Here's the other side of the coin. Every once in while, we have a manufacturing problem on the control equipment we deliver to the satellite industry. When that happens, it's generally expensive. In this quarter, we uncovered a problem in a thruster valve used on satellites. A production valve failed in test. The failure analysis discovered that in this particular valve design, there is a potential problem in the press fitting of a steel stop pin into the valve body. This design has been in production for many, many years and we've never experienced this problem before. We've been able, using CAT scan techniques, to evaluate the valves in house and based on our findings we have developed a model to estimate the costs of the recall. We have set up a reserve of $3.6 million in the quarter to cover this expense. So, the Lord giveth and he taketh away.

For the year '08, we have the benefit of the strong orders at QuickSet, and that phenomenon has offset some downward adjustments in other defense controls. The result is an increase in our Space and Defense forecast by $3 million to a new total of $246 million.

Space and Defense Margins

Given the extraordinary sales level at QuickSet and the profit contribution that generated, if we had not had the recall reserve, margins in Space and Defense would have been 18.1%. After providing for the reserve, margins in the quarter were a respectable 13%. This level compares favorably with margins in this segment for most quarters, but not the unusually high 15.1% margins in this second quarter of last year driven by strong Shuttle sales. For all of last year, we averaged 13.1%. We did 11.7% in the first quarter of this year and we are projecting more moderate margins as the year progresses. We're now projecting 11.2% for the year in total.

Industrial Systems Q2 '08

Industrial sales for the quarter at $130.2 million were up 17% from a year ago. As you know, the majority of our industrial revenues are generated outside the U.S. and so strong foreign currencies translate into increased sales. That effect certainly came into play in this quarter. Setting that aside though, our organic sales increase was 8%. This is excellent organic growth in the industries in which we're operating.

The largest dollar increase was in the motion simulator business. Sales of $17.2 million were up 31%. We had very strong deliveries to CAE and Flight Safety. Motion simulators is now our second-largest Industrial product line.

The most dramatic percentage growth in the quarter was in metal-forming presses. Sales of $13.7 million were up 36% from a year ago. Most of our customers in this product category are in Europe and so that's where most of the growth occurred. Increasing metal prices stimulate the demand for presses with more accurate controls, and that's where we come in.

Our sales in power generation increased by 17% to almost $12 million. Sales were particularly strong in Asia and most particularly in Japan where we're selling controls to Mitsubishi for gas turbines, to Toshiba for steam turbines, and to Fuji Heavy Industries for wind turbines.

Last quarter, our sales of equipment used in steel mills grew by 52%. This quarter, the year-over-year growth rate moderated to 18%. Sales in the quarter were $9.4 million. In the steel mill business, sales have been robust in China where we're delivering equipment for new steel mills and spares for mills that are currently running flat out. Business is also strong in Europe where mill operators are upgrading their capabilities.

Sales for controls for plastics machinery, our largest Industrial market, increased slightly to almost $20 million.