FY 2010

Introduction

Good morning.  Thanks for joining us again.  This morning we’ll report on the first quarter of fiscal 2010 and we’ll affirm our guidance for the year.  We have seen some shifts in sales mix in our various segments but we’re still comfortable with the overall guidance we’ve provided for 2010.  

By now you’ve probably seen our results for the first quarter.  Sales of $495 million were actually up 11%.  Net earnings of $21.6 million were down from last year and earnings per share of $.47 were two-thirds of the $.70 a share we made in the first quarter of ’09.  You might expect adverse comparisons to the first quarter of ’09, since that was the last pre-recession quarter for our Company.  In that quarter we had a solid mix of business, a low tax rate and net earnings of 6.8% of sales.  At $.70 per share, it was the strongest quarter of our fiscal ’09.  By the second quarter the global recession had found us and our earnings came down quarter by quarter, such that in the last quarter of fiscal ’09 we made $.35 a share.  In our guidance for 2010 we’re projecting a year of recovery and we think we’re off to a good start.  Our first quarter earnings per share of $.47 are up nicely from the preceding quarter of $.35 a share.

A look at the P&L tells you that sales were up 11% as I said a minute ago.  Gross profits were lower as a percentage of sales than last year, reflecting a somewhat less favorable product mix.  About $81 million of this quarter’s revenue are from recent acquisitions including the GE flight controls business in Wolverhampton.  Purchase accounting hit those sales depressing the operating margins.  R&D for the quarter was actually down but SG&A expenses were up almost $9 million.  Most of this increase is the SG&A of the recently acquired companies.  Interest expense was up $1.1 million.  Last year we also had the benefit of $2.5 million of other income that included profits from our minority investment in LTi REEnergy.  At that time we owned 40% of that company so we were not consolidating sales; we were simply taking our portion of the profits into other income.  This year, since we own the whole company, sales and costs for those products are consolidated.  Also in the first quarter of 2009 we had an extraordinarily low tax rate.  This year we’re back to a more normal 26.8%.

Now let’s go to the segments.

Aircraft Q1 2010

Total Aircraft sales of $175 million were up 7%, with the increase provided by recent acquisitions.  In the military aircraft business our OEM production volume was about the same as last year.  The F-35 development programs were running at less than half of last year, but sales at Wolverhampton and an increase in the aftermarket more than made up for that decline.  

On the commercial side (excluding Wolverhampton), sales to Boeing and Airbus were, in total, about the same as last year.  The $10.7 million of sales in Wolverhampton offset a $5 million decline in business jet sales and a $4 million decline in the aftermarket.

Sales of navigation aids were up $6.3 million in the quarter and the majority of that increase was revenue from the Fernau acquisition which was completed late in the second quarter of fiscal ’09.

For the balance of 2010 we’re anticipating slightly higher sales in aircraft controls.  We’re now forecasting a total for the year of $742 million.  In total, military aircraft sales will continue at about the same rate as the first quarter.  We’re expecting a modest increase in OEM sales to Boeing Commercial and in the commercial aftermarket.  And we will have substantial sales on the 787 later in the year.  We also expect increased sales in navigation aids.

Aircraft Margins

In the quarter our Aircraft Group expensed $1.2 million in restructuring.  Prior to the restructuring expense, margins were 10.7%, considerably stronger than the 8.6% of FY’09 and the 8.7% we had projected for the year.  After restructuring, margins were 10.1% and based on the first quarter results we’re revising our margin expectations for Aircraft for 2010 from 8.3% in our previous guidance to 8.6%.  Improvement in margins is the result of improved cost performance on some production programs.  

R&D in the Aircraft Group, excluding Wolverhampton, was down about 10% in the quarter to $13.9 million.  However, this was mostly a shift of expense from R&D into bid and proposal and we expect that in the quarters to come R&D will increase as the A350 development hardware gets built.  So, when we add in the rather modest R&D expenditure at Wolverhampton, we’re now forecasting total R&D for the Aircraft Group at just under $63 million for the year.