Triumph Group Inc (TGI) 2014 Q4 法說會逐字稿

Welcome to the Triumph Group conference call to discuss our FY14 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.

(Operator Instructions)

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 Jeffry Frisby, the Company's President and Chief Executive Officer; and Jeffrey McRae, Chief Financial Officer and Executive Vice President of Triumph Group, Inc.

Go ahead, Mr. Frisby.

Thank you, Stephanie. Good morning, everyone. I want to add my welcome to our conference call to go over the results of our FY14 fourth quarter and our outlook for FY15. I'll remind you that there is a slide presentation that you can follow in addition to the audio portion.

I want to begin by telling you something you already know: FY14, now completed, had quite a lot of noise in it, stated politely. There were quite a number of moving pieces and they were not all moving in the right direction. That said, this noise is by and large behind us in FY14.

We will have a few items to call out and deal with separately in FY15. Jeff McRae will cover these in some detail shortly. We closed out the fourth quarter and the year in a positive manner. We were able to accelerate the shutdown of our Jefferson Street Facility and our move to Red Oak ahead of our original plan. While we incurred additional cost to do so, I'm convinced that the earlier timetable provide will provide us better returns than if we had lingered in two facilities longer.

Additionally we exceeded our earnings projection for the quarter when you add back those items we had previously discussed. As a result, we are headed into FY15 was some momentum. If you recall last year's annual report made the statements that we are designed to be different and built to perform. Our operating philosophy and our organizational structure make those statements true. With just a few exceptions over the years, our high level of execution affirmed this as well.

This year's annual report, when it is released, will add the phrase positioned for growth. Those of you who know Triumph well and who know me are aware of how a trajectory of growth is part of our DNA. It is what we have historically done and what we will continue to do.

Prior to our acquisition of Vought aircraft industry growth path was easy to see. Our top 10 programs was comprised of the industry's best program and changes the market share and build rate for rather transparent. Once we acquired Vought our two year view of Acclarent change and because of the sheer weight of the aerostructure backlog and focus on just a few programs it became more difficult to see all of the changes taken place behind the scenes. Changes that continue to properly position us on the best programs in the is just you today. Over time these changes will become apparent and venues, such as today's conference call, you'll just get a glimpse of what the future will hold for us. Consider that last comment a coming attraction ad for our Investor Day to be held June 11 in New York. We plan at that time to be able to widen the lens and provide you a broader view of why we believe we are in fact positioned for growth.

All that said, let's turn to slide 3. As I had mentioned, we had solid fourth quarter performance. In aerostructures the underlying quarter was solid, in spite of military decline and lower 767 program revenue. Importantly our 747 program was stabilized and is on schedule. Aerospace Systems delivered strong margins expanding 280 basis points on a sequential quarterly basis. While we saw continued good performance at Triumph Engine and Control Systems, many other aerospace companies also performed well. And in Aftermarket Services we saw continued strength in operating margin performance despite the fact that military still remained relatively weak.

Importantly we successfully completed the closure of our Jefferson Street Facility and our move to Red Oak Facility ahead of schedule. Now this was no easy task and improves our cost structure and competitive position going forward. We continue to proactively and effectively manage our pension obligations and Jeff will go into much more detail on this a little bit later. During the quarter we increased our share repurchase authorization to approximately 5.5 million shares and executed a 300,000 share buyback for approximately $19.1 million.

On the negative side we were recently notified of a stop work order on the final three C-17 production units. While this is certainly disappointing -- and we'll go over the FY15 impact a little later. On the positive side, we were awarded a three-year contract to provide overhaul and maintenance services for that same aircraft. Now the interesting thing about this award it that it resides in two segments: the Aerospace Systems and the Aftermarket Services, and illustrates the potential for bundling our proprietary products and our third-party repair activity.

Last but certainly not least, we were awarded the -- an Airbus contract to provide wing reinforcement kits for a319 and a320 Sharklets. This award has been close to complete for some time now, and we are very happy to be finally able to announce it.

At this point, I'll turn it over to Jeff.

Thank you, Jeff, and good morning. I will start with a review of our financial results for our fourth quarter. Turning first to the income statement. Sales for the fourth quarter were $936.4 million, compared to $986.3 million for the prior-year period, a decrease of 5%. Organic sales for the quarter decreased 11%, primarily due to production rate cuts on the 747-8, lower revenues on the 767 program and a decrease in military sales.

Operating income for the quarter decreased 28% to $80.9 million which included approximately $47.4 million in pretax costs related to the Jefferson Street Facility closure and startup for the Red Oak Facility, approximately $900,000 pretax of early retirement incentives offered to certain Triumph Aerostructures employees and a net curtailment gain of approximately $400,000 related to the Triumph Aerostructures pension plan. The breakdown of these nonrecurring costs is detailed on the next slide for your reference.

Excluding these items, operating margin was 13.8% for the quarter. The prior fiscal year's fourth quarter also included approximately $36 million of nonrecurring costs. Excluding these costs, operating margin was 15.1% for the prior year's fourth quarter. Net income was $42.3 million resulting in earnings per share of $0.80 per diluted share, versus $1.24 per diluted share for the prior year quarter.

Excluding the nonrecurring costs for both periods, net income was $73.5 million or $1.39 per diluted share, versus $1.68 per diluted share for the prior year's quarter. EBITDA excluding the net curtailment gain totalling $400,000 was $117.2 million, resulting in a 12.6% adjusted EBITDA margin. The number of shares using computing diluted earnings per share for the quarter was 52.8 million shares.

During the quarter our share repurchase authorization was increased to 5.5 million shares. And to clarify, this is a new authorization of 5 million shares plus 500,000 shares from a previous authorization that was still remaining. We executed a 300,000 share buyback for approximately $19.1 million. We repurchase shares in the quarter under a 10b-18 program and as such we only purchased shares prior to the blackout period.

As we move forward we are evaluating a more robust program which would include establishment of a 10b-5 program structured to provide the ability to purchase shares during our blackout periods and to ensure we are being opportunistic based on the valuation of our stock.

Turning now to our full-year fiscal year results, sales for the fiscal year increased 2% to $3.763 billion compared to $3.703 billion for the prior fiscal year. Operating income was $400 million, versus $531.2 million for the prior fiscal year. Included in operating income for the fiscal year was approximately $69.7 million in pretax costs related to the Jefferson Street Facility move, approximately $900,000 pretax of early retirement incentives offered to certain Triumph Aerostructures employees and settlements in net curtailments related to Triumph Aerostructures' pension plans of approximately $1.2 million pretax. The breakdown of these nonrecurring costs is detailed on the next slide for your reference.

Excluding these items, operating margin was 12.5% for the fiscal year. The prior fiscal year included approximately $44.2 million pretax of nonrecurring costs. Excluding these items, the operating margin was 15.5% for the prior fiscal year. Net income was $206.3 million, resulting in earnings per share of $3.91 per diluted share, versus $5.67 per diluted share for the prior year. Excluding the nonrecurring costs for both periods, net income was $253.2 million or $4.80 per diluted share versus $6.21 per diluted share for the prior-year fiscal year.

EBITDA, excluding pension settlements and net curtailments totalling $1.2 million, was $523.7 million resulting in a 14.1% adjusted EBITDA margin. The number of shares used in computing diluted earnings per share for the fiscal year was 52.8 million shares.

Looking now at our segment performance. Sales in the Aerostructures segment for the fourth quarter declined 12% to $632.6 million. Organic sales for the quarter declined 14%, primarily due to production rate cuts on the 747-8 program, lower revenues on the 767 program and a decrease in military sales.

Fourth quarter operating income was $36.2 million compared to $110.9 million for the prior-year period and included $47.4 million of pretax charges related to the Jefferson Street Facility move and $16 million of previously disclosed pretax charges resulting from reductions in the profitability estimates on the 747-8 program.

Segment's operating results for the quarter included a net unfavorable cumulative catch-up adjustment on long-term contracts of $27.4 million, of which $20.6 million was related to the Jefferson Street move. And $6.8 million was related primarily to non-move related charges on the C-17 program for which we have now been put in a stop-work on the final three ship sets for which we had previously been authorized for long-lead funding.

The reduction in C-17 production quantities has put pressure on the profitability on the final production accounting block due to lower projected labor performance, higher material costs and overhead absorption. During the quarter we did complete deliveries on a 747-8 program accounting block and we began deliveries on the next accounting block of 25 units. We not see any material change in our estimates on either block during the quarter as quality schedule and labor performance continue to improve in line with our expectations. This includes the impact we have seen from the bump and roll dynamic within our UAW workforce at our Marshall Street Facility.

With the final closure of the Jefferson Street Facility in March, any future bump and roll will be minimal and contained within the Marshall Street Facility. Overall the segment's operating margin for the quarter was 5.7% excluding the Jefferson Street move-related costs and the 747-8 program impact, this segment's operating margin was approximately 17%. EBITDA for the quarter was $62.4 million at an EBITDA margin of 9.9%.

For the fiscal year sales for the segment decreased 6% to $2.612 billion versus $2.781 billion in the prior year driven by the lower production rate on the 747-8, lower revenue on the 767 program and lower revenue from military programs, the largest piece being the B-22 program. Operating income decreased to $255 million with an operating margin of 9.8%, EBITDA for the fiscal year -- 9.8%. EBITDA for the fiscal year was $344.1 million and an EBITDA margin of 13.3%.

As Jeff mentioned, we did successfully complete the closure of the Jefferson Street Facility and the move to our new facility in Red Oak ahead of schedule. In doing so we experienced a higher level of spending and disruption during the fourth quarter than previously anticipated. We also -- which will also bleed into FY15, based on the treatment of the cost within the accounting blocks. This will be offset by the avoidance of any costs in FY15 related to the Jefferson Street Facility.

As shown on the next slide, which updates the cost and benefits associated with the Jefferson Street closure and the Red Oak Facility move and startup. We now anticipate a net $0.12 benefit to earnings per share in FY15. With nonrecurring expense of $0.26 per share related to disruption and accelerated depreciation being offset by a $0.38 per share benefit driven by the elimination of fixed facility costs at Jefferson Street and improve cost structure in Red Oak, we are still confident achieving a $0.50 per share run rate improvement relating to the Red Oak move.

On the labor front, our employees at the Marshall Street Facility have continued to work without a contract since last October, when negotiations on a new contract have stalled pending resolution of the UAW's appeal to the National Labor Relations Board ruling related to the Red Oak Facility. During the quarter we did communicate to the UAW our recognition, based on the number of employees that transferred from Jefferson Street to Red Oak, of the UAW's right to represent the employees in Red Oak. But to date little progress has been made in negotiating an agreement with the UAW covering the employees in Red Oak.

Moving on to our Aerospace Systems segment, sales for the fourth quarter increased 28% to $235.3 million of which $71.2 million were attributable to the recent acquisition of Triumph Processing Embee, Triumph Engine Control Systems and Triumph Gear Systems Toronto.

Fourth-quarter operating income increased 28% over the prior quarter of $42.8 million with an operating margin of 18.2%. EBITDA for the quarter was $49.2 million at an EBITDA margin of 21.2%. For the fiscal year sales for the segment increased 42% to $871.8 million versus $615.8 million in the prior year, of which $270.4 million was attributable to recent acquisitions. Operating income increased 45% over the prior year to $149.7 million with an operating margin of 17.2%. EBITDA for the fiscal year was $169.8 million at an EBITDA margin of 19.9%. The segment's operating results included $500,000 of legal costs associated with the ongoing trade secret litigation for the quarter and $6.8 million for the fiscal year.

As for the status of the ongoing litigation with Eaton we have previously disclosed that last November the Supreme Court of Mississippi [unonomously] affirmed the dismissal with prejudice of all of Eaton's claims against Triumph and the engineer defendants. Eaton moved the Mississippi Supreme Court for rehearing of the appeal, but on March 20th of this year the Mississippi Supreme Court denied Eaton's motion. Meanwhile Triumph's claims against Eaton remain pending in the trial court in Mississippi, but those proceedings are still stayed by the Mississippi Supreme Court, while it considers a separate appeal by Eaton of a ruling by the trial court that would require Eaton to produce documents Eaton claims to be protected by the attorney-client privilege. That appeal is still pending.

There is also the antitrust case Triumph filed against Eaton in the US District Court in North Carolina which also remains pending. If anyone wants to know more, we refer you to the documents available in the public record and we prefer to let those documents speak for themselves.

In the meantime going forward, any legal charges incurred will be recorded as corporate expense and will not burden the Aerospace Systems segment with this cost. Moreover we expect to be able to reduce ongoing legal costs through alternative fee arrangements as necessary. As a result we do not expect the ongoing legal costs associated with the Eaton litigation to be worth addressing separately.

Continuing with our segment reviews; sales in the Aftermarket Services segment were $70.5 million compared to $83.9 million in the prior-year period. The year-over-year decrease reflected the impact of the divestiture of the instruments companies as well as the timing of completion of certain contracts. Although we have begun to see improvement in the commercial aftermarket, the military aftermarket has continued to lag.

Fourth quarter operating income decreased 11% over the prior-year quarter to $11.6 million with an operating margin of 16.4%. The margin expansion was driven primarily by a gain on the sale of rotable assets and improved operating performance. EBITDA for the quarter was $13.5 million at the EBITDA margin of 19.2%.

For the fiscal year sales for the segment decreased 9% to $287.3 million versus $314.5 million in the prior year, largely due to the sell of the instruments business. Operating income decreased 7% over the prior year to $42.3 million with an operating margin of 14.47%. EBITDA for the fiscal year was $49.8 million and an EBITDA margin of 17.3%.

The next slide is a pension OPEB analysis for Triumph Aerostructures for your reference. As you can see, the table summarizes the pension and OPEN P&L impact, as well as the cash contributions for FY14 and FY15. You will see that we deferred making a $70 million voluntary pension contribution that was previously planned for the fourth quarter of FY14. We now plan on additional voluntary contributions in FY15. During the fourth quarter our pension liability was positively impacted by two efforts. First we initiated a benefit freeze for all remaining nonunion employees in the Heritage Vought business that had not been previously frozen. This action results in a curtailment credit of $8.4 million with an anticipated long-term economic benefit of approximately $25 million. Second, due to the closure of the Jefferson Street Facility, we were required to apply curtailment accounting to impacted hourly personnel which resulted in a curtailment charge of $8 million.

In future years we anticipate these two activities will result in increased pension income in the range of $1 million to $1.5 million. With regard to our pension liability at the end of FY14, our net underfunding was reduced approximately 37% to $227.4 million since the beginning of our fiscal year. This is due to an increase in discount rates, strong asset returns, and the proactive actions we've taken over the past couple of years. Looking at the components, our gross liability decreased $229 million offset by a decrease in assets of $97 million which was driven by lump sum distributions and partially offset by positive asset returns.

Turning now to backlog. Our backlog takes into consideration only those firm orders that we are going to deliver over the next 24 months and primarily reflects future sales within our Aerostructures and Aerospace Systems groups. The Aftermarket Services group does not have a substantial backlog. Order backlog as of the end of the year was $4.75 billion up 5% from prior years. Military represented approximately 26% of our total backlog.

The top 10 programs listed on the next slide are arranged according to backlog. The list remains large unchanged from last quarter although making its first appearance in the top 10 was the Lombardia Global 7000, 8000 program.

Looking at overall sales, Boeing remains our only customer which exceeded 10% of our revenue. Net sales to Boeing Commercial, Military and Space totaled 44.9% of our revenue and is broken down 73% commercial and 27% military. Looking at our sales mix among end markets, the next slide shows that compared to FY13 commercial aerospace sales increased by 2% to $2.151 billion, representing 57% of our sales; military sales of $1.062 billion increased 3% year-over-year and represented 20% of our total sales. Business jets decreased 8% to $415 million and represented 11% of sales, while regional jets increased 76% to $58 million and represented 2% of sales. Nonaviation accounted for 2%.

Finishing our sales analysis, the next slide shows our sales trends for the fourth quarter and the fiscal year. Total organic sales for the quarter decreased 11% from the prior year to $847.2 million. Breaking that down by segment, the aerostructure segment, same-store sales for the fourth quarter declined 14% to $612.6 million, primarily due to the proaction rate cuts on 747-8, lower revenues on the 767 program and a decrease in military sales as mentioned earlier. It also reflected the impact of the divestiture of a small aerostructures company that we announced last quarter.

Aerospace Systems same-store sales for the quarter grew 1% to $164.2 million while Aftermarket Services same-store sales decreased 9% to $70.5 million, primarily due to the timing of completion of certain contracts and continued military softness. With respect to the fiscal year, total organic sales decreased 6% over the prior year to $3.407 million from $3.629 million. Breaking that down by segment, the aerostructure segment same-store sales for the fiscal year declined 8% to $2.518 billion. Same-store sales for the fiscal year for the Aerospace Systems segment were $601.3 million, compared to $593.6 million a 1% increase. The Aftermarket Services same-store sales for the fiscal year declined 1% to $287 million. Export sales for the fourth quarter increased 20% to $164.6 million. For the year increased 23% to $621.6 million.

Now turning to the balance sheet and the next slide. For the year we generated $181.5 million of cash flow from operations before Triumph Aerostructures' pension contributions of $46.3 million. After these contributions, cash flow from operations was $135.1 million. Inventory for the year increased $124 million of which approximately $41 million was attributable to investments in the Lombardia Wing, $38 million to FY14 acquisitions, $20 million from the Jefferson Street build ahead, and $19 million for the Embry Air program.

CapEx in the quarter was $44.6 million and $206.4 million for the year of which $86.6 million was attributable to the construction and startup of the Red Oak Facility. Net debt at the end of the year was $1.521 billion versus $1.298 billion at the end of the prior year representing 40% of total capital. It is our intent to refinance the 2010, 8 5/8% senior notes due 2018, which we expect to be completed in the first half of FY15. The impact of the call provision of those notes and the unamortized financing fees will be approximately a $21 million charge during FY15.

The global effective tax rate for the quarter was 35.4% and reflected the fact that the R&D tax credit expired in December 2013. In addition the income tax for the quarter was favorably impacted by the true-up of our financial statement state tax expense to the actual state tax returns file. From a cash perspective, we currently expect to pay minimal cash tax in FY15.

With respect to our financial guidance for FY15, we expect revenue year-over-year will be relatively flat, in the range of $3.7 billion to $3.8 billion, with Aerostructures down due to full-year impacts of the 747-8 and B-22 rate reductions and the end of the C-17 program. Partially offset by growth in recent program wins, initial deliveries on the Lombardia Global 7000 8000, and growth in the Global Hawk 737 and 787 programs. The lower Aerostructures revenue is offset by continued growth in our Aerospace Systems segment and year-over-year recovery in our Aftermarket Services segment.

Earnings per share excluding nonrecurring costs related to the Red Oak startup and taking out the 2018 notes, as previously discussed, is expected to be in the range of $5.65 to $5.75 per share. This guidance reflects the impact of the earlier than expected conclusion of the recurring production on the C-17 program. And the continuation of the 747-8 program at a rate of 1 1/2 units per month with a profit rate on the 747-8 program within our Aerostructures segment between 0% and 1%.

We are also projecting in generating $250 million in cash flow available for debt reduction, acquisitions and share repurchase. As we look within the year, our expectation is the second half will be stronger than the first half in both earnings and cash flow as we put the remaining impact of the Red Oak move behind us and we realize lower interest rates due to taking out the 2018 notes.

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

Thanks, Jeff. As you have just seen, our backlog remains strong and in fact growing. In FY15 we will remain focused on improving execution and efficiency, integrating our acquisitions and reducing our cost both internal and external. As we look to continue our growth track, execution across the board will be a key catalyst. As Jeff reported, our FY15 guidance is as follows: Revenue up $3.7 billion to $3.8 billion; earnings per share excluding Jefferson Street, Red Oak overhang costs and anticipated refinancing fees will be in the range of $5.65 to $5.75 per share.

I tend to oversimplify things. Although I risk doing so again, the way I view our guidance for FY15 is basically this: We preliminarily estimated $5.75. Very recently our C-17 program was negatively impacted by the stop-work and we believe cancellation of the last three C-17 transport aircraft. Based on our diverse content and the various spots within the supply chain that we reside, we estimate a $0.10 FY 15 impact as a direct result. That cancellation, combined with the belief that we will at least partially mitigate it toward the end of the year, leads us to $5.65 to $5.75. And finally we project, as Jeff mentioned, cash available for debt recognition acquisitions and share repurchases of approximately. $250 million.

So this time I like to open the phone lines for whatever questions you may have.

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)

Joe Nadol, JP Morgan.

Joe Nadol, JP Morgan. Good morning. First question is on the C-17. Where is the profitability now in your guidance for this year? What margin is are you expecting to accrue? How do we get confidence -- what kind of confidence can you give us that this is just a three aircraft and we're not going to get an another charge next quarter?

Yes, Joe, I am not going to talk the specific margin on C-17. Historically, C-17 has been a fairly strong margin producer for us. As I think of the last three aircraft and the impact that we saw in Q4, we try to ensure that we capture what we believe the impact of the loss of those three aircraft is -- within the Aerostructures business. We're now dealing with a block that's effectively 10 units versus 13. We know we're going to have pressure on material as we go back to our supply chain for 10 versus 13. We know we're going to have issues with tail-up as we're producing the last aircraft.

What we've tried to do is capture all of that as we've looked at Q4. I'm not going to say it's not without risk going to the end of any production program. But I think we've tried to do a good job of capturing it here in the fourth quarter.

Is some of the extra cost you expect for Red Oak in FY15 is -- were you able to parse that between C-17 being abbreviated and the other issues you mentioned? How do you even separate that?

We made an attempt to, let me clarify first. As we think of the hangover of the impact of the move to Red Oak in FY15. Most of that impact we've seen occurred in the fourth quarter. But due to our accounting block structure, we ultimately spread that over the accounting block, so some of the impact that we physically saw in the fourth quarter bleeds over to FY15. And specifically to C-17, which was the last program that came out of Red Oak.

As we accelerated the move, the greatest impact we saw was C-17 which we tried to capture what we believe was the disruption impact of that. And that is flushing through the EACs on that accounting block.

On top of that, we then tried to discreetly understand what we would see looking forward as impacts to having three fewer ship sets in that block. And that's not all just labor performance. It's also assuming that we are going to see hits from suppliers on material and it also has an absorption impact with fewer hours running through the Red Oak Facility related to C-17.

You guys had mentioned a $6.75 EPS target for next fiscal year, FY15 last quarter. Clearly the C-17 would seem to have some impact on that. Any update on that outlook?

Yes. Let me start by saying, the only thing we saw at a high level that has changed our view on FY16 is the early termination of the C-17 production. So at this point we would see no revenue or margin related to C-17 production units in FY16. That said, we have made a conscious decision not to provide earnings guidance beyond FY15.

What we will do is, at our Investor Day in June, is provide greater insight into how we see the future growth of the company. That will include how we view both top line and opportunities for bottom line growth as we look forward. Okay ( Indiscernible -- multiple speakers )

Let me point out this is not -- we have traditionally done this when we have had our initial Investor Day and gave guidance, the longer-term guidance once we got out to the year before, we no longer continued that. We continue to look out on a larger horizon.

Just one more. The CapEx and investment number is a little higher than we have been looking for. You have a big rolloff of the Red Oak CapEx which I guess was almost $100 million last year. Can you help us understand what is in there?

Yes, and in our guidance what we gave is both CapEx and nonrecurring investment in major development programs. If we think of traditional CapEx we think we get back into what I would depict as a normal range of spending on CapEx between $120 million to $140 million. The balance of that $250 million is the continued nonrecurring investment on the Lombardia Global 7000 8000 and the Embraer E-Jets program, but which flushes in the inventory.

Got it. Thanks.

Steven Cahall.

Thank you for taking my questions today. Maybe just start off on the NRE projections for Red Oak and Jefferson Street. They were up pretty steeply in Q4 versus what you guided to for 2014 in Q3 and then 2015 as well looks to be up from about $4 million to $20 million. Since there is no bump and roll in there, it sounds like, can you give us some color as to what is in there and speak to the savings and if there is any risk that it bleeds into FY16?

Yes I mean the two elements that go in there are the disruption related to the labor force as we moved the programs and got programs set up in Red Oak. And then the accelerated depreciation as we exited Jefferson Street and flushed through the balance of depreciation on any assets that were effectively abandoned related to Jefferson Street.

The real dynamic that we're looking at is due to our accounting block structure, both of those cost elements go into the accounting blocks and then get spread over all the units in the accounting block and a number of the accounting blocks span between FY14 and FY15. So you are seeing that hangover of cost that was incurred in FY14 that does not flush through the P&L until FY15 and the units in those blocks are delivered.

We do anticipate in the first quarter some residual disruption in Red Oak as we finalize getting programs set up. But we would see that in the first quarter definitely ending in the second quarter. We think FY16 will be very clean and won't have any impact related to disruption or the depreciation. And we are still very confident that the original business case assumption that we will be able to generate the $0.50 a share benefit related to this on a run rate basis.

One other comment. I think you have to understand that there is really an additional benefit that -- we did in fact spend more money and more expense in FY14, but we, effectively, by the end of this last fiscal year had all of our employees under one roof far ahead of schedule. As such, we were able to actually as one site and one company start coming down the learning curve which will be apparent in each of our programs in varying slopes. But we started that process much earlier than we would have.

So I think we are actually going to be far ahead of the game as we start getting out towards the end of this year and also further into the next fiscal year. I think when we look back on this, it's going to be very beneficial to have exited Jefferson Street earlier even though there was some higher costs in the fourth quarter.

That is very, very helpful color. Maybe just a follow-up on share count? In the past, you've given us some steerage as to the weighted average shares to assume in guidance. Any thoughts on what we might be looking at for 2015 relevant to the buyback change?

We've used in our calculation 52.6 million shares.

Great, thank you.

Cai Von Rumohr.

On previous calls you've talked about looking at Spirit's Tulsa facility and some of the business there. Could you update us? Is that still an active negotiation?

We sit on a fine line here about what we discuss what we don't discuss about ongoing and potentially ongoing acquisitions. So let me just say, we certainly have had an interest in part of the Tulsa operation. If we want to go out and buy something, things can happen relatively quickly. As you know when you try to come up with a win-win type of situation, it takes a little longer.

And in a situation like this should it come to fruition, we've got to come up with a win, win, win. That adds a lot of complexity so things take a while. So I guess -- without going too much farther I'd say we still have an interest and we are still hoping to make progress but we have nothing to announce.

Great. Thank you very much -- and just -- housekeeping issue, you did not include the debt refi charge you had in FY14. And yet you are including -- or at least excluding it in adjusted earnings, taking it out of the reported so get you up to the adjusted, for FY15 even though the net benefit of that, because it happens early in the year, offsets most of it. What is the thinking behind that? Was that in your prior guidance? I did not think it was.

Yes, Cai, we try to be consistent as it relates to FY15 knowing that it is a little inconsistent with how we've looked at FY14. And we've tried to be consistent in saying in the $5.75 that we were previously projecting, we had included the benefit related to the lower interest cost but we had not included the cost of taking the bonds out.

For us we wanted to make sure we were clear as we came out with formal guidance for FY15, how we were looking at it -- it was clear that the impact of taking those bonds out, whether you want to carve it out or you don't want to carve it out, we want to make sure it was fully understood in our mind it was not included in the $5.75.

Got it, thank you very much. The sale of the rotable assets, how big was the profit there?

It was a meaningful profit but wasn't a distorting profit for us in Q4. And rotables tend to be a little lumpy for us; so some quarters we see them, some quarters we don't. We see them at different levels. But it wasn't distorting necessarily to a great deal in aftermarket.

And the last one, so C-17, can you tell us how many ship sets you expect to do in 2015 and 2016 approximately?

Yes. If we think of the large aerostructure elements of C-17 --

Yes, that's what I'm talking about.

-- we would look at that as a 10 less-delivered. I say 10, it is not a full 10. But as we count it we think of it as 10. That will now -- if Boeing ultimately does terminate those last three ship sets, which they have announced that they plan to do, they've only put us in a stop-work, we would be looking at zero in FY16. And, Cai, my only caution is we feed a lot of different places in the supply chain throughout Triumph, so certain enterprises are ending earlier than those 10. So it is not a clean 10 across the enterprise.

Got it, thank you very much.

Peter Arment, Sterne Agee.

Good morning, Jeff and Jeff. Can you give me a little more color on what you're seeing -- military aftermarket has been weak for a while now -- how you think that settles out as we go through FY15? Given where budgets are settling out and I have a follow-up.

All right. My sense is that we are not really planning on seeing a huge uptick. What I think we have is we saw pent-up demand and we still see pent-up demand as I guess will be defined by -- we have certain visibility into some of the depots and some of the customers that have parts that we could repair and in the past when they got those parts for us to repair they would send them to us.

Then they came up with budget shortfalls and they started holding those, and that was really how we defined the pent-up demand that we could actually see and put our hands on. That still exists. And so we are planning on continued activity in military. But we are not planning on the floodgates to reopen.

What I expect to see is that -- for whatever reason, whether it is just a drum beat of the reduced flying hours of the military fleet or whether it's a concern over future funding levels that we will see a relatively subdued level of activity, similar to what we see now. And just in terms of the military aftermarket.

Okay. Thank you, that is helpful. And could you comment on the -- you've had some very nice wins on the Airbus here recently. Do you see more still in the pipeline there? And also related to the OEM outlook, how are you progressing with Boeing's Partnering for Success programs? Thank you.

Well, on the Airbus front this is actually -- I'll cut one of the questions off at the pass -- this is actually one of the two announcements we have been wanting to make for some time and haven't been able to make because of a number of issues. So this particular project, the wing reinforcement project is an exciting one, it is that because we really can get into production relatively quickly. We should be able to do so to some level within the fiscal year and we had already planned on that. But that ramps up fairly well and depending on the success of the retrofit program and operator acceptance levels, could be very exciting for us and could provide us some type of bridge to where we end up getting the ramp up of some of the programs like the A-350 wins we have had.

That said the opportunities to continue our expansion of Airbus work remain robust; they remain very positive. And so we would certainly anticipate further inroads on Airbus platforms, either directly to Airbus or through tier ones, because as you know we have an ability to operate at multiple tiers.

So the question on Boeing is that we believe our relationship with Boeing is certainly solid, as is evidenced by the C-17 repair contract; evidenced by the fact we continue to continue to get looks and are in discussions on some of their new programs.

And we are -- we are participating in the Partnering for Success program at each of our companies that are being requested to do so. We have a number of companies that have, in fact, already fully met those requirements and are rated -- I guess they're rated green or whatever color they choose to call acceptance.

Julie Yates, Credit Suisse.

Just a question back to the guidance trying to bridge the preliminary $5.75 to the $5.65 to $5.75 offered today, were there any other changes besides the $0.10 impact from C-17? It seems like there were obviously movements around the assumed benefits and cost from Red Oak?

Yes, as we went through the planning process and when we first talked $5.75, we were very early in that process. I would say there were a number of puts and takes with each of our businesses that ultimately gave us comfort on holding close to the $5.75. As Jeff depicted, our ultimate assessment was providing recognition for the impact of C-17 as we looked at it.

As we looked at the Jefferson Street, Red Oak impact, although we were seeing higher level of the carveout related to disruption and the accelerated depreciation, the bottom line recurring benefit really held pretty steady from what we were thinking in the original $5.75.

If I look at it on a net basis we were talking about a $0.25 good guide last quarter which had about -- a much smaller carveout for disruption. We're still looking at about a $0.12 net good guide which now has a much larger carveout.

If I look at the recurring piece of it, it's pretty close. So movement in the carveout but not movement in what we're seeing as recurring benefit in Red Oak. At the end I think the C-17 is the one piece that we would call out as the macro level change that we thought we needed to incorporate.

Okay. And there were no buybacks assumed in either, correct?

You know we are using 52.6 million shares as the basis for calculating. We will have many things we look at to how to mitigate that $0.10 impact on C-17. Share buyback would be one of those things we would look at as helping to mitigate getting back to $5.75.

Okay, okay. And thinking about bridging from this year's to adjusted $4.80 to the new range you get a tailwind from incremental pension income; you have the absence of the prior year cumulative catch on 747-8, lower interest costs. And that gets you to the mid-$5.00s. But there is an incremental of $0.20 to $0.30. And is that Red Oak? Or is that margin improvement on other programs?

Yes, it is margin improvement; it includes that margin improvement we see in Red Oak. But I think you have the other big pieces, pension, interest and [and to lock up].

And, Julie, one of the things, for example, when we think about we're seeing -- when I say margin -- when I'm thinking about margin improvement in Aftermarket Services, for example, those are typically margin dollars that we are talking about. And we do see some growth in Aftermarket Services; we have a number of opportunities that are pretty significant that we believe will come to fruition fairly soon.

Those things will probably start delivering toward the end of the year so some of that stuff may be more backloaded. But we are pretty comfortable we are going to see margin improvement in Aftermarket Services as well as Aerospace systems.

Okay. And just one more on the -- switching gears to the top line, you talked about being positioned for growth. Do you expect to resume organic growth in FY16, after down 6% this year and a flattish outlook for 2015? Or will it be a little bit later, given the headwinds in military?

Well, I think we could discuss what organic growth is, because once we've acquired a company and it becomes organic -- and some of the acquisitions we have made have helped position us better for growth. Some of the acquisitions that we will make will continue to position us.

We won some longer-term programs, as you know, that will in fact help position us. We will continue to make acquisitions and to invest in programs that can help us in the mid and long term. My sense is that we will return to top line growth in FY16. I guess we could debate about how much is that actually organic and how much is not.

Okay. Understood. Thank you.

Yair Reiner, Oppenheimer & Co.

Good morning. Thank you for taking my question. So first a quick qualification. The adjusted numbers for the fourth quarter, do they include any of the bump and roll impact? Because I think the third quarter numbers included some bump and roll? Or is that all excluded from the adjusted number?

Yes, we have not included the Marshall Street bump and roll impact in the carveout so we have really isolated the carveout to Jefferson Street impacts and the startup of Red Oak. It is incorporated in our assumption around profitability on 747, which is actually queued at Marshall Street. So as we talk a 0% margin, we have assumed that bump and roll impact in there.

Got it; very good. It sounds like the inventory build associated with the move amounted to $20 million over the year? I think that is about half of what you initially anticipated, if memory services. Is that correct? If so, what changed in the planning?

Yes, we ended the year at about $20 million. Part of the dynamic is really the timing of execution on the move. So as we accelerated we were getting more programs up and running and pushing product out the door by the end of the year on those programs.

I would say also we did not get as much built up as we had anticipated on certain programs which put more pressure on the quarter as we looked at it.

It is funny, when you think about inventory build ahead, it is always easy to put those things in a plan. It is generally not quite as easy to execute them across-the-board. I've moved an awful lot of projects and product lines and I've never seen actually a fully executed build-ahead plan that worked exactly how you laid it out.

I am reminded of General Eisenhower who said that planning is essential but plans are useless. And the thought being that when your plan meets reality, it really boils down to the old adage that the most successful person is the one with the best plan B. Being able to adapt and actually successfully pull off this move without significant disruption to our customers and to do so without quite the build ahead that we thought we were going to have, I think, was just further testament to what a good job those guys down there in Texas did.

Got it. Great. And then just one more, if I could -- the C-17 contract that you got for the repair and overhaul, and the replacement parts, is that a contract you already have that is being renewed or is that incremental work?

We had have those products before; we were able to retain them and we're able to retain them on a multiyear basis, so that was a continuation of work that we had been performing.

Perfect. Thank you very much.

Noah Poponak, Goldman Sachs.

Good morning, everyone Hey, guys, on the 747-8 program, can you maybe just give us a little bit of an update on the one or two things incremental since the last time you updated us that maybe give you more confidence that you are fully stabilized there and there is no more surprises on your own performance and cost?

And then on the volume side, what is your level of concern that there is potentially another volume reduction there from the OE and are you able to prepare for that or not?

All right, well, there is a number of questions there. On the volume front, first off, that we see how many announced aircraft that Boeing has sold on this aircraft. And at the same time, Boeing continues to express confidence that they not only will continue to build at 1 1/2, but want to actually consider increasing the rate. I am not considering that as something that is likely to happen. But I do believe that they intend to keep the rate at 1 1/2. It becomes very costly for them, as well as us, to go underneath that.

But that said we are in the process of developing plans that we should have completed fairly soon in terms of how we mitigate against reduced rates, because while we hope for the best, we have to plan for the worst. And so we are looking at ways to mitigate whatever downside we might face should the rate go down.

And I want to comment, you said fully stabilized? I do not think I use the phrase fully stabilize when I talked about 747. It's like -- I'm not going to say that the program is still in intensive care, but it's relatively a fragile program when you have virtually no profit on it and are projecting to have no profit on it.

We have to execute our plans to continue to reduce our costs and everything that we see right now indicates that we are able to do so. And we are looking at it every week and will continue to follow through with that.

So we are -- we are on schedule. We continue to be that now which helps quite a lot. And we are making improvements. That said, it is stable, but it is not something that -- that we have to -- that we can really take our eyes off. We have to be very, very vigilant and continue to manage it.

Okay, that is helpful. And then -- just one other question. With the discussion of the second half of FY15 being stronger than the first, I wondered if you wanted to actually maybe quantify that on just the top line or just the margins or even EPS? Because it does look like the comp -- the way the comp's set up and the way a decent amount of the moving pieces on margins shake out, that the year could be fairly backend loaded?

The two elements that I see driving the first half versus second half -- the first is, the completion of flushing through the Jefferson Street, Red Oak impacts through the P&L. That, and the second piece is, as we look at taking out our 2018 notes, that will happen in the first half of the year; we will see the interest benefit of that in the second half of the year.

And that one -- until we finalize how we take those out, what mechanism, and what we replace with and at what value, it is a little bit hard to quantify exactly the interest benefit we will see there. Absent those two items, I don't see any significant distorters between the first half and the second half, Noah.

Okay. I had thought the way that the year-over-year growth comparisons looked and at least the way I thought some of the -- timing of contributions from some of the major programs that are not flat year-over-year shook out, that first half revenue looked down kind of mid-single digits and second half up middle single-digits to get you to that flat. Is that not correct?

Well, you have that dynamic. It ends up starting to be upset by the C-17 dynamic as we go through the year, where revenues there will be higher in the first half versus the second half just as that program tails off by the end of the year. So you got some moving pieces in there.

All right. Thanks a lot.

David Strauss, UBS.

This is Matt Acres on for David. Good morning. Can you give us any color on your 2015 guidance on where you see margins moving segment by segment?

Yes, as I look at versus FY14, I think the full-year margins are probably more indicative in systems and aftermarket than necessarily fourth quarter margins. We saw very strong fourth quarter margins. I don't know that I would sign up to holding those margins through FY15 for the full year yet. I think the full-year margin for 2014 is a better indicator there.

And then as we look at structures -- that one is a little bit tougher with all the noise in there. But I think we should continue to see improvement. If you look at it excluding the JSF Red Oak carveout and you take out the zero margin on 747, I would expect to see some improvement in margin year-over-year there.

Thanks. And then on the $70 million pension contribution that got pushed out -- I guess what drove that?

It really was, as we looked at cash flow, finishing out FY14, it was not coming in as strong as we thought it would be due to a couple of factors. We are still of the mindset of continuing to derisk the pension plan, so all of it really was with pushing it out of Q4 and we pushed it into FY15. And it really is just trying to balance cash flow as we look at the business overall.

Okay. Thanks.

Myles Walton, Deutsche Bank.

Thank you for taking the question and good morning. The FY16 or the next 24 months cash flow target had been $600 million. And just curious if there is any reason to think that that's changed at all giving all the moving pieces that you have had over the last few months. It seems like that would still be an appropriate target?

Yes, that is still a good number to use.

Okay. And then you mentioned the legal on Eaton -- happy to hear we won't be talking about it a lot more -- but the guidance for 2015, does it include legal expense or is that a tailwind of $5 million, $6 million?

It includes legal expenses. Our expectation is it's not at the same level as we have seen historically. There is a little bit of opportunity there as we look at some alternative arrangements.

Okay. But it will drop through corporate expense as opposed to the $6.8 million?

Yes, we are not going to impact the segment so the segment should be clean.

And then the other clarification, Jeff Frisby, you had mentioned in answer to Julie's question about if FY16's would be up, talking about organic versus nonorganic in discussion. My question is, if you didn't buy anything else today, not looking at what you have bought in the past, but if you didn't buy anything else today, would FY16 sales be up?

Well, I have not looked at that. I don't know that -- when was the last year we didn't buy anything?

I don't know.

Myles, at a macro level, obviously the whole from C-17 will be an impact on FY16. Offsetting that you have Lombardia 7000, 8000, beginning to provide some meaningful revenue in FY16. You have the continued ramp on programs like 87, 37, that's out there, so I don't know that we've looked at it without some assumption of additional wins. Eliminating acquisitions is one thing, but it's also looking at what other captures will we have and then we still have a very robust pipeline of opportunities that will allow us to grow organically.

I've always considered the likelihood that we will continue to acquire companies, assuming they are the right strategic fit and that we can do so in a disciplined manner price wise. And we do have, as we mentioned, the aftermarket business is going to grow, particularly towards the end of the year as some of these large opportunities become realities.

We have opportunities that are piling high. It's funny, because we think about the C-17. I just actually discussed this with some of our Company presidents last month at a meeting we had. And we talked about -- I talked about my belief that we are really -- should be more concerned with capacity constraints than what we're going to do to refill the C-17 pipeline, because there are so many opportunities that we are dealing with right now. It's just a matter of timing.

So when you talk about whether FY16 will be up or down without any acquisitions, we have to take a look at the --whatever the difference might be with the C-17 reduction and how quickly we win some of these other products.

And then one last one to the cash flow statement or the balance sheet. The preproduction growth in the global and the E2 looks like it was about $75 million this year, about $125 million or $130 million in FY15 is your expectation. What's it look like beyond that profile? Is that the peak in terms of net growth in preproduction inventory?

Yes, Global 7000 8000 should complete in FY15. You shouldn't see any there beyond Embraer will bleed over into FY16, but it completes in FY16 midyear. So you probably have half your spend in FY16 on Embraer.

Okay. Thanks.

Michael Ciarmoli, KeyBanc Capital Markets.

Good morning, guys, thanks for taking the questions. Maybe on the FY15, maybe another way. Do you expect to see growth in commercial or how are you looking at growth on commercial versus military next year?

We're not seeing -- with revenues flat year over year, as we look at it, commercial versus military, I don't expect a big step function change in commercial up, military down. So it's a point here, a point there type of thing, Michael.

Okay. And then maybe just one more follow-up on this, Jeff McRae, the refinancing. You did the refinancing in third quarter of last year. You talked about the $5.75. Does this $5.75 now include additional benefits from the planned refinancing that you're going to get to? I just want to try and reconcile if you are baking in an additional savings?

How we built the $5.75, it does not include the cost of taking the bonds out, which is really the call premium, and then unamortized financing we had on those bonds. It does include lower interest rates in the second half of the year. Assuming obviously that we would be replacing those in some fashion with a lower cost of vehicle.

So that would be an incremental savings from then what you talked about last quarter?

That was how we were thinking about it last quarter.

Okay, that clears it up. That is all I had. Thank you, guys.

Ken Herbert, Canaccord.

Just wanted to ask a question on Aerospace Systems. How much of the step up in margin sequentially in the fourth quarter was maybe more sales into the aftermarket from a parts standpoint there. And what does the guidance assume for the mix within the segment for FY15 for OE versus aftermarket sales?

Mix, we are not seeing a significant change. It tends to be an 80/20 type of mix, OE to aftermarket within the systems. I will say what we have seen during the year and in the fourth quarter, is a higher level of contribution coming from the recent acquisitions than what we would have assumed earlier in the year. Primarily the end of controls business has continued to perform strongly for us. And that is driving part of that margin improvement we are seeing.

That business can -- the [edges] control business is now -- it's our first full year of having it on board. That business I would characterize as more than 50% aftermarket, and so just it's very existence in that segment helps drive that percentage up. And so I think we're going to be able to at least maintain that going forward. We continue to try to drive our aftermarket business forward.

Okay. That's helpful. And then just as I look at the -- specifically the system segment again, you talked about growth again here into 2015, and maybe even thinking about margins on sort of the full year just over 17% number relative to the stronger fourth quarter. You have had two or three years here where you have had a nice step up in margins in this business however. Is it -- do I see a similar increase into 2015, or are you maybe implying that we don't see as much margin improvement perhaps in this segment?

Yes. On a percent of sales I wouldn't expect significant growth in aftermarket there. I think we will see some growth on the top line year-over-year 2014 and 2015 and aftermarket which will drive some margin dollar improvement.

Okay. I mean within Aerospace Systems, does the margin percentage step up again into 2015?

As I sit here now, I haven't assumed it's stepping up 2014 and 2015. I think there is still opportunity for us to extract there.

Okay, thank you; that is helpful.

Ron Epstein, Bank of America.

Good morning. I just wanted to follow up on the top 10 programs and just -- Jeff, in your prepared remarks you talked about growth into the future. How do you think about managing your portfolio exposures around -- so this year we saw the C-17 issue pop up. But when I look through your programs, I mean, you've got B-22, A-330, the future, maybe some questions around that.

And 47 we know about. Kind of heard through the grapevine that the Global 7000 and 8000 might be proceeding slower than originally anticipated because of engineering assets being thrown at the C series. How do you think about managing those exposures in growth?

Sounds like you need to attend Investor Day.

I did. I did attend, yes.

But what you are talking about are the very critical issues that are in front of us. Over time -- we knew when we acquired Vought that we had acquired a -- we got tremendous benefit out of it. We acquired a number of programs that's probably best years or largest growth years were behind them. And so we undertook a long-term plus a shorter-term strategy on replacing those.

We have won the Embraer E-2 program. We've won the [Bravardia] Global program. We've now won some -- we've made our inroads into A-350, A-320. We continue to move the Company from an Aerostructure side into the new world order of airframes.

And on the -- we'll call it the Heritage Triumph side, we have been operating much more quickly and have transformed our backlog, I'll say, underneath the level of Aerostructures more dramatically. And it's why I said what I said earlier, it's hard to see -- it's like you're driving this really large boat instead of this really small one. We turned the wheel some time ago. We just haven't seen the ship change direction yet in a visible way. But it will because of the things we have already done and that we're going to continue to do. And so hopefully I will -- hopefully will be able to effectively get that point across with some depth in -- next month in New York.

Okay. Maybe just two more questions. One follow on. One fear that I -- that I think investors have. New programs -- in recent history -- and I am not trying to read across to you guys what has happened with other companies, but new program starts, particularly in structures, have had more recently a sordid history of margin performance. How can we feel comfortable that that won't be the case for you guys? I'm not saying it's going to be, but how can we feel comfortable it's not going to be?

I guess -- if the question is how can we assure folks that development programs don't have risk in them, I'm not sure --

Not so much that they don't have risk, but how you're mitigating the risk, I guess. You know what I mean? That is a more precise way to say it.

Well, I can only say, we have a pretty -- what I think is a pretty robust review process going into it where we --I think one of the biggest issues that suppliers have when they go into a development program is not properly managing the whole change process and managing the changes in statement of work and not staying on top of those things. And some time later trying to come back and reconstruct what was done.

We learned this lesson and have learned it many times through the years within Heritage Triumph in smaller programs where we would develop systems work and these type of things that would change. And if, in fact, you don't properly manage your program development, you have a hell of a time later on trying to come back and make -- and have things work out.

Those same disciplines we've applied to the Aerostructure side as well. And it is why -- while the challenges still remain on things like the Global 7000 and 8000, we remain confident that we will, in fact, end up largely where we thought we would be when we entered into the program. And the same stands for the E-2 program.

We have a -- I can't speak for other companies, but we have a fairly robust system on managing our performance against those development projects. And a big part of that is staying very close to the customer, and making sure that they know, in a real-time manner, that we need to discuss some of these changes, again, before you get too far down the road.

Okay, great. And then maybe one last little detail. When I look at the top 10 program list, every program except Gulfstream is a program, right? You've got Airbus A-330, Boeing 737, but under Gulfstream it just says Gulfstream. Is there anything to read into that? In the past in your posters or in your slides you'd say Gulfstream 455, 450 -- is there anything to read in it that it doesn't specify a specific program?

The main thing to read into it is our customer's desire that we not talk to individual programs as we think of either revenue or backlog. It has -- we can provide color on -- and I think we'll do it as we get into Investor Day as we transition from 450 to 550 into future programs, obviously the content changes and the dynamic changes, but Gulfstream has specifically asked that we not talk to any specific program.

Okay, great. Thank you.

Steve Levenson, Stifel Nicolaus.

Thanks, and good morning, Jeff and Jeff. Can you size the A-320 opportunity for us and can you tell us if that's the program where you displaced an incumbent?

The A-320 program?

The Sharklet and wing enforcement.

Yes. That is a program that is a retrofit opportunity, Steve, and I think we pointed out that that's a -- in the press release that that's a $160 million program. That is an estimate because we really don't know exactly how successful the retrofit program is going to be. Our sense is that it will be -- once the airline starts flying these Sharklets and see that, in fact, they're getting the fuel burn benefit that they are anticipating, they will -- a lot of other people will want to jump in the pool, as it were.

So that is a program that ramps up very quickly and then ends whenever all the customers get their wing reinforcements. And in terms of incumbency, this is a -- reinforcing an existing wing is not something that anyone has been doing in the past, there is not an incumbent on us.

Okay, thanks. Does it give you an opportunity on the OEM side going forward?

They are building the wings already prepared for the Sharklet, so it won't help us in terms of this particular product. But I think you're aware that anytime you win a project like this it gives you enhanced visibility and successful execution on this project is pure goodness when it comes to future opportunities with that customer.

Great, thanks. And last one is on C-17. Is there any program termination funding that you might receive from the prime contractor or from the government?

Yes.

And is that included in guidance?

We have not assumed that in FY15. As we close out the program, we would fully expect a few things. There would be a negotiation around any of the dynamics of shutting the program down, disposing of tooling, storing tooling, all those things looking at is there any inventory level. The other opportunity, as we look forward and we would be responding to the customer on this is as we think of post production spares, that, I think, comes into play a little bit earlier now with the end of production. I still think it is an FY16 opportunity as opposed to filtering into FY15.

Got it, thank you very much.

Follow-up from Cai Von Rumohr, Cowen and Company.

The question was answered. Thank you.

Thanks, Cai.

Are there any additional questions? Since there are no further questions, this concludes the Triumph Group FY14 fourth-quarter and year-end earnings conference call. This call will be available for replay after 11:30 AM today through May 15, 2014 at 11:59 PM. You may access the replay system by dialing 888-266-2081 and entering access code 1636202. Thank you all for participating and have a nice day. All parties may disconnect now.