Triumph Group Inc (TGI) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Triumph Group conference call to discuss our fiscal year 2010 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 the 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 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. Good morning everybody. I'm delighted to be here today to discuss the results of the year with you. And going over our quarter and our year, first of all we had a very strong quarter in the fourth quarter despite headwinds such as still challenging market in the biz-jet market, 777 rates still being down, the 787 delays, the Aftermarket has shown some improvement but it's still down, still very much of a challenge.

We have had year-over-year and sequential increase in sales, operating income and margin. In fact, in the fourth quarter we had organic sales growth in the Aerospace Systems Group.

The quarter four results do include some increased interest expense that we've discussed in the past and some Vought transaction costs. I will note that at this point in time we are not going to discuss the -- any numbers associated with Vought at this point in time because the transaction, as we've indicated in the past, is not scheduled to close until on or about July 1, so we won't do that, although we did have some transaction costs which were an expense in the fourth quarter.

We're very proud of our cash flow. We had strong cash flow in the quarter and strong cash flow for the year. Our backlog remains strong and in fact grew about $60 million in the fourth quarter.

We're especially proud of our balance sheet, driven by our cash flow as we go into the New Year and Dave will go into some details on our balance sheet and our P&L. Dave?

Thank you Rick and good morning everyone. I'd like to start off with a review of our financial results for both the fourth quarter and the full fiscal year.

First, turning to the income statement, sales for the fourth quarter were $352 million compared to $311.2 million for the prior year period, an increase of 13%. Operating income increased 34% to $47.3 million with an improvement in operating margin to 13.5%.

Income from continuing operations was up 11% to $25 million resulting in earnings per share from continuing operations of $1.49 per diluted share versus $1.36 per diluted share for the prior year quarter. The loss from discontinued operations was $300,000 or $0.02 per diluted share.

Net income increased 18% to $24.7 million or $1.47 per diluted share. EBITDA increased 27% to $60.9 million resulting in a 17.3% EBITDA margin.

The fourth quarter results included $1.6 million of additional noncash interest expense associated with the change in the accounting for convertible debt and approximately $3.6 million of interest expense associated with the high-yield debt offering issued in November 2009.

The quarter also included approximately $1.25 million of startup costs related to the Mexican facility, which is primarily reflected in our Corporate line as well as approximately $1 million of transaction costs related to the Vought acquisition.

Turning now to our full fiscal year results, sales for the fiscal year increased 4% to $1.294.8 billion compared to $1.240.4 billion for the prior year period. Operating income increased 2% over the prior year to $155.3 million with an operating margin of 12%.

Income from continuing operations was $85.3 million resulting in earnings per share from continuing operations of $5.12 per diluted share versus $5.59 per diluted share for the prior year.

The loss from discontinued operations was $17.5 million or $1.05 per diluted share. EBITDA grew 5% to $209.7 million resulting in a 16.2% EBITDA margin.

The year end results included $6.1 million of additional noncash interest expense associated with the accounting method change related to convertible debt and approximately $5.3 million of interest expense associated with the high-yield debt offering.

Approximately $4.1 million of startup costs related to Mexico were included in the results for the year.

Looking now at our segment performance, in the Aerospace Systems segment sales for the fourth quarter increased 18% to $294.2 million versus $249.8 million in the prior year period, which represents organic growth of 3%.

Operation income increased 23% over the prior year quarter to $50.4 million with an operating margin of 17.1%. EBITDA for this segment was $60.6 million at an EBITDA margin of 20.6%.

For the fiscal year, sales for the segment increased 9% to $1.73.5 billion. Operating income increased 2% over the prior year to $175.5 million with an operating margin of 15.9%.

EBITDA for this segment was $211.2 million and an EBITDA of 19.7%.

The segment's fiscal year results include $4.6 million of legal expenses, net of insurance reimbursement, associated with the previously disclosed trade secret litigation.

In our Aftermarket Services segment, sales for the fourth quarter decreased 6% to $58.5 million versus the prior year's $62.1 million. Fourth quarter operating income increased 104% from $1.9 million to $3.8 million at an operating margin of 6.5%, which was 116% year-over-year improvement and 141% sequential improvement.

EBITDA for the quarter was $7.1 million with an EBIDTA margin at 12.1%.

For the fiscal year, sales for the segment decreased 12% to $225 million versus $254.6 million in the prior year.

Operating income increased 2% over the prior year to $11.1 million with an operating margin of 4.9%. EBITDA for the segment was $24 million and an EBITDA margin of 10.7%.

Our Order Backlog is $1.31 billion, a sequential increase of 5%. Our backlog takes into consideration only those firm orders that we're 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. Military now represents 43% of our total backlog.

Our top ten programs listed on the next slide are ranked according to backlog. In first place is the Boeing 777 program followed by the 737 next-generation in second place. Third is the Osprey Combat Helicopter followed by the Boeing 787 in fourth place.

In fifth place is the CH-47 Chinook Helicopter followed by the Blackhawk Helicopter remaining in sixth. The C-130 makes its first appearance in seventh place with the 747 dropping to eighth place. The C-17 Freighter is in ninth place and in tenth place is the F-15.

Looking at overall sales, Boeing remains our only customer which exceeded 10% of our revenues. Billings to Boeing Commercial, Miliary and Space totaled 30% of our revenue and is broken down 62% Commercial and 38% Military.

Looking at our sales mix among end markets, the next slide shows the comparative fiscal 2009 Commercial Aerospace increased to 48% and Military increased to 37%.

Regional Jets decreased to 4% and Business Jets dropped to 5%. Non-aviation was 6%.

Finishing our sales analysis the next slide shows our sales trends for the quarter and the fiscal year. Total organic growth for the quarter increased 1% from the prior year to $313.3 million. Breaking that down by segment, fourth quarter same-store sales for the Aerospace Systems segment was $255.1 million compared to $248.2 million in the prior year period, an increase of 3%.

Same-store sales for the Aftermarket Services segment for the quarter was $58.2 million compared to $62.1 million in the prior year, a decrease of 6%.

With respect to the fiscal year total organic growth decreased 5% over the prior year from $1.241.3 billion to $1.173.6 billion. Breaking that down by segment, fiscal year same-store sales for the Aerospace Systems segment was $948.9 million compared to $986.7 million in the prior year period, a decrease of 4%.

Same-store sales for the fiscal year for the Aftermarket Services segment was $224.7 million compared to $254.6 million, a 12% decrease.

Export sales for the fourth quarter were $72.2 million and $256 million for the year.

Turning to the balance sheet on the next slide, we generated $43.2 million in cash flow from operations in the quarter and $169.6 million for the year. Our strong cash flow reflects a significant decrease in inventory for the year as well as greater discipline and efforts in terms of cash collection.

CapEx in the quarter was $9.9 million and $31.7 million for the year.

Net debt at the end of the year was $359.1 million versus $444.9 million at the end of the prior year, representing 29% of total capital.

The effective tax rate for the year for income from continuing operations was 32.6% and reflected the fact that the R&D tax credit expired on December 31, 2009.

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

Thanks Dave. As we both indicated, the backlog remains very strong for Triumph during the last quarter and we expect it to be okay during the year. We are currently, as I started to mention in the beginning, tracking toward a late June, early July close on the Vought acquisition and we're focusing on the all-important integration of the two companies.

The guidance that we had in the press release for 2011 based on current production schedules and revenue of $1.3 billion to $1.4 billion, and earnings per share of approximately $4.65 a share, let me for a second before the question's asked, give you a bridge between the $5.12 that we achieved this year and the $4.65.

The converts which would produce a 600,000 additional shares is equal to $0.15 a share and this year we had the high-yield interest rates from November only, which was four and a half months in the 2010 and we'll have the full year in 2011, which will roll out to $0.36 a share. And the tax rate will be a little higher due to the fact that we have no R&D credit this year and that equals approximately $0.07 a share.

If you add those up, you'll find that we have a minor improvement from this year to next year of approximately $0.10 a share. Clearly the year will be much different as we have some unusual costs during the year that we have to expense vis-à-vis the integration process.

We'll have a full year impact of Mexico startup costs of $2.5 million next year and it assumes a tax rate, the year assumes a tax rate of 34%. Again, I'll talk about the fact that this reflects TGI on a stand-alone basis and it excludes any expected integration and transaction costs associated with Vought.

We'll continue to update you as to the Vought acquisition and we'll update fiscal 2011 guidance to include Vought upon the closing of the acquisition. We don't think it would be proper to do so before the acquisition closes.

So at that, I'll open it up to any questions.

Thank you. 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.

Peter Arment, please state your affiliation followed by your question.

Good morning, Broadpoint Gleacher. Good morning, Rick. Good morning, Dave.

Good morning, Peter.

Good morning, Peter.

Could you, if you could Rick, just talk about what are some of the puts and takes regarding the difference between $1.3 billion and $1.4 billion on the top line, what your assumptions are there?

If we look at the market and compare it to our backlog, there's a little bit of a mixed bag and for example, we've got 777 right now is down a little bit on the production level. 747 will be up a little bit and we're still not shipping a great deal on the 787. As a matter of fact, we look at that staying about the same until maybe approximately November of 2010 as to when we start shipping more 787s.

But the combination of those three is a modest down for us for the year both in revenue and margin, but 2012 should start very strong. And we also look at Military being up. Biz-Jet I don't think will be up for the year. We see some signs of stirring in the biz-jet but I'm not getting terrifically optimistic for the fiscal year.

And the Aftermarket I think it's too early to tell. We do see some increase in the Aftermarket.

Generally the answer to your question is the fact that if you add all of that up, if I'm wrong and it goes a little better than I'm talking about, I think that we can do -- we can go to the high end of that revenue range. If not, I think we'll be toward the lower end of it.

And this is the first time I've seen the C-130 in your top ten and we know that there -- Lockheed's going to I think 18 I think this year and on their way -- are on their way to 26 aircraft and then 36 on production, so should we continually see that go up I guess for you guys?

If that goes up in Lockheed, it'll go up with us.

And then also on the 787, it sounds like Boeing is assembling at two per month now but they want to be at four per month a year from now, so you're saying that you'd begin to see that rate increase in the fall?

That's our estimate on the thing. We've already shipped you have to understand. We've already shipped parts for the 787 on the aircraft that they're producing now and they expect to be able to deliver product starting November-December, so if that happens, we'll start shipping more. But they already have some things in stock that they procured from us and others to build the aircraft that they're building during the course of the year.

So I expect -- I mean, we've always said that the 787 can be a very successful project -- program for us, but I just don't think we're going to see a big increase in revenue until we get to full production, which is toward the end of the year, early next year.

Okay, and then just one final one, what was your assumption for the rate I guess on the outlook on the 737 next-gen? It sounds like Boeing is getting ready to move with an announcement this summer here and it looks like it's going to be higher than expectations at 36 per month. What was your assumption?

We did not make an assumption of a significant increase. We kept it at the rate that we're looking at right now, which is 31.

Okay. Thank you very much. Nice quarter.

Thank you.

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

Stifel Nicolaus. Thank you. Good morning everybody.

Good morning, Steve.

Good morning, Steve.

Boeing did have some news out yesterday that they were slowing not deliveries but the delivery of certain 787 sections so parts suppliers can catch up. Based on your other comments, should we assume that doesn't have an impact on Triumph or is there something else going on there?

We certainly didn't include it in our projections and I saw that same announcement and it doesn't change our projection that we just gave you and I don't know enough about it, Steve, to tell you whether it's going to affect anybody. I would have a feeling that they'll solve that problem very quickly. I will underline that we're not the cause of that.

Glad to hear that. Not surprised.

There could be some quarterly movements, Steve, but I think as for the year at this point I don't think we're contemplating a change to what we talked about.

Okay, thanks. And in relation to something you mentioned about expenses related to the Vought transaction, not necessarily the fees but other expenses that you had in the year just ended, and I presume in the current quarter, could you give us an idea of what those might be as they certainly have an affect.

In the quarter it was $1 million which is principally due diligence costs. And then in the next quarter before we close it will be mainly integration costs. And we'll call (inaudible) each quarter, Steve, because those are not in our guidance, but you're not talking about a huge sum of money in the first quarter I don't believe other than the transaction costs if we close in June.

Okay thanks. And in terms of V-22, where the rate appears to be going up pretty substantially, how -- what sort of lead times do you have, so what sort of rate? I think the Bell-Boeing joint venture is supposed to deliver 28 this year and more next year. Are you building at that 28 rate right now or are you building at an even higher rate?

The answer to that, Steve, it really depends on the individual company that is providing the parts because in some cases we've already delivered some or produced some of those parts. We're certainly planning on that rate and that's the rate we're building to but some of them are already done. Some of them will get higher depending on the time frame we have to deliver it and what the product is, so it's a mixed bag across our Company, but basically we're using those rates.

And Steve, when we look at our backlog each quarter, we don't publish this, but V-22 is at an all-time high so the lots are being released by Boeing and Bell and that's reflected in our backlog, so it's one of the couple programs right now that is at an all-time high.

Okay, thanks. I'm sorry, go ahead.

No, that's it.

The last item that is, is there some component of that that is aftermarket too as they seem to be getting a lot of wear and tear or has that not really begun to pick up yet?

There's some there. I would say it's small relative to the new plane builds.

Great. Thanks very much.

Thank you.

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

Yes, hi, good morning, Wedbush.

Good morning.

Hi, good morning. Clearly some really strong performance out of the Aerospace Systems segment, can you talk about what you sort of saw sequentially from the third into the fourth quarter and provide a little more color there? And potentially as we look into the first quarter now of 2011, what you see continuing or some of your thinking around specifically that segment heading into the beginning of this year?

There is obviously nice revenue growth sequentially in both segments and we did have one of the -- we did have part of the catch-up adjustments that we spoke about last quarter was realized in the fourth quarter and that's probably, that's less than a 100 basis points of margin. So I think that we're not anticipating any big drop offs in our margins in going into the New Year.

The fourth quarter is always very strong for us and it's really when we're going to start to see 777 come down and that's a very good program probably for everyone but certainly for Triumph, so those are the pressures.

I would hope to say that the Aftermarket will continue to climb so I don't think there's any radical change to our expected margins going into the New Year.

Okay. And then specifically on the Aftermarket, it looks like and what we've heard sort of from other companies was there was a nice, consistent growth sort of through the quarter from January to March. Did you see anything similar to that regard and can you, I guess based on your comments it's safe to say that that business has effectively bottomed and you're looking for sort of improvements as we go through 2011?

I think that would be a fair comment. We have seen some leading edges, if you will, of increased, Asia, for example, has shown some signs of waking up and I think there's been some starts, fits and starts on the increase in the Aftermarket business but I would look at that as being that way during the course of the year, yes.

It seems, Ken, that if I were to phrase it, it would be it's improving. It's not totally predictable yet, week by week, month by month, and I think we're cautious on that. But clearly the line's moving north.

Okay. Okay, that's encouraging. And just finally, you've talked in the past about the Bell 429. Can you give any update on that program and if you're seeing -- what you're seeing there?

Well, steady as she goes type of thing, there are some issues that are -- we're dealing with with Bell that have delayed the project to a signif-- not very significant level, a couple of months here and there and I think we're still looking at that. But we're still looking at the project coming on relatively shortly and we're dealing with them to go forward.

I would say that all the delays are not necessarily due to us. I think we're up to speed on where we're supposed to be. But like any new program with any company, and there are some issues that have to be dealt with, and as I've said in the past, this is the first time they've outsourced a project at this magnitude, so that's caused some consternation as we go along within Bell and we're dealing with those.

I think it'll be a very successful program. There's really no change on that.

It did jump way forward in our backlog. It's not in the top ten yet but it's fighting its way in there so I wouldn't be surprised if the passage of time as that program ramps up that you would see it in the bottom part of the top ten.

Very good. Excellent quarter. Thank you very much.

Thank you.

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

Good morning guys. It's Eric from Stephens. How are you doing?

Good how are you?

You had a great quarter. If you wanted to look at the, in terms of the sales, your range is sort of like flat to up 8%, so that's sort of middle of the range at 4%. If you wanted to look at sort of the Aerospace versus the Aftermarket, should we think one sort of has a sort of maybe growing faster than the other or should we sort of maybe middle of the road for each?

I think that we're looking middle of the road for each. I tried to give an idea on the major programs when I talked about the market and I've indicated that the Aftermarket has shown some improvement but it's really too early to tell. So I think it depends on how fast some of the programs ramp up like the 787, the Bell and the other programs that we've talked about. But I think it's fair to put it at that middle and obviously we'll be a little better toward the end of the year I think.

Sure.

I think within Aerospace, if there is better than that growth it would either be from a Boeing rate hike moving the 777 rate even more forward or Military or perhaps Business Jet. We were down this year way more than deliveries, as I think the OEMs consumed inventory. They're still projecting to be down next year but I have to believe our sales could be up a little. But that's not a market that's given us tremendous clarity over the past 12 months, so again, we're cautious there.

And what's your typical lead time? What would it be like on a 37, like if Boeing raised rates, when would you start to feel that?

Again, because of the way we run our Company and we have a number of Companies that deliver on the 737, I think that varies as to the Company on what we have in stock, but I'm going to say the problem with that is it goes from one week to a year, a year and a half so it's a hard question to answer, but I suppose if you average that out it's a four-month, five-month period of time.

Okay, fair enough. Can you talk about -- on the C-17 Boeing has said that they're going to have a production line going based on sort of the orders that they have through 2012. Now we know there's the opportunity for India to add an extra year onto that but let's assume that doesn't happen, when would your sort of last delivery sort of come off your line, when your revenues really start to drop off there, if India doesn't come on board?

I think that the way we're looking at it and what we've said is that we're the program and therefore we would be pretty good through 2012. There's no way we can really project that because we don't -- it depends on when we -- they release orders to us, but we feel pretty good about it through 2012.

And that would be not including India, right?

Correct.

That's correct.

Great. Can you just sort of -- I know you don't want to discuss numbers with regards to the Vought transaction, but there's no reason to sort of think -- we can still, like the numbers that you discussed in your presentation previously, there really -- we can still -- those are still sort of ball park-ish good numbers, correct?

That's correct.

Okay. And lastly, just with regards to the Vought, can you really discuss sort of the scope of what sort of -- what kind of integration do you really need to do between Vought and the rest of Triumph Group? I'm trying to sort of grapple with that.

Well in general what we're talking about is that obviously we have corporate costs and corporate disciplines that both Companies have and we have to address that issue, first. Second, there are issues that we won't address until after the acquisition is finalize but there are products that can be made, produced at Vought that Triumph needs to buy and vice versa and those are issues that we're going to deal with.

Okay, but it's not really like a lot of, like moving and changing production processes and stuff like that. It's just sort of more tweaking and stuff like that.

Well I wish it was just tweaking --

Not tweaking, maybe that's not a good word. I'm sorry to use that but you're not sort of going in there and sort of gutting the place and sort of redoing how they do things.

No, no. They have a lot of good people at Vought and we have to figure out how to use those good people and how to use what they -- how they produce and what we can do together, etcetera.

Great. Thanks a lot guys.

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

Ron Epstein, Bank of America Merrill Lynch. Good morning.

Good morning.

If Boeing and Airbus go through with [re-engining], what kind of opportunities does that open up for Triumph?

It opens up the opportunities, the products that we supply the engine manufacturers and the work that would be in fact done -- you're talking about the 737?

Yes, or even if anything goes up for rebid on A-320.

Well it would either be some re-engineering. There would be some -- a number of other things and it depends on the structural changes that are required when they re-engine because that's -- we would be able to supply the engine manufacturers as we already do but the other aspect would be the structural changes needed for the engine changes. We don't know those yet obviously.

Sure, sure. But do you think it's an opportunity to expand market share or would it just be a swap?

No, I think it's an opportunity.

Okay. And if you can, you mentioned a little bit about what you're seeing in the Aftermarket, can you give us any more color on that, what you see picking up, what you don't see picking up, that kind of thing?

In our Aftermarket, remember, our Aftermarket business is repair and overhaul of third-party products and you have some of the issues on the cargo aircraft and the cargo carriers. That's definitely starting to increase starting with the Asian increase, which we've said in the past I think that's a good uptick.

I think that the businesses in some of the accessories that we do, you've got to remember, we're third-party repair and overall accessories and that takes a while to come back and we've seen some increases in some of those accessories and some of the structural aspects within the cargo carriers and the commercial airlines have been the first things to come back.

And what have you seen in your own spares business?

I think that's been relatively flat. It hasn't picked up in a great -- to a great degree but I think that will very quickly.

Okay, thank you.

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

DA Davidson. Good morning guys.

Good morning.

Good morning.

Could you talk about -- you talked a little bit about 787 and when that starts to hit. Is the lead time kind of similar for the re-ramp and the 777 and is that consistent between the Triumph Group Companies and the Vought Companies?

I don't think we want to comment on Vought and 777 at this point. We were surprised this year at how early some of our Companies saw the 777 decline. A lot of those were situations where we sell indirect to Boeing is where we first saw it, so obviously people had managed their inventory differently.

We have some Companies that are going to be shipping at seven right into the first quarter so it's really a mixed bag and I think that's -- it makes it a little bit unpredictable when they start back up, will we see some of that [goodness] in next Q4 or will it wait until the first quarter and it's clear that everybody managed their inventory differently so it's --

But we are seeing the 777 backlog did creep up in the quarter, which means that when you look out 24 months, they're starting to see those orders but it's -- exact timing is difficult.

So is it safe to say you've kind of hit the inflection point of the fact the rate's coming down and in the future quarters you're going to feel the impact on that backlog at the rate going back up?

I think, just to be clear here, the backlog hit the inflection point.

Right, okay.

Revenue is clearly going to be down because they're still producing at seven.

Correct, right, right. And then David, on the interest for the year, is that roughly going to be $40 million plus or minus on a GAAP basis?

I think it should be a little less than that.

Okay.

A couple million less.

Okay. And then what's your CapEx budget for '11?

About $50 million.

Okay. And is most of that related to Mexico?

No.

Or somewhere related --

There's a chunk in there for Mexico but that's not -- there's not a majority there for Mexico by any means.

Phoenix at all, it looks like in Aftermarket Services the margin's better than it's been in like eight quarters so clearly there's been some improvement there. Can you maybe talk about that?

Well there's been some improvement there.

Profitable for the quarter.

That's what I was looking for. Thanks a lot guys.

Thank you. Our next question comes from Cristina Fernandez. Please state your affiliation followed by your question.

Good morning. It's actually David Strauss from UBS.

Good morning, David.

Good morning. On your guidance, assuming I guess $35 million or somewhere in there for interest expense, it looks like you're actually assuming lower margins next year than this year. Can you just give some color as to why? I would have thought Mexico's a little bit lower, volumes are creeping up. Is this dilution from 787 or what exactly is the reason why margins are looking lower next year?

I don't think they're much lower, David. Most of our headwinds are below the line in interest, tax and shares and so that's where almost all the hurt is getting from $5.12 to $4.65. But as I said earlier, 777 is a great program margin-wise. We've always said 787 would be diluted to margins in the early days two to three quarters until we hit consistent production and I think 747 will be a good program.

So revenue might not be all that bad from the various program mix but clearly that's a margin hit, so there is a little bit of headwind there. But I don't think I see our margins dropping too much.

Okay. And then Dave, on cash flow, obviously very strong this year [two times], what were your cash taxes this year and then what is the outlook, what do you think about, what are your puts and takes on cash flow next year?

I think, we're usually in the mid-20s tax payer so you could probably take a third of our tax rate, maybe a little less than that, off as a positive on the tax side and I think that from a total perspective, I would hope we would continue to hold inventories flat or drive them down so I would hope we have another year of inventory being a source of cash.

Receivables were a huge use of cash in Q4, which is a good thing because our DSOs are improving and we want to grow the business so probably receivables will be a minor use of cash during the year.

CapEx is going to be less than DNA so it might not be as good as this year but I'm expecting that we're going to continue to deliver strong cash. I would hope it would be in the ballpark of net income.

Okay, and last one on Mexico, it looks like you under-ran what you thought your startup costs were going to be next year or this year and then I had a $20 million total number for the investment in Mexico. Is that still right and when does that -- when does Mexico turn positive or turn accretive?

I would think it would probably turn accretive near the end of this fiscal year, early in next year. We've been delayed and I think part of the plant's been delayed in its opening, not anything catastrophic and so part of the reason for the underspend was just things that moved to the right a little as we dealt with some bureaucracy and our investment there will probably be cash-wise slightly higher or significantly higher, maybe $10 million more because we've decided to buy the building rather than lease it, which was in the initial model.

But that CapEx is in our $50 million and our part of it was paid for in this year. So it's just been a little slow on the uptick.

Okay. Thanks.

Okay.

Thank you. Our next question comes from Ed Keller. Please state your affiliation followed by your question.

Hi Rick and Dave. This is Ed at Oppenheimer.

Good morning.

Congratulations on a really good quarter.

Thank you.

I'm sorry if I missed this earlier but first are you -- are the already announced accelerations on 777 and 747-8 contemplated in your FY11 guidance? Was that a factor or is that more FY12?

FY12 clearly for 777 and 747 I believe the same thing is where we really start to see it.

Okay.

There is something in 2011 whether it -- sometimes it's up, sometimes it's down but as I said in the beginning, if you take the 777, the 747 and the 787, it's a very modest negative for us during the course of the year.

Okay. And then on your FY11 guidance you mentioned the R&D tax credit had a $0.07 impact, which you're not assuming. What would your tax rate be with and without the credit?

About a full percentage point.

Okay. And then with respect to Vought, can you talk to the organizational changes you're thinking about there? Will Vought become a stand-alone reportable segment just added to the current segments or is something more complicated being considered?

I don't think -- we're not trying to complicate matters. I think we'll run Vought in exactly the same fashion that we run our other Companies. We will have different operations set up that will operate independently and be held accountable independently. And there will be unit heads of various groups within Vought. We're in the process of going through the integration to determine the groups and the determine the heads of those groups and again operate the way we operate our Companies and they're responsible and accountable for what their operations do.

We haven't yet decided on the public segments, Ed, but I would think that it will not -- our thinking at this point is it's not going to be a Vought segment. It's likely to be an aerostructures or structures segment so part of Aerospace Systems is most likely and this is -- we have not made this decision yet but that's what our thinking is. We'd be combined with Vought to produce sort of an aerostructures segment.

Okay. Thank you.

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

Sidoti. Good morning.

Good morning.

You've addressed just about everything that I had on my list but if perhaps we could talk for a second about legal, there was some press out maybe a week ago, two weeks ago, in regards to you guys looking for a dismissal in the civil suit and Eaton wanting to take it into mediation and if you could comment on that, I guess that would be helpful.

Well it might be helpful but I can't comment on it. There's really nothing for us to say more than we've said in the past. If I said what I wanted to say I'd get excommunicated but -- from the aerospace world. But I think we're still -- we remain optimistic. We remain to the fact that we're fighting the issue to best of our ability and it'll go forward. But I really can't say too much more which I'm sure you appreciate.

I do and maybe if you could just talk about the legal expenses? I think perhaps over the past several quarters you guys had indicated that perhaps legal would be going up on a year-on-year basis. What does that contemplate in terms of timing, if maybe you can comment on that?

We're looking at next year, we have in the business plan $5 million for legal fees for the case.

Right.

And that's a best guestimate because you have no idea. All we know is that lawyers are expensive.

Okay.

I think it's -- there will still probably be money spent on both cases and we're again, it's hard to tell exactly which case revs up and which one settles down but that's where we're at.

Sounds great. Thanks a lot.

Thank you.

Ladies and gentlemen, are there any additional questions? Since there are no further questions, this concludes the Triumph Group's fiscal 2010 fourth quarter and year end earnings conference call. This conference call will be available for replay today, April 29, 2010, through May 6, 2010. You may access the replay system at any time by dialing 1-866-266-2081. International participants dial 703-925-2533. Enter the access code 1449287.

Once again, those numbers are 1-866-266-2081 and 703-925-2533. Access code 1449287.

Thank you all for participating and have a nice day. All parties may disconnect now.