Triumph Group Inc (TGI) 2010 Q3 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 2010 third-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. (Operator instructions). You are now 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 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 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 web site 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 Chairman and Chief Executive Officer, and David Kornblatt, Chief Financial Officer and Executive Vice President of Triumph Group, Inc. Go ahead, Mr. Ill.

Thank you and good morning, everybody. We do have a slide show you can follow, going through the presentations.

Should open by saying we are in fact very, very pleased with the third quarter, especially in light of the fact that, if you remember in the second quarter conference call, we expected this quarter would be softer than others. So we are in fact pleased with the issue that we've performed like we have. We think our execution was strong in the quarter from most of our companies. We are still -- have headwinds going forward, as we mentioned in the press release. Passenger and freight traffic were continued to be down, and continued effects of deferring maintenance and inventory destocking did in fact affect some sales in the quarter.

But despite that our sales were up 10% from last year's third quarter, and our operating income was up 8% from that period of time. And we are clearly in an era of economic vulnerability and uncertainty. So we are in fact pleased, especially pleased with the fact that we had very strong cash flow of $53 million and $126.5 million year-to-date.

Our backlog remains strong, and in fact grew sequentially. And we continue to control costs. We have a strong balance sheet, which was in fact bolstered by the fact we completed $175 million high-yield debt offering, which puts our balance sheet in good shape for the foreseeable future. In addition, as I mentioned, we've controlled costs, not only our operating costs but some of our capital expenditure costs. We said last quarter we would be about $40 million to $50 million. That number will actually be down to about $35 million to $45 million.

Our Aerospace Systems operating margins remain strong, even though our quarter three was negatively impacted by a cost-only assertion billing to a customer. The final resolution of this assertion is expected in the fourth quarter. And that our -- that affected our margins in the group by approximately a little more than 100 basis points.

We had increased legal expenses over the third quarter of last year. This year our legal expenses were $1.2 million for the quarter, up from $700,000 last year. I'm sorry, up from $630,000 last year. We had continued softness, as most people have, in the business jet and the regional jet markets. I will say that we are -- our sales seem to be in line with and in fact exceed our peers and our competition so far year-to-date. We are in fact, as anyone is, we took a $17.4 million noncash impairment charge in our discontinued operations, which is disappointing when anytime we have to take something like that. But not only was it the right thing to do at this point in time, I think we were required to do so. We have a buyer for that particular business, and we wrote it down to the point where we have a current offer.

At that, and I'll come back in a little while to the year at the end of the call. With that I'll turn it over to Dave.

Thanks, Rick, and good morning, everyone.

First, I'd like to start off with a review of the financial results for our third quarter. Turning to the income statement, sales for the third quarter were $313.5 million, compared to $285.2 million for the prior-year period, an increase of 10%. Operating income increased 8% to $32.9 million, with an operating margin of 10.5%. Income from continuing operations was $18.1 million, resulting in earnings per share from continuing operations of $1.08 per diluted share, versus $1.21 per diluted share for the prior year quarter. The loss from discontinued operations was $12.5 million, or $0.75 per diluted share, and as Rick indicated, includes an impairment charge of $17.4 million to reflect the likely proceeds from the sale of our castings facility.

Net income was $5.6 million or $0.34 per diluted share. EBITDA increased $8 to $45.4 million, with an EBITDA margin of 14.5%. The third-quarter results included $1.5 million of additional noncash interest expense associated with the change in accounting for convertible debt, and approximately $1.8 million of interest expense associated with the recently issued high-yield debt offering. The quarter also included approximately $800,000 of start-up costs related to the Mexican facility, which is primarily reflected in our corporate line.

Turning to our segment performance in the Aerospace Systems segment, sales for the third quarter increased 18% to $262.9 million. I'll remind you that prior-year sales were impacted by the Boeing strike. Operating income increased 14% from the prior-year quarter to $39.1 million, with an operating margin of 14.9%. EBITDA increased 13% over the prior year to $48.2 million, with an EBITDA margin of 18.3%. The segment's third-quarter results included $1.2 million of legal expenses, net of insurance reimbursement, associated with the previously disclosed trade secret litigation, an 82% increase over the prior year.

As Rick mentioned, the segment margins this quarter were negatively impacted by a zero-margin assertion billing, which we expect to be resolved during the fourth quarter. Margins would have been approximately 100 basis points higher without this item.

In our Aftermarket Services segment, sales for the third quarter decreased 19% to $51.4 million, reflecting lower passenger and freight traffic and the continued effects of deferring maintenance and inventory destocking. Third quarter operating income decreased 37% to $1.4 million, with an operating margin of 2.7%. EBITDA decreased 15% from the prior year to $4.6 million with an EBITDA margin of 8.9%.

Our order backlog is $1.25 billion, a sequential increase of 2%. I'll remind you that our backlog takes into consideration only those firm orders we're going to deliver over the next 24 months and primarily reflects future sales of our Aerospace Systems group. The Aftermarket Services group does not have a substantial backlog. Military now represents approximately 47% of our total backlog.

Our top 10 programs listed on the next slide are ranked according to backlog. In first place is the Boeing 737 Next Generation, followed by the 777 in second place. Third is the Osprey combat helicopter, followed by the CH-47 Chinook helicopter in fourth place. In fifth place is the 787, with the Blackhawk helicopter remaining in sixth place. Moving up to seventh is the 747, with the C-17 Trader in eighth place. The F-15 is in ninth place, and in 10th is the 767.

Looking at overall sales, Boeing remains our only customer which exceeded 10% of our revenue. Billings to Boeing -- commercial, military and space -- totaled 31.5% of our revenue and is broken down 64% commercial and 36% military.

Looking at our sales mix among end markets, the next slide shows that compared to fiscal year 2009, commercial aerospace increased to 48% and military grew to 38%. Regional jets decreased to 3% and business jets dropped to 5%. Non-aviation was 6%.

Finishing our sales analysis, the next slide shows our sales trends for the quarter. Total organic sales for the quarter decreased 2% from the prior year to $279.7 million. Breaking that down by segment, third quarter same-store sales for Aerospace Systems segment was $228.3 million, an increase of 3%. If adjusted for the effect of last year's Boeing strike, organic sales would have decreased 8%. This decrease was primarily due to continued softness in business jet and regional jet markets. All the Aftermarket Services segment sales for the quarter were organic.

Export sales for the third quarter were $58.3 million, a decrease of 10% from the prior year.

Turning to the balance sheet on the next slide, we generated $53.2 million of cash flow from operations, an increase of 106% from the prior year. CapEx in the quarter was $7.7 million. As Rick indicated, we now expect CapEx for the year to be approximately $35 million to $45 million. Net debt at the end of the quarter was $356.7 million, versus $460.8 million at the end of March, representing 30% of total capital.

The effect of tax rate for the quarter from continuing operations was 28.3% and reflected the fact that R&D tax credit expired on December 31st. The lower effective tax rate for the quarter is primarily due to the reversal of an income tax contingency reserve that was no longer needed due to the expiration of the statute of limitations. For the remainder of the fiscal year 2010 we expect the global effective tax rate for continuing operations to be approximately 33%, assuming the R&D tax credit is not extended.

With that I'll turn it back over to Rick.

Thank you, Dave. To repeat some of the things both Dave and I said, our backlog remains strong. We look at the 787. For one, we have explained in the past that some of our 787 had moved out beyond 24 months due to the delays. That has moved back in a little bit and will continue to do so as we go forward.

We remain focused on execution. We think our execution has been very good over the quarter, considering the headwinds that we're going into. And we have controlled a great number of our costs. We continue to capitalize on market opportunities and grow market share and gain share as we go forward. In regards to the year-end guidance, which by the way is the only guidance we give. We do not give quarterly guidance. We've never given quarterly guidance. So anything you see out there that has quarterly guidance is made up by other people. Sometimes without checking with us, okay?

But we in fact continue, and we will have EPS at the end of the year from continuing operations of approximately $4.80. Which is in line with the past guidance we've given at $5 at the beginning of the year, due to the $0.22 per diluted share of interest expense we have incurred related to our high-yield debt that we just issued. So we feel pretty good about that. Our cash flow will remain significantly positive, as it has for the first three quarters of the year. And that is something that we're especially pleased about.

So with that I'll turn it over to any questions anybody might like to ask.

At this time the officers of the Company would like to open the forum to any questions you may have. (Operator Instructions.) Please stand by for the first question. Ron Epstein, please state your affiliation, followed by your question.

Yes. Excuse me, Bank of America Merrill Lynch. Good Morning, guys.

(Multiple voices.) Good morning.

Can you give us maybe just a little more color around the assertion billing? What was going on there? Is it next quarter that you'll get the margin for it? Is that how it works? I'm just trying to understand the dynamics around it.

Well, we -- the answer to your second question is yes, we assume to get that in the second quarter. But that's somewhat up to the fourth quarter -- sorry, that's somewhat up to the customer. What we're looking at here, it happens to be material that was put in and requested by the customer. And it's material that costs a lot more. So we put the assertion in to get paid for the material that they requested and required us to use. And everything that surrounded that request. So it's being negotiated right now as to when that will be paid. And we expect that that will come in in the fourth quarter.

Okay, okay, okay. And then in your spares business, what did you see in spares in the quarter?

I think the answer to that sort of depends on where you're talking about. We have the Aftermarket business, which sells some spares. We have definitely seen some rotables going out with -- in our Nacelle business. And I think slowly but surely we've seen the Aftermarket and the spares business increase a little bit, but still very spotty.

But even in our After -- even in our Aerospace Systems group, where we would sell our own spares, those have been weaker than they've traditionally been. So I think we've seen it in both sides of the house.

And have you started to see any indication of a pickup yet, or is it still too soon to tell?

In Aftermarket?

Yes.

We've definitely seen a little bit of pickup in the Aftermarket business in Asia, which is a good telltale, because that has a tendency of being first in that recovery. So I think the next quarter in Asia will be very good for us. In the OEM business, the build rate is what the build rate is. And we've been affected both ways. We can see some 787 coming. We've already been affected a little bit by the cut in rate in the 777. So that's a mixed bag.

Okay.

I would say, Ron, that in the Aftermarket, I think we're starting to see airlines who are doing scheduled maintenance, and freight carriers talk about starting to do maintenance again. But starting to talk about it and updating schedules, that doesn't produce revenue. But I think the signs are slightly encouraging there.

Okay. Great. Thank you.

Thank you.

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

Stifel Nicolaus. Good morning, Rick and Dave.

(Multiple voices.) Good morning.

You issued these bonds. And I know it's not typical of your methods to be sitting around with a lot of cash. Are there particular plans? Do you see potential for consolidation and opportunities coming up? Or are you being conservative in filling up the purse?

Well, A, I like to -- I like the fact that we're developing a new habit and sitting around with some cash. It's better than not sitting around with some cash. So our businesses are just developing good cash flow, and that we feel very good about. But I think that the other issue is clearly there are some opportunities out there which we're exploring. I think that answer -- we answer that question the same way almost every quarter, because we are an acquisitive company, and we are reviewing certain acquisitions.

I think, Steve, the other -- just to complete the thinking on the high yield is, it's not a coincidence that the face value of the high yield is within a couple million dollars of the face value of the converts. That is completely by design. When the market's thawed and reopened for business this year, we thought it prudent to go ahead and essentially refinance the converts. We realize that's expensive until next October, but at the same time we did not want to be faced with the situation where we would have to use 40% of our revolver, if something happened to the markets against, to pay off the converts.

So we thought it best to go ahead, incur some additional interest expense to guarantee that we have the flexibility to run the business the way we have. A lot of our debt was just not repayable. And you'll see that, as we go forward in the next year, we'll be a little more efficient with the cash as certain debt becomes available for paydown. But as Rick said, it's not the end of the world to have cash, but it doesn't do you much good when it's earning close to zero.

Thanks. Osprey moved up a notch on the backlog list. And I believe the rates are going up pretty substantially. Could that go even higher?

Possibly. The Osprey is actually at an all-time high. It's one of the few items in our top 10 that's at an all-time high. Sometimes, though, on those orders, Steve, we tend to get a big chunky order, and then we ship off it for months and months and months. So the backlog spikes, and you ship, ship, ship. It spikes again. It's not the normal ship, get a PO, ship, get a PO. But it could go higher as they release the orders for the even higher rates, you're right.

Got it. Thank you. And last, there's been some discussion even in the last few days about the tanker program, that they expect to award something by summer. Do you have any opinions on that? Are you being contacted by either or both of the potential likely suppliers as to what you might do for them?

We haven't had much conversation recently. The only comment that we would have, and I think we've answered this before. Clearly, because we do business with Boeing on all the aircraft, including the 767, we would prefer a Boeing win there. But that doesn't necessarily shut us out if in fact Boeing doesn't get that. Because we all have had conversations with the other competitor. But I, for one, just like to see it get over with. It's been going on for so long a period of time.

And I take it new builds would outweigh the revenue that you generate on replacement parts for the current tankers?

What would outweigh?

Revenue that you would get on new builds, if they use 767, for example.

Yes.

Okay. Thanks very much.

Thank you.

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

Yes, Broadpoint. Good morning, Rick and Dave. I wanted to circle back, maybe. Ron was talking about some of the top programs. And, Rick, may I just get some color on your top 10 programs. When you look at the mix, the funding for helicopters continues to be very strong and substantial, and it looks like we're going to see, albeit so far, narrow body rates holding up. And while you're getting hit on the 777, as you mentioned, it seems like your top 10 is holding in quite well through this kind of challenging environment. Maybe you could just give us some comments?

Well, I'll somewhat echo what you just said. Our market share and business we continue to win in the helicopter business is significant. And as we announced, I believe it was during our second quarter, we have development contract with the C-53K, which is also a number that is -- a helicopter that is going to be significant for us. It's I think number 12 on our list at this point in time. And if that program goes, which we think it will, that's going to be very significant for us, too. And those of you who have been following us, Peter, for awhile, our helicopter business, even our military programs, were much less significant even a year ago, certainly two years ago, than they are right now. And as Dave indicated, our military presence has risen significantly. So I think that's -- all those programs are going to hold us in very good stead going forward.

And were you assuming that you would -- following Boeing's language last year, but there was a lot of conversations about eventually there could be some pressure on narrow body rates. How are you viewing that particular segment?

Yes, we've -- that's an issue that we've dealt with for a long period of time. I think what I've said in the past is we have no choice but to prepare for and produce to the build rate that Boeing is telling us. And we are steadfast in asking them all the time about the 737. When is it going to drop down? They continue to tell us that it's going to be strong or stable on the 737 for 2010. And now they're saying even into -- well into 2011. So we've been, as we have to be, we're on Boeing's side on that one. We're going to -- we're preparing to deliver what they tell us to deliver. And we don't see any -- all the pundits are saying it's going to drop down. But our customer has not told us that at all.

Right. Okay, thanks very much.

Thank you.

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

Oppenheimer and Company. Good morning, Rick and Dave.

(Multiple voices.) Good morning, Myles.

The first question I had was, with respect to the sale of the discontinued operations, is there going to be much of a cash pickup on that sale?

There won't be much cash. It will be positive cash. It will free up a pretty nice deferred tax deduction. So the net impact to the company cash flow will -- should be eight figures at least.

Will that tax deduction come back into the operating cash flow? Excuse me, the operating P&L?

We've already gotten a benefit on the EPS. I'm talking about cash flow. You would see our -- we would have less cash taxes to pay.

Got it. Okay. And then with respect to the outlook for legal, given the shift I think in emphasis on the legal expense from criminal to civil, is there anything we should look for, higher or lower, as a run rate? And any update you can give us there?

As I -- the simple answer to that question is no. And as I say every call when we talk about the legal thing, our general counsel is sitting in the room. He has to sit here to make sure I don't say anything I shouldn't say. But I have gone off the reservation and said we're optimistic about the outcome and are just continuing. I mean, it's -- we have a great legal system. That's all I can comment on.

Myles, we do see Q4 being even slightly higher than Q3.

Okay. And then I guess on a related topic, these kind of nonrecurring or oneish type expenses, the Mexico start-up costs looked pretty modest. Are you pulling back that expansion? Is that also what the CapEx pullback --

No. No, we're not pulling back that expansion at all. It is -- we're just spending less this year up to and probably including the fourth quarter than we had planned to in the beginning of the year. We had some construction delays. I wouldn't surprise anybody, there's a little bureaucracy in Mexico, et cetera, et cetera. And so it's just delayed a little bit. We're not pulling back at all. We're very committed to that particular --

It should ramp a little bit in Q4, Myles. We should see -- that's a big chunk of the CapEx that we expect in Q4, and a little bit of -- depending upon certain milestones, is when we get to recognize some incentives. So that has -- that could influence some of the numbers as well. Because we have gotten incentives there. But there is absolutely no pullback. In fact, we've already approved a small expansion of it.

Okay. And then I guess a couple quick cleanup items. The interest as a run rate. About $9 million in the quarter? Is that an appropriate run rate on a go-forward basis, until you are able to retire any debt this.

That's about right, yes.

And can you remind us the retirement dates or the pullback dates that are available for the debt, and also the convert?

Yes. The first chance to have a more efficient balance sheet is 364 accounts-receivable securitization. That's August of this year. We'll have to think about that before we -- it's a very important piece of paper going forward. And then October 2011 is the big date. That's where we have a call and the investors have a put on the convert. So absent acquisitions or the chance to buy in the converts, I think that would be the date at which the balance sheet would become much more efficient. And although it's a low cash cost, Myles, that's our second most expensive piece of debt on an EPS basis, yielding about 6.5%. So our interest expense will drop nicely as we head out of fiscal '12.

And one last one for me. The 777, the move to five per month from seven, how much of that was -- that reduced run rate was flowing through your P&L in the fourth quarter versus -- or excuse me your third quarter versus what we might see sequentially into the current quarter?

Well, I can't give you the exact number. But in most of our companies, especially where in the Aerospace Systems group, we build right up to the delivery type of thing. So it's been flowing through forever since they started reducing the number, which was most of the third quarter.

Yes.

Okay.

Yes. And again, it's mostly where we sell indirect. We have some companies -- we're in the middle of our business planning process -- that think they're going to ship seven right up through May next year. But we've already had some companies that have been reduced to five. So it's really how our customer managed their inventory all these years.

Fair enough. Thanks again.

Is there another question?

Our next question comes from Ken Herbert. Please state your affiliation, followed by your question.

Yes, hi. Good morning. This Ken Herbert with Wedbush. I just wanted to follow up on the Aftermarket Services. Is it -- based on the commentary that you gave, is it safe to assume that from the margin standpoint we're sort of at the bottom in this business right now?

Yes.

I think we've said for a relatively long period of time that we can recover in that business and be -- have a margin, an operating margin of double digits, high nines, low 10%-plus areas.

And Ken, I think the other thing to remember is that -- we don't want to get into company-specific detail, but most of our companies are performing at that level. And our underperformers are the ones that are the most unable to withstand the drop in revenue. And so it's a mixed bag there. But most of our companies are still performing pretty well in that segment. It's one or two very low margins that are dragging everybody else down.

Yes.

And we do see that recovering.

Okay. And the one in particular that you talked about, obviously, the location in Arizona, you said on the last quarterly call that that segment or that business was profitable then. So I'm assuming that's still a good chunk of it. It's just climbing up obviously from what was an overly depressed situation there that's still impacting the overall segment? Is that a fair way to look at it?

Definitely impacting the overall segment. No doubt about that.

Absolutely.

Yes, okay. As it increases, can you talk -- I know you don't talk about this quarterly, but to get to the sort of the low double-digit, 9%, 10% kind of margin, what kind of increase do you need to see in terms of traffic or in terms of just sort of pickup from the airlines? And is there any time frame on that that you can point to?

Maybe Dave can. I can't. I mean, I can't -- we don't really relate it to air traffic miles flown. We know it obviously affects us. And don't forget, a lot of the components that we do are third-party components that come off the aircraft. And the airlines have deferred some of that maintenance, number one. And number two, they've -- some who have their own shop do it internally. So it's very hard for us to relate to exact miles flown. We're a little bit more dialed into the cargo carriers, the FedExes, the UPS, because we do a lot of business with them. And that's a business that has been affected by the entire economy and continues to be so. So -- but to relate it to how much increase in miles flown --

We wouldn't have that number, Ken. We think that we're planning on next year, we'll give guidance. But we're looking at revenue increases in the high single digits, mid to high single. And I think if we got those type of revenue increases, you would see us make substantial progress toward that goal that Rick laid out.

Yes. Perfect. Finally if I could, could you give an update on the Bell 429 program? And are you starting to see any material pickup in volumes there as that starts to ramp?

Not quite yet. We continue to develop with Bell and manufacture product. But that aircraft, that helicopter will not deliver until next year.

Right.

Or even the year after. I mean, we are delivering some stuff, but not a substantial number.

Okay. So that's more of a calendar or fiscal --

Back half of next year I think before we'd start to see material revenue. I think you'll start to see it creep into our backlog over time. It may end up in the top 10 at one point.

Very good. Thank you very much.

Sure enough.

Thank you. Our next question comes from JB Groh Please state your affiliation, followed by your question.

Hi, guys. DA Davidson. A couple questions on backlog, kind of different phrasing from the way other people have asked. Has the downtick in that 777 production rate mid-year, has that really worked its way all the way into the backlog? I mean, is the five a month reflected in the backlog now, or is there still 777 left to come out of backlog?

We -- as Dave just said, one of the things that we do, we get our backlog by individual company. And some of our companies, as we're going through our business-plan reviews as we speak here, some of our companies have seven in their backlog, and will for a little while, because their particular customer within Boeing, their particular plant or product manage their inventory better. And some of the areas, five is already in the backlog because Boeing doesn't need as much delivered. So it's a mixed bag, but I would say on balance most of our companies are now down to five.

Yes. I mean, to give you a little bit of clarity, the year-to-date, the 777 drop has been larger than the 787 gain.

Okay.

Now, I think that will start to turn for sure in the next couple quarters. But I think you're going to see some continued -- I think the next two quarters we'll see 777 drop slightly, but I think I agree with Rick on, we've already suffered a lot of it in the backlog.

So a lot of that, I guess, depends on lead times for the particular operating company.

New Speaker: That's right.

Exactly. It's all over the place for us.

Okay. And then with regard to 787, I mean some suppliers are seeing sort of a mid-year pickup. And again here, it's going to depend, I guess, on the company. But what are you guys planning in terms of on a calendar basis? When do you think you're going to get an increased level of pull through on that?

We've sort of been in the same boat. Third quarter, fourth quarter of 2010.

Okay. And then maybe you could talk, Rick, a little bit about -- you're in the midst of a deal now. It sounds like it's going to close relatively soon. Maybe you could talk about the acquisition environment, what you're seeing in terms of activity, properties available, valuations, et cetera.

Well, I think there's a lot of possibilities. In most cases, you got to remember we look at companies -- you're right, we might have one -- I wouldn't be surprised if one didn't close relatively quickly. But those all have a tendency of being relatively small, the ones that we look at. And there's plenty of companies available and come to our attention.

But in terms of asking multiples, have you seen much movement there?

I don't necessarily see any movement in the asking multiples. The multiples we offer, I've seen some changes in.

Which direction?

I think you know the answer to that.

Okay. Thanks for your time, guys.

Okay.

Thank you.

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

Stephens. Good morning, guys.

(Multiple voices.) Good morning.

A couple of questions, most of them have been asked. But if you look at the Aftermarket business, and just sort of relative to most others in the industry, the 10% sequential decline from last quarter, it's pretty significant. I just wanted to get an idea of, was that decline sort of broad-based across? I mean, there are a lot of different companies sort of in that group. Or was it sort of focused on sort of one or two names? I'm just trying to get a sense as to whether there may be some market share issues in there also.

I think that the -- as Dave indicated, most of our companies in that group have remained relatively steady. And - but as we ramp it up to -- or gather it up to show a group like that, it's on one or two of the companies within the group. Because overall we see some possibility of more revenue stirring. So I think that in some areas we're significantly gaining some market share, and I'm not ready to say that we're losing market share in some of our other areas. I think that with the possible exception of that APU business we've been speaking about for a year or so, we clearly lost some market share there as indicated by our lack of success in that particular company. But as I pointed out, that's a relatively small company in relationship to our total revenues with the total Triumph Group. So it's -- we have lost maybe some market share there. But the rest of our companies in that group and in our Aftermarket business in general, we have not lost any market share, I don't believe?

So you're saying basically that 10% decline sequentially is just sheer just market.

Yes. I mean we had --

(Inaudible) in those companies that aren't performing as well as the others.

I mean, we had some companies this quarter that had been performing and continue to perform very well that just saw a lot of their orders just dry up. And some of them are expecting very strong fourth quarters. So I mean, it was a -- I would say the revenue decline this quarter was a little more broad-based. But as Rick said, we definitely lost share in the Phoenix business. And I think that's the one we would think we definitely lost share.

Is it reasonable to maybe expect -- I mean you're dealing from 57, 58 in the first two quarters down to 51. Is it reasonable to see a bounce back up to Q1, Q2 levels as we go into Q4? Or should we be somewhere in between, or at Q3 run?

I think Q3 and slightly above, maybe in the middle. I don't see it snapping back to Q1 levels.

Okay.

Love to see that but --

Yes. Another question with regards to your military business, can you talk about, with regard to the helicopter business, how much of that business is helicopters? Or related to?

Of our --

Of the military. Yes. Just trying to get a size of how big you are in that market. Because it is pretty robust, if you look at the overall defense budget.

I'd be --

I think it's a large chunk of our backlog.

I'd be guessing, but it's more than 50%.

More than 50% of sales is related to helicopters?

New Speaker: No.

50% or more of the military sales. (Multiple voices.)

The military sales is related to the helicopters. That's what I was asking. Okay, great. And just finally, with regards to the convert, do you necessarily have to wait until the put-call date? Is there any reason you couldn't do some kind of open market tender?

Yes, they're trading like above 120 now.

Yes, okay. That doesn't make any sense, then. Okay. Thanks, guys.

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

Sidoti. Good morning.

Good morning.

A follow-up to Eric's question, was the Phoenix APU facility still profitable in the third quarter?

No.

It was not.

It was profitable one month, not profitable two months, small loss for the quarter.

Okay.

But again, the things we're trying to measure the most is the execution, the quality, warranty. And again we think we've made substantial progress there. So as we said for a couple quarters now, it's a volume issue.

Okay. So when volumes pick up, presumably we'll see a nice rebound in terms of the bottom-line.

Yes.

Okay. And then just a couple of follow-ups. You -- I don't believe -- I hopped on the call a little bit late. But I don't think you updated the full-year guidance in terms of the legal expense and the Mexican start-up expenses.

About $5.3 million in legal for the whole year, of which I think we have $3.5 million, $3.6 million year-to-date. So as I said, it's going to be slightly higher than Q3.

What about Mexico?

Mexico should still be in the high fives, maybe $6 million range.

Okay. What is the expectation for that as we look to next fiscal year? Would that ramp? Just given the delays?

Yes, we would start production in the first quarter, we hope.

Okay.

And I don't think there's incremental headwind. But it won't be profitable next year.

It will ramp up. I mean, we'll start in the first quarter, but we'll be producing more and more products down there as the year goes by. I mean, it won't be -- it's not pushing a button and everything is going in the first quarter. But it will in fact ramp up.

We haven't given our guidance, but I [wouldn't] be dialing in incremental headwind to next year.

Okay. Thanks for that color. And what about CapEx for the full year? Still $40 million to $50 million?

$35 million to $45 million.

And just lastly, tax rate looked a little bit low this quarter. What's your expectation for the fourth quarter of the year?

33%.

Thanks very much.

Thank you.

Ladies and gentlemen, are there any additional questions? Since there are no further questions, this concludes the Triumph Group's fiscal year 2010 third-quarter earnings conference call. This conference call will be available for replay today, February 4th, 2010, through February 11th, 2010. (Operator Instructions.) Thank you all for participating and have a nice day. All parties may disconnect now.