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Introduction

Good morning. Thanks for joining us. This morning, we’ll review the results for our third quarter, we’ll update our guidance for the balance of fiscal ’09 and we’ll provide our initial outlook for 2010. The good news in this call is that 2009 is getting better, not worse. More importantly, 2010 promises to be a year of recovery and our recovery does not depend on an improvement in the industrial economy. But more about 2010 in a few minutes.

Sales in the third quarter of ’09 were $445 million, net earnings were $15.9 million, and earnings per share were $.37. We normally make the comparison to the third quarter of last year but that simply underscores the fact that at this time last year the recession hadn’t found our company and we were still on a trajectory of growth in sales and earnings. The world is different this year and in this year’s third quarter sales were down 10% and net earnings and earnings per share were about half of what they were last year. On the other hand, if we compare to our most recent guidance, we’re actually doing better. In April, when we reported our second quarter, we had year-to-date earnings per share of $1.25. We were projecting $1.95, after restructuring, for the total of ’09 so we would’ve expected to average $.35 a share over the next two quarters and this quarter we came in at $.37. In addition, we the made the $.37 a share in spite of heavy restructuring expense. We had projected $15 million of restructuring in the last half of ’09 and in the third quarter we expensed almost $10 million of that.

So, looked at from an overall earnings and earnings per share viewpoint, we are on track for a better result in ’09. We’re now projecting earnings per share of $2.02 after a $.25 per share restructuring charge.

The results for the quarter were achieved in an unexpected fashion. Our Aircraft, Space and Defense and Components segments all came in about where we expected. Our Industrial Systems segment was a little light on sales but strong in earnings. The Medical Devices segment had a terrible quarter, much worse than we anticipated, and then a miracle occurred in our tax rate. Because of strong earnings in low tax jurisdictions, our tax rate for the year is going to be much lower than we had anticipated and as we made that adjustment in the third quarter, our tax rate for the quarter came in at 3%.

If we look at the P&L, sales compared to third quarter ’08 were down 10%. Cost of sales was up as a percentage on lower sales. Our R&D expense was down by almost $8 million, in part because of reduced expenditures on the 787. SG&A was down in the quarter in absolute dollars but up as a percentage of sales. We incurred a restructuring expense of $9.9 million in the quarter. Interest was about the same as last year. We have $3.4 million of other income which is mostly the equity earnings on our investment in LTi REEnergy. All that gets us to just over $16 million pre-tax and with a tax rate of 3% for the quarter we achieved net earnings of just under $16 million.

Now let me go the segments.

Aircraft Q3 '09

Total aircraft sales of $162 million were down 8% from a year ago. Military aircraft sales were down 3% to $103 million. The reduction has all to do with the reduced activity on the F-35 development program. F-18 sales at $8.7 million were actually up 11%. Most of the rest of our production programs came in at about the same level as last year. We had a big increase in sales on the Indian Light Combat aircraft which offset reduced revenue on the Japanese F-2 fighter. Military aftermarket at $32.4 million was actually up 3% or $1 million from a year ago. The F-35 development programs though, are winding down. We had revenue this quarter in total of just under $24 million. Last year the total was over $30 million. Of the $24 million, almost $15 million was work done in our company compared to over $20 million a year ago. The program is going well for us. The hardware we’ve designed is performing very well. As the flight test program continues it demonstrates our capability to do flight control actuation systems that involve high power electronics and complex software. This is a major step forward for our Company.

Sales in commercial aircraft were down 29% to $48 million. Every category on the commercial side is down. Our OEM revenues on the Boeing 7-series aircraft at $7.4 million were a little more than half of what we delivered last year. We booked sales of $3.4 million on the 787 program, down 21% from a year ago. Sales to Airbus of $5.6 million were about even with last year, but our business jet sales of $6.5 million were down 60%. Sales are down with every biz jet customer including Hawker Beechcraft on the Horizon and the Premier, Bombardier on the Challenger 300, Gulfstream on the G4 and the new G250, and Cessna on the Citation 10. If there’s good news on the commercial side it’s that the commercial aftermarket revenues are no worse than we predicted. Sales in the quarter of $20 million were down 13% from a year ago which is slightly better than what we had anticipated.

I mentioned a few minutes ago that our R&D on the 787 was down. We spent $4.2 million on that program in this quarter which is less than half of what we spent a year ago. On the other hand, we are ramping up on the A350. We’re now expecting that our R&D spending for the year will total $21 million on the 787 and close to $23 million on the A350. We expect Aircraft R&D in total to be just over $60 million for the year.

Last quarter we described a new revenue category in our Aircraft business, Navigational Aids. This product group is the combination of the TACAN business that we acquired from Raytheon in 1998 and our recent acquisition of Fernau Avionics. Sales in this product line were $10.9 million in the quarter. We’ve had some significant new wins including a system in India and a shipboard TACAN system in Korea. We’ve increased our forecast for the year from $28 million to $32 million. The Fernau acquisition is proceeding very nicely.

Aircraft '09

For the balance of ’09 we’re anticipating a $6 million increase in our forecast for the year to a total of $652 million. The change is the net of small increases in sales on the F-35, and the Indian LCA, on the military aftermarket and in Navigational Aids offset by further reductions in sales to Boeing Commercial and our business jet customers.

Aircraft Margins

Margins in the quarter before restructuring of 9.4% were up substantially from the 6.9% of a year ago. Last year’s results were heavily influenced by a high level of R&D and the charge we took on the A400M. In this quarter we’re taking a charge to reflect an increased estimate at completion on the Gulfstream G250. We’ve encountered some unanticipated FAA requirements. We’re going to have to hire outside contractors to perform the DER function that we expected to perform internally.

During the quarter, Aircraft Group took a charge of $2.1 million for restructuring. This all has to do with the changed situation at Boeing. Much of the OEM equipment we build for Boeing Commercial is produced in our factory in the Philippines and we had staffed up that factory to meet the original 787 production schedule. As you all know, that schedule has changed dramatically. We’ve had that additional staff employed building our inventory reserves on other Boeing production aircraft, however, the rates on some of those programs are also reducing. The result is that our manpower forecast for that factory would not support the staff that we’d acquired. So in this quarter we reduced the size of our Philippine manufacturing operations. The net margin in Aircraft then, after restructuring, turns out to be 8% for the quarter. Including the restructuring impact we’re now forecasting Aircraft margins for the year of 8.6%

Aircraft Forecast 2010

For fiscal 2010 we’re forecasting Aircraft sales of $653 million, just slightly higher than our current forecast for ’09. This is a remarkable result in light of the fact that revenue on the F-35 development program will decline by almost $48 million. F-35 sales will go from just under $103 million in ’09, to $55 million in 2010. This reflects the completion of many aspects of the development programs offset by $20 million in revenue on the low rate initial production. Many other military aircraft programs will experience increased sales including the V-22, the F-15, the Indian Light Combat Aircraft, the Japanese F-2 Fighter, and the Blackhawk helicopter. In addition, we’re forecasting a
$9 million increase in the military aftermarket to $137 million. So in total, we’re projecting military aircraft sales of $385 million, down $26 million from ’09, but then we’re projecting a $9 million increase in commercial aircraft sales and an $18 million increase in sales of Navigational Aids. In commercial aircraft we’re anticipating a resumption of normal deliveries for the Boeing 7-series production aircraft, which should take us to revenues of $45 million. At the moment we’re forecasting $16 million in sales on the 787, up from $12 million in ’09. In light of the evolving 787 story at Boeing, it’s possible that our FY10 sales could be lower than this initial forecast. However, as we’re currently booking these sales at a breakeven margin, any schedule slide won’t have a noticeable impact on operating profit. Our Airbus sales at $22 million will be about the same as ’09, but business jet deliveries at $33 million will be down $9 million. We’re projecting a continuation of aftermarket revenues at just under $80 million. That gets us to a total of $218 million for commercial aircraft and, as I mentioned a minute ago, we’re anticipating a substantial increase in navigational aid revenues to a total of $50 million. In ’09 we had only seven months in Fernau acquisition sales. The growth is also fueled by the recent wins in OEM systems for military customers.

We’re projecting margins for 2010 of 9% in the aircraft business, a modest increase over the 8.6% that we’re currently forecasting for ’09. We’ll be helped in that improvement by slightly reduced levels of R&D in the aircraft business.

Space & Defense Q3 '09

Space and Defense had a very solid quarter. Sales of $65 million were up only 2% from the same quarter a year ago, but the quarter to quarter comparison is very much influenced by the Driver Vision Enhancer program at QuickSet. You’ll remember that toward the end of calendar year ’07 we got a very large order for Driver Vision Enhancer systems that were going on the MRAP vehicles. That order was delivered through the last three quarters of ’08. In the third quarter of ’08, the subject of the current comparison, sales on that program were $4.6 million. In this quarter they were less than $100K. Setting that one program aside, sales in the quarter of $65 million were up 10% or $5.8 million. Of that increase, $1.3 million was generated at CSA Engineering – the acquisition that we completed in the third quarter of ’08. In addition, there was continued strength in controls for satellites – particularly on the commercial side. Sales of thrust vector controls for launch vehicles were up, the result of increased activity on Delta IV and on the Taurus II at Orbital Sciences. Our tactical missile business was up by $1.3 million reflecting work on the TOW missile, on the new Joint Air to Ground Missile (or JAGM), and on a program called MALD. MALD stands for Multiple Air Launched Decoy system. In total, what I’ve referred to as our legacy controls product line, which includes satellite controls, launch vehicles, strategic and tactical missiles and missile defense, had sales in the quarter of $29.8 million, up $3.6 million.

In our defense controls product line, sales other than the Driver Vision Enhancer were up over a million dollars to $14 million. Increases on the FLW100 and 200 gun stabilization programs in Europe, on the turret for the MK46 gun system on the LPD 17 and controls on the G/ATOR ground-based mobile radar offset lower deliveries on the CV9035 in Europe.

I mentioned that during the quarter there was very little activity on the Driver Vision Enhancer program. Many of you have been following the Family of Systems award to BAE and DRS. There’s the potential that that program represents demand for literally thousands of pan and tilt systems. At present, we’ve been awarded contracts by both DRS and BAE for a small number of qualification units. We’re expecting low rate initial production contracts to be awarded later this quarter which will result in sales next fiscal year of $3 million and we expect another $7 million in follow-on production orders.

Moving to the Constellation Program, sales in the quarter of $4.6 million were down from $7.2 million a year ago. This reflects the completion of some of our work on the Ares I vehicle and a relatively slow start on the Orion Crew Exploration Vehicle. NASA has been moving slowly on commitments for the design of the Orion. They were waiting for the confirmation of a new administrator. We’re hoping that the award of contracts will begin in earnest in the fourth quarter of ’09 and in the early part of 2010.

Our Homeland Security product line was up nicely in the quarter to $8.2 million, an increase of over $2 million, all having to do with the acquisition of Videolarm – a company that makes enclosures for surveillance systems.

Lastly, sales of naval applications were up in the quarter to $2.7 million – reflecting increased activity on Virginia-class submarines.

Space & Defense '09

We’re projecting sales in the fourth quarter of just over $66 million, up slightly from the third quarter. We expect that the increase will show up primarily in homeland security and in vibration controls. This will bring us to sales for the year of $271 million, which is just about what we were forecasting 90 days ago.

Space & Defense Margins

Margins in the quarter were 11%, slightly down from the comparable quarter last year. This margin result was achieved in spite of a different product mix. Last year’s third quarter had a stronger component of mature strategic missile programs and $4.6 million of DVE sales. We’re forecasting margins of 11.3% in the fourth quarter which will bring the year to 14%.

Space and Defense 2010

Space and Defense should experience strong growth in 2010. We’re projecting an increase of $46 million or 17% to a total of $317 million. We’re forecasting a $10 million increase in launch vehicle sales based on the work on the Taurus II and Castor launch vehicles. We expect Hellfire revenues to double to $19 million. There’ll be increased sales in missile defense. The Constellation Program should double to over $34 million as the work begins in earnest on the Orion crew vehicle. The homeland security product line should be up $12 million. Naval systems and vibration controls will both be up. We are anticipating that our satellite revenues will be down $8 million to about $53 million as some of our major customers rebalance their inventory. We’re forecasting $10 million in revenue on Driver Vision Enhancers compared to the $16 million we’ve experienced in fiscal ’09. All in all, we’re looking for a strong sales year in Space and Defense. We are anticipating moderation in margins reflecting the increased component of cost plus sales in the Constellation Programs. We’re projecting margins for the year of 11.3%.

Industrial Systems Q3 '09

Industrial sales in the quarter were $102 million, down 28% from a year ago. However, the $102 million includes almost $19 million in sales from the LTi and Insensys wind energy acquisitions. You’ll remember that in June of ’08 we bought 40% of LTi and we completed the acquisition in June of this year. Over that 12 month period we had been using equity accounting and not recording LTi revenue. Since we acquired the remaining 60% in June of this year, we’re now recording revenue and in one month LTi generated $17 million in sales. In addition, our other wind energy acquisition, Insensys, generated sales of $1.8 million. Without the revenue of those two companies sales of the legacy product line would have been $84 million in the quarter, down 41% from a year ago. A part of the reduction is foreign exchange but on a constant currency basis the actual decline in the quarter was still 37%.

Excluding the effect of these two new acquisitions, sales were down in every major product line. Historically, controls for plastics making machinery have been our largest industrial product line. Sales in the quarter of $7.9 million were down 64%. Sales were down all over the world but in this product line our major concentration is in Europe where sales in the quarter were $4.9 million, down from $14 million a year ago. The good news is that incoming orders in total for this product line were actually up from last quarter and very close to our shipment level. It seems that our major customers have burned off their inventory.

Our best performing product line in the quarter was power generation. Sales were $13.1 million, down only 5%. Sales of controls for power generating equipment were actually up in the US by a few hundred thousand dollars. They were about even in the Pacific and down in Europe.

Our next largest product line is motion bases for simulators. Sales in the quarter of $11.5 million were down 46% from the very high level of a year ago. Last year was a year of remarkable growth; sales in all of ’08 were up 56% from the year previous. We’re now forecasting simulator sales for this year at just under $60 million which will be down from last year but up 24% from fiscal ’07.

In recent years we’ve enjoyed robust sales of gauge controls for steel mills, primarily in China. That activity has slowed some; sales of $8.4 million in the quarter were down 23% from a year ago and we’re expecting a further reduction in the fourth quarter.

The situation in controls for metal forming equipment is similar to that in plastics. Sales in the quarter of $5.2 million were down 62% from a year ago. Our incoming orders for this equipment are still lower than our shipments. We expect that many of our major customers will take some or all of the summer off and thereby reduce their capacity.

There is one other product line which is doing better than most and that’s specialized test equipment for the aerospace and auto industries. Sales in the quarter of $7.6 million were down only 11% from a year ago and we have a backlog which will support slightly increased sales in the fourth quarter.

Industrial Systems '09

In the fourth quarter we should see revenues from LTi and Insensys, our new wind energy acquisitions, totaling $48 million, a $29 million increase over what we booked in quarter three. This of course is because we completed the acquisition of LTi in June and booked revenues in the third quarter for only one month, whereas in the fourth quarter we get three months of revenue. Other than that we’re anticipating a sales quarter very much like quarter three. The total will be $133 million which will take us to $450 million for the year. This is down almost $20 million from what we were projecting 90 days ago.

Industrial Systems Margins

Industrial produced operating profit in the quarter of $8.5 million before a restructuring charge of $7.7 million, so the operating profit was less than 1%. The operating profit percentage before restructuring was considerably better than what we had anticipated, but we took a heavy restructuring charge in this quarter. We had been projecting that Industrial would finish the year with margins of 7.1% before restructuring, or $33.5 million in profit. We’re now convinced that Industrial will finish the year with margins before restructuring of 9% and will generate $41 million in operating profit. After restructuring the operating margin should be 6.3%.

Industrial Systems 2010

For fiscal 2010 we’re forecasting revenues in all our major product lines that are a continuation of the level that we are achieving in the last half of ’09. Setting aside for the moment the revenues from our new wind energy acquisitions, this sales level would be $337 million on an annual basis, down from $382 million in all of ’09 and $532 million in 2008. However, our wind energy acquisitions are expected to provide $235 million in revenue, up from $68 million in ’09. This would bring our 2010 Industrial total to $573 million, a 27% increase over fiscal ’09. Since our wind energy acquisitions are still carrying heavy purchase accounting expenses we’re projecting margins of 8.2% before restructuring. We do anticipate modest restructuring charges in 2010 that will bring margins down to 7.8% for the year.

Components Group Q3 '09

Sales for the Components Group at $90.4 million were up 4% from a year ago. Some of the Components Group sales are in Sterling and Canadian dollars and compared to last year the strengthening dollar reduced sales by $3.1 million.

The sales increase was really driven by the military aircraft business and defense controls on military vehicles. The military aircraft sales increase was over $7 million and almost half of that was the Northrop Grumman Guardian program. We’ve talked about Guardian in the past – this is a system that protects military aircraft and potentially commercial aircraft from shoulder-fired missiles. Sales on the Guardian program are currently over $6 million a quarter. The other important aircraft programs are Raytheon’s multi-spectral targeting system and Lockheed’s Arrowhead and Sniper programs. We’re also experiencing continued activity on the de-icing systems for both the Sikorsky Blackhawk and the V-22.

Our commercial aircraft component sales were down in the quarter reflecting reduced deliveries of avionics components to Rockwell Collins and Honeywell.

In the space and defense part of the Components business revenues are strong in military vehicles. The major programs are with Raytheon on the Commanders Independent Viewer for the Bradley and the Abrams. We also supply slip rings for the turrets on those vehicles. We’ve just begun shipments on the Crows Remote Weapon System for Kongsberg. The missiles business is also pretty consistent quarter to quarter.

Sales on marine products at $12.2 million were about the same as a year ago, however in this year’s quarter we’ve had the benefit of major sales of FPSO’s. These are large slip rings used on floating production, storage and offloading vessels used in offshore oil exploration and production. Given the moderation in the price of oil we’re now experiencing reduced order input and anticipating lower sales in marine products as the year progresses.

Our sales in the medical equipment market at $11.7 million were down 20% from a year ago. We’ve experienced reduced sales to Respironics reflecting not only the lower unit price of the product we are currently delivering, but also an effort on the part of Respironics (now owned by Philips) to accomplish a dramatic reduction in inventory.

Slip rings used on cat scan machines is our other major medical product line and in this area we seem to be experiencing, second hand, the same reduced demand that we’ll be talking about in a minute in our Medical Devices business.

Lastly, sales of components used in general industrial equipment were also down in the quarter about 30% to $10.8 million. The good news here, if there is any, is that our industrial sales appear to have leveled out and are actually up slightly from the quarter before and our bookings for this quarter were also up a little bit. The closed-circuit TV application has seen the most dramatic decline compared to last year - a reduction of 55%. But we are also experiencing a 30% reduction in products sold in industrial automation. The one bright spot in our industrial product line is the wind energy business where we sold almost a million dollars worth of slip rings. This market continues to grow. Recently we won a major order for slip rings with Sinovel, the largest wind turbine manufacturer in China.

Components Group '09

Last quarter we reduced the Components Group forecast for the year down to $330 million. The recent strength in military aircraft business and in defense controls products have persuaded us to revisit that forecast. We’re now coming up to $342 million, a $12 million increase. We’re expecting military aircraft sales will be $107 million. Our most recent forecast was $96 million and this is an increase from $82 million last year. In defense controls we’re currently forecasting $64 million. Ninety days ago we projected $57 million. We’re making one downward adjustment in marine products reducing the forecast of $43 million to $40 million. This move is based on incoming order activity which seems to be reflecting a moderation in the price of oil.

Components Group Margins

Margins in the quarter of 16.2 % were down from 17.4% from last year. The change in margins is simply the result of a changed product mix. The shift away from industrial and standard marine products in favor of heavy shipments of FPSO slip rings result in a slight moderation in margins. If we have another quarter in this same range we’ll wind up at 17.3% for the year – just slightly below what we were projecting last quarter. On the other hand, it appears that these margins will be achieved on slightly higher sales, so the operating profit target will be met.

Components Group 2010

We’re projecting a modest 7% increase in Components Group sales to a total of $365 million. We expect that military aircraft sales will increase from $107 million to $121 million based primarily on having the Guardian program at full rate for the whole year. The space and defense product line will be up slightly to a total of $81 million. We’re anticipating increases in our medical, industrial and wind energy product lines to be offset by an $11 million reduction in sales of marine products.

Every year we project margins for the Components Group on a conservative basis. Based on the product mix we’re forecasting for 2010, we’re projecting margins of 15.4%, down from the 17.3% we’ll average this year. We’ll hope that once again this is a conservative forecast.

Medical Devices Q3 '09

The Medical Devices business has turned out to be a real roller coaster ride. The year began with first quarter sales that were very low and a loss at the operating profit line. Second quarter sales of both pumps and admin sets recovered but earnings were negated by the expense of a recall effort in enteral pumps and increased costs for purchased components. We left that quarter modestly optimistic about our prospects for the balance of the year. Instead of that, in this third quarter the Medical Devices segment seemed to suffer something like the perfect storm. That may be an overused cliché these days but it seems appropriate for the results in this segment. Sales of
$26 million included $7.5 million from the recent acquisitions of Ethox and Aitecs. If we make a comparison just on the basis of the businesses that we owned last year, sales were down by a third. That’s a level even lower than the first quarter of this year and at the time we thought that quarter was an aberration. In addition to the low sales, the product mix was stronger on enteral pumps and sets which are not the high margin parts of our product line. As a result, operating profit was a big negative and I’ll talk more about that in a minute.

In reviewing the sales results for this quarter and for the year to date I think we can describe some lessons that we’ve learned about this business. First of all, it’s not a recession-proof business. Hospitals are worried about their shrinking endowments and hospital admissions are down by 30%. In many instances we’re told that hospitals have established a hold on capital expenditures for all of this year. One might think that out-patient clinics would be less affected. Their businesses are supposed to be more stable but once again we’re told that the companies that own these clinics are watching their cash flow and deferring purchases.

Secondly, we’ve learned that there’s quite a bit of quarter to quarter volatility in the sales of these products. Some of that may have to do with inventory management in the hospitals and the clinics and some of it with the buying patterns of distributors and manufacturers reps.

Thirdly, we’ve learned that any suggestion of a reliability problem with your product can develop into a rumor that lingers in the market much longer than you’d expect and longer than it should. In the early part of this year there was an allegation that our intravenous pump, when dropped from six feet, might require recalibration. We made a product improvement to protect the pump from such an event. That product improvement should be described as a field correction but confusion about that product change seems to have caused delay in the commitment of some major purchasers. Similarly, you’ll remember that in the first quarter we encountered a very subtle software problem in our enteral pumps. That problem triggered a field retrofit. The fix is in, the software update is complete, but there is still some apparent hesitation in the market.

Lastly, we’ve discovered that this type of product is not recession-proof in the European market either. Although the healthcare systems there may be quite different, and the buying decision may be made in different places, it seems that in the midst of an economic slowdown healthcare professionals buy less equipment.

So that’s the situation we find ourselves in. Now let me go to the quarter’s results.

In describing the quarter I’ll start with the parts that were not so bad. The recent acquisitions (Ethox and Aitecs) generated sales of $7.5 million, about 13% below our most recent forecast. In the case of Ethox, the shortfall was in contract manufacturing. From a strategic point of view that’s not the business that we’re the most interested in. Aitecs is the syringe pump company in Lithuania. The difficulty there is that many of their customers are in countries that were formally part of the USSR. Most of the medical facilities are government funded and in many of these governments have cut back on their funding for everything including new equipment. We would have been slightly happier with better results from both of these acquisitions but they’re not our real problem. Our problem is in the sales of infusion pumps, both IV and enteral, and in the sales of administration sets.

Pump sales in the quarter of $5 million were down 42% from a year ago. They were less than half the sales in the most recent quarter. Hence, my comment about volatility.

Sales of administration sets at $8.7 million were down only 5% from a year ago. Because of the volatility of admin sales, we’re not sure that this is a trend. If we take our sales for the last four quarters, they’re actually up a few percentage points from the preceding four quarters. However, in this particular quarter, the bulk of the sales were on admin sets that are of the less profitable variety.

Sales of sensors and hand pieces at $3 million were also about half the level from a year ago. Since we sell sensors to other infusion pump manufacturers our sales would suggest that their pump sales are down about the same percentage as ours. All in all, it was a pretty grim picture in the third quarter.

Medical Devices Margins

The recent acquisitions of Ethox and Aitecs, although running at sales volumes below our plan, just about broke even on an operating basis. The purchase accounting expenses drove them negative by nearly $1 million dollars. The very low sales volume for the rest of the business, $9 million down from last year, resulted in an operating loss which brought the total for the quarter to $4.4 million negative.

Medical Devices '09

For the fourth quarter we’re forecasting a modest recovery in sales of both pumps and sets. We’re forecasting pump sales at $7 million, up from $5 million this past quarter. Our field sales force has provided a detailed forecast which suggests that this result is possible. In admin sets we’re forecasting sales of $9.2 million, about what we have averaged in the first three quarters. We’re projecting sensors and hand-pieces at $3.4 million, up about 10% from the average of first three quarters and we’re expecting a continuation of the current level of sales at both Ethox and Aitecs. The total for the quarter would then be $30 million. We’re projecting that with the modest sales increase in the fourth quarter, taken together with some of our cost reduction efforts, we will cut in half the loss that we experienced in the third quarter. We expect an operating profit that will be negative $2 million. This will result in a total for the year of $110 million in sales and an operating loss of $8.6 million or 7.9% of sales. This is certainly not the result that we’d anticipated when we got into this business. On the other hand, our plan for success in the Medical Devices business was not anticipating the backdrop of a global recession.

Medical Devices 2010

We are expecting that 2010 will be different. As in our other businesses, we’re not premising our improvement on a major economic turnaround, but we’ve made a number of changes that will impact our business.

First of all, we go into 2010 with a broader product line. We’ll be introducing our large volume infusion pump and we’ll be introducing the Aitecs syringe pump into the US market.

Secondly, we will have considerably strengthened our sales and distribution organization. We now have available the Aitecs distribution network in Eastern Europe for our infusion and enteral pump products. In addition to that network we’ve added ten other international distributors for a total of 14 in a broad range of countries including Canada, Australia, and the mid-East. Perhaps more importantly, we’ve doubled the size of our domestic sales force to work with our domestic distributors in support of their sales efforts. We of course believe that we’ll be out from under the cloud of IV pump malfunctions and enteral software problems.

On the cost side we expect to achieve some economies by improving the supply chain that supports all of our recent acquisitions. We’re in the process of streamlining our organization in terms of indirect expense. And we have the major initiative underway to develop our own facility in Costa Rica to provide disposables. We expect the major impact of that capability to occur in the last half of 2010.

With those plans in mind, we’re forecasting pump sales in 2010 of $36.4 million, up 29%. We’re anticipating continued growth in administration sets to $42.4 million, an increase of 16%. We are projecting a recovery in sensors and hand pieces to a total of $16 million and we’ll have a full 12 months of both Ethox and Aitecs for a total of $29 million. Together, with sales of other accessory equipment, we’re forecasting a total of $129 million and operating profit of 4.7% or a positive $6 million. Of the $14 million change in operating profit, about two-thirds depends on increased sales and the balance will be the result of cost reduction efforts and a more favorable product mix.

We’re occasionally asked if we knew then what we know now about the Medical Devices business, we would still have taken this initiative. My response is this. I believe that over the next few years the talented group that we have assembled in this segment will continue to elaborate what is already an excellent product portfolio. We’ll be able to avoid the product problems that we’ve recently experienced, we’ll get our costs under control, and most importantly we’ll learn effective distribution of this type of product. So I still believe that in the long term this segment will be a major contributor to the growth and profitability of our Company. Looking back, one can second guess our timing, particularly if we had the clairvoyance to know that 2009 was going to be a year of recession. I believe the real mistake we made was in projecting that we would enter this market and immediately enjoy very high operating profits. In retrospect, we should have anticipated that in entering this market, like every other market we’ve entered, operating profits in the early days would likely be modest and may actually require some investment. But we’ve learned new markets before and in the end they’ve been worth our initial investment. I think we, and you, should give this initiative more time and a somewhat better economy before we make a judgment as to whether will achieve our long-term objectives.

Summary of Guidance for Fiscal '09 and '10

Let me now try to put the whole picture together for both ’09 and 2010. Our total sales forecast for fiscal ’09 is now $1.825 billion. We’re anticipating operating profit of $188 million before restructuring and $173 million after restructuring. That will turn out to be 9.5% of sales. Taken together with the rest of our cost structure and our new low tax rate, these operating profits will generate net earnings of $86.8 million, or $2.02 a share, up from $1.95 that we were projecting 90 days ago. Ninety days ago we also talked about a range of uncertainty of +/- $.20 a share. We now think that range has narrowed substantially so we’d recommend looking at the $2.02 a share (+/- $.05).

For 2010 we are now projecting sales of $2.037 billion and an operating profit of just under $202 million, or 9.9% of sales. With a more normal tax rate of 27.7%, we’re projecting net earnings of $101.4 million or $2.36 a share. That forecast should probably be bracketed by +/- at least $.10 a share. We expect that the first quarter will be about $.50 per share and the following quarters will grow at about 10% per quarter. If we make the $2.36 that will be 17% increase over what we expect from fiscal ’09 and we will have resumed our trajectory of annual increases in sales, earnings, and earnings per share. With that, I’ll turn you over to John who will talk about cash flow, taxes, and credit. Here’s John Scannell.

John Scannell, CFO

The headlines this quarter include strong cash flow, a very low tax rate and a favorable amendment to our revolving credit facility. Let me start with our cash flow.

Q3 Cash Flow

Free cash flow this quarter was positive $15 million. The operational focus on improving our cash performance is starting to bear fruit as our change in inventories, receivables and payables contributed a net $13m in cash. Year to date free cash flow is positive $20 million. Net debt increased by $23 million in the quarter as we completed the acquisition of LTi. Capital expenditures were $21 million while depreciation and amortization was $20 million. Finally, interest payments totaled $10 million and our cash tax payments were $9 million.

Taxes

Our effective tax rate in the quarter was a very low 3.0%. There are two factors driving this abnormally low rate. The first is some special benefits which we enjoyed this quarter and the second is the result of a re-estimate of our average rate for the total fiscal year. On the specials front we had the reversal of FIN 48 accruals from fiscal 2005, a favorable final US tax audit for fiscal 2007, higher R&D tax credits as a result of completed audit work for fiscal 2008 and finally the effect of LTi equity earnings in this quarter. On the average rate front we have refined our forecast to reflect higher earnings in lower-tax jurisdictions, particularly China, and lower earnings in the US. The net result has been that we have reduced our calculated rate for the year and have taken the year-to-date adjustment in Q3. When you combine these tax specials with the low level of pre-tax earnings this quarter the effect is a significant reduction in the effective rate for the quarter. This will not repeat in Q4.

Other Items

Our equity-based compensation expense in the quarter was $1 million while contract loss reserves dropped by $1 million from the prior quarter. We contributed $8m to our US pension fund. At the end of June our Net Debt to Total Capitalization stood at 42%.

Credit Situation

As we mentioned last quarter our most important covenant at present is the maximum leverage ratio under our senior revolving credit facility. This covenant limits our net debt over an adjusted EBITDA. The adjusted EBITDA allows us to add back non-cash expenses and also includes the 12-month trailing pro-forma EBITDA from acquisitions. Last quarter we reported that our projected leverage ratio would peak at about 3.1x towards the end of calendar 2009. Given the heightened interest in credit availability in the market, the general economic uncertainty and the desire to continue to take advantage of growth opportunities, we felt it would be prudent to negotiate a modification to our agreement with our bank group. In June we revised our agreement to increase the maximum leverage to 4.0x and included an add back for restructuring charges through the end of calendar 2009. As a result, the interest rate on our senior facility increased by 50 basis points (bps). Over the course of a full year this will add about $2 million of interest expense at our current debt levels. You’ll recall that our senior credit facility does not mature until 2013. With the revised covenant, our credit situation at the end of June included over $330 million of available bank credit and $77 million in cash on hand. At the end of June our leverage was just under 2.8x.

Forecast for Fiscal '09

Last quarter we projected break even free cash flow for the remainder of fiscal 09. This quarter turned out much better than anticipated but I am reluctant to call one quarter a trend so I am sticking with a break even quarter for Q4 to give us a positive $20 million for the fiscal year. Perhaps we will do better. Capital expenditures for the year should come in around $90 million while depreciation and amortization will be $77 million. Interest expense of $38 million will be slightly higher than our last forecast due to our revolver modification. We are moderating our forecasted tax rate to 23.9% driven by higher forecasted earnings in our foreign subsidiaries.

Fiscal '10 Forecast

For fiscal 10 we are projecting an improvement in free cash flow to $60 million, a 60% conversion ratio. Capital expenditures will moderate from the fiscal 09 level to about $75 million. Depreciation and Amortization will be $86 million. We are anticipating an increase in our average tax rate to 27.7%. This year we had several one-time benefits which will not repeat in fiscal 10. Finally interest expense next year at $41 million will be up from this year due to the increased costs associated with our recent revolver modification and higher average debt levels.

Now let me pass you back to Bob to lead the Q&A discussion.

(Please note that the Q&A portion of the call is not available.)