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Triumph Group, Inc. (NYSE:TGI)

F4Q09 (Qtr End 3/31/09) Earnings Call

May 01, 2009 11:00 AM ET

Executives

Richard C. Ill - President and Chief Executive Officer

M. David Kornblatt - Senior Vice President, Chief Financial Officer and Treasurer

Analysts

Stephen Levenson - Stifel Nicolaus

Myles Walton - Oppenheimer & Company

Eric Hugel - Stephens, Inc.

J B Groh - D. A. Davidson & Co.

Tyler Hojo - Sidoti & Company, LLC

Ronald Epstein - Bank of America Securities-Merrill Lynch

Operator

Welcome to Triumph Group Conference Call to discuss our Fiscal Year 2009 Fourth Quarter and Year End Results. This call is being carried live on the Internet. There is also a slide presentation included with the audio portion of the webcast. Please insure that your pop-up blocker is disabled if you are having trouble viewing the slide presentation. You are currently in a listen-only mode. There will be a question-and-answer session following the introductory comment by management.

On behalf of the company, I would now like to read the following statements. 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 our 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 exclusive written approval.

At this time, I would like to introduce Richard C. Ill, the company's President and Chief Executive Officer, and David Kornblatt, Chief Financial Officer and Senior Vice President of Triumph Group, Inc.

Go ahead Mr. Ill.

Richard C. Ill

Thank you, and good morning everybody. We are very proud of our strong quarter and fiscal year. Our results, our sales, our operating income, earnings per share as well as cash flow reached record levels in spite of the uncertain environment and the pessimistic outlook by some who cover the industry. Our companies have performed well and their management of working capital and general plant efficiency can be classified as a job well done.

As you see in the first slide, I repeat, we had record earnings, record cash flow. Dave will get into some of the numbers specifically. Our backlog expanded to a record level of 1.3 billion. That includes our new acquisitions, I'll talk about in a minute. We have a strong increase in our Aerospace Systems Group margins and remaining challenges within the Phoenix APU operations.

We have established... announced the establishment of a Mexican manufacturing facility and we've expanded the capabilities and international presence via four completed acquisitions which we recently announced. All are expected to be immediately accretive.

Entering fiscal '010, we have a very strong position, a very healthy balance sheet and a robust backlog. As I mentioned, our backlog is up including our acquisitions to 1.3 billion. Our same-store sales backlog were down $5 million without those acquisitions, but the acquisitions produced a good backlog going forward. We feel much more confident than some others in regards to 787 production going forward.

If you look at our position now in short and we see some headwinds. We have acquisition expense; I'll get to some specifics in a second. We have some accounting changes on how we account for the interest in our convertibles. We have Mexican start-up costs on the plant we announced we were going to build in Mexico. We have some slip in the general aviation market specifically. And the there are those who've that said that the 787 is a headwind.

We are optimistic about our abilities in the future. We don't have any information right now on any cuts in the 737 as a lot in the industry have predicted.

Our military sales, our military percentage of backlog is up to 43%. As a result, we see our earnings per share to be approximately $5 for the year on sales of $1.275 billion to $1.375 billion.

The headwinds that we mentioned are specifically in cents per share of the following. We see $0.20 per share more in legal expense due to trials coming up in the criminal area and the civil area. We see $0.35 in imputed interest on our convertibles due to accounting changes there. We see $0.27 from startup in our Mexican operation and we see $0.08 due to expensing due diligence costs which we have to do starting April 1.

At that, I'll turn it over to Dave for some more color.

M. David Kornblatt

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

First, turning to the income statements. Sales for the fourth quarter were $311.2 million compared to $321.2 million for the prior year period.

Operating income was basically flat at $35.4 million with an improvement in operating margin to 11.4%.

Income from continuing operations was up 12% from $21.3 million, to $23.8 million resulting in earnings per share from continuing operations of $1.43 per diluted share, versus $1.26 per diluted share for the prior year quarter.

The loss from discontinued operations was $1.6 million, or $0.10 per diluted share.

Net income increased 14% to $22.1 million, or $1.33 per diluted share.

EBITDA grew 2% to $47.8 million, resulting in a 15.3% EBITDA margin.

Turning now to our full fiscal year results. Sales for the fiscal year increased 8% to $1.24 billion.

Operating income increased 20% over the prior year to $151.9 million. Operating margin improved from 11% to 12.2%.

Income from continuing operations was up 29% to $97.8 million, resulting in earnings per share from continuing operations of $5.90 per diluted share versus $4.32 per diluted share for the prior year.

The loss from discontinued operations was $4.7 million, or $0.29 per diluted share.

EBITDA grew 18% to $200.5 million, resulting in a 16.2% EBITDA margin.

Looking now at our segment performance and the Aerospace System segment. Sales for the fourth quarter decreased 3% to $249.8 million.

Were it not for the impact of the Boeing strike and delays on the 787 and 747-8 programs, sales would have increased by approximately 2%.

Operating income increased 10% over the prior year quarter to $41.2 million, with an operating margin of 16.5%.

EBITDA for the segment was $50 million and an EBITDA margin at 20%.

For the year, sales for the segment increased 9% to $988.4 million.

Excluding the impact of the Boeing strike and the program delays, year-over-year sales increase would have been approximately 14%.

Operating income increased 35% over the prior year to $168 million with an operating margin of 17%, an improvement over the prior year of 320 basis points.

EBITDA for the segment was $202.8 million at an EBITDA margin of 20.5%.

The segment's fiscal year results included $4.7 million of legal expenses, net of insurance reimbursement associated with the previously disclosed trade secret litigation.

In our Aftermarket Services segment, sales for the fourth quarter decreased 5% to $62.1 million.

Fourth quarter operating income decreased 71%, from $6.4 million to $1.9 million at an operating margin of 3%.

The fourth quarter results include $600,000 of shutdown expense related to a manufacturing facility in Shannon, Ireland.

EBITDA in the quarter was $5.2 million with an EBITDA margin of 8.3%.

For the fiscal year, sales for the segment increased 3% to $254.6 million.

Operating income decreased 54% than the prior year to $10.9 million with an operating margin of 4.3%.

EBITDA for the segment was $24.4 million at an EBITDA margin of 9.6%.

As we said in our press release, this segment's results continue to be negatively impacted by losses sustained at the Phoenix APU operations. Excluding these operations, the segment's year-over-year revenue growth was 6% for the quarter and 17% for the year, with operating margins of 9% for the quarter and 10% for the year.

As Rick said, our order backlog is up and at an all time high of $1.3 billion, despite a net year-over-year negative impact of $62 million related to the push out of the 787 program beyond our 24-month window.

Military now represents approximately 43% of our total backlog.

Our Top-10 programs listed on the next slide are ranked according to backlog. Remaining in first place is the Boeing 777 followed by the 737 Next Generation in second place. Third is the Osprey V-22 combat helicopter. Fourth is the Boeing CH-47 Chinook followed by the Black Hawk helicopter in fifth place. The 787 was back up to sixth place with the C-17 freighter dropping to seventh. The F-15 moves up to eighth place followed by the 747 program in ninth place. In tenth place, is the Airbus A320 family.

Looking at overall sales, Boeing remains our only customer which exceeded 10% of revenue. Billings to Boeing commercial, military, and space totaled 23% of our revenue.

Looking at our sales mix among end-markets, the next slide shows that compared to fiscal 2008, commercial aerospace decreased slightly to 43% while military increased to 36%. Regional jets increased to six and business jets remain unchanged at nine. Non-aviation decreased from 9% last year's 6%.

Finishing our sales analysis, the next slide shows our sales trends for the quarter and the year. Total organic growth for the quarter decreased 5% from the prior year to $302 million.

Breaking that down by segment; fourth quarter same-store sales for Aerospace Systems was $239.9 million, compared to $252.4 million in the prior year period. The Aftermarket Services segment has same store-sales of $62.1 million, a decrease of 5% over the prior year sales.

With respect to the fiscal year, total organic growth increased 5% over the prior year to $1,201.8 billion.

Breaking that down by segment; fiscal year same-store sales for our Aerospace System segment was $947.2 million, an increase of 5%. The Aftermarket Services segment had same-store sales of $254.6 million, an increase of 3%. Export sales for the fourth quarter were $62.8 million and $266.6 million for the year, an increase of 12%.

Turning to the balance sheet in the next slide. We generated $62.7 million of cash flow from operations in the quarter and $139.5 million for the year.

CapEx in the quarter was $14.2 million and $45.4 million for the year.

At the beginning of our fiscal year, we set a goal to hold inventory flat. We almost met this goal and we take into account the distraction and inefficiencies resulting from the Boeing strike and the various major program delays, we are very proud of our performance in fiscal 2009 in this area.

Net debt at the end of the year was $460.8 million versus $406.1 million at end of the prior year, representing 37.1% of total capital.

During the quarter, we entered into a lease financing agreement, which provided $59 million of liquidity for a term of seven years at an average interest rate of 6%. Interest expense and other for quarter was a net of $1.4 million foreign exchange gain, resulting from our European acquisitions in the quarter. For the year, the global effective tax rate from continuing operations was 31.8%.

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

Richard C. Ill

On the last slide, we indicate some of the things that I spoke of in the opening. Admittedly this year, we had a more difficult time coming up with our business plan for the units, different individual units then before due to mixed conditions across all our markets.

You see, listed there the guidance that I gave earlier. The headwinds that I gave you in regard to legal et cetera, add up to approximately 90... not approximately, but $0.90. So at the risk of being accused of being conservative, with that $0.90 headwind and the uncertain conditions and mix conditions across all our markets, we think we are not being overly conservative in this particular issue, and most of the analysts that cover us, don't think that we're being that conservative either.

The guidance reflects current productions rate and as I said, we haven't heard anything about any cutbacks on the 737, at least in the short-term. It indicates the accounting change for convertible debt and due diligence cost of approximately two million and that's an estimate on our part based on what we spent before on acquisition due diligence, which we think is money well spent.

Legal expenses budgeted at nine million for the year and startup expenses approximately $7.5 million for the new Mexico plant... not the New Mexico plant. But effective tax rate at 33%. That assumes the R&D credit is extended and share count of 17.2 million shares.

So with that, I'll turn it over to... back to you for any more... any questions you may have.

Question-and-Answer Session

Operator

At this time, the officers of the company would like to open the forum to any questions that you may have. (Operator Instructions) Steve Levenson, please state your affiliation followed by your question.

Stephen Levenson - Stifel Nicolaus

Stifel Nicolaus. Good morning, Rick and Dave.

Richard C. Ill

Good morning, Steve.

M. David Kornblatt

Good morning, Steve.

Stephen Levenson - Stifel Nicolaus

Thanks for all the disclosure and the slideshow. The other day you had a press release out about certification to do Thrust Reverser work on CFM-56 engines. Could you give us some more details about that? Is that for specific issue or is that going to put you in the ballpark to compete with other people doing that work and where do you expect to do it?

Richard C. Ill

Well very frankly, we were already in position to compete and we're already doing that. We've had some our competition from out with an announcement on that recently, and so we wanted to get ourselves out in the marketplace for the same that we've had that capability and it's a good part of our business right now. So, simply it's a relief that we want to make sure our customer base knew that we have that capability as well, not that they already didn't.

M. David Kornblatt

But there is a service bulletin to that Steve that requires all the 737 guys to do a certain repair. And this means we'll be on the approved Boeing list because I think for the most part, Boeing's going to be paid for the service bulletin and then of course what we hope is that, while we're in there doing the service bulletin, we'll get into... most people will be expected to do the service bulletin at a normal overhaul date. So I think it positions us well along with the OEMs to do that work.

Stephen Levenson - Stifel Nicolaus

Okay. Thank you. And secondly, you had a big flurry operating acquisitions in March, certainly don't expected to continue at that pace but how do you see the market and how's your financing situation right now? How is the pipeline? And what sort of plans do you have? I know $2 million of due diligence but curious as to what you think you can do during the...

Richard C. Ill

Three questions in that. One question is that (ph) first of all, let me just tell you that the acquisitions that we made frankly happen to take place in March but those are acquisitions we have been working on for a long period of time. A couple of them for almost nine, 10, 11 months. So, they just happen to culminate in March, not that that makes much difference but it's... we didn't plan in the beginning to have them all happen at the end of the fiscal year. That's number one.

Number two; as long as we maintain the cash flow and I just got finished saying our... telling our company presidents this, maintain the same type of cash flow, we'll be able to finance any reasonable sized acquisition and the size that we've been making recently and our banks so far are supportive and the issue... in that issue. So I don't see that as a short-term problem.

And number three; there are a number of acquisitions that are still out there in the marketplace and we're getting a strong look at a lot of acquisitions because people selling them are ... know that we're acquisitive. So there's a lot of work to be done out there and a lot of potential companies to buy.

M. David Kornblatt

We have close to 300 million available under our existing facility Steve.

Stephen Levenson - Stifel Nicolaus

Okay. Thank you very much.

M. David Kornblatt

Thank you.

Operator

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

Myles Walton - Oppenheimer & Company

Thanks. Oppenheimer & Company. Good morning and really good cash flow guys. I think those incentives are taking home. Can you give us some thoughts as to your expectation for operating cash flow conversion or free cash flow conversion in 2010?

M. David Kornblatt

I think it'll be good Myles. I think there is no reason we would not be in the 85 to 90% of net income, maybe even a little better. I think the one thing that I would hedge my bet is; we have not decided whether we'll own or at least the facility we are going construct in Mexico and a few other large capital expenditures. So, absent that, I would think you would... there is no reason our cash flow would not continue to be strong.

Myles Walton - Oppenheimer & Company

Okay, great. And from a standpoint of the Phoenix business; number one, I guess, can you give us some color on the size of the losses in the quarter. You implied it and I just want to make sure my math is right, was it three or four million in the quarter. And then also what's implied in the guidance on a go forward basis with respect to that, that unit?

Richard C. Ill

Well the answer ... the specific answer to that question, well I give you idea of the size of the losses; it's significantly better than it have been in previous quarters, especially in the month of March. And I think that we're working our way out of the hole if you will. I think the Group as a whole and the Aftermarket Services Group as a whole, would have been very close to our stated goal of 10% operating margin if it works for that particular company in the quarter and the year.

So, we're getting there and there is progress being made. But I want to stop short of specific dollars for obvious reasons. We don't want to do that in any individual company.

Myles Walton - Oppenheimer & Company

Okay.

M. David Kornblatt

Myles I would say the other thing that is, we've been candid and critical of ourselves there. In prior quarters, we told you that the problem with Phoenix was ours not the market. I think we're getting closer and very close to the point where we fixed our own issues and now it'll be a matter of trying to get back to profitability in a market that slowed a little bit and regaining customer confidence. So, I think we've fixed our internal house.

Myles Walton - Oppenheimer & Company

Okay. And can you just give us some color on the Mexico rollout and the expenses there? Is it -- in terms of the seasonal or the quarterly flow of that through the course of the year? Are you breakeven by the end of the year or are you breakeven into 2011? Can you just, kind of give us some flush or some color to that?

Richard C. Ill

You got to realize that the Mexican operation impacts a lot of our individual companies because the products that will be produced down there will be produced for our individual companies here in the States. I would suggest that based on the current situation, health situation in Mexico, we'll probably slow that down to a certain extent. We don't have people lined up waiting to get to Mexico City et cetera. But I think that we'll push that back. It'll certainly affect our cost-wise a lot more towards the end our fiscal year than it will in the beginning of a fiscal year. So therefore, I don't see it being profitable in this fiscal year 2010.

I think it will be '011 I expect it to be profitable and very beneficial to our individual companies in the States.

Myles Walton - Oppenheimer & Company

Okay. And you mentioned the, you didn't see the production or you don't have the production ... any production cut on the three seven build into the numbers but when does the 777 production cut actually start to affect your numbers? I mean, is that within the next quarter or two or is it the very end of the fiscal year?

M. David Kornblatt

We expect to probably get a little bit hurt in March next year. I mean if there is June 2010 rate drop, I think our best estimate at this point is that we'll start to feel just the little bit of pain near the end of our fourth quarter.

Myles Walton - Oppenheimer & Company

Okay. And then last from me was, in terms of your share count guidance, just want to make sure have, where the accounting is right. So, essentially with the 17.2 million share count, you're kind a baking in conservatively that the stock price averages $60 for the full year? is that kind of how you get to that number?

M. David Kornblatt

We issue shares as part of our compensation program. There still are some options out there which, as the price goes up add incrementally to dilution or people exercise, and then there are 100% dilutive. So, it's a combination of the two. I am not ... but you are on the right track. Most of that would come from hopefully the stock price recovering whether should work with the other (ph) money.

Myles Walton - Oppenheimer & Company

Okay. Great, thanks.

Operator

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

Eric Hugel - Stephens, Inc.

Hey guys. Eric Hugel from Stephens.

M. David Kornblatt

Good morning.

Eric Hugel - Stephens, Inc.

Good morning, guys. Can you talk about what the new -- I guess the ABP-14-1 sort of coming in, where are you looking for in terms of interest expense?

M. David Kornblatt

$25 million about the year. If you bridge this year, that's about $7 million extra from the convert. We are probably in a 13-14 range this year. And we projected it -- our lease financing is higher interest rates and we already know that we are get a little bit of headwind on sort of our other financings that are variable. So, it's about 25 million is where we have to pay.

Eric Hugel - Stephens, Inc.

And just to restate, because I guess an ATB-141 requires that you would restate. Where would it have been this year? What would have been the EPS impact for '09 so we can sort of look at things on maybe a more apples-to-apples?

M. David Kornblatt

I think it'll be about the same number. I mean the accretion on the year, one year basis would not be that dramatic. So I think you are looking at probably, it would have been 6.5, $7 million of incremental expense this year.

Eric Hugel - Stephens, Inc.

Okay. Fair enough. You talked about on the 777 rate cut. You wouldn't be ... Is it fair to think things on the commercial lines that your lead times typically would be about three months ahead so, of there were production cuts to come down the road, that's how we should thing about it?

M. David Kornblatt

It's all over the place. Some of ours are right at the end, others are probably more than three months in advance ... on average or probably not that far off. But we looked at triple 777 specifically because that's where the ... that's where the announced rate cut was and we again, things will have to develop. But we think we'll probably see some slowdown in March.

It was interesting that Boeing said on their call the other day that they would announce about a 10 to 12 months before a 737 rate cut, hypothetically. They insist one is not yet coming. So, that would seem that we're one quarter ... one month into our year. Perhaps it wouldn't hit hard this year either if that's their, if that's going to be their style, 10 to 12 months.

Eric Hugel - Stephens, Inc.

Right. Just to make sure the way I'm thinking you talked that you're pretty confident on the 787 sort of remaining on schedule. So we should be thinking ... if that happens, we should be thinking by the fourth quarter you guys starting to see some production ramp up going into the beginning of next year so to think about that as good revenue dollars incrementally, but relatively low margin?

Richard C. Ill

Well I think that our margin for what we've already produced for the 787, we've said in the past that it is a positive margin from day one on what we've been producing. And I think that that margin will in fact increase as we go to production. And I think your timing is approximately correct and that margin will be a little up. Obviously, it will not be at its highest point until we get to really full production which would be...

M. David Kornblatt

Mid next year.

Richard C. Ill

Mid next year sometime in the third quarter next year or something like that.

Eric Hugel - Stephens, Inc.

Okay. Are we back at sort of pre-strike rates now going into the Boeing supply chain? Or are we still ... you guys still feeling some inventory destocking trends or is everything sort of cleared out now?

Richard C. Ill

Things are generally cleared out. There might be pockets of some of our companies that are still dealing with the issue. But generally speaking, we've cleared it out.

Eric Hugel - Stephens, Inc.

Great. Thanks a lot guys. I'll get back in queue.

M. David Kornblatt

Thank you.

Operator

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

J Groh - D. A. Davidson & Co.

Good morning, guys. D. A. Davidson.

M. David Kornblatt

Good morning.

Richard C. Ill

Good morning.

J Groh - D. A. Davidson & Co.

I'm just trying to reconcile the backlog number with the acquisitions and the Boeing pushup. This Boeing pushup thing was for the full year, right. That wasn't a Q4 impact that was in prior quarters or how does that...

M. David Kornblatt

787, we took all that hit in the first quarter.

J Groh - D. A. Davidson & Co.

Right, okay. So the 45 ... the $43 million increase is the net of your acquisitions plus new orders. How much was the ... how much were the acquisition ... how much did the acquisitions add?

M. David Kornblatt

About 50 billion.

J Groh - D. A. Davidson & Co.

50, okay. Okay. That's okay, good. Alright. That's all I have. Thanks a lot.

M. David Kornblatt

Thank you.

Operator

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

Tyler Hojo - Sidoti & Company, LLC

Good morning. Sidoti.

M. David Kornblatt

Good morning.

Tyler Hojo - Sidoti & Company, LLC

I would like you guys to maybe discuss what your expectations for CapEx are? I understand there are some moving pieces there but anything you could do to help?

Richard C. Ill

We're planning on approximately 50 million. We're still on a mode because of the uncertainty and what everybody is talking about is that we're ... we don't expect to be anywhere near free spenders for the next year. So we've already spent $45 million this year. It would be somewhat, notwithstanding the caveats that Dave mentioned in the Mexican plant on lease versus buy and something like that but the equipment down there will be predominantly equipment that we already have, sort there is very little CapEx going into that plant.

And we will be very diligent in spending CapEx, cash is the name of the game. So I would say 45 to $50 million in the next year.

Tyler Hojo - Sidoti & Company, LLC

Okay great. And just on the revenue forecast that you guys provided; is it possible to break that between the kind of the plethora of acquisitions you made here and what's kind of contributing organically?

Richard C. Ill

Oh, it's possible. We don't have ... I don't have it certainly here in front of us.

M. David Kornblatt

I think if you take the ... we put that on each of the acquisition press releases.

Tyler Hojo - Sidoti & Company, LLC

So nothing has changed since...

M. David Kornblatt

No Tyler, so I mean...

Richard C. Ill

No.

M. David Kornblatt

It was about 100 million from acquisitions. So, obviously at the end, we are looking at some small level growth and at the lower end we are looking at some contraction but keep in mind we had nine good months of business jet this year and one horrific quarter. It looks like we are going have four bad quarters of business jet next year; regional slowing down. So there is a lot of pluses and minuses. If you add up the press release numbers which are still accurate, we believe it's about 100 million.

Tyler Hojo - Sidoti & Company, LLC

Alright, fantastic. Thanks for that clarification. And then just lastly from me, could you maybe talk about where your current capacity utilization is company wide? I know its tough with so many different businesses, but I guess what I'm just trying to get at a little bit is; clearly we're seeing a pretty severe downturn here in some of your markets. And just with the big capacity expansion in Mexico, I'm just trying to better understand, how you guys are thinking about that?

Richard C. Ill

I think as Dave just said, we have some plants whose capacity utilization has gone from 90 to whatever percent down to probably 30% predominantly in the business jet area. As Dave said, that's we're looking at four quarters of downturn in that, clearly from the capacity levels at which we were operating last year.

There are some plants that are heavier hit toward the end of the year with the 777 or it's the capacity utilization will drop. It's awful hard for us to talk about our capacity utilization. I would say it went up to a high of 85% and that may drop as low this year to 60, 70%. But we have ... we're confident that we've built in an awful lot efficiencies there that are efficiencies that are over and above just volume related efficiencies. So that's why we're optimistic about our margins and our ability to maintain those margins, and/or in some plants increase our margins.

Tyler Hojo - Sidoti & Company, LLC

Okay but, I mean, if you are going to 60, 70% from 85, then why are you expanding your footprint in Mexico?

Richard C. Ill

Because Mexico gives us the ability to take advantage of low cost labor and then ship product back to our plant for assembly and to our higher assembly work that we're not trying. The purpose behind this plant is not to just do all the material down in Mexico and therefore let go of a lot of people in our companies. It's just the opposite.

What we want to do is produce low-cost product down there, and ship it to our companies for higher level assembly and actually expand what we have ... the ability to do things out of our plant in the U.S. Now, clearly that will take, that doesn't happen in two or three weeks. But I think that our philosophy of business will enable us to do so and it will help each one of the operating plants to participate in our Mexican project.

M. David Kornblatt

And Tyler we're not doing this to help our 2010 numbers, obviously. I mean, we believe we need capacity long-term in our facilities. We rather fill up that capacity with higher level work and that if there is a moderation in the market coming and when market recovers, I think we're going to be the stronger player. We're going to be the most competitive player. It aligns us with our customers and suppliers better.

So, if you judging this on the next 12 months, obviously there is nothing in it. We've been very clear that it's negative this year. But for the long haul, it's definitely the right move for our company.

Richard C. Ill

Our customers have in fact very ... I mean a lot of them have already accepted this move as a very positive issue for us going forward.

Tyler Hojo - Sidoti & Company, LLC

Okay, great. Great quarter, guys. Thanks.

Richard C. Ill

Thank you.

Operator

Thank you. Our next question comes from line of Ron Epstein. Please state your affiliation followed by your question.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Yeah, Ron Epstein, Bank of America Securities-Merrill Lynch. Good morning, guys.

Richard C. Ill

Good morning.

M. David Kornblatt

Good morning.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Just want a ... just follow up on a couple of things. On the 787, right you guys seem pretty confident about the program development so far. Do you worry about the ramp up? Do you hear about other suppliers that are having some issue with regard to just getting bottlenecks out of their process? I mean, do you think it's realistic that at some point this program can get to you in kind of month and in the not too distant future in it, what's your anticipation for the ramp up of the program?

M. David Kornblatt

I mean we're definitely confident in our ability to ramp up if you're saying that.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Yeah, I'm not worried about that. I mean, the people are, I'm not worried about you guys. But there are other suppliers but that will somehow affect you guys, right I mean, because you're all connected.

M. David Kornblatt

Sure. We -- the suppliers we work with, I think they're getting through their issues. Certainly, we work some of the suppliers that have had issues. But as our people go around, they report back to us that they're gaining confidence. A; that Boeings hasn't solved this time and B, people seems to be ready. I don't think we have any inside scoop that others don't have. But I think that we're, we're bullish on it and as we've said before, if it doesn't quite get to ramp full ramp rate for another quarter, we're long-term believers in this program. I don't think we're going to be that stressed out, if it doesn't quite ramp at exactly the schedule.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Okay.

Richard C. Ill

Turning in our business planning process Ron, maybe I'm referring to every one of our locations and we ask essentially the same question. A; we ask what they were referring to first, are we ready and is our supply chain ready? And we feel very confident with that. But we'd also ask the issue and the contact with Boeing, what is Boeing saying to you in regards to the ability for other people to deliver, so it doesn't hold us up and the whole supply chain gets messed up like it apparently was six months ago or year ago this type of thing.

And all I can tell you is the same thing Dave said, we haven't had anybody say to us that the word isn't go within the supply chain. Certainly they had a lot of problems which they had to solve but I think it's, -- I they're there.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Okay. Super. How about we haven't talked about much about it at all. The C series from Bombardier. Is there an opportunity for you guys on that program?

Richard C. Ill

There is an opportunity and we've been working with them on that but that's been a relatively quiet program of late. And I think that's what Dave was referring to on some of the regionals and the Bombardier A type of thing. We don't have a lot of ships at value at Embraer, so we don't have as close a contact there but we have quoted; we are looking for something there but it's nothing that we anyway can speak of in any big numbers.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Okay. Okay. And then I noticed, do the ninth program of yours, top programs of the 747. Would that be the same (ph) there won't be transition to the 747to SA?

M. David Kornblatt

Yes, I think our ship cost at there is, I don't think changed dramatically. It will be by a sheer size probably always be in the top ten if it's in production.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Okay. And then maybe by my last question. Boeing hasn't said anything about 737 rates. We've heard about the 777. From group of executives who watch this industry for a long time, what's your expectation? Do you think the 737 rate has to come down or do you think in Boeing actually get to the cycle without cutting rates?

Richard C. Ill

What we have said before and I don't ... know if I have any reason to change our minds on this is that the 737 rate will stay generally up until the 787 comes in and buoys the cycle if you will and then in the same time the 737 will stay up assuming that they all get financed and Boeing has called last week. They indicated that they are prepared to finance approximately $1 billion to that. So, assuming that stays up and we think it will at least what Boeing is telling us, and I think that certainly in fiscal year '010 will not be something that will hurt us.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Sure.

Richard C. Ill

Long-term, we're hopeful that other programs take its place.

Ronald Epstein - Bank of America Securities-Merrill Lynch

Super. Super. Thank you very much.

Richard C. Ill

Thank you.

Operator

Are there any additional questions? We have a question from Eric Hugel. Please state your affiliation followed by your question.

Eric Hugel - Stephens, Inc.

Hey it's Eric Hugel again for Stephens. Any update on the castings that this continued up it's been hanging around there for quite a while now?

Richard C. Ill

Well it's not easy to sell. But on the other hand, we do have interest that's perhaps a little more fervent than it was even a quarter ago. So, we're perhaps more optimistic in this quarter than we were in last.

Eric Hugel - Stephens, Inc.

Is there a risk that at sometime that has to comeback. I would have discounted ops?

Richard C. Ill

There's always a risk because you have unless we feel you don't have a possibility of selling it there is that risk, but we probably take other steps before that.

M. David Kornblatt

The accounting literature shouldn't grab us, if that's what you are asking.

Eric Hugel - Stephens, Inc.

Yeas.

M. David Kornblatt

For me as long as -- as long as that's on our full intent to sell it and then for not to be part of any of our other businesses. It should not have to come back in. So, as Rick said, we're trying to sell it and if we can't, I think there will be other stuff we'd take.

Eric Hugel - Stephens, Inc.

Alright. Can you give us an update on sort of some timing on the legal side, so we can sort of think about when sort of the ramp up legal expenses in the quarters?

Richard C. Ill

The only thing I can tell you is that there are the criminal trial is scheduled for May.

M. David Kornblatt

Criminal is September 8, 2009.

Richard C. Ill

I'm sorry September and then the civil is later than that, May 2010. So, that's the reason that we put up and we have no idea whether that's going to be the case or not.

Eric Hugel - Stephens, Inc.

Yeah, no.

Richard C. Ill

That's why we ramped it up to $9 million for the year. If in fact September, October is correct although, I must admit we have some doubt in that and that's not that far away. So, I don't know how to help you on that one.

Eric Hugel - Stephens, Inc.

No, that's fine. I guess in terms of thinking about sort of on a quarterly basis, is there anything in terms of trying to model that that we wouldn't ... that we should be thinking about other than things like legal that would affect sort of normal seasonality across the businesses?

M. David Kornblatt

I think the only thing is, Mexico will ramp slowly and probably of that 7.5 million will be clearly backend weighted.

Eric Hugel - Stephens, Inc.

The Mexican expenses, that's going to be ... is that going to be in aerospace margins?

Richard C. Ill

Yes.

Eric Hugel - Stephens, Inc.

Okay. Great thanks.

Operator

Ladies and gentlemen are there additional questions? Since there are no further questions, this concludes the Triumph Group's fiscal 2009 fourth quarter and year-end earnings conference call.

This conference call will be available for replay May 1, 2009, at 2 PM Eastern Time today till May 8, 2009. You may access the replay system at any time by dialing 1888-266-2081. International participants dial 703-925-2533, enter the access code 1351011. Once again, those numbers are 1-888-266-2081 and 703-925-2533 access code 1351011.

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

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