Given the continued strength in the commercial satellite market, we're increasing our forecast for satellite hardware by $3.5 million up to $50 million. We're making a number of other smaller adjustments in other product lines and in total we're increasing our Space and Defense forecast for '07 from $180 million to $182 million. That will be a 23% increase over last year's sales.

Space and Defense Margins

Last quarter, we had margins in this segment of 15.1% helped by the wrap-up of a large Space Shuttle refurbishment contract. We said that we didn't expect that performance to repeat every quarter. This quarter, Space and Defense margins were a very respectable 12.9%. We're now projecting year-end margins of 13.5%. This is a slight improvement from what we were projecting last quarter and it's a big improvement from the 9% that this segment actually achieved last year.

Space and Defense Forecast for FY'08

After a spectacular 23% sales increase in fiscal '07, we're projecting in fiscal '08, a more normal 7% increase to $196 million. You may remember that in '07 there was a big change in the mix of business in this segment. We had a sizable reduction in sales of fin controls for tactical missiles, but a huge increase in the Defense Controls product line that went from $35 million in '06 to over $62 million in '07. One of the major drivers for that sales increase was $18 million in revenue on the Marine Corps' Light Armored Vehicle. That program will finish in the early part of '08, and generate only about $4 million in revenue. We're looking for modest increases in other Defense Controls programs in ‘08, but we're expecting to end the year at around $51 million, down $11 million from fiscal '07.

The big increases in '08 will be cost plus development jobs on the Ares I Crew Launch Vehicle and Orion Crew Exploration Vehicle, both part of the system that will replace Space Shuttle. In '08, we're looking for $13 million in revenue on these programs, up from $3 million in '07.

We're also expecting a substantial $10 million increase in '08 sales on Launch Vehicles related to commercial space transportation initiatives. This is a newer market that has recently heated up and we're optimistic that our heritage will help us secure a sizable amount of business.

We're expecting the satellite business in '08 to be $48 million, close to the level achieved in '07.

At $26 million, the combination of Strategic missiles and Missile Defense will be up about $6 million from '07, but the Tactical Missile business at $20 million will be down about $3 million. We're looking for an increase of over $3 million in naval applications to a total of just under $11 million.

Given the shift from fixed production contracts like LAV and Space Shuttle refurbishment towards cost-plus contracts on Ares and Orion, we're projecting slightly lower margin performance for Space and Defense in fiscal '08. We're projecting 12%, which is down from the 13.5% we're looking for this year, but up substantially from the 8 and 9% levels of a couple of years ago.