- Quarterly Report (10-Q)

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 28, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-7872

BREEZE-EASTERN CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		95-4062211
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification no.)
700 Liberty Avenue		07083
Union, New Jersey		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (908) 686-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of January 30, 2009, the total number of outstanding shares of registrant’s one class of common stock was 9,365,366.

INDEX


	Page
	No.
PART 1 Financial Information

Item 1. Condensed Financial Statements (Unaudited)		3

Condensed Statements of Consolidated Operations Three and Nine Month Periods Ended December 28, 2008 and December 30, 2007 (Unaudited)		4

Condensed Consolidated Balance Sheets December 28, 2008 (Unaudited) and March 31, 2008		5

Condensed Statements of Consolidated Cash Flows Nine Month Periods Ended December 28, 2008 and December 30, 2007 (Unaudited)		6

Notes to Condensed Consolidated Financial Statements (Unaudited)		7 - 18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18 - 29

Item 3. Quantitative and Qualitative Disclosures about Market Risk		30

Item 4. Controls and Procedures		31

PART II. Other Information

Item 1. Legal Proceedings		31

Item 1A. Risk Factors		31

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds		31

Item 6. Exhibits		32

SIGNATURES		32

EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

PART I. FINANCIAL INFORMATION

Item 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited, condensed Statements of Consolidated Operations, Consolidated Balance Sheets, and Statements of Consolidated Cash Flows are of Breeze-Eastern Corporation and its consolidated subsidiaries (collectively, the “Company”). These reports reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods reflected therein. The results reflected in the unaudited, condensed Statement of Consolidated Operations for the period ended December 28, 2008, are not necessarily indicative of the results to be expected for the entire fiscal year. The following unaudited, condensed Consolidated Financial Statements should be read in conjunction with the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, as well as the audited financial statements and related notes thereto contained in the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 31, 2008.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

BREEZE-EASTERN CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(In Thousands of Dollars, Except Share and Per Share Data)


	Three Months Ended				Nine Months Ended
	December 28, 2008		December 30, 2007		December 28, 2008		December 30, 2007
Net sales	$	23,527	$	18,061	$	52,002	$	51,556
Cost of sales		14,175		9,919		30,758		29,763

Gross profit		9,352		8,142		21,244		21,793

General, administrative and selling expenses		4,744		4,714		13,607		14,069
Interest expense		305		846		1,129		2,670
Other expense — net		45		38		133		107
Loss on extinguishment of debt		—		—		551		—

Income before income taxes		4,258		2,544		5,824		4,947
Income tax provision		1,788		1,018		2,446		1,979

Net income	$	2,470	$	1,526	$	3,378	$	2,968

Earnings per share:
Basic:
Net income per share:	$	0.26	$	0.16	$	0.36	$	0.32

Diluted:
Net income per share:	$	0.26	$	0.16	$	0.36	$	0.32


Weighted — average basic shares outstanding		9,365,000		9,327,000		9,351,000		9,308,000
Weighted — average diluted shares outstanding		9,398,000		9,404,000		9,407,000		9,395,000

See notes to consolidated financial statements.

BREEZE-EASTERN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Data)


	(Unaudited)
	December 28, 2008			March 31, 2008

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,204		$	1,876
Accounts receivable (net of allowance for doubtful accounts of $105 at December 28, 2008 and $101 at March 31, 2008)		18,567			19,733
Inventories		22,614			18,227
Prepaid expenses and other current assets		340			410
Deferred income taxes		6,914			7,545

Total current assets		50,639			47,791

PROPERTY:
Property, plant and equipment		13,242			13,226
Less accumulated depreciation and amortization		9,085			9,393

Property , plant and equipment — net		4,157			3,833

OTHER ASSETS:
Deferred income taxes		12,399			13,819
Goodwill		402			402
Real estate held for sale		4,000			4,000
Other		7,600			6,345

Total other assets		24,401			24,566

TOTAL	$	79,197		$	76,190

LIABILITIES AND STOCKHOLDERS’ EQUITY:

CURRENT LIABILITIES:
Revolving credit facility	$	2,400		$	2,920
Current portion of long-term debt		3,286			3,057
Accounts payable — trade		6,216			3,934
Accrued compensation		2,486			2,952
Accrued income taxes		316			353
Accrued interest		146			136
Other current liabilities		5,372			5,895

Total current liabilities		20,222			19,247

LONG-TERM DEBT PAYABLE TO BANKS		18,893			19,849

OTHER LONG-TERM LIABILITIES		9,305			10,202

COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS’ EQUITY
Preferred stock — authorized, 300,000 shares; none issued		—			—
Common stock — authorized, 14,700,000 shares of $.01 par value; issued, 9,778,097 at December 28, 2008 and 9,751,315 shares at March 31, 2008		97			97
Additional paid-in capital		93,601			93,090
Accumulated deficit		(56,201	)		(59,580	)
Accumulated other comprehensive loss		(16	)		(16	)

		37,481			33,591

Less treasury stock, at cost - 412,731 at December 28, 2008 and 412,323 shares at March 31, 2008		(6,704	)		(6,699	)

Total stockholders’ equity		30,777			26,892

TOTAL	$	79,197		$	76,190

See notes to consolidated financial statements.

BREEZE-EASTERN CORPORATION

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(In Thousands of Dollars)


	Nine months ended
	December 28, 2008			December 30, 2007

Cash flows from operating activities:
Net income	$	3,378		$	2,968
Adjustments to reconcile net income to net cash provided by operating activities:
Write off of unamortized loan fees		223			—
Depreciation and amortization		1,038			987
Noncash interest expense, net		63			79
Stock based compensation		500			463
Provision for losses on accounts receivable		4			10
Deferred taxes-net		2,051			1,869
Changes in assets and liabilities :
Decrease in accounts receivable and other receivables		1,162			2,870
Increase in inventories		(4,387	)		(1,744	)
Increase in other assets		(74	)		(1,033	)
Increase (decrease) in accounts payable		2,347			(1,377	)
Decrease in accrued compensation		(466	)		(821	)
Decrease in accrued income taxes		(37	)		(77	)
Decrease in other liabilities		(1,482	)		(199	)

Net cash provided by operating activities		4,320			3,995

Cash flows from investing activities:
Capital expenditures		(1,416	)		(672	)
Capitalized project costs		(823	)		—
Decrease in restricted cash		—			4

Net cash used in investing activities		(2,239	)		(668	)

Cash flows from financing activities:
Payments on long-term debt		(23,727	)		(4,296	)
Proceeds from long-term debt and borrowings		23,000			—
Net (repayments) borrowings of other debt		(520	)		782
Payment of debt issue costs		(513	)		—
Expenses related to the private placement of common stock		—			(5	)
Exercise of stock options		7			65

Net cash used in financing activities		(1,753	)		(3,454	)

Increase (decrease) in cash		328			(127	)
Cash at beginning of period		1,876			2,127

Cash at end of period	$	2,204		$	2,000

Supplemental information:
Interest payments	$	1,025		$	2,659
Income tax payments	$	438		$	189
Non-cash financing activity for stock option exercise	$	—		$	210
Non-cash investing activity for capitalized project costs	$	69		$	—
Non-cash investing activity for additions to property, plant and equipment	$	40		$	122

See notes to consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Earnings Per Share

The computation of basic earnings per share is based on the weighted-average number of common shares outstanding. The computation of diluted earnings per share assumes the foregoing and, in addition, the exercise of all dilutive stock options using the treasury stock method.

The components of the denominator for basic earnings per common share and diluted earnings per common share are reconciled as follows:


	Three Months Ended				Nine Months Ended
	December 28,		December 30,		December 28,		December 30,
	2008		2007		2008		2007
Basic Earnings per Common Share:

Weighted-average common stock outstanding for basic earnings per share calculation		9,365,000		9,327,000		9,351,000		9,308,000


Diluted Earnings per Common Share:

Weighted-average common shares outstanding		9,365,000		9,327,000		9,351,000		9,308,000

Stock options*		33,000		77,000		56,000		87,000


Weighted-average common stock outstanding for diluted earnings per share calculation		9,398,000		9,404,000		9,407,000		9,395,000


*		During the three and nine month periods ended December 28, 2008, options to purchase 311,000 and 213,000 shares of common stock, respectively, and during the three and nine month periods ended December 30, 2007, options to purchase 171,000 and 99,000 shares of common stock, respectively, were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the common share.

NOTE 2. Stock-Based Compensation

Net income for the three and nine month periods ended December 28, 2008 includes $103,000 net of tax, or $0.01 per diluted share, and $290,000 net of tax, or $0.03 per diluted share, respectively, of stock based compensation expense. Net income for the three and nine month periods ended December 30, 2007 includes $99,000 net of tax, or $0.01 per diluted share, and $278,000 net of tax, or $0.03 per diluted share, respectively, of stock based compensation expense. Stock based compensation expense was recorded in general, administrative and selling expenses.

The Company maintains the Amended and Restated 1992 Long Term Incentive Plan (the “1992 Plan”), the 1999 Long Term Incentive Plan (the “1999 Plan”), the 2004 Long Term Incentive Plan (the “2004 Plan”) and the 2006 Long Term Incentive Plan (the “2006 Plan”).

Under the terms of the 2006 Plan, 500,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through July 2016. Under the terms of the 2004 Plan, 200,000 of the Company’s common shares may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through September 2014. Under the terms of the 1999 Plan, 300,000 of the Company’s common shares may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through July 2009. The 1992 Plan expired in September 2002 and no grants or awards may be made thereafter under the 1992 Plan, however, there remain outstanding unexercised options granted in fiscal year 2000 and in fiscal year 2002 under the 1992 Plan.

Under each of the 1992, 1999, 2004 and 2006 Plans, option exercise prices equal the fair market value of the common shares at the respective grant dates. Options granted prior to May 1999 to officers and employees, and all options granted to non-employee directors, expire if not exercised on or before five years after the date of the grant. Options granted beginning in May 1999 to officers and employees expire no later than 10 years after the date of the grant. Options granted to directors, officers and employees vest ratably over three years beginning one year after the date of the grant. In the event of the occurrence of certain circumstances, including a change of control of the Company as defined in the various Plans, vesting of options may be accelerated.

The weighted-average Black-Scholes value per option granted in fiscal 2009 and fiscal 2008 were $4.52 and $6.80, respectively. The following assumptions were used in the Black-Scholes option pricing model for options granted in fiscal 2009 and fiscal 2008. Expected volatilities are based on historical volatility of the Company’s common stock and other factors. The Company uses historical data to estimate the expected term of the options granted. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company has assumed no forfeitures due to the limited number of employees at the executive and senior management level who receive stock options, past employment history and current stock price projections.


	2009			2008
Dividend yield		0.0	%		0.0	%
Volatility		33.5	%		48.9	%
Risk-free interest rate		3.6	%		4.7	%
Expected term of options (in years)		7.0			7.0

The following table summarizes stock option activity under all plans:


				Aggregate		Approximate		Weighted-
				Intrinsic		Remaining		Average
	Number			Value		Contractual		Exercise
	of Shares			(in thousands)		Term (Years)		Price
Outstanding at March 31, 2008		380,911		$	738		6	$	9.90
Granted		82,000			—		—	$	10.60
Exercised		(1,000	)	$	4		—	$	7.05
Canceled or expired		( 7,000	)		—		—	$	11.87

Outstanding at December 28, 2008		454,911		$	159		6	$	10.00


Options exercisable at December 28, 2008		303,411		$	159		5	$	9.40
Unvested options expected to become exercisable after December 28, 2008		151,500		$	0		9	$	11.20
Shares available for future option grants at December 28, 2008 (a)		356,936


(a)		May be decreased by restricted stock grants.

Cash received from stock option exercises during the first nine months of fiscal 2009 was approximately $7,000. There was no tax benefit generated to the Company from options granted prior to April 1, 2006 and exercised during the first nine months of fiscal 2009.

As noted above, stock options granted to non-employee directors, officers and employees vest ratably over three years beginning one year after the date of the grant. During the first nine months of fiscal 2009 and fiscal 2008, compensation expense associated with stock options was approximately $300,000 and $308,000, respectively, before taxes of approximately $126,000 and $123,000, respectively, and such expense was recorded in general, administrative and selling expenses. As of December 28, 2008, there was approximately $0.6 million of unrecognized compensation cost related to stock options granted but not yet vested that are expected to become exercisable, which cost is expected to be recognized over a weighted-average period of 1.9 years.

It is the policy of the Company that the stock underlying option grants consist of authorized and unissued shares available for distribution under the applicable Plan. Under the 1992, 1999, 2004 and 2006 Plans, the Incentive and Compensation Committee of the Board of Directors (made up of independent Directors) may at any time offer to repurchase a stock option that is exercisable and has not expired.

A summary of restricted stock award activity under all plans is as follows:


				Weighted -
				Average Grant
	Number of			Date
	Shares			Fair Value

Non-vested at March 31, 2008		26,899		$	12.17
Granted		25,782		$	10.63
Vested		(20,369	)	$	12.36
Cancelled		( 408	)	$	12.04

Non-vested at December 28, 2008		31,904		$	10.80

Restricted stock awards are utilized both for director compensation and awards to officers and employees. Restricted stock awards are distributed in a single grant of shares, which shares are subject to forfeiture prior to vesting and have voting and dividend rights from the date of distribution. With respect to restricted stock awards to officers and employees, forfeiture and transfer restrictions lapse ratably over three years beginning one year after the date of the award. With respect to restricted stock awards granted to non-employee directors, the possibility of forfeiture lapses after one year and transfer restrictions lapse on the date which is six months after the director ceases to be a member of the board of directors. In the event of the occurrence of certain circumstances, including a change of control of the Company as defined in the various Plans, the lapse of restrictions on restricted stock may be accelerated.

The fair value of restricted stock awards is based on the market price of the stock at the grant date and compensation cost is amortized to expense on a straight-line basis over the requisite service period as stated above. The Company expects no forfeitures during the vesting period with respect to unvested restricted stock awards granted. As of December 28, 2008, there was approximately $238,000 of unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a period of approximately 1.2 years.

NOTE 3. Inventories

Inventories are summarized as follows (in thousands):


	December 28,		March 31,
	2008		2008

Finished goods	$	—	$	—
Work in process		5,501		3,782
Purchased and manufactured parts		17,113		14,445

Total	$	22,614	$	18,227

NOTE 4. Property and Related Depreciation

Property is recorded at cost. Provisions for depreciation are made on a straight-line basis over the estimated useful lives of depreciable assets. Depreciation expense for the three and nine month periods ended December 28, 2008 was $0.3 million and $1.0 million, respectively, and for the three and nine month periods ended December 30, 2007, depreciation expense was $0.4 million and $0.9 million, respectively.

Average useful lives for property, plant and equipment are as follows:


Buildings			10 to 33 years
Machinery and equipment			3 to 10 years
Furniture and fixtures			3 to 10 years
Computer hardware and software			3 to 5 years

NOTE 5. Product Warranty Costs

Equipment has a one year warranty for which a reserve is established using historical averages and specific program contingencies when considered necessary. Changes in the carrying amount of accrued product warranty costs for the nine month period ended December 28, 2008 are summarized as follows (in thousands):


Balance at March 31, 2008	$	397
Warranty costs incurred		(152	)
Change in estimates to pre-existing warranties		(166	)
Product warranty accrual		179

Balance at December 28, 2008	$	258

NOTE 6. Income Taxes

At December 28, 2008, the Company has federal and state net operating loss carry forwards, or NOLs, of approximately $22.8 million and $61.1 million, respectively, which are due to expire in fiscal 2022 through fiscal 2025 and fiscal 2009 through fiscal 2012, respectively. The benefit of the state NOLs due to expire in fiscal 2009 is approximately $4.3 million. These NOLs may be used to offset future taxable income through their respective expiration dates and thereby reduce or eliminate the federal and state income taxes otherwise payable. A valuation allowance of $5.6 million has been established relating to the state NOLs, as it is management’s belief that it is more likely than not that a portion of the state NOLs are not realizable. Failure to achieve sufficient taxable income to utilize the NOLs would require the recording of an additional valuation allowance against some or all of the deferred tax assets.

If the Company does not generate adequate taxable earnings, some or all of our deferred tax assets may not be realized. Additionally, changes to the federal and state income tax laws also could impact its ability to use the NOLs. In such cases, the Company may need to revise the valuation allowance established related to deferred tax assets for state purposes.

The Internal Revenue Code of 1986, as amended (the “Code”), imposes significant limitations on the utilization of NOLs in the event of an “ownership change” as defined under section 382 of the Code (the “Section 382 Limitation”). The Section 382 Limitation is an annual limitation on the amount of pre-ownership NOLs that a corporation may use to offset its post-ownership change income. The Section 382 Limitation is calculated by multiplying the value of a corporation’s stock immediately before an ownership change by the long-term tax-exempt rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% shareholders (including specified groups of shareholders who, in the aggregate, own at least 5% of that corporation’s stock) exceeds 50 percentage points over a three-year testing period. The Company believes that it has not gone through an ownership change that would cause its NOLs to be subject to the Section 382 Limitation.

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes”, on April 1, 2007. As required by FIN No. 48, which clarifies Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At December 28, 2008, the Company has a balance of $350,000 for unrecognized tax benefits that, if ultimately realized, will reduce the Company’s annual effective tax rate. An examination by the Internal Revenue Service of the Company’s federal income tax returns for fiscal 2006 began in the first quarter of fiscal 2009. No material changes to the unrecognized tax benefit balance occurred during the nine month period ended December 28, 2008.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying condensed Statement of Consolidated Operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.

NOTE 7. Debt

Debt payable to banks, including current maturities consisted of the following (in thousands):


	December 28, 2008		March 31, 2008
Senior Credit Facility	$	24,579	$	25,826

Less current maturities		5,686		5,977


Total long-term debt	$	18,893	$	19,849

Senior Credit Facility- On August 28, 2008, the Company refinanced and paid in full the Former Senior Credit Facility (as defined below) with a new 60 month, $33.0 million senior credit facility consisting of a $10.0 million revolving line of credit and term loans totaling $23.0 million (the “Senior Credit Facility”). The blended interest rate at December 28, 2008, on the Senior Credit Facility was 4.22%. As a result of this refinancing, in the second quarter of fiscal 2009, the Company recorded a pre-tax charge $0.6 million consisting of $0.2 million for the write-off of unamortized debt issue costs and $0.4 million for the payment of a pre-payment premium. The term loan requires quarterly principal payments of approximately $0.8 million over the term of the loan, the first of which was paid in October 2008. The remainder of the term loan is due at maturity. Accordingly, the balance sheet reflects $3.3 million of current maturities due under the term loan of the Senior Credit Facility as of December 28, 2008.

The Senior Credit Facility bears interest at either the “Base Rate” or the London Interbank Offered Rate (“LIBOR”) plus in each case applicable margins based on the Company’s leverage ratio, which is equal to the Company’s consolidated total debt, calculated at the end of each fiscal quarter, to consolidated EBITDA (the sum of net income, depreciation, amortization, other non-cash charges to net income, interest expense and income tax expense minus charges related to the refinancing of debt minus non-cash credits to net income) calculated at the end of such quarter for the four quarters then ended. The Base Rate is the higher of the Prime Rate or the Federal Funds Open Rate plus .50%. The applicable margins for the Base Rate based borrowings are between 0% and .75%. The applicable margins for LIBOR based borrowings are between 1.25% and 2.25%. At December 28, 2008, the Senior Credit Facility had a blended interest rate of 4.22%, all tied to LIBOR, except for $0.3 million which was tied to the Prime Rate. In addition, the Company is required to pay a commitment fee of .375% on the average daily unused portion of the revolving portion of the Senior Credit Facility. The Senior Credit Facility requires the Company to enter into an interest rate swap for a term of at least three years in an amount not less than 50% for the first two years and 35% for the third year of the aggregate amount of the term loan, which is discussed below.

The Senior Credit Facility is secured by all of the assets of the Company and allows the Company to issue letters of credit against the total borrowing capacity of the facility. At December 28, 2008, there was $2.4 million in outstanding borrowings, $0.8 million in outstanding (standby) letters of credit, and $6.8 million in availability under the revolving portion of the Senior Credit Facility. At December 28, 2008, the Company was in compliance with the provisions of the Senior Credit Facility.

Interest Rate Swap

The Senior Credit Facility requires the Company to enter into an interest rate swap for a term of at least three years in an amount not less than 50% for the first two years and 35% for the third year in each case, of the aggregate amount of the term loan. The interest rate swap, a type of derivative financial instrument, is used to manage interest costs and minimize the effects of interest rate fluctuations on cash flows associated with the term portion of the Senior Credit Facility. The Company does not use derivatives for trading or speculative purposes. In September 2008, the Company entered into a three year interest rate swap to exchange floating rate for fixed rate interest payments to hedge against interest rate changes on the term portion of the Company’s Senior Credit Facility, as required by the loan agreement executed as part of the Senior Credit Facility. The net effect of the spread between the floating rate (30 day LIBOR) and the fixed rate (3.25%), is settled monthly, and will be reflected as an

adjustment to interest expense in the period incurred. No gain or loss relating to the interest rate swap was recognized in earnings during the first nine months of fiscal 2009.

Former Senior Credit Facility — At March 31, 2008, the Company had a $50.0 million senior credit facility consisting of a $10.0 million revolving credit facility, and two term loans of $20.0 million each, which had a blended interest rate of 6.82% (the “Former Senior Credit Facility”). The terms of this facility required monthly principal payments of $0.2 million, an additional quarterly principal payment of $50,000, and certain mandatory prepayment provisions which were linked to cash flow. The remaining balance under this facility was due at maturity on May 1, 2012. The Company did not have a mandatory prepayment under the Former Senior Credit Facility for fiscal 2008 due to the pay down of principal made from the net proceeds received from the sale of the Company’s headquarters facility and plant in Union, New Jersey, which was completed in February 2008. The Former Senior Credit Facility was secured by all of the assets of the Company.

NOTE 8. Employee Benefit Plans

The Company has a defined contribution plan covering all eligible employees. Contributions are based on certain percentages of an employee’s eligible compensation. Expenses related to this plan were $0.2 million and $0.6 million for both the three and nine month periods ended December 28, 2008 and December 30, 2007, respectively.

The Company provides postretirement benefits to certain union employees. The Company funds these benefits on a pay-as-you-go basis. The measurement date is March 31.

In February 2002, the Company’s subsidiary, Seeger-Orbis GmbH & Co. OHG, now known as TransTechnology Germany GmbH (the “Selling Company”), sold its retaining ring business in Germany to Barnes Group Inc. (“Barnes”). As German law prohibits the transfer of unfunded pension obligations which have vested for retired and former employees, the legal responsibility for the pension plan that related to the business (the “Pension Plan”) remained with the Selling Company. At the time of the sale and subsequent to the sale, that pension liability was recorded based on the projected benefit obligation since future compensation levels will not affect the level of pension benefits. The relevant information for the Pension Plan is shown below under the caption Pension Plan. The measurement date is December 31. Barnes has entered into an agreement with the Company and its subsidiary, the Selling Company, whereby Barnes is obligated to administer and discharge the pension obligation as well as indemnify and hold the Selling Company and the Company harmless from these pension obligations. Accordingly, the Company has a recorded asset equal to the benefit obligation for the Pension Plan of $3.7 million at December 28, 2008 and $3.9 million at March 31, 2008. This asset is included in other long-term assets and is restricted in use to satisfy the legal liability associated with the Pension Plan.

The net periodic pension cost is based on estimated values provided by independent actuaries. The following tables provide the components of the net periodic benefit cost (in thousands):


	Postretirement Benefits
	Three Months Ended				Nine Months Ended
	December 28,		December 30,		December 28,		December 30,
	2008		2007		2008		2007
Components of net periodic benefit costs:

Interest cost	$	11	$	13	$	34	$	39

Amortization of net (gain) loss		—		—		—		—


Net periodic benefit cost	$	11	$	13	$	34	$	39


	Pension Plan
	Three Months Ended				Nine Months Ended
	December 28,		December 30,		December 28,		December 30,
	2008		2007		2008		2007
Components of net periodic benefit costs:

Interest Cost	$	98	$	47	$	206	$	136

Amortization of net (gain) loss		—		—		—		—


Net periodic benefit cost	$	98	$	47	$	206	$	136

NOTE 9. New Accounting Standards

In May 2008, FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of the financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 became effective 60 days following approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In March 2007, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, An Amendment of FASB Statement No. 133.” SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, does not provide adequate information about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. Accordingly, SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting.

SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption of the provisions of SFAS 161 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, research and development assets and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of the provisions of SFAS 141R is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51.” SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted. The adoption of the provisions of SFAS 160 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The effective date of SFAS 159 for the Company was April 1, 2008. The adoption of the provisions of SFAS 159 has not and is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R).” SFAS 158 requires companies to recognize a net asset for a defined benefit postretirement pension or healthcare plan’s over funded status or a net liability for a plan’s under funded status in its balance sheet. SFAS 158 also requires companies to recognize changes in the funded status of a defined benefit postretirement plan in accumulated other comprehensive income in the year in which the changes occur. SFAS 158 was adopted on March 31, 2007. See Note 8 of “Notes to Unaudited Consolidated Financial Statements” which is included elsewhere in this Report related to the adoption of SFAS158. Additionally, SFAS 158 requires companies to measure plan assets and benefit obligations as of the date of our fiscal year end balance sheet, which is consistent with the Company’s current practice. This requirement is effective for fiscal years ending after December 15, 2008. The adoption of the provisions of SFAS 158 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

November 15, 2007. The adoption of the provisions of SFAS 157 did not have a material effect on the Company’s financial position, results of operations, or cash flows.

NOTE 10. Contingencies

Environmental Matters . The Company evaluates the exposure to environmental liabilities using a financial risk assessment methodology, including a system of internal environmental audits and tests, and outside consultants. This risk assessment includes the identification of risk events/issues, including potential environmental contamination at Company and off-site facilities; characterizes risk issues in terms of likelihood, consequences and costs, including the year(s) when these costs could be incurred; analyzes risks using statistical techniques; and, constructs risk cost profiles for each site. Remediation cost estimates are prepared from this analysis and are taken into consideration in developing project budgets from third party contractors. Although the Company takes great care in the development of these risk assessments and future cost estimates, the actual amount of the remediation costs may be different from those estimated as a result of a number of factors including: changes to government regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and other similar uncertainties. The Company does not include any unasserted claims that it might have against others in determining the liability for such costs, and, except as noted with regard to specific cost sharing arrangements, has no such arrangements, nor has the Company taken into consideration any future claims against insurance carriers that it might have in determining its environmental liabilities. In those situations where the Company is considered a de minimis participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in the Company’s liability with regard to such a site.

The Company continues to participate in environmental assessments and remediation work at eleven locations, including certain former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to 30 years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. In calculating the net present value (where appropriate) of those costs expected to be incurred in the future, the Company used a discount rate of 2.93%, which is the 20 year Treasury Bill rate at the end of the fiscal third quarter and represents the risk free rate for the 20 years those costs are expected to be paid. The Company believes that the application of this rate produces a result which approximates the amount that would hypothetically satisfy the Company’s liability in an arms-length transaction. Based on the above, the Company estimates the current range of undiscounted cost for remediation and monitoring to be between $5.4 million and $9.4 million with an undiscounted amount of $6.4 million to be most probable. Current estimates for expenditures, net of recoveries pursuant to cost sharing agreements, for each of the five succeeding fiscal years are $1.4 million, $0.6 million, $1.4 million, $0.8 million, and $0.6 million, respectively, with $1.6 million payable thereafter. Of the total undiscounted costs, the Company estimates that approximately 50% will relate to remediation activities and that 50% will be associated with monitoring activities.

The Company estimates that the potential cost for implementing corrective action at nine of these sites will not exceed $0.5 million in the aggregate, payable over the next several years, and has provided for the estimated costs, without discounting for present value, in the Company’s accrual for environmental liabilities. In the first quarter of fiscal 2003, the Company entered into a consent order for a former facility in New York, which is currently subject to a contract for sale, pursuant to which the Company has developed a remediation plan for review and approval by the New York Department of Environmental Conservation. Based upon the characterization work performed to date, the Company has accrued estimated costs of approximately $1.6 million without discounting for present value. The amounts and timing of such payments are subject to the approved remediation plan.

The environmental cleanup plan the Company presented during the fourth quarter of fiscal 2000 for a portion of a site in Pennsylvania which continues to be owned by the Company, although the related business has been sold, was approved during the third quarter of fiscal 2004. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection (“PaDEP”) concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution the Company paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third

quarter of fiscal 2001 for another portion of the site, and a third Consent Order for the remainder of the site was concluded in the third quarter of fiscal 2003 (the “2003 Consent Order”). An environmental cleanup plan for the portion of the site covered by the 2003 Consent Order was presented during the second quarter of fiscal 2004. The Company is also administering an agreed settlement with the Federal government, concluded in the first quarter of fiscal 2000, under which the government pays 50% of the direct and indirect environmental response costs associated with a portion of the site. The Company also concluded an agreement in the first quarter of fiscal 2006, under which the Federal government paid an amount equal to 45% of the estimated environmental response costs associated with another portion of the site. No future payments are due under this second agreement. At December 28, 2008, the cleanup reserve was $2.5 million based on the net present value of future expected cleanup and monitoring costs and is net of expected reimbursement by the Federal Government of $0.5 million. The aggregate undiscounted amount associated with the estimated environmental response costs for the site in Pennsylvania is $3.3 million. The Company expects that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs, although expected to be incurred over twenty years, could extend for up to thirty years.

In addition, the Company has been named as a potentially responsible party in four environmental proceedings pending in several states in which it is alleged that the Company is a generator of waste that was sent to landfills and other treatment facilities. Such properties generally relate to businesses which have been sold or discontinued. The Company estimates that expected future costs, and the estimated proportional share of remedial work to be performed associated with these proceedings, will not exceed $0.1 million without discounting for present value and has provided for these estimated costs in the Company’s accrual for environmental liabilities.

Litigation . The Company is also engaged in various other legal proceedings incidental to its business. Management is of the opinion that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on the consolidated financial position, results of operations, or cash flows of the Company in future periods.

NOTE 11. Segment, Geographic Location and Customer Information

The Company has three operating segments which it aggregates into one reportable segment; sophisticated lifting equipment for specialty aerospace and defense applications. The operating segments are Hoist and Winch, Cargo Hooks, and Weapons Handling. The nature of the production process (assemble, inspect, and test) is similar for each operating segment, as are the customers and the methods of distribution for the products.

Revenues from the three operating segments for the three and nine month periods ended December 28, 2008 and December 30, 2007 are as follows (in thousands):


	Three Months Ended				Nine Months Ended
	December 28,		December 30,		December 28,		December 30,
	2008		2007		2008		2007
Hoist and Winch	$	14,369	$	12,608	$	32,065	$	36,638

Cargo Hooks		4,873		2,774		10,529		9,265

Weapons Handling		3,115		2,522		5,924		4,949

Other Sales		1,170		157		3,484		704


Total	$	23,527	$	18,061	$	52,002	$	51,556

During the three and nine month periods ended December 28, 2008, net sales to one customer accounted for 21% and 22%, respectively, of total revenues, another accounted for 16% and 15%, respectively, of total revenues, and a third customer accounted for 12% and 16% of total revenues, respectively. For the three month period ended December 28, 2008, a fourth major customer accounted for 12% of total revenues. During the three month period ended December 30, 2007, 28%, 19% and 13% of net sales were made to three major customers, respectively. During the nine month period ended December 30, 2007, net sales to one customer accounted for 24% of total revenues and another customer accounted for 21% of total revenues.

Net sales below show the geographic location of customers (in thousands):


	Three Months Ended				Nine Months Ended
	December 28,		December 30,		December 28,		December 30,
	2008		2007		2008		2007
Location:
United States	$	14,083	$	9,967	$	32,336	$	27,661
England		872		1,410		1,693		3,110
Italy		1,465		2,031		4,038		6,955
Other European Countries		3,193		986		5,407		5,237
Pacific and Far East		1,840		1,296		3,447		2,810
Other non-United States		2,074		2,371		5,081		5,783

Total	$	23,527	$	18,061	$	52,002	$	51,556

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934:

Certain of the statements contained in the body of this Quarterly Report on Form 10-Q (the “Report”) are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In the preparation of this Report, where such forward-looking statements appear, the Company has sought to accompany such statements with meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those described in the forward-looking statements.

Forward Looking Statements

Certain statements in this Report constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Acts”). Any statements contained herein that are not statements of historical fact are deemed to be forward-looking statements.

This Report contains forward-looking statements within the meaning of the federal securities laws, including information regarding our fiscal 2009 financial outlook, future plans, objectives, business prospects and anticipated financial performance. These forward-looking statements are not statements of historical facts and represent only our current expectations regarding such matters. These statements inherently involve a wide range of known and unknown uncertainties. Our actual actions and results could differ materially from what is expressed or implied by these statements. Specific factors that could cause such a difference include, but are not limited to, those set forth below and other important factors disclosed previously and from time to time in our other filings with the Securities and Exchange Commission. Given these factors, as well as other variables that may affect our operating results, you should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. We expressly disclaim

any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them. Forward-looking statements are subject to the safe harbors created in the Acts.

Any number of factors could affect future operations and results, including, without limitation, competition from other companies; changes in applicable laws, rules, and regulations affecting the Company in the locations in which it conducts its business; interest rate trends; a decrease in the United States Government defense spending, changes in spending allocation or the termination, postponement, or failure to fund one or more significant contracts by the United States Government; determination by the Company to dispose of or acquire additional assets; general industry and economic conditions; events impacting the U.S. and world financial markets and economies; and those specific risks that are discussed or referenced elsewhere in this Report.

The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information or future events.

General

We design, develop, manufacture, sell and service sophisticated lifting equipment for specialty aerospace and defense applications. With over 50% of the global market, we have long been recognized as the world’s leading designer, manufacturer, service provider and supplier of performance-critical rescue hoists and cargo-hook systems. We also manufacture weapons-handling systems, cargo winches, and tie-down equipment. Our products are designed to be efficient and reliable in extreme operating conditions and are used to complete rescue operations and military insertion/extraction operations, move and transport cargo, and load weapons onto aircraft and ground-based launching systems. We have three operating segments which we aggregate into one reportable segment. The operating segments are Hoist and Winch, Cargo Hooks, and Weapons Handling. The nature of the production process (assemble, inspect, and test) is similar for each operating segment, as are the customers and the methods of distribution for the products.

All references to years in the Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to the fiscal year ended on or ending on March 31 of the indicated year unless otherwise specified.

Results of Operations

Three Months Ended December 28, 2008 Compared with Three Months Ended December 30, 2007 (in thousands)


	Three Months Ended
	December 28,		December 30,		Increase (decrease)
	2008		2007		$			%
New Equipment	$	12,695	$	11,026	$	1,669			15.1
Spare Parts		4,664		3,527		1,137			32.2
Overhaul and Repair		5,159		3,403		1,756			51.6
Engineering Services		1,009		105		904			861.0

Net Sales		23,527		18,061		5,466			30.3
Cost of Sales		14,175		9,919		4,256			42.9
Gross Profit		9,352		8,142		1,210			14.9
General, administrative and selling expenses		4,744		4,714		30			0.6
Interest expense		305		846		(541	)		(63.9	)
Net income	$	2,470	$	1,526	$	944			61.9

Net Sales . Our net sales increased to $23.5 million in the third quarter of fiscal 2009, an increase of $5.5 million from net sales of $18.1 million in the third quarter of fiscal 2008. The $1.7 million increase in sales of new equipment for the third quarter of fiscal 2009 as compared to the same period last year was driven primarily by $0.9 million higher shipments in the cargo hook operating segment and $0.2 million in the hoist and winch operating segment. New equipment sales in the weapons handling operating segment increased $0.6 million in the third quarter

of fiscal 2009 compared to the third quarter of fiscal 2008, as we resumed shipments during fiscal 2009 for the High Mobility Artillery Rocket System (HIMARS).

In the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008, shipments of spare parts in the hoist and winch and cargo hook operating segments increased $0.3 million and $0.9 million, respectively. While spare part sales were $1.1 million higher in the third quarter of fiscal 2009 as compared to the same prior year period, the demand for spare parts continues to remain weak due primarily, we believe, to the prioritization of procurement due to the delay by the U.S. Government in fully funding the war effort in Iraq and Afghanistan. This delay is the single biggest factor impacting the shift in our sales mix.

Overhaul and repair sales in the hoist and winch and cargo hook operating segments increased $1.2 million and $0.4 million, respectively, in the third quarter of fiscal 2009 as compared to the same period last year.

The $0.9 million increase in engineering sales during the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008 is mainly attributable to the weapons handling operating segment. Specifically, it is the result of a contract for the design and development of a recovery winch being developed for the U.S. Army under the Future Combat Systems (FCS) program.

The timing of U.S. Government awards, the availability of U.S. Government funding and product delivery schedules are among the factors that affect the period in which revenues are recorded. In recent years, our revenues in the second half of the fiscal year have generally exceeded revenues in the first half of the fiscal year. Fiscal 2009 indicates a continuance of this trend as evidenced by the strong sales reported in the third quarter which we expect to continue for the remainder of fiscal 2009 resulting in a favorable sales comparison for the entire fiscal year.

Cost of Sales. The three operating segments of hoist and winch, cargo hooks, and weapons handling equipment have generated sales in three separate components: new equipment, overhaul and repair, and spare parts, each of which has progressively better margins. Accordingly, the cost of sales as a percent of sales will be affected by the weighting of these components to the total sales volume. In the third quarter of fiscal 2009, the $14.2 million cost of sales as a percent of sales was 60.2%. In the third quarter of fiscal 2008, the $9.9 million cost of sales as a percent of sales was 54.9%. This 5.3% increase in cost of sales as a percentage of sales in the third quarter of fiscal 2009 as compared to the same period last year is discussed below under “Gross Profit”.

Gross Profit . As discussed in the “Cost of Sales” section above, the three components of sales in each of the operating segments have margins reflective of the market. During the last four fiscal years, the gross profit margin on new equipment was generally in the range of 31% to 35%, with overhaul and repair 27% to 43% and spare parts ranging from 64% to 71%. The balance, or mix, of this activity, in turn, will have an impact on overall gross profit and overall gross profit margins. Our overall gross margin for the third quarter of fiscal 2009 was 40% compared to 45% for the third quarter of fiscal 2008. A portion of the decline in the overall gross margin is attributable to costs incurred in the third quarter of fiscal 2009 associated with a contract to develop a new piece of equipment for a fixed wing aircraft to be used by the U.S. Army for tactical combat operations. In the third quarter of fiscal 2008 we had better performance, in both cost and pricing, in the production of new equipment, spare parts and overhaul and repair sales, resulting in very favorable gross profit margins for the third quarter of fiscal 2008. The better than normal gross profit margins in the third quarter of fiscal 2008, along with the aforementioned increase in our contractual product development cost accounted for the decline in the overall gross profit margin for the third quarter of fiscal 2009 as compared to the same period last year.

General, administrative and selling expenses . General, administrative and selling expenses for the third quarter of fiscal 2009, as compared to the third quarter of fiscal 2008, remained essentially unchanged.

Interest expense . Interest expense decreased $0.5 million to $0.3 million in the third quarter of fiscal 2009, as compared to $0.8 million in the third quarter of fiscal 2008. In the third quarter of fiscal 2009, there was a decline in the overall effective interest rate of approximately 4% as compared to the third quarter of fiscal 2008, resulting from the refinancing of our Former Senior Credit Facility in the second quarter of fiscal 2009 and lower LIBOR rates (see Senior Credit Facility section below). The refinancing is expected to save us in excess of $1.5 million in interest

expense in fiscal 2009 as compared to fiscal 2008. The decline in the interest rate coupled with the reduction of our former senior credit facility through cash flows from operations and proceeds from the sale of the Company’s Union, New Jersey facility in the fourth quarter of fiscal 2008, caused the decrease in interest expense of $0.5 million for the third quarter of fiscal 2009 as compared to the same prior year period.

Net Income . We reported net income of $2.5 million in the third quarter of fiscal 2009, an increase of 62%, compared to net income of $1.5 million in the third quarter of fiscal 2008, resulting from the reasons discussed above.

New orders . New orders received during the third quarter of fiscal 2009 totaled $17.7 million, as compared with $19.1 million in the third quarter of fiscal 2008. Orders for new equipment in the hoist and winch operating segment increased $2.2 million in the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008. New orders for overhaul and repair in the hoist and winch operating segment increased $1.3 million in the third quarter of fiscal 2009 as compared to the same period last year. The increase in orders for new equipment and overhaul and repair in the hoist and winch operating segment is attributable to the timing of customer order patterns. Orders for new equipment and overhaul and repair in both the cargo hook and weapons handling operating segments remained essentially unchanged for the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008.

New orders for engineering in the weapons handling operating segment decreased $3.9 million in the third quarter of fiscal 2009 as compared to the same period last year. This decrease is directly attributable to a new order in received in the third quarter of fiscal 2008 for a contract for the design and development of a recovery winch being developed for the U.S. Army under the Future Combat Systems (FCS) program.

In the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008, new orders for spare parts in the hoist and winch and weapons handling operating segments decreased approximately $1.8 million and $ 0.6 million, respectively. These decreases were partially offset by an increase in new orders for spare parts in the cargo hook operating segment of $0.7 million. The demand for spare parts remained weak during the third quarter of fiscal 2009 due, we believe, primarily to the delay in fully funding the war effort in Iraq and Afghanistan. While we remain confident that the unrealized portion of the anticipated spare part sales will eventually be ordered, it is not clear at this time when that will happen.

Backlog . Backlog at December 28, 2008 was $131.3 million, an increase of $7.0 million from the $124.3 million at March 31, 2008. Increases in backlog are mainly attributable to a $5.1 million order for the manufacture of the probe hoist for the MH-60R Naval Hawk, a $3.4 million order for the manufacture of the electric rescue hoist system for the H-60 Black Hawk MEDEVAC helicopter, and a $4.9 million order for the manufacture of the cargo hook for the CH-47F Chinook helicopter. The offsetting decrease is attributable to previously scheduled shipments.
The backlog at December 28, 2008 includes approximately $65.0 million relating to the Airbus A400M military transport aircraft, which is scheduled to commence shipping in late calendar 2009 and continue through 2020. There have been recent reports by analysts that there is a delay in the production schedule for the Airbus A400M military transport aircraft. Notwithstanding these reports, we have not to date received notification from Airbus that there is a significant delay in delivering our equipment for this program.

The product backlog varies substantially from time to time due to the size and timing of orders. We measure backlog by the amount of products or services that our customers have committed by contract to purchase from us as of a given date. Approximately $35.0 million of backlog at December 28, 2008 is scheduled for shipment during the next twelve months. The book-to-bill ratio is computed by dividing the new orders received during the period by the sales for the period. A book-to-bill ratio in excess of 1.0 is potentially indicative of continued overall growth in our sales. Our book to bill ratio for the third quarter of fiscal 2009 was 0.8 as compared to 1.1 for the third quarter of fiscal 2008. The decrease in the book to bill ratio was directly related to the lower order intake during the third quarter of fiscal 2009, as compared to the third quarter of fiscal 2008. Although significant cancellations of purchase orders or substantial reductions of product quantities in existing contracts seldom occur, such cancellations or reductions could substantially and materially reduce our backlog. Therefore, our backlog information may not represent the actual amount of shipments or sales for any future period.

Nine Months Ended December 28, 2008 Compared with Nine Months Ended December 30, 2007 (in thousands)


	Nine Months Ended				Increase
	December 28,		December 30,		(decrease)
	2008		2007		$			%
New Equipment	$	26,441	$	29,037	$	(2,596	)		(8.9	)
Spare Parts		10,351		11,613		(1,262	)		(10.9	)
Overhaul and Repair		12,095		10,507		1,588			15.1
Engineering Services		3,115		399		2,716			680.7

Net Sales		52,002		51,556		446			0.9
Cost of Sales		30,758		29,763		995			3.3
Gross Profit		21,244		21,793		(549	)		(2.5	)
General, administrative and selling expenses		13,607		14,069		(462	)		(3.3	)
Interest expense		1,129		2,670		(1,541	)		(57.7	)
Loss on extinguishment of debt		551		—		551			N/A
Net income	$	3,378	$	2,968	$	410			13.8

Net Sales . Sales of $52.0 million in the first nine months of fiscal 2009 increased by $0.4 million from sales of $51.6 million in the first nine months of fiscal 2008. Sales of new equipment decreased $2.6 million for the first nine months of fiscal 2009 as compared to the same period last year, and were driven by $3.5 million lower shipments in the hoist and winch operating segment. This decrease was partially offset by higher sales of new equipment in the cargo hook operating segment of $0.8 million. The decrease in new equipment sales was attributable to lower shipment volume over the prior period and order patterns of customers.

In the first nine months of fiscal 2009 as compared to the same period last year, shipments of spare parts in the hoist and winch operating segment decreased $2.0, but was partially offset by an increase in spare parts shipments of $0.7 million in the weapons handling operating segment. The demand for spare parts remained weak during the first nine months of fiscal 2009 due primarily, we believe, to the prioritization of procurement due to the delay by the U.S. Government in fully funding the war effort in Iraq and Afghanistan. This delay is the single biggest factor impacting the shift in our sales mix.

Overhaul and repair sales were $12.1 million in the first nine months of fiscal 2009, an increase of $1.6 million, as compared to $10.5 million in the first nine months of fiscal 2008. Higher shipments in the hoist and winch and cargo hook operating segments of $0.9 and $0.5 million, respectively, accounted for the majority of the increase.

The $2.7 million increase in engineering sales during the first nine months of fiscal 2009 as compared to the first nine months of fiscal 2008 is attributable to the weapons handling operating segment. Specifically, it is the result of a contract for the development and design of a recovery winch being developed for the U.S. Army under the FCS program.

first nine months of fiscal 2008, the cost of sales as a percent of sales increased approximately 1%, due to an increase in our contractual product development cost as discussed below in the “Gross Profit”.

Gross Profit . As discussed in the “Cost of Sales” section above, the three components of sales in each of the operating segments have margins reflective of the market. During the last four fiscal years, the gross profit margin on new equipment was generally in the range of 31% to 35%, overhaul and repair 27% to 43% and spare parts ranging from 64% to 71%. The balance or mix of this activity, in turn, will have an impact on gross profit and gross profit margins. The gross margin was 41% for the first nine months of fiscal 2009 as compared to 42% for the first nine months of fiscal 2008. In the first nine months of fiscal 2009 we had higher gross profit margins in the new production operating segment due to better operating efficiencies and product mix were offset entirely by gross profit margin decreases in the spare parts operating segment due to volume, performance and product mix. The 1% decrease in the gross margin for the first nine months of fiscal 2009 compared to the same period last year is directly attributable to costs incurred in the third quarter of fiscal 2009 associated with a contract to develop a new piece of equipment for a fixed wing aircraft to be used by the U.S. Army for tactical combat operations.

General, administrative and selling expenses . General, administrative and selling expenses for the first nine months of fiscal 2009, as compared to the first nine months of fiscal 2008, decreased $0.5 million. This decrease was due mainly to lower non-recurring engineering expenditures related to the Company’s Airbus A400M military transport aircraft project and one-time costs associated with a threatened proxy contest that occurred and was settled during the second quarter of fiscal 2008. These decreases were partially offset by higher internal research and development costs.

Interest expense . The refinancing of our Former Senior Credit Facility was completed in the second quarter of fiscal 2009 (see Senior Credit Facility section below). The refinancing is expected to save us in excess of $1.5 million in interest expense in fiscal 2009 as compared to fiscal 2008. Interest expense was $1.1 million for the first nine months of fiscal 2009, as compared to $2.7 million for the first nine months of fiscal 2008. The decline in the interest rates due to the refinancing coupled with the reduction of our former senior credit facility through cash flows from operations and proceeds from the sale of the Company’s Union, New Jersey facility in the fourth quarter of fiscal 2008, caused the decrease in interest expense of $1.6 million for the first nine months of fiscal 2009 as compared to the same prior year period.

Loss on Extinguishment of Debt. In the second quarter of fiscal 2009, we refinanced and paid in full the Former Senior Credit Facility with a new 60 month, $33.0 million Senior Credit Facility consisting of a $10.0 million revolving credit facility, and term loans totaling $23.0. As a result of this refinancing, in the second quarter of fiscal 2009, we recorded a pre-tax charge of $0.6 million consisting of $0.2 million for the write-off of unamortized debt issue costs and $0.4 million for the payment of a pre-payment premium associated with the payoff of the Former Senior Credit Facility.

Net Income . We reported net income of $3.4 million for the first nine months of fiscal 2009 versus net income of $3.0 million for the first nine months of fiscal 2008, resulting from the reasons discussed above. Net income for the first nine months of fiscal 2009 included a pretax charge of $0.6 million related to the refinancing of the Company’s debt.

New orders . New orders received during the first nine months of fiscal 2009 totaled $59.0 million, as compared with $54.8 million in the first nine months of fiscal 2008. Orders for new equipment increased $8.6 million in the cargo hook operating segment, which was the result of a $4.9 million order for the manufacture of the cargo hook for the CH-47F Chinook helicopter. Orders for new equipment in the hoist and winch operating segment decreased $0.7 million in the first nine months of fiscal 2009 as compared to the same period in the prior year, despite orders that were received in the first quarter of fiscal 2009 for $5.1 million for the manufacture of the probe hoist for the MH-60R Naval Hawk and a $3.4 million order for the manufacture of the electric rescue hoist system for the H-60 Black Hawk MEDEVAC helicopter.

In the first nine months of fiscal 2009 as compared to the first nine months of fiscal 2008, orders for overhaul and repair in both the hoist and winch and cargo hook operating segments increased $1.6 million and $0.7 million respectively, and orders for engineering increased approximately $0.3 million.

Orders for spare parts in the hoist and winch and weapons handling operating segments decreased $3.3 million and $0.5 million, respectively, but were partially offset by an increase of approximately $1.1 million in the cargo hook operating segment. The demand for spare parts continued to remain weak during the first nine months of fiscal 2009, due, we believe, primarily to the delay by the U.S. Government in fully funding the war effort in Iraq and Afghanistan. While we remain confident that the unrealized portion of the anticipated spare part sales will eventually be ordered, it is not clear at this time when that will happen.

New orders for engineering in the weapons handling operating segment decreased $3.2 million in the first nine months of fiscal 2009 as compared to the same period last year. This decrease is directly attributable to a new order received in fiscal 2008 for a contract for the design and development of a recovery winch being developed for the U.S. Army under the Future Combat Systems (FCS) program.

Backlog . Backlog at December 28, 2008 was $131.3 million, an increase of $7.0 million from the $124.3 million at March 31, 2008. Increases in backlog are mainly attributable to a $5.1 million order for the manufacture of the probe hoist for the MH-60R Naval Hawk and a $3.4 million order for the manufacture of the electric rescue hoist system for the H-60 Black Hawk MEDEVAC helicopter, and a $4.9 million order for the manufacture of the cargo hook for the CH-47F Chinook helicopter. The offsetting decrease is attributable to previously scheduled shipments. The backlog at December 28, 2008 includes approximately $65.0 million relating to the Airbus A400M military transport aircraft which is scheduled to commence shipping in late calendar 2009 and continue through 2020. There have been recent reports by analysts that there is a delay in the production schedule for the Airbus A400M military transport aircraft. Notwithstanding these reports, we have not to date received notification from Airbus that there is a significant delay in delivering our equipment for this program.

The product backlog varies substantially from time to time due to the size and timing of orders. We measure backlog by the amount of products or services that our customers have committed by contract to purchase from us as of a given date. Approximately $35.0 million of backlog at December 28, 2008 is scheduled for shipment during the next twelve months. The book-to-bill ratio is computed by dividing the new orders received during the period by the sales for the period. A book-to-bill ratio in excess of 1.0 is potentially indicative of continued overall growth in our sales. Our book to bill ratio was 1.1 for the first nine months of both fiscal 2009 and fiscal 2008. Although significant cancellations of purchase orders or substantial reductions of product quantities in existing contracts seldom occur, such cancellations or reductions could substantially and materially reduce our backlog. Therefore, our backlog information may not represent the actual amount of shipments or sales for any future period.

Liquidity and Capital Resources

Our principal sources of liquidity are cash on hand, cash generated from operations, and our Senior Credit Facility, as defined below. Our liquidity requirements depend on a number of factors, many of which are beyond our control, including the timing of production under our contracts with the U.S. Government. Our working capital needs fluctuate between periods as a result of changes in program status and the timing of payments by program. Additionally, as our sales are generally made on the basis of individual purchase orders, our liquidity requirements vary based on the timing and volume of orders. Based on cash on hand, future cash expected to be generated from operations and the Senior Credit Facility, we expect to have sufficient cash to meet our requirements for at least the next twelve months, which includes the relocation of our headquarters facility and plant as discussed below.

During the second quarter of fiscal 2009, we refinanced and paid in full the Former Senior Credit Facility with a new 60 month, $33.0 million Senior Credit Facility consisting of a $10.0 million revolving line of credit and term loans totaling $23.0 million. Through this facility, and assuming stable interest rates, we expect to lower our annualized interest expense on our debt in fiscal 2009 by an amount in excess of $1.5 million. At December 28, 2008, there were $2.4 million in outstanding borrowings, $0.8 million in outstanding (standby) letters of credit, and $6.8 million in availability under the revolving portion of the Senior Credit Facility. At December 28, 2008, we were in compliance with the provisions of the Senior Credit Facility.

In February, 2008, we completed the sale of our headquarters facility and plant in Union, New Jersey. The sales price for the facility was $10.5 million and net proceeds at closing from the sale of the facility of $9.8 million were applied to reduce our Former Senior Credit Facility. The agreement of sale permits us to lease the facility for up to two years after closing, pending our relocation to a new site. We are in the process of selecting a new site for our facilities that will be better suited to our current and expected needs, and expect to initiate the relocation to the new site in the first quarter of fiscal 2010.

Our common stock is listed on the NYSE Alternext U.S. (former American Stock Exchange) under the trading symbol BZC.

Working Capital

Our working capital at December 28, 2008 was $30.4 million, as compared to $28.5 million at March 31, 2008. The ratio of current assets to current liabilities was 2.5 to 1 at both December 28, 2008 and March 31, 2008.

The major working capital changes during the first nine months of fiscal 2009 resulted from a decrease in accounts receivable of $1.2 million, an increase in inventory of $4.4 million, a decrease in deferred income tax assets of $0.6 million, an increase in accounts payable of $2.3 million and a decrease in accrued compensation and other current liabilities of $0.5 million each. In addition, the revolving portion of our Senior Credit Facility decreased $0.5 million.

The decrease in accounts receivable reflects collection of amounts due from customers related to the heavy shipments that occurred late in the fourth quarter of fiscal 2008. The increase in inventory and accounts payable is due to parts being purchased in advance for shipments scheduled to be made in the fourth quarter of fiscal 2009, and a focus on having certain common sub-assemblies on hand that are included in the sales forecast. The decrease in accrued compensation was primarily due to incentive payments made in the first quarter of fiscal 2009. The decrease in deferred income tax assets reflects the expected utilization of the NOL’s. Lower commissions payable, current environmental reserves and decreases in warranty reserves accounted for the decrease in other current liabilities. The decrease in the revolving portion of the Senior Credit Facility reflects the strong cash flow produced in the first nine months of fiscal 2009 derived from the collections on accounts receivable as discussed above.

The number of days that sales were outstanding in accounts receivable decreased to 51.2 days at December 28, 2008 from 67.3 days at March 31, 2008. The decrease in days was attributable to 37% higher shipments made in March of fiscal 2008 as compared to December of fiscal 2009. Inventory turnover increased slightly to 2.0 turns at December 28, 2008 versus 1.8 turns at December 30, 2007. The increase in inventory turns reflects the improved utilization of our inventory levels.

Capital Expenditures

Cash paid for our additions to property, plant and equipment was approximately $1.4 million for the first nine months of fiscal 2009, compared to $0.7 million for the first nine months of fiscal 2008. Additions to property, plant and equipment budgeted in fiscal 2009 total approximately $3.2 million and include projected expenditures for the fit-out of the Company’s new facility (See “Liquidity and Capital Resources”, above).

Cash paid for capitalized project costs, representing qualification and proto-type units on several programs, were approximately $0.8 million for the first nine months of fiscal 2009 and will be amortized on a per unit basis based on the shipping schedule. There were no capitalized project costs for the first nine months of fiscal 2008. Capitalized project costs budgeted in fiscal 2009 total approximately $2.9 million.

Senior Credit Facility

Senior Credit Facility – On August 28, 2008, we refinanced and paid in full the Former Senior Credit Facility with a new 60 month, $33.0 million senior credit facility consisting of a $10.0 million revolving line of credit and term

loans totaling $23.0 million (the “Senior Credit Facility”). The blended interest rate at December 28, 2008, on the Senior Credit Facility was 4.22%. As a result of this refinancing, in the second quarter of fiscal 2009, we recorded a pre-tax charge of $0.6 million consisting of $0.2 million for the write-off of unamortized debt issue costs and $0.4 million for the payment of a pre-payment premium. The term loan requires quarterly principal payments of approximately $0.8 million over the term of the loan, the first of which was paid in October 2008. The remainder of the term loan is due at maturity. Accordingly, the balance sheet reflects $3.3 million of current maturities due under the term loan of the Senior Credit Facility as of December 28, 2008.

The Senior Credit Facility bears interest at either the “Base Rate” or the London Interbank Offered Rate (“LIBOR”) plus applicable margins based on our leverage ratio which is our consolidated total debt, calculated at the end of each fiscal quarter to consolidated EBITDA (the sum of net income, depreciation, amortization, other non-cash charges to net income, interest expense and income tax expense minus charges related to the refinancing of debt minus non-cash credits to net income calculated at the end of such quarter for the four quarters then ended). The Base Rate is the higher of the Prime Rate or the Federal Funds Open Rate plus .50%. The applicable margins for the Base Rate based borrowings are between 0% and .75%. The applicable margins for LIBOR based borrowings are between 1.25% and 2.25%. At December 28, 2008, the Senior Credit Facility had a blended interest rate of 4.22%, all tied to LIBOR, except for $0.3 million which was tied to the Prime Rate. In addition, we are required to pay a commitment fee of .375% on the average daily unused portion of the revolving portion of the Senior Credit Facility. The Senior Credit Facility requires we enter into an interest rate swap for a term of at least three years in an amount not less than 50% for the first two years and 35% for the third year of the aggregate amount of the term loan, which is discussed below.

The Senior Credit Facility is secured by all of our assets and allows us to issue letters of credit against the total borrowing capacity of the facility. At December 28, 2008, there were $2.4 million in outstanding borrowings, $0.8 million in outstanding (standby) letters of credit, and $6.8 million in availability under the revolving portion of the Senior Credit Facility. At December 28, 2008, we were in compliance with the provisions of the Senior Credit Facility.

Interest Rate Swap

The Senior Credit Facility requires we enter into an interest rate swap for a term of at least three years in an amount not less than 50% for the first two years and 35% for the third year, in each case of the aggregate amount of the term loan. The interest rate swap, a type of derivative financial instrument, is used to manage interest costs and minimize the effects of interest rate fluctuations on cash flows associated with the term portion of the Senior Credit Facility. We do not use derivatives for trading or speculative purposes. In September, 2008, we entered into a three year interest rate swap to exchange floating rate for fixed rate interest payments to hedge against interest rate changes on the term portion of our Senior Credit Facility, as required by the loan agreement executed as part of the Senior Credit Facility. The net effect of the spread between the floating rate (30 day LIBOR) and the fixed rate (3.25%), is settled monthly, and will be reflected as an adjustment to interest expense in the period incurred. No gain or loss relating to the interest rate swap was recognized in earnings during the first nine months of fiscal 2009.

Tax Benefits from Net Operating Losses

At December 28, 2008, we had federal and state net operating loss carry forwards, or NOLs, of approximately $22.8 million and $61.1 million, respectively, which are due to expire in fiscal 2022 through fiscal 2025 and fiscal 2009 through fiscal 2012, respectively. The state NOLs due to expire in fiscal 2009 is approximately $4.3 million against which we have a valuation allowance. The NOLs may be used to offset future taxable income through their respective expiration dates and thereby reduce or eliminate our federal and state income taxes otherwise payable. A valuation allowance of $5.6 million has been established relating to the state NOLs, as it is management’s belief that it is more likely than not that a portion of the state NOLs are not realizable. Failure to achieve sufficient taxable income to utilize the NOLs would require the recording of an additional valuation allowance against some or all of the deferred tax assets.

The Internal Revenue Code of 1986, as amended (the “Code”) imposes significant limitations on the utilization of NOLs in the event of an “ownership change” as defined under section 382 of the Code (the “Section 382 Limitation”). The Section 382 Limitation is an annual limitation on the amount of pre-ownership NOLs that a corporation may use to offset its post-ownership change income. The Section 382 Limitation is calculated by multiplying the value of a corporation’s stock immediately before an ownership change by the long-term tax-exempt interest rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% shareholders (including specified groups of shareholders who in the aggregate own at least 5% of that corporation’s stock) exceeds 50 percentage points over a three-year testing period. We believe that we have not gone through an ownership change that would cause our NOLs to be subject to the Section 382 Limitation.

If we do not generate adequate taxable earnings, some or all of the deferred tax assets represented by our NOLs may not be realized. Additionally, changes to the federal and state income tax laws also could impact our ability to use the NOLs. In such cases, we may need to revise the valuation allowance established related to deferred tax assets for state purposes.

Summary Disclosure About Contractual Obligations and Commercial Commitments

The following table reflects a summary of our contractual cash obligations for the next several fiscal years as of December 28, 2008 (in thousands):


			Payments Due By Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Debt principal repayments (a)	$	22,179	$	3,286	$	6,571	$	12,322	$	—
Estimated interest payments on long-term debt (b)		2,931		882		1,350		699		—
Operating leases		381		234		147		—		—
FIN48 obligations, including interest and penalties (c)		350		350		—		—		—

Total	$	25,841	$	4,752	$	8,068	$	13,021	$	—

(a) Obligations for long-term debt reflect the requirements of the term loan under the Senior Credit Facility. See Note 7 of Notes to Unaudited Consolidated Financial Statements included elsewhere in this Report.

(b) Estimated interest payments on long-term debt reflect the scheduled interest payments of the term loans under the Senior Credit Facility and assume an effective weighted average interest rate of 4.22%, the Company’s estimated blended interest rate at December 28, 2008.

(c) The FIN 48 obligations shown in the table above represents unrecognized tax benefits. See Note 6 of Notes to Unaudited Consolidated Financial Statements included elsewhere in this Report.

Inflation

While neither inflation nor deflation has had, and we do not expect it to have, a material impact upon operating results, we cannot be certain that our business will not be affected by inflation or deflation in the future.

We have not seen a discernable impact on our operating results due to the turmoil in the world economy, the global nature of our customer base could eventually result in an impact on our operations. While the programs in which we are involved continue to receive the necessary funding, deepening global recessionary trends and a new United

States Presidential Administration provide new variables. We can not yet determine what impact these developments may have on our operations and the market for our products and services.

Environmental Matters

We evaluate the exposure to environmental liabilities using a financial risk assessment methodology, including a system of internal environmental audits and tests, and outside consultants. This risk assessment includes the identification of risk events/issues, including potential environmental contamination at Company and off-site facilities; characterizes risk issues in terms of likelihood, consequences and costs, including the year(s) when these costs could be incurred; analyzes risks using statistical techniques; and, constructs risk cost profiles for each site. Remediation cost estimates are prepared from this analysis and are taken into consideration in developing project budgets from third party contractors. Although we take great care in the development of these risk assessments and future cost estimates, the actual amount of the remediation costs may be different from those estimated as a result of a number of factors including: changes to government regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and other similar uncertainties. We do not include any unasserted claims that we might have against others in determining the liability for such costs, and, except as noted with regard to specific cost sharing arrangements, have no such arrangements, nor have we taken into consideration any future claims against insurance carriers that we might have in determining our environmental liabilities. In those situations where we are considered a de minimis participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in our liability with regard to such a site.

We continue to participate in environmental assessments and remediation work at eleven locations, including certain former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to thirty years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. In calculating the net present value (where appropriate) of those costs expected to be incurred in the future, we used a discount rate of 2.93%, which is the 20 year Treasury Bill rate at the end of the fiscal third quarter and represents the risk free rate for the 20 years those costs are expected to be paid. We believe that the application of this rate produces a result which approximates the amount that would hypothetically satisfy our liability in an arms-length transaction. Based on the above, we estimate the current range of undiscounted cost for remediation and monitoring to be between $5.4 million and $9.4 million with an undiscounted amount of $6.4 million to be most probable. Current estimates for expenditures, net of recoveries pursuant to cost sharing agreements, for each of the five succeeding fiscal years are $1.4 million, $0.6 million, $1.4 million, $0.8 million, and $0.6 million respectively, with $1.6 million payable thereafter. Of the total undiscounted costs, we estimate that approximately 50% will relate to remediation activities and that 50% will be associated with monitoring activities.

We estimate that the potential cost for implementing corrective action at nine of these sites will not exceed $0.5 million in the aggregate, payable over the next several years, and have provided for the estimated costs, without discounting for present value, in our accrual for environmental liabilities. In the first quarter of fiscal 2003, we entered into a consent order for a former facility in New York, which is currently subject to a contract for sale, pursuant to which we have developed a remediation plan for review and approval by the New York Department of Environmental Conservation. Based upon the characterization work performed to date, we have accrued estimated costs of approximately $1.6 million without discounting for present value. The amounts and timing of such payments are subject to the approved remediation plan.

The environmental cleanup plan we presented during the fourth quarter of fiscal 2000 for a portion of a site in Pennsylvania which continues to be owned, although the related business has been sold, was approved during the third quarter of fiscal 2004. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection (“PaDEP”) concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution we paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third quarter of fiscal 2001

for another portion of the site, and a third Consent Order for the remainder of the site was concluded in the third quarter of fiscal 2003 (the “2003 Consent Order”). An environmental cleanup plan for the portion of the site covered by the 2003 Consent Order was presented during the second quarter of fiscal 2004. We are also administering an agreed settlement with the Federal government, concluded in the first quarter of fiscal 2000, under which the government pays 50% of the direct and indirect environmental response costs associated with a portion of the site. We also concluded an agreement in the first quarter of fiscal 2006, under which the Federal government paid an amount equal to 45% of the estimated environmental response costs associated with another portion of the site. No future payments are due under this second agreement. At December 28, 2008, the cleanup reserve was $2.5 million based on the net present value of future expected cleanup and monitoring costs and is net of expected reimbursement by the Federal Government of $0.5 million. The aggregate undiscounted amount associated with the estimated environmental response costs for the site in Pennsylvania is $3.3 million. We expect that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs, although expected to be incurred over twenty years, could extend for up to thirty years.

In addition, we have been named as a potentially responsible party in four environmental proceedings pending in several states in which it is alleged that we are a generator of waste that was sent to landfills and other treatment facilities. Such properties generally relate to businesses which have been sold or discontinued. We estimate that expected future costs, and the estimated proportional share of remedial work to be performed associated with these proceedings, will not exceed $0.1 million without discounting for present value and we have provided for these estimated costs in our accrual for environmental liabilities.

Litigation

We are also engaged in various other legal proceedings incidental to our business. It is our opinion that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on our consolidated financial position, results of operations, or cash flows in future periods.

Recently Issued Accounting Standards

In May 2008, FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of the financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 became effective 60 days following approval by the Securities and Exchange Commission of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, research and development assets and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of the provisions of SFAS 141R is not expected to have a material effect on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51.” SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted. The adoption of the provisions of SFAS 160 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The effective date of SFAS 159 for our Company was April 1, 2008. The adoption of the provisions of SFAS 159 has not and is not expected to have a material effect on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R).” SFAS 158 requires companies to recognize a net asset for a defined benefit postretirement pension or healthcare plan’s over funded status or a net liability for a plan’s under funded status in its balance sheet. SFAS 158 also requires companies to recognize changes in the funded status of a defined benefit postretirement plan in accumulated other comprehensive income in the year in which the changes occur. SFAS 158 was adopted on March 31, 2007. See Note 8 of “Notes to Unaudited Consolidated Financial Statements” which is included elsewhere in this Report related to the adoption of SFAS158. Additionally, SFAS 158 requires companies to measure plan assets and benefit obligations as of the date of our fiscal year end balance sheet, which is consistent with our current practice. This requirement is effective for fiscal years ending after December 15, 2008. The adoption of the provisions of SFAS 158 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of the provisions of SFAS 157 did not have a material effect on our financial position, results of operations, or cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, primarily changes in interest rates associated with the Senior Credit Facility.

In September, 2008, we entered into a three year interest rate swap to exchange floating rate for fixed rate interest payments to hedge against interest rate changes on the term portion of our Senior Credit Facility. As required by our Senior Credit Facility agreement, the interest rate swap is for a term of three years for 50% for the first two years and 35% for the third year, in each case of the aggregate amount of the term loan. The net effect of the spread between the floating rate (30 day LIBOR) and the fixed rate (3.25%), is settled monthly, and will be reflected as an

adjustment to interest expense in the period incurred. As of December 28, 2008, the one month LIBOR rate was approximately 1.08%, and an increase or decrease of 1% in the LIBOR rate will have the effect of increasing or decreasing annual interest expense by approximately $0.1 million.

At December 28, 2008, $24.3 million of the Senior Credit Facility was tied to LIBOR and, as such, a 1% increase or decrease will have the effect of increasing or decreasing annual interest expense by approximately $0.2 million based on the amount outstanding under the facility at December 28, 2008.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports required under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of December 28, 2008, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the first nine months of the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are engaged in various legal proceedings incidental to our business. It is the opinion of management that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on our consolidated financial position, results of operations, or cash flows in future periods.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2008, as filed with the Securities and Exchange Commission, and incorporated herein by reference, which factors could materially affect our business, financial condition, financial results or future performance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 6. Exhibits

	31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BREEZE-EASTERN CORPORATION (Registrant)
Dated: February 3, 2009	By:	/s/ Joseph F. Spanier
		Joseph F. Spanier, Executive Vice President,
		Chief Financial Officer and Treasurer *