Triumph Group Inc (TGI) 2009 Q2 法說會逐字稿

Welcome to the Triumph Group conference call to discuss our fiscal year 2009 second quarter 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're 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 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 to comparable GAAP measures is included in the press release which can be found on their website at www.triumphgroup.com. In addition, please note that this call is the property of Triumph Group, Inc. and may not be recorded, transcribed, or rebroadcast 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.

Good morning. And good morning from the home of the Philadelphia Phillies, future world champions, and my condolences to all you Mets and Dodgers fans out there. As you'll notice we had two press releases come out, first one was election of two directors, namely Paul Bourgon, who is President of the Aeroengine division of SKF USA, and Joseph Silvestri, a managing partner of Court Square Capital. Joe was previously a Director of the Triumph Group and is coming back on the Board and we look forward to their expertise and perspective when they join the Board at our next meeting. We are very, very pleased with the results of -- achieved during the second quarter. As Dave will point out, sales increased 16% to $323 million, and our earnings per share were up to a $1.57, which was up 39%. Our execution on some of our internal targets was very good as shown by our increased cash flow which more than doubled, which is critical in current economic times. I'll note in that regard that our accounts receivable and our inventory were down, although we're not ready to declare victory in the working capital area, it's a significant milestone that we brought that -- those items down in the same quarter, and created the cash flow that we did.

In addition, our backlog continues to rise. It rose to $1.26 million during the quarter, despite the fact there was a Boeing strike for a great amount of the quarter, and we didn't ship some of the backlog. As you see in the press release we've raised our guidance to $5.40 for the rest of the year, and we remain optimistic based on the backlog mentioned and our execution. But the rest of the year will not be without some head winds. Namely, first the Boeing strike, which was -- does not look to be settled very soon, and we have factored in a strike that lasts through approximately the end of November. And we feel this will cost us between $0.10 and $0.12 per share. In addition, we will improve our Phoenix APU operations, but this will affect our earnings to some degree during the balance of the year. As mentioned in the press release with the exception of these second quarter losses, in the APU division, which were related to a receivables and warranty issue, the group would have had operating margins well over 10%. That's the aftermarket services group. As mentioned, we have addressed these issues with management and work force changes, and we have positioned the Company for future success. But dealing with these issues will reduce margins the balance of the year. On the other hand, the Aerospace Systems groups margins increased year-over-year, quarter, significantly to 18% from 14% last year even though the group was affected by the Boeing strike. This is, admittedly, a very frustrating period of time for us to be performing, and from our point of view, nobody listening. It's also very frustrating to release earnings on a day where the futures are down 550 points, but I think that we're in very good shape for the rest of the year, and I think Dave will give you a little flavor on some of our numbers involved in that. So, Dave, with that --

Thank you, Rick. And good morning, everyone. I'd like to start off with a review of the financial results for our second quarter. First, turning to the income statement, sales for the second quarter increased 16% to $323.4 million. Operating income increased 34% over the prior year to $42.7 million with an operating margin of 13.2%, an improvement of 180 basis points. Income from continuing operations is up 39% from $18.7 million to $26.1 million, resulting in earnings per share from continuing operations of $1.57 per diluted share versus $1.05 per diluted share for the prior year. The loss from discontinued operations was $1.1 million, or $0.07 per diluted share. Net income increased 45% to $25 million, or $1.50 per diluted share. EBITDA grew 30% to $55.1 million resulting in a 17% EBITDA margin.

Turning to our segment performance in the Aerospace Systems segment, sales for the second quarter increased 17% to $257.6 million. Operating income increased 49% to $46.5 million with an operating margin of 18.1%, an improvement of 28% or 400 basis points. EBITDA for the segment was $55.3 million at an EBITDA margin of 21.5%. The segment's second quarter results included $700,000 of legal expenses, net of insurance reimbursement, associated with a previously disclosed trade secret litigation. In our aftermarket services segment sales for the quarter increased 11% to $66.5 million. Second quarter operating income decreased 40% from $4.8 million to $2.9 million, at an operating margin of 4.4% as compared to 8% a year ago. EBITDA on the quarter was $6.4 million an 18% decrease, with an EBITDA margin of 9.7%. As mentioned in our press release the operating margin in this segment was hurt by losses incurred at our Phoenix APU operation. Without these losses, operating margins would have been in excess of 10%. Our backlog increased 7% over the prior year to $1.26 billion, which is a 2% increase sequentially. Our backlog takes into consideration only those firm orders that we are going to deliver over the next 24 months and was not adjusted for the Boeing strike. I will remind you that our backlog primarily reflects future sales within our Aerospace Systems group since the aftermarket services group does not have a substantial backlog.

In addition, as we discussed last quarter, the 1% decrease in our 24-month backlog since the beginning of our fiscal year was entirely due to Boeing's revised 787 delivery and production schedule. While our total backlog related to 787 remains at record levels a portion was pulled out beyond our 24 month window. If you exclude the impact of the 787, our backlog grew 4% since the beginning of the fiscal year. Military represents approximately 35% of our total backlog. Our top ten programs listed on the next slide are ranked according to backlog. Remaining in first place is the Boeing 777 program followed by the 737 next generation in second place. Third is the CH-47 Chinook followed by the Blackhawk helicopter in fourth place. Fifth place is the Osprey Combat helicopter with the 787 remaining in sixth place. Seventh, is the A-320 family, followed by the C-17 Freighter. The 747 program is ninth and in tenth place is the F-15, making its first appearance in the top ten. Looking at overall sales, Boeing remains our only customer which exceeded 10% of our revenue. Billings to Boeing commercial, military, and space totaled 24% of our revenue.

Looking at our sales mix among end markets the next slide shows that comparative fiscal 2008, commercial aerospace increased to 45% and military increased to 34%. Regional jets increased to 6% while business jets remained unchanged at 9%. Non-aviation decreased to 6%.

Finishing our sales analysis, the next slide shows our sales trends for the quarter. Total organic growth for the quarter increased 11% over the prior year from $280.6 million to $311.7 million. Breaking that down by segment, second quarter same-store sales for Aerospace Systems was $245.2 million, an increase of 11%. All of the Aftermarket Services segment sales for the quarter were organic. Export sales for the second quarter were $68 million, or an increase of 17%.

Turning to the balance sheet and the next slide, we generated $36.1 million of cash flow from operations in the quarter, an increase of 138% from last year. CapEx in the quarter was $13.5 million, and year to date was $24.9 million. Net debt at the end of the second quarter was $380.7 million, versus $406.1 million at the end of March, representing 34% of total capital. The global effective tax rate in the quarter for income from continuing operations was 34.2% versus last year's tax rate of 33.8%. In our third quarter, we will recognize the benefit of the retroactive reinstatement of the R&D credit back to January 1, 2008. This will result in a global effective tax rate for the full year of approximately 32.5%. With that, I will turn it back over to Rick.

Thank you, Dave. First thing I have to do is I have to correct a mistake I made. I misspoke when I talked about the Boeing strike, which I said would cost us $0.10 to $0.12 per share. That's not true. It's $10 to $12 million, which will be approximately $0.40 to $0.50 per share, so, we're factoring that in with the guidance that we gave. As I mentioned and as Dave has mentioned, our Company margin went up to 13.2%, and that's partially because our end markets have remained very strong. We do not see, other than the Boeing strike and its related push-back in some of the backlog that we have, we do not see any downturn in our end markets, and they remain very strong. I realize that there's a lot of people out there that say how can they remain strong, all we can do is report what we see on our backlog. Our execution will continue to improve. We are very aware of the current credit markets, which will affect our emphasis -- our continued emphasis on our cash flow, and it will also increase our emphasis on CapEx and CapEx that has to be justified, so, we'll continue to execute in those areas. As I mentioned in the press release and earlier, we are raising our earnings guidance to -- from continuing operations to be in excess of $5.40. That does reflect 16.7 million shares which is a little bit down from -- if you remember the 18 million shares we were using based on the convert, but we've brought it down to 16.7. And as I mentioned before, we're saying that the Boeing strike will last through November of 2008. That's our estimate. We have no insight into that. Boeing giving us no insight. But at some point in time -- and the corresponding effect that will have on our company. So, at that, we remain optimistic for the balance of the year, and with that we'll open it up to any questions.

At this time the officers of the company would like to take questions. (OPERATOR INSTRUCTIONS) Please stand by for your first question. Myles Walton, please state your affiliation followed by your question.

Thanks, good morning, Oppenheimer & Company. Good quarter guys. I wanted to ask you a couple of follow-ups with respect to the strike in particular. As you look to 3Q, just translating your comments, Rick, it looks like $50/$60 million of sales impact. Is that about right?

Not far off.

Not too far off.

Okay. And then what would be the cash impact for the next couple quarters, Dave?

You know, I think we've done a good job on inventory. I think Boeing did a good job communicating to us so I think we've been able to not beef up on inventory that we have not been able to produce. Our guys did a very good job in preparing for this. So, I would expect that perhaps some of that $10 to $12 million, the lost profit, some of that would fall into Q3 and some into Q4, depending upon what the makeup schedule is and how they pick it back up. But, I think it would be slightly less than that, Myles, but there obviously would be a hit as we lose -- don't get that profit.

Sure, but you could -- you anticipate still running positive free cash flow for the remainder of the year?

Yes.

Okay, good. And then as you look at your suppliers, and coupling both the strike and the credit situation in the markets, are you seeing or getting concerned about any supplier's ability to fund their own businesses and keep your business on track?

Well, we haven't seen anything yet. It's interesting. We've had those conversations with Boeing, because Boeing has, rightfully so, been concerned about our suppliers as well as us being their supplier. So, we have gone down to each one of our business units and asked those same questions. We have not seen any problems in that area, albeit we have also, just like Boeing has done, we've held off our suppliers on a relatively significant basis all the way through our company. So, it just sort of shows you that this strike has a pretty big impact on the industry. But we haven't seen any inability to supply us or inability to hold the inventory on a negotiated basis with our supplier base. So, it's working fairly well at this point in time. Obviously there is more strain as the time goes on.

It's something we're very mindful of, but right now no big problems on the horizon.

Okay, thanks for the color. On then on the aftermarket, two questions. First, it looks like the underlying growth in that market still remains pretty strong for you guys, despite the underlying traffic trends. Should we expect that to flatten to potentially decline through the course of the year? And then also, if you can talk about the particulars of the plan to get Phoenix back to break even and how quickly that happens.

Well, I think that in the first question, I don't think we'll see a particular big downturn. As Dave mentioned, the rest of our companies, with the exception of the APU division, have actually been in a growth mode, and they've been doing very well. I don't -- I think that there's going to be some flattening out in regards to that group, but I don't see it decreasing significantly, if at all during the rest of the year.

Okay, thanks, and then -- .

Number one. Number two, on the APU division, we have taken a number of steps. We got very heavy overhead oriented at the company. We've eliminated that overhead. We've addressed the problems that we see at the company, including the top management at the company. And we're going forward with a new organization at the top there, and I feel very confident that this is a blip in the road for the company. Correspondingly, interestingly enough, in Thailand, which essentially does the same products on a repair and overhaul basis, Thailand is -- Asia is doing very well.

Okay, that's great. And so if it was $4 million losses in this quarter, what do you anticipate the losses for the full year that are baked into your guidance?

We would see them being about break-even for the rest of the year, Myles, in that operation. Not recovering the losses to date, but -- .

But ex the losses in the quarter, margins would have been 10%, but you're presumably not forecasting 10% for that business for the rest of the year.

No, I think it would be high single digits as that business sort of gets to zero margins.

Okay, thanks again.

Thank you. Our next question comes from Tyler Hojo. Please state your affiliation followed by your question.

Hi, Sidoti. I'm guess -- I'm not sure if I missed it but did you guys quantify what the impact of the Boeing strike was to the current quarter, or the second quarter?

We did not, and it was -- there was a hit. It was a couple of cents per share.

How about on a sales -- on the sales line?

It was about -- in the neighborhood of $4 to $5 million in revenue, and about $0.04 a share in earnings.

Okay, sounds good. And I was hoping that you could -- obviously you are somewhat limited, but just kind of give us as much of an update as you can just in regards to your legal trial and the expenses associated with it.

You know, there's really nothing to update you. The legal expenses in this quarter were less, and we're now projecting a little bit less for the year. Originally we had said it was going to be about $9 million for the year, and it looks like it's going to be between $6 and $7 million for the year. But you've got to understand, we don't have much control over that. If the courts say, okay, "we're in full mode again," full mode means the lawyers eyes light up. But that's what we're projecting at this point in time, that the fees will be a little less for the year than we originally projected.

Okay. And just one more from me. Just in regards to Thailand, you hit on it a little bit in the previous question, but is it safe to say that's running well ahead of your plan, or how would you characterize that?

I think they're having a good year, Tyler. As we said, we're glad we're there, and all we would say about Thailand is that it's probably a couple of quarters behind where our original schedule was. This quarter, because of the margins in the Aftermarket Services group, Thailand was additive to those, not dilutive, but obviously that's off a pretty low base. So, they're having a good year, they're meeting their business plan or slightly exceeding it, but they still have a long way to go in getting to where we want them to be. But good progress this year.

Alright, thanks a lot.

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

Stifel Nicolaus. Good morning Rick and Dave.

Good morning Steve.

Good morning Steve.

Nice to see you are doing so well in a tough market. Just in relation to Phoenix I think you mentioned there was an accounts receivable component. Do you have a mechanics lien on any merchandise? Is there any chance for any recovery there?

Well, there's always some chance for some recovery. We don't have officially a mechanics lien on any of the engines but there's always some chance for some recovery. But we're not -- in our guidance or in our earnings we're not anticipating that. If that happens, it happens.

Sounds like a -- the right conservative way to treat it. Coming up in the next year or, so I guess we'll start to see things on F-35 joint strike fighter and A-350. How might that affect your top ten list going forward?

I don't think a lot at this point in time because you're still not going to be -- especially in the A350, you're not going to be at the high production mode. It will be similar to the 787. The 787 is not going to ramp up -- I mean I'm assuming they get off the strike, but that's not going to ramp up until 2010 and '11 now. So, the A-350 I don't think will ramp up during the first part of next year. So, I doubt it will hit the 24 month backlog, because the same thing happened at the 787. We started getting orders, and if you remember, we're producing orders now, notwithstanding the strike, for the 787, and that is, in fact, a -- the margin there is a contributing margin, but it is actually dilutive to our overall margin. So, I think the same type of thing will happen on the A-350 and the joint strike fighter. We're not as heavy on the joint strike fighter as some of our other programs, so, I don't think know if that will really hit the top ten soon. The A-350 will, but again, we're doing the same thing on the A-350 as we did on the 787. We're somewhat in the second tier. Translate that as good news, because we're not paying to get on it.

Great, thanks. Last item, in terms of cash flow, is Boeing still paying according to terms, and have they made any bill and hold type arrangements with you to keep people at work and to keep the flow of merchandise going?

Well, they're still paying us to terms, but they don't have to pay much because they have us on hold.

Okay, so there's -- they've basically stopped it?

They've honored everything they've had had to honor.

And there's been just one or two limited bill and hold situations, but most of our Boeing commercial sales for new production has halted.

Okay. Thank you very much. See you next quarter.

Yes.

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

Yes, D.A Davidson, good morning guys.

Good morning.

Good morning.

I had a question on the aerospace systems margins, that was particularly strong this quarter. How much of that is just pure performance and how much of it is maybe, absence of month's worth of probably lower margin OEM shipments? How should we think about that?

I think it's really good execution by our team, and as we said, the sales were -- the sales were $4 or $5 million that didn't go out to Boeing commercial, so that's very little of it. The less legal expenses year-on-year may have been 70 basis points, but it was a really good performance, its similar to first quarter. Our best performing companies are growing the fastest, and some of our companies that have been not as strong have made some very good improvements. So, I think that group gets credit for really good execution.

Okay. And Boeing mentioned a few days ago that they've been held up by -- on some 777 deliveries on some interior stuff. Does that trickle down to you guys at all, or you're delivering way before that?

We're not the holdup.

I know you're not the holdup, but I'm just curious if that hits you guys at all?

Well, I think it naturally somewhat affect us in some of our companies. For example, we have companies that have the IAM as a union in our plant, and they're all on layoff. Because, I mean, it's somewhat ironic that the union in Seattle is on strike, and then our guys are on layoff because we can't deliver anything, so it does trickle down clearly throughout the system. And as I mentioned before, even to our suppliers. So, there is -- there are some issues in that regard. And what we're trying to plan for now, and I think we have under control, is the fact that when they go back to work, Boeing is going to need product very quickly. And we've factored in our situation with Boeing to include an immediate ramp-up, because when they go back to work that doesn't mean that all of a sudden they're going to have everything they need. There's going to be a carry-over there.

So, their ramp-up happens faster -- your ramp-up happens faster than their ramp-up would probably happen?

I think they would want us to. Those plans have not yet been communicated, but I assume they're not just going to slide the whole schedule to the right, and they're going to try and recover some of those. So, not only will we need to ramp up from zero, we may need to ramp up to not just to where we were but ramp up above that if we can.

Okay. And then Dave one question on the tax rate. I think to get to your 32.5% full year, I'd have to get something like low 20s for Q3. Does that sound right? Low to mid-20s?

Yes.

Thanks for your time, and I share your frustration with the overall stock market.

Thank you.

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

Eric Hugel from Stephens. Good morning guys, and great quarter.

Thank you.

The follow-up on JB's question maybe you can (inaudible), what's the cumulative catch-up that you're going to recognize in Q3 on the R&D tax credit? And is in that your guidance?

Yes, that's in the 32.5% tax rate that we gave.

Okay, that's all in there. But how much of that is going to be the -- sort of that one-time cumulative catch-up, and then, sort of, what should we be thinking as a normalized post tax rate after you get through that, if we're looking at fourth quarter also?

Yes, I mean, I think the -- it comes out that the cumulative catch-up for the year -- the year will have probably $2.5, $3 million of credit in it, and we'll be able to recognize through Q3 essentially 4/5 of that, because we're getting 15 months of credit in this year's 12 months financial statements, because remember we lost some credit at the end of last year in the fourth quarter.

Yes.

And I think going forward we've always said the R&D credit is a 1.5% to 2% credit, so, as long as the credit stays in vogue, I would think going into next year our rate would be 33.5%/34%, all things being equal.

Great. Can you talk about -- you noted that the F-15 sort of creeped on to the top ten list was there a big win there or what happened? Why is that on the list now?

It was always -- we have about three or four programs that there's a couple million dollars between tenth, eleventh, twelfth, and thirteenth and really I think it was more a matter that their backlog held and we had a few more shipments versus orders on some of other programs. So, you know that -- you may see a new program like the CH-53 next quarter. There's a few of them that are right there around tenth place. It was not a big win but just continued progress there. But its only $1 to $2 million.

Okay, can you talk about what's going on, on the M&A front?

Well, the M&A front is the -- the opportunities are many, because there's a lot of people interested in potentially selling their company, trying to hang on to the multiples that were a year ago, and I think the multiples are coming down a little bit, although not quite as far as I think they maybe should come down. What we're looking at a number of opportunities. I will say that we're being -- we're attempting to be a lot more disciplined, especially if you visual -- if you look at the multiple that our stock is selling at, on what we pay for companies, because you can't outpay your own multiple forever -- .

Yes, I was going to say, in terms of M&A, are you finding your own stock is a better acquisition than buying something in the market?

Not necessarily. We've looked at the aspect of buying back our own stock, and we have, in fact, bought back, as we've indicated in past, some of our own stock. However, we've basically come to the decision, and I don't want to speak for the board. We're having another meeting very shortly, but so far the decision has been made that long-term the better use of our money is long-term growth of our company from the revenue and earnings point of view, because the accretiveness accomplished by buying back our own stock doesn't seem to do us that much good in the marketplace. So, we've made the decision to grow our company long term, but at the same time, be very disciplined in what we pay and the type of companies we're buying that we think that they can contribute to our long term growth.

I noted -- I know Joseph Silvestri, he was on the board previously, but coming from Court Square Capital, a well-known sort of private equity [LBO], any sort of thought -- consideration, about sort of -- given that you've done a very, very good job executing, and the market just doesn't really seem to care? Any thoughts on sort of going that route if the opportunity presents itself?

It could be a long-term strategic process in discussing with our board, but Joe Silvestri going on our board, do not, I repeat, do not read anything into that. Joe is going on our board because Joe was on our board before as a representative of Citicorp Venture Capital, and we felt he was a good board member, and now he's unencumbered by Citicorp Venture Capital, so, we asked him to come back on the board.

Are those two new, or are you adding two? Or did two leave?

We had -- well, both in affect, because we're adding two, but if you remember we had -- one of our directors did not stand for re-election, and then unfortunately, as we announced, one of our directors passed away.

That's right. And my final question, I noted in the quarter, or a couple of months back, you guys put a receivable factoring facility in place. Did you guys sell any receivables in the quarter under that facility? Was that part of the cash flow in the quarter? And if did, were they sold with or without recourse?

Yes, we were in the facility by the end of the quarter we were out. Because the interest rate you get out of that is highly driven by commercial paper rates, which were obviously in wild fluctuations during the quarter. But that is essentially a loan facility and it would not show up in cash flow if we were to use it. We are recording it on balance sheet as a loan.

Okay. So, that cash flow was real operational, not selling stuff?

That's right.

Great.

And if we do exercise it, that will not help our cash throw because again it's just viewed as financing source.

Okay, great and great job, guys.

Thank you.

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

Yes, American Technology Research. Congratulations. I'll echo everyone else's comments on the results. Just -- you've addressed a lot of issues. I wanted to just get a little more color on the aftermarket. Rick, I'm surprised to hear you say that you're going to continue to see growth. And I know you mentioned that they're in growth mode but could you maybe just give us a little more -- either color or perception of why that is, when we see the ASMs ticking down pretty materially for next year and utilization rates declining also? Thanks.

I think that we're commenting that because we look at the individual operations that we have, and the sum of the parts equals the whole. And what happens there is, number one, we see the APU, as we've indicated -- see the APU division coming back, you know, up the -- in their efforts and getting to at least break-even by the end of the year, number one. Number two, Thailand, when you talk about a year over year type of thing, clearly contributes to the growth aspect, and although Asia is not doing quite as well as did it, say six months ago or eight months ago, it's still very positive. Thirdly, we have a couple of companies that have gone into some new products and some new rotable type of things that are -- because the airlines don't want to keep some of the things in inventory, they've come to us for some rotable issues, so it helps their inventory, and it brings us earnings in and cash flow. So, I think all of the things considered, I think we're looking at some growth there. I think we're trying to really indicate here that the aftermarket is not necessarily going to grow in double digits, but we think that we have the type of product line that we can, in fact, continue to grow, vis-a-vis the various areas we're in geographically and product-wise. I don't think -- I think the growth in the OEM area and the Aerospace Systems will overshadow the growth in aftermarket. But I think all we're trying to indicate here is that we're not -- we don't have a business that is totally declining. If you remember over the years, a lot of our business was not with some of the so-called major airlines that we had -- have in the US, the United's, the Northwest's, the Delta's, this type of thing. Our business has been with Continental, Southwest, and our Southwest business has -- continues to be very good. So, I think there are issues there that we can continue to, at the very minimum, keep the issue flat there to some growth. I realize that the ASMs will affect that growth, but I think it will affect the growth as opposed to, you know, having it turned down.

The other -- yes, this is Dave. The other comment is that, remember, we talked about last quarter the amount of work that our group does on the aircraft that are being parked is very small. Driven by the fact that we've not invested in those capabilities over the years, and secondly, as Rick said, those planes were primarily being driven by the airlines, an did an awful lot of work in-house. So, from our market capability and the part of the market we're attacking we're not really seeing a huge shrink in what's available to us, and might even be growing.

That's great color. I appreciate it. Thank you very much.

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

Thanks, Oppenheimer. Just a couple of clean up items. You talked a bit about cash and you mentioned CapEx, and I think you had previously been talking about a CapEx budget in the $70 million -- $65 million, $70 million range. Is that still the case for the full year?

I don't, Myles, it happens to still be the budget, because we haven't -- we don't change our budget necessarily, but suffice it to say that in these economic times when cash is even more king than it was before, I don't think we'll reach the $70 million. To date we've spent about $22 million, and we have some approvals on the books, and I'd hate to guess where it's going to end up, but I will. My guess will be about somewhere in the neighborhood of $55 million to $60 million, some where in there. So, we'll spend less -- we'll spend less, and the justification will become more robust as far as our individual companies are concerned.

Alright, thanks. That's really helpful. And then on the top ten list, I apologize if you had mentioned it, with you the A-380 slipped out. And I'm just curious if that's because the 15 backlog increased so much or because the A-380 decreased on lower delivery expectations versus the prior plan.

Well, the A-380 -- well, sort of both happened.

Yes, a little bit of both, Myles.

A little bit of both. But the A-380 -- and I think we mentioned this maybe a couple quarters back, we had a great amount of structural content on the A-380, which was taken back in-house a couple quarters ago for Airbus. They brought it back into the UK. So, it was affected -- the backlog there was affected then for this period of time. So, that's one of the reasons the backlog went down. So, it really doesn't have too much to do with the push-back of the A-380 that in respect, because it already was affected in the backlog.

Okay. Thanks a lot.

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

Good morning, guys. It's Chris McDonald with Kennedy Capital. Just a quick question for you. Has the Boeing strike disproportionately impacted any particular Boeing commercial program? I'm just thinking 787 mix versus the rest. Thanks.

I'm going to say no, Chris, it hasn't. From our perspective, it really hasn't. Obviously, Boeing knows the answer to that, but they haven't indicated to us that it's disproportionately affected any program. Obviously the 787-- that has a little more higher visibility because of the fact it's late -- it was late already. So, it's probably worse now. But from our perspective, no.

Okay. Thanks, guys. Good results.

Thank you.

Our next question comes from Eric Hugel from -- please state your affiliation followed by your question.

Stephens. Hey, guys, I know you don't disclose content on aircraft. From a long-term perspective in us thinking about sort of, let's say growth out into 2010, 2011 as we get a -- let's say maybe a peak in the cycle around sort of that time and you start to think about narrow body deliveries coming down, and 787 deliveries continuing to ramp up, can you give us -- I know you're not going to disclose a content number, but, you know, in terms of 787 content relative to, let's say a 737 content, are we talking double, triple? I mean, how can we think about that I know terms of, again, from long-term perspective thinking the about sort of the growth trajectory even as the market tops? Can the 787 really help to offset sort of any decline in the 37 production?

I think that's a good question. And we've spoken to this issue a number of times. There are those out there who've said that the cycle is gone, but our stance on that has been that we still to have produce the airplanes that are ordered, and we've consistently said that the 787, in our opinion, and from our perspective, will hold up the cycle, if you will. And the fact that the aircraft that are being done, the 737 new generation, et cetera might drop off out in 2010, '11, '12, but that the 787 will prop up the cycle, if you will. In our case, the content is close to 3 to 1 in the 787 versus the 737, and it's -- you know, will -- I think, hold up that cycle significantly as we go down. That's why one of the reasons that we keep talking about the 787 being somewhat significant to us going forward, and it has the largest content that we've ever had on any of the Boeing aircraft. So, it's -- that's why our backlog and some of the, you've got to remember, some of the 787 business we will get isn't even in our backlog because it's beyond the 24-month period of time. So, that's one of the reasons that we're optimistic about that backlog.

Yes, I would think that your 787 backlog really barely even has the ramp whenever it comes because that would be out beyond -- that's probably more into 2010, 2011.

I think that's true, and it will also affect the margins that we had. That's why I mentioned before that our margins are, in fact, dilutive overall to our Aerospace Systems margins right now, at a number that -- you know, maybe it's a 2%, 3% type of thing, but when it gets to full production, we're looking at margins that are significantly greater than that and will be accretive to our margins.

Can you maybe give us a little more -- to that point, can you give us maybe a little more color on exactly -- sort of, on the aerospace margins, what exactly are you doing from the efficiency standpoint? I mean, literally, it was almost like a switch was flipped in terms of the margins there. I mean, you know, I mean I assume some of that is mix, but sort of -- can you talk about sort of efficiency-wise, sort of what kind of plans what are you doing from a grand scheme of things that is really sort of starting to shift those margins into high gear?

Well, my cynical mind says, I could tell you, but I'd have to kill you. I'd like to think that we have emphasized the proper efficiency techniques, up to and including in many areas lean. I'd like to think that their drop in inventory has taken hold and that we're becoming just more efficient, and I think very importantly, that -- I think that our philosophy of doing business in fact helps us a great deal in that respect from the viewpoint of having company presidents who are responsible for their profit center, incentivized for their profit center, and paid for their profit center, holds us in very good stead especially in a period of time like this, where they can control their business better than a huge monolithic type of company, and I think that does us -- holds us in very good stead. Other than that, I'd like to think we have very good managers that are overseen by a very good group and corporate structure. That's a hard question to answer because we do different things in every one of our companies to effect the margin increases.

I think the, just to give you a little color as well, I mean, I think we're -- in the last year or so, we're starting to get better leverage on our SG&A. It is growing. While it's growing, it's growing at far less than our sales. It's clear that our revenue growth is outpacing build rates, and I think that is a great compliment to our group marketing, and how we're combining the capabilities of some of our companies to get higher level assemblies, or to get better penetration. And certainly there's a little bit of price in there, and there's obviously volume. So, I think it's just a good job on a number of fronts, adding up to a pretty nice result.

From another difficult question to answer type of -- if you think about sort of the margin process going through, I mean, is this sort of, what we've seen right now, sort of low-hanging fruit type of stuff? How much more sort of opportunity do you see out there? I mean is there still, do you think, another couple hundred basis points over the next couple years, again, as volumes continue to ramp, efficiency continues to improve?

I would hope so.

I would hope so, but I'd never commit to it.

Alright, fine. Thank you very much, guys.

Thank you. Ladies and gentlemen, are there any additional questions? Since there are no further questions, this concludes the Triumph Group's fiscal 2009 second quarter earnings conference call. Ladies and gentlemen, this conference call will be available for replay starting today, October 24, 2008, at 11:30 a.m., through October 31, 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 1292023. Once again, those numbers are 1-888-266-2081, and 703-925-2533, replay code 1292023. Thank you all for participating, and have a nice day. All parties may disconnect now.