INTRODUCTION FOR CONFERENCE CALL

Before we begin, we call your attention to the fact that we may make forward-looking statements during the course of this conference call. These forward-looking statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors that could cause actual performance to differ materially from such statements. A description of these risks, uncertainties and other factors is contained in our news release of today’s date, our Form 10-Q for the quarter ended March 31, 2002, and in certain of our other public filings with the SEC.


Good morning, everybody. Thanks for joining us today. This morning we’ll discuss results for the third quarter of fiscal ’02 and we’ll update our guidance for the balance of ’02 and share with you our current forecast for fiscal ’03.

Sales for the third quarter of $177 million were down $2 million from the third quarter of last year and were composed of a dramatically different product mix. Total Aircraft sales were up 3% to $86 million, but within the Aircraft segment there was a big swing in mix. Military aircraft sales were up 35% and totalled almost $52 million. Commercial aircraft sales were down $11 million, or about 24%. Space sales were almost identical with last year. Industrial sales were down $4 million, or about 6%. On a year-to-date basis sales of $533 million were up about 3% from last year, and of that total 42% were defense and NASA revenues.

The important thing about the mix shift was that it made possible a substantial increase in earnings in spite of the lower sales. Net earnings of $9.8 million were up 36% from last year’s $7.2 million. Of the $2.6 million increase, less than half relates to the required change in goodwill accounting. If we added back goodwill expense in last year’s third quarter, net earnings would have been $8.3 million and the increase in this quarter would have been 18%.

On a per-share basis earnings were 64 cents in the quarter, up 19% from last year’s 54 cents per share. EPS also had the benefit of the change in goodwill accounting, but we also had 16% more shares outstanding this year than last as a result of the equity offering of last November.

Looking at the P&L, there are three major changes in our cost structure that contributed to the strong earnings performance in the quarter. Our gross margin in the quarter was up to 32.9%. This is a result of a sales mix heavily weighted to the aircraft aftermarket and also an improving profit picture on our business jet development programs.

Secondly, we paid much lower interest this year. Rates are down and our loan balances were reduced with the proceeds from last November’s equity issue.

The third big change in our P&L is an unusually low effective tax rate for the quarter. During the quarter, we filed amended U.S. tax returns to claim an additional export tax benefit related to fiscal ’97 and ’98. The benefit provided approximately $1.0 million of tax savings in the quarter. This resulted in a 23.2% tax rate in the quarter and a rate of 28.4% for the nine months ended June. We expect that our tax rate for the full 2002 fiscal year will be approximately 29%.

Now, to the segments.