Annual Meeting Remarks, 1/07/09

01 / 07 / 2009

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In our presentation, this morning, I'll start with a brief review of fiscal '08, another very good year. then, we'll have presentations made by representatives of each of our segments. They aren't going to try to describe everything that's going on in that segment of our business. On the contrary, I've asked them to focus on one particular customer or program or acquisition and describe that. My hope is that this approach will give you a flavor for what's going on in each of the segments and, particularly, for some of the newer and more exciting things that are going on in the business. I'll then come back and update the guidance that we have provided for fiscal '09. Then, we'll elect directors and we'll ask you to ratify the selection of our auditors and we'll address any other business that may come before the meeting.

Fiscal '08 was another great year for our Company. It was the fourteenth consecutive year in which sales were up, net earnings were up, and earnings per share were up. More particularly, sales of $1.9 billion were up 22%, net earnings of $119 million and earnings per share of $2.75 were both up 18%. We achieved these results while making major investments in R&D, particularly in the Aircraft business. For the year, R&D was just under $110 million or 5.8% of sales. Historically, our R&D expenditures run closer to 4% of sales. For the year, R&D in the Aircraft business was $67 million and almost half of that was spent on the 787. We've put a lot into the 787 and some other Aircraft programs and we believe that these investments will pay off handsomely in years to come. Growing sales and improving margins in our other businesses have allowed us to make these investments in the future of our airplane business and, at the same time, maintain our consistent pattern of earnings growth.

I'm sure everyone here is aware of what happened in the stock market in the last 12 months. Our Company participated in the roller coaster ride. Last year at this meeting, our stock price was close to $45 a share. At our low point, we touched very briefly at $26 a share and we're now back to $37 or $38. In the market of two years ago, our stock price was $37 a share in a year when we were earning $1.97. All the folks in our Company have worked hard over the last couple of decades to build the market value of the Company and given the current state of the market, we recognize that we'll have to work even harder in the months and years to come to rebuild the market value that we enjoyed a year ago.

Total Aircraft sales for '08 were $673 million, an increase of 15% over the prior year. Much of the increase was in the military business. We had a big year in the F-35 development program. Revenues on the V-22, Tilt Rotor Aircraft, were up and our military aftermarket was up nicely. On the commercial side, sales were up all because of the growth in business jets, and, particularly, because of some new work we have with Gulfstream. Gulfstream, as you may know, builds the Rolls Royce of business jets. they have a line of wonderful, big, fast, luxurious, and expensive aircraft, and we're delighted to have them as a customer.

To tell you more about our relationship with Gulfstream, let me introduce Giovanni Spitale. Giovanni is the Program Director for Business Jet Programs. He joined our Company in September of '07 and is based in Salt Lake City.

In spite of his European sounding name, he was actually born in Arkansas and he grew up in Louisiana. He has a degree in Nuclear Engineering Technology from Thomas Edison State College, which he put to good use during eight years in the U.S. Navy operating and maintaining nuclear propulsion plants on aircraft carriers.

In '99, Giovanni completed his military service and joined Honeywell in the engineering department. He worked on a variety of engine development and engine controller projects, including the development of the engine for the Challenger 300, an aircraft on which we supply the flight controls. While at Honeywell, he earned an MBA from Arizona State University and moved into program management. He managed a Honeywell avionics program called the Primus Epic. This is the avionics suite used on Gulfstream aircraft. In his current role, Giovanni works with a number of our business jet customers including Bombardier, Hawker Beechcraft, and, of course, Gulfstream and that's the relationship we've asked him to talk about today.

Here's Giovanni.

(Remarks unavailable)

Thanks Giovanni.

Our Space and Defense Segment had a spectacular year in '08. Sales were up 37% to $253 million. Our legacy product line, which includes controls for satellites, satellite launch vehicles, and strategic and tactical missiles, was a fairly stable business in '08 and generated about 40% of the total. In the Defense Controls business, we had the benefit of some sizable orders for Driver's Vision Enhancer systems, a QuickSet product line, which increased sales in that category by over $20 million. The other big increase, though, was on the Constellation program. this is a collection of programs that will build the system to replace the Space Shuttle. It got started in a big way in '08 and generated almost $24 million in sales, an increase of $20 million over the previous year.

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