FY 2009

Introduction

Good morning. Thanks for joining us. This morning, we'll report on the first quarter of fiscal '09, and we'll update again our guidance for the year. Two and one-half weeks ago, at our Annual Meeting, we suggested that when we got the books closed on the first quarter, it would probably come in between $.65 and $.70 a share. As it turned out, we're at the top of that range. First quarter earnings of $30.3 million produced earnings per share of $.70, up 9% from the $.64 per share in the first quarter of fiscal '08. Sales for the quarter of $446 million were $300,000 lower than the same quarter a year ago. On a constant currency basis, sales were up by 3%, but because the dollar strengthened against the Euro, our Euro sales translated into fewer dollars. 

Our cost of sales were slightly higher than last year. Our R&D expense at $25.1 million was $1 million higher than last year, but we had lower SG&A expense, lower interest, and we had other income produced by our 40% ownership of LTi REEnergy. All these puts and takes together with a very low 16.8% tax rate in the quarter produced net earnings of $30.3 million or $.70 a share. John will discuss the tax rate in a few minutes.

Now let me go to the segments.

Aircraft Q1 '09

Total Aircraft sales were $163 million, just a little ahead of last year's $160 million. This small increase was the net of a big increase in the military side, up 16% to $106 million and a 16% reduction in the commercial side to $58 million. The big increases in military sales came in three programs and in the aftermarket. Sales for the quarter on the F-35 Joint Strike Fighter were $31.4 million, up 36% from a year ago. Activity within our Company was up from last year only because we've started work on the low-rate production contract. Our partners in the development programs, though, seem to have stepped up their efforts in order to bring their contracts to completion.

We've started shipments on a substantial new order for flight controls on the Indian Light Combat Aircraft. Sales in the quarter were $4.6 million, up from $1.4 million last year. In addition, the increased production rate on the V-22 Tilt Rotor generated a 40% increase in sales to $10.2 million. And, we're pleased to report that the military aftermarket is picking up like we had anticipated. Sales in the quarter of $29.8 million were up 11% from a year ago.

On the commercial side, the decline in sales should not be a surprise. This was the quarter that included the Boeing strike. Our sales of equipment on the Boeing production aircraft at $8.3 million was a little more than half of our sales level last year. In addition, sales on the 787 were also down in the quarter so the total for Boeing Commercial was $12.6 million, down 38% from a year ago. Sales to Airbus of $5.2 million were up 6% from a year ago.

Our Business Jet product line also showed a decline. Sales of $13 million were down 18%, mostly having to do with a reduced level of shipments on the Hawker 4000. Although Hawker Beechcraft insists that they're maintaining their delivery schedule on this airplane, we have delivered more hardware than they're able to use, so our effort has slowed down.

The good news in commercial aircraft is that our aftermarket revenue at $21.1 million was almost the same as a year ago. The decrease was only 1%. In our forecast for the year, we are projecting a 10% decline so we now have one quarter's worth of data that suggests that there may be an upside in that part of our business.

Our previous forecast for Aircraft in fiscal '09 was a total of $680 million, up ever so slightly from the $673 million we did in fiscal '08. We're maintaining that forecast for total aircraft sales. There's a bit of a shift in that military sales will be up about $13 million to offset a comparable decline in the commercial side. The increase is primarily in revenue on the F-35 and a new order on the F-2 Japanese Fighter Aircraft. The decline on the commercial side is simply a slightly greater impact of the strike at Boeing. In our initial forecast, we presumed there would be just a two-month slowdown, but it seems the real effect is going to be three months since it's taking Boeing another month to get back up to production rate. In addition, I mentioned a reduced level of effort for the Hawker 4000.

Aircraft Margins

Margins in the quarter were a relatively low 8.3%, down from the 9.5% that we achieved in the first quarter of last year, but about where we had forecasted for the year. There is reason for optimism, though, in terms of Aircraft margins. This quarter we achieved the 8.3% in spite of the fact that during the quarter, we increased our loss reserve on the A400M, Airbus Military Cargo Aircraft, by over $1.5 million. This is not the first time that we've increased our estimate on this program, but this is a pretty substantial change. On the other hand, we're now 85% complete. So, hopefully, this is the last major change to this EAC. The change comes about as a result of redesigns triggered by test failures in safety of flight and qualification. In addition, we have encountered some of what we refer to as scope creep wherein in the interest of being judged a responsive supplier, we've performed some work and provided some service to the customer that was not part of the original scope of work. We do believe that our performance on the A400M has been helpful in our successes in competitions on the A350.

With respect to margins, the positive is that margins should improve in the Aircraft business for the balance of the year and we're increasing our margin forecast for the year from 8.4% to 9.3%.