Nick Howley – Chairman and CEO Greg Rufus – EVP and CFO Ray Laubenthal – President and COO Liza Sabol – IR

Carter Copeland – Barclays Capital Myles Walton – Deutsche Bank David Strauss – UBS Robert Spingarn – Credit Suisse Joe Nadol – JPMorgan Rama Bondada – Royal Bank of Canada Noah Poponak – Goldman Sachs Gautam Khanna - Cowen and Company Carter Leake – BB&T Capital Markets Michael Ciarmoli – KeyBanc Capital Markets J. B.

Groh – D.A. Davidson & Co.

Thank you. I would like to thank all for calling in today, and welcome to TransDigm's fiscal 2012 third quarter earnings conference call.

With me on the call this morning are TransDigm's Chairman and Chief Executive Officer, Nick Howley; 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 transdigm.com. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact, are 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 company's latest filings with the Securities and Exchange Commission. These filings are available through the Investors section of our website or through the SEC's website.

The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA. As Defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures.

Please see the tables related to footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and a reconciliation of EBITDA and EBITDA. As Defined, adjusted net income and adjusted earnings per share to those measures.

With that, let me now turn the call over to Nick.

Good morning and thanks to everybody for calling in to hear about our company. Before I begin with the quarterly results, I would like to just talk about one tragic event that occurred in Q3.

Al Rodriguez our Head of M&A, passed away suddenly at 51 years old. Al was a significant contributor to the company since the formation of TransDigm.

We lost a business partner and a good friend here. But moving on, Bernie Iversen, another long term member of our senior management team, who has also been with us since the formation of the company has taken over the M&A position.

Bernie has had a broad range of operating positions at TransDigm at a number of different locations. He was most recently a Group Vice President, a Group Executive Vice President in charge of a number of our operating units.

Bernie has been involved with many of our acquisitions, which will facilitate a smooth transition in his role. Bernie hits the ground pretty well running here.

Now with that behind me, I'd like to review our consistent strategy, our current sense of the status in the aerospace market, as it applies to us and a few miscellaneous items. To reiterate, we believe our business model is unique in the industry, both in its consistency, and in its ability to sustain and create intrinsic shareholder value through all phases of the aerospace cycle.

To summarize some of the reasons why we believe this, and that these are highlighted on page 4 of the slides. About 90% of the net sales are generated by proprietary products and around three quarters of our net sales come from products, for which we are the sole source provider.

About 60% of our revenue, and a much higher percentage of EBITDA comes from aftermarket sales. Aftermarket revenues have starkly produced a higher gross margin, and have provided relative stability in the cyclical downturns.

Because of our uniquely high EBITDA margins, typically in the range of 50% of revenue, and relatively low capital expenditure requirements, typically less than 2% of the revenue, TransDigm has year in, year out, generated strong free cash flow. We pay close attention to our capital structure, and we view it as another means to create shareholder value.

As you know, we have in the past and continue to be, willing to lever up when we either see good opportunities, or view our leverage as suboptimum for value creation. We typically begin to deleverage pretty quickly.

Based on the credit markets, our near term cash needs, and potential near term acquisition candidates, we address our liquidity and capital structure regularly. We have a well proven value based operating strategy, focused around what we refer to as our three value drivers; new business development, continual cost improvement and value based pricing.

We stick to these concepts as the core of our operating management methodologies. This consistent approach has worked for us through up and down markets, and allowed us to continuously improve and increase the intrinsic value of our businesses, while steadily investing in new business and platform positions.

We have also been successful in regularly acquiring and integrating businesses. We acquire proprietary aerospace businesses, with significant aftermarket content.

We have been able to acquire and improve proprietary aerospace businesses through all phases of the cycle. Through our consistent focus on our operating value drivers, a clear acquisition strategy, and close attention to our capital structure, we have been able to create intrinsic value for our investors for many years, through up and down markets.

The just completed quarter was active, with some cleanup divestiture issues relating to the AmSafe acquisition, we now have agreements to sell two small non-core businesses, with 2011 EBITDA of about $3 million to $4 million in total. It appears at this time, that the market price is not sufficient for us to sell the AmSafe Ground Transportation business, to remind you that 2011 EBITDA was about $5 million from this business.

We believe we can improve this business, and over the year or so, possibly remarket it. After about six months of ownership, we continue to be comfortable with our ability to increase the value of the core AmSafe Aerospace business, through a mix of all three of our usual value drivers.

Again, I don't know that this business can achieve an EBITDA percent as high as the TransDigm average, we still see significant upside, at least as good as our acquisition assumptions. At 6/30, we had about $300 million in cash, about $300 million in undrawn revolver.

We expect to generate over $100 million in additional cash, than the last quarter of fiscal year 2012. We also added additional capacity under our credit agreement.

We estimated our gross debt to EBITDA ratio on a pro forma basis at 6/30 is about 4.5 times and our net debt-to-EBITDA ratio is about 4.1 times. As in the past, absent acquisitions or other capital market actions, we will continue to de-lever.

We currently anticipate the fiscal year end leverage to be about 3.9 times on a net basis, assuming no additional actions. With respect to our underlying markets, the markets are a little bumpy, but in aggregate, at this time it still appears to support our full year guidance.

The commercial markets are generally positive, the defense market, though less clear, is still holding up better than we originally expected, and roughly in line with our prior guidance In the commercial OEM market, industry forecasters and airframe manufacturers continue to be optimistic regarding the commercial transport OEM production cycle and backlog. Rate increases are proceeding in Airbus and Boeing and revenues continue to reflect that.

The 787 schedule is still not quite clear and it won't materially impact fiscal year 2012. On a positive note, there now appears to be more predictability in the 787 airframe shipments.

We will likely see a period of inventory sorting out before our 787 shipments track airframe shipments. In total, our full year commercial transport OEM business share revenues on a pro forma basis are expected to be up in the high-teen percent versus last year.

In the commercial aftermarket, we continue to see growth in worldwide passenger traffic, though a bit spotty and somewhat muted. To remind you, last year our commercial aftermarket was up almost 25% on a year-over-year.

This was not a sustainable level for growth rate. This quarter, on a pro forma basis, we saw an increase over both our prior year – fiscal year Q3 as well as sequentially versus the current year Q2.

I will review these specifics later in this presentation. We are watching this carefully.

The commercial aftermarket is a big bumpy and not consistent across our businesses and the revenue comps are tough in Q4. In the defense market, though there are still major uncertainties around defense spending, we now anticipate the defense revenues to be up modestly in fiscal year 2012.

Despite the first three quarters being better than we anticipated, we remain cautious. As I mentioned regarding commercial aftermarket, the revenue comps are tough in Q4.

Military revenue can be tough to predict, especially given the current US political wins and the worldwide geopolitical situation. Now let me turn to our latest financial performance.

I will remind you this is the third quarter of fiscal year 2012. Our fiscal year started October 1, 2011.

As I have 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 other factors. Our third quarter fiscal year '12 was another good quarter.

GAAP revenues were up about 42% versus the prior year. Organic revenue growth is up about 10% on a quarter versus quarter basis and 14% on a year-to-date basis.

Reviewing the revenues by market category and this is on a pro forma basis versus the prior year and much of this is on slide 5. And by pro forma, I mean, assuming we own the same mix of businesses in both periods.

Again, these pro forma comps do include the two most recent acquisitions, Harco and AmSafe. In the commercial aftermarket – commercial markets, which now make up about – almost 80% of our current revenue, the commercial percent has been rising recently as a percent of our total business.

In the OEM market, revenues were up about 16% versus the prior year Q3 and 24% on a year-to-date basis. Commercial transport OEM and business jet OEM revenue percentage growth both slowed a little in Q3.

The picture was mixed by product lines, but the primary unfavorable factors included 787 overstock and finishing delays, minor 380 delay impacts, and some disruption from the Hawker bankruptcy. Excluding the impact of the retroactive contract settlements, the increase in our commercial OEM business is approximately 20% on a year-to-date business.

Moving now to the commercial aftermarket, commercial aftermarket revenues were up about 6% on Q3 versus Q3 basis and about 10% on a year-to-date basis. The revenues were up modestly sequentially.

Though the specifics are still unclear anecdotally, there still seems to be indications of inventory trimming and a generalized economic concern by many airlines. I can't at this time quantify this specifically.

A few additional bits of color on the commercial aftermarket, the total commercial aftermarket bookings ran slightly ahead of revenues on a year-to-date basis and they are roughly even in the Q3. The business jet and GA aftermarket was down slightly in the third quarter versus the prior year third quarter.

The commercial transport aftermarket revenue was up about 7% versus the prior Q3, but again was spotty across our operating units and product lines. To-date we have seen little, if any, 787 aftermarket orders or shipments.

We are watching trends here very closely. The macroeconomic conditions are, of course, concerning.

In the defense market, which now makes up a little over 20% of our current revenue, the defense picture again continues better than we expected. The revenues were up 7% on Q3 versus prior Q3 basis.

On a year-to-date basis, they are up about 5%. Incoming orders are slightly ahead of the shipping rates on a year-to-date Q3.

We will see how this plays out. As I said, the military picture is not – is clear and for obvious reasons we remain cautious.

In total for the revenue – for the quarter, our revenues were a bit better than we expected. Moving to profitability and now on a reported basis, I am going to talk primarily about our operating performance or EBITDA as defined.

The major as defined adjustments are made up of acquisitions and stock option expenses. Greg will review various other items on the income statement in his portion.

For Q3, our EBITDA as defined of $217 million was up 34% versus the prior Q3, the EBITDA as defined margins 47% for the quarter versus the prior Q3 of 50%. The acquisition mix pulled the margin down by 4 margin points in the third quarter.

The year-to-date EBITDA as defined margins is running about 48% of revenue. There are number of moving parts to complicate EBITDA margin a bit.

So as I did last year just to help understand the year-to-date, I break it out little. The base business including the McKechnie in spite of a modest OEM aftermarket mix down is running at about 15% of revenue.

The Schneller, Harco and AmSafe acquisition dilution pulls it down about 2.5% and we pick up about 0.5% from the various contract settlements and special items through the year. That totals about 48% of the revenue that comes to.

With respect to M&A activity, as I said, we've closed two acquisitions year-to-date, AmSafe and Harco for about $840 million. We continue actively looking at opportunities.

In the last 2 to 3 months, the pipeline seems to be picking up. We are seeing more activity than we did in the last 3 to 6 months.

Closings were always difficult to predict. And I, as always, can't speak about any specifics, but we remain disciplined and focused on the buying strategy and clear value creation acquisition opportunities.

I'll refer to the midpoint in the following and these numbers going forward here do not include any future acquisitions. Based on all the above, we have increased the midpoint of our EPS as adjusted guidance by $0.24 a share, that is from $6.40 a share to $6.64.

This increase is just about half attributable to improve tax rate. We now expect TransDigm's revenues to be right around $1.7 billion or almost the same as the prior guidance.

2012 EBITDA as defined is now anticipated to be in the range of $806 million, that’s up $6 million from our previous guidance. This is generally fine-tuning as we get closer to year end.

On a full-year basis, the EBITDA [as defined] margin of 58% is roughly made up -- 48%. Back up, the full-year EBITDA margin of 48% is made up of the following.

The base business, including McKechnie, again in spite of a modest OEM aftermarket mix down, should end somewhere around 51% and the Schneller, Harco and AmSafe full year dilution should be about 3% getting us to the 48. Compared with 2011, and again on a pro-forma basis, we're now planning on full-year commercial aerospace OEM revenues to be up in the high teen percent.

For commercial aftermarket, on a pro-forma basis, we're planning on a full year revenue growth in the 8% to 10% range based on worldwide traffic up in the 4% to maybe 4.5% range. And also the recent softening in the bus jet GA market.

This implies about a 7% Q4 versus Q4 growth to the midpoint of our guidance here. Obviously, the aftermarket trends we've seen reported around the industry can service.

Our guidance assumes we don't see any significant additional economic softening in the next two to three months. For defense revenues, we are now planning year-over-year revenues to be up modestly.

In summary, our third quarter continued strong, the markets are a bit tenuous but seeing in total to be supportive of our guidance. In any event I'm confident by focusing on our consistent strategy, we can continue to create intrinsic value in good and bad times.

Now with that, let me hand this over to Ray Laubenthal, our COO, who will talk a little about some operating items in Q3 and little about some new business.

Thanks, Nick. As he mentioned, in total we had a very busy third quarter with good operational results.

We were quite busy with acquisition transitions in several divestitures. Operating units, we also continued to diligently work our value drivers and we continued to create shareholder value.

Let me explain our third quarter acquisition integration and operational activities in a little more detail. Almost six months ago, we acquired the AmSafe businesses.

Our acquisition transition work is progressing well and starting to generate real value. To-date, we have closed and absorbed the AmSafe corporate office into our own, we have consolidated four AmSafe satellite locations into several of the existing AmSafe locations and we have also restructured the AmSafe aftermarket process.

These consolidation moves and pricing actions have started to expand the EBITDA margins and we believe we're running ahead of our value creation expectations for this acquisition. We are now implementing our proven product line structure at AmSafe.

Each business now has several product lines. Our product line structure consists of a product line manager who is responsible for the product line, P&L and creating real value.

Implementing this product line structure at acquisition takes a lot of work. In addition to the product line manager, we formed a product line team that's focused on our three value drivers, those being value pricing, productivity improvement, and managing profitable new business generation.

We're also applying our proven set of product line metrics that are focused on tracking value creation process. Additionally, we are conducting specific product line training, ranging from negotiating customer contracts, implementing value pricing, driving productivity improvement and managing and financially modeling new business programs.

At our other recent acquisitions, Schneller and Harco, those are also transitioning well. At Schneller, their Kent, Ohio building expansion is nearly complete.

We are on track to consolidate their entire Florida facility into the Kent operations next months. This consolidation will eliminate many redundant operations, streamline production and improve their cost structure.

At both, Schneller and Harco, the aftermarket process has been restructured, other cost reductions have been implemented and we also organized these two businesses into our product line structure. Now let me turn on discussion to our base operating units and their recent value generation activities.

Overall, the base TransDigm operating units are performing well. They have diligently controlled their cost structures and have managed resources tightly.

They also continue to execute our consistent value focus operating strategy. Our new business development has continued to be quite active during the past several years.

We continue to invest in a broad range of engineered solutions for our customers and for this call, I'd like to give a summation of our new business content on the three newest commercial platforms; the Boeing 787, the A380 and the A350. And each of these programs we have increased our pro forma ship set dollar content substantially over the predecessor platforms.

That is on a same-store basis, we have significantly more proprietary product dollars on each of these new platforms than we had on the platforms they are replacing. These are new business awards -- these new business awards not only secure new OEM production revenues, but they also secure our future aftermarket revenues.

To give this a little color, I'd like to give some examples of our content on these new platforms. On the 787 program, we have increased our ship set dollar content by over 60% versus the predecessor platforms.

In addition to wining a larger footprint of product applications, we have increased our dollar content as the aircraft's advanced design has increased many of the products scope and complexity. For example, we're now supplying a broad range of composite products which make the 787 lighter and safer.

These products include composite fuel system isolators and hydraulic system isolators, which arrest the propagation of electrical energy during a lighting strike; the complex composite structural elements which reduce weight and improve aircraft fuel efficiency. And in addition to composites, we are supplying a broad range of latching mechanisms for both internal cabin and external engine (inaudible) applications.

The cockpit communication system which is immigrated into the aircraft computer system, the ignition systems for those aircraft about half delivered with the Rolls-Royce Trent 1000 engine, the seatbelt variety which the new airbag technology incorporated to them for added safety and for luggage and cargo area restraint systems. On the A380 program, we have increased out ship set dollar content by over 90% versus the predecessor platforms.

Similar to the Boeing 787, we've also increased our footprint and our dollar content as the aircraft's advanced design has increased the product application scope and complexity. For example, we are supplying the entire cockpit door module which includes the entire cockpit bulkhead, [separation] wall, the ballistic door and cockpit security system.

The complex horizontal trim stabilizer valves and control systems along with the main engine lubrication system and components, a broad range of latching mechanisms and structured elements employed throughout the airframe and on the complex engine itself. On the engine, we're supplying the ignition system for those aircraft again about half outfitted with the Rolls Royce Trent-900 engine.

And on the interior we are supplying decorative wall and bulkhead engineered laminates and the seat belts and seat belt airbag systems. On the A350 Program not all the application contracts have been awarded yet, but so far we've already increased our ship set dollar content versus the predecessor platforms and we expect this contract expansion to well exceed the predecessor once all this open contract bids are finalized.

Similar to the 787 and the A380 with increase the foot print and dollar content is the aircraft advance design is increased the product applications scope and complexity. For example like the A380 was supplying the entire cockpit door module which includes the cockpit bulkhead, separation lock, ballistic door and the cockpit security system.

We're also supplying a variety of engine valves, hydraulic systems valves, landing gear valves, water system and waste systems valves and a broad range of latching mechanisms and structural elements for both internal and external applications with many employed on the complex engine itself. We are supplying the ignition systems for those aircraft about half again outfitted with the Rolls Royce Trent XWB engine.

And lastly we are bidding on a significant number of other product applications that we expect to be awarded as the A350 design work is completed. These new engineered solutions have increased our content on the next generation aircraft entering into service and this three major programs exemplify our advance technology our advance technical ability to develop value-driven solutions for our customers, it also demonstrates our continued commitment to invest in our product lines and to organically grow our OEM business and more importantly secure future feature aftermarket revenues.

Now let me hand it over to Greg Rufus CFO, he'll review our third quarter and year-to-date financial results in more detail. Greg Rufus Thanks, Ray.

I hope everyone had an opportunity to read our press release, which was issued this morning. Before we jump into the details let me remind you again that we acquired Schneller in the fourth quarter of fiscal '11, Harco in our first quarter of this year AmSafe in our second quarter of this year.

The current quarter and comparisons to the prior year are significantly impacted by this recent acquisitions. Please references slide seven, for our quarterly financial results.

Third quarter net sale was $462 million up $137 million or 42% from the prior year. The collective impact of the acquisitions of Schneller, Harco, and AmSafe contributed approximately $106 million of additional sales versus the prior period.

Or just over about three quarters of the increase in sales. In addition our organic growth was almost 10% greater from the prior year.

All market channels contributed to this growth. $20 million came from commercial OEM and aftermarket and $10 million from defense which was evenly split between OEM and aftermarket.

Our reported gross profit was $253 million or 55% of sales. The reported gross profit margin decrease by almost 1.5 percentage points versus the prior year.

The dilutive impact of acquisition mix from Schneller, Harco, and AmSafe was approximately 2 margin points versus the prior year quarter, partially offsetting this was improved margins in a club business despite unfavorable OEM to aftermarket prior next experience this quarter. Our selling and administrative expenses were 12.2% of sales for the current quarter, compared to 9.7% in the prior year.

The increase is primarily due to the following: We had a $3 million accrual reduction in quarter 3 of the prior year relating to an acquisition earn-out adjustment. Also we have higher run rates of selling and administrative expenses as the percentage sales from our recent acquisition and we have an increase in stock compensation expense versus the prior year quarter.

Net interest expense was $55 million and increase was approximately $5 million versus the prior year quarter. This is our a result of the increase in weighted average total debt to $3.6 billion in the current quarter versus $3.1 billion in the prior year.

The higher average debt is due to the additional term loan related to the AmSafe acquisition made in February of this year. But weighted average cash interest rates on total balance at the end of the current quarter is approximately 5.7%.

Our effective tax rate was approximately 31% in the current quarter. The lower rate is due to the following: We had a settlement of an IRS audit for fiscals year '09 and fiscals year '10.

And then we also made adjustments to the current year resulting from filing our FY '11 federal income tax return. We now effective tax rate to be between 33% and 34% for the full year.

Net income from continuing operations for the quarter increased $32 million or 55% to $90 million which is approximately 20% of our sales. This compares to net income from continuing ops of $58 million in the prior year.

The net income increase of 55% is greater than the increase in sales of 42% due to the following three items. We have leverage and lower interest expense as a percentage sales we have a lower effective income tax rate and these two items were positively off set our higher acquisition related in non cash compensation cost.

GAAP earnings per share from continuing operations was $1.58 in the current quarter compared to $1.10 per share a year ago due to the increase in net income from continuing operations we just discussed. Adjusted earnings per share was $1.88 per share an increase of 55% compared to $1.21 per share last year.

The quarter adjustments to GAAP earnings per share was $0.20 per share the adjustments net of tax are acquisitions related expenses of $0.12 per share and non-cash compensation cost of the $0.08 per share. Cash flow from operations was strong at $238 million through the third quarter of fiscal 2012 despite using a little over $330 million of cash on the balance sheet to help partially fund the acquisition of Harco and AmSafe, we ended this quarter with over $300 million of cash on the balance sheet.

Our net debt leverage ratio was 4.1 times our pro forma EBITDA as defined, we expect to continue to delever and we now project that our net leverage ratio will be approximately 3.9 times our pro forma EBITDA defined at the end this year September 30. Moving to guidance.

We estimate the midpoint of our gap EPS to be $5.93, as Nick previously mentioned we estimate the midpoint of our adjusted EPS to be $6.64. The $0.71 to bridge GAAP EPS to adjusted EPS includes the falling items: $0.40 for acquisition related expenses, $0.25 cents to non- cash stock option expense and $0.06 cents from dividend equivalent payments.

Now let me hand it over to Liza to kick off, Q and A session.

Thank you, Greg. Operator we are now ready to open the lines.

Hey, good morning.

Good morning.

Two question one, Nick, I wondered if you might talk about the environment as we think about the set up here for your fiscal '13. It doesn't look like we've had a year like this during an up cycle where we've seen aftermarkets slows since sort of '05, '06.

And you guys saw at that time a pretty good snapback in organic growth in the commercial aftermarket following that period. Are we setting up for something like this?

Or do you think we are going to be in this sort of weak level next year, especially given the traffic numbers kind of coming in a little bit better than people would forecast all year long? I wondered if you might help us think about what you are thinking about 2013.

One, Carter, as you know, I can't back into 2013 guidance yet. And our view on aftermarket gets you pretty close to the guidance for the year probably, but, I mean, the reality is, we are uncertain.

I think this is primarily a function of worldwide economic activity. If you believe we're just in little bit of a dip or slowing down and it moves on sharply again, either as we proceed into the next quarter or after the election, I think you will likely see some kind of a snapback like you talked about.

But that looks very uncertain to me right now, Carter. I don't have to call it.

If I sit here today, I describe myself as quite cautious.

Can you see anything within the product lines? You said it was bumpy and different throughout the business.

But if you look at products that are discretionary versus nondiscretionary, are you seeing weakness in discretionary items that would support that conclusion or is there any data on a more granular basis that helps you get comfortable with that kind of viewpoint?

No. The true answer is, Carter, no.

By the way, hopefully, all the answers are true, but I can say and frankly this somewhat surprised me. As I look at our more discretionary things, parts in the last month and we are in the middle of our business planning review process so we are looking at detail of all the product line.

Surprisingly, they don't look down any more than average or I can't say they are systematically off more. It's kind of surprised me which I don't know what that tells me, other than I don't see a systematic pulling back on discretionary items, particularly at this point.

Okay, thanks. And one question quickly on the margin, Nick, you mentioned a 2.5 point impact from acquisition dilution and then Greg mentioned two.

Is that just a difference between the quarter and the year and how you were talking about?

There are two things. For the quarter, I am always talking EBITDA margins and Greg was talking gross profit.

So for the quarter, the dilution was 4 points on EBITDA margin for the acquisitions. For the year-to-date, it was 2.5 points for the acquisition dilution.

The Greg's 2 points was gross profit, Greg, am I correct? Not.

Not EBITDA because we also – the SG&A is higher because of the acquisitions also.

Yes, exactly. And so with respect to that, if you look specifically at the acquisitions, it will look sequentially the margins were similar, did they increase or was there something going on there in terms of your cost efforts, in terms of the relocation and what not that would cause that to be the case.

Can you comment on how the acquisition margins trended quarter-to-quarter?

I am not following the question. You're drawing some conclusion that they changed somehow from here?

Yes. It looks per our math that the sequential margins – the margins would have been roughly flat sequentially for the acquired businesses.

And I was wondering if that was actually the case per your numbers?

The truth is I don't remember exactly what specifically the acquisitions were quarter-to-quarter, but I would be surprised if they were flat. Generally, they are moving up.

Okay.

But I can't remember, Carter, what they were the last quarter, but in general they are moving up.

But the G&A way down, is that the right G&A going forward?

Yes. And I suspect somehow we are losing this in a quarter in rounding or something like that, I suspect.

They are smaller numbers versus the total, but the trend is that they are expanding.

Okay, great. I will let somebody else ask.

Thanks. Good morning, guys.

Good morning, Myles.

It looks like the fourth quarter commercial OEM sales if I have done the math kind of right, it implies slowing up to mid-single-digit growth. And I know Nick you mentioned some of the 787 inventory, but I am curious if that math is right and are there other things driving it compares and/or 787?

Well, what are you getting when you saw for the fourth quarter?

Kind of mid-single-digit growth if it's 24% year-to-date and up high-teens for the year?

Yes. I would have thought you get closer to 10% but yes it's a little bit slower.

That I wouldn't – that is just reflective of what the timing is on different product lines. I mean, generally, we are primarily in the commercial OEM.

If you look at the commercial transport production rates, we are pretty evenly distributed across the miles. We probably run, I don't know depending on the product line somewhere between 3 and 12 months ahead, so maybe 6 months.

So any whatever you are saying is just quarterly impact.

Okay.

It's just a timing question on shipments. Now I would say sometime if things start to back up in '14 in the commercial transport growth rate, we will start to see that sometime in '13.

Okay. Those kind of the first part of the questions.

So it looks like your implied aftermarket growth is about the same as your implied OEM growth, maybe it's slightly smaller in the fourth quarter, but it looks like that mix won't be hurting you as much in the fourth quarter. And presumably your acquisitions will be a little bit better in the fourth quarter.

And I think the guidance doesn't imply much of an uptick in EBITDA margins as defined in the fourth quarter. So I was just wondering if I am missing anything or if it's just conservatism?

I think probably the difference in those growth rates is probably too close to call and it's in the noise level in the quarter when you look at it over full year. I think we are trying to get pretty close to what we think now.

But that implied flat EBITDA margin as defined is about 47% in the fourth quarter versus 47% you did here in the third quarter, any reason that shouldn't be higher given higher volumes in another quarter of integration?

I think you are in the – whether it could be 0.5 one way or the other, I think you are in – I think it's in the noise level.

Okay. And one other cleanup one, just a clarification I guess.

You mentioned you had agreement on some divestitures of $3 million, $4 million in sales – a $3 million, $4 million in EBITDA, what the sales corresponding to that?

Let me – I think we probably – we have confidentiality agreements on that. I think I had probably said about as much as I can say.

All right.

But I think use the figure is around $3.5 million of EBITDA and you can probably figure they aren't the most profitable businesses in the world or we wouldn't be selling them.

Right, okay. For that, that's good enough.

And then one last one sorry if the stock option comp expenses trending higher here and I know obviously the EBITDA is growing, but what's the underlying rate we should expect for that stock comp expense on a go forward basis?

I haven't gone through the '13 guidance yet, but the reason it's going up is the combination of these acquisitions and issuing options and we value among there is the Black–Scholes. So just to kind of put in perspective, in 2010 they were going for about $20 or is valued at about $20 a share.

In '11, it was $35 a share. And this year in terms of the price of the stock, it's between $40 and $44.

But let me remind, as you know, it's a non-cash charge, it's based on expensing stock options.

All right. Thanks again.

Good morning.

Good morning David.

Last quarter, you guys gave guidance I think AmSafe EBITDA contribution this year, around $50 million. If I take what you said this time in terms of 51% EBITDA margins for the base business, and then dilution by about 3% from the acquisitions, it would imply that AmSafe is running better than kind of that $50 million, can you give an update to that number?

I don't remember what the – do we give this guidance?

That would be on a GAAP basis, David, and that will (inaudible).

As I said, the AmSafe businesses will – let me put the ground face to face aside for a minute. It looked like there we were doing as well.

If not, as I said, a little better than we expected when we bought it. These are more happy legs.

Nick, where is that upside specifically coming from, is it pricing, or what are the value drivers, where are you seeing the upside?

All. They say new business isn't ticking in yet, but we are doing reasonably well in pricing and we are also getting costs out pretty aggressively.

Greg, how many plants have we cost? Four plus the corporate office?

Yeah. We closed the corporate office plus four facilities.

Which is a lot of movement in six months.

Have you been able to reprice the entire business or what percent of the AmSafe was under LPAs that you haven't been able to address?

I don't remember, but we haven't, we are not done yet.

Then my last question. Nick, you talked about that the aftermarket is not consistent and across your businesses you are seeing different things at different businesses.

Can you give some additional color there, which businesses are kind of outperforming expectations, and which are underperforming specifically on the aftermarket front?

Just the point I would like to make on that. What I expected to see, and this is to Carter's question at the beginning, I expected when we looked at the details, we see a more discretionary stuff, which is the minority of our products would be dropping off much more than rest of them.

I don't see any consistency across that. The discretionary stuff is not, it was not reacting substantially different than the non-discretionary, which just says to me, [Myles], we're just sort of in a -- above the uncertain market.

That's the only conclusion I draw from that now.

All right. Thanks a lot.

So, on the same topic that you have addressed, both in David's question and Carter's question, I don't know, maybe this is a question for Ray actually, but are you seeing in any categories, anything that would explain any categories or parts, the different growth rates we have seen so far in the result season, from the engine guys, versus the airframe guys, on the aftermarket. Is there something going on in the distribution channel for certain types of parts that you are not seeing elsewhere?

Is there a cannibalization effect from parts, aircrafts? Anything you can help us with here?

Well, I would echo what Nick said before. We are not seeing any kind of panic.

I see geographically, though it's hard to get the data exactly every quarter, but we have a decent idea. Obviously, the European market is worse than the others.

So presumptively items that were used more heavily in that area, or probably down more, but I can't put a number around that. But it's hard, as you know across the world, sort of the economic situation is slowing down a little bit.

Do you see much evidence of cannibalization from that aircraft?

No.

Then Nick, on M&A, you mentioned activity is up. Are you seeing more targets in the pipeline, or is it more about the bid-ask spread narrowing?

What's driving that?

As of right now Rob, we are seeing more in the pipeline.

How is pricing?

I can't say, because they have been close. The real answer is, I am not sure.

But my guess is, if things close, won't close, the price is substantially different than they did, than they had over the last year. Surely, just from the outside looking and watching other deals that have closed, they have still closed at pretty healthy prices.

Then just a couple of quick things. You mentioned a fair amount of activity, moving product lines around, reducing the number of plants.

Is that driving the higher CapEx we saw in the quarter?

In the quarter especially, Ray mentioned the Kent facility, Schneller, we moved it in (inaudible).

They are putting out a couple of (inaudible), about 10,000 square feet, and want more and more.

They are a significant (inaudible).

So how should the fourth quarter look on CapEx?

Do we give guidance for CapEx? Not regularly.

I mean, we are not going to be way off from where we typically are.

Means you go back to where you were?

I mean, you think of 1.5 to 2 for the year, and at the high end of that, you will probably be pretty safe.

Thanks guys.

Thanks. Good morning.

On the defense side, another good quarter, and I think perhaps a few quarters ago, if someone had told you that your defense growth will be higher than your commercial aftermarket this quarter, you probably would have been a little surprised. So as you are looking for all that data in your process here, and you look business-by-business within the [sems], have you learned anything about why that continues to remain stronger than you would have expected?

We kind of (inaudible) government spent more money than we expected. Our product lines are weighted towards helicopters and transports, and not so heavily towards Tigers and ground vehicles, we are really seeing a slower stuff, and they are just holding up better.

They are continuing to buy parts and repair services at a rate more than we expected. But I am mostly focused around, I would say, probably helicopters first and the transport plane second.

Do you have a clear read-through in most of your businesses, as to whether it's aftermarket or OE that's driving it? I would imagine that's topical?

Pretty clear. It sometimes gets a little more confused in the defense world than commercial, but generally pretty clear.

I mean, the OEM rates don't change very quickly or very much and we know the (inaudible) content, so we can pretty well back in the production.

It is really the aftermarket remaining a lot far.

Absolutely.

Then just on some of the data you gave, Ray, I thought it was interesting on the platform-by-platform basis for the newer commercial platforms. Just a couple of questions on that.

Those are pro forma numbers I imagine, including the say AmSafe and Schneller content on the legacy platforms?

Yeah, they are. I think I said in the script on a same store basis.

Clearly, listening to the lists, obviously it ran across all your businesses, platform by platform, but definitely it seems like a little heavy on some of the newer acquisitions, AmSafe and all of them. Schneller sounded like, if you had taken this measurement a year or two ago, would those increases have been as high or have you really targeted that via your acquisitions, is that a coincidence or not?

In our prior year's Investor Days and so forth, we had given some of our -- an indication of how we were expanding our footprint. And really I didn't want to have the call go on for another half hour with me mentioning every product line.

So we tried to pick kind of a cross section that wasn't heavy and either the new acquisitions are in the existing platforms, we just took a cross section. There's many, many other product point applications I just didn't mention.

I was just trying to add color there. But we've -- prior to these most recent acquisitions, we had very good success expanding our footprint and these acquisitions are no different.

Yeah, I would say -- to answer the, is it systematically or is it just (inaudible), we picked up good stuff on the acquisition vital, I'd like to say the commercials -- I believe it could be true also. The commercial stuff we have bought in the last year and a half has been good fresh product lines and they've cap up and they've been companies with cap up with their products, which means that cap up with decent positions on the new platforms.

Okay. All right, thank you.

Thank you. Starting on the margin side, it looks like on the legacy business, you've been able to mostly offset the margin dilution from the mix shift over the last couple of quarters here.

If aftermarket remains at the current growth levels and you have these Boeing and Airbus production rates go up, do you think you can hold that EBITDA margins of about 50% for your legacy businesses?

Can you say that again? If the OEM continues to grow faster than the aftermarket?

Yeah, can you hold for these margins?

Well, you'll get -- we'll give out the guidance for next year when we give it out. But I would say it would -- I would be surprised if the difference in growth rates next year between the two was enough to materially impact our margins?

Okay. And on the M&A side, now that the UTX and Goodrich deal is closed, it looks like there are some parts of Goodrich that UTX is looking to dispose of.

Can you just comment on the potential there for TransDigm, whether it fits in your criteria [in terms of acquisitions?

(Inaudible) the companies that we call in all the time to see what they have -- to see what they're having to sell. We've been following that for six or seven months and we're hopeful we can see some things from (inaudible) there, but it's too soon to tell.

Okay, all right. Great, thanks a lot.

Good morning, everybody. A few part question on balance sheet utilization and capital deployment.

So with the comments on the M&A pipeline picking up, I'm curious is there anything that's fairly late-stage there and it's just a matter of time to close or is it kind of just early in things popping their head up for the first time? Secondly, at the Investor Day we started to get the sense that you were looking at a special dividend again maybe, is that something that's kind of still relatively on the table or not?

And then third part is, you talked about the net debt to EBITDA metric getting to 3:9 by the end of the year. I'm curious just what the current thinking is on how comfortable you are with that, whether or not that's floating with the suboptimal balance sheet that you referred to or not?

Let me start. By the time I answer the first question, I probably would have forgotten the third, but I'll give it a try.

On the acquisitions I would say we just don't comment -- we can't comment on that where they stand in the process (inaudible) we'll see what falls out. Sometimes things move fast, sometimes they all die and you end up with nothing.

So I just -- I don't know how to handicap that now. What was the next question?

Was the next question on the special dividend? I would say, as I've said in the past, you see our leverage drop down into the 3s, it's getting into the kill zone for us.

I would think [absent] any acquisitions of significance or if we look ahead, we think we don't see any pending. If it gets down into that area, we probably very seriously considered doing something with our capital structure.

Last winter, whenever -- November, December, we were almost in the throes of that and then this AmSafe came along and we -- and Harco together and so we had $850 million which is always our preference (inaudible). I mean we still believe that this is a company that should be leveraged.

And letting the leverage drop down too low is not the way to optimize equity value. But it's a very fact and circumstance specific call.

Okay, that's helpful. Thank you.

One follow-up on the aftermarket. Is the value-based pricing model not in any part of the business specifically, just broadly, is it even a little bit more difficult in a slower growth, generally tougher aftermarket environment or is it just still humming along as normal?

I don't think it's substantially different. Obviously, you get more handwringing and (inaudible) mashing at people when the market's tough, but -- I mean the fundamental economics don't change.

Okay. And then just one last one for me.

You [quoted] business jet and general aviation aftermarket growth was negative. Just curious what you think of that or what you're seeing or do you think that's strictly the comparison or do you think the business jet user and buyer is much more spooked now than they were three, six months ago, maybe tell us broadly what you're thinking about the business jet market?

Yeah, first it's not a big number. It's down -- it's down modest (inaudible) volume steadily, so that was noteworthy to us.

I suspect it's just part of the general economic concern and so [I think] little bit of a feeling in Malaysia right now, that's what I suspect that I don't know whether it's a one quarter phenomenon. If we see it for two or three quarters in a row, then we'll be getting a pretty good idea.

In the general aviation, which isn't a huge part of our business with impacts of a little, that comes to be impacted by [add gas] prices and [add gas] prices are pretty high for those propeller operators. But that's not new for me, that's been a phenomenon for a little while.

But my overall guess is, is that we're just -- this is just part of the general economic concern we're seeing across things. I'm sure everyone else is seeing across a lot of industrial businesses.

Okay, thanks a lot.

Yes, thank you. Just two...

Speak up, we can't hear you.

Yes, two quick questions please. Just following up on Noah's question about leverage, given where we are on the cycle and from the choppiness in the aftermarkets, do you have a different level of comfort with the amount of leverage you might put on, so -- would you be reluctant to go to the 5, 5.5 or 6 times debt to EBITDA and want to keep it five times or under or do you have any criteria that you can share with us, given the changing landscape?

Yeah, I don't think we'd share a number. I would say all things being equal if we feel uncertain about the economy, the number would probably be a little [low] and we felt very good about the economy.

But I don't know -- I don't -- in the numbers kind of ranges you've been talking about, I don't think any of those would concern us.

Okay. And could you also just talk about in the incoming order rates in the aftermarket in the fourth quarter, have you seen any discernable change in pattern just in the month and a week we've had since the close of the quarter, have things deteriorated sequentially?

Have they got stabilized sequentially? And is there any trend that you can draw?

I can't really speak to that. I can't really to speak to that, this one.

Okay. Could you talk -- I mean when you think about the fourth quarter, is there -- are you looking for sequential aftermarket stability or you expecting that to rise a bit year-on-year?

Well, I think we gave you the number. We expect the -- we gave you guidance for the year, of aftermarket of 8 to 10, so if you put the middle point 9 say, that would imply a 7% quarter-over-quarter growth from fourth quarter to fourth quarter.

Okay, so I see that here. Okay, thank you very much.

Nick, let me follow-up on that. If I put in -- this is commercial aftermarket growth, if I put in the 8% to 10% number for sequential growth I get either down minus 4% or up 3%.

Does that make sense to you?

(Inaudible) math, I didn't do the sequential, I did the quarter-over-quarter. I just don't -- and it's math, you'd figure it out.

It is what it is.

Well, I just wondered so could -- fourth quarter could we see a decline as much of -- as sort of 4%, that would hit an 8% full year number based on what we've gotten. Is that something that you could see and fourth quarter could be down that much?

I think we gave you the ranges 8% to 10%. So whatever that works out to, that's what we think the [band] is.

All right. You won't be selling AmSafe.

Was that in -- I assume that was not in any guidance, was it?

AmSafe's what?

You had said you won't be selling AmSafe ground piece?

It was included in our GAAP numbers.

It's always been…

It's always been in our GAAP numbers. The ground transportation business has always been in our numbers.

It's in our go-forward numbers and there's no cash -- no, we're not assuming any cash from the sale.

Okay. Moving to the platforms that you gave us, I appreciate the color.

I just want to clear up a couple of things. When you speak about the aircraft and the engine content, you do single out Rolls.

Perhaps I should know this but do you only have igniters on rolls power, is that…?

No we haven't made -- our igniter (inaudible) GE, basically there's two suppliers in igniters and ignition systems. Ourselves and Unison, GE owns Unison, so that we tend to get Rolls work, we tend to get the Pratt work and we tend GE, on new platforms they tend to get it.

Now on historical platforms like the CFM56, that's a situation where we're dual-sourced. So we share the aftermarket, on the CFM56.

And each GE engines gave us a little bit of different sweat between it.

And then when you were signing these platforms you were signing large content increase for example A380 up 90%, versus I think it's sort of prior platforms, what would be the prior platform we'd be using a long.

We make – when we do this, we track this from a – we start a program. On a program restructuring, we start investing in it.

We make an estimate on what we think it will replace, so maybe with that when we might say, if it takes a job it will replace three quarters of a 747, and one quarter of a A338 – 340 or something like that. So we make some weighted index, and then we hold it consistent.

In that way we calculate what our base chipset content is, weight it that way, and then we keep measuring it as we go forward. And now A380, there's a little bit of a disconnect there.

Because you've got more seats, but even if you were – right the if you have 90% more content doesn't mean you have 90% more content per seat or per body in the plane. But even if you adjust for that, you're still –I want to say if you just remember seats, I want to say, [Ray], you're still up 40% or something like that.

Yeah.

Did you follow what I mean there?

Yeah, well but I.

If you take airplanes so everything was perfect, you had more dollars on it. And you can see in some of the literature, where people will plot the number of seats versus the range of the aircraft.

And it's a scatter diagram of all the Boeing and Airbus aircraft. And we kind of look at that scatter diagram and we say, geez what airplanes -- predecessor airplanes are kind of plotted around that aircraft its replacing.

And you can get quite academic on how you're going to weight them. But we – we basically put a stake in the ground, we kind of – try and measure consistently.

And these numbers – 787 up 60% versus whoever thought it would a be a 767 or whatever, is this volume you're telling us or you're telling us it's dollar-based.

Dollars per aircraft.

Okay.

So they're selling one whatever – let's say it was 100% replacement on the 747, which it's not. Not a way, it's an index.

You know we're saying if we have $100 on that we'll have a $190 on the 380 as it goes out.

And then if I look at some of this content is there -- because some of the composites, it's nice but it doesn't seem I wouldn't think it would have as much aftermarket as say, igniters. Are you telling us these figures today to sort of speak to top-line growth, because this is attractive to that end but it also could have some dilutive impact in here?

I wouldn't draw any conclusion on that.

Okay.

We don't see any reason that the mix – that the mix of parts that we – the way we look at is if – we think the mix of parts that are going on a platform and we sort of run it out for – sort of a mature point when there's a reasonable aftermarket we want to be sure that we still got 50% EBITDAs and more. We don't see anything significantly different here.

That's okay.

Okay, so we – we didn't as Ray said, we didn't go through everything, we tried to kind of highlight the stuff we thought was a little different and we hadn't talked about before. You know if we have 40,000 ER system, he didn't get through all the 14 valves and that sort of thing.

Thank you.

Hey, good afternoon, guys thanks for taking the question. Nick, I guess you know, with your defense exposure, you're clearly not as exposed as some of the other players in the space, but how are you guys going to handle, the impact of sequestration when you give your year '13 outlook?

You'll just have to wait till we give the '13 outlook. I – we're going to collect data and we'll make our best guess when we get there.

I mean you know, we our shifts, we know what shifts we're on we know what the aftermarket demand is by different platforms, we'll keep gathering information and we'll do the best we can when we get there. If is -- truth is I don't know.

Fair enough, and then most of mine have been answered just if I look at – your passenger traffic growth assumptions for the year 4.5% I think the recent data implies IDA saying we're annualizing at 2% growth. Should we look at that correlation, you're 4.5% this year that aligns with your midpoint on aftermarket essentially 9%, is that a good multiplier to use, if we're assuming growth next year, might be 3% to 4%, can we use that as a good proxy for your expected effort?

I don't know.

You don't know?

I don't know. I think I said 4% and 4.50% by the way.

In the range of 4% to 4.50%. I don't have a good feel for that.

Okay, perfect, thanks a lot guys.

Hey, guys thanks for taking my call. I think you pretty much addressed, how you're looking at channel inventory and that kind of thing.

But is there – different product lines, we can sort of look through the list, it's pretty diverse of – some products that are – more heavily inventoried than other and maybe more subject to – some drawdown, if perhaps there was a lower capacity may have some growth next year.

Yes, the answer is yes, there are – as I sit here I don't think I can come up with a list for you. The ones that go through distribution probably are a little more risk, because they have two levels of inventory.

You know, you've got distribution level and an airline level. But I don't have a good sense of how much that is.

So when we think about that – what percentage of your product go through distribution and what -- how much is what percent is for direct?

I want to say, if you take the commercial aftermarket something a little under half I think goes to distribution.

Okay, that's helpful.

But, even that – depending on the product they have different stocking requirements, you know, some have very low stocking requirements, some have longer ones, depending on lead times and thing like that. But as a general rule that's probably a little more susceptible to fluctuation than the ones that aren't.

Great, okay. And did I miss the backlog number, or is that just show up in the Q?

We show it just in the K.

In the K, yeah.

Okay ,thank you. Maybe it just show up in the Q or just the K.

Q.

Q, okay.

Okay, thanks.

No. Thank you.

I would like to thank you all for participating in this morning's call, and we expect to file our third quarter 10Q tomorrow.