Taxes

Our tax rate in the quarter was an unusually low 18.6%. In this quarter we saw the benefit of reduced state and local tax levels in both the US and Germany. For all of fiscal ’08 our tax rate came at 29.1%.

Pension

Pension expense in fiscal ’09 will be $15 million, down from $20 million in ’08. While our asset values decreased this year our convention of smoothing market fluctuations over 5-years cushioned the impact. In addition, the discount rate used to measure the projected benefit obligation increased from 6.25% to 7.25%. On the measurement date, the fair value of our US qualified plan assets was $336 million. Our projected benefit obligation was $328 million so we were over-funded on our measurement date.

However, with asset values at depressed levels, we believe now is the time to put money into the market. We have therefore elected to increase our contributions to our US qualified plan in ’09 to $6 million per quarter. Previously we had anticipated only starting this increased contributions rate in Q4 ’09 so the increase over the year represents an additional $18 million cash investment.

Other Items

Our non-cash stock compensation expense in the quarter was $900,000. Contract reserves increased by $4 million over the prior quarter, associated primarily with our commercial aircraft book of business. At the end of September, our Net Debt to Total Capitalization stood at 37%, down from 37.8% at the end of fiscal ’07.

Forecast for Fiscal ’09

We believe that we’ll continue to see improvements in our cash generation in fiscal ’09. Capital Expenditure should be close to our ’08 level with depreciation and amortization $6 million higher at $70 million. As mentioned earlier, we are planning for increased pension contributions which, after tax, will reduce our previous forecast for free cash flow by $11 million. Putting it all together, we are now forecasting $44 million in free cash flow for the year.

Interest expense for fiscal ’09 is budgeted at $39 million, very close to our fiscal ’08 result. We anticipate that the increased cost of our high yield debt will be compensated by reduced borrowings and a slightly lower rate on our revolving line of credit than we had planned. Stock compensation expense is estimated at $6 million.

For fiscal ’09 we are projecting a tax rate of 25.3%. This is lower than we had forecasted last quarter, helped by the reinstatement of the R&D tax credit for both ’08 and ’09 as enacted in the TARP legislation, as well as higher foreign tax credits.