TransDigm Group Inc (TDG) 2006 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the third quarter 2006 TransDigm Group Inc. earnings conference call. My name is Powanda and I will be your coordinator for today.

At this time, all participants are in listen-only mode. We will facilitate a question and answer session toward the end of the conference.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded for reply purposes.

I would now like to turn the call over to Mr. Sean Maroney, Director of Corporate Accounting and Investor Relations. Please proceed.

Thank you. Good morning ladies and gentlemen. I would like to thank all of you that have called in today and welcome you to TransDigm's fiscal 2006 third quarter earnings conference call.

We will be discussing the results of operations for the 3 months and the 39-week period ended July 1, 2006.

You should have already received our earnings new release that was issued this morning. If you have not received the release, you may retrieve it by visiting www.transdigm.com.

A replay of today's broadcast will be available for the next 2 weeks. Replay information is contained in our news release.

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.

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 statement.

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.

The filings are available through the investor section of our web site or through the SEC's web site 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 in adjusted net income, both of with are non-GAAP financial measures. Please see the tables and related footnotes in today's press release for a presentation of the most directly comparable GAAP measure and a reconciliation of EBITDA as defined in adjusted net income to that measure.

Now, having taken care of the necessary disclosures let me introduce Nick Howley, our Chairman and Chief Executive Officer, who will provide an overview of the business to the first 9 months. Following Mr. Howley, Mr. Greg Rufus, our Executive Vice President and Chief Financial Officer, will discuss the financial results for the period.

Good morning. Thanks for calling in again to hear about our Company. Since we are relatively new in the public equity world, I'll start with another quick overview of TransDigm to hopefully bring everybody up to speed a little bit.

We completed our initial public offering and our shares began trading on the New York Stock Exchange on March 15 of this year under the symbol TDG. We sold about 12.6 million shares at a price of $21 a share, representing about 28% of our outstanding shares.

TransDigm is a supplier of highly engineered aerospace components. These components are used on almost all the commercial and military aircraft in use today.

The products are typically engineered to meet the needs of a particular customer or a particular platform.

We estimate that about 90% of our sales for the last year were generated by proprietary products. That is products where we own the design.

Similarly, we estimate that about 75%of our sales come from products for which we are sole source provider.

The commercial business accounts for about three-quarters of our total revenue with the balance, about a quarter, being defense related.

We generate about two-thirds of our revenue from after market sales that is typically to end users of aircraft or maintenance shops. And about a third of our revenues are from sales to the OEMs. That is the builders of the airplanes or the providers of the systems to the builders of the airplanes.

After market revenues have historically produced a higher gross margin and been more stable than the sales to the OEMs.

Because of the large installed base of products, high margins, and relatively low capital expenditure requirement, TransDigm has historically generated significant strong free cash flow.

This has given the flexibility to either pursue acquisitions or retire debt.

We've been active in the acquisition area. We've acquired 17 businesses over our history including 2 in the last quarter.

Now let me turn to the financial performance.

I'll remind you that this is our third; this is the third quarter of the year for us. Our fiscal year began October 1.

In both the first, second, and quarters we had a lot of financial structuring activity. In the first quarter of this fiscal year we paid off a promissory note and various related deferred comp plans while almost simultaneously borrowing a holding company note.

In the second quarter we completed our initial public offering.

In the third quarter we restructured all of our debt to reduce our interest expense and increase our financial flexibility.

Greg's going to review the cost and the impact of these activities after I'm done.

But let me say that in spite of all that activity we kept our eye on the ball and the operating performance of the Company stayed strong. As I said in the past, quarterly comparisons can be significantly impacted in this business by differences in the OEM after market mix, in large orders by transient inventory fluctuations in the system, there's some modest seasonality, and some other factors.

I'm going to focus primarily on the year to date operating performance. I think it's more meaningful and more reflective of how we look at and run the businesses. I will give quarterly comments if they're meaningfully different.

Generally the trends in the third quarter and year to date are very similar.

If I remove the impact of acquisitions, the first 9 months sales of the year were up 12% versus the prior year. The commercial markets continue to pick up nicely and our defense business is again rising modestly.

If I look at the revenues by market segment on a Pro Forma basis versus the prior year, that is assuming we own the same mix of businesses in both periods.

In the commercial segment, let me remind you again it makes up about three-quarters of our business, OEM revenues are up in the range of 25% both on a year to date basis and also on a quarter to comparable quarter basis.

Regional biz jets lag that average. The business jets and the commercial transport OEMs are both in that range.

Commercial after market revenues are up between 10 and 15% on a year to date basis.

On a comparable quarter basis, commercial after market is only up slightly. This is a shipment timing issue. If you'll recall in the second quarter conference call I mentioned that a few retrofit orders shipped at the end of the last and that overall activity last quarter was quite high.

Incoming commercial after market orders continue to rise between 15 and 20% on a year to date basis and an even higher percent on a quarter versus comparable quarter basis.

This level of increase in incoming orders is high and may not be sustainable given the rate of growth in the underlying commercial airline after margin.

I'll remind you now as I did last time that this is a time in the cycle that we have to be careful we watch for inventory builds both at the OEM and also in the after market. We don't see a significant problem at this time, but it's something we're trying to watch and manage where it's practical.

If I look at our defense segment, which I remind you again make up about a quarter of our business, it's down slightly versus the prior year to date. However, we saw pickups in the both the second and again in the third quarter in both shipments and incoming orders. We hope this continues, but it's always tough to predict defense orders in the near term.

We remain cautious but we remind everybody that defense buys are still at historically very high levels.

We made 2 smaller acquisitions in Q3 '06. We acquired Sweeney Engineering, a manufacturer of proprietary valving. And Electra-Motion, a manufacturer of proprietary AC and DC motors.

Over the next 65 months, Sweeney will be relocated to our AeroControlex business in Cleveland, Ohio. And Electra-Motion will be relocated to our Skurka Aerospace business in Camarillo, California.

With respect to the acquisition pipeline, we continue actively looking at a number of candidates. We will have are reasonable pipeline of candidates, more small than midsize, but there's some midsize ones also in the pipeline. We remain disciplined, pricing especially for businesses that go out to auction remains very high. Predicting the timing is always difficult.

I'll just repeat as a general rule, we're not going to discuss any specifics on acquisitions unless they're closed.

I move on to profitability. Again, a lot of finance activity in Q1, Q2, and Q3. Greg's going to sort that out for you after I'm done.

I'm going to talk primarily about the operating performance, generally excluding the expenses associated with the financing and IPO activities.

As an overview, on a year to date basis our adjusted net income was up about 53% versus the prior year.

Our EBITDA as defined was up 20% versus the prior year. And the EBITDA margin, EBTIDA as defined margin, picked up about 60 basis points versus the prior year of 44.5%. This was in spite of some modest dilution from acquisitions and a rising OEM shipment level.

The Q3 EBITDA margin as defined was 44.5% down slightly from Q2. As I said in the last quarter conference call, the Q2 46% margin was likely not sustainable for the balance of the year with the relatively higher OEM shipments.

I'll remind you again, relatively small mix changes can move margin a few points one way or the other from quarter to quarter.

If I look at the full year 2006, assuming the existing mix of businesses, we now expect revenues to be in the range of $435 million, up about 17% on the reported basis. This growth is roughly two-thirds organic and one-third acquisition for the year.

We now expect the 2006 EBITDA as defined, that is excluding primarily the financing and IPO costs, to be in the range of $192 million. We expect adjusted diluted EPS on the same basis as above that is excluding primarily the various financing and IPO expenses, to be in the range of $1.28 to $1.30 a share.

Of this $1.28 to a $1.30, approximately 2.5 cents per share is due to the impact of the lower interest rates and the 2 small acquisitions.

We are in the midst of our 2007 business planning process. By mid September we should have a pretty good sense of what we think 2007 looks like and what our expectations. And we'll issue some guidance on 2007 soon thereafter.

All in all 2006 is shaping up to be a pretty good year and good start to our first year a public equity.

Greg will now, I'm going to pass this over to Greg who'll go through the financial performance in a little more detail.

Okay, thanks Nick.

As Nick mentioned, we have had a significant amount of financing activity in our first 3 quarters this year. Before I discuss the financials, let me summarize the financing activities such it had such an impact on our reported results.

During our first quarter in November of '05 we obtained a $200 million loan facility and used approximately $100 million to extinguish $263 million of promissory notes and to retire approximately $26 million of deferred comp plans to pay a one time special bonus of approximately $6 million and related fees for the transaction.

This activity, plus some costs associated with the IPO, resulted in non-operating charges of $3.1 million to the P&L in the first quarter.

During the second quarter, March of '06, we successfully completed our IPO. This resulted in $2.3 million of non-operating charges as a result of this activity in our second quarter.

And finally, during this quarter in June of '06, we successfully restructured all of our debt. And we now have a $650 million senior secured term loan, a $275 million subordinated note, and a $150 million undrawn revolver at the end of the third quarter.

We were able to lower our effective interest rate while adding flexibility to our capital structure.

This activity resulted in a one-time charge, which totaled $48.5 million. $25.6 million was a cash charge for the call premium on the then existing subordinated notes. And the remaining $22.9 million was to write off the previously capitalized debt issue costs.

As you know, we reference EBITDA as defined. The items just discussed are part of the reconciliation from EBITDA to EBTIDA as defined. And, for your convenience, as part of our press release issued this morning, we have attached supplemental information sheets, which reconcile all of the above information.

Now, turning toward the third quarter results.

I am pleased to report that net sales for the third quarter increased by $13.2 million or 13.6% to close at a $110.9 million. The sales growth excluding acquisitions was $9.4 million and represented a 9.7% increase over the period.

The organic sales growth was primarily due to an increase of $4.6 million of commercial OEM sales for both commercial transport and business jet markets along with an increase of $2.5 million of commercial after market sales.

Defense sales were also up slightly versus the prior year during this period.

Gross profit increased by $9.2 million or 19.2% and closed at $57.1 million. This increase is primarily attributable to the higher organic sales and the impact of the motor product line acquisition made at the end of June last year and to a smaller extent our 2 recent acquisitions made this quarter.

Gross profit as a percentage of sales improved 240 basis points to 51.5% of sales for the quarter. This improvement included a 140 basis point improvement from the reduction in acquisition related costs and lower deferred compensation costs discussed previously.

The remaining improvement was driven by productivity improvements, especially from the acquisitions we made during FY05, leverage of fixed costs resulting from increased sales volume, and a little better mix within the market segments themselves.

Selling and administrative expenses increased slightly to $11.5 million or 10.4% of sales for the quarter from $10.1 million or 10.3% of sales for the comparable quarter last year.

Although the total spending is in line with volume increases and comparisons to the prior year, the deferred compensation decrease of $900,000 resulting from the termination of the plan in quarter one was offset by $300,000 of additional non-recurring IPO costs plus approximately $300,000 of costs associated with being a public company.

The amortization of intangibles decreased by $700,000 to $1.4 million for the quarter from $2.1 million for the comparable quarter last year.

The decrease was due to short life intangibles that were recorded in accounting for acquisitions made in fiscal 2005 that were subsequently fully amortized before the end of this quarter.

As mentioned earlier, we refinanced our entire debt structure this quarter. This resulted in a $48.5 million charge, 22.9 of it was non-cash, which was recorded in our third quarter.

This refinancing will lower our go-forward, pre-tax; cash interest expense approximately $7 million per year. We also have increased flexibility to borrow additional funds in the future. And along with this refinancing, we have also entered into an interest rate swap for a portion of the senior secured term loan.

Looking at our current total debt structure, approximately 50% is at a fixed interest rate and 50% is at a variable rate, which at this time is LIBOR plus 200 basis points.

Our operating income decreased by $40 million to negative 4.3, which was a direct result of the refinancing charge just discussed. Excluding this charge, operating income would have been positive $44.1 million up 23.8% from the prior year.

Our interest expense decreased $700,000 or 3.5% to be at $19.5 million for the quarter ended July 1 from $20.2 million for the comparable quarter last year. Although the LIBOR rate is higher, we lowered our absolute interest expense when we paid off the promissory note in quarter 1, as previously mentioned.

The income taxes benefit, as a percentage of loss before income taxes was 43.9% for the quarter compared to an income tax effective rate of 38.4 for the comparable quarter last year.

The benefit was impacted from a change in state tax law that resulted in the write off of net deferred tax liabilities that were accumulated over multiple years.

Excluding this law change, the effective tax rate would have been 37.5%.

The Company reported a net loss of $13.4 million for the third quarter of fiscal '06 compared to $9.5 million net gain for the third quarter of fiscal '05 primarily as a result of the refinancing cost and the other factors just discussed.

In the press release issued this morning, we have included a detailed reconciliation of net income to EBITDA as defined. These same pre-tax adjustments are also used to derive adjusted net income.

Total adjustments after tax are $29.9 million, which is almost entirely attributable to the refinancing costs previously discussed.

Having that, our adjusted net income however increased to 46.8% to $16.5 million or a positive $0.35 per diluted share from $11.2 million or $0.24 per diluted share for the comparable prior year quarter.

Our second consecutive strong quarter along with our fourth quarter outlook has allowed us to increase our guidance, as Nick had mentioned, to the range of about $1.28 to $1.30 per adjusted diluted share for the remainder of fiscal '06.

Switching to the balance sheet, our total cash balance declined from $104 million at September 30, 2005 to $22 million at the end of the third quarter this year.

This net balance includes the use of $100 million in the first quarter as mentioned earlier, plus approximately $27 million used to fund the 2 acquisitions during the quarter.

Also, as a result of the financing transactions, which have occurred this year, we have recorded an income tax receivable of $22.6 million. We do not anticipate making a federal tax payment in the fourth quarter. And we do expect to receive a small refund in the upcoming quarter.

At the end of the third quarter, we have available $150 million under the revolver and we continue to generate strong cash flow from operations to meet our business needs.

And finally, we are in 100% compliance with all lending covenants.

Finally, let me mention that we expect to file our 10-Q on the quarter on or about August 15. Also, as part of the refinancing, we did some legal restructuring, which will help simplify go-forward filings.

Effective with this upcoming filing, we will only file under TransDigm Group, Inc. In the past we were also required to prepare a separate filing for a legal entity below TDG called TransDigm Holding Company. We have now eliminated this need.

With that, we will now open it up for any questions you may have.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Robert Spingarn with Credit Suisse. Please proceed.

Good morning, guys.

Morning, Rob.

You had a real nice gross margin there. A little better than we were looking for, Nick.

Could you talk a little bit about how the OE after market mix might have affected that? We figured you'd shift a little bit toward the OE side but maybe not.

First, in the quarter of the prior year, Rob, we did have some acquisition costs and some start up costs. Nick's comments are more related on a Pro Forma basis, which removed the reported impact of some costs.

So when you look at the total spread between third quarter of last year to third quarter for this year, we have some improvement because of the elimination of some of those costs, so with that, Nick, then.

Yes, a couple of things. The OEM is picking up faster than the after market, Rob relatively not as much as we had anticipated for the quarter.

In other words, the after market kept up a little better than we anticipated fro the third quarter.

I'd point out for the balance of the year the after market orders are coming in very nicely.

I was going to ask you about that.

Can you give us any color with regard to platform on those after market orders and some of the shippings? Where are you seeing the strength?

We are seeing it effectively across the board.

As I think you know, Rob, we're pretty broadly spread across the airframes. And we're, I don't, I can't pick out one and say it's disproportionately up versus the other.

Now that being said, one of the things we are seeing is in the cockpit security work, those all those cockpit security systems have now been out coming up on 4 years. And they are starting to generate their own stream of after market also, which is helping us some.

But that's pretty broad. It's across all the Airbus platforms. And it's on many of the Boeing platforms, at least some of the components are.

But in general we're seeing a rising tide.

Is there a point in time, Nick, here in the not too distant future where we begin to see the OE growth subside a little bit? And the reason I ask is because Boeing's got a huge increase in production rates this year.

Right.

30, 40% type number, and then it backs off a bit next year, although you've got a bit of a mix shift toward the wide body.

Right.

Do you see that in your plan going forward?

Well first, Rob, we're not prepared to say what our plan is for next year yet. But I will say we all look at the same forecasts. And I think it's likely sometime here in the next 12, 18 months or so things got to start to level off at the production rate level.

We probably run you pick the product between almost no lag in a year or no lead and a year lead. On average we're probably 6 months in front of that is the kind of number we tend to use.

So you can almost sort of pick your point, back up 6 months, and that's probably - that would be my best guess.

Pretty much fully shipped, what Boeing and Airbus will put on 2006 airplanes.

We have.

Yes, I think so. I think - well by on calendar year.

Okay and then just a final question. You mentioned the pricing of acquisitions still a little bit high out there.

As we progress in the cycle, and the cycle matures, do you see that coming in a little bit, subsiding a little bit?

Rob, I'd like to believe it would. But as a practical matter as long as there's a pretty free credit market, anything that gets out to auction gets priced up pretty heavy.

As long as the credit market stays robust, I think the prices stay up.

Okay, thanks guys.

At least that's been my past experience.

Thanks, Nick, Greg.

Your next question comes from the line of [Carter Coplin] with Lehman Brothers. Please proceed.

Good morning, gentlemen.

Good morning, Carter.

Good quarter. I just had a couple of quick ones.

With respect to the guidance and how it kind of breaks out for the fourth quarter, and a growth rate around 10%. Is this the I guess kind of being conservative regarding defense? Could it be the case that in fact we actually turn out to be something like a few percentage points higher given the acquisitions?

It just seemed like 9.5 to 10% seems a little conservative in the fourth quarter.

I don't see any we gave our guidance Carter. No reason for us to think we're going to do better with it since we just gave it.

It's only; we're already a couple of weeks into it and our backlog. We usually have our backlog in shape for the quarter up front.

Okay, okay, fair enough.

You, I may have misheard this. But you mentioned really briefly the OE growth in terms of regional jets and business jets. And how that was shaping up and that it was lagging the commercial, which you said was up 25%. Is that correct?

No. What I said is the OEM commercial OEM was up 25%. Commercial transport and business jets were both up in that range that regionals were lagging.

So, is there any way ...

The business jet, the Gulf Stream Cessna kind of guys?

Yes.

They're up significantly also.

More so than the commercial transports or less?

They're in the range.

Very similar?

Yes. It's all, I think the whole thing's up 25% and I'd say both of those are up in that range. It's the regionals that are lagging, which I think is no surprise to anybody.

Certainly no surprise. I mean what kind of; can you characterize what type of decline you're seeing there?

It's clearly significantly off the 25% growth rate, that's for sure.

Obviously. Okay.

And a last one, with respect to raw materials, I mean I know you guys have a lot of arrangements that need to be - that don't necessarily need to be renegotiated in the near term, but as you think about those out of the horizon. If you look around at raw material prices, are you seeing any sort of leveling on key components, things like titanium?

Well titanium is the one that has given us the most trouble, like everybody else, over the last couple of years.

The deliveries, as I'm sure you guys know, are still stretched way out.

Though we're hedged with both - Boeing has hedged the price. And the suppliers can buy against Boeing's hedge.

And we've hedged a little more by we've got a pretty good stock. I would bet we have a year or so of titanium anyway.

I would say what I get back from the guys that buy a lot in our business is the prices of titanium seem to be flattening some. But the delivery is not moving coming in. It's still stretched way out.

Okay.

But as you know that's flattening at a very high level.

Yes, definitely. Just wondered if you were kind of seeing it yet.

And one last one with respect to the recent acquisitions is there any way you could provide a little bit more color about how the businesses were performing when you bought them? What you might expect to get out of them?

It looks like they'll be, obviously like most of your acquisitions some sort of dilution coming from the acquired business.

How long is the planned period to pull these things up to the type of margins that you guys are used to seeing?

Carter, as Nick mentioned we just closed on these things. And our plans are to move both of them. One we're moving into our AeroControlex division.

And what we do is we make sure we have the proper training and we build enough inventory so the move may not take place for a good 6 or 7 months because we don't have to disrupt any supply to our customers. So we're going to first focus on building the inventory and doing the proper training.

We take our time when we do this.

So it's going to be a good half-year or more before you see any improvement from the acquisitions we make. That's pretty typical with the ones when we move that we do that.

Great. Thank you very much.

Any margin expansion in those acquisitions.

Correct.

Right. Most of it comes from the moves, correct?

Well, it depends on - in this circumstance we'll get a fair slug 'til you eliminate fixed overhead.

Right. Thank you very much and good quarter again.

Thanks.

[OPERATOR INSTRUCTIONS]

Your next question comes from the line of Adam Plisner with Credit Suisse. Please proceed.

Hello?

Hi, Adam. How are you?

Doing well. I didn't know I was on.

Quick question here on inventory. Nick, we've talked about this in the past. I just wanted to understand the relation to some of the comments you made earlier on the order patterns, the strengths, and the after market side.

The order patterns that would be off would be for the commercial OE side, am I correct? Is that where the build is in advance?

Adam, I don't want to get anybody overly concerned about that. We don't see a significant inventory problem now. The OE orders, 25% pickup doesn't look way out of line to me.

The after market orders are running pretty hefty at 20% plus ahead. Now the shipments are running that far ahead so that doesn't concern me.

I'm mostly - I'd almost say sometime between now and the next 2 or 3 years when we do these quarterly calls as you guys who have been following the industry know, at some point we're going to have to deal with an inventory issue in the system somewhere.

Right. Let me see if I just understand the rationale.

What few issues we've seen pop up either at the OEM or the distribution, we've been able to handle them and manage them down to where we thin it makes sense.

But it's always a concern when everything starts to cycle up.

Okay, that's what I was getting at.

I'm not talking about our inventory and our balance sheet. I'm talking about the system inventory.

Right. Inventory in the field.

Yes.

And it's strictly related, as you would say, to try to keep on pace with what's the schedule build out there. I guess that's why I didn't understand whether there had been inventory issues in the field in the past related to over watering the after market.

What the rationale of doing that would be. I understand why OE would want to over order and not allow a small part to disrupt the build chain. But I guess in don't understand in the after market.

Well what happens, Adam, what can happen at times is you can get the same kind of reaction from distributors that you get from the OEMs when everything starts to heat up.

They can start to get concerns about having stock. And they can start to tend the order quickly too.

And it's something we watch. And we're careful about it. And when we, if we see it starting to happen we try and manage it.

And it's difficult to trace from, I mean you don't have a system that tracks the inventory in the field. But you do have a sense from just the order patterns.

If you're - I don't see this happening now. I want to be clear on that.

But if the RPMs or ASMs are rising X percent and your shipments are going up 4 times X, which is not the case here. Let me be clear on that. You're obviously concerned.

Great. Understand.

Maybe just give me a definition of we talked about acquisitions again. In terms of size you said small and medium. How do you gage that? Is it just sales? Is there a cut off that you think sales is below $100 million is medium?

There's no magic. I'd probably say when I say small I probably mean something in the 5, 6, $7 million EBITDA and less.

And medium double that?

Anyway, I don't have a good definition for medium.

Are there any acquisitions that are not at auction opportunities? Or are you pretty much when you go in and look ...

Most of these small ones we've been buying, we've been buying on a sole source basis.

Okay. And the process, that approach is you're seeking them out or are they seeking?

Yes. We're typically seeking them out. We're out; we have a couple of people out beating the bushes.

And again, we typically have been able to get them at a decent price, not a great price. But better than we do at auction.

Do you have any sense that you might adjust your discipline to this new dynamic? Or do you think it's a little too excess of the prices that the ones that are going where they're going?

I'm not sure I follow you.

I guess are you willing to take up the multiples that you've been historically disciplined to contain?

Adam, for the right opportunity. The question for us is not as much the multiple as what we can with the business after we own it.

Right. Okay, great. That's all I had. Thank you.

Your next question comes from the line of [Leslie Stroup] with [Cray's Cleveland Business]. Please proceed.

Hi, good morning gentlemen.

Good morning.

Basically I'm just inquiring about ...

Can you speak up a little?

Can you please speak up?

Can you hear me better now?

Much.

Excellent.

I'm inquiring regarding the tax charges, $29 million. It seems rather high. Is this a normal thing? Or can you comment on that a little bit?

The $48 million of refinancing charges on a effective tax basis, $48 million is pre-tax, $29 is after tax.

Okay.

That's it. There's not a $29 million tax charge.

No. It's just we're taking the pre-tax to the net income. The $48 million is pre-tax above the tax line. That answer your question?

I believe so. Thank you.

Your next question comes from the line of [Matt Vidorioso] with Barclay's Capital. Please proceed.

Hi, guys, real quick. I was just wondering if we could get a cash flow information for the quarter, cash from ops and Cap Ex if you have it?

We don't give the forward-looking statements for the fourth quarter at this time.

No, for the third quarter. Did you give cash from ops and Cap Ex for the third quarter?

Cash from ops specifically for the third quarter I did not. I reconciled from the beginning of the year. We ended with $22 million on our balance sheet.

We'll, you'll get that info in the 10-Q when it's issued.

And there's some balance sheet information on the attachment to the press release that you can sort of get yourself.

Yes. Do you know roughly what Cap Ex is for the quarter?

Around $2 million, maybe a little less.

Okay, thanks guys.

Your next question is a follow-up from the line of Robert Spingarn with Credit Suisse. Please proceed.

Hey, guys.

Greg, I had a question on the non-operating costs. I know you're not guided to '07 yet. But can you give us some sense of what to expect in terms of the roll off between this year and next year?

When you say the roll up, Rob.

Roll off, in other words how much do the deferred and intangible costs come down, those sorts of things?

If you go to our press release, and I think if you look at the third quarter run rate that'd be a pretty good proxy for the top, for the deferred comps, stock option expense. That'd be a pretty good proxy going forward, but obviously we're going to fine tune and update that when we do the '04.

Okay. And then on the ...

'07, I'm sorry. Pardon?

The intangibles?

I don't have that in front of me. But our - I'd rather just decline and give it to you in the right detail when we do '07.

Okay.

And then again you've had a bunch of puts and takes here. But what is the right tax rate to use going forward?

With all the puts and takes I'd say about 38.5%. That'd be the right rate when this, when everything washes out.

Great, thanks.

At this time there are no further questions in queue. I would now like to turn the call over to Mr. Greg Rufus for closing remarks.

We'd just like to thank everybody for participating in this call and look forward to talking and meeting with all of you in the future. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. And you may now disconnect. Have a great day.