Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 TransDigm Group Inc. Earnings Conference Call. My name is Erica, and I'll be your operator for today. [Operator Instructions] I will now turn the call over to Liza Sabol, Investor Relations. Please proceed.

Good morning, and welcome to TransDigm's fiscal 2014 second 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. 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 SEC, available through the investor section of our website or at 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, adjusted net income and adjusted earnings per share, all 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 measures and a reconciliation of EBITDA and EBITDA As Defined, adjusted net income and adjusted earnings per share to those measures. With that, please let me now turn the call over to Nick.

Good morning. Thanks, everybody, for calling in again this morning to hear about our company. Sorry for the couple of minutes delay. We are technology challenged and our Internet's down here. So that means no hard questions, by the way. Anyway, today I'll start off with the comments about our consistent strategy, update on the commercial aftermarket, an overview of the financial performance and a market summary for what this quarter looks like and an update on our full year guidance. To restate, as I say each quarter, we believe our business model is unique in the industry, both in its consistency and its ability to sustain and create intrinsic shareholder value through all phases of the cycle. Why we believe this? About 90% of our sales are generated by proprietary products, and around 3/4 of our net sales come from products for which we believe we are the sole source provider. Excluding the small non-aviation business, over 1/2 of our revenues and a much higher percent of our EBITDA comes from aftermarket sales. Aftermarket revenues have historically produced a higher gross margin and provided relative stability in -- throughout the cycles. Based on our uniquely high EBITDA margins and relatively low capital expenditure requirements, TransDigm has year in and year out generated strong free cash flow. We have a well-proven, value-based operating strategy, focused around what we refer to as our 3 value drivers: New business development, continual cost improvement and value-based pricing. We also maintain a decentralized organization structure with operating unit executives who think, act and are paid like owners. We stick to these concepts as the core of our operating management methods. This consistent approach has worked for us through up and down markets, while allowing us to steadily invest in new businesses and new platform…

Thanks, Nick. As Nick mentioned, in total, we had a good second quarter and finished up a busy first half. The consistent application of our operating value drivers and the successful integration of our recent acquisitions continue to add solid value to TransDigm. Let me explain in a little more detail our second quarter operational value creation. In late December, we acquired Airborne Systems Inc. Bob Henderson, one of our Executive Vice Presidents, is working the integration and transition of this business. To date, the transition is well underway and progressing as planned. Bob split this business into 2 separate operating units, one based in North America and one based in the U.K. The North American unit is the larger of the two, and we've moved 2 experienced TransDigm executives into this unit. Bryce Wiedeman is the new President of Airborne North America, and Kevin McHenry is their new Director of Sales and Marketing. Their new assignments will greatly expedite the integration transition and accelerate value-creation efforts. 60 days ago, we acquired Elektro-Metall Export or EME for short. Pete Palmer, one of our Executive Vice Presidents, is taking this German actuator business through the early stages of our acquisition integration process. Both Airborne and EME are applying our proven value-creation processes by restructuring the business in the product line focus groups and implementing our value-creation metrics. They're focusing the engineering and new business efforts on winnable and profitable new business, and they're tightening up the cost structure. Now I'd like to switch gears and talk about our existing businesses. We continue to invest in new business solutions for our broad-based customers. Our operating units have successfully expanded our platform content with significant new business in both the commercial and military markets. In the commercial market segments, we have developed many…

Thanks, Ray. Please reference Slide 7 of this morning's press release. I'd like to expand on a few items included in our quarterly financial results. Sales were $591 million and 27% greater than the prior year. Our organic sales were 6% higher than last year, driven by growth in commercial OEM and commercial aftermarket. Second quarter gross profit was $308 million, an increase of 19% over the prior year. The reported gross profit margin of 52.1% was 3.6 margin points less than the prior year. This quarter's margins were negatively impacted by the current year acquisition of Airborne and the acquisitions of Arkwin, Whippany and Aerosonic in the prior year. The dilutive impact from acquisition mix and acquisition-related costs was approximately 4.5 margin points at the gross profit line. Excluding all acquisition activity, our gross profit margins and the remaining businesses versus the prior year quarter improved approximately 1 margin point. The base business is continuing to expand margins as a result of the strength of our proprietary products and continually improving our cost structure. Selling and administrative expenses were 12.1% of sales for the current quarter, compared to 11.9% in the prior year. Excluding stock comp expense and acquisition-related expense, SG&A was 10.5% of sales in both periods. This quarter was sequentially higher than quarter 1, primarily due to additional acquisition-related costs and noncash comp expense. We expect SG&A to average approximately 11.5% in the second half of our fiscal year. Interest expense was $82 million, an increase of approximately $18 million versus the prior year quarter. This was a result of an increase in the weighted average total debt to $5.7 billion in the current quarter versus $4.3 billion in the prior year. The higher average debt year-over-year was primarily due to the amount borrowed to distribute $1.8…

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

[Operator Instructions] And your first question comes from the line of Robert Spingarn with Crédit Suisse. Robert Spingarn - Crédit Suisse AG, Research Division: Just wanted to talk about the bookings and aftermarket and the strong level you've seen here in the first half, outpacing the growth in sales, and why you might not expect that sales increase to rise into the teams given the bookings. I heard you say it's not linear, but maybe you could flesh that out a little bit more for us.

Yes. We've got -- one, we have some step-up in the second half, and the percents aren't always exactly comparable. When we go through -- let me just look at the quarterly numbers there.

I just want to see what the -- I want to quickly look at where the quarters are.

Yes, there's a step-up in the second half of last year, Rob, so the percents aren't exactly comparable, if you follow me, when you compare them to the subsequent quarters. But as I said, we shipped roughly 8% in the first half of the year. We have to be getting up somewhere in the -- right, 12% or so in the second half of the year, and we think there could be some upside there, Rob. I mean, I don't know how to tell you. We told you we think there should -- could be some upside there, and we're a little concerned about the defense world. Robert Spingarn - Crédit Suisse AG, Research Division: And I was going to ask you on the defense. And this is my other question, Nick. Have we not seen -- just based on your numbers and the trajectory here, is that [ph] wave of aftermarket maintenance that we thought would come out of the budget resolution, is that just very shaky at this point?

I can't say, Rob. I cannot say we have seen any substantive amount of that. Robert Spingarn - Crédit Suisse AG, Research Division: And is it just that the guys in Washington aren't getting to the orders? I mean, do you -- can you tell what it is?

I really don't know the answer, Rob, other than it's not -- there's not a big rush of stuff as I -- that's what I know. I can't -- and I can't say its specific to one program or one operating unit either. Robert Spingarn - Crédit Suisse AG, Research Division: Okay. So there are no pockets of weakness that you can identify?

The only one it is, as I think I mentioned, the parachute, some of the big parachute orders are -- have been delayed. Now that's a mix, that's all around the world. The one significant one from the U.S. that we've been sort of hanging fire on got delayed. It got awarded right after the -- right at the beginning of the next quarter, but it doesn't show up in the numbers. But we've seen some delays for the parachute upgrades in some other foreign countries too. That's the only place.

Your next question comes from the line of Carter Copeland from Barclays.

Just a couple of quick ones. Just to clarify, Nick, with respect to Airborne and the performance there, was that slide out of the DoD order really the only differential relative to your expectations? I caught a little comment you made about the inclusion of Airborne causing some confusion on the margin front. I wondered if you might just elaborate there, how the business performed in total relative to what you were expecting.

The margin is -- I think, I know the style [ph] of different comments about the earnings, about the softness of the margin. The margin is what we expected. We expected the margin to step down as we included it. It was not included in the -- so that wasn't a surprise at all and the volume wasn't particularly a surprise. What's a little, frankly, slower than we might have hoped is the rate of bookings, and there were -- there's 2 or 3 big orders, a couple outside the U.S. and one inside the U.S. The one inside the U.S. is subsequently dropped, but we -- I know as we've guided. With the others, the others have not. They're still stretched out some. The other thing we see in that is that's a lumpier business than some of our other businesses, and pushing some of the foreign orders through the hoop is a longer slide than we might have hoped.

Right. And then just as a follow-up, I know you said no hard questions, so I'll try to keep it as easy as possible. I...

Because our Internet's not working, and we actually don't know any answers on our own.

Without Google, I know you're struggling. So this is the time of year where you guys usually begin to gear up for your sort of annual planning cycle, and I know last year that, that affected -- it's seen in your capital deployment decision and the leverage decision and the dividend payout. I wondered if you might kind of step through not only how debt markets and the openness that you referenced are influencing that planning, as well as the end market conditions that, I recall the last couple of years you guys have been pretty conservative or cautious about headcount additions and whatnot. How is that planning cycle shaping up this year with these conditions relative to what we've seen in the past couple?

I don't think -- Greg, let me state this and you correct me if I'm wrong. We are not slamming down on the hiring or the headcount. We are -- by and large, view this, at least at this point, with the exception of the defense business, which isn't that big a part of our business, as -- that we are still -- we are in an expanding market now. I don't know how much more the OEM has, but I don't think it has -- I don't think it's near the top. I think the aftermarket is expanding. As long as the economy keeps coming along, that will come along okay. So I mean, we are -- I would like to say we're fairly balanced on where we are with adding headcount. When it's needed, we're adding it. We're not trying to -- we're not as -- I would say, we're not being as rigid as we were probably a year ago or 6 or 9 months ago, right? Is that a fair assessment?

Yes. And the OEM backlogs are pretty long, so you can see them turn up from far away and you can see them turn down from far away. So right now, our backlogs for next year are filling in like they have every year and...

Maybe even a little better.

Yes, so we don't -- we're going to...

And with respect to the credit market conditions and all that entails in terms of capital deployment, M&A competitiveness. How does that shape up?

I think as usual, Carter, our first choice of use of capital is going to be support our existing business and to buy accretive acquisitions that meet our criteria. I can say the stuff on the horizon in general in size isn't much different than we typically see, and the credit markets are very, very positive. I mean, we are -- as we do every year, we're going through the process of trying to decide what makes sense for capital allocation.

Your next question comes from the line of David Strauss at UBS.

My first question, on the EBITDA margin side, you highlighted Airborne, 200 basis point margin hit. As we think about EBITDA margins -- adjusted EBITDA margins, through the rest of the year, your midpoint is roughly -- the midpoint of your guidance is roughly in line with what you've done in the first half. If we think about getting to the high end of your adjusted EBITDA range, what's the biggest driver of that, Nick or Greg? Is it improvement in Airborne underlying margins, is it the aftermarket coming through? Just kind of what gets us to the high end of that EBITDA margin range?

On the margin or the dollars?

On the -- well, however you want to comment. I mean, I'm thinking more on the margin side, but however you want to go after it.

I'm just looking at the numbers here. There's nothing much different, is it?

Yes, but...

[indiscernible]

I think the margins are pretty close in the range.

Well, I think -- if I look at your -- the midpoint of your adjusted EBITDA margin guidance, it's around 45.2%, which is in line with what you've done year-to-date, thinking from the high end [ph].

David, I'm just looking at the numbers.

Hopefully, that's the same guidance.

There's a couple of things happening, obviously. Airborne did a lower margin. With EME, I'll start [indiscernible]

Just [ph] casually. The range of the -- we have the same margin at the high end of the range for sales and the low end of it. [indiscernible] because [ph] that's why it was disconnected, David. I was disconnected. I mean, what moves the dollars, essentially the revenue. Now the practical matter, what will move that -- the actual, what will move the margin is [indiscernible] aftermarket [ph] shifts. We're light on -- if we're right on the commercial aftermarket assumption, the margin will probably move a little bit.

Right, okay. And then Nick, just thoughts on leverage. I know you -- in the past, you've been comfortable going up to kind of 6x. You're at 5x now. Is 6x kind of the right way to think about the high end of where you're willing to go to or...

What did they do last year for the dividend?

We went up just a little over 6 net.

Yes, we're up to 6, net. What was the gross last year?

About 6.5.

About 6.5. I wouldn't want to -- I don't want to speculate on that. The -- I would say typically, it's been 3.5 to 6.5 kind of numbers, but the credit markets are pretty attractive.

Your next question comes from the line of Noah Poponak with Goldman Sachs.

Nick, you started to talk about the M&A pipeline a little bit. I wonder if you could just maybe provide a little bit more color in terms of how many good opportunities you see, what valuations are like. And I'm kind of curious, actually, also more broadly, if you have any thoughts on why it seems like activity is picking up broadly in the space. Is it just more executive confidence in the system? Are people worried about the cycle? Nothing specific, just broadly curious if you have any thoughts on that.

Yes. I don't know -- I understand we had this announcement from B/E yesterday, but I don't -- or the day before or whatever it was. I don't -- I would say, no, in general, I can't say that the level of activity has changed a whole lot that we've seen. We see sort of a reasonable flow of small to midsized stuff generally. I would say prices, they're not getting any better, but they're -- I can't say they're -- of the stuff that's transacted that we know of, it hasn't -- I don't think the prices have moved a lot. I will say to get out of the aerospace business and the typical just industrial sort of PE world, those prices have gotten pretty tough with the -- and we're not in that, but we're just watching them from outside. As the capital markets loosen up more and more and more, that essentially moves up the PE by prices.

Okay. And so it doesn't sound like...

I can't say we've seen -- I mean, the prices are always higher than we want, but I can't say they're markedly higher than they were a year ago.

Okay. So it sounds like on both your opportunity set and your pricing, nothing is substantially different today than 6 months ago.

No, no. You're going to pay proprietary commercial stuff with a good aftermarket. You're going to pay a hefty multiple for defense stuff, you're going to pay less.

And the amount of it that's available out there for you?

I don't think it's disproportionate. I mean, I can't -- for a while, we were seeing a lot of defense stuff. I can't say we're seeing that now.

Okay. And I also had a question on the margins. I wondered if you could parse out what drives the variance between the 47.5, 48 that you'd be at right now without the dilution from your most recent acquisitions, and the 49 to 50 with a handful of quarters over 50 that you were doing 2 or 3 years ago? What's -- now that you can look back at your actuals and things that have layered in, what's driving that differential?

Well, the vast majority is acquisition mix.

Yes, there's other acquisitions other than the ones we're excluding just on a year-to-year basis.

Right, we [indiscernible]

I'm wondering if you can talk specific businesses and better diluting it.

Well, yes, when we acquired AmSafe, we mixed [ph] out. In AmSafe, we had some good businesses, but we had some ones that we should -- look at our margins, AmSafe was a pretty big deal. And so that was one that [indiscernible] substantially, and depending what timeframe they're in.

I don't want to start speculating on them and then add up the wrong [ph] details.

But I'm very comfortable saying the EBITDA margins in the 50% ranges, that -- those core businesses are performing very well and the lower margins we're reporting now is entirely due to acquisition mix.

We don't have -- there's no -- I don't want to say -- without thinking, I can't say there's no business at all with the margins down. But in general, there's no degradation of margins. Margins in the businesses we have continue to creep slowly up.

Your next question comes from the line of Yair Reiner with Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: So first, just to follow-up on the last series of questions. It appears that the valuation for EME was actually quite attractive, at least on a price-to-sales basis. It looks to be at about 1.2. Was just in the line with what you just said about valuations still being somewhat high for commercially levered companies. What enabled you to get such a good deal? Is there something about the margin profile of that business that allowed you to get it at a bit of a discount?

Yes, the -- it's a little bit complicated for the size of it, which probably scared some people off. There's a little bit of concentration issue in Airbus. There was some in there, just -- there was some small part of it that's automotive that you have to be done that may have scared people off. And I think basically, it didn't get shot very wide. Those are the reasons I speculate, but the fact is we bought it for a pretty good multiple. I mean, good for us. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Got it. And in terms of the EBITDA margin, can you give us maybe a general sense of where it is now and where you expect it to go?

No. We don't disclose that. We don't -- we're not -- we don't disclose EBITDA margin on any individual business. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Long term, is this consistent with the typical targets you have for your acquisitions?

Probably not quite as high. We think the value creation opportunity is very good because it's starting low. We'll have to see over time. It's got some contractual LPAs that we're going to have to see how we can work that out. But I mean, it's plenty, plenty of value creation, easily meets our PE kind of return of up over 20%, easily meets that. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Got it. And just one more, not to belabor EME, but you mentioned it had no contribution in the quarter, I think it closed about 3.5 weeks before the end of the quarter. Why did it not contribute?

Their accounting systems aren't that sophisticated. It's rather small. So for the next several foreseeable months, they'll be at a one month of delay in closing.

Which is another way of saying they couldn't get the numbers in time. Yair Reiner - Oppenheimer & Co. Inc., Research Division: As long as you got the cash, it's okay.

We got the cash.

Your next question comes the line of Robert Stallard with Royal Bank of Canada.

Nick, I noticed your biz jet OEM was up 6% in the quarter. Maybe give us some idea of what some of the drivers might be for that, because we're generally hearing the biz jet is pretty flat at the moment.

Yes. I mean, it's the same as everybody sees. The small stuff -- the smaller stuff isn't doing so well, and the bigger jets are doing a little better, and that's essentially all we're seeing. And I think we may have a little bit just with the timing when the shipments were. I don't -- this doesn't -- I wouldn't change our fundamental view on the business jet market. I think the best days are still in front of it.

Okay. And then you mentioned last quarter -- well, you didn't really mention, about the Boeing partnering [ph] agreement. You couldn't really say anything about it. I was just wondering if everything has continued to track to your expectations on that new agreement.

I still have the same issue I had before. We have a confidentiality agreement, and we sort of have -- we have an agreement on what we'll say, and that's what I've said.

Okay. And then maybe just a quick one. A lot of companies around the U.S. have comments about weather in the first quarter. Is that part of the impact on your business?

Not substantively. I don't -- if it is, we didn't notice it. I don't -- I can't say there's any substantive impact.

Your next question comes from the line of Gautam Khanna with Cowen and Company.

I just wanted to ask about -- with EME, I think that was the first foreign domicile acquisition you've done. Can you just talk about that opportunity set? Should we expect to see more in terms of M&A abroad?

Well, we are -- interestingly enough, we didn't -- we now have 1, 2, 3, 4 standalone businesses in Europe. We have 2 in U.K., and we have one in Belgium and now one in Germany. We are -- now the others came with something else, but they were standalone operating units and we got pretty comfortable with them. I would say we are seeing more activity. What the rate of closure will be, I just don't know. I believe it's a pretty fragmented space, but we have to see one where we see the PE kind of returns on it. But I can say we're seeing more.

Okay. Seeing more that actually fit the filter, is that the criteria?

Yes, yes. And some of that maybe -- we may just be digging harder, too. We had a pretty good guy retained over there that's pretty active.

Okay. And just to follow-up on that, within what you're seeing, are any of these deals sizable, are they more of the EME size?

I would say more in the typical size we see, the more -- more like that, $30 million to $100 million kind of thing. I mean, that's not to say we couldn't tomorrow morning see another -- a bigger one, but that's -- so far, that's sort of what we've been seeing.

Your next question comes from the line of Ken Herbert with Canaccord.

Just wanted to go back to the earlier commentary on the commercial aftermarket. Nick, have you seen any change in the last 1 to 2 quarters in airlines, comfort with their inventory levels? I mean, are we seeing any restocking. And is that maybe at all contributing to -- obviously, you see that ultimately on the sales side, but maybe the -- sort of the impact on bookings relative to -- the better number in bookings relative to sales?

Possibly. I would say, in the -- and for restocking, for the revenues, I don't think so. In other words, if you take the sales and take out whatever price might be in there, I don't think they're running ahead of the RPM or however you want to look at it, consumption rate. So I don't see any signs of that frothing up yet. But I take your question, the bookings might indicate some of that. But when we lay out the shipments for ourselves, at least so far, we don't see it. But if the bookings continue to froth up for a couple of quarters, I would say we're going to start seeing it.

Yes, okay. And when do you -- I mean, what's -- historically, what's been the lag? I mean, is -- because I know obviously, your commentary and you're sounding a little more optimistic about the commercial aftermarket with your -- with the almost 10% better bookings number relative to sales number. Is that something that you, all things considered, you expect to see this year or is some of that maybe going to spill into fiscal '15?

It starts kicking in, in the second half [indiscernible]

Yes. I mean, it starts kicking in, in the second half, the numbers are going up. But if we continue to book at this rate, probably we would ship more in the second half.

Yes, okay. Now, I mean, I guess, that question was it's not -- it's not all in the next quarter or 2. I mean, there's -- some of it could spill into '15. It's just hard to predict the timing on all of this, I would guess.

Yes, yes, yes. But surely, increasing shipments and increasing order rate, you have to believe, is a good sign.

Yes, no, certainly. It's very positive. I'm just trying to get at how much we see -- obviously, this year -- to some of the earlier commentary, this fiscal year versus how much is this maybe even more of a positive implication for '15. And it's positive for both, obviously.

Yes. I think it's too early for us to speculate on '15.

Your next question comes from the line of Myles Walton with Deutsche Bank.

Nick, I think you mentioned, on the last call, you had about $1.5 billion of capacity for equity, and I think you mentioned this morning about $2 billion. You did a deal, small admittedly, in the quarter. But I mean, that seems like a pretty good growth in capacity sequentially. And I'm curious, is that credit environment relaxation? Is it just trailing EBITDA growth? Is it your look at the balance sheet?

I mean, it's all of the above. The EBITDA is growing, the LTM grows a little bit, that gives us more capacity. Every quarter, we pile up a couple of hundred million or so more cash, and the credit market is a little better now. But at least -- it weren't better, it's been very good, but it's even a little better now. But I think we most -- I don't think, I know. We've been calculating that number under our current credit agreement. So we're not reflecting an improved credit market yet in that.

Okay, okay. And then you kind of commented in the context of EME about complexity of deals and kind of your willingness as a buyer [ph] differentiation. You have been more willing to swallow a pill and then regurgitate pieces of it you don't necessarily like. I'm curious, what's the size of the complexity you're willing to entertain when those deals are involved? I mean, McKechnie is I think the biggest that I could point to where you clearly had a large chunk of that, that you would look at as noncore and positioned it as such. I mean, are there big deals that you're looking at where that complexity makes you the preferred bidder right now?

You wouldn't be asking me about B/E Aerospace, would you, just by chance?

You can answer however you'd like, Nick.

Right. The answer is, I saw that one come out the last few days, just like everybody did. At least today, I don't know of any other big one [ph] that's in the middle or that's hanging fire [ph] anywhere. And I don't know where we are on that B/E business. Prior, we -- I would say, in the past, with the oil well businesses and the distribution businesses, we had little, if any, interest at all. As they break it up -- if it's going to break up, I don't know, we may or may not be interested in some of the parts. I don't know enough about it yet to speculate.

Okay, okay. And then the last one, so maybe I had the numbers wrong, but Airborne, I thought, was about -- running about $40 million revenue a quarter. And so if it was -- if Airborne was a 3.5 point drag to EBITDA margins as adjusted, it kind of looked like it was kind of netting no contribution to EBITDA in the quarter. Was it running really light or were the margins, on an adjusted basis, out of Airborne really low in this quarter and then pop back up?

Greg, can you...

[indiscernible] Airborne is almost 2.

Yes, Airborne was just a little [indiscernible]

It was 2, not 3.5, right?

To the quarter?

To the quarter. Yes, to the quarter.

On the operating side, that's excluding -- when I get my numbers, I put in my purchase price [indiscernible]

Yes, but everything I told him was [indiscernible]

Everything [indiscernible] as adjusted.

Airborne was about 2, and then pertaining [ph] to the margins [indiscernible] that we have. So I don't -- maybe it's 2 or 3.5 that's fouling you up.

Okay. So EBITDA As Defined would have been 46.5% in the quarter without Airborne?

Yes, pretty close, yes. It's close to 44.5% [indiscernible]

Exactly, right.

Your next question comes from the line of Michael Ciarmoli with Keybanc Capital Markets.

Nick, just to stay on that one line of questioning, you've obviously expanded your overseas footprint. Do you guys foresee any ability to reduce your tax rate or take advantage of any potential favorable tax treatment with that building base of business there?

There is some, but it's not a material amount because this is a small acquisition. What was nice though was half the acquisition was paid with cash that was overseas, so that was a nice [indiscernible] good deal, but the deal is not big enough just to make a material difference in our tax rate.

Okay, that's fair. And then Nick, I think you called out, you're seeing meaningful increases in discretionary related products. That would seemingly imply, I guess, airlines getting a lot more comfortable spending a lot more. I mean, can you give us a sense of -- in terms of maybe your overall revenue mix? Are you more weighted or seeing your percent of discretionary increase versus, I guess, flight [ph] critical type revenues?

Well, first, the discretionary component in our aftermarket is relatively low. It's well, well under half. We've given out numbers at different times in the past, but it's way below half. So I guess obviously, if one grows a little faster than the other, the percent goes up a little bit. But it's not a particularly meaningful part of our aftermarket. More in the -- what numbers have we given out? I don't want to start -- okay, so I don't want to throw a number. But it's way, way less than half the volume.

I don't think the percent's moved materially just because it's a small number.

Okay, okay. Last one, just on the kind of margins loosening [ph]. It seems like you guys have a significant amount of new product development efforts underway. Is elevated R&D creating any additional drag versus historic periods, or are you seeing more stringent pricing on some of these new programs that you're competing for, where maybe you're not capturing as much on the lower margin to OE side of the business with some of these new products or entry into service on new platforms?

No, we... Our R&D is well behaved. There's nothing [ph] really unusual with our fleet, and that's not moving around a lot. I mean, we also -- as we've said before, we tend to look at total engineering expense, which is divided between sort of above the gross profit line of growth and that tends to stay reasonably steady. And as a percent of revenues, sometimes, the accounts move around a little bit, but it stays reasonably steady. As far as the new platforms, the ones that -- all the ones coming out, our content is -- we've been -- and I think we've been through this a couple of times, our content is moving up reasonably well on all of the them.

Versus the predecessor.

Versus the predecessor, so I can't...

How about the operating income or the margins? Are your margins changing at all on those, that new...

I can't speak to platform by platform, but I would say, in the total context of the project, in other words we look at the upfront money, the OEM ramp-up, the aftermarket, the economics aren't changing substantively.

Your next question comes from the line of John Godyn with Morgan Stanley.

Nick, I wanted to ask a bit of a broader question on leverage. Now for years, you guys have demonstrated very strong operations, great M&A track record. You've done well for your creditors, you've done well for your equity holders. At what point do we revisit the historical leverage ranges that we've seen TransDigm operate at? And it certainly sounds like the market would give that to you.

You -- I presume you mean higher, not lower?

Yes.

No. It -- I mean, I don't want to speculate on that. We have to -- we'll -- that will be a very fact and circumstance specific thing. I think generally, our target range is in the range we generally discuss. That's not to say as we've said in the past when we saw a particularly attractive credit situation or acquisition opportunity, we might not jump up above that, but we delever pretty quick.

Okay. That's helpful. On defense, you mentioned a little bit more sort of risk to the outlook there. I think we all sort of expected to hear maybe more sluggish kind of risky commentary around defense, but what can you say just to get us comfortable that there isn't any kind of cliff that you're worried about?

I guess, the only thing I could say is we don't think there's any kind of cliff we're worried about in the next 6 months. I don't know what to say about the next 18 months. We could -- we think we have given you a set of guidance numbers that we think are quite achievable. As I told you, if I sort of jumped ahead, 9 months and then looked back, it wouldn't surprise me if the commercial aftermarket was a little better and the defense might be a little worse. But I hope they're right on our expectation.

In next question comes from the line of Joe Nadol with JPMorgan. Seth M. Seifman - JP Morgan Chase & Co, Research Division: It's Seth Seifman on for Joe this morning. Just following up on defense. You mentioned some of the lumpiness and timing issues with the parachute orders at Airborne. When those orders come in, do they typically convert into sales very quickly?

No. They take -- Airborne has a longer lead time for [indiscernible]

[indiscernible] but the -- and those big orders, they book out. And then typically, those orders span multi-year periods as we're finding, and so you'll give big order, they start to ship out maybe at the earliest in 6 months, but usually longer than that because the customer doesn't want it all up front and they don't want to pay all up front. They spread it over 3 or 4 years typically. Seth M. Seifman - JP Morgan Chase & Co, Research Division: Okay. And so that order that came through at the beginning of, I guess, of your Q3, it fits that profile?

Yes, similarly.

But not [indiscernible]

Of the $8 million we got, that's like going to be [indiscernible] But it's the first order on a big -- much bigger order that will stagger over [indiscernible]. Yes, and then I think I had mentioned some other foreign orders that came in and those are multi-year orders also.

Okay. And then just following up on one last quick one about capital deployment. Nick, you've talked in the past about potentially one day sort of opening the aperture beyond the level of proprietary and sole-source content that you look for in acquisitions. As you figure it today, how do you think about potentially opening that aperture versus say, paying another dividend?

I would say -- you mean, open the aperture for proprietary content or out of the aerospace industry or something like that? Seth M. Seifman - JP Morgan Chase & Co, Research Division: Yes, I guess more so probably the proprietary content, that seems like that's where your...

We have little if any interest at all in stepping out the aerospace industry. I would say approaching none, unless we get there by mistake or something. I would say, as we sit here now, we're not -- we don't know that we feel the need to get very far outside of our proprietary envelope definition. That's not a hard black and white line. It has to be a lot of proprietary content, whether a lot means 92 or 81 or 75, I'm not so sure, but we don't feel any need to substantively change.

Your next question is a follow-up question which comes from the line of Yair Reiner with Oppenheimer. Yair Reiner - Oppenheimer & Co. Inc., Research Division: Just on Slide 7, you have your forecast for the percentage contribution from commercial aftermarket and defense. It seems that, that's changed a bit from last quarter. I think defense contribution goes up, commercial aftermarket goes down. Is that just related to recategorizing where Airborne fall?

Yes. Yes, Airborne wasn't in it last time.

And we have no further questions at this time. I will now turn the call back over.

Thank you for calling in for our call this morning, and we plan to file our 10-Q sometime tomorrow.

Thanks, everyone.

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect, and have a great day.