Good day ladies and gentlemen and welcome to the Second Quarter TransDigm Group Incorporated Earnings Conference Call. My name is George, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). I would like now to turn the presentation over to your host for today's call, Mr. Sean Maroney, Director of Corporate Accounting and Investor Relations. Please proceed sir.

Thank you. I would like to thank all of you that have called in today and welcome you to TransDigm's fiscal 2009 second 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 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 information regarding forward-looking statements and risk factors included in the company's latest filings with the SEC. These filings are available through the Investor section of our website or through the SEC's website at www.sec.gov. 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 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. With that, let me turn the call over to Nick.

Good morning. And thanks for calling in to hear about our company. I'd like to start off again as I have in the last two quarters with some comments about both our consistent strategy and our current sense of a very fluid aerospace market as it applies to our business. 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 a few of the reasons why we believe this, almost 95% of our sales are generated by proprietary products, and about 80% of our net 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 aftermarket sales. Aftermarket revenues have historically produced high gross margins and provided relative stability in the downturns. This, assuming we control our costs, can also contribute to our EBITDA margins improving in spite of declining overall revenues. Even in difficult market environments, the annual worldwide growth in air travel rarely goes negative for any extended period of time. In fact, those reports I have seen forecast modest declines in worldwide traffic in 2009 in spite of a very difficult economic situation, with some possible recovery at the end of the calendar year. Because of our uniquely high EBITDA margins, about 48% as a percent of revenues, plus or minus, and our relatively low capital expenditure requirements, about 2 to 3% of revenues, TransDigm has year-in and year-out generated strong free cash flow. We have significant liquidity and no near term debt issuance. We have about 155 million in cash and approximately 200 million of undrawn revolver. We have no principal payments due…

Thanks Nick. As Nick mentioned, in total, we had a good second quarter and first half. Our operating value drivers and acquisition integration continued to add solid value. Let me explain our second quarter operational value creation in a little more detail. We're making good progress integrating our two most recent acquisitions. As planned, last quarter, we completed the physical move of the GE Unison magneto business from Rockford, Illinois to our Champion Aerospace facility in South Carolina. And we're now starting to see operational savings from this most recent consolidation. The other acquisition GE Unison Aircraft Parts Corporation or APC, was acquired on December 16 and is also progressing through its integration into our operation. APC designs and manufactures starter motor generators and electronic generator control units. We'll be moving the APC business into our facilities during the next six to nine months. Now let me turn the discussion to our other operating units and their value generation activities last quarter. We continued to make cost reductions during the second quarter. Year-to-date we have reduced head count by an additional 4%. Recall we enacted a 9% head count driven cost reduction in our fourth quarter of 2008. These cost reduction actions served us well in the first half of our fiscal 2009 as the market softened. Going forward, we'll continue to fine tune our cost structure as market demand dictates. Although the market has been softening, our new business development continues to be active. We typically do not discuss at length our development activity during these calls, but we thought it would be worthwhile to discuss our continued investment in the business during this down market. To give this a little color, I would like to give a few examples of the new business activity so far this year,…

Thanks Ray and Nick. Good morning to everyone who's called in to hear about TransDigm. Nick just gave a very thorough description of TransDigm's revenue stream and our market condition. And as Ray discussed, we are active in controlling costs, acquisition integration and new product development. As you have seen, TransDigm was able to accomplish those items just mentioned, generate cash and announce solid result in a difficult market environment. Let me review the second quarter results now. Second quarter sales were $193 million, up 17.8 million or 10.1% from the prior year. The increase in sales was primarily driven by the acquisitions of CEF and the Unison product line made in fiscal '08 and the APC acquisition made at the end of the first quarter this year. Total amount of revenues from acquisition this quarter was $20.3 million. Sales, excluding acquisitions, decreased by 2.5 million and represented a 1.5% decrease from the prior year. The decline in organic sales was primarily due to a decrease of 6.3 million of commercial OEM sales. The two main contributors to the decline in sales was Boeing due to the strike and a sharp decline in production rates in the business jet market. Along with the OEM dip, the commercial aftermarket sales decreased 1.4 million versus the prior year quarter. Partially offsetting the decline in organic commercial sales was an increase of 6.4 million in defense sales, primarily due to increased demand for aftermarket spare parts and repairs across most of our product lines. Reported gross profit was 108.8 million or 56.4% of sales. This $14.8 million increase is 16% greater than the prior year and significantly higher than our sales growth increase of 10%. The reported gross profit margin increased almost 3 percentage points versus the prior year. This expansion in margin…

(Operator Instructions). Our first question comes from the line of Robert Spingarn from Credit Suisse. Please proceed.

Good morning.

Good morning Rob.

Greg, I think you just said that the SG&A as a percentage of sales is pretty consistent. But I've noticed if I look back at the last several quarters, it's actually declined despite acquisitions. Is there any reason to stop declining on a percentage basis?

No, there's a little bit of lumpiness. We had a little more professional fees in this quarter. But it wasn't a major increase, Rob, but even as you saw the trend it has been coming down. We're leveraging our fixed costs a little bit better than we did in the past.

Okay. Nick, to the segment performance, I think both you and Ray and Greg actually all of you talked about the moving pieces. But could you speak a little bit again? I didn't catch the percentage increase in defense. I think I got the dollar amount, but what's going on there with little bit more specificity in terms of the defense aftermarket, why the strength, why the comps get topped to the back end of the year?

Well the numbers -- Rob just our -- let me just, I think it's 15% for the quarter-over-quarter and 17% year-to-date. Yes those are just the rough numbers. I would say Rob it is the helicopters, a lot of demand for helicopters and ground vehicle parts and repairs. But I can't -- it's a rising tide. If you look across almost all our product lines it's rising. We're just spending more (ph) --

And this started in the middle of the prior fiscal year, so that's why see the comps --

Talking about the comps, if you look quarter by quarter you would see the second half of last year was significantly higher from the first half. So...

And so it sounds like you are looking for a kind of mid to high single digit defense growth in the second half to average out, I don't know it sounds like about 12 or 13.

What we said was low double digits, and what we said -- you kind of have to do your own math there.

All right. Well that's kind of in that I get to, so.

The reason you get little bit of funnier arithmetic is because of the half-over-half comps.

Right. How did pricing work in the quarter? Let's talk a little bit about the aftermarket declining, and Greg, I think you just mentioned some numbers. But the percentage decrease in aftermarket on a unit basis and then the offset from pricing.

Well, as you know Rob, we don't disclose that. But numbers are down 2 to 3% year-over-year or quarter and year full basis

On a revenue basis.

On a revenue basis. So --

Okay.

So that's just the -- that's apples to apples. Seems to work on a same extra business pro forma context.

Okay. And then if you could just talk a little bit again about the acquisition pipeline, what you're seeing in terms of multiples and is more on the market today, less -- how are things evolving?

Let me fill the quantity first. I mean it seems to me like we're seeing little more activity. I don't know Rob whether I draw any conclusion from that, other than we seem to be busier looking at things now over the last month or so. But I don't know that I can make any broad statement at all from that. I would say of the things that closed so far, the prices have come down. Seems surprising to me, there are some things that don't close, but of those they closed, they still seem to close at pretty high prices. Now this is -- I'm talking now about proprietary stuff. If you ground to the proprietary world and go into the non-proprietary kind of businesses, I think it gives some pretty low prices there.

Okay. And then just lastly in terms of trend, and this is -- maybe little bit of a 30,000 foot question. But I think we -- you're clearly cautious on the commercial side both on OE, you've talked about the aftermarket, the sensitivity mix of the company, you mentioned the global -- the forecast from third parties, particularly we saw IATA come in maybe a month ago and doubled its negative forecast from down 3% on traffic to down almost 6.

Right.

And I suspect that, that's part of what's behind your adjustment. But do you get any kind of optimism out of what we see from some of the domestic airlines? Do you see their behavior changing for the positive years -- they talked -- a few of them talked about slightly better bookings.

I mean I see the same things you see Rob. And I also notice -- I think it was Lufthansa last week said that they thought their go forward bookings -- and they sort of bottomed out their go forward bookings or better. I would like to believe that, and I want to believe that. But just to be very practical I got to say the last couple of months RPMs are tougher than we thought they were going to be.

Is there any rule of thumb for when an airline starts booking better to when it starts buying more inventory?

No, if there is I don't know it, Rob.

Okay, thanks guys.

Ladies and gentlemen, your next question comes from the line of Fred Buonocore from CJS Securities.

Hi, yes. Good morning gentlemen. Nice quarter.

Thank you.

Ray went through quite a litany of new business opportunities there. And I just wanted to get a sense for -- is this sample kind of your normal level of activity on any given quarter and you just elected to talk about it this quarter or was this kind of a spike in activity?

Yeah, it's the former. This is generally what we normally see with all the negative... with the downturn in the market we thought we'd reinforce that we continue to invest in our business, and we thought we'd add some color to it.

No, absolutely it was very helpful. I was just wondering on that. And then also Ray, you kind of mentioned that the pricing actions were taking hold --you're staying tight across most markets, are there some areas where you are seeing pushback on pricing that you may have to give in? If you can give some sense for what's happening there.

Let me answer that one Fred. There is really -- there is no change in the -- I'll say the market structure and the pricing pattern in the past. I would --

And we gave that impression -- that we didn't mean to give that pressure and it's generally the same kind of patterns as we saw -- as we have seen historically.

Got it. And then on the 777 production cut, I would imagine that that's not a huge impact for you just at least to profitability given it's two planes a month, it's an OEM program. But can you give us the sense for the magnitude or how we should think about that?

We think we captured this in the guidance we've given you Fred. You know there's a lot of moving parts in the OEM world. You know exactly the business jet is, as everybody probably knows are knocked off the rails. And the inventories fluctuating all over the place in that segment, the commercial transport, you have the 777 coming down and frankly we're little concerned about the timing of the what other cuts we might see, and then whether first tier people start to squeeze their inventory earlier. We've made our best guess in capturing that but sort of if you ask me what each thesis in there, and I have to tell you it's very judgmentally total.

Good of course and then kind of in that same vein, business jet trends, I mean where you see things now how does this compare to say the last down cycle in that segment?

You know I don't remember the business jet went very well, that's just mathematical, I just don't remember.

Yeah.

But I'm pretty sure we haven't seen the bottom of this one yet.

And I look at it a little bit, it's faster than the last cycle. It's almost like the spick that turned off this time around.

Got it, so your guidance should factor in some continued deterioration there?

Yes.

We suspect we'll, wouldn't surprise me if we see some going into next year too.

Okay great. Thanks very much. That's helpful.

Our next question comes from the line of Carter Leake from Davenport & Company. Please proceed. Carter Leake - Davenport & Company: Good morning. You may have just answered that but I want to confirm the fiscal year guidance. It does take into account obviously the known production cuts. But we don't anticipate I don't think any large commercial production cuts by the end of your fiscal year. Are you assuming any in your fiscal year guidance?

I say it again. There's a lot of moving parts in the OEM world. The business jets have stepped down substantially. It's hard exactly to predict how all that inventory ripples through the system, the 777 has come down. We are expecting to see some commercial transport, rate cuts some time over the next six to twelve months. I don't know exactly when. You do start to see some higher tier people start getting nervous about their inventory, as that gets closer and closer. It's difficult for me to say exactly which piece we have. We've taken our best judgment in giving you guidance for the year. I don't know that I can slice the onion a lot, a lot thinner than that. I would say that, we are not anticipating any substantial impact in the balance of this year for say a big 737 rate cut or something like that. If that came about relatively quickly, that could be problematic. Carter Leake - Davenport & Company: Thank you. And just kind of -- how about any guidance on CapEx for the year, for the balance of the year, any changes there?

Now we're half way through the year. We spent about 6 million and we'll probably spend at or a little more. It depends on the timing and the progress of some of the acquisitions and when they move into the new location. But we are within the normal guidance of about 2% of our sales. But it could be a little lumpy based on the timing of the acquisitions as they move into location. Carter Leake - Davenport & Company: Thanks. Just one more -- you had mentioned obviously that if you can keep these margins up assuming you can control costs, can you give any color on what keeps you up at night on not being able to do that?

First of all what we have said --

We will and can control our costs.

But the margins are a function of mix. As OEM goes down we mix up mathematically. So just so we're clear on the record there. We manage the business that generates the dollars and the mix will dictate sometimes what the margin is

Yeah, assuming we keep our costs --

Assuming we keep our cost in control --

The OEM is down, we got to get cost now proportionately and then you get a mix up.

But I don't want any leave any impression we're operating at a 50% margin going forward

Yeah, right we gave you some guidance on that. Carter Leake - Davenport & Company: Yeah, all right. Thank you.

Ladies and gentlemen our next question comes from the line of Randy Glicksman of Barrington Capital. Please proceed.

Hey good morning guys, how are you?

Good morning, fine Randy.

Good, I just wanted to dig in a little bit more on the defense side of the business. Did you say that the increases were mostly driven by defense aftermarket?

Yes.

Okay, as opposed to newbuilds.

Yeah, the newbuild rates don't change that fast.

That's right. Okay, and in terms of understanding what's driving that aftermarket now when I guess op tempo's down a little bit in Iraq where we're probable seeing a little bit of a pullback. How do you guys gauge that going forward? Is there some -- are there any hints in the DOD budget? Are there kind of reset or inventory builds that you guys see in terms of how the stuff decode when they move up going forward over the next year?

Randy, the real answer to that is it's very uncertain and I don't know. I think we're in pretty good shape for the balance of this year. I think defense spending is something that we all have to look out really warily -- as we move into the next couple of years. What we are seeing now is, we are seeing strength almost across all our product lines. Helicopters particularly are strong, as I told you ground vehicles, rehab and refurbishing them...

C130 Strong.

C130 Strong, but across the product lines, it's up almost on all of them. But this -- as you know this will be a political call over the next couple of years.

Great and --

I think we are fine for the balance of this year. Beyond that, sort of pays your money and take your choice.

Great, okay. And what -- did you guys disclose the mix of aftermarket versus OEM and the defense side of the business?

No we don't, we don't but I would tell you that as in the commercial the lion share of the cash flow or profit comes out of the aftermarket.

Okay, thank you guys.

(Operator Instructions) Our next question comes from the line of Benjamin James of SMBC. Please proceed.

Good morning guys. Just a couple of quick questions, are there any LCs on top of the revolver?

All minor, there are a couple of two or three million now for workers' comp, the full amount we can quote is like 197 million.

Okay.

There is a little bit we have to carve out the de minimus.

Okay, and then a senior secured leverage, is that about 2.2 times?

I don't have the exact number, and but that sounds about right.

But that's a close number.

Yeah, I mean you know the senior debt, you know EBITDA.

Okay, that's it.

It's 2.1.

Okay, thank you.

Sir there are no more questions at this time. Actually we have a follow-up question. Our first question -- sorry from Carter Copeland from Barclays Capital. Please proceed

Good morning guys. This is Mir Lansing (ph) asking for Carter. I just had a quick question concerning the margin forecast going through the rest of the year. The first two quarters had some pretty strong margin. And just kind of what -- thinking through the guidance as well as the comments given, it seems to suggest the moderation of the margins going -- looking forward. And I just wanted to get on the planning as to -- to sort of the make up or the changes like the changes in the margin ought to be coming on changes in terms of the mix. Are there other concerns that you see that can help moderate margin --

The primary thing that will impact the margins from here for the balance of the year is what the exact of the shipments are. And that's the primary impact. We will control the costs. I don't expect that it will have any issue in the cost control. It will be a question of exactly what ships in the third and fourth quarter and frankly that's a little tough to call exactly from here.

And then in the first half the mix, you described that part of the margin improvement was because of some kind of better military mix during the first half?

No, we just said -- we just said richer mix. Not just the -- the military surely helped but throughout the business, the mix of products was better. We also had the Boeing strike in the first quarter. Such that those shipments were way off in the first quarter helps the year-to-date, that's probably the lowest margin products.

Okay, all right. Thanks a lot guys. Good quarter.

Thanks.

Mr. Maroney there are no questions at this time.

Okay, thanks everyone for calling in today and for participating on this morning's conference call. Lastly you can expect to see our 10-Q filed later today.

Okay great. Thanks a lot everybody.

Ladies and gentlemen thank you for your participation in today's conference. This will conclude the presentation. You may now disconnect. Good day.