Annual Meeting Remarks, 1/12/05

01 / 12 / 2005

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Robert T. Brady, Chairman and CEO:

Fiscal '04 was a terrific year. It was terrific for a number of reasons - among them, achievements in financial performance, in customer recognition, in technology development, in major competitions won, and in customer acceptance of new product introductions. In the next few minutes, I’ll try, with the help of a few of my friends, to summarize some of the highlights of the year.

First, I'll provide a quick overview. I'll then ask members of the management of each of the segments to describe some of the most important and most interesting programs and products. Then, I'll then come back to describe our projection for '05, and Bob Banta will wrap up with some comments on our financial structure.

Record Financial Results

First, financial performance. Sales in '04 of $939 million were up 24% from the year previous. But, as you know, of the $184 million increase, $130 million came with our acquisition of the Litton Poly-Scientific Division of Northrop Grumman. On the other hand, we did generate $54 million of organic growth in ’04, and 7% organic growth, given some of the market conditions we were working with, is pretty respectable. Earnings, on the other hand, were up 34% to $57.3 million. Net earnings were over 6% of sales, the highest net margins our Company has ever achieved.

Earnings per share of $2.17 were up 18% from a year ago and we think an 18% EPS increase is an achievement we can be proud of.

Once again, the market responded well to our performance. Our current stock price is up 18% from a year ago.

Boeing Supplier of the Year

But there was a lot more to fiscal '04 than putting good numbers on the board. In the middle of fiscal '04, the Boeing Company, our biggest customer, selected us as one of a very small number of suppliers of the year. We provide many different products to many different parts of the Boeing organization. We have lots of opportunities to do an excellent job, and we also have lots of opportunities to screw things up. Boeing, over the years, has become an increasingly demanding customer and is not the least bit forgiving if things don't go right. The fact that our Company was selected for this award reflects the fact that a lot of people in a lot of different parts of our Company did an excellent job day after day, month after month, so that our performance record moved to the top of the list at Boeing and was still there when the award recipients were selected.

Respironics Preferred Supplier Award

The Boeing award was not the only instance of unusual customer recognition. In our new Components Group, one of the most important customers, Respironics, awarded our Company their preferred supplier award. In order to win this award, we had to meet some very demanding quality and delivery requirements. In the case of the quality requirement, we were the only supplier to meet their very demanding standard. Once again, this was an award achieved because a lot of people did consistently good work over an entire year.

It's great when your customers recognize the good work that your company is doing. On the other hand, we, inside the Company, are also able to recognize when really important milestones have been achieved.

Two years ago, Lockheed selected our Company to lead a team to provide all the primary flight controls for the F-35 Joint Strike Fighter. The selected approach involved the implementation of a technology that has never before been used in primary flight control actuation for either military or commercial aircraft. It's called electrohydrostatic actuation. It allows the airplane builder to remove the central hydraulic system, transmit power to the actuators electrically, and drive the actuators with electric-motor-driven reversible pumps. When we were awarded this job, it would have been reasonable to expect that we would encounter normal development problems, that we'd be struggling to achieve the performance required, and that our customer would have the look of an expectant father wondering what was going to be delivered.

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