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Article by DailyStocks_admin    (09-08-08 06:01 AM)

The Daily Magic Formula Stock for 09/08/2008 is TransDigm Group Inc. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is 75-100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

The Company

TransDigm Inc. was formed in July 1993 in connection with the acquisition of certain companies from IMO Industries Inc. TransDigm Group Incorporated (formerly known as TD Holding Corporation), or TD Group, was formed in July 2003 at the direction of Warburg Pincus Private Equity VIII, L.P., or Warburg Pincus, to facilitate the acquisition of TransDigm Inc., or the Warburg Merger.

On March 20, 2006, certain stockholders of TD Group and certain members of our management sold an aggregate of approximately 12.6 million shares of TD Group common stock in an underwritten initial public offering, or the Initial Public Offering, at a price of $21.00 per share. TD Group did not offer any shares of common stock for sale in the Initial Public Offering and TD Group did not receive any of the proceeds from the sale of shares by the selling stockholders. As a result of the Initial Public Offering, TD Group’s common stock is publicly traded on the New York Stock Exchange under the ticker symbol “TDG.”

On May 25, 2007, certain of TD Group’s stockholders, including certain members of our management, sold an aggregate of 11.5 million shares of TD Group’s common stock in an underwritten public offering at a public offering price of $35.25 per share. As a result of this offering, TD Group is no longer a “controlled company” for the purposes of the NYSE listing requirements. TD Group did not sell any shares in the offering and did not receive any proceeds from the offering.

We believe we are a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Our business is well diversified due to the broad range of products we offer to our customers. Some of our more significant product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include ignition systems and components, mechanical/electro-mechan ical actuators and controls, gear pumps, engineered connectors, specialized valving, power conditioning devices, engineered latches and cockpit security devices, specialized AC/DC electric motors, lavatory hardware and components, hold-open rods and locking devices, aircraft audio systems, NiCad batteries/chargers, and specialized fluorescent lighting and cockpit displays. Each of these product offerings consists of many individual products that are typically customized to meet the needs of a particular aircraft platform or customer.

We estimate that over 90% of our net sales for fiscal year 2007 were generated by proprietary products for which we own the design. In addition, for fiscal year 2007, we estimate that we generated approximately 75% of our net sales from products for which we are the sole source provider.

Most of our products generate significant aftermarket revenue. Once our parts are designed into and sold as original equipment on an aircraft, we generate net sales from recurring aftermarket consumption over the life of that aircraft, which is generally estimated to be approximately 30 years. We estimate that approximately 60% of our net sales in fiscal year 2007 were generated from aftermarket sales, the vast majority of which come from the commercial and military aftermarkets. These aftermarket revenues have historically produced a higher gross margin and been more stable than sales to original equipment manufacturers, or OEMs.

Products

We primarily design, produce and supply highly-engineered proprietary aerospace components (and limited system/subsystems) with significant aftermarket content. We seek to develop highly customized products to solve specific needs for aircraft operators and manufacturers. We attempt to differentiate ourselves based on engineering, service and manufacturing capabilities. We typically choose not to compete for non-proprietary “build to print” business because it frequently offers lower margins than proprietary products. We believe that our products have strong brand names within the industry and that we have a reputation for high quality, reliability and customer support.

Our business is well diversified due to the broad range of products that we offer to our customers. Some of our more significant product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include: (1) ignition systems and components such as igniters, exciters and spark plugs used to start and spark turbine and reciprocating aircraft engines; (2) mechanical/electro-mechan ical actuators and controls used in numerous actuation applications; (3) gear pumps used primarily in lubrication and fuel applications; (4) engineered connectors used in fuel, pneumatic and hydraulic applications; (5) specialized valving used in fuel, hydraulic and pneumatic applications; (6) power conditioning devices used to modify and control electrical power; (7) engineered latching and locking devices used in various bin, security and other applications; (8) specialized AC/DC electric motors and components used in various defense and commercial applications; (9) lavatory hardware and components; (10) rods and locking devices used primarily to hold open cowlings to allow access to engines for maintenance; (11) aircraft audio systems; (12) NiCad batteries/chargers used to provide starting and back-up power; (13) specialized fluorescent lighting; and (14) specialized cockpit displays.

Sales and Marketing

Consistent with our overall strategy, our sales and marketing organization is structured to continually develop technical solutions that meet customer needs. In particular, we attempt to focus on products and programs that will lead to high-margin, repeatable sales in the aftermarket.

We have structured our sales efforts along our major product offerings, assigning a product manager to certain products. Each product manager is expected to grow the sales and profitability of the products for which he is responsible and to achieve the targeted annual level of bookings, sales, new business and profitability for such products. The product managers are assisted by account managers and sales engineers who are responsible for covering major OEM and aftermarket accounts. Account managers and sales engineers are expected to be familiar with the personnel, organization and needs of specific customers, to achieve total bookings and new business goals at each account, and, together with the product managers, to determine when additional resources are required at customer locations. Most of our sales personnel are compensated, in part, on their bookings and their ability to identify and obtain new business opportunities.

Though typically performed by employees, the account manager function may be performed by independent representatives depending on the specific customer, product and geographic location. We also use a number of distributors to provide logistical support as well as primary customer contact with certain smaller accounts. Our major distributors are Aviall, Inc. (a subsidiary of The Boeing Company) and Satair A/S.

Manufacturing and Engineering

We maintain eleven principal manufacturing facilities. Each manufacturing facility comprises manufacturing, distribution and engineering as well as administrative functions, including management, sales and finance. We continually strive to improve productivity and reduce costs, including rationalization of operations, developing improved control systems that allow for accurate product profit and loss accounting, investing in equipment, tooling, and information systems and implementing broad-based employee training programs. Management believes that our manufacturing systems and equipment contribute to our ability to compete by permitting us to meet the rigorous tolerances and cost sensitive price structure of aircraft component customers.

We attempt to differentiate ourselves from our competitors by producing uniquely engineered products with high quality and timely delivery. Our engineering costs are recorded in Cost of Sales and in Selling and Administrative captions in our Statements of Income. Total engineering expense represents approximately 8% to 9% of our operating units’ costs, or approximately 4% to 5% of our net sales. Our proprietary products are designed by our engineering staff and are intended to serve the needs of the aircraft component industry, particularly through our new product initiatives. These proprietary designs must withstand the extraordinary conditions and stresses that will be endured by products during use and meet the rigorous demands of our customers' tolerance and quality requirements.

We use sophisticated equipment and procedures to attempt to ensure the quality of our products and comply with military specifications and Federal Aviation Administration, or FAA, and OEM certification requirements. We perform a variety of testing procedures, including testing under different temperature, humidity and altitude levels, shock and vibration testing and X-ray fluorescent measurement. These procedures, together with other customer approved techniques for document, process and quality control, are used throughout our manufacturing facilities.

Customers

Our customers include: (1) distributors of aerospace components; (2) worldwide commercial airlines, including national and regional airlines; (3) large commercial transport and regional and business aircraft OEMs; (4) various armed forces of the United States and friendly foreign governments; (5) defense OEMs; (6) system suppliers; and (7) various other industrial customers. For the year ended September 30, 2007, Boeing (which includes Aviall, Inc., a distributor of commercial aftermarket parts to airlines throughout the world) accounted for approximately 16% of our net sales, and Honeywell International, Inc. accounted for approximately 11% of our net sales. Products supplied to many of our customers, including the two largest customers, are used on multiple platforms.

Active commercial production programs include the Boeing 737, 747, 767 and 777, the Airbus A300, A319/20/21 and A330/A340, the Bombardier CRJ’s and Challenger, the Embraer RJ’s, the Cessna Citation family, the Raytheon Premier and Hawker and most Gulfstream airframes. Military platforms include aircraft such as the Boeing C-17, F-15 and F-18, the Lockheed Martin C-130J and F-16, the Northrop Grumman E2C (Hawkeye), the Joint Strikefighter and the Blackhawk, Chinook and Apache helicopters. TransDigm has been awarded numerous contracts to develop engineered products for production on the Boeing 787 and Airbus A380 and A400M programs.

We believe that we have strong customer relationships with almost all large commercial transport, regional, general aviation and military OEMs. The demand for our aftermarket parts and services depends on, among other things, the breadth of our installed OEM base, revenue passenger miles, or RPMs, the size and age of the worldwide aircraft fleet and, to a lesser extent, airline profitability. We believe that we are also a leading supplier of components used on U.S. designed military aircraft, including components that are used on a variety of fighter aircraft, military freighters and military helicopters.

Competition

The niche markets within the aerospace industry that we serve are relatively fragmented and we face several competitors for many of the products and services we provide. Due to the global nature of the commercial aircraft industry, competition in these categories comes from both U.S. and foreign companies. Competitors in our product offerings range in size from divisions of large public corporations, which have significantly greater financial, technological and marketing resources than we do, to small privately-held entities, with only one or two components in their entire product portfolios.

We compete on the basis of engineering, manufacturing and marketing high quality products which we believe meet or exceed the performance and maintenance requirements of our customers, consistent and timely delivery, and superior customer service and support. The industry's stringent regulatory, certification and technical requirements, and the investments necessary in the development and certification of products, create barriers to entry for potential new competitors. So long as customers receive products that meet or exceed expectations and performance standards, we believe that they will have a reduced incentive to certify another supplier because of the cost and time of the technical design and testing certification process. In addition, we believe that concerns about safety and flight delays if products are unavailable or undependable make our customers continue long-term supplier relationships.

Government Contracts

Companies engaged in supplying defense-related equipment and services to U.S. Government agencies are subject to business risks specific to the defense industry. These risks include the ability of the U.S. Government to unilaterally: (1) suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations; (2) terminate existing contracts; (3) reduce the value of existing contracts; (4) audit our contract-related costs and fees, including allocated indirect costs; and (5) control and potentially prohibit the export of our products.

Most of our U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.

As described elsewhere in this report, five of our divisions and subsidiaries have been subject to a DOD Office of Inspector General review of our records for the purpose of determining whether the DOD’s various buying offices negotiated “fair and reasonable” prices for spare parts purchased from those five divisions and subsidiaries in fiscal years 2002 through 2004. For additional information regarding the details and status of the pricing review, please refer to “Risk Factors—Certain of our divisions and subsidiaries have been subject to a pricing review by the DOD Office of Inspector General” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Government Pricing Review.”

Governmental Regulation

The commercial aircraft component industry is highly regulated by both the FAA in the United States and by the Joint Aviation Authorities in Europe and other agencies throughout the world, while the military aircraft component industry is governed by military quality specifications. We, and the components we manufacture, are required to be certified by one or more of these entities or agencies, and, in some cases, by individual OEMs, in order to engineer and service parts and components used in specific aircraft models.

We must also satisfy the requirements of our customers, including OEMs and airlines that are subject to FAA regulations, and provide these customers with products and services that comply with the government regulations applicable to commercial flight operations. In addition, the FAA requires that various maintenance routines be performed on aircraft components, and we believe that we currently satisfy or exceed these maintenance standards in our repair and overhaul services. We also maintain several FAA approved repair stations.

In addition, sales of many of our products that will be used on aircraft owned by non-U.S. entities are subject to compliance with U.S. export control laws.

Our operations are also subject to a variety of worker and community safety laws. The Occupational Safety and Health Act, or OSHA, mandates general requirements for safe workplaces for all employees. In addition, OSHA provides special procedures and measures for the handling of certain hazardous and toxic substances.

Raw Materials and Patents

We require the use of various raw materials, including titanium, aluminum, nickel powder, nickel screen, stainless steel, iridium and cadmium, in our manufacturing processes. We also purchase a variety of manufactured component parts from various suppliers. At times, we concentrate our orders among a few suppliers in order to strengthen our supplier relationships. Raw materials and component parts are generally available from multiple suppliers at competitive prices.

We have various trade secrets, proprietary information, trademarks, trade names, patents, copyrights and other intellectual property rights, which we believe, in the aggregate but not individually, are important to our business.

Backlog

As of September 30, 2007, we estimated our sales order backlog at $365.2 million compared to an estimated $251.3 million as of September 30, 2006. This increase in backlog is due to the acquisitions of the businesses of CDA InterCorp, or CDA, Aviation Technologies Inc., or ATI, and Bruce Industries, Inc., or Bruce Industries, totaling approximately $66.0 million and an increase in orders across existing product lines in both the OEM and aftermarket segments. The majority of the purchase orders outstanding as of September 30, 2007 are scheduled for delivery within the next twelve months. Purchase orders may be subject to cancellation by the customer prior to shipment. The level of unfilled purchase orders at any given date during the year will be materially affected by the timing of our receipt of purchase orders and the speed with which those orders are filled. Accordingly, our backlog as of September 30, 2007 may not necessarily represent the actual amount of shipments or sales for any future period.

Foreign Operations

We manufacture substantially all of our products in the United States; however, as a result of our ATI acquisition, some of our products are manufactured in Malaysia. We sell our products in the United States, as well as in foreign countries. Substantially all of our foreign sales are transacted in U.S. dollars and, therefore, we have no material exposure to fluctuations in the rate of exchange between foreign currencies and the U.S. dollar as a result of foreign sales. In addition the amount of components or other raw materials or supplies that we purchase from foreign suppliers, including our Malaysian manufacturing subsidiary, are not material, with substantially all such transactions being made in U.S. dollars. Accordingly, we have no material exposure to currency fluctuations in the rate of exchange between foreign currencies and the U.S. dollar arising from these transactions.

Our direct sales to foreign customers were approximately $143.0 million, $102.7 million, and $81.5 million for fiscal years 2007, 2006 and 2005, respectively. Sales to foreign customers are subject to numerous additional risks, including the impact of foreign government regulations, political uncertainties and differences in business practices. There can be no assurance that foreign governments will not adopt regulations or take other action that would have a direct or indirect adverse impact on the business or market opportunities of the Company within such governments’ countries. Furthermore, there can be no assurance that the political, cultural and economic climate outside the United States will be favorable to our operations and growth strategy.

Environmental Matters

Our operations and facilities are subject to federal, state and local environmental laws and regulations governing, among other matters, the emission, discharge, generation, management, transportation and disposal of hazardous materials, wastes and pollutants, the investigation and remediation of contaminated sites, and permits required in connection with our operations. Although management believes that our operations and facilities are in material compliance with applicable environmental laws, management cannot provide assurance that future changes in such laws, or the regulations or requirements thereunder, or in the nature of our operations will not require us to make significant additional expenditures to ensure compliance in the future. Further, we could incur substantial costs, including cleanup costs, fines and sanctions, and third party property damage or personal injury claims as a result of violations of or liabilities under environmental laws, relevant common law, or the environmental permits required for our operations.

Under some environmental laws, a current or previous owner or operator of a contaminated site may be held liable for the entire cost of investigation, removal or remediation of hazardous materials at such property, whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous materials.

Persons who arrange for disposal or treatment of hazardous materials also may be liable for the costs of investigation, removal or remediation of those substances at a disposal or treatment site, regardless of whether the affected site is owned or operated by them. Because we own and/or operate a number of facilities that have a history of industrial or commercial use and because we arrange for the disposal of hazardous materials at many disposal sites, we may and do incur costs for investigation, removal and remediation. Contaminants have been detected at some of our present and former sites, principally in connection with historical operations, and investigations and/or clean-ups have been undertaken by us or by former owners of the sites. We receive inquiries and notices of potential liability with respect to offsite disposal facilities from time to time. Although we have not incurred any material investigation or cleanup costs to date and investigation and cleanup costs are not expected to be material in the future, the discovery of additional contaminants or the imposition of additional cleanup obligations at these or other sites, or the failure of any other potentially liable party to meet its obligations, could result in significant liability for us.

Employees

As of September 30, 2007, we had approximately 2,100 employees. Approximately 5% of our employees were represented by the United Steelworkers Union, approximately 4% were represented by the United Automobile, Aerospace and Agricultural Implement Workers of America and approximately 4% were represented by the International Brotherhood of Electrical Workers. Collective bargaining agreements between us and these labor unions expire in April 2008, November 2008 and May 2009, respectively. We consider our relationship with our employees generally to be satisfactory.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We believe we are a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Our business is well diversified due to the broad range of products we offer to our customers. Some of our more significant product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include ignition systems and components, mechanical/electro-mechan ical actuators and controls, gear pumps, engineered connectors, specialized valving, power conditioning devices, engineered latches and cockpit security devices, specialized AC/DC electric motors, lavatory hardware and components, hold-open rods and locking devices, aircraft audio systems, NiCad batteries/chargers, and specialized fluorescent lighting and cockpit displays. Each of these product offerings consists of many individual products that are typically customized to meet the needs of a particular aircraft platform or customer.

For fiscal year 2007, we generated net sales of $592.8 million and net income of $88.6 million. In addition, for fiscal year 2007, our EBITDA was $257.8 million, or 43.5% of net sales, our EBITDA As Defined was $274.7 million, or 46.3% of net sales, and our capital expenditures were $10.3 million, or 1.7% of net sales. See “EBITDA and EBITDA As Defined” below for certain information regarding EBITDA and EBITDA As Defined, including a reconciliation of EBITDA and EBITDA As Defined to net income.

We estimate that over 90% of our net sales for fiscal year 2007 were generated by proprietary products for which we own the design. These products are generally approved and certified by airframe manufacturers (who often certify only one manufacturer’s component design for a specific application on an aircraft), government agencies and/or the FAA and similar entities or agencies. In addition, for fiscal year 2007, we estimate that we generated approximately 75% of our net sales from products for which we are the sole source provider.

Most of our products generate significant aftermarket revenue. Once our parts are designed into and sold as original equipment on an aircraft, we generate net sales from recurring aftermarket consumption over the life of that aircraft. This installed base and our sole source provider position generate a long-term stream of aftermarket revenues over the estimated 30-year life of an individual aircraft. We estimate that approximately 60% of our net sales in fiscal year 2007 were generated from aftermarket sales, the vast majority of which come from the commercial and military aftermarkets. These aftermarket revenues have historically produced a higher gross margin and been more stable than sales to OEMs.

In fiscal year 2007, our top two customers accounted for approximately 27% of our net sales, and during this same period our top ten customers accounted for approximately 51% of our net sales. However, our components are ultimately used on a large, diverse installed base of aircraft and, therefore, we are not overly dependent on any single airframe produced by any of our customers or other ultimate end-users of our products. In the commercial aerospace sector, which generated approximately 73% of our net sales for fiscal year 2007, we sell to distributors of aftermarket components, as well as directly to commercial airlines, aircraft maintenance facilities, systems suppliers, and aircraft and engine OEMs. In addition, for fiscal year 2007, approximately 24% of our net sales were attributable to the defense aerospace sector. Net sales to the defense sector are generated primarily through sales to the United States and foreign militaries, brokers, distributors and defense OEMs. The remaining portion of our net sales in fiscal year 2007, or approximately 3% of our net sales during this period, were derived from industries with similar niche engineered product characteristics such as the mining and power generation industries.

Public Offerings

On May 25, 2007, certain of TD Group’s stockholders, including certain members of our management, sold an aggregate of 11.5 million shares of TD Group’s common stock in an underwritten public offering at a public offering price of $35.25 per share. As a result of this offering, TD Group is no longer a “controlled company” for the purposes of the NYSE listing requirements. TD Group did not sell any shares in the offering and did not receive any proceeds from the offering.

On March 20, 2006, certain stockholders of TD Group and certain members of our management sold an aggregate of approximately 12. 6 million shares of TD Group’s common stock in the Initial Public Offering at a price of $21.00 per share. TD Group did not offer any shares of its common stock for sale in the Initial Public Offering and TD Group did not receive any of the proceeds from the sale of such shares by the selling stockholders. As a result of the Initial Public Offering, TD Group’s common stock is publicly traded on the New York Stock Exchange under the ticker symbol “TDG.”

Certain Acquisitions

Bruce Acquisition

On August 10, 2007, pursuant to an asset purchase agreement among TransDigm Inc., Bruce Industries and the shareholders of Bruce Industries, Bruce Aerospace, Inc., a newly formed wholly-owned subsidiary of TransDigm Inc., acquired certain assets and assumed certain liabilities of Bruce Industries for approximately $35.6 million in cash. Bruce designs and manufactures specialized fluorescent lighting used in the aircraft industry. The proprietary nature, established positions, and aftermarket content fit well with our overall business direction.

ATI Acquisition

On February 7, 2007, TransDigm Inc. acquired all of the outstanding capital stock of Aviation Technologies, Inc. (“ATI”) for $430.1 million in cash. ATI consists of two primary operating units that service the commercial and military aerospace markets—Avtech Corporation (“Avtech”) and Transicoil LLC (which, together with Transicoil (Malaysia) Sendirian Berhad is referred to as “ADS/Transicoil”). Avtech is a leading supplier of flight deck and passenger audio systems, cabin lighting, and power control products and related components. ADS/Transicoil is a leading supplier of displays, clocks, brushless motors and related components and instruments. Through Avtech and ADS/Transicoil, ATI manufactures proprietary products for the aerospace industry with broad platform positions and high aftermarket content, all of which fit well with TransDigm’s overall direction.

The purchase price consideration and costs associated with the acquisition of $430.1 million were funded through additional borrowings under our Senior Secured Credit Facility of $125.4 million (net of fees of $4.6 million), the proceeds from the issuance by TransDigm Inc. of additional 7 3 / 4 % Senior Subordinated Notes of $296.5 (net of fees of $6.5 million) and the use of $8.2 million of our available cash balances.

Mr. W. Nicholas Howley, Chairman and Chief Executive Officer of TD Group, and Mr. Douglas Peacock, a director of TD Group, each indirectly owned less than one-half of 1% of ATI’s outstanding equity on a fully diluted basis. In addition, prior to the acquisition, Mr. Howley and Mr. Peacock were directors of ATI commencing in 2003, and Mr. Peacock served as ATI’s Chairman from 2003 through February 2007.

CDA Acquisition

On October 3, 2006, TransDigm Inc. acquired all of the issued and outstanding capital stock of CDA for an aggregate purchase price of $45.7 million in cash. CDA designs and manufactures specialized controllable drive actuators, motors, transducers and gearing. CDA’s products are used on a range of defense, space and commercial aircraft applications. The proprietary nature, established positions and aftermarket content of CDA’s products fit well with our overall business direction.

Sweeney Acquisition

On June 12, 2006, TransDigm Inc. acquired all of the outstanding capital stock of Sweeney Engineering Corp. (“Sweeney”) for approximately $25.4 million in cash. Sweeney designs and manufactures specialized aerospace valving used primarily in fuel, environmental control and de-icing applications. Sweeney's products are used on a range of defense and commercial aircraft applications. Sweeney’s product characteristics and market position fit well with our existing valving business. The acquired business was consolidated into our AeroControlex business in Painesville, Ohio during the first quarter of fiscal 2007.

Electra-Motion Acquisition

On May 1, 2006, Skurka, our wholly-owned subsidiary, acquired certain assets and assumed certain liabilities of Electra-Motion. The acquired business designs and manufactures specialized AC/DC motors for a broad range of aerospace applications. The acquired business was consolidated into Skurka’s existing aerospace motor business in Camarillo, California during fiscal 2006.

Results of Operations

Fiscal year ended September 30, 2007 compared with fiscal year ended September 30, 2006

Net Sales. Net sales increased by $157.6 million, or 36.2%, to $592.8 million for fiscal year 2007 from $435.2 million for fiscal year 2006. Sales growth excluding acquisitions was $61.5 million and represented a 14.1% increase over the prior year. The organic sales growth was primarily due to: (i) an increase of $34.9 million of commercial aftermarket sales resulting from the strong underlying demand in the worldwide commercial aerospace market and the strength of our proprietary products and market position; (ii) an increase of $14.3 million of commercial OEM sales primarily resulting from the increase in the business jet market; and (iii) an increase of $11.8 million of military sales. The remaining $96.1 million increase resulted from the acquisitions of the businesses of CDA, ATI, and Bruce Industries in fiscal 2007 and businesses of Electra-Motion and Sweeney in fiscal 2006.

Cost of Sales . Cost of sales increased by $69.9 million, or 32.7%, to $283.8 million for fiscal year 2007 from $213.9 from fiscal year 2006. Cost of sales as a percentage of sales decreased approximately 1.2 percentage points to 47.9% for fiscal year 2007 from 49.1% for fiscal year 2006. The absolute dollar increase in cost of sales was primarily due to increased volume associated with the higher net sales of $157.6 million discussed above, a $6.4 million charge, or 1.1% of net sales, that resulted from inventory purchase price accounting charges pertaining to the acquisitions of the businesses of CDA, ATI and Bruce Industries and an increase in acquisition integration costs of approximately $1.0 million relating to recent acquisitions. The decrease in cost of sales as a percentage of sales was primarily due to favorable product mix on the increase in commercial aftermarket sales, productivity improvements and to a lesser extent, favorable fixed cost leverage on greater volume.

Selling and Administrative Expenses. Selling and administrative expenses increased by $14.6 million or 30.2%, to $62.9 million for fiscal year 2007 from $48.3 million for fiscal year 2006. The prior year period included non-recurring costs of $6.2 million for a one-time special bonus and $2.7 million of costs associated with the initial public offering. These prior year costs were partially offset by a $3.8 million reversal of charges resulting from the termination of two deferred compensation plans in fiscal 2006. The net reduction of prior year non operating activity of approximately $5.1 million, or 1.2% of prior year net sales, was partially offset by an increase in selling and administrative costs associated with higher sales volume discussed above, higher research and development costs of $5.8 million, or 1.0% of net sales, relating to the Boeing 787 and other new programs and $1.7 million, or 0.3% of net sales, of costs associated with the secondary offering.

Selling and administrative expenses as a percentage of net sales decreased to 10.6% for fiscal year 2007 from 11.1% for the comparable period last year, primarily due to the factors described above.

Amortization of Intangibles. Amortization of intangibles increased by $6.1 million to $12.3 million for fiscal year 2007 from $6.2 million for fiscal year 2006. The increase was primarily due to the additional identifiable intangible assets recognized in connection with the acquisitions of the businesses of CDA, ATI and Bruce Industries, of which $3.6 million related to order backlog amortization that is typically amortized over 12 months.

Refinancing Costs. Refinancing costs represented a one-time charge that was recorded in June 2006 as a result of the refinancing of TransDigm’s entire debt structure. The charge of $48.6 million consisted of the premium of $25.6 million paid to redeem our 8 3 / 8 % senior subordinated notes and the write-off of $22.9 million of debt issue costs associated with our former senior credit facility, our 8 3 / 8 % senior subordinated notes and the TD Group Loan Facility and other expenses of $0.1 million.

Income from Operations. Operating income increased by $115.6 million, or 97.9%, to $233.8 million for fiscal year 2007 from $118.2 million for fiscal year 2006, primarily due to higher sales, the refinancing costs of $48.6 million recorded in fiscal 2006, and other factors described above.

Interest Expense . Interest expense increased $15.1 million, or 19.6%, to $91.8 million for fiscal year 2007 from $76.7 million for fiscal year 2006. The net increase was primarily the result of an increase of our outstanding borrowings of approximately $430 million related to the acquisition of ATI in February 2007, partially offset by lower interest rates from the refinancing of our debt structure during June 2006. The Company’s weighted average level of outstanding borrowings increased to approximately $1.2 billion during fiscal 2007 from approximately $904 million during fiscal 2006, while the average interest rate decreased to 7.6% during fiscal 2007 from 8.2% during fiscal 2006 (see “Liquidity and Capital Resources” below).

Income Taxes . Income tax expense as a percentage of income before income taxes was approximately 37.6% for fiscal year 2007 compared to 39.4% for fiscal year 2006. The lower effective tax rate was primarily due to lower state and local taxes as a percentage of income before income taxes and a decrease in nondeductible public offering expenses. These reductions were partially offset by an income tax benefit of $1.5 million, or 3.8% of the income before income taxes, recorded in fiscal 2006 resulting from the adoption of a change in Texas tax law enacted in May 2006.

Net Income. Net income increased $63.5 million, or 253%, to $88.6 million for fiscal year 2007 compared to $25.1 million for fiscal year 2006, primarily as a result of the refinancing in fiscal 2006 and other factors referred to above.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Changes in Results of Operations

Thirteen week period ended June 28, 2008 compared with the thirteen week period ended June 30, 2007.


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Net Sales . Net sales increased by $28.4 million, or 18.0%, to $186.0 million for the quarter ended June 28, 2008, from $157.6 million for the comparable quarter last year. Sales growth excluding acquisitions was $18.3 million and represented an 11.6% increase over the prior year. The organic sales growth was primarily due to (i) an increase of $9.5 million in defense sales primarily due to increased demand for aftermarket spare parts and OEM sales across most of our product lines, (ii) an increase of $5.5 million of commercial OEM sales resulting primarily from an increase in production rates from The Boeing Company and Airbus S.A.S. and related OEM system suppliers, and (iii) an increase of $2.2 million in commercial aftermarket sales. The remaining $10.1 million of the increase resulted from the acquisitions of CEF during fiscal 2008 and Bruce during fiscal 2007.


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Cost of Sales. Cost of sales increased by $10.2 million, or 13.5%, to $85.6 million for the quarter ended June 28, 2008 from $75.4 million for the comparable quarter last year primarily due to the increase volume associated with the higher net sales of $28.4 million discussed above. Cost of sales as a percentage of sales decreased to 46.0% for the thirteen week period ended June 28, 2008 from 47.8% for the thirteen week period ended June 30, 2007. The decrease in cost of sales as a percentage of net sales was due primarily to a reduction in acquisition-related expenses of $1.7 million, or approximately 1.2% of net sales, the strength of the Company’s proprietary products, productivity improvements, partially offset by the dilutive impact of recent

acquisitions. The decrease in acquisition related expenses was primarily due to inventory purchase price accounting charges recorded in the prior year of $2.4 million related to the acquisitions of ATI and CDA partially offset by current year inventory purchase accounting charges of $0.8 million related to the acquisitions of Bruce and CEF.


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Selling and Administrative Expenses . Selling and administrative expenses increased by $2.0 million to $19.3 million, or 10.4% of sales, for the quarter ended June 28, 2008 from $17.3 million, or 11.0% of sales, for the comparable quarter last year. This increase was primarily due to the higher sales discussed above, an increase in research and development expenses primarily relating to the Boeing 787 program partially offset by the non-recurring secondary offering costs of $1.7 million, or 1.1% of sales, recorded in the prior year period.


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Amortization of Intangibles . Amortization of intangibles decreased by $0.9 million to $2.7 million for the quarter ended June 28, 2008 from $3.6 million for the comparable quarter last year due to order backlog amortization becoming fully amortized during fiscal 2007 and the first half of 2008 relating to the acquisitions of ATI and CDA in the prior year.


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Interest Expense-net. Interest expense decreased $4.1 million, or 15.7%, to $21.8 million for the quarter ended June 28, 2008 from $25.9 million for the comparable quarter last year due to the lower weighted average interest rate of approximately 6.4% during the quarter ended June 28, 2008 from approximately 7.6% for the comparable quarter last year. The Company’s weighted average level of outstanding borrowings was approximately $1.36 billion for the quarters ended June 28, 2008 and June 30, 2007, respectively.


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Income Taxes . Income tax expense as a percentage of income before income taxes was approximately 36.4% for the quarter ended June 28, 2008 compared to 37.5% for the quarter ended June 30, 2007. The lower effective tax rate was primarily due to a reduction in state and local taxes and an increase in the domestic manufacturing deduction partially offset by a decrease in the research and development tax credit.


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Net Income. Net income increased $13.9 million, or 62.7%, to $36.0 million for the third quarter of fiscal 2008 compared to $22.1 million for the third quarter of fiscal 2007, primarily as a result of the factors referred to above.

CONF CALL

Sean Maroney

Thank you, Sue. I'd like to thank all of you that have called in today and welcome you to TransDigm's fiscal 2008 third quarter earnings conference call. With me on the line this morning are TransDigm's Chairman and Chief Executive Officer, Nick Howley; our President and Chief Operating Officer, Ray Laubenthal; and our Executive Vice President and Chief Financial Officer, Greg Rufus. A replay of today's broadcast will be available for the next two weeks. Replay information is contained in this morning's press release and on our website at www.transdigm.com.

Before we begin, the company would like to remind you that statements made during its call which are not historical in fact are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied in the forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the information regarding forward-looking statements and risk factors included in the company's latest filings with the SEC. These filings are available through the Investors section of our website or through the SEC's website at www.sec.gov.

The company would also like to advice you that during the course of the call, we will be referring to EBITDA, specifically EBITDA as defined and adjusted net income, both of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measure and a reconciliation of EBITDA as defined and adjusted net income to that measure.

Now having taken care of the necessary disclosures, I’ll turn the call over to Nick.

Nick Howley

Good morning, everyone, and our thanks again for calling in to hear about our company this quarter. As I did last quarter, I'd like to start off with some comments about both our stock price, our strategy and performance, the company's consistent ability to create, what I’ll call, intrinsic equity value, and our current sense of the aerospace market as applies at least to our business.

Our stock price has dropped about 20% since the start of our fiscal year, that’s October 1. We don’t believe this to be reflective of the underlying value of our business, but we understand this is directionally consistent with the decrease in valuations among other aerospace companies and I suspect driven significantly by fuel cost concerns and the related airline activities. However, I still believe our business model is unique in both the stability and diversity of our products and market segments.

To summarize some of the reasons that we believe this, to remind everyone, about 95% of our sales are generated by proprietary products; about 80% of our sales come from products for which we are the sole source provider; about 60% of our revenue and a much higher percent of our EBITDA comes from the aftermarket sales. Aftermarket revenues have historically produced a higher gross margin and provided significant stability in the downturn.

The equity market reaction and the discounted values seem inconsistent with the relative stability of aftermarket demand to me. In fact, most analyses that I have seen tend to indicate some modest growth in worldwide traffic in the next year in spite of the currently difficult fuel price and economic situation, though with a low rate in recent years.

With our uniquely high EBITDA margins, which run 46% or higher, and a relatively low capital requirements that’s in the 2% to 3% revenue range, TransDigm has year-in and year-out generated very strong free cash flow. This has given us the flexibility to pursue acquisitions, optimize our capital structure, or take whatever actions that we feel are necessary to maximize our value through all phases of the market.

We have a well proven, value-based operating strategy focused around what we refer to as our three value drivers. That’s new business development, continual cost improvement, and value-based pricing. We stick to these concepts as the core of our operating management methodology. This consistent approach has worked for us to up and down markets and allowed us to continually improve and increase the intrinsic value of our businesses.

We've been successful in regularly acquiring and integrating businesses. We acquire proprietary aerospace product component businesses with significant aftermarket content. We have in total acquired 22 such businesses and we've been able to acquire and improve aerospace component businesses right through the cycles.

Through a consistent focus on, one, our operating value drivers; two, our clear acquisition strategy; and three, close attention to our capital structure. We've been able to create intrinsic equity value for our shareholders for many years right through the cycles. The performance after 9/11 for the EBITDA grew and margins expanded right through the downturn was the most recent example. This consistency does not seem to us to be fully recognized and valued at this time.

Our revenues continued strong in Q3 and we expect them to remain so in Q4. At this time, we expect 2009 revenues to be above the 2008 levels. However, as I said earlier, it appears increasingly possible that fiscal year 2009 could see low, if any, growth in worldwide air traffic. At this time it appears the demand for commercial OEM production remains strong and should do so in the next year. I suspect this may well be due to our newness in the public equity market.

Our past practice, consistent with our value focused management methodology, has been to reduce our cost structure ahead of any potentially softening market conditions. Over the past cycle, this has proven to be an effective means of protecting long-term shareholder value. We have begun this process and expect to have made significant cost reductions by the end of our fiscal year Q4. We will closely monitor our cost structure in the market conditions as we move into the next year.

Our philosophy has always been to get out ahead of any potential market condition and adjust our cost structure quickly. As I said, we will monitor this closely as we move into 2009 and we can adjust up or down as the market environment clarifies.

As you can see from our press release, in spite of a softening in both economic outlook and the aerospace market, and excluding any additional acquisitions, we feel comfortable again increasing our guidance from the previous EPS midpoint of $2.72 a share to an adjusted guidance of $2.77 a share at the midpoint, all on an adjusted basis. This improvement comes primarily from two areas; one, a modest increase in the base operating performance; and two, the contribution from the recent CEF acquisition. Greg will give a little more detail on this guidance in his section.

We continue to beat the bushes for more businesses to buy. We maintain our consistent focus on proprietary aerospace components with significant aftermarket content. I'm confident we'll find more, but the timing is always tough to predict. With respect to our underlying markets for the balance of the year, in the commercial OEM area, build-out works appear stable for the balance of the year and with the exception of the 787 delays about as we anticipated.

In the commercial aftermarket, we are beginning to see some signs of a slowdown in growth, especially in North America, as the fuel prices and economic conditions seem to be beginning to take a toll. The quarterly numbers can bounce around. I remind you over a longer period of time, our real aftermarket volume has generally been able to track at or a bit ahead of overall worldwide traffic trends. Also just to remind everyone again, the DC9/MD80s, Classic 737s and the 727 platforms, most at risk of retirement, make up only about 3% of our last year’s revenues. The defense business continues better than we anticipated. We are cautious regarding the market outlook, the confidence and the strength of our unique business model to continue to create value.

Now let me turn to our specific financial performance for this quarter. I'll remind you this is the third quarter review for fiscal year 2008. Our fiscal year started October 1. We are three-quarters of the way through the year. Also as I’ve said in the past, quarterly comparisons can be significantly impacted by differences in OEM aftermarket mix, large orders, transient inventory fluctuations in the system, modest seasonality and some other factors. In spite of some timing issues, we had a good year-to-date and third quarter.

Revenues are up about 24% on a year-to-date basis and 18% on a quarter versus prior quarter basis. Pro forma growth, that is assuming we own the same mix of businesses in both periods, is up about 10% on a year-to-date basis and about 12% on a quarter three versus quarter three basis. That’s in spite of a down drag from certain one-time items impacting the comparisons.

Revenues by market segment, again, on a pro forma basis versus the prior year, that is assuming again we own the same mix of businesses. In the commercial segment, which makes up about three-quarters of our volume, first in the commercial OEM area, it’s up about 12% on a quarter-over-quarter basis and about 8% on a year-to-date basis. Though both sectors grew on both the quarterly and year-to-date basis, our commercial transport sector OEM grew faster than the regional biz jet sector. We still expect our pro forma commercial OEM revenues to be up about 10% for the year.

The commercial aftermarket revenue was up about 6% on a year-to-date basis and about 3% on a quarter-to-quarter basis. This year-to-date growth is impacted by two significant one-time items, which we mentioned earlier. First is some one-time activities in shipment timings in comparison to the prior year. The other was the extended maintenance cycle for certain cockpit security components. Additionally, we’ve now seen some modest inventory adjustment with some of our distributors. If you remove the impact of these three items, our core aftermarket was up almost 10% on a year-to-date basis. Q3 was also impacted but to a lesser degree by some of these items.

Given the fuel price situation, the economic outlook, and the airlines financial position, we are now less optimistic regarding the balance of the year in the commercial aftermarket. With no adjustments for one-time items, we now anticipate pro forma commercial aftermarket revenues to be up in the 6% to 8% range for this year versus the prior year. That’s below our previous fiscal year estimate of about 10% growth.

In the defense segment, which makes up about a quarter of our revenue, revenues were up over 25% on a quarter versus quarter basis and 20% on a full year basis. Though we saw strength across almost all our product lines, the activity in the aftermarket was particularly strong in the area of helicopter upgrades, both for increased power requirements and to add counter measures. We also saw a lot of activity across a broad range of air-based and ground-based gun positioning products.

The defense business is always tough to predict, especially in the political season, always subject to political wins and budget uncertainties. Absent any significant changes, however, we now expect pro forma defense revenues to be up in the mid-teen percentage range versus prior year. This is up from our previous fiscal year estimate.

In summary, for the full year we expect our businesses to perform a bit above our initial expectations with a modest shift in aftermarket mix between commercial and defense revenues. Excluding any acquisitions, we expect our overall pro forma revenue growth to be up about 10%, very close to our previous guidance.

Moving on now to profitability and on a reported basis now, I’m going to talk primarily about our operating performance or EBITDA as defined. The total adjustments to EBITDA are lower in the current year due to both less acquisition related expenses and we didn’t have any secondary offering cost as we did in ’07.

On a Q3 versus comparable quarter basis, our EBITDA of about $87 million is up about 18% versus the prior year – the prior Q3. The EBITDA margin is 46.6% for Q3 and 46.4% on a year-to-date basis. This is almost the same as the prior year, in spite of the diluted impact of the acquisitions and the ongoing 787 development expenses. These two factors still have a margin impact of about 1.5% to 2.0% – to two points on a year-to-date basis. We still expect to see some margin expansion in Q4. Greg also will give you a little color on that.

With respect to the acquisition pipeline, we continue actively looking at opportunities. There is a pipeline of possibilities that are more small than larger opportunities as is typical. They are still slow to close. We remain disciplined and focused on value creation opportunities. Predicting the timing is always difficult. And as I’ve said in the past, as a general rule, we're not going to discuss any specifics on acquisitions until they’re closed or unless they're closed.

And with that, let me ask Ray Laubenthal just to give you a short bit of color on the Q3 operations.

Ray Laubenthal

Thanks, Nick. As Nick mentioned, in total third quarter results were as we expected. Our acquisition integration and productivity improvements continue to add solid value. Our new business order activity was strong and the new product development activity made good progress. We continue to price our products to reflect the value we provide to our customers and we also acquired another operating unit, CEF Industries.

Let me explain each of these areas in a little more detail. We acquired CEF on May 7. Located in Chicago, CEF designs and manufactures specialized and highly engineered mechanical and electro-mechanical actuators, compressors, pumps and related components. The majority of the company's revenues are military related with the C-130 production program and the large aftermarket supporting the worldwide C-130 installed base being the single biggest platform.

Other platforms include the V22, Joint Strike Fighter, the A380, A320, A330 and 340, the F-15, the C-17, as well as certain regional jets and business jets. At CEF, we quickly went to work on transitioning this business to be focused on our three value drivers. We are revising their pricing, we reduced the cost structure by 16% through a work force reduction, and we have focused our new business efforts to target profitable programs. We are in the midst of modifying their go-to-market process. And lastly, to ensure these transition efforts continue, we promoted Pete Palmer, one of our veteran managers, to be the President of this operating unit.

At our operating units, productivity projects continue to progress favorably. In addition to the normal blocking and tackling productivity projects, we’ve started to reduce our cost structure in preparation for possible near-term softness in demand. As Nick mentioned, this initial reduction will be completed by the end of Q4 and then we’ll closely watch the activity level. We continue to be very active finalizing our Boeing 787 designs and manufacturing processes. The development activity and spending continues to be particularly high on our new digital flight audio systems at Avtech. Conversely, the work on our composite fuel and hydraulic isolator products at Adel Wiggins is nearing completion.

We expect the development and expense on these projects to come down in Q4, so we anticipate some modest spending to push into our fiscal 2009 year due to the Boeing driven schedule push-outs and design revision. In addition to these new programs, pricing at our operating units is improving consistent with our past actions, hence progressing well.

Now let me hand it over to Greg Rufus who will review our third quarter financial results in more detail.

Greg Rufus

Thanks, Ray. Good morning, everyone. Again, thanks for calling in. As you have just heard Nick's comment centered on current market conditions, pro forma revenues and EBITDA as the fine comparable results, and Ray gave a brief summary of our value drivers and the integration of CEF this quarter.

For those of you who have listened to prior calls, you are aware of the various accounting charges associated with our acquisition activity. As you know, for an acquisitive company like TransDigm, these charges come into play when looking at GAAP financial results compared to prior year comps throughout the year. Consistent with our past practice, all adjustments used to arrive at EBITDA as defined and adjusted EPS are reconciled in this morning’s press release.

With the CEF acquisition, we will continue to be impacted by purchase price accounting activity through FY ’09 and this will activity will continue to be a factor in quarterly comparisons. Today, my comments will focus around third quarter GAAP reported results. I’m pleased to report to you that we had another very successful quarter. In a nutshell, the third quarter sales were what we expected, the base margins were strong, the acquisition margins although dilutive continue to improve, and the cash flow was very strong.

Let me explain this in detail. Quarter three sales were $186 million, up $28 million or 18% from the prior year. Organic sales were up $18 million or about 12% increase over the prior year. Similar to last quarter, organic sales growth came from strong defense sales, primarily the defense aftermarket and to a lesser extent defense OEM sales across all product lines, an increase in commercial OEM, and an increase in commercial aftermarket sales. In other words, organic sales growth came from all markets. Our recent acquisitions, CEF and Bruce, contributed to the balance of the growth.

Reported gross profit was $100 million or 54% of sales. This is an $18 million increase and is 22% greater than the prior year, and it is also greater than our sales growth of 18%. The reported gross profit margin increased approximately 180 basis points versus the prior year. The biggest factor for the improved margin was due to the decrease in purchase price accounting charges between periods. Excluding purchase price accounting charges, gross profit margins improved 60 basis points, including the dilutive impact of the CEF and Bruce acquisitions. The strength of our proprietary product and productivity improvements at our base businesses continued to enable us to expand our margins.

Selling and administrative expense was 10.4% of sales for the quarter compared to prior year expense of 11% of sales. Included in the prior year was $1.7 million or about 1% sales of non-recurring expenses associated with the May ’07 secondary offering. R&D spending increased from the prior year and was high by historical standards, but consistent with the prior year as a percent of sales for the quarter.

Net interest expense was $22 million, a decrease of $4 million, almost 16% versus the prior year third quarter. The decrease in interest expense was due to a lower interest rate. Average interest rate decreased to approximately 6.4% this quarter compared to 7.6% last year. The weighted average debt balance was $1.4 billion for both periods.

Regarding our tax provision, our effective tax rate was 36.4% for the quarter compared to a prior year effective tax rate of 37.5%. This current quarter tax rate reflects the favorable impact of our legal entity restructuring, which took place in the fourth quarter of last year and an increase in the domestic manufacturing deductions which was both partially offset by the lower research and development tax credit. We expect our fiscal year ’08 effective tax rate to be 36% and our FY '08 cash tax payments to be approximately $40 million.

Quarter three net income was $36 million or 19.3% of net sales compared to $22 million, or 14% of net sales in the prior year. This is a 63% improvement versus the prior quarter. The combination of strong EBITDA as defined growth of 18%, a decrease in non-recurring and acquisitions costs, a decrease in interest expense of almost 16%, and a lower effective tax rate, all contributed to this significant increase in net income over the comparable prior quarter.

With the net income improvement on a GAAP basis, quarter three diluted earnings per share were $0.72 per share compared to $0.45 per share a year ago, a 60% improvement in this quarterly comparison. Our adjusted diluted earning per share was $0.75 in the third quarter, which was a 39% improvement versus a year ago.

Cash generation continues to remain strong. We ended the quarter with $189 million of cash on the balance sheet. We expect our year-end cash on the balance sheet to be around $215 million. As a reminder, we will make our semi-annual payment on our subordinated notes of approximately $22 million and tax payments of approximately $20 million in the fourth quarter. Excluding the purchase of CEF, the company will generate approximately $185 million of cash for the fiscal year 2008, which is over 55% of EBITDA as defined for the full year or 140% of our net income. At the end of the third quarter, our net debt leverage ratio to EBITDA as defined was 3.6 times, a significant improvement from 4.3 times this past September.

I’d now like to switch subjects. As announced in our pres release this morning, along with Nick mentioning it earlier, we are increasing our guidance for the remainder of the year. We give full year guidance on five items; revenues, GAAP net income, EBITDA as defined, GAAP EPS, and adjusted EPS. All five line items have been increased. Our press release gives all five comparisons.

To keep things simple, I will focus on the adjusted earnings per share. Our prior guidance for adjusted EPS was a range of $2.69 to $2.75, or a midpoint of $2.72 per share. Our current guidance for adjusted EPS is in a range of $2.75 to $2.79, or a midpoint of $2.77 per share. The increase in the adjusted EPS midpoint is $0.05 per share, $2.77 less the $2.72. With one quarter remaining this fiscal year, the $0.05 per share increase comes from two areas. $0.02 results from stronger operating performance, including expenses associated with our cost reduction programs that Nick mentioned earlier. $0.03 results from our ownership of CEF, which we acquired in mid-May.

This current year estimate of adjusted EPS of $2.77 is 32% greater than our FY ’07 EPS of $2.10. On an unadjusted GAAP basis, the 2008 EPS midpoint of $2.61 is 43% greater than the FY ’07 earnings per share of $1.83. As I said earlier, we had a very successful third quarter and nine months for fiscal 2008. And with one quarter remaining, it’s turning out to be one heck of a year.

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