FY 2010

Introduction

Good Morning.  Thanks for joining us.  This morning we’ll review the results of our third quarter.  We’ll update our guidance for the balance of 2010, and we’ll provide our initial outlook for 2011.  

This is a good news conference call.  We had a very good third quarter.  We believe that 2010 will finish up in line with our guidance and we’re looking for an earnings per share increase in 2011 of 15%.  More about 2011 in a few minutes.

Back to the quarter.  Sales in the quarter of $537 million were up 21% from a year ago.  Incidentally, the comparisons with the third quarter of 2009 are pretty easy comparisons.  That quarter was our weakest sales quarter in ’09.  The recession was really having its effect, particularly on our industrial business and we expensed in the quarter almost $10 million worth of restructuring charges.  Nevertheless, some comparisons are worth making.  Compared to this quarter a year ago, our gross margin was up by almost a percentage point.  Our R&D at $25.8 million, was 4.8% of sales, a slightly lower percentage than last year.  Similarly, SG&A at $79.3 million, 14.8% of sales, was down as a percent from last year.  We did incur in the quarter restructuring expense of $1.7 million, but nothing like last year’s $9.9 million.  Interest this year, at $9.4 million, was about the same as last year, and the result was net earnings of $29.2 million, 5.4% of sales, up 84%.  Earnings per share at $.64, were up 73%.  You will recall that we issued additional shares in September of last year and so our share count is higher this year than last.

And now we’ll go to the segments.  A quick summary would be as follows.

Aircraft is on track in spite of an occasional boulder in the road.  Space and Defense had a good quarter but the future of our NASA business is somewhat confused.  Our Industrial Systems business is recovering at a pace a little better than we had expected.  The Components Group had an amazing quarter but the demand for overhaul of military vehicles is slowing down.  The Medical business is doing better on sales but is still struggling with excess costs.  

Aircraft Q3 2010

Total Aircraft sales of $191.2 million were up 18%, or $29.6 million from a year ago.  Of the increase, $24.6 million came from our recent acquisition of the GE actuation business in Wolverhampton in the U.K.  Military aircraft sales of $115.7 million were up 12%.  Commercial aircraft sales at $66.1 million were up 39%.  Navigation aids equipment at $9.3 million was actually down 14% from a year ago.

As you know, our military aircraft revenues are influenced every quarter by the changing pattern of sales on the F-35 program.  The development program is nearing completion and the production program is beginning to ramp up.  This quarter, including Wolverhampton, F-35 development revenue was $10.6 million, down from the comparable quarter a year ago.  On the other hand, revenue from the production program was up by $8.7 million.  So the swing in the F-35 program was only a negative $2.9 million.  Revenue on the V-22 at $18.7 million was up $7.4 million from a year ago.  Sales on the Blackhawk program at $7.5 million were up $1.5 million, and revenue in the military aftermarket at $37.3 million was up $4.9 million or 15%.  Slightly over half that increase was generated in Wolverhampton.  

On the commercial side, sales of $66.1 million were up 39% from a year ago.  Sales were up in every OEM category.  Sales to Boeing were more than double last years.  Airbus sales were up 56%.  Even our business jet product line was up 6%.  That increase was in the Challenger 300 program at Bombardier and the G250 at Gulfstream.  

The Commercial aftermarket at $19.6 million was down 2% from last year and that total includes $2.6 million of revenue generated at Wolverhampton.  Excluding that revenue, aftermarket sales were down $3.1 million, or 15% in the quarter.  We’ve said many times that our commercial aircraft aftermarket revenue is fairly volatile, and in the last four quarters it has swung between $18 million and Aircraft Fiscal 2010$22 million, so that’s a range of ±10% around a $20 million average and in this quarter we’re very close to the average.

Aircraft Fiscal 2010

We’re expecting a strong fourth quarter in Aircraft and we’ve adjusted our forecast for the year upwards to a total of $753.1 million.  The increase in the forecast is all in the military side.  We’re now expecting increased revenue from the F-35 development program and from the production program.  We’re now anticipating a total of $79.1 million for F-35.  In our other OEM product lines, we’re increasing our forecast on the F-15 equipment we sell to the Japanese and on the V-22.  We’re also increasing our aftermarket forecast by $2 million to $152 million.  

On the commercial side, we’ve actually reduced our forecast for 2010 to
$256.6 million.  We’ve moderated our business jet forecast by $1 million, but the big change, $5 million, is in our forecast for the aftermarket.  We’re reflecting on our experience in the third quarter in which we saw lower returns than we expected on both 747 and 777 equipment and particularly those coming from Singapore and Cathay Pacific.

We’ve revised our forecast for navigation aids from $46.1 million to $40.6 million.  The change does not reflect the loss of opportunities but we have seen delays in major program awards.