So, where does that leave our forecast for the year? We began this year looking for $98 million in Space & Missiles. Ninety days ago, we reduced that forecast to $94 million. Over the last 90 days, we’ve seen the delay of some very important Government-funded satellites. We had been counting on a program called NPOESS, the National Polar Orbiting Environmental Satellite System, which is a next-generation weather satellite. Apparently, overruns and delays in the NPOESS preparatory program have resulted in what’s now thought to be a two-year delay in the orders for the follow-on satellite. Secondly, we were hopeful about Advanced EHF, an Air Force program intended to replace the Milstar satellites currently in orbit and to provide high bandwidth secure military communications. We now understand that the funding has been stretched and this program will also be delayed one to two years. In the tactical missile arena, the cancellation of Boeing’s Boost Phase Interceptor Vehicle Development Contract cost us near-term revenue as well. Other than the continuing orders for National Missile Defense, It’s been tough to find good news in the Space & Missiles business lately

Taking all of the foregoing into account, we now think that our $94 million Space & Missiles forecast for this year will more likely turn out to be $87 million, and we need to adjust to quarterly revenues of around $21 million in this segment.

Given the cost structure that we have in place, at last quarter’s sales level of $21.6 million, we were not able to generate much operating profit. A $500K expense in the quarter for restructuring reduced operating profit to a negative $67K. The restructuring reduced the full-time permanent staff in our Space & Missiles operations by about 100 people, about 40 of whom were able to be placed in other parts of our Company. All other things being equal, the staff reduction would result in improved margins, but we’re now anticipating lower volume for the next two quarters. The net effect of all these factors is that the $87 million in sales that we’re now predicting is likely to generate operating margins of only $2 million for the year.

So, as I said at the outset, the Space & Missiles segment is the weak part of our business at the moment. But I emphasize “at the moment”. There will come a time in the not-too-distant future when more satellites will be needed and those currently in use will have to be replaced. And, eventually, I believe that the Administration will get serious about deploying a National Missile Defense System. When those events occur, we’ll be very glad that we were able to support this segment through the current doldrums.

Now, back to the good news.

Industrial

Industrial sales in the quarter of $69 million were up 10%, or $6 million from a year ago. This increase occurred in spite of a $5 million quarter-over-quarter decline in turbine controls. So, our other product lines generated an increase of close to $12 million. Admittedly, a large component of that increase was the change in exchange rates. The Euro is much stronger today than it was a year ago and that accounted for about $6 million of the $12 million increase.

Looking on the bright side, though, we had substantial increases in sales of controls for plastics machines. Including the currency effect, the increase was close to $5 million. We had an increase of over $3 million in controls for presses and metal-forming equipment. Sales of our combat controls for military vehicles increased by $2 million to almost $8 million in the quarter and sales to the Formula 1 racing car industry were up by $800K. Our aftermarket sales were up by $1 million to a level of $7.2 million.

Given the results of this quarter, and what we know about our incoming order rate, we’re now more comfortable about our forecast of $264 million for the year. Halfway through the year, we’re more than halfway through that forecast. We’re hopeful that this quarter’s results are the beginning of a trend and that we’re in the early stages of the Industrial recovery for which we’ve all been waiting.

Margins for the quarter are also showing a recovery. Margins were 7.4%, up from 6.7% in the similar quarter a year ago. This improvement comes about in large part as a result of various restructuring moves made in our Industrial segment during fiscal ’02. We had targeted 7.5% for this year, so we’re very close to achieving that level. Expenses we incurred in the first quarter of about $800K to make a factory move in Germany, knocked our first quarter margins down to 4.4%. But, if we maintain the current level, we’ll complete the year with margins of about 6.8%.