Triumph Group Inc (TGI) 2015 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 fourth-quarter and full FY15 results.

(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 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 this call is the property of Triumph Group, Inc. and may not be recorded, transcribed or rebroadcast without explicit written approval.

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

Thank you and good morning, everybody. Welcome to our fourth-quarter and full fiscal-year earnings call. It's good to be here and talk to all of you again about our latest results.

Before I get started on our many initiatives and our quarter, I'd like to acknowledge Jeff Frisby, particularly, for his many contributions and stewardship as CEO during a critical period in Triumph's development. We wish him well and all the best in his future endeavors.

Addressing many of the issues -- with regard to our search for a new CEO to succeed me, the process is under way and the Board will take the time necessary to find the right leader to succeed me. For those of you who are relatively new to Triumph this is not a new role I'm stepping into. I am Triumph's Founder and was CEO for more than 20 years. I have a deep and personal commitment to this Company we have built through the years, and I am confident that we will realize Triumph's full potential as a premier aerospace manufacturer and supplier.

I have spent the last three weeks getting back into the mix. We have recently met with our Company Presidents and Senior Management at our annual management meeting and we discussed my initial observations and priorities. I have also been meeting or speaking with key customers, suppliers and other stakeholders in our Company.

Triumph was built company by company to create a diverse and highly flexible organization that can compete and win at any level of the aerospace supply chain. We have become one of the most sophisticated design, development and manufacturing companies in the world. Frankly, we have not been performing to our potential and the expectations that we have set for ourselves.

Triumph has many strengths and it's time to raise a sense of urgency in meeting our financial metrics and meeting our objectives, as well as raising the importance of accountability throughout the organization. For example, we have expertise and extensive capabilities at virtually every level of the aerospace supply chain, but we need to begin rationalizing our purchasing decisions both inside and outside the Company. It's important that we take advantage of the know-how and expertise we have across our business segments.

Let me talk a minute about some near-term priorities. We are in fact now conducting a comprehensive review across our entire enterprise. We're taking a hard look internally to find areas to enhance operating efficiencies, increase profitability, and reduce costs.

We intend to take advantage of the economies of scale made possible by assembling such a diverse and talented organization. We are identifying areas of apparent duplication and redundancy. Our objective is to adopt technologies and best practices that will allow us to serve our customers even better.

We're focusing on implementing cost reduction initiatives to enhance footprint and reduce footprint where appropriate. We have recently hired a Vice President of Supply Chain Management and will work with suppliers to centralize relationships and leverage power of operating companies. We may decide to combine companies under a single management team.

Going forward, in order to enhance shareholder value and drive sustainable growth, we are focused on, A, improving execution, increasing profitability, expanding margins, generating strong cash flow, leveraging strength of our portfolio, and as I said, reducing costs. Overall, we are intently focused on driving growth and value for our shareholders.

Let's turn to our results for the quarter before Jeff gives us some specifics. We reported today record net quarterly sales. We generated strong cash flow from operations and our backlog increased to over $5 billion.

Aerospace Systems Group and Aftermarket Services Group continue to perform well. They are strong businesses and growth drivers. We delivered another quarter of strong operating margins with both growing on a sequential quarterly basis.

Aftermarket Services' organic sales grew year over year. The Aerostructures segment improved with the recent transferred Gulfstream wing programs progressing very well.

However, segment performance is not yet at the level we expect going forward. During the fiscal year we strategically invested in each of our three businesses segments to enhance their competitiveness and make them more profitable.

Aerostructures -- we replaced outdated and inefficient Jefferson Street facility with a new state-of-the-art manufacturing center in Red Oak which is now fully transitioned. We assumed programs and people in Tulsa when we took over the Gulfstream 650 and G280 wing programs, which is an excellent strategic fit and compelling value proposition for us.

The Aerospace Systems Group acquired GE Aviation's hydraulic actuation business, along with proprietary technology utilized by Boeing, Airbus and other major airframers, enhancing our aerospace systems offering. Aftermarket Services acquired North American Aircraft Services, a leading provider of plane-side MRO services for aircraft fuel systems, which has expanded our third-party aftermarket business and our service offerings to our global customers.

Turning to our outlook going forward here, FY16, as many of you have already noted, will be a transitional period for our Company. We're in the process of conducting a comprehensive review of all our operations. Given these circumstances, as you noted, we will not be providing financial guidance at this time. We will let the market know when we have more clarity on this front. We don't want to get ahead of ourselves.

With that, I'll turn the call over to Jeff McRae to discuss our financial performance for the quarter and our full fiscal year. Jeff?

Thank you, Rick. And good morning, everyone. I will start on slide 4 with a review of the financial results for our fourth quarter.

Net sales for the fourth quarter were a record $1.08 billion, up 15% from the prior year period, although organic sales declined 2% with lower deliveries on the C-17 and 747-8 programs. Operating income for the quarter increased 74% to $140.7 million, which included approximately $4.2 million in pre-tax costs related to the Jefferson Street/Red Oak facility transition. Excluding these cost, operating income was $144.9 million, reflecting an operating margin of 13.4%. The prior year's fourth quarter included approximately $48 million of non-recurring costs.

Net income was $82.8 million, resulting in earnings per diluted share of $1.66 versus $0.80 per diluted share for the prior-year quarter. Excluding the non-recurring costs for both periods, net income was $85.5 million or $1.71 per diluted share versus $1.39 per diluted share for the prior year's quarter. The number of shares used in computing diluted earnings per share on an adjusted basis for the quarter was 50 million shares.

Modified adjusted EBITDA for the quarter was $149.1 million, resulting in a 14.3% modified adjusted EBITDA margin, and included a reduction of $20.5 million for the amortization of acquired contracts associated with the Gulfstream 650 and 280 wing programs, for which we previously received an upfront cash payment of $160 million. Although we have reduced EBITDA for this amortization, we view this as a conversion of cash received to earnings and we remain confident that at no time will we be in a net negative cash position on these programs.

Turning now to our full fiscal-year results, sales for the fiscal year increased 3% to $3.9 billion. Operating income was $434.7 million versus $400 million for the prior fiscal year. Included in operating income for the fiscal year was approximately $59.9 million of non-recurring items that we have detailed on the next slide for your reference. Excluding these items, operating margin was 12.7% for the fiscal year.

The prior fiscal year included approximately $71.8 million pretax for non-recurring costs. Excluding these items, operating margin was 12.5% for the prior fiscal year.

Net income was $238.7 million, resulting in earnings per share of $4.68 per diluted share versus $3.91 per diluted share for the prior fiscal year. Excluding the non-recurring costs for both periods, net income was $292.1 million or $5.73 per diluted share versus $4.80 per diluted share for the prior fiscal year. The number of shares used in computing diluted earnings per share for the fiscal year was 51 million shares.

Adjusted EBITDA was $382.6 million. Excluding the impacts of 747-8, forward loss recognized last quarter and the costs associated with the Jefferson Street/Red Oak facility transition, modified adjusted EBITDA was $551.5 million resulting in a 14.5% modified adjusted EBITDA margin.

Now turning to our segment performance, sales in the Aerostructures segment for the quarter increased 11% to $704.5 million, which included revenue of $90.7 million associated with the G650 and G280 programs. Organic sales for the quarter declined 3% primarily due to decreased production of the C-17 and 747-8 programs.

Fourth -quarter operating income was $86.9 million and included $4.2 million of pretax costs related to the Red Oak facility transition and a net unfavorable cumulative catch up adjustment on long-term contracts of $1.2 million. This was primarily related to the C17 program. Keep in mind we're producing the last units on the C17 program in the first quarter of FY16 as we then transition to spares and repairs. Excluding the Red Oak transition costs and the 747-8 program segment's operating margin for the quarter was 15%.

With respect to the 747-8 program, we did not see any material change in our estimates for the balance of the contract and remain confident in the forward loss position that we established in the third quarter. Our Red Oak facility continued to show good progress during the fourth quarter and has fully recovered to pre-move performance levels on all programs except for C17. And we have also continued to make good progress on the build of the initial test article wings for the Bombardier 7000-8000 program in Red Oak.

The next slide shows the cash profile for the Gulfstream 650 and 280 wing programs. As Rick mentioned, we have been pleased with the progress made to date on both programs. Our top priorities continue to be focused on meeting our customers' delivery expectations, driving improved performance in Tulsa, transitioning work currently being performed by Gulfstream on the 650 program in Savannah to our Nashville facility, and driving value to the supply chain, both internal and external.

To date we have made good progress on all fronts. We are delivering wings ahead of schedule to both Gulfstream and IAI. We have seen continued improvement in labor performance and quality in Tulsa. And we are staying ahead of our plan on work package transitions and supply chain improvements from both a schedule and cost perspective.

The actual cash burn for the quarter was lower than expected at approximately $22 million and we remain confident in turning these programs cash flow positive by the end of FY18, with the G650 program in much better shape than the G280 program. This will be done within the confines of the $160 million of cash consideration received from Spirit with the transaction, and we're still confident it will be sufficient to fund the program through that period.

Aerostructures adjusted EBITDA for the quarter was $87.9 million and an adjusted EBITDA margin of 12.9%, which did include the reduction of $20.5 million for the amortization related to the Tulsa programs. For the fiscal year, sales for the Aerostructures segment decreased 4% to $2.5 billion versus $2.6 billion in the prior year, driven by lower production on the C-17, 747-8, V-22, and Gulfstream G450 and 550 programs.

Operating income decreased to $127.5 million with an operating margin of 5.1%. Adjusted EBITDA for the fiscal year was $188.9 million. Excluding the impact of the 747-8 forward loss and the Jefferson Street/Red Oak facility move cost, modified adjusted EBITDA was $357.8 million with a modified adjusted EBITDA margin of 14.5%.

Moving on to our Aerospace Systems segment, sales for the fourth quarter are a record $301.2 million compared to $235.3 million in the prior year period, an increase of 28%, reflecting 3% organic decline driven by reduced production rates on V-22, as well as military aftermarket was down versus the prior year period due to completion of certain upgrade programs. These declines were offset by the impact of the acquisition of the GE hydraulic actuation business.

Fourth-quarter operating income increased 37% from the prior year quarter to a record $58.6 million with a record operating margin of 19.5%. Organic operating margin for the quarter was 19.1% as compared to 18.2% in the prior year.

Adjusted EBITDA for the quarter was $59.8 million and adjusted EBITDA margin of 20.7%. For the fiscal year, sales for the Aerospace Systems segment increased 25% to $1.1 billion versus $871.8 million in the prior year, of which $204.4 million was attributable to the acquisition of the GE hydraulic actuation business.

Operating income increased 23% over the prior year to $184 million with an operating margin of 16.9%. The integration of the GE Aviation hydraulic actuation business continues to progress well and we are tracking ahead of our synergy realization plan. As expected, their margins were dilutive to the segment margins in the fiscal year but we continue to develop and execute on plans which will drive segment average margins from this business in the mid term. Adjusted EBITDA for the fiscal year was $192.2 million at an adjusted EBITDA margin of 18.3%.

Continuing with our segment reviews, sales in the Aftermarket Services segment in the fourth quarter were $81.4 million compared to $70.5 million in the prior year period, an increase of 15%, reflecting 6% organic growth and the impact of the Triumph Aviation Services NAAS division acquisition in the third quarter.

Fourth-quarter operating income increased 15% over the prior-year quarter to $13.3 million with an operating margin of 16.4%. Adjusted EBITDA for the quarter was $15.7 million with an adjusted EBITDA margin of 19.3%. For the fiscal year, sales for this segment increased 6% to $304 million versus $287.3 million in the prior-year fiscal year.

Operating income increased 13% over the prior year to $47.9 million with an operating margin of 15.8%. Adjusted EBITDA for the fiscal year was $56.5 million at an adjusted EBITDA margin of 18.6%. Overall, we have continued to see strong performance in both our Aerospace Systems and Aftermarket Services segments.

Turning now to backlog, our order backlog as of March 31 was approximately $5 billion, a 6% increase year over year. For your reference we have included the top 10 programs by backlog for both the Aerostructures and Aerospace Systems segments. You will note that with the inclusion of the full backlog acquired with the G650 and G280 wing programs, the Gulfstream programs in the aggregate are now the top program in the Aerostructures segment.

For the fourth quarter, Boeing and Gulfstream were our only customers to exceed 10% of total revenues. Net sales to Boeing commercial, military and space totaled 38.4% of our revenue, and Gulfstream represented 13.1% of the fourth-quarter 2015 total sales. For your reference we have also included in the appendix charts reflecting sales by market and sales trends.

Turning to the balance sheet, for the year, we generated $579.7 million of cash flow from operations before pension contributions of $112.3 million. After these contributions cash flow from operations were $467.3 million. This does not include the receipt of $160 million from Spirit related to the transfer of the G650 and G280 wing programs.

The fourth-quarter cash was aided by a higher level of customer advances and strong collections on accounts receivables which will impact first-quarter cash flow expectations. And, as mentioned, we realized lower spending related to the Gulfstream 650 and 280 programs than we had expected.

Inventory at March 31 reflected an increase of $166 million during the year, of which approximately $175.6 million was attributable to non-recurring investment in the Bombardier and Embraer Air programs. And $121.7 million is related to the acquisitions completed during the fiscal year. These were partially offset by an increase in customer advances of $24.9 million and the application of a portion of the forward loss related to the 747-8 program. Capital spending was $24.8 million in the quarter and $110 million for the year.

Net debt at the end of the fourth quarter was $1.3 billion, representing 38.7% of total capital. And total debt to trailing 12-months adjusted EBITDA was 2.55 times.

During the quarter we did repurchase 1.2 million shares for approximately $69.7 million. And as of March 31, approximately 2.3 million shares remained under the share repurchase authorization.

The global effective tax rate for the quarter was 35.2% and reflected the fact that the R&D tax credit expired on December 31, 2014. In addition the effective income tax rate for the quarter was favorably impacted by the true-up of our financial statements' state tax expense to the actual state tax returns filed.

Next on the pension front, we have included for your reference a pension and OPEB analysis for Triumph Aerostructures for FY15 and FY16, which reflects the updated valuation as of March 31, 2015. The overall pension liability did increase year over year by 14.7% driven by the incorporation of updated mortality tables which we have talked to previously, combined with the lower discount rate used to value the liability.

We did realize strong asset returns during the year which partially mitigated the growth in the net liability. And we contributed $110 million to the plans during the fiscal year, including $55 million contributed during the fourth quarter. We are projecting a pension benefit of $56 million in FY16 which is $4 million higher than the benefit realized in FY15.

Additionally we did reach an agreement with the UAW at our Marshall Street facility in April which included provisions that will further derisk our pension obligations to the employees and will most likely result in a one-time non-cash curtailment charge that would be realized in the first quarter of FY16.

And with that I'll turn it back over to Rick.

Thank you, Jeff. To sum everything up that we both said, we are, in fact, taking a hard look at all our operations and will operate with an increased sense of urgency. To repeat myself, we are intensely focused on improving execution, profitability, expanding our margins, generating cash, leveraging the strength of our portfolio, and reducing our costs.

We have a lot of work to do at Triumph to realize our full potential and we are intensely focused on leveraging the strength of our portfolio to control costs and drive sustainable growth and value creation. I remain confident that we will in fact succeed.

At that I'll open it to any questions.

(Operator Instructions)

Our first question comes from Steven Cahall.

Thank you, good morning. From Royal Bank of Canada. Maybe a first question on the comprehensive review. I think that was very helpful in terms of laying out the tenets. At this point, is this generally a focus on the existing portfolio with a goal to improve or is it broader than this to also potentially look at possible changes to the portfolio?

The simple answer to that question is yes. We are reviewing all of the potential alternatives with all of our companies in all of our segments, where the first step to take on that is improving the profitability and the execution across our Company, and operate in a more satisfactory fashion for our shareholders. But we are reviewing a number of the alternatives that we may have, up to and including the integration, as I mentioned, of some of our locations and other alternatives with some of our locations.

Okay, that's very helpful. And then maybe, Jeff, one for you on the margins. If I just look at the Q4 margins, pretty strong across the board, plus we have the amortization from Gulfstream in there. I know you're not giving guidance for 2016 but is there anything in any of the segment margins that we would be amiss to start to extrapolate forward into the following years at this point? And I know you could have some things like restructuring costs but just on an organic operating basis, how can we think about those segment margins?

Yes, Steven, as we look at the performance we've seen in our Aerospace Systems segment as well as our Aftermarket Services segment, we've been very pleased with what we've seen there. We've seen strong sequential growth from a margin standpoint. Some of that is driven by timing of certain activities.

We have historically had strong fourth quarters where there are some specific orders that we have on the Aftermarket side that come into play in the fourth quarter. So I wouldn't necessarily extrapolate fourth quarter looking forward. But I do believe as we look at the full-year margins in both of those segments that it would be fair to extrapolate that.

Obviously, as Rick talked to, there's a lot of things we are out looking at of how we will drive improvement. Much of that is focused within the Aerostructures business but that doesn't say that there aren't opportunities that we will continue to drive within the other two segments.

Within Aerostructures, obviously, we have not performed at the levels that we would hope to in that segment. And there's been a number of issues that we've talked about in prior quarters that we are still managing through. so, I would expect a lot of the focus looking forward to be in that segment. And as we take our deep dive, I think we'll see where the opportunities are and what we can do from a margin perspective in that segment.

And just a follow on to that in the Aerostructures margin, do you have any tail wind in 2016 from the non-cash amortization from Gulfstream?

Yes, as we think of the amortization related to Gulfstream, we would expect to continue to see a quarter-over-quarter improvement from a cash burn perspective. And we are still confident that the cash received from Spirit is sufficient to allow us to execute until the point in time we drive that cash flow positive.

On a margin perspective, in the Fourth Quarter, we recorded total revenue roughly of $90 million on the G650 and 280 programs. That resulted in roughly aN EBIT margin of roughly 10% which included the $20.5 million of amortization that flowed through.

And my question is, that $20.5 million, does that start to tail off as we get further down or does that stay flat for the foreseeable future? For instance, in 2015, I know we had some similar non-cash amortization related to the transition. I think that's all done now, so we get a little bit of tail wind going into 2016. So, I'm just wondering if it's the same from the Gulfstream amortization.

As I think of FY16 Steven, it stays fairly flat, but the positive we'll start seeing is, as we start improving performance within those programs, we should see some tail wind from an improvement in the overall margin perspective. But that will come, I'll depict as true cash margin as opposed to related to the amortization.

Great, thank you.

Our next question comes from Myles Walton.

Deutsche Bank. Good morning. Welcome back, Rick. It's been awhile. You're going to have to hang up those golf clubs for a little bit. A question for you -- I know you're not giving guidance but at a high level is there anything that prevents FY16 from growth in earnings, admittedly a transition year, and you had probably a little bit of pull forward on cash, but what about from a growth and just high level view top line and bottom line on EPS?

First of all, I don't want anybody to read too much into the fact that we're not giving guidance at this time. It is very simply an issue that we want to take the time to look at not only each segment but each company within Triumph Group and come up with a number, both from a cash perspective and an earnings perspective that we think is realistic. Clearly we're going to be looking for growth.

But at this point in time, I really have to delay answering the question specifically because we really don't have -- I mean, obviously we have ideas but we've got to continue to look at the possibilities and the changes we'll make to look at the pluses and minuses and come up with a guidance that is realistic for all of you and our shareholders. So, I apologize for putting that question off, to a certain extent, but, as I said before, we're confident that we're going to create and meet all of our goals as we go forward.

Okay. It does sound like your commentary points towards taking steps forward, and any step back you take is more proactive to improve the operation. And I guess that's the take away message in a nutshell. The other one I had for you though was on the amortization. What is the total number you expect for FY16? I think you said roughly flat but I didn't read if that was flat with the fourth quarter or flat with the year for contract liabilities?

My comment, Myles, was flat as it relates to the G650 and 280 programs. Overall, our projected amortization for FY16 is roughly $124 million.

Okay. And then the other one, as it relates to the G650 performance and 280 performance in the quarter, you under-ran the cash burn that you projected. Are you qualifying that as timing or improved performance versus your initial expectations? Would you expect to have the same net cash burn over the course of the program at this point or have you actually improved that view?

Yes, I would say it's a little of both. We've been very pleased with the performance of Tulsa coming out of the gate. The workforce in Tulsa has responded very well post transaction. We've seen very little disruption, if any, that we had built into our modeling early on. So, I would say performance has been positive.

There is some timing as we manage cash within that facility, as we manage it across the enterprise, that would flow into FY16. But I would still be confident in the projected burn that we've laid out for FY16 at this point in time. And I believe we'll continue to drive improved performance against that.

Okay. And one last one, also on cash. The pre-production inventory, I think I heard you say $175 million was the growth. Was that true?

Correct.

And then for 2016, there's, I would think, a seemingly larger step down in the level of growth in that pre-production inventory.

Yes, you've got the number right, Myles. What we talked to previously is, with Bombardier, we would expect that coming down by half FY16 versus FY15, while the Embraer program probably remains fairly constant through FY16. Bombardier, we've now delivered a couple of test articles, the engineering is stabilizing, there's still work in front of us to do, but definitely the spend rate is coming down. Embraer Air tends to be about a year behind from a development standpoint so we would see pretty flat spending on Embraer year over year.

Okay, thanks again. Welcome back, Rick.

Our next question comes from Sam Pearlstein.

Wells Fargo. Good morning. Jeff, if I can just follow-up on that last question. If I just think about 2016 versus 2015 cash flow, if there's three more quarters of Tulsa, that seems to offset the lower pension contribution. So, are there any other big moving pieces as to why cash flow couldn't be similar in 2016 versus 2015?

We're not going to try to guide you to cash for 2016 but I think we've talked in the past of the big drivers. It ends up being, the level of capital ends up being the investment in non-recurring programs. It ends up being the pension contribution. And then the one other variable out there is taxes and we still anticipate becoming a cash taxpayer in FY16. We still think that's at a roughly 10% cash tax rate for the year.

Okay. And then, Rick, any sense as to how long the review will take and at what point you'll feel comfortable that you have a plan in place as to what to do next and what the implications are for the different business units?

I think that the review and the changes that will take place probably will take place over the whole next year.

But we would expect that we would be giving some clarity to all of you on a relatively short basis. We have a Board of Directors who's looking for the same information, maybe more detailed than you even have. So, this is not something that we're going to drag our feet on. However, the changes and the improved effectiveness might take a little bit longer than the clarity we give you numbers-wise.

Okay, I appreciate that. And, Jeff, one last question -- can you size the curtailment that you said might show up in the first quarter?

At this point I can't, Sam. It's highly dependent on the valuation that we'll complete here in the first quarter, which is dependent on the actuarial assumptions that will go into it, as well as discount rates and those type of things. I wouldn't expect it to be of the same magnitude that we've seen previously. So, if we think of the curtailments we took in FY14 it should be smaller than that. But until we get through all of the actuarial analysis we really can't size it.

Okay, that's great, thank you.

Our next question comes from David Strauss.

UBS. Good morning. Back on the global, Bombardier yesterday seemed to hint at some delays in that program. Can you just talk about how you see things from your perspective?

I can't speak for Bombardier. I can't speak for what they're saying. We don't see any current holdup in what we're doing for them. We do see issues that might affect Bombardier going forward, but that's well forward. Don't forget that's, not supposed to be at full tilt until 2020, 2021 whatever it is. So we're not right in on that.

But we do see some issues. They're still working on some very significant issues such as weight issues and things like that. So, if that's a holdup, that's part of the holdup. But we don't see the program coming to a halt at this point in time. We've got a lot of work to do for them.

Okay. Jeff, another question on the cash flow side. Obviously, on the inventory side, we have a sense of what's going to happen there but the rest of the working capital account you have pretty good performance in 2015. How are you thinking about working capital in 2016?

As I mentioned in the fourth quarter, we were benefited by certain advances from customers. We also had fairly strong collections on receivables. We'll continue to focus on cash from a working capital perspective going forward.

As you all have seen historically, we do have lumpiness based on the nature of some of our businesses, where we're either getting milestones or advances, and you have strong quarters followed by weak quarters. But overall I think we'll continue to focus on working capital and try to drive the same things we saw in the fourth quarter during FY16.

David, you didn't ask me that question but I would expect our working capital management to be better -- for all of the employees listening in on this call. (laughter)

My last question, Jeff, you had given us some color on the moves on the pension side. Can you just give us where your deficit stands as of the end of the year -- I think it was $220 million-some at the end of FY14 -- where it stands today?

Yes, the deficit on the pension plan itself has grown roughly 14%. I don't have the number right in front of me. It's in the low $300 million from a deficit standpoint. The liability grew by 14%, which was driven by mortality tables and a lower discount rate than where we had been in the prior year.

So the liability was up 14% but there was some offsets, so roughly in the $300 million range?

Yes.

Okay, thank you.

Our next question comes from Sheila Kahyaoglu.

Jefferies. Good morning, Rick, Jeff. I'll try once more -- you mentioned several times identifying opportunities to improve profitability. Can you maybe give us an idea of the relative magnitude of savings you're looking for? Is it several hundreds of millions? How could we think about it?

I really can't because if I could identify all of that we would be able to give you guidance right now. And that's exactly what we're looking at. Some of those things, as I mentioned, will be shorter term when we look at things like working capital management and profitability and efficiency of production. Some of them are a little longer term.

As we mentioned, in some of the integration of our companies, last year we accomplished an integration of two of our relatively larger companies, and that has been very successful. We're going to continue to look at those but those take a little bit longer period of time. And as we potentially consolidate some operations, we have some upfront costs that we've got to deal with when that happens.

But, as I say, we've done it successfully before and we expect we'll do it successfully again, but that's a little longer term out. That might be third or fourth quarter and the first quarter of 2017. It's really hard right now, until we identify all of those and start working on them, to give you a specific number. I expect it will be well worth our while and our shareholders' while as we look at it.

Okay, that makes sense. And then on Structures, in terms of operating margins going forward maybe into 2016, should we think about the potential volume declines within the commercial programs offsetting Red Oak savings or is there still a benefit we should assume from Red Oak?

We definitely, Red Oak-specific, are confident in the business model we had there. C-17 ending a little bit sooner than what we had originally thought going back two years ago had some impact on that, but we definitely have realized a fixed-cost reduction from exiting Jefferson Street to Red Oak, and we're now good seeing labor performance in Red Oak.

As we think of the broader Aerostructures segment, we are seeing some headwinds on other programs from a rate perspective. 747 will be down but we fully captured that from a margin standpoint last quarter. We are seeing rate reductions on A330 that will create a bit of a head wind, but we're confident that we can manage through that.

And we're seeing ramp ups in other programs such as the work we've won on the A320 and A350 that gives us some offset to that. So, there's pluses and minuses. I think as we look through it all and come out with guidance later in the year, we'll be able to give you a little more clarity there.

So, it's still $0.50 from Red Oak in 2016 about, since that's the first full year, and then it seems like the program declines won't offset that savings.

We've still got to work through the numbers, Sheila, to really get an understanding. A lot of it will be some of the things that Rick's talking about and what else can we do to positively drive execution and our cost structure.

Okay. And then just one last one. Within Structures you didn't mention V-22 or the 455-550 declines. Have those programs stabilized for you now?

Yes, year over year we saw declines in V-22 and the two Gulfstream programs. V-22 feels like it has stabilized. We see some noise at times at the lower tiers from a customer stocking perspective but it locks like rates are pretty stable there right now. G450 and 550 we've seen declines during the year. Our modeling tends to assume that those programs will see additional declines as we move forward, and specifically around it as Gulfstream begins to build the 500 and 600.

Okay, thanks.

Our next question comes from Ken Herbert.

Hi good morning. Canaccord. I just wanted to first ask Rick, specifically, you've got obviously now this review you've kicked off, you've got a new CEO search. How has this changed your thinking, at least in the near term, on the acquisition front?

I think that what we will see is we are an acquisitive company and I think that we will remain an acquisitive company. I think that what you will see is that if we make any acquisitions that they will be relatively smaller and they may be bolt-on type acquisitions, at least in the near future. It's difficult to focus on large acquisitions when we're concerned about our cash management, A, and our efficiency of operations of what we already have.

I think that we have companies that are in the pipeline acquisition-wise but we're going to be very careful on what they accomplish and what they add to our already existing type of operations that we have. And you might see that we integrate them up front as opposed to waiting a longer period of time on an acquisition. So, we'll be in the acquisition business and there are companies there we're looking at, but we are clearly emphasizing our operations.

Okay, that's helpful. And if I could, specifically on the Aerospace Systems margins, obviously a very nice quarter. And I get the commentary, Jeff, about extrapolation for 2016. But where do you stand in terms of the GE acquisition and when does that get to segment averages? Because I would imagine with that and with, of course, you talked about weakness on some of the defense aftermarket, you've had some headwinds specifically that we might see reverse here in 2016. Can you provide anymore detail on the Aerospace Systems margins then in the outlook for 2016?

Yes, I sure can. The one point of interest that I did call out is, if you look at our organic margins for the quarter, they were actually lower than our total margin in Aerospace Systems, which was largely driven by a strong quarter out of the GE business. Some of that was aftermarket-driven, some of it was timing of orders. But we've continued to see continued improvement in that business where we're hitting our synergy realization plans.

I still think on a run rate basis we're still probably a year or two out before we see them and have full comfort that they will be hitting at or above segment margins. But today we've been very pleased with the performance of that business and the ability to drive improvement in the business.

Okay, that's helpful. And if I could, just finally, to your point on the slower sales on the defense or military aftermarket, are you getting any sense that that reverses soon and you start to see growth against what should be some easier comps moving into 2016?

We made a comment in Aerospace Systems there's a couple of programs that we had completed in the end of FY14 that didn't carry forward and realized the benefit in FY15. Overall from a military aftermarket, I would say the last two quarters we haven't seen step function improvement but we've seen gradual improvement, primarily in our Aftermarket Services segment where we are seeing sequential improvement quarter over quarter. We still think there's more there and there's still a level of pent-up demand, but we have seen some improvement quarter over quarter.

Okay, thank you very much. And welcome back, Rick.

Our next question comes from Steve Levenson.

From Stifel. Good morning, Rick and Jeff. In the past, the strategy, particularly on the Aerospace Systems side, is for the different operations to maintain their identities, and I guess that's partly because of the customer base. Is there a plan to change that as part of the consolidation efforts? And do you have to get an okay from customers or is that something you're just going to proceed with to get the best result?

Generally speaking, that's not going to change. But, as I mentioned, we are looking at the integration of certain businesses together within the Aerospace Systems group -- and the other groups, for that matter. And as that happens, many of our customers we have to get approval to move a product from one plant to another plant.

Normally that is not an overbearing thing to do but, yes, we do have to get approval. That's one of the things that takes some time on the integration. But the names of our companies will basically remain the same unless we get to an integration and we have to get a new identity in the marketplace, then we might change a name. But basically, the same philosophy will hold true. And obviously not all of our companies will get integrated. So, we'll go forward and that will be dealt with company by company or plant by plant.

Got it, thank you. Second, are there any internal candidates for the CEO spot or are you looking primarily outside?

There's going to be some internal candidates. The Board has formed, as I think is public knowledge, a search committee and they are going to review and interview a number of search firms, and they will interview outside possibilities and internal possibilities.

Okay, thank you. And last, on 777 going over to the 777X, do you expect to at least retain your current work package? And do you also expect to get additional work? I know it may be a little early but I figured I'd ask.

I think it's a little bit early because, as you know, Boeing has made the announcement that they're bringing the 777X in house. But that still means they're going to have some business outside that would be shipped to Boeing and we expect that we will pick up some of that business that's let outside by Boeing.

Okay, thanks very much.

Our next question comes from Michael Ciarmoli.

KeyBanc. Thanks a lot guys. Welcome back, Rick. Rick, is it safe to say here, as you guys are looking at an overall strategy and retooling the strategy, that viewing the Company's 47 operating units, that used to be viewed as a competitive strength. Is it fair to say that you guys are going to aggressively attack that structure and try and shrink the footprint just given the behaviors we're seeing from Boeing and Partnering for Success? Is that a fair way to look at what you guys are going to try and do here?

I think that on a very broad basis I'd say that that is one of the things that we're, in fact, looking at. But, very frankly, we still agree with the philosophy of bringing the accountability as low as is possible within our Company at our individual sites. And that holds true not only for the individual companies but the sites within some of those companies, such as the Vought companies have a number of sites that have accountability at the President or General Manager level within their company.

Having said that, you're right. We have a responsibility to look at every one of our locations, every one of our companies to make sure we're doing the right thing and we're taking care of our customers on a most efficient basis. So, we will be looking at all locations, but not all of them will be integrated because we do also think that the product portfolio that we have is an excellent one and we can serve our customers on an individual as well as integrated basis.

Got it. What about supply chain? I think we first heard you guys mention consolidation of supply chain and integration well over a year ago. Has anything progressed there on those activities? Just trying to get a sense of what's been accomplished because it still sounds like you guys have a ton of runway left there and a lot of heavy lifting. Should we just think that not much has been achieved over the past year and a half or so on that front?

I mentioned that we are, in fact, and we have hired, and he's been in his job just about the same length of time that I've been in my new job, Senior Vice President of Supply Chain Management. He is going to take over that. So, I think it's safe for you to assume that we do have a very positive runway in supply chain management. I don't really want to comment on what's been accomplished in the past other than to say that we think we'll accomplish a lot more in the very near future.

Got it. Last one, just regarding transparency on a go-forward process. You are one of the few suppliers out there that don't give ship set content. And we've heard the question about the A330. It would be much easier for us to sit here and say -- okay, you've got $2 million of content, we can accurately assess the headwind. Is that something you would consider disclosing -- content per platform on your major programs?

One of the reasons that we don't give ship set content is because we feel very sensitive to the fact that you wouldn't have anything to do then if we supplied ship set content. (laughter). But at this point in time, we would probably maintain our practice of not giving that. But, frankly, it's a subject that we haven't really talked about recently.

I think it's fair to say we'll continue to look at ways in which we can provide greater insight as to impacts as you see changes in the marketplace.

Got it. Thanks a lot, guys.

Our next question comes from J.B. Groh.

DA Davidson. Thanks for sticking around. I've got just one left. Jeff, could you address the backlog growth? how much of that was organic and how much of it was from the acquisition?

If we look at year-over-year growth, we had roughly $800 million of that backlog relates to the acquisitions completed in FY15, primarily the Gulfstream wings and the GE actuation business.

So, there was a little bit of growth excluding that. Could you give us -- I guess I could figure out an organic book-to-bill -- but off the top of your head do you know what it was?

It's pretty small.

Okay, thank you.

Are there any additional questions? Since there are no further questions this includes Triumph Group's fourth-quarter and full fiscal-year 2015 earnings conference call. This call will be available for replay after 11:30 AM today through May 15, 2015 at 11:59 PM. You may access the replay system by dialing 888-266-2081 and entering access code 165-5271. Thank you all for participating and have a nice day. All parties may now disconnect.