Triumph Group Inc (TGI) 2007 Q4 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 2007 fourth quarter and year-end results. This call is being carried live on the internet. There is also a slide presentation included with the audio portion of the webcast. You are currently 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 now like to read the following statement: Certain statements on this call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause Triumph's actual result. performance or achievements to be materially different from any expected future results, performance or achievements, expressed or implied in the forward-looking statements. Please note that the company's reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the press release which can be found on the website at triumphgroup.com. In addition, please note, (inaudible) written approval.

I would like to introduce Mr. Richard Ill, the company's President and Chief Executive Officer. Go ahead Mr. Ill.

Thank you, and good morning, everybody. Noted that there will be a slide presentation with this included in the audio portion of the webcast. I realize some of you may not have that, so I'll go over these slides in some\ what-- in detail. Before I get to what is on the slides, I think I ought to address one issue that'll be a question that will be answered-- asked anyway, and that is, that its clear that this is the first call that we've had at the end of a quarter, or end of the year that John Bartholdson has not been on. As most of you know John has retired and we wish him well in retirement. So you're stuck with me as the acting CFO going over these numbers. We have; however, hired a CFO, who will start with us within a month. I'm going to release a press release very, very shortly on this, but we're not quite prepared to put out the press release. He is a person who comes from a public company, and I think will-- although it's very hard to fill John's shoes, I think we're going to be very pleased and you all will be very pleased with that replacement. At that, a quick 2007 in review. We're very, very pleased with 2007 performance. It was very strong performance. We have had excellent growth in revenue, operating income, and our earnings. Backlog expanded to a record level of $1.1 billion. We have made four immediately accretive acquisitions. We've significantly strengthened our balance sheet by refinancing senior debt and issuing convertible notes valued at $201.3 million. And we initiated a regular quarterly dividend to our shareholders. The financial performance in the fourth quarter, as you have read, we have increased our sales year-over-year 24% from $212 million to $264 million. We have increased our operating income 59% from 15.9 million to 25.3, or 8-- from 8% operating margin to 10% operating margin. We have increased our EBITDA 49% from 23.9 million to 35.5 million on EBITDA margin of 14% for 2007. Our net income has increased 30% from 11 million to 14.2, and EPS fully diluted from 68 million in 2006 to $0.86 in-- $0.68, rather, to $0.86 in 2007. For the fiscal year 2007, our sales have increased from 760 million to 955 million, a 26% increase. Our operating income increased 62% from 56.1 million to 90.7 million and back up to double digits operating margin for the company. Our EBITDA margin increased 45%-- I mean our EBITDA-- sorry-- increased 45% from 88 million to 127.7 million, up from 12 to 13% in 2007. Our net income increased 34.-- from 34.5 million to 47.1 million, a 36% increase, and earnings per share, fully diluted, increased from $2.15 to $2.87. In regards to our segment performance, the Aerospace Systems group, in the quarter, increased sales 23% year-over-year from 168.8 million to 206.9 million. The operating income increased from 19.4 million to 30.2 million, a 56% increase. And their operating margin went from 12% to 15% in 2007. EBITDA increased from 25.1 million to 37.1 million, a 48% increase. And the EBITDA margin went up to 18% from 15% in 2006. In regards to the year-to-date numbers, the end of the year, we increased for our sales from 600 million in 2006 to 751 million in 2007, a 25% increase. And operating income increased from 66 million. an 11% operating margin. to 101.6 million, a 14% operating margin. That was an increase of 54% in operating income. EBITDA has increased from 89.5 million to 127.9 million, a 43% increase, and an EBITDA margin going from 15% to 17%. In the Aftermarket Services business, in the quarter, sales went from 44 million in 2006 to 57.2 million in 2007, a 30% increase. Operating income went from $.03 million to $1.6 million. A very heavy increase in that area. And EBITDA went from $2.5 million to $4.8 million. The operating margin increased went from 1 to 3%, and the EBITDA margin went from 6 to 8%. For the year, the sales went from $164 million to $206 million, a 26% increase. And operating income went from-- a margin went from 3 to 4% going from 4.6 million to 8.4. The EBITDA margin went from 8 to 9%, while the EBITDA numbers went from 13 million to 18.9, which was a 46% increase. Quick mention here, we have-- we talked about in previous quarters and in the press release, we had a couple of numbers that we've referred to. Number One, the expenses that we've had in setting up Thailand, and we said in the last conference call that Thailand would, in fact, be profitable in mid- translated second or third quarter of 2008, and we mentioned in this press release, the power-by-the-hour charge that we took this year in a change in accounting. If in fact you eliminate those two-- and I'm saying we will do that in Thailand, and we will no have that charge in 2008-- if you look at it that way, the operating margin in the Aftermarket Services group would have been 6.3% this year. So, there's a great amount of progress being made there. As we say in the press release, we have the slide-- for those of you who have the slide on page eight-- our order backlog continues to grow. It increased 29% over the previous year to $1.1 billion. I remind you, again that our backlog takes in to consideration only those orders that we are going to deliver over the next two years. And it includes approximately 2/3 of our business as of the Aftermarket Services does not really have a backlog. In line with what we have indicated over the past, on page nine, our top ten programs remain-- you have seen these names before. There are a couple of changes in there. The CH53 is now tenth. The 767, which was tenth last quarter , has moved to 11th, very short distance behind the CH53. The Boeing 787, we have, in fact-- that's moved up a couple of spots. We continue to garner business there, and, as we mentioned in the last conference call, that will be the largest content on any aircraft on the ship-set value that we've had on any aircraft in the history of our company. Boeing remains the only customer with greater than 10% of our sales, and they are 21.6% of our sales. Our sales by market have changed a little bit from 2006. The commercial business is now 43% of our business. Military remains the same at 33%. Regional jets is 5%. The big change in 2006 to 2007 is the business jet market, where our market share continues to go up, and we have done very well with the business jet manufacturers. And non-aviation has gone up a little bit just 1% to 8%. Once again our split in business in the OEM business and the aftermarket, remains approximately the same, 63% OEM, 29% aftermarket and, others 8%. The sales trends that we have had in same-store sales, our Aftermarket Systems Group [sic] in the quarter increased their same-store sales 11%, from $168.8 million to $186.7 million. The Aftermarket Services Group has increased 5% from $44 million to $46 million. And total same-store sales for the company are up 9% from last-- fourth quarter from 212--- 213 to $233 million. For the year same-store sales went up 15% from 764 to 881, almost 882, and the Aerospace Systems group improved 16%, Aftermarket Services 14%, Aerospace Systems going up to 695 million, and Aftermarket Services going up to 186 million. Our export sales did increase for the quarter from 41.7 million to 49, almost 50 million and change, 19%. While year-to-date we increased 21% from 168 million to 203 million. Cash flow-- cash flow from operations for the quarter 2006 was 14.1%-- $14.1 million, up to $27 million. At the same time our CapEx has increased from $11.5 million in 2006 to $19.6 million in 2007. For the year, our cash flow has gone from 44-- 40.4 million to $47.7 million. On the other hand, we have spent more in CapEx from 28.8 to $59.7 million, which is the most significant number that we have spent CapEx-wise since the history of our company, and that's primarily because of the expansion of our plants based upon the backlog. We have expanded some of our plants. We have expanded the capability of some of our plants, equipment wise, et cetera. A lot of that comes from programs like the 787, where, in fact, we're spending a great deal of money on the equipment and expansion of our plants and in tooling to tool up for that aircraft. Current capitalization for those of you who are looking at the slides, page 13. We have total net debt of $308.9 million, which in total book capitalization of $936.3 million, or a net debt to capitalization of 33%. That's a number that we have said in the past, we are in fact comfortable with. Our balance sheet, we're still very proud of. As I have said in the past, a couple of areas that we have to continue to work on is the management of our working capital and a number of items like that, but we're very pleased with where we're going. I'm just repeating here. We are in fact-- very pleased where we ended up in 2007. We remain very optimistic going forward. In the press release, I gave some guidance, repeating that guidance, we expect sales in 2008 to be between $1.1 and $1.2 billion, and earnings per share to be somewhere between 306--- $3.60 and $3.80 per share for next year. As we continue to grow our company, I look at the next-- frankly, I look at the next two years as being a good couple of years for Triumph Group and for the aerospace industry. As we go forward we continue to grow our business and simply get better at what we do. At that, I'll open it up to any

At this time, Mr. Ill would like to open the forum to any questions you may have. (OPERATOR INSTRUCTIONS) Miles Walton please state your affiliation followed by your question.

CIBC World Markets. Good morning, Rick, good quarter.

Good morning Miles, how you doin'?

Good, good. Rick, prior peak EBITDA margins at Triump Group for over 20%, obviously you've had really healthy rebounds off the bottom, Can you give us an idea if your business has changed substantially since you had those type of margins back in the 00 time frame?

I don't think that the business has changed a lot, Miles. I think that there are a couple issues that we're dealing with now that are a little different. Number One, we've had some challenges. I have mentioned them in the past in regards to the money we're spending in Thailand, which we're-- we're going to get some returns on shortly here. We've had, and continue to have, some challenges in the castings facility that I have mentioned before, and then there's also the very obvious or obvious to us, perhaps, issue that when we were a much smaller company, number one, we were under the radar screen; number two, we're no longer under the radar screen and competition sees us; and even though the business is robust in the order and the backlogs are robust, there's still a lot of a challenges in the supply chain which puts some challenges on our margin. Having said that, we're still experiencing operating leverage as our business increases, so that's the reason it's going up, but the other things I talked about, there are remained a few challenges in that area. I don't think that we were consistently above 20-- we did get up over 20, and I think we can get at or over that in the future, and I think that we'll continue to take advantage of those operating margins. Certainly our operating margins will, in fact, get better as they have this year. And, the EBITDA area will follow in that area.

That's great color, and then in the quarter-- unallocated corporate expense. Is that the new run rate for that? Is that a result of recent acquisitions? Just any color there. Looked a little higher than the usual run rate.

Let me-- give me a second to look at the corporate expense.

Got to change hats to the CFO role.

I would say that it probably is. You know, the run rate type of thing. We're going to be-- we will be a little up in that regard. We had some charges in the quarter in regards to restricted stock performance awards. I would certainly hope that that charge would continue to be there for corporate because they only get-- we only get charged for that if in fact we make our performance

Uh-huh.

-- based awards, and that goes to all of our senior executives, including our company presidents.

And then last, Rick, if you could, number of the conference calls this quarter for aerospace suppliers have been incrementally more positive in terms of their outlook for how their supply chain is handling the ramp. As you sit there, versus, say, last quarter, are you incrementally more optimistic, less optimistic, about the same, in terms of the readiness of the supply chain inthe ongoing commercial build.

I think I'm more optimistic. I think we have adjusted to it. That is not to say that we don't have some challenges in some of the supply chain. Clearly for the last year, the supply chain has been stressed, if you will. I think I'm more optimistic in that area. As I said we have some challenges in that area, but generally speaking, we're not having as much problem getting some raw materials and this that as the supply chain rationalizes to some extent.

That's great. Thanks and good quarter.

Thank you.

Your next question comes from Steve [Levenson], please state your affiliation followed by your question.

Stifel Nicolaus. Good morning, Rick.

Hi, Steve, how are you?

Okay, thank you. Good to see the results. Do you see 787 getting bigger? Are the orders that you have right now for just the first variant and how do you think things are going to go as the additional variant (inaudible)-

I think we have orders that we would expect to get, that we haven't even gotter yet. And I look at 787 becoming stronger for us.

And will it --- do you think it will be additional content in the other-- the dash 9 and other variants, or do you think the contents gonna stay pretty level across the line?

I think's a possibility of other content in that. There's no doubt about it. But, it's hard for me to identify that at this point in time, but I'm very optimistic with the 787. It's going to be a great program for Triumph.

And on C17, I don't know what sort of chatter you're hearing about additional planes. And, can you let us know, is the business you are getting on C17 now more related to OEM parts or are you starting to see a lot more aftermarket on C17?

Right from the beginning we have been very strong on OEM parts and we have significant content on-- for instance APUs on the C17. So we have been somewhat split on that. As far as any chatter, which week are you talking about?

Okay. I get it. Is there going to be a day when we see a VLJ category among your product mix?

That's a long-term look-out question. We have possibilities of doing business with any number-- and we think the good ones-- in regards to the VLJ, but you are going to have a number of companies all say they are going to sell 2500 to 3,000 aircraft, and I just don't think all of them will. But we have input very well with Cessna. We have input with Eclipse. We have business and we're talking with Honda jet. We go on and on. I think we have a lot of possibilities there. The big challenge there is to get on the right aircraft.

Okay. Thanks. So should we assume, then, that it's a small number right now and it's blended in?

Well, we-- our-- yeah, it's a small number right now, and it's a blended in. Whether you will see a very light jet content in our top ten, I think you got to remember that the dollars there aren't going to be as large. Okay? Only if in fact-- well they will be as large if all of the companies who say they are going to build 2500 will. I just don't think that will happen. But it will be very significant for us. It will be a significant number and probably split between two or three of the companies that are going to build those jets.

Okay. Thanks very much.

Our next question comes from Chris.[McLain] Please state your affiliation followed by your question.

Hey Rick, great quarter.

Thanks, Chris.

Just wondering, what you may have learned in the quarter or the last couple of quarters from the standpoint of, margin upside and through absorption in your plants? I mean, did you see greater than, equal to, or less than expected margin impact from greater volumes? And were there any other takeaways from margin like those that you noted from Thailand and the casting facility? Anything else that you might point out that was either a plus or a minus.

Well, I think what I learned about margins really didn't happen just in the last quarter. It's very clear that the margins have increased, and if you remember if you go back four or five quarters, we were operating a number of our plants at 35, 40%, and we were profitable there, and we're clearly more profitable at the higher capacity levels. We have found out that some of the problems that we face within our companies are where we have gone to the high end of our capacity levels, because as our capacity gets filled up, we clearly have the operating leverage that goes along with that and therefore, higher earnings. Where we have in fact reached very close to capacities is where-- coupled with the supply chain strain over the year, not necessarily just the quarter-- are-- have increased our earnings, but on factors put some pressure on us. Our backlog on the other side of this coin of the backlog, we do have just one or two areas, where we are struggling with some past-due backlog, which we're working on and we're clearing up, but that's been a strain.

Okay?

But that's why, in fact, we've invested the money that we've invested for our through-put for our efficiencies, et cetera, and that's paying dividends as we go forward. In regards to some of the ones that you mentioned, such as the casting facility, what we have learned is that we have-- we have a tough time with the casting facility, and that has, in fact, hurt the earnings of the Aftermarket Services Group. Clearly, I'm disappointed as to the speed at which that's coming back, but we continue to work on the problem. And the other areas, in Thailand, we remain convinced that Thailand is an excellent decision going forward, not only for the APUs that we intent to do over there but for a number of other products that we have the sales, accessories, this type of thing going forward. So Thailand hasn't given us our return yet, but we feel very confident that was a great type of investment, and will automatically increase our margins as that becomes-- goes more and more on stream.

So you still anticipate a profit second or third quarter?

Yes.

And the 6.3% margin that you mentioned for aftermarket, those costs, was that for the quarter or for the year?

It was for the year.

For the year. And can you just describe the power-by-the-hour tcharge? What the nature of that is and how it works?

Maybe.

For single customer, or---

No, it was a-- it's a change in the accounting method used, and this was requested by our outside auditors in the way we account for it. We went to a new method which is a proportional performance method, accounting for our power by the hour. The revenue is now recognized using an output measurement, which is the repaired engine shipped. Rather than recognizing the revenue on a straight-line method, the revenue is recognized in proportion to the performance that we do on the engine, and the cost of goods sold is based upon actual repair costs. And what this will really mean going forward is no change in the revenue or profitability, but it will be more of a quarter-to-quarter swing in the revenue and profitability of the repair of the engine.

So effectively-- in simple terms, you were able to book it smoothly as a long-term contract--

That's right.

-- and now they want you to do it as if essentially each repair is like the old method or whatever, like a regular engine repair.

That's correct.

Okay. Fine. And how many approximately customers do you have on this kind of arrangement?

Oh, I really don't know. I mean, I'm going to say 10 to a lot of them--

Okay. So there's enough that it may not be that noticeable of a change?

It-- I don't think you are going to-- yeah, I'm getting signals from across my table here, there's five. But there's a lot of perspective customers we do that on. We're negotiating another one right now. It's a process. I don't think it's going to effect-- it's certainly not going to affect our earnings. It might affect our earnings in one quarter versus another, depending on when the engine comes in to our shop, or when the sell comes in to our shop. So it's not a method-- the charge we took, Chris, was a catch-up charge. We had to-- we took it in the fourth quarter and it was a catch-up charge in the conversion to the new method. That's why I said that will not be charge that will be there next year.

Okay, Rick. Switching gears, 60 million CapEx last year, did you give guidance for this year? Or can you provide a little directional guidance?

Well, I didn't. Our CapEx for this year will still be as significant, partially because there's about a $20 million carryover from the last fiscal year that has been approved, but hasn't been spent, so that will go in to the new 2008. And there are requests that are coming in for again expansion, new equipment for specific programs, et cetera. We are, however-- one of our challenges is not to build to the peak of the market, and then two, three, four years from now, whenever that may be, the market dips a little bit. I don't want to be stuck holding the bag with a lot of CapEx, but I think that you'll find-- if you take this year as being an approved number in the area of, 75 million, we will not be as high next year. We clearly have to reign in a little bit on our CapEx as well as our working capital.

Last thing on that working capital is there any need to put on any kind of incentive or explicit goal for the company to get that up this year or-- do you think those are in place and you are likely to see improvement this year.

They are in place. They have been in place, some of them have worked and some of them haven't. There's definitely a challenge in that area.

Are you optimistic it will move in the right direction this year?

I'm-- as opposed to being pessimistic? Yes, I'm very optimistic.

Okay. Well, great job. Thanks.

Thanks, Chris.

Our next question comes from Ron Epstein, please state your affiliation followed comes from-- please state your affiliation followed by your question.

Hi, this is actual I will Sarah [Soney] for Ron Epstein at Merrill Lynch. I wanted to know if you could give us an update regarding the aerofasteners market. Are you seeing any tightness on the supply chain? And what's demand like?

I really-- I don't feel real qualified to do that, because we're not in that business. We don't do any business in aerofasteners.

Just sort of from a supply chain perspective in castings and particular to aero.

We don't have-- I don't see-- personally just what I have heard, I don't think there's any problems in that area. As I mentioned before, some of the things that we have in other areas in the supply chain, such as raw material and things like that, that has eased up to some extent. I think in most of those areas with the fasteners and raw materials, and, things of that nature. The LTAs have been in place for a relatively long period of time now, which is why some of the problems aren't really as acute as they were, say, a year ago.

Great. Could you also give us further color-- you mentioned that you are seeing some mitigation in raw material costs. Could you expand upon that a bit more.

I don't think I said I was seeing any mitigation in raw material costs. What I was really referring to is that raw material availability. I don't think there's been too much-- at this point in time, easing of cost in the raw material area, and I think that it's going to be a little while before we see any easing of prices in the raw material area. As I have mentioned before in the past, our company, in many cases, we either have an LTA in place, where we're getting the raw materials at a price we have agreed to with our suppliers. We are participating with our customers on-- and participating in their agreements with raw material suppliers that we piggyback on their agreements, and we get material through that; or, in some cases, our customer supplies some of the material that we use going forward. So I don't really see any problems in that. It's very clear that as we have gotten larger, we partis-- that helps us as we go forward with our scale and the ability to obtain raw materials, either with our customers' prices or with prices that we in fact can do well by, because of the scale of our business.

Great. Thank you.

Our next question comes from John Evans. Please state your affiliation followed by your question.

Wells Capital. Can you just help us understand for the fourth quarter, again, how much Thailand cost you, and then maybe refresh our memory what it was for the entire year?

Ahh, yeah, give me a second here. The quarter was about $1 million. In the press release, we talk about operating costs being .9 million, almost $1 million for the quarter, and 3.4 million for the fiscal year.

Okay. And how do you expect it to be next quarter? And maybe if you could give us some help. Does it come down next quarter?

I think it'l ahl-- no, next quarter it should remain approximately the same, and as we get in to the second quarter, lower, and then in the third and fourth quarter, there won't be any charges.

Okay. And then on your power-by-hour charge, you told us how much it cost you. Did it affect the revenues at all? Just this quarter because of the timing of the revenues? And if it did--

No.

It did not?

No.

Okay. And then can you help us understand Grand Prarie? Can you give us any sense or break that out for how much the revenue was in the quarter from Grand Prairie?

I would prefer not to break out Grand Prairie. We have never broken out Grand Prairie and an individual company's revenue. However, Grand Prairie is a significantly excellent acquisition we made for the reasons we have talked about before that brings us new capabilities. It brings us new capacities in line with the strategies we have had from day one. The integration of that company and the business marketing between Grand Prairie and other ones of our accessory group and the Aftermarket Services Group has been excellent. And we have just started that. Grand Prairie is going to contribute to us in Thailand. Grand Prairie goes right on with our accessories group in Kansas and adds the capability of main engine fuel and accessories, very strong ties to people like General Electric, et cetera. So we're very pleased with that.

Last quarter you said it would be maybe 42 to 45 million for this coming fiscal year. Is that still in the ball park, do you feel good about that, or can you give us an update relative to that?

No, I think that-- I don't remember-- I said it was 42? Because I think it's about 30 to 35.

Okay. And then can you help us understand, the castings facility, how much money did you lose there this year? And can you give us an insight when you think you'll start to at least break even or -- .

Well, I had thought that we-- I had thought that we'd be back in the break-even already. I-- cannot give you the exact number from--

Well will you have the loss in the K? How much you lost in that? Or can you give it to us in the K?

We haven't in the past put it in the K. I'll tell you where we are here. We have a tremendous backlog. We have a very strong customers going forward. There's been a delay in some of the orders. Our customers said they would be forthcoming with. The issue is converting from a development-type operation to a production and the yield associated with the production that we have. In the overall scheme of things, in the overall number of our earnings, it's not a particularly large number and it will be significantly less next year.

Okay. And then just lastly, can you give us some kind of direction on the aerospace space side? From the standpoint of should it grow sequentially through the year like it did last year? And then your incremental margin in that part of the business was somewhere between 25-26% this quarter. Is that sustainable or was there something-- because there is end of your fiscal year, it was just so much better. Can you help us understand that, please?

I think the Aerospace Systems Group will in fact continue to grow next year--

But will it continue to grow sequentially?

Throughout the quarter. I think for the first time, I'm going to say it might grow sequentially quarter by quarter. We have always said that don't expect our first quarter to be-- take the first quarter and multiply by four, and that-- because we have grown sequentially. I think the Aerospace Systems Group will grow next year with our backlog being what it is, I think that they have very much the ability to do better in each one of the four quarters. However, the first quarter probably be a little lower than the other four because we do get a push at the end of the fiscal year, because of our bonus systems, et cetera, et cetera. I think you'll see some increase as the latter quarter goes on. The 737 is scheduled to increase output in November, which will affect five months of our fiscal year, so you'll have things in that area. We'll start shipping more 787 material during the course of the year, so I think that we'll go up. There's more ramp-up on the A320, so for reasons of that nature, I think that we will sequentially do-- but I don't want to really say that expect the second quarter, third quarter, fourth quarter to be better sequentially. I am optimistic about the year. That's not saying that we're not going to have any-- I don't want that misconstrued-- I think we're going to have a very good year in that group. I just dom't want (inaudible) to absolutely be sequentially better than each other.

Okay. And the incrementals they were just really good because you had this push. So we shouldn't expect the incremental to be that high.Is that fair or no?

I'm not sure I understand the question. The incremental income by quarter?

No, sequentially the incremental was about 25, 26%. In other words you got-- And from the operating leverage-- the incremental margin--

Year-over-year you are talking?

No, I'm talking about sequentially. So I'm just trying to understand-- can incrementals continue to be like that or no? No. That's okay. I'll take it offline.

Okay.

Our next question comes from JB Groh -- please state your affiliation followed by your question.

Yeah, D.A. Davidson.

Hi, JB.

Can you hear me ok, Rick? Couple questions on-- I know it's a tough number to get at, but, capacity utilization, where do you see yourself there? I know you've got a lot of different plans, but just kind of ballpark, where do you see yourself in those terms?

Giving you one number, really, is not-- would not be meaningful in my mind. We have some plants that I mentioned, fortunately very few, that have capacity issues, and I'll put capacity issues in the light of being behind schedule. We have some past-due backlog. Okay? We have, in fact, as I mentioned, though, invested the CapEx. We have invested a number of dollars in making sure we're keeping up with our customer base, so I-- and we have some companies that are very, very lean and lane and have the ability to increase their output just with the plant capacity and the changing plant capacity in which we're investing to stay right up with it. So by giving you one number, I would say that one or two of our plants are at 95 to 90% capacity, which is, in fact, effectively capacitied out, if you will. But most of our plants have the ability to absorb the build rate and at a reasonable number, call it 75 to 80%. I mean, I think that number is, to some degree, meaningless. It's the ability to invest capital, expand our business both equipment-wise and footprint-wise, to be able to keep up with the customer base.

And then on Aftermarket Services I think last quarter you mentioned, a double-digit goal eventually by-- not for the full year next year-- but by year end. Is that still the case?

Yes.

Okay. And then maybe, you did four pretty nice deals in the last year. Can you talk about what you are seeing on the acquisition front in terms of pipeline, valuation opportunities?

I think the pipeline remains robust. We're looking at a number as we speak and we work toward them. I would think if anything-- not withstanding two or three deals that have gone by in the marketplace the last six months, eight months, I'd say that the multiples have-- or I'll put it another way-- don't continue to rise, so I think it becomes-- there are companies that are out there that are reasonably priced and we'll continue to look at them.

Are those more on the Aftermarket Services side, or more on the Systems.

Neither one. They are both-- the companies that we're looking at from our strategic, some fit in to our Aftermarket Services and some fit in to the OEM Aerospace Systems.

Okay. Thanks a lot. Congratulations.

Our next question comes from Carl. [Auchlager] Please state your affiliation followed by your question.

Banc of America. Good morning, Rick.

Good morning, Carl.

I just wanted to ask about your guidance and maybe I'm not doing my math right, but I'm trying to sort of adjust for acquisitions and these one-off items you had in income in '07 and compare that to the '08 revenue growth-- organic revenue growth and sort of EPS growth at the mid-point of your guidance. It looks like those are kind of coming in line. Implying, maybe-- your guidance implies flat operating margins versus '07, and I just wanted to see if you could talk about that a little bit. Is that sort of how we should be thinking about it? And maybe where the below-the-line items are going to be coming in. Like interest income-- or interest expense and tax rate.

Well, we've had this conversation any number of times before, and I can tell you that we're not going to be flat. I think that our business is going to be robust in 2008. I think that-- if in fact, you want to say that our guidance is somewhat conservative, you can go ahead and do so. We have always been that way. We don't want to tell you something that we don't feel we can accomplish. We don't want to tell-- we don't want to work towards something that becomes impossible. We do have a couple of challenges. We still have to do the issue of Thailand, which I feel optimistic about. We still have the casting facility, which is, in fact, a challenge. We've had numbers that have this year gone on the plus side, and we have gone-- had numbers that have gone on the minus side. So I understand where you're coming from, and I think that our-- our issue is-- we have the challenges out there and I'm trying to give guidance the best way we see it. We also have some issues in the tax area. We think our tax rate will be up to about 34.5%, predominantly driven by some state tax issues that we have, and some other issues, so I think that-- and that's about a difference of 1% over what we talked about in the last quarter. Having said that, we're trying to give somewhat of a conservative range, but on the other hand, we want to make sure that we're giving you guidance that is in fact realistic.

Well, that's very helpful. Thank you.

Are there any additional questions? Our next question comes from Richard. [Tortoriello] Please state your affiliation followed by your question.

Good morning, guys. Standard & Poors Equity Research. I would just like to is ask a big-picture question. You highlighted the business jet market in your presentation, and, I wonder if you could talk a little bit about your major customers there, major programs, if you can get to that level of detail. Is there a significant aftermarket portion of that? And then generally, just what is your strategy going forward for gaining share in that market as you have been doing?

Well, answering your last question first, our strategy going forward is in fact the same as it right now. We have our people and our companies that are participating in that market growing out and growing market share. In regards to the companies we're dealing with. I mentioned Cessna and the Mustang. The Eclipse, the Honda jet, are three of the largest ones. In regards to any aftermarket, there really isn't any-- there really isn't-- we're not planning on-- I'm sure there will be somewhere down the road, but we're not including any aftermarket in our forecasts or in the business jet areas. We don't do a lot in the aftermarket area. We do have-- and we have a very strong presence in Wichita, which-- includes obviously Cessna. We have made some significant investment for Cessna. Also for Spirit which is not business jet, but for the increase in business there, how the-- from 10,000 feet, the very light jet market is-- somewhat remains to be seen. There's a lot of people who are down on the very light jet market only because of the projections going forward where a number of people think that they are going to build-- as I mentioned before-- a lot of VLJs, but our strategy going forward is to leverage our presence in Wichita, and our ability to build a number of the products for the business jet.

Okay. And so when you are talking about the business jet market right now, you mean specifically the very light jet market? Or is there more business with Cessna outside of the Mustang?

No, we do business in all the business jet markets, the-- with Cessna.

Yes.

We have built plants specifically for Cessna and going forward with it. We do business with [Bombardia]. We do business with Raytheon. We have grown a very strong business in the business jet market. So I'm not just referring--- I didn't mean to give the impression that was just doing-- it was just the very light jet market.

I see so--

Gulf Stream is another large customer we have.

Okay, great. You are referring to the very light jet market because you see that as an avenue for share growth?

Yes.

Okay. Great Thank you very much.

Our final question comes from Ethan Steinburg, please state your afiliation followed by your question.

[Freise] Associates. Can you guys talk a little bit-- I don't know if you can quantify the amount, but on the 787, what is the timing on when you should start to see that revenue and how does that affect profitability as it begins to ramp. Does it hit company-wide operating margins or higher or lower?

I think that it will start shipping this year. We are going to be shipping product for the 787, and then I think-- like any new program, the beginning of that will, in fact-- some of our business will at lower margins as we ramp-up, as we go through the learning curve. However, I think that, you know, that will be very quickly-- a very profitable thing for us. A lot of our business is with-- not directly on the 787. It's not directedly with Boeing. We have some directly with Boeing. We have some directly with other producers of product. As you know the 787 is being produced in a little different way than other aircrafts, so I suspect that that will be-- a), it's going to ship this year; and b), it will be-- a very good program. When I say this year, there's not a lot of product going out this year, as you know. That is going to go-- that will ramp-up in 2000-- our 2008 initially, but primarily more in 2009 and 2010.

Okay. So that was in the 1.1 backlog and it's in the 1.1 to 1.2 revenue guidance.

Yes. Yes.

Two more questions, one, can you talk little bit more about the seasonality and as you get through the year do you expect the year-over-year trends to look much different between the quarters as you get to the 1.1 to 1.2 for the year?

Not-- no, no big change there. Another thing, going back to our previous question. The other thing that the 787 will help very much replace is the down-swing on the A380. We don't know what the A380 is doing right now. And for example, the freighter-- here is no business anymore, and then the A380 itself, we don't really know-- we can't project when that is going to ramp-up again, because we had good content on that, but we've more than replaced the A380 with the 787.

Okay.

Your second question there-- I'm sorry for going back there-- but we don't see anything any different than in past years in any big fashion.

Okay. Because I thought you said the June quarter would be down sequentially, but it looked like it was up last year sequentially, so I just wanted to make sure I heard you correctly.

Okay. I'm not sure I-- in the last couple of years, we have gone up sequentially. I'm just saying that the-- this year I'm not-- it's not a bad thing that I'm saying here. I'm just-- I'm not prepared to say that we'll go up sequentially.

Okay.

I'm saying that one quarter can be better than-- we had-- we also had a couple of acquisitions on 3/31/06. So that helped things a little--

That you haven't have last year.

Yeah.

Okay. The last question was-- somebody was asking about incremental margins. and I haven't crunched the numbers, but they looked like they were particularly strong this quarter, especially in aero. Do you think that if the revenues do continue to grow on a pretty steady pace through the year, should the incremental margins go up or go down?

They should go up.

They should go up. Okay. All right. Thanks a lot. Nice quarter.

Okay. Thank you.

If there are no further questions, this concludes the Triumph Group fiscal 2007 fourth quarter and year-end conference call. This conference will be available for replay starting today, May 4th at 11:30 a.m. Eastern time through May 11th at 11:59 p.m. You may access the replay system at anytime by dialing toll free 888-266-2081. International participants dial 703-925-2533, enter the assess code 1072694. Thank you all for participating and have a nice day.