Triumph Group Inc (TGI) 2008 Q4 法說會逐字稿

Welcome to the Triumph Group conference call to discuss our fiscal year 2008 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. Please ensure that your pop-up blocker is disabled if you are having trouble viewing this slide presentation. 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 and Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause Triumph's actual results, 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 or the comparable GAAP measures is included in the press release which can be found on their web site at www.triumphgroup.com. In addition, please note that this call is the property of Triumph Group and may not be recorded, transcribed or rebroadcasted without explicit written approval.

At this time, I would like to introduce Richard Ill, the Company's President and Chief Executive Officer and David Kornblatt, Chief Financial Officer and Senior Vice President of Triumph Group, Inc. Go ahead, Mr. Ill.

Thank you, good morning, everybody. There is a -- as mentioned, there is a slide presentation that you can follow. And I am going to start with the first slide, which is a fiscal year 2008 in review. I am not going to cover the specific numbers. I am going to let Dave go over that, but suffice it to say we are very pleased. We have record earnings this year, record earnings in the quarter. We exceeded $1 billion in revenue, which is a significant milestone in the 15-year history of our Company.

Our backlog expanded to record levels in excess of $1.3 billion. We have had improved margins in both of our operating segments. We completed the acquisition of Triumph Structures Long Island, which is expected to be immediately accretive. The annual sales for that company are approximately $45 million. And we enter fiscal 2009 in a very strong position with a healthy balance sheet and, as I mentioned, a robust backlog.

I think the best way to characterize 2008 and our quarter is to read my quote in the press release, and I quote, we are pleased to report both a record quarter and a record year for Triumph with each of our business segments contributing to our outstanding results. For the quarter, we achieved record sales, strong segment operating margins, and significant cash flow from operating activities.

For the year, the fundamental driver behind our excellent results was a strong organic revenue growth combined with improved execution. Backlog increased by $151 million to a record of over $1.3 billion. We are confident that the strength of our markets, our robust backlog and our healthy financial position will provide us with strong momentum heading into fiscal 2009 and beyond.

You know, a couple comments on 2008. Our fourth quarter was, again, assisted by our incentive program. We have talked about this in the past. It is living proof that our incentive program works and our people were, rightfully so, incented for a good year and a good quarter. I wouldn't expect that to be different in the fourth quarters going ahead.

A brief issue on a question. We were -- some of you fellows questioned our sales shortfall of a couple of days in the third quarter and wondered whether it was a systemic issue and if there was anything going wrong in the business. We said this would be overcome in the fourth quarter, as it clearly was. Of course, leap year or February 29th was a very positive issue for this quarter. That is a little humor in there.

Generally speaking, we are pleased with the execution of both of our groups and we expect that to continue. And I will come back to that in a little bit at the end of our presentation after Dave gives his presentation. So with that, I will turn it over to Dave.

Thank you, Rick, and good morning, everyone. I would like to start off with a review of the financial results for both the fourth quarter and the full fiscal year. First, turning to the income statement, sales for the fourth quarter increased 24% to $321.2 million. Operating income increased 34% over the prior year to $35.5 million with an operating margin of 11.1%.

Income from continuing operations was up 37% to $21.3 million, resulting in earnings per share of continuing operations of $1.26 per diluted share versus $0.93 per diluted share for the prior-year quarter. The loss from discontinued operations was $1.9 million or $0.11 per diluted share. Net income increased 36% to $19.4 million or $1.15 per diluted share versus $14.2 million or $0.86 per diluted share for the fourth quarter of the prior year. EBITDA grew 29% to $47 million, resulting in a 14.6% EBITDA margin.

Turning now to our full fiscal-year results, sales increased 23% to $1.1511 billion (sic - see press release). Operating income increased 35% over the prior year to $126.3 million with an operating margin of 11%. Income from continuing operations was up 49% to $75.7 million, resulting in earnings per share from continuing operations of $4.32 per diluted share versus $3.11 per diluted share for the prior year. The loss from discontinued operations was $8.5 million or $0.48 per diluted share. Net income increased 43% to $67.3 million or $3.84 per diluted share. EBITDA grew 31% to $169.5 million, resulting in a 14.7% EBITDA margin.

Looking now at our segment performance and the Aerospace Systems segment. Sales for the fourth quarter increased 25% to $256.6 million. Operating income increased 24% over the prior-year quarter to $37.3 million with an operating margin of 14.5%. EBITDA for the segment was $45.2 million at an EBITDA margin of 17.6%.

For the fiscal year, sales for the segment increased 22% to $907.4 million. Operating income increased 23% over the prior year to $124.8 million with an operating margin of 13.8%. EBITDA for the segment was $154.8 million at an EBITDA margin of 17.1%. The segment's fiscal year results included $10.8 million of net legal expenses associated with the previously disclosed trade secret litigation.

In our Aftermarket Services segment, sales for the fourth increased 18% to $65.5 million. Fourth-quarter operating income rose 117% from $3 million to $6.4 million at an operating margin of 9.8% as compared to 5.3% a year ago. EBITDA in the quarter $9.8 million, a 68% increase over the prior year with an EBITDA margin of 15%.

For the fiscal year, sales for the segment increased 26% to $246.6 million. Operating income increased 106% over the prior year to $23.5 million. As we committed to at the beginning of the year, operating margins improved significantly to 9.5% versus 5.8% in the prior year. EBITDA for the segment was $36.4 million at an EBITDA margin of 14.8%.

Our order backlog continues to grow, increasing 13% over the prior year and 4% sequentially to $1.3 billion. I will remind you that our backlog takes into consideration only those firm orders that we are going to deliver over the next 24 months and primarily reflects future sales within our Aerospace Systems group. The Aftermarket Services group does not have a substantial backlog.

Our top ten programs listed on the next slide are ranked according to backlog. While the same programs remain in our top ten, some rankings have shifted due to the acquisition of Triumph Structures Long Island and particularly strong orders for military rotorcraft. Taking over first place is the Boeing 777, followed by the 737 next generation in second place. Third is the Boeing 787. Fourth is the CH-47 Chinook helicopter followed by the Blackhawk helicopter in fifth place. Sixth is the Osprey combat helicopter, followed by the A-320 family in seventh place. Eighth is the C-17 freighter, the 747 program is ninth and in tenth place is the Airbus A380. Looking at overall sales, Boeing remains our only customer which exceeded 10% of our revenue. Billings to Boeing commercial, military and space totaled 22.5% of our revenue.

Looking at our sales mix among end markets, the next slide shows a comparative fiscal 2007. Commercial aerospace decreased slightly to 44% and military remained at 33%. Regional and business jets remain unchanged at 5% and 9%, respectively, and non-aviation increased to 9% versus 8% last year.

Finishing our sales analysis, the next slide shows our sales trends for the fourth quarter and the fiscal year. Total organic growth for the quarter increased 22% over the prior year to $317.9 million. Breaking that down by segment, fourth-quarter same-store sales for Aerospace System segment were $252.4 million compared to $204 million in the prior-year period, an increase of 23%. The Aftermarket Service segment had same-store sales of $65.5 million, an increase of 18%. With respect to the fiscal year, total organic growth increased 19% over the prior year to $1.931 billion.

Breaking that down by segment, fiscal year same-store sales for Aerospace Systems segment was $879.6 million, an increase of 21%. The Aftermarket Services segment had same-store sales of $213.5 million, an increase of 13%. Export sales for the fourth quarter were $65.5 million and $237 million for the year, an increase of 17%.

Turning to the balance sheet on the next slide, we generated $25 million of cash flow from operations in the quarter and $51.1 million for the year. CapEx in the quarter was $24.1 million and $62.4 million for the year. Net debt at the end of the year was $406.1 versus $308.9 million at the end of the prior year, representing 37% of total capital. For the year, the effective tax rate was 33%, which reflects the fact that the R&D tax credit expired on 12-31-07. With that I will turn it back over to Rick.

Thank you, Dave. On the fiscal 2009 outlook slide, a couple of things I would like to discuss. We clearly see strong conditions across all our aerospace markets at the present time. Orders from Boeing and Airbus are up and strong. We have mentioned two or three times now that our backlog has increased to $1.3 billion.

We intend to spend approximately -- our business plan shows we will spend approximately $70 million in CapEx to continue to grow our business in line with our very consistent strategies.

I will -- and we sort of do this every year -- I will warn that you that the first quarter of fiscal 2009 may not be sequentially higher than the fourth quarter for, at least from our perspective, what should be obvious reasons. Please don't take the fourth quarter and multiply it by four. We have said that in the past. In addition -- into to that, 2009, of course, is not a leap year and would be a headwind going forward, okay.

Two other aspects before I get into the -- talking about the guidance. We have two issues that we've discussed in the past, our discontinued operations, the castings facility. It is still operating. We still have some very interested parties. It's a complex issue. We have to be very concerned about our customer base there, as we go through trying to sell the company. It is still on track to sell. And we will keep you up to date on that as the quarters go by.

In regards to the Eaton lawsuit that Dave mentioned briefly, next year our budget -- and budgeting legal costs, I am sure you can all realize, is not an easy thing to do, but our budget is $9 million for next fiscal -- this fiscal year rather versus $10.8 million in 2008. Obviously, we would like it to be a lot less than that, but it is very hard to forecast, but I thought I would let you know those numbers.

As it shows on the slide, our fiscal 2000 (sic) guidance is revenue between $1.25 billion and $1.35 billion and earnings per share from continuing operations of $4.85 to $5.05. As the slide shows, our guidance reflects the current estimate of the 787 production, which is the most recent delay by Boeing in that aircraft; an effective tax rate of 35% that does not include -- it excludes the R&D tax credit, which everyone is hopeful will go back in toward the end of the year, but it excludes that; and a share count of 18 million shares for the year. So at that, I'll open it up to any questions anybody may have.

At this time, the officers of the Company would like to open the forum to any questions that you may have. (OPERATOR INSTRUCTIONS) Please stand by for the first question. David Strauss, please state your affiliation followed by your question.

Good morning, UBS.

Good morning.

Good morning.

Good morning.

Looking at your sales growth guidance for next year if you adjust for the acquired revenues you are going to get. It looks like the midpoints are around 8% to 9% sales growth, which looks relatively low. I know we have the 787 pushout. Bu could you just comment or give some color around the sales guidance?

Well, what we have done -- what we do, just to give you an idea of what we do, we go to every one of our companies, and we go through our business forecast and our sales forecast. To the extent that the sales number is conservative, number one, 9, 10% area is I don't think too bad, number one, in our perspective. But number two, we could push the sales north in light of some of the things that -- but we have chosen not to -- in light of some of the good things that have happened in 2008. And we don't -- we are not projecting they will happen again in 2009.

I think we feel very comfortable within that sales increase, especially with the addition of Triumph Structures Long Island. We have backed out some of our 787 sales as you mentioned. And, some of our other sales to -- in the aftermarket area to some of the airlines we have been very conservative because of the condition of some of the airlines. But other than that, it's -- once again, we think it is a realistic number.

And then could you just comment on what you are seeing as far as trends in your aftermarket business and what kind of growth you are assuming in your sales guidance for next year in the aftermarket business?

Yes, you have to remember in our aftermarket business there's really two ends of our aftermarket business. Number one is in our Aftermarket Systems group. And that is essentially third-party repair and overhaul of components. In other words, we prepare and overhaul Honeywell APU's for the airlines and the cargo carriers, et cetera.

The growth in that is somewhat in the 5% to 6% area -- in that area. The other part of the aftermarket business is embedded in our Aerospace Systems group where we repair and overhaul the products that we produce. And I think that in that area, once again, the repair and overhaul on that, we are projecting a little lower than our overall sales percentage, again, in the 5% to 6% to 7% range. So the aftermarket, we are not projecting to be quite as high as our new product sales.

That's great. That's great color. Thank you. The last one. You talked what you are forecasting as far as your legal expenses for next year. Can you kind of give us an update in terms of where -- where you stand on things in terms of how that is progressing?

Well, I really -- I really can't. It's not that I don't want to. There is no -- there has really been not a whole bunch of changes since the last quarter. We are looking at -- there's a bunch of motions that we have had in Mississippi. If you have been reading in the newspapers the things about the state of Mississippi and the judicial system and the people involved and the Scruggs cases, et cetera, it is a little bit up in the air at this present time.

We, however, continue to feel very good about what our stance is, okay. We felt good from day one. There is nothing our engineers have done or we have done that warrant what's going on. So I think that there has really not been a whole bunch of changes. And in the end of April recently, the court dismissed seven of the 12 accounts against the indictment as to the engineers and the government hasn't made their mind up what they are going to do at this point in time. So we remain cautiously optimistic in that thing. You never know.

All right, thanks a lot.

Thank you.

Thank you. Our next question is from Ron Epstein. Please state your affiliation followed by your question.

Sure. Yes, Ron Epstein. I am with Merrill Lynch. Good morning, guys.

Good morning, Ron.

What are you seeing in terms of raw material and raw material supply chain in terms of pricing pressure or pricing deflation. What are you seeing?

If anything, we see that the raw materials and some of the things we are buying, there's clearly inflationary pressure on the upside, which, in some cases -- it is a mixed bag within the Company because in some of our contracts or LTAs, we get the ability to pass along some of the price increases, and in some of the LTAs and contracts, we have to eat some of the price increases if, in fact, we get them.

On the other hand, some of our raw materials contracts, for example, we buy either through a Boeing contract that they have with the supplier or we have our own fixed price contract with some of our suppliers. So it is a very mixed bag. It is in our forecast as far as what we project our cost increases to be there.

Ron, I would say that we traveled around to do our business reviews though. I would say we got more comments on availability, predictability, and sort of consistent supply of raw material rather than price.

That was my next question. Is there anywhere where you've got a bottleneck in the raw material supply chain or is it all pretty much available?

We don't see any.

It is available but occasionally inconsistent as to just in time or when we need it, and then we are a little bit under stress to get things done.

Okay.

We do get the material.

What that does is it increases our stress to get the -- get the product to the end user.

Got you. Got you. And then -- and then on the labor front, how -- given the ramp-up in the industry, I mean, are you having any shortage of skilled labor? If that is the case, how are you bringing new folks on? Give us some color on how the labor front looks.

I think the biggest problem that we have from a labor perspective is two-fold. Number one in the engineering sector, with engineers, we have some problem. I don't think it is overwhelming at this point in time, but some problem on engineers being -- going to other companies. If we are in the same area, for example, Seattle or Wichita, where there are engineers needed, we are competing with Boeing and some of the larger companies for our engineering talent. That would probably be our number one problem from a need -- employee need.

And in some cases, where you have some hot beds of aerospace production, people are leaving the factory floor for more money somewhere else. But then on the other hand, we are hiring them from -- back from somebody else. So it is a -- it is a problem, but it is not a problem that is going to impede us from our mission, if you will, of producing the products.

Okay. Great. And then just two little detailed questions for Dave. What are you expecting interest expense to be for fiscal '09?

It should be about -- I think about $16 million.

Okay. Okay. Corporate expense for '09?

Should be about equal to the '08 levels, about $21 million, $22 million.

Okay, 21, 22. Great, guys.

Thank you. Our next question is from Stephen Levenson. Please state your affiliation followed by your question.

Calling from Stifel Nicolaus. Good morning, Rick and Dave. So are you going to lobby for a calendar change?

Absolutely.

Good luck. What is the latest from Thailand and how is that plant filling up?

The latest from Thailand is that the -- we are not where we want to be. We are in essentially a break-even, make a little bit of money, type of view down there. We are not in a position where we want to be. But the good news is, is that our revenue down there is excellent, okay. The revenue is what we had projected it to be.

And I would be significantly worried if we had half the revenue and we weren't able to fill the shop up with revenue. What we are talking about here is a start-up position that we have to do a better job of execution, which we're in the process of doing. So the positive side is we have very good revenue there, and I -- I look at that continuing to grow. The client base -- the customer base down there is predominantly as you would expect, Asian airlines and Asian companies.

Does that include China as well?

Yes.

And do you think the margins there will be similar, not as good or better than what you get in the shops you operate domestically?

I don't see any reason why in the future that the margins there won't be any different than what we get here.

We have not seen any evidence that we need to be a lower priced supplier when you look at what we do in the U.S. versus Thailand, so that hopefully the lower -- the lower operating costs should enable us to hold or get better margins there long term.

Great, thanks. Can you give us a little update on the build rates on some of your top programs, both Commercial aircraft and military, and an idea sort of the range of lead times for the things that you make.

Well, most of our backlog is -- as you know, it's the next two years, but I would say the heavy part of that is in the next 18 months. But the only build rate that we see a little different than we did last quarter was clearly a 787. You know, that's -- that's pushed off the six-month period of time, which as an aside, if I may, we don't look at as being a big deal. And I've said this in the past.

That aircraft is a winner. It is going to go. I think, a six-months delay, I am not particularly pleased with nor is anybody, because we have incurred expenses in that regard without the -- without some of the shipments. However, that could help matters and extend the aerospace cycle, if you will, that having been moved out. But I don't see any differential in the build rate at Boeing or Airbus or for that matter at the business jets that we have with Cessna, Gulfstream, et cetera. We are looking at that as somewhat of a bellwether; if you're looking at the economy going down, we have a great number of aircraft, and we don't see any cancellations. We see the build rates being the same.

In regards to the military, Dave mentioned, the helicopter and the Osprey and these other aircraft that the military business that we have is excellent. I don't see any changes there. I am not -- I don't know how to predict what is going to happen politically; but, a lot of those rotorcraft aren't going to come back from -- even if the war has ended, from Afghanistan and Iraq. And they are going to have to be rebuilt. So the orders there are significant -- are very strong. So we don't see at this point in time any downturn, if you will, in the -- in the order rate.

Great, thanks very much. Last item. On A-350 XWB. Are you working with anybody or directly with Airbus there?

We are working with people in that regard. And continue to do so. There is nothing real changed from the last quarter on that. We continue to work and will have some content on that, but nothing to report yet.

Okay. Thanks very much.

Thank you.

Thank you. Our next question comes from Myles Walton. Please state your affiliation followed by your question.

Thanks. Oppenheimer & Company. Good quarter, guys.

Thank you.

The question I had was, first, on the 787, Rick, you mentioned the pushout. Would it have materially changed your top -- top-level guidance if you had stayed to the other production schedule for -- for the deliveries that they had prior to the latest delay?

The answer to that, not really, okay. Somewhere in the neighborhood of -- $15 million, $20 million at least -- because you got to remember those weren't going to be delivered a lot this year anyway.

Okay. That is really helpful. That certainly puts a gauge around the risk there.

I think -- that's why I am not particularly worried about the -- this year on it. If it goes another two years, then I start --

Myles, as we have talked about, we have a variety of companies doing a variety of things on 787. And so we are not in the mode of this is a six-month very clear concise delay. We have some businesses that have not stopped shipping at all. And we have some businesses that believe they have been pushed out more than six months. So it might average six months for Triumph, but we are on so many different parts that it is not as -- it is not as clear as maybe perhaps some companies would be.

I appreciate that. But putting some level of bounds around it certainly helps to put to light the strength in the rest of the business. The other question I had, on weak dollar sourcing coming out of Airbus is pretty strong in terms of their desire to push the 4X exposure away. Have you seen any pick-up in the potential sourcing from overseas, dollar denominating the work?

Yes, definitely. We have seen -- we and others in the U.S. have clearly become low-cost producers now. So we have seen -- we have seen pick-up in various programs.

Okay. And then -- I mean it looks like on some of these nonoperating expenses, you are being pretty conservative. I just wanted to probe them a little bit. So the 18 million share count. The implied average share price for the year in that is somewhere around $75 or $80, is that about right?

We took what all you said. We went right down the list, and we took the prices, and we have $18 million.

It implies a price slightly over $80.

I mean 18 million shares.

To get to 18 million shares. And when we look at the target price of you and your colleagues, it comes to just about there.

That sounds good. And remind me, the R&D tax credit, the benefit there, is it a full point?

If we had a full year, it would be closer to 1.5 to 2. So we got three quarters of that this year. That's how you get back to what our guidance was.

And then with respect -- this is the last one and then I will get back in the queue. Past-due backlog. Have you seen a significant improvement there? And I know it's not representative of you or the industry. But I know it was, I guess, 5% or 6% of the backlog past due work. Is that still about the right run rate?

Yes, it is about the same run rate, but that's a tough question to answer because in some companies, we have seen a significant decrease in past due backlog and in others it has remained, approximately the same.

Do you see that mostly the result of the customer and willing to accept shipments or just capacity inputs to you?

It is a mixed bag. I would think some of it is clearly us. Some of it is not us.

Okay.

I would say that on balance, we could improve there.

Okay. Thanks again.

Thank you. Our next question is from J.B. Groh. Please state your affiliation followed by your question.

Hi, D.A. Davidson. Good morning, guys.

Good morning.

You outlined the legal expense for the full year, but what was it in the quarter?

$1.9 million, which was the same as the prior-year quarter.

Okay, okay. And then maybe you could talk about the repurchase activity that you engaged in Q4. Looks like it was pretty robust and sort of your appetite going forward given the stock spill. It has rebounded a little bit, but not probably where it should be.

We bought a couple hundred thousand shares back. I think we -- we wanted to do that as a signal to what we thought about our stock price especially after the Q3 -- the reaction to our earnings. I think that, given the acquisition pipeline we see and the credit markets what they are, I think that, I wouldn't see us being overly active right now but we did get a new authorization. So I think you would view us being opportunistic in that regard going forward.

Okay. Good. Maybe you could talk a little bit about the acquisition pipeline. Is it more full than it was last quarter or last year? And, Rick, what do you think about multiples and the opportunities just in general?

I think it is -- it is generally speaking a little more full than it was last year. I don't think it is too much different from what it was last quarter. When I think about multiples as -- it is a difficult world out there because one of the reasons it is more robust, is people who are going to sell their companies, they want to sell it at the top of -- of the aerospace cycle. And I think that at least from a production point of view, we have some time left in the production cycle, obviously.

So I think that some of the companies that are being sold, the multiples are higher, clearly. Not necessarily than they have been over the last six months, but they're value companies, the multiples are in fact higher and the expectations of the sellers are in fact higher.

Okay. Then, Dave, maybe you could go over on corporate sort of bumped up in the fourth quarter; is that a result of the incentive plans? Or -- most of the legal shows up in the actual segments, correct?

Yes. It's primarily incentive compensation and then there is certain insurance and other types of costs that we incur at incorporate that seem to spike a little bit in -- in the fourth quarter. But over the course of the year, they may have been lighter in other quarters. So when we did our budget for 2009, I think we are in that -- the run rate -- the run rate for this year should be about what next year's run rate is.

Got you. But again legal shows up in -- that extraordinary legal shows up in Aerospace Systems, correct?

Yes, correct.

Thanks for your time and congratulations on the year.

Thank you.

Thank you. Our next question is from Peter Arment. Please state your affiliation followed by your question.

American Technology Research. Nice quarter. Nice year, guys. Just quickly following up on J.B.'s questions. Can you just give us the overall -- your sales mix for the year, where it kind of ended from an international perspective if you have that.

Yes, that was in the -- that was in the webcast, and our export sales were $237 million for the year. And our -- our sales outside the U.S. of our foreign subsidiaries is pretty nominal.

Okay.

So that's the biggest amount of business we do outside the U.S.

Okay and that's -- how has that mix changed year-over-year?

It is up 17%, so it is growing slightly slower than the overall company, but its mix is probably I would say a little more commercial than military, but not drastically.

Okay. Great, thank you. All my other questions have been answered. Congratulations.

Thank you.

Thank you. Our next question is from Eric Hugel. Please state your affiliation followed by your question.

Yes. Stephens, Inc. Good quarter, guys.

Thank you.

Question on the 787. I know in your guidance you talk about now it reflects the revised build schedule, but yet your backlog is a two-year backlog and I guess under the previous schedule, I guess it was to build, what, 100 -- Boeing was supposed to deliver 109 of these aircraft by the end of '09 and I guess now it is 25 by the end of '09. Does your backlog still need to adjust or is that currently reflected in that?

We adjust the backlog each quarter rolling 24. So I think that the big build rates were really in 10. And so actually 787 backlogs at an all-time high. So certainly in the two-year frame we have seen no slippage for us.

But just numerically, Boeing was going to deliver 109 aircraft by the end of '09 and now it is going to be 25. That is -- that is already reflected and the slower sort of step-up in the build rates?

Yes.

Okay. Great. Can you give us any sort of guidance with regards to what you are expecting in terms of free cash flow for '09? And maybe give us an update on some of your -- Dave, on some of your projects that you are doing sort of -- sort of improved working capital usage?

Yes, we would -- we would see an improvement in our free cash flow as we would expect to make some progress, particularly on the inventory front. We have seen some slow, some progress already this year, but certainly not where we want to be. In terms of the specific metrics, I think we gave you CapEx. D&A should been $50 million for the year. And we would see accounts receivable staying in pretty good shape but being a minor use of cash given the sales growth that we would see. So we are not prepared to give a specific target, but as we have talked about, we are very focused on inventory and it will likely be a focus of -- within our incentive metrics as well for the going forward.

Eric, we clearly have to do -- it is a good question, because we clearly have to do a better job in our working capital management, specifically, as Dave mentions, on our inventory and we are adding very specific metrics where they have to be added all the way across the Company to address that issue.

Is some of your CapEx spend in relation to that, building out ERP systems or putting in systems to monitor that?

In some of the -- in some of the areas, yes, it's that. In some of the areas, it's -- it's equipment for the factory floor. Our CapEx -- if you notice that our CapEx last year we said we would spend $70 million as well. And we didn't quite spend that amount of money. So our CapEx is a very mixed bag. But, yes, some of the -- some of the expenditures are our systems, but other aspects of it, inventory control, are paying attention to the factors on the -- within each individual company, and that can be -- they can be given metrics to achieve that purpose.

Can you update us -- I know the 737 stepped up in -- I guess it was sort of towards the end of the last quarter into this quarter. Can you sort of talk us through sort of how smoothly that went or -- or how the step-up went?

We had -- there is really nothing to report. We had nothing -- no differential from one quarter to the next. Primarily because we knew it was coming.

Okay. With regards to your '09 guidance range, can you sort of maybe walk us through -- obviously, we know legal, but can you walk us through sort of the range. What are some of the key risks and opportunities sort of high-end, low-end?

You mean other than February 29?

Walking one day.

Yes, right. Well, you know, clearly as I mentioned in the -- in the legal costs, we are making a projection, based on talking to our legal teams and this, that and the other thing. That is a very difficult thing to project only because we are not in that business, and I never met a lawyer that hasn't exceeded their budgets, okay. So that -- I think is somewhat of a headwind. It is very hard for me to comment on some of the other potential headwinds that have been mentioned by some of -- some of you guys and others that, well, the economy is not in good shape, therefore, maybe some of the airlines will cancel some of the orders and things like that. We do not have that built into our plan at all, because we don't really believe that.

The airlines -- yes, there are some airlines that are having trouble, but the airlines that have orders now predominantly aren't a lot of the U.S. airlines. They are out of the country. They are Asian, et cetera, et cetera. Plus the fact if the airlines ever needed the efficient aircraft today and the newer aircraft, they need it now more than ever.

The other thing we don't have built into our plan is any -- is oil prices that go any higher than they are going, and that clearly is going to cause more problems for the airlines. But we don't have -- we are trying not to put into our budget anything that we can't control in that regard. In regards to our corporate costs, they are essentially the same. We clearly have to, if, in fact, we saw any downturn, we would have to adjust that and our Company overall SG&A. So I don't -- I really can't think of anything else. Perhaps Dave can. But I can't think of anything else that is a problem. We have tried to take all that into consideration.

I would agree with Rick. I think if we execute our backlog, I think we will be right in that range. It is not that wide a range when you actually look at the dollars.

Right.

$0.20 for us given what a penny is worth. So I think that if we -- if we execute well we will be in that range.

You talked about Thailand being -- doing well on the top line. When you got in there you talked about -- more of a defensive play in terms of keeping the business that you had. Have you had any opportunity, perhaps, to sign up new customers and maybe take market share?

Absolutely. That's why -- frankly that's why our top line performed very well and very quickly for that matter. And I think that the reason that we are in somewhat of a problem in regards to the -- the proper profitability following very quickly is the fact that it is a greenfield operation. We had to train all the people that are operating that plant. It is very interesting in that plant. Their turn time is not as fast as it should be, but their quality, knock on wood, to date, is excellent, and that is a real positive. Now when we ramp it up and they do a better job of execution, I think that profitability will follow.

Great. Just two quick little numbers. Did you guys say the legal costs in aerospace margins was 1.9 for the quarter?

The dollars were $1.9 million in the fourth quarter, which was exactly the same as it was in the fourth quarter of the prior year. So that's why we didn't break out any sort of year-on-year headwind.

Okay. And do you have the percent -- I know you disclosed it in the K, but I was wondering, the percentage of your backlog that delivers in the next 12 months. It typically has been around 68, 69%. Is that sort of consistent?

It should be very consistent.

Great. Thanks a lot, guys and good quarter again.

Thank you.

Are there any additional questions? We have a follow-up question from David Strauss. Please state your affiliation followed by your question.

David Strauss, UBS. Just, Dave, one quick follow-up. $1.9 million in the fourth quarter for legal expenses. I think it was $4 million in the third quarter. And then what was it in the first and second quarter of this year?

Well, it was $3.8 million in the -- in the third quarter, so that's about $5.7 million. I think it was evenly split between the other two quarters. I don't have that exactly -- how the other $5.1 million was made up. But I -- we can get back to you on that.

Okay. Great, thanks a lot.

Sure.

Since there are no further questions, this concludes the Triumph Group's fiscal 2008 fourth-quarter and year-end earnings conference call. This conference call will be available for replay today, May 2nd, 2008 at 11:30 a.m. through May 9, 2008 at 11:59 p.m. You may access the replay system at any time by dialing 1-888-266-2081. International participants dial 703-925-2533. Enter the replay code 1227454. Thank you all for participating and have a nice day. All parties may now disconnect.