tax payments. I would think that the quarter two pattern should carry out in three and four.

Okay. Excellent. I will pass it on, thank you.

Thanks, Chris

Thank you. Our next question comes from Steve Levenson. State your affiliation followed by name.

Gerard Klauer Mattison.

How are you this morning?

Good, thank you. The President signed the defense bill that has the leasing of 100 767 tankers. Can you tell us how that might affect your business going forward and if you heard anything about when some of those orders might come through?

The end of your question was when they might come through. I don't have an answer to that because we are -- but I can assure you we are on top of it because it does affect our business significantly. We would -- we could participate in that, in a large way, not only in the area of the aircraft themselves, but in the refueling booms we are involved in. So it is a significant program for us going forward. We try on a -- on a weekly basis to get feedback on when those orders will be placed, but I really can't answer that part of the question.

Steve, in addition to our normal position that we would have on any 767 that's being built, we have that incremental potential on the refueling boom, and then there's also a structural redesign primarily in the belly of the plane where the boom is attached and the storage area is going to be, which also is a program that we are looking to participate in to get incremental ships head value on the program. So we are actively pursuing not only what we would normally have but these incremental pieces and are involved in that.

Okay. Thanks. Secondly, can you give us an update on the integration of Aerocell acquisition and if you think revenues are going to come in where you originally stated?

The answer is, number one, the integration has gone extremely well. We have, in fact, moved all of our employees at Airborne Nacelle into the building that we acquired when we acquired Aerocell. It has eliminated a lot of redundancies between those two companies. We have cut back on capital expenditures that we were originally going to spend because of the equipment, specifically autoclave, et cetera, that were at Aerocell. The revenue coming in is actually above the original projection to date. We -- it gives us the ability to repair and overhaul a number of other Nacelle-type products and we are very enthusiastic about it. We do not see that slowing down. It's a specific area where if the airlines are not ordering new aircraft, they will repair and overall parts of that -- of their planes using the capabilities we have at Aerocell and now Airborne Nacelle and will be very advantageous to us. We are enthusiastic about that.

Does Airborne Nacelle make parts for new airliners or mostly repairs.

No, we make parts at other companies for the new aircraft, but, no, Airborne Nacelle is a repair and overhaul facility for Nacelle products and other products that are flight control surfaces, et cetera.

Last question relates to cargo carriers. Is the business there holding up any better than with the passenger carriers?

Yes our business with UPS, FedEx predominantly, though we do business with the other ones, those two are our largest customers in that area, that business is holding up much better. Especially at UPS. UPS is -- has, in fact, increased their business with us in more products than they used to do before. As a matter of fact, the Aerocell acquisition, now Airborne Nacelle is an area where UPS is utilizing us where they didn't before.

Okay, thanks very much.

Thank you. Our next question comes from Steve Wortman. Please state your affiliation followed by your question.

Sidoti & Company. Good morning.

Good morning, Steve.

Can you quantify your cost-cutting opportunities to the bottom line in the next 12 months in terms of cost savings?

Well, I think it is difficult to quantify the cost savings because what we haven't done is quantify some of the concerns that I have going forward. I mentioned one of those in regards to health care costs going up.

I would frankly, Steve, be putting out on the table very much of a guess, but, for example, the cost savings in Phoenix, the one that I mentioned where we are going into one building, is in excess of $1 million a year. Now, having said that, that's -- that's -- those savings are not going to be realized. We don't move in until, you know, December or January. So that's not going to have much affect on this particular fiscal year.

We had a meeting of our group presidents a short while ago, and they are -- have been charged with taking redundancies out the system and participating in other programs that we put in place, for example, some procurement programs that we have in place. We expect will save us in excess of a million dollars a year.

And then eliminating some of the redundancies that we have, I would put a guesstimate number at this point in time of another million to two million dollars a year, which that's the number that is a little more fuzzy than the other one.

How much is that offset by higher health care costs, et cetera? That's a hard one to call, and I know I am not really directly answering your question, but I am doing the best I can given the information we have.

That's fine. Thanks. Okay. In terms of the acquisition front. You did mention things are heating up in that area. Can maybe you quantify some of the larger opportunities that you are looking at?

In the -- in their revenues?

Yes.

I would say that the -- as I've said in the past, our -- the acquisitions -- you go back eight or so -- seven or eight years ago looking at acquisitions in the $5 million to $10 million range. We still have some of those which I would classify as the product line acquisitions. Smaller companies.

Companies like Furst Aviation which we acquired which was sort of rolled into our instrument division. And there are a couple of those we are looking at. And at the upper end, we are looking at companies that are in excess of $100 million at this point in time.

Okay. The last question, just in terms of the MRO business, how it has trended, I guess, the last four months since the beginning of the quarter and what you have seen so far in October. Has it been declining or has it been flat?

I think the trends, as we talked about before, the plan for the year was -- were traffic at the beginning of our fiscal year was probably down to the bottom in demand for Maintenance Repair and Overhaul using up roadable inventory by the air lines in a very difficult environment and they started putting capacity back on as the year went on.

And now it's -- it's come back significantly over the last, really, three quarters. Has stepped up quarter by quarter.

But the outlook now from what we are seeing and what the airlines are publicly announcing, it looks like capacity is going to be cut back in that 8 to 9% range, and sort of stable where we are here.

Okay.

So the outlook -- and, again, to summarize, the outlook for the balance of the year is we think revenue is going to be flat, so it will be comparable to the first six months. And with pluses and minuses, continuing marginal reduction in OEM commercial, offset by increase in OEM military. And the MRO business being flat to slightly up, depending on the available seat miles on a global basis and how to they recover.

Some of the MRO business in the area -- in the military area is currently very, very good.

Historically your fourth quarter has always been the strongest. What is the one product line that contributed to that strength in 4Q.

Bonus programs. Our last quarter is, in fact affected by our incentive programs where the month of March specifically does end up to be large. Our incentive program, in fact, works, but I don't think that a specific product line, as we just mentioned, you get into the aftermarket area and the MRO area. I think it will contribute vis-a-vis the fact they will be a little up from the beginning of our year. I think our control systems area will, in fact, contribute a great deal in the last quarter. And our structural components I look as being relatively flat for the rest of the year. The good news is there I don't see any more decline at this point point in time. So there's really not a big group or a big product line that's going to contribute a lot other than the continuation, we think, for the balance of this fiscal year in the military end of the business.

Good. Thank you very much.

Thank you. Our next question comes from Jay Kilroy. State your affiliation

Abbingdon Capital. Good morning. As it relates to margins, as I look at the six months that ended September 30, '02, in the aviation, looks like margins fell 300 basis points versus 290 basis point fall in sales. Is that more of a result of increased mix of military at lower margins? Could you just speak to why we are seeing such a big drop-off in margins there?

I think that the margin change comes from two things. One lower -- lower volume and lower absorption and also the strategy we pursued in aggressively going after incremental market share and getting more business. When you look at the period of time, the decline in revenue compared to the decline in activity in the overall markets, we think we are doing very well in sequentially for the last three quarters growing revenue, and we are doing that with a very aggressive marketing program. So it is a combination of both volume and what we are doing in the marketplace on price.

It is not -- it -- directly, it is not a result of the military business being sold at -- at lower margins. It's basically -- the military conversely to what John said. Some of our military business has helped with our absorption in some areas of our business.

Okay, focusing on costs, you talked about redundancies with elimination of facilities. How about head count reduction. How much do you have there?

You will never read anything about the Triumph Group reducing number of employees by a significant amount of number because we have the 43 locations within our company. We have reduced our head count -- and I'm looking very quickly to get you a number --

We have acquired in the acquisitions that we have made this year, we probably added 40 -- 25 -- 65 -- probably added 100 people and net employment is probably down by about 200 people. So we -- we probably had an adjustment that, again, takes place not through an announcement that we are going through a restructuring, but on a day-to-day basis, the employment level is matched to demand and there has probably been 300 net positions out of the company in that period of time in the last six months.

And if, in fact, we, on an individual company basis, for example, do I know that we will have some people in one of our groups in our plant will be -- will have another layoff of maybe 20, 25 people, but I think that -- the point is, as John said, that happens on the individual company basis. It's run through our group presidents. We're, again, controlling those costs. Eliminating some of those redundancies. And eliminating the cost where we see. I think you will see some but we have had a significant number already.

Okay, thank you.

Once again, ladies and gentlemen, if you have a question at this time, please press the "1" key on your touch-tone telephone. Our next question is a follow-up from Suzanne Kecmer.

Hi, I had to step off for second. You supply gone through this. But in terms of metals, I thought in the last quarter we had talked about the implementation of a tariff that would hold up pricing going forward. And now we've dropped back down to a much larger margin rate in Q2. I was wondering what happened, and then going forward, should we just assume this lower margin rate?

A difficult question. I think that we did talk about that in the first quarter. Prices, because of the tariff that was imposed did increase significantly. You have to remember -- well, they increased significantly and if you notice, you might not have, but U.S. Steel, for example, reported $106 million profit for the quarter ending September 30th. Translated, what happened there is that the prices went up for the producers. They had a relatively large profit, but our inventory and our customer base, they knew our inventory was at lower prices. It takes three to five months to raise our prices. We have, in fact, raised our prices. I think that the margins are affected just as much by the demand in the product because the price increase that went through was a supply-driven price increase. It was not necessarily a demand-driven price increase. So I think that going forward, you can assume a lower margin than going back historically we had, which was the 4% to 5% operating margins and you can probably assume somewhat of a lower operating margin there, but not as low as it has been for the last year or two. Does that answer your question?

Yes. Thank you.

Since there are no further questions, this concludes the Triumph Group fiscal 2003 second quarter earnings conference call. As a reminder, ladies and gentlemen, will be a replay of this conference call available by dialing 1-888-266-2081 with the passcode number 6264221. Once again, ladies and gentlemen, the replay is available by dialing 1-888-266-2081 with the passcode, 2624221 (?). Thank you for participating. And have a nice day. All parties may disconnect.