FY 2010

Space and Defense Q1 2010

Space and Defense had a strong first quarter and a good start for the year.  Quarter sales at $69.5 million suffer by comparison to last year only because in last year’s first quarter we shipped almost a year’s worth of systems for the Driver’s Vision Enhancer program.  This is the pan and tilt mechanism that goes on the MRAP vehicles.  Orders for this system come sporadically and they generally require delivery in a great rush.  The rest of the business was strong in the quarter.  The part of the Space and Defense business, which I call the legacy business, including controls for steering the rockets that launch satellites, controls that position satellites on orbit, steering controls for strategic and tactical missiles and missile defense, taken altogether, provided $36.9 million in sales for the quarter, a 26% increase from a year ago.  Satellite controls, which are over 40% of the legacy total, are up, reflecting consistent demand for both military and commercial satellites.  The launch vehicle business is up because of activity on the ATK Castor solid rocket motor and the Aerojet engines on the Orbital Sciences Taurus II launch vehicle.  This is one of the launch vehicles that’s considered a commercial launcher, the sort of launcher that the Administration is rumored to favor.  The legacy business is also up because of increased production volume on the Hellfire missile.  Hellfire has been used extensively in the conflicts in the Middle East.  

Our NASA work, which is primarily on the Constellation program, is up somewhat from a year ago.  

Defense Controls, which is primarily positioning systems for guns on military vehicles, is pretty consistent year to year excluding the impact of the Driver’s Vision Enhancer program.  We’ve seen some reduced revenue in the U.S. as a result of the cancellation of Future Combat Systems.  However, we have increased activity on the G/ATOR program in the U.S.  G/ATOR is a Ground-based Task Order Radar for the Marines.  We also have growing sales on a number of programs in Europe, including the FLW200  remote weapons stations in Germany and a number of applications in the Pacific Rim.

Some years ago we acquired the Flo-Tork Corporation in Orrville, Ohio as an entry point into the supply of controls for the Navy.  That business continues to grow because of increased production for the Virginia Class submarines.  Also last year, we purchased the company Videolarm, to expand our participation in the security and surveillance business and that part of our business is growing as well.  

As we look out over the balance of fiscal 2010 we’re projecting a fairly consistent level of activity in the legacy business and in Defense Controls, in Naval Applications and in Security and Surveillance.  We’re were looking for increased revenue from the Constellation Program.  We’ve recently signed contracts for a number of new applications.  These are cost-plus development contracts having to do primarily with the Ares I launch vehicle and the Orion crew vehicle.  A couple of months ago, when the results of the Augustine Commission hit the street, we were worried about the future of the Constellation Program, and particularly Ares I.  Since then it seems that Congress has come alive and provided funding for the current year.  In addition, Senator Shelby got language into a bill that requires the Administration to come back to Congress before they can alter the course of the Space Program during 2010.  It seems that in the Congress there’s considerable support for the current program.  Last week there were news reports that the Administration will not fund the Constellation program in next year’s budget.  That certainly puts the current plan for 2010 in doubt.  We’ve been planning on another $26 million in NASA billings in 2010.  At this point, we don’t know how much of that will be affected.  NASA may attempt to continue this work to a reasonable conclusion.  In evaluating the potential impact on our year it’s important to remember that this is cost-plus work with mid-single digit award fee.

On a brighter note, we do have new orders for Driver’s Vision Enhancer systems.  These systems are part of the Family of Systems program and we have orders from both the primes, BAE and DRS, and we’re quite confident in our updated forecast for DVE.  In total then, we’re still bullish on our forecast for the year of $320 million in sales, an increase of 17% over 2009.

Space and Defense Margins

Space and Defense margins of 10.8% were very close to the 11.3% that we had been projecting for the year.  Last year in the first quarter we generated stratospheric margins of 19%.  We explained at that time though that we had some very nice end-of-program profit pickups in that quarter.  In addition, that huge production volume on the DVE program provided a nice profit kicker in that quarter.  We don’t think of 19% as typical margin performance in Space and Defense.

Given the performance achieved in the first quarter and our expectation that the balance of the year may see a larger proportion of cost-plus development work, we’re moderating our margin projection for the year for Space and Defense to 10.2%.

Industrial Systems Q1 2010

In the first quarter of last year, Industrial sales of $110 million were down 10% from the year previous and then, excluding the effect of our wind energy acquisitions, Industrial sales continued to decline to a low point in the third quarter of about $84 million.  That portfolio of legacy products improved slightly in the fourth quarter to $88 million and has improved again in the first quarter of this year to over $91 million.  In addition, we’ve made the acquisitions in the wind energy business so that our sales in the quarter of $136.4 million were up 24% from quarter one 2009.  In the quarter, the wind energy product lines generated $44.9 million in sales, but the rest of the business was still off compared to the quarter a year ago by almost $20 million.  The good news is that some parts of the business are showing signs of life.  Sales of controls for plastics making machinery, which are part of our capital equipment category, were almost $13 million in the quarter compared to less than $10 million a quarter ago and less than $8 million at the low point in the spring of ’09.

And so we’re cautiously optimistic about our first cut at guidance for 2010.  We had projected our industrial business at $573 million and our original forecast included $220 million in wind energy.  We’ve seen some delays in wind energy projects in Europe so we have moderated that forecast to $190 million.  It seems that there is seasonality in the wind business; turbines don’t need to be delivered if the weather’s not suitable for construction.  In some parts of our legacy industrial business though we are feeling better so we believe that we can still hold the total forecast at $573 million.