Precision Castparts Corp. F4Q08 (Qtr. End 03/31/08) Earnings Call Transcript

May. 6.08 | About: Precision Castparts (PCP)

Precision Castparts Corporation (BATS:PCP)

Q4 FY08 Earnings Call

May 06, 2008, 10:00 AM ET

Executives

Mark Donegan - Chairman and CEO

William D. Larsson - CFO, Sr. VP and Assistant Secreta

Analysts

Stephanie Hwang - Merrill Lynch

Peter Arment - American Technology Research

Joe Nadol - JPMorgan

Robert Spingarn - Credit Suisse

J.B. Groh - D.A. Davidson

Tom Marsico - Marsico Capital

Howard Rubel - Jefferies and Company

Gary Liebowitz - Wachovia Securities

David Strauss - UBS

Cai von Rumohr - Cowen and Company

Eric Hugel - Stephens Research

George Shapiro - Citigroup

Good morning everyone and welcome to Precision Castparts webcast and conference call to discuss its fourth quarter earnings for fiscal year 2008. As a reminder, you may listen to today's presentation and view the accompanying slides in real time by going to www.vcall.com and locating Precision Castparts Corp in the investor events calendar. Additionally, this event is being recorded and will be available on Precision Castparts' web site at www.precast.com, shortly after the conclusion of the presentation and discussion. After remarks by members of PCC management, the dial-in access lines will be open for questions. [Operator Instructions].

At this time I would like to turn the call over to Mr. Mark Donegan, Chairman and Chief Executive Officer of Precision Castparts. Please go ahead, Sir.

Mark Donegan - Chairman and Chief Executive Officer

Thank you. Good morning. I would like to thank you all for listening in. I am sure you are all very familiar with the forward-looking statement and you need to take this into consideration in analyzing the following event.

Since we exited fiscal year with strong fourth quarter and we basically ended up with record sales, EBIT margins and EPS, but I want to say a little block was still evident entire quite a bit amount of opportunity across all our operations and we certainly stay focused on that.

Looking at Q4, we saw good solid sale of growth of 16.6% for the entire corporation going from $1.5 billion last year, this at a $1.8 billion this last year. We saw operating income improved year-over-year from 37.1% going from $304 million last year and $417 million this year. With some margins improved from 19.8% prior to the 22.3% previous and all this contributed to our EPS growth of 32% going from a $43 last year to $89 this year. In that already I mentioned though, we did have a $0.03 restructuring for the closure of the underutilized machining operation in the U.K.

Looking at some of the primary drivers for the overall corporation, again as you expect, we continue to see extremely strong demand from our two primary end markets, Aerospace and Power and we continue to see a lot of growth coming on the platform. We have a very, very strong position, so again, what -- where the growth is coming from, it tends to be a very positive impact on our corporation.

We continue to see good leverage, of the increasing volume across all of our fixed assets and that along with our constant attack on cost, continued to be the primary drive behind our operating income growth and selling on a margin expansion.

I think where we were in the fourth quarter, really establishes a good solid base to build on moving forward. Looking at the segments now and taking a closer look, begin with Investment Cast. Saw good solid year-on-year sales growth going roughly by 25% going $462 million last year to $578 million this year.

We saw operating income growing by roughly 43.7% going from $109 million last year, $145 million this. We saw good margin expansion going from 21.8% last year to 25% this year. So, I think, it was a good solid operating performance from the Investment Cast operation.

Looking at some of the key drivers, as you would expect we continue to see aerospace being a very strong contributor and again this is both from OEM and the aftermarket. And as I said earlier demand is coming on very, very good platforms set forth in the Investment Cast operation.

In the quarter Investment Cast, we did see demand slowing for the 787 products as compared to Q3 and that's really, I think basically of our customer is getting to adjust to the new anticipated building. However, looking forward we do see good solid growth on our base program and as I have stated the very strong participants on the key accelerated program has been moving to production. The most immediate thing the A380 moving in the quarter of this year and find that up with, so the more significant 787. At this time for us that 787 really feel to be going in a build rates probably our Q4 or Q1 of next year, but build rates continue to go on for the foreseeable future and then after that would be the F-35 and the KC-X.

[inaudible] second significant driven for the quarter was -- and continues to move on into the next 16 months is really the strong demand coming from IGT. Currently we are at the production levels in both IGT factory and as you know when the process of adding capacity at both facilities. Until we get the capacity in at this point in time, we really can't make any significant increases to the volume output, but we are in fact coming up with raise up of seeing small incremental improvements until we bring the facilities up.

Forged facilities are doing well and coming up to pretty much, where we had expected them. At this point in time we are looking at Deer Creek hoping up really in our Q2 of fiscal year '09 and in our Ohio facility coming into production in Q4 fiscal year '09. And we also continue to see in the IGT front strong demand on development program and we are having good success in expanding our customer base. So IGT continues to be a very strong storey in the Q4 and as we look forward in the next 16 months.

Moving to forging, forging saw year-on-year growth of roughly 9.5% going from $739 million sales last year $810 million this year. I will go over some of the effects of material within the next couple of slides, so I will cover that. On the operating income side, we saw growth just on 23%, from $150 million last year to $184.5 million this year. We saw good margin expansion in the Forged group year-over-year going from 20.3% to roughly 22.8%.

Looking at the major drivers, again as you would expect as with investment cast parts we saw very, very strong demand from our aerospace and that's really crossed the disc operations, landing gear and structural components. And as with investment cast, we did see in the quarter some slowing on the 787 hardware in the forging group that's mainly coming from the engine component.

Again looking forward, we see a very strong impact from the both of the major programs out there the 380 and 787, as we move into the production schedules, comparable to what we see in the investment cast side.

[inaudible] price continues to be a very strong growth engine for us and will enable us to see output continue to growth and well under the double-digits and our backlog now is in an excess of $800 million give us a very solid platform and a baseline for the next 24 months. We were able to continually put in surgically capital equipment that led us continue to grow our output without making a major press expansion and we see the opportunity continue to do this really both of course for the year, well it continue to grow both sequentially and year-over-year. So, it's really quite continues to be a very strong storey for us.

Looking some of the effect of the material side, of the Forge business, we continue to see year-on-year material pass-through increase in this quarter year-over-year is roughly $17 million. This is mainly in the [one go inside] of our business.

And then looking at the effect on the sales line, both the lower nickel prices and increasing internal sales, the impact is roughly $70 million. So, now looking a comparable number, we are looking a comparable sales number roughly $880 million as compared to last year. But there was an effect of both lower nickel prices and again increasing our internal sales [inaudible].

Moving onto Fasteners, I think we saw good solid growth year-on-year growing by roughly 20% with $334 million last year of $402 million this year and we continue to see good improvement in operating income going from $78 million last year to $108 million this year and the entire team continue to do a good job, again expanding our margins year-on-year from 23.3% last year to just under 27% this year.

Looking for major drivers in the Fastener products, as you do expect basically all of the growth continues to be fueled by the aerospace business. We continue to benefit from the overall cycle and we also to that enable to add good inroads and cashing additional opportunities as they come up and that's both on share gains and new programs.

We are also going to be moving over the next year and capitalizing and utilizing some of our critical automotive capacity and capability and that really comes down to our forging presses and headers and move that more into helping support the aerospace growth. So, again we do have the asset available to make that transition and you will see that occur really over the next 12 to 16 months.

In the Fastener side of the business, we have not seen today any significant changes in the demand for our 787 hardware. And what this is really yielded in our aerospace operations, as year-on-year growth of roughly 39%, so again aerospace tend to be a very strong platform for us in the Fastener side of the business.

Coming next, at the same time we continues to experience very anemic automotive activity. We are seeing flat sales and what we see really occurring is we offsetting North American decline with new opportunities. And again, we would expect the most of our critical capability in that auto world into aerospace over the course of the next 12 to 16 months. I think the Fastener business has seen a solid performance and again a good platform build on and move forward.

Moving out of our operation now and take a quick look at cash, I think it was another strong quarter. We really had a net cash flow positive our $336 million with cash increasing by $45 million and debt declining by $292 million. And again I think, we continue to position ourselves very well even in today's current financial conditions to be able to capitalize on the opportunity as they come up. So, our drive will be to continue to position ourselves to do that and I think we still have plenty of opportunities across our operations to continue and reduce cash.

So, in summery as we move in to fiscal year '09, we continue to see very, very solid aerospace demand. Again I think one of the [right days] programs, if we look at though we have our after-market, where our positions are and where our content is on the right program. And I think we are in excellent position as the growth platforms move in to production and moving into the net to latter half of this fiscal year and going into next year. Again those are the primary drivers the 380 and the 787.

IGT demand if we look out in the future, IGT demand continues to accelerate. We are cap today in terms of what our capabilities are, as we move through the year. Again we settled to bring on and in the end of Q2 our capabilities and [Inaudible] as we move into Q4, we will be able to bring in the Ohio operations and we will be able to generate additional outputs to support the markets at that point in time.

And the timing of our new facility in Ohio works up very well in that. We have a good success again with expanding our customer base in getting some good positions on new programs. If I look at the timing of when that tooling will commence and we have to start working development, current size is very well, that's one of our new facility comes online. So, from that standpoint we positioned very well.

We expect to see vigorous quite demand continue. We do not see any let up at this point in time. And again [inaudible] to continue increase the output fairly across our Houston operations in our UK operations being a key contributor to that. We do see an opportunity. We continue to capture in our alloy operations. Opportunities had two years ago, we not have been competitive. So, again I think our tax, and cost and yields and give ourselves with competitive position has allowed us to win and take positions across non-aero business that previously not have been competitive.

And again, we are start off the numerous opportunities across all of our operations to continue, to drive improvement in really few in our objective of that roughly 30% incremental margins. And you have a group that is committed to this basic driver, and we do not have any intentions or desire and we will be focused clearly on attacking of all of the opportunities and again I think we are really staying focused on all opportunities both top and bottom line. And I think at this point in time, we are well positioned for the future we see it today.

So, with that, I guess we will open it to questions.

QUESTION AND ANSWER

Operator

[Operator Instructions]. And our first question will go to Ron Epstein of Merrill Lynch. Please go ahead, sir.

Stephanie Hwang - Merrill Lynch

Hi, this is actually Stephanie Hwang. How are you guys?

Mark Donegan - Chairman and Chief Executive Officer

Hi Stephanie, how are you?

Stephanie Hwang - Merrill Lynch

Good. Could you just provide a little bit more color on the shutdown of the machining operation in the UK?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, we basically had, we have three facilities in [inaudible] of our AETC operation. One is a cast and tool machining, where we enable to do, we have been able to drive efficiencies really across one of the machining operations and the casting, which created additional space.

So, we found ourselves in a situation with three facilities, where we really need a two. So, what we are doing is consolidating into two facilities and which you are looking at is really the cost of shutting down and the bulk of that is severance including employees located in the UK.

Stephanie Hwang - Merrill Lynch

Okay. And then related to, I guess, given how valuation has come down a bit. Are you seeing properties that are little bit more appealing? Should we still be expecting a “neither moving acquisition”?

Mark Donegan - Chairman and Chief Executive Officer

Well, again I think that we -- what we're looking at in the opportunities we're focused on have can remain unchanged.

Stephanie Hwang - Merrill Lynch

Okay.

Mark Donegan - Chairman and Chief Executive Officer

I certainly think that we're focusing on the right thing. They certainly capitalize on utilizing all of our core competency and certainly that has the market has stabilize. I think it provides a platform for us to engage in more truthful conversation.

Stephanie Hwang - Merrill Lynch

Okay. Thank you very much.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Operator

And our next question goes to Peter Arment at American Technology Research.

Peter Arment - American Technology Research

Hi, good morning Mark. You got a nice quarter.

Mark Donegan - Chairman and Chief Executive Officer

Thank you.

Peter Arment - American Technology Research

Could you talk a little bit about what you're seeing in the airfoil demand, I mean, you historically said you've seen, if you're going to see any contraction in the after-market, you see at there first. How was the growth on that side?

Mark Donegan - Chairman and Chief Executive Officer

It kind of have been the little choppy, if you would ask that question in a couple of weeks ago, I probably would have told you that we're good, but we're not seeing a type of growth and then over the last two weeks we just saw tremendous influx. So, at this point in time, its certainly maintain the same feel it has over the course of last six to eight months seeing good demand on the based program. We're seeing the aftermarket remain strong. And the biggest change we did see in the quarter, they would have affected by these kind of the rescheduling or re-forecasting of the 787, but they do have a very substantial position on that. So, overall an airfoils towards north still feel very solid in kind of where it was over the last six to eight months.

Peter Arment - American Technology Research

Okay. And could you also remind how much you're now I guess on switching over to Forge, how much you have internally supplying versus external?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, we are probably about 40% internally supplied now.

Peter Arment - American Technology Research

So, that hasn't changed much?

Mark Donegan - Chairman and Chief Executive Officer

No, not really, what we were doing is, we are actually opening up additional opportunities and we are finding new ways of utilizing some of their output to move across our other operations. And that's given us a pretty good utilization of their facilities too.

Peter Arment - American Technology Research

Okay. And then just quickly on -- just regarding nickel prices, I think previously you had indicated you were still blended in prices that were, I guess little north of 20 and how should we expect the current fiscal year to -- how that's going to flow through?

Mark Donegan - Chairman and Chief Executive Officer

Yeah. It's a good -- its moving and why I say that is certainly nickel has stabilized, but as you can well imagine cobalt has now become a pretty wildcard going through quite a bit. We are probably looking adding number in the $17 to $18 type of range. And again that would assume cobalt in the 28 to 35 range and nickel in 14 to 15 range. This kind of a blended rate we move forward with.

Peter Arment - American Technology Research

Okay. So, we should see that, so top line will still be impacted, but it should be lack overtime.

Mark Donegan - Chairman and Chief Executive Officer

Yes. Again as the almost stabilize, quite we quite trading out though nickel comes out and cobalt goes out. We haven't seen any sustainable overall downward trend… it always seems like there is one of the elements. There is significant to [inaudible] certainly cobalt does not as big as from nickel but it's a significant contributor and now we are seeing still moves the other way.

Peter Arment - American Technology Research

Okay.

Mark Donegan - Chairman and Chief Executive Officer

So, it's kind of a moving target for us.

Peter Arment - American Technology Research

Okay. Thanks. I will jump back in the queue. Thank you, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Okay, thanks.

Operator

And we will go next to Joe Nadol at JPMorgan.

Joe Nadol - JPMorgan

Thanks. Good morning, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Hey, Joe.

Joe Nadol - JPMorgan

First question is on 787, you noted that you're seeing the delay in fact on two of your three segments, but not yet in Fasteners. What you are looking for the next six months? Do you think you are going to start to see in fasteners or do you think the other segments just are going to start picking up a little bit?

Mark Donegan - Chairman and Chief Executive Officer

Well, again I think that certainly if you at the value of the component then you start looking at how [inaudible] and just a normal disc and normal airfoil. They are going to be very expensive components. So, it tends to be an area that we would see a push out very quickly.

I think in the Fastener side in there is still opportunities and we maybe seeing some slow down in the base 787, but at the same time we are seeing opportunities from our qualifying new assets as well as additional new designs are coming out of that. It holding its flat. I think it would probably are seeing some easing in some of thee same demand, but we are seeing overall opportunities on that program continue to going. Right now, its kind of hold up pretty strong and we don't see a whole lot changing at this point in time.

Joe Nadol - JPMorgan

Okay. One of your smaller competitors noted that they saw some pretty significant slow down in the A380 demand relative to your expectations because one of their customers had a lot more inventory in the channel than they expected. Are you seeing any of that or really seeing that pick up?

Mark Donegan - Chairman and Chief Executive Officer

What we have not seen any A380 demand for probably two quarters - two or three quarters. So at this point in time what we are really seeing is anything that we were happened build rate one month or two month wherever they half a month would be upside opportunity for us. We have current operation that literally haven't seen anything now in six months.

Joe Nadol - JPMorgan

Okay. Over on SMC, you already noted your… to the degree that what you're internally supplied. I'm wonder if you could just look at some of the other standpoint, how much of SMC sales are now internal, could you note that been changing?

Mark Donegan - Chairman and Chief Executive Officer

It still a very, very, very small, in total SMC sales were probably 10%, 12% of SMC at best.

Joe Nadol - JPMorgan

Okay. That's up from lower to mid single-digit the year ago so?

Mark Donegan - Chairman and Chief Executive Officer

Yeah and again its changing, why I say that you got to remember two that, that in that segment is Caledonian, which supplies across all of our it goes into the casting, in terms of airfoil. It's going in structural. It's going in [inaudible]. So a lot what we have been able to do with Caledonian is to use them to provide lower input cost into all of our operations, but again those sales do fall under the Forged segment, just not SMC.

Joe Nadol - JPMorgan

Okay. And then just one more, you noted that SMC, your top three facilities volume was up 7% and obviously the sales took a hit because of the decline in nickel. I am wondering if you could tell us if EBIT was up or -- was up more than 7% or less.

Mark Donegan - Chairman and Chief Executive Officer

Well, I don't break it out, as you know, but you can see that SMC is a very significant portion of the Forged group. So, if you look at, what the Forged group did, it would be hard to over come something that big that was going in the wrong direction.

Joe Nadol - JPMorgan

Okay, fair enough. Thank you.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Operator

And our next question goes to Robert Spingarn at Credit Suisse.

Robert Spingarn - Credit Suisse

Good morning, Mark.

Mark Donegan - Chairman and Chief Executive Officer

How are you doing?

Robert Spingarn - Credit Suisse

Good. Thanks. Quick question on just the trend in the SG&A which was down somewhat markedly in the quarter, you might touched on this earlier?

Mark Donegan - Chairman and Chief Executive Officer

The biggest driver at SG&A is kind of the deferred comp and the kind of the position the people have in the PCC stock was the stock comes down, from the 150 high to where it is now has the positive impacts on this line item.

Robert Spingarn - Credit Suisse

I see. So, we could see it returns at a kind of run rate it has been out before.

Mark Donegan - Chairman and Chief Executive Officer

Well, I think it's a pretty significant correlation as the stock price goes up or down. You will see that move up or down too.

Robert Spingarn - Credit Suisse

Okay. And then just a larger view question, we talked about this earlier a few different times. Boeing is now implementing this slower 787 schedule going forward and with that in mind and the fact that KCX could take a while to ramp up here. How comfortable are you with the street looking for 13% sales growth in '09 and then maybe something close to that 11%, 11.5% in 2010?

Mark Donegan - Chairman and Chief Executive Officer

Yeah. There is not a lot from the standpoint of what we have feel, I think we've been very well dialed into what we've seen and its hard for me to know all of what the street and you guys have putting your numbers. I mean some of them had changed as the build rates have gone from that combined 110 between '08 and '09 on the 787 and some have not moved yet.

I think again what we saw last quarter feels like maybe on going run rate of the 77, I think we did see some very good reestablishing from our engine customers and certainly on landing gear and lot of the other parts. We've seen kind of a re-baselining. So, if I look at where we are today, and you start looking what the base business is going to grow and then you put in when 787, I think again we've seeing that 8% to 10% a little higher is probably reasonable and I don't see that changing at this point in time.

As the 87 comes into play, again it is a big number and it is certainly capable by itself of moving that growth rate, ramping that curve up differently and that work… that comes into play. I think we will change in that point in time.

Robert Spingarn - Credit Suisse

Okay. So, focus on that, we are still talking about what $4 million to $5 million per aircrafts.

Mark Donegan - Chairman and Chief Executive Officer

We're well positioned at $5 million and probably have an opportunity to go to North of that.

Robert Spingarn - Credit Suisse

So, that's just, you really… is that because you keep gaining share here?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, we have. We continue to see good opportunities. We have continued to see as parts have been redesigned we continue to see opportunities open up and again I think that the 87 for us -- by far the most significant platform we ever had and I am not ready to say that, yeah, we are tapped out on what that program can offer us in terms of growth of gaining additional market share too.

Robert Spingarn - Credit Suisse

But certainly long term we could be talking $0.5 billion a year in revenues.

Mark Donegan - Chairman and Chief Executive Officer

Yeah, again as you move up to a build rate of 10, 12, it's a very substantial number for us.

Robert Spingarn - Credit Suisse

Okay. And then just last thing, I don't know if Bill's there with you.

Mark Donegan - Chairman and Chief Executive Officer

He is.

Robert Spingarn - Credit Suisse

Perhaps either you or he could walk us through in a little bit more detail. The impact of the nickel prices and the internal sales on the growth rate at forgings, some of the components their so you can actually do the math?

Mark Donegan - Chairman and Chief Executive Officer

Hold on a minute. He's pointing to the math. Yeah, what we basically did, is we took in terms of material and again it's blended overall rate for the quarter of what our prices were going up as our Q4 last year to Q4 this year and that gave us a prices [Inaudible], we multiply that tones a pounds that we shifted.

So, it's kind of a comparable if everything was equal, what with the sales value been for the same shipments. Okay. And that gave us a dollar number. In terms of the volume, again these are the three primary mills. We looked at the volume we put out, last year and the volume we put this year times the current sales price and what would that have given us and those two are what gave us roughly the $70 million.

Robert Spingarn - Credit Suisse

And what's if we strip out the pricing, what kind of volume increases are we looking at?

Mark Donegan - Chairman and Chief Executive Officer

Those three primary mills, we are in that again, that 7% to 10% range is probably where we were.

Robert Spingarn - Credit Suisse

Okay. Thank you for the help on that. I appreciate it.

Operator

And we will go next to J.B. Groh at D.A. Davidson.

J.B. Groh - D.A. Davidson

Good morning, guys.

Mark Donegan - Chairman and Chief Executive Officer

Hi, J.B.

J.B. Groh - D.A. Davidson

I had a question on -- you talked about repositioning from Fastener capacity. I think in the past, the automotive has been what say, 110% of your total sales.

Mark Donegan - Chairman and Chief Executive Officer

Yeah.

J.B. Groh - D.A. Davidson

So, could you maybe quantify the amount of that capacity that could be turned into aerospace fastener capacity?

Mark Donegan - Chairman and Chief Executive Officer

Well, we can probably 35% to 40% that comes out of the facility. And the primary facility we're probably looking at a number closer 50%. The two primary facilities that we can do this and when I say do this. That the heading equipment, the treading equipments is all capable of manufacturing, the tolerances, the metallurgical characteristic that are required. And what's you're looking the plants that are making critical automotive investments.

Two primary plants for us is in the Cleveland operation and then we have our Brazilian facility and kind of what we're looking at, is being able to take that Cleve facility and move some of that critical automotive into the aerospace North America and then we actually having a position down in Brazil, it help us and we're looking and potentially taking some of the Brazilian capabilities and moving into the air world. So, the combination of those two probably, like I said are 40ish percent of what comes out of that… maybe 35 comes out of that business.

J.B. Groh - D.A. Davidson

So, some of that automotive half, what's automotive now can potentially be turned into aerospace capabilities?

Mark Donegan - Chairman and Chief Executive Officer

Again if we continue to have success we could continue moving. So, it could be an evaluation that. Eventually, we could move all the equipment over. Because, there are types of aerospace fasteners, we hate to say the lower end, but there is certainly some more non-complex aerospace fasteners. That today we really join as a competitive means, and I think that these operations also offers us an opportunity to go after that market, there was nothing able and capture to. So, not only can it potentially do some of the demand we have today, but it can also go and compete and give us some other opening in the aerospace side too.

J.B. Groh - D.A. Davidson

And so, what are the barriers to getting there, is it just a certification or is it the --?

Mark Donegan - Chairman and Chief Executive Officer

It's going through a transitioning putting the quality standards in place. Again, the fact that it is a critical automotive, I mean that the automotive inspection standards, their quality requirements to tolerances are very comparable to the aerospace. But again they are different systems and we will have to qualify the actual assets through. But if you look at technology capability, machinery and equipment, it's very comparable for what we would do in our aerospace facility. So it's not as if we are just taking a hollow of the building, and saying okay, we've got to begin from dispatch. I mean various people, resources, engineering talents that are very capable making this transition. And now it's just a matter of kind of laying it out and moving in that direction.

J.B. Groh - D.A. Davidson

So, very little incremental CapEx?

Mark Donegan - Chairman and Chief Executive Officer

Very little. I mean, we may have different heating coils but it's something that you would see as a rounding error in our total capital expenditures.

J.B. Groh - D.A. Davidson

Great. Thank you for your time and congratulations on the quarter.

Mark Donegan - Chairman and Chief Executive Officer

Okay, thanks.

Operator

And we will go next to Tom Marsico at Marsico Capital. Please go ahead.

Mark Donegan - Chairman and Chief Executive Officer

Hey, Tom.

Tom Marsico - Marsico Capital

Hi. I was wondering if you can give us a little bit of scope out two, three years on the joint strike fighter program?

Mark Donegan - Chairman and Chief Executive Officer

Well, at this point in time, sorry but you need more?

Tom Marsico - Marsico Capital

No, that's it.

Mark Donegan - Chairman and Chief Executive Officer

Okay. At this point in time, what we are really seeing at JSF is, it's really a development program for us and that would be both on the engine side and on the structural side. This is a platform for us that would probably be in the $1.5 million to $2 million range, all in as it moves into production. So it's comparable or higher to what we would have on any other production program. We continue to see basic redesign but nothing out of the ordinary. So, at this point in time, what we are really doing is just kind of seeing where that program will be, and I think we are positioned very well if that program moves into production at whatever rate it moves in it.

Tom Marsico - Marsico Capital

When you are looking at capacity requirements so, how far in advance do you have to plan for an eventual start-up of that program? And then just one follow-up question, on the Fastener side, you still have an opportunity to take more market share from our competitor who has a number of different facilities that's producing that fastener, probably they didn't have bet as [ph] well on cost basis as yours?

Mark Donegan - Chairman and Chief Executive Officer

Let me answer the first question. If I look at the joint strike fighter, there is really nothing that comes into play. So if I look at the capitals required, there is nothing, there is either technology or size-wise that would really push us from any directions that we will have to add any capacity equipment in relationship to the joint strike fighter. So, we really don't need to do a whole lot of different, just kind of pause in a place with their overall demand and what you are really looking at is in the aerospace side is what we need any additional casting furnaces. But from the standpoint of brick-and-mortar and major capital and casting furnaces, we don't see any need to be able to that, it fits well within the envelope that we have today.

On the Fastener side, we continue to see opportunities. And again, I think, we need to be very aggressive, I think we need to attack all costs on every front. But when that group stays focused, yeah, we see really no end at this point in time to being able to continue to grow our market share and certainly with the weakness of dollar it comes into play and provides us additional opportunity, not just from a standpoint of trying to be the low costs best quality supplier, but it also gives us some added advantage. And I think, we will some opportunities coming from that over the next year and half or so.

Tom Marsico - Marsico Capital

Thank you.

Operator

Now, we will go next to Howard Rubel of Jefferies. Please go ahead.

Howard Rubel - Jefferies and Company

Thank you very much. We have been talking about capital and some of your commentary seems to be, Mark, that you will be spending less capital this fiscal year than last, is that a fair assumption?

Mark Donegan - Chairman and Chief Executive Officer

No, again the… whoever got to be spending this year was taking up the bulk of it in terms of one big capital expansion is the new expansion in the Ohio IGT facility and the expansion in on the Oregon business. So that's probably the single biggest piece that we have to put in place. Without those, I'd say, yeah, it would be comparable to those who will make it additives kind of over where we were this year.

Howard Rubel - Jefferies and Company

So kind of two, a little over $250 million?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, that sounds still like a pretty good number.

Howard Rubel - Jefferies and Company

Then just to follow that up, given probably the way you are running the business a little tighter and slightly slower growth. Your working capital growth should also be a little more moderate?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, again, the working capital tends to take a feel of about a quarter ahead of whatever the proceeding sales is. And certainly we have been… we have been on a very aggressive trajectory in terms of sales growth. So I do think that, our opportunities to take that down still exist, and again whether this, even the line that we have been on, we still have opportunities to take working capital up. So am I pleased with where we are in terms of working capital, no, you know I am not. And I think, if you went out to the operations and sat through out quarterly reviews, you'd get a good sense for where I think your opportunity is. So, even as we grow and even as the 787 come into play, my goal is to continue to track that operating working capital as a percent of sales and I am not satisfied with where we are at this point in time across our businesses.

Howard Rubel - Jefferies and Company

I mean I going to kind of set you up here a little bit and I think you fall for it, but it looks like you become very close to $1 billion in free cash flow this year?

Mark Donegan - Chairman and Chief Executive Officer

Well, you know that I won't answer that question. But certainly if you got to look, there is nothing abnormal in where we were last quarter in terms of that number. And as I said, I still think we have opportunity in terms of taking working capital out. So if you can put those two together, you can probably get pretty darn close.

Howard Rubel - Jefferies and Company

And just two last things, one is, talk about your hiring plans, I mean maybe that will help us to realize how much in the way your… you know as you do more work inside that may going to help us to understand or appreciate the way you're growing the business?

Mark Donegan - Chairman and Chief Executive Officer

Well, we're always hiring and there is certainly a rate of attrition that goes on in our work force so it is always going to be and that's probably in the 3% to 5% range as overall natural attrition. So, I think you're always going to see that particular baseline. What we really focus on is our sales per employee which kind of says, are we continuing to improve quarter-over-quarter, year-over-year? Are we growing that line? And that line is continuing to move in a very positive direction over the course of last three years and we don't see any reason why that would slow. So again, that may not quite answer your question, but I look at in more sales per employee than I look at in terms of actual hard numbers. Because that tells me always being more productive and always being more efficient and we're getting better fixed utilization, so that's why we look at that number.

Howard Rubel - Jefferies and Company

And then last is on scrap rates. I know you're working, I mean part of the incremental profitability is to lower scrap rates. Can you give us a sense of where you've got the biggest opportunity and maybe talk about a couple of successes?

Mark Donegan - Chairman and Chief Executive Officer

Well, in terms of certainly sheer dollars, you are always going to… it's a one particular grouping of business, as you are going to come back to SMC pretty quick. In every pound of material you get in terms of savings, and it can be metallurgical fallout or overruns or copying at the end. There is nothing that we have in any single business that has much upside, you know as that goes. I'm going to not give you a specific math, but we have continued to improve our yield pretty significantly, which yields are really same as scrap rate in the caps and forging room. Again I think we are probably 60%, 70% of the weight there of where we should be. I think its probably 40%. And then the next biggest scrap, we realize that would be in the Airfoils operation. And a lot of where we've been able to get in the quarter so last year is we pretty much held flat or improve as they are bringing all the development funds. All these new programs. So I think that that Airfoils continues to do a good job. Those are probably the two most significant areas to improve in.

Howard Rubel - Jefferies and Company

Thank you, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Operator

And now we will go next to Gary Liebowitz at Wachovia.

Gary Liebowitz - Wachovia Securities

Well, thanks, good morning. One question. Mark you continue to talk about a 30% incremental margin on the higher sales and it looks like in the second half, there is still a over late you were doing somewhat [inaudible]? Is there a change in mix that's happening over the next year or so that keeps you cautious down at 30% incremental margins?

Mark Donegan - Chairman and Chief Executive Officer

No. we've stated that it's our primary target. I think we are focused clearly on that. There is nothing in results that we've gotten that skewed for any wrong way and there is no change in mix moving forward to any great degree that would change that either.

Gary Liebowitz - Wachovia Securities

Okay. And also, do you also have a breakout of what the acquisitions contribute to the quarter or will we have to wait until the 10-K comes out?

Mark Donegan - Chairman and Chief Executive Officer

I don't have them with me. So, will have to wait till the 10-K comes out.

Gary Liebowitz - Wachovia Securities

Okay. Thank you.

Operator

We will go next to David Strauss with UBS.

David Strauss - UBS

Thanks. Good morning, Mark.

Mark Donegan - Chairman and Chief Executive Officer

Hey David.

David Strauss - UBS

Going back to the revenue growth question, you talked about 8% to 10% growth. What does that assume for your internal sourcing of metals from SMC saying first of all? And then second of all, what does this assume for metal pass through. I think this year between Forge and ICT did about 450 million in metal pass through?

Mark Donegan - Chairman and Chief Executive Officer

Again, I think I may not… I want to make I heard your question properly. I think we said that we are probably in that 40-ish percent range for internally supplied materials. So I am hoping that answers your question.

David Strauss - UBS

Yeah. Well, what I am trying to understand you talked about 8% to 10% revenue growth number going forward before 77 kind of comes online and kicks in.

Mark Donegan - Chairman and Chief Executive Officer

That would assume that. So that would assume that we continue to provide ourselves internally. That is, probably grow to that 40%, moving up to maybe 45%. But that would all be baked in there.

David Strauss - UBS

And that would include the pass through number coming down?

Mark Donegan - Chairman and Chief Executive Officer

You know, in reality if you look at the blended rates and even the nickel has come down, the effect of cobalt and steel going the other way. Overall, in terms of casting in the Wyman-Gordon business, there is not a whole lot of movement year-over-year. We are kind of flat in that pass through number.

David Strauss - UBS

Okay. And then it looks like at least for one quarter, in terms of SMC and prices you are going to have a difficult comp in the first quarter in terms of nickel prices?

Mark Donegan - Chairman and Chief Executive Officer

Yeah.

David Strauss - UBS

Okay. And then as far as 787 inventory, obviously with the slowdown in the production ramp. Where do you think that inventory is going to sit in the supply chain? Are you going to be holding kind of excess inventory until you start to ramp up?

Mark Donegan - Chairman and Chief Executive Officer

No. There is only one area at this point in time, that I know where I actually holding inventory, and it's in the alloy side in our Airfoil operations. Besides that, we really have no inventory to any great degree in our pipeline at this point in time. It's there, that's just that significant. So, in my standpoint, the way what we did with our customers, is we kind of ramp down over a four to six months period of time and that's kind of where we are today.

So I would expect to, and we are probably carrying that alloy at a $4 million, $5 million of inventory. So I mean again it's not a massive chunk of business and we are pretty tied closely with our customers, that when we finally either pour it in the casting oil, hot forge it in the forging oil or head it in the fastener oil, that there is hole [ph] that it's going to go to.

David Strauss - UBS

And then looking at SMC, you are actually selling it to the aero and the oil and gas and kind of the industrial markets. Are you seeing any slowdown at all in terms of demand from the industrial side of the business?

Mark Donegan - Chairman and Chief Executive Officer

No. Again, for us, it has been market share opportunity. So I can't answer that question if I had 90% market share, I couldn't answer that. But the fact that we have market share opportunities and we really kind of attacked our cost structure with the proper capital in place, what we see at this point in time, is it's really quite an opportunity for us to continue to grow, because of where our position is and what opportunities we have.

David Strauss - UBS

Okay. And then two quick last ones? What were your true pipe sales this year and what you think capacity is for that business in terms of annual sales? And then what do you think about tax rate for '09? Thanks.

Mark Donegan - Chairman and Chief Executive Officer

If you give one second, yeah, our pipe sales for fiscal year '08 were roughly $330 million. And again, I think, we should be seeing double-digit growth as we move into this year. And then in tax rate I got to look it, I don't see anything really changing dramatically --

William D. Larsson - Chief Financial Officer, Senior Vice President and Assistant Secretary

Above 34% which is the same as where we ended fiscal '08.

David Strauss - UBS

Great, thanks a lot.

Mark Donegan - Chairman and Chief Executive Officer

Okay.

Operator

We'll go next to Cai von Rumohr at Cowen and Company.

Cai von Rumohr - Cowen and Company

Hi. Thank you very much. Good quarter, Mark. Can you maybe refresh our memory, how many more working days were there in the fourth quarter than the third, and how many will there be in the first quarter, and any impact that we might have seen in the quarter and [inaudible] from any maintenance related shutdowns?

Mark Donegan - Chairman and Chief Executive Officer

There were three more manufacturing days from Q3 to Q4. Q4 to Q1 has the same manufacturing days, because I think we have Memorial Day in this quarter, and there was no major maintenance, there is always maintenance surcharges, but there was no one significant event that would have been a major driver as it was in Q3. However, we did have presses go down and that kind of the normal course of action inside our business.

Cai von Rumohr - Cowen and Company

Got it. You talk of nickel poundage being up 7% year-over-year, as we look at fiscal '09, is that kind of what's talking about or should be the after a little bit more, as you get a little bit more internal forcing.

Mark Donegan - Chairman and Chief Executive Officer

Well, I think that the opportunity is certainly there plus to grow. I don't see anything its going to cap us. So, if you look at the poundage growth, I think the opportunities are there and our expectations would be kind of that or more in terms of poundage.

Cai von Rumohr - Cowen and Company

Okay. And going back to the 787, I recall on the third quarter you had indicated that I think about half of the $5 was in fasteners so the rest in forgings and castings. And I seem to recall that you also had indicated you were going at a one per month rate, which would was add maybe $10 million of volumes, like its not much volume in the fourth quarter. Where are we in the run rate and how should we think of that business ramping?

Mark Donegan - Chairman and Chief Executive Officer

Well, I think that your math is pretty accurate. If you look at the non-fastener side of the business -- we were fairly low state probably $15 million to $20 million and in terms of castings and forgings. For now what it feels like is maybe a couple of quarters like that and then as we start coming into the latter half. So, the end of Q3 and Q4 will have to start ramping up and getting back into it. I think we probably looking, today it feels like more of a static rate of that and then kind of ramping up as we exit these fiscal year.

Cai von Rumohr - Cowen and Company

Okay. Great. And you had mentioned potential for more gains in non-aerospace markets at SMC. Could you give us a little bit more color on some of those opportunities?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, oil and gas tend to be it. We look at them in terms of certainly tube, rounds, again areas we've not been able to be competitive with good success. And again even though the automotive market is not real strong, I mean we have had some very significant wins. So, again as long as the market share for us to gain even in an anemic market it provides opportunity. But the primary ones are power, oil and gas and chemical and then probably the last one be the automotive.

Cai von Rumohr - Cowen and Company

Great and to go back and just the last one would be on M&A – the prices has come down -- the concern among some of about the demand. How should we think about M&A? How do you think about it as you look at your business in terms of when you might do a deal things you are looking for update us on that if you will?

Mark Donegan - Chairman and Chief Executive Officer

Well, here again I think that there are some good solid strategic tuck-ins that. I would like to see us have that we are in very conversational. There are some extremely solid businesses that make sense on a larger scale for our corporation. Again I feel though that the environment is certainly a lot more conducive now and it just a matter sometimes of finding the right mechanism and the right stock price to be able to get there. I think that's kind of where we are. Are we at a lost for what we think makes sense, no not all. Again I think there are abundant opportunities that would fully utilize our cash, any future cash for a foreseeable future or just a matter of finding the right timing and mind set to be able to get some of deals done.

Cai von Rumohr - Cowen and Company

And therefore as we look at your cash position, which is approaching of a net cash position there is no likelihood of a share repurchase, you are going to let to cash billed until you find the right opportunity.

Mark Donegan - Chairman and Chief Executive Officer

The way opportunities are there, that just are being able to deploy that cash and at the right opportunities come true. Obviously, we would need every ounce of cash plus more. So, here again, it's just a matter of kind of being patience, I mean could we execute the transaction and I sure. There is a price for anything, but again making sure we find the right value for our shareholders and adhere to the discipline that has worked very well.

Again, that's one of the certainly one of the challenges sitting in my role is, we know what's out there. We know what makes sense. We know what will add great value for our shareholder they may consider that. It's the right, the right combination of price and value and future growth for our shareholders and also then it's the right volume in creation for the particular operation maybe looking. That's kind of conversations you will engage at this point in time.

Cai von Rumohr - Cowen and Company

Thank you very much.

Mark Donegan - Chairman and Chief Executive Officer

Okay

Operator

And we will go next to Eric Hugel at Stephens Research.

Eric Hugel - Stephens Research

Hey, good morning, Mark. Good quarter.

Mark Donegan - Chairman and Chief Executive Officer

Hey, Eric. Thanks.

Eric Hugel - Stephens Research

Can you talk about on that IGT side of business this new capacity coming online. Can you put some dollar numbers to that with regards to how much would be coming in the middle of this year and by the end of this year?

Mark Donegan - Chairman and Chief Executive Officer

I think what we have said is, the one is coming in the middle of this year. Is in that $20 million to $25 million range as we ramp up and then the one is coming in Ohio has the capability and its current state have reached at roughly $65 million annual run rate.

Eric Hugel - Stephens Research

Great and just because follow-up on J.B's questioning with regards to redeploying some of the auto capacity to aero, you were saying 35% to 40% in total of your auto business could be redeployed?

Mark Donegan - Chairman and Chief Executive Officer

Our auto fastener business, you know we --

Eric Hugel - Stephens Research

Yeah, your auto fastener business.

Mark Donegan - Chairman and Chief Executive Officer

Yeah, because we have other -- we have other, we have AFT that would be in there but of our automotive fastener business. Yeah, our largest capability really falls into our Cleveland operation and probably second to that would be the Metalac operation which is down in Brazil. So those are two largest operations. And certainly, the Cleveland operation from us looks like a very good property, again in terms of capital and people and skill set to be able to make that transition. So, that's kind of what we're targeting right now.

Eric Hugel - Stephens Research

So, is there anything inherent in that transition that once you do in aero, I mean is it depends like just how the volume would ramp, I mean that would preclude you from still doing the auto or would you just be doing both?

Mark Donegan - Chairman and Chief Executive Officer

We'd be doing both. Again, it doesn't necessarily require a separate set of skills or separate set of equipments. We have to upgrade some of the kidding [ph] and some of the cycles and that. But again, it's nothing that wouldn't benefit the auto. So, we will not be precluded from maintaining critical auto as the customer deemed as being the best value out there and then, I mean it's the same model we would have to add, it would be additive and we could better utilize the assets we have today.

Eric Hugel - Stephens Research

And would you say on the auto side that there is significant excess capacity?

Mark Donegan - Chairman and Chief Executive Officer

No, without a job, without a job.

Eric Hugel - Stephens Research

Yeah.

Mark Donegan - Chairman and Chief Executive Officer

Again, we've been effective in maintaining a flat trend now for basically two years, which we have operations that are nowhere near being utilized. That Cleveland facility has got also sorts of capability. The nice thing is… and lot of our aerospace fastener plants, I mean being able to get three shifts round the clock is kind of a tough challenge. Certainly, in our Midwest operations, our ability to bring on three shifts, we have a lot more success there. And we have quite a bit of head rooms in terms of. If we could get those plants up to speed, we've quite a bit head room to continue to grow.

Eric Hugel - Stephens Research

If I look at, that could be a nice next leg both in terms of top line as well as margin expansion.

Mark Donegan - Chairman and Chief Executive Officer

Yeah.

Eric Hugel - Stephens Research

With regard to the capacity that you guys have been putting online over the last couple of years with the 787, if you sort of look at the build schedule sort of being revised downward now, I guess for the next year or two, I mean how would you sort of think about how much potential over capacity you might have in the near term?

Mark Donegan - Chairman and Chief Executive Officer

Well, I think that the rates you are seeing in a most, I'm trying to think if you look at the major capital expansion in maybe the air foil side, the structural side and the isothermal press, kind of what you are seeing in Q4 has all that hanging over it. So, with the base volume we have and the efficiencies we've been able to get, I think we've been able to overcome kind of that extra depreciation. So, as we move forward, as the bill rates again towards maybe at the end of this year, I think that's where you start to see some part of it. But I don't see any real negatives at this point in time that will drag us down from that standpoint any heavier than we are -- at what we see today.

Eric Hugel - Stephens Research

Are you seeing strong demand, I guess maybe a potential offset on the isothermal side would be a strong military demand, is that helping?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, that in the base programs, again as Boeing and Airbus continued to ramp up, we have good positions in all the programs that are growing today. So today, we are able to utilize that iso with kind of what's out there and again as the GP7200 comes online, that's a good program for us. So, it doesn't take a 787 coming on full board. I mean you get it -- if we get the bill rate of one and then go to two, I mean all that will be very helpful, as we go through it. But again, we've lot of depreciation is in our numbers right now. So it's not as if we have this big wave of depreciation coming out from the aerospace side of our business. The really the biggest depreciation we have coming at us for one single event is the new plant in Ohio and that will come in Q4, Q1.

Eric Hugel - Stephens Research

Right. Are there any significant headcount additions coming online?

Mark Donegan - Chairman and Chief Executive Officer

No, nothing out of the ordinary, the growth rate and headcount you saw in Q4 should be pretty comparable we see moving forward.

Eric Hugel - Stephens Research

And I guess my last question, I mean, I guess, this is a good problem to have with regards to your margin rates. How do your… I mean I know you guys every time you talk to your customers there you've told us this story they whip out your financial statements and they pointed to your profit margins and all that fun stuff. I mean sort of how do the discussions go these days when you are making 25% profit margins on casting and all that stuff and sort of, I mean how does that sort of work in terms of, as you are negotiating contracts and stuff like that with the major OEMs?

Mark Donegan - Chairman and Chief Executive Officer

Well, I think that it is important for us as an organization that we have got to continue to find a way to add value to our customers. So certainly, what our model has been is not necessary to go out and price our way, but try to operationally find those levers that we can pull. That allows us to satisfy our employees, our shareholders and our customers and that is a model that continues. So, I mean are your customers ever happy? No, and they shouldn't be. I mean their job is to extract the maximum value out of us, they can and I think we as team a accept that wholeheartedly.

What I tried to make sure was staying focused on is how are we going to continue to reduce to our cost structure today, tomorrow, six months now, a year from now. Recognizing that our customers expect us, and everybody expects us to find ways to continue that value to that.

It's a job. It's what you as shareholders pay us for. And it's a job that we stand up to. And I think the day, that we sit back and rest on our lolls, is the day, that number one, you need to find a new CEO, and number two, the day our customers will say you are not the operational need. So find new ways be it, be it more efficient manufacturing and productivity and lower material input and finding machining sources that are lower. I mean, it's just a endless, endless battle to drive those costs up, to make sure that we can create value for our shareholders and the customers and that's what we have to do. So, I think that as long as we do that, we will be okay. And I will never let this operation sit back on its lolls, because the day we do that, is the day we are going to get sucked up initially. That's kind of what I believe from every ounce of energy I get.

Eric Hugel - Stephens Research

Appreciate it, Mark. Thanks.

Operator

And we will go next to George Shapiro, Citigroup.

George Shapiro - Citigroup

Yeah Mark. Good morning.

Mark Donegan - Chairman and Chief Executive Officer

Hey George.

George Shapiro - Citigroup

If you look at Forged Products and you take out the pass throughs and you take out the $4 million benefit that you had in the margin last year. You effectively had about a 70% incremental margin. Can you kind of walk through what gave you such a strong margin in that sector?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, I don't know if I would agree with the 70%. But I think that the Forge group did have good incremental margins. I think that there a couple of things. I think if I look at the Wyman-Gordon operation and probably the Houston facility, their ability to leverage the volume across that asset base without adding a lot of people and a lot of incremental costs is huge. I think that the extruded pipe growing at the rate it is, continues to have a very positive impact on the operation. I think that the special metal team has done a good job of capturing the opportunities in terms of putting more poundage across those facilities which is again huge, as well as continue to improve the yields. And there is numerous operations, the grafting operation and certainly the UK operations, they've all found ways to continue to put more value, more products across that assets without really adding a whole lot of overheads. So I think that, that tends to be a pretty strong driver.

George Shapiro - Citigroup

And then could you break out the 70 million that you attributed to lower selling price and increased INO company, can you break it out between the two issues?

Mark Donegan - Chairman and Chief Executive Officer

Yeah, it's probably $40 million of price and 30-ish million of incremental… internal sales, something around that. It's not exact, but it probably doesn't feel like that.

George Shapiro - Citigroup

And then in SMC, so you are saying despite the lower price, the margin was actually up in the SMC business?

Mark Donegan - Chairman and Chief Executive Officer

What I said is, I don't break that out, but being the size of the business it's hard to move, the margins without all the bigger operations moving forward.

George Shapiro - Citigroup

Okay. So, affectively you are able to drop cost faster than what the price came down to do that much better.

Mark Donegan - Chairman and Chief Executive Officer

Well, again I think that continue to find ways. They get leverage across their assets they get, yield. They have got yield improvements. We are basically in year, two and half of this whole Special Metals moving in the year three project. So, we are certainly not at a loss at all, for finding things of opportunity in that world and again that full top line, bottom line.

And the nice thing about Special Metals, if I look at the opportunities from sales standpoint, they are abundant in non-aerospace businesses and again power, oil and gas. And if I look at the cost structure yields, material substitution, [inaudible] utilization. There are enormous opportunities. So, we are getting, we are certainly extracting out of SMC was hope to and there is certainly a lot more of us to do in that business.

George Shapiro - Citigroup

At SMC, how much did the mix changed this quarter in terms of percentage of the sales from aero?

Mark Donegan - Chairman and Chief Executive Officer

Now, aero - the same aero is about 33% is something like that 32%, 33% and that hasn't moved a whole lot. So what's basically happened is that, we have certainly benefited from the aero market moving up by, whatever it's moving up. Again we supply to the whole forging world in that aerospace business and then we supply plate and other opportunities.

And what we are seeing is since aero has not been it become a bigger portion of it with the growth aero was going on, just says as we are growing at that type of rate elsewhere in our business.

George Shapiro - Citigroup

Okay, very good. Thanks very much.

William D. Larsson - Chief Financial Officer, Senior Vice President and Assistant Secretary

Okay, George.

Operator

And we will go to [inaudible].

Unidentified Analyst

Good morning, gentlemen. Quick question not to beat the point on this, but on the 787 sequential slowdown you noted a couple of times, is that entirely related to the slower production rates at Boeing or is there something else going on there.

William D. Larsson - Chief Financial Officer, Senior Vice President and Assistant Secretary

No. We have not lost any positions. We've not had any follow-up in our capability. It's all strictly to people readjusting to the build rates and whatever inventory they had. They've deemed that to be enough.

Unidentified Analyst

Thank you.

William D. Larsson - Chief Financial Officer, Senior Vice President and Assistant Secretary

Okay.

Operator

And Mr. Donegan, we have no other questions remaining in the queue. So, on behalf of Precision Castparts, Mr. Donegan and PCC Management, I would like to thank everyone for joining the call today. As a reminder the webcast and call have been recorded and will be available on Precision Castparts website at www.precast.com, for approximately 30 days. This does conclude today's meeting. We do appreciate your participation. At this time you may disconnect. Thank you.

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