Summary

So, I would summarize the overall operational picture for our business in this fashion. There is no question that our Space & Missiles segment is suffering from a lack of incoming orders. We’re now looking at a forecast for that segment that’s $11 million lower than our original plan. However, the difficulty in our space business is more than overcome by vibrant activity in military aircraft and a recovering industrial business. We’re still forecasting a total sales increase to $745 million, up $26 million, or 4% over last year.

We continue to be confident about our net earnings projection for the year of $2.75 per share. The operating profit that we’ll generate, taken together with the reduced interest expense that Bob Banta will describe in a minute, will allow us to move through the next couple quarters and achieve at least the 10% increase in earnings per share that we’ve been talking about for the last three quarters.

Now, I’ll turn you over to Bob. He’ll talk about cash flows, the change we’re about to make in our capital structure and the expected reduction in interest expense.

Cash flow in the quarter was exceptionally strong. We reduced our net debt by $14 million! Here are the details. At the end of December, total debt was $309 million with cash balances of $13 million. Net debt 90 days ago then was $296 million. At the end of this quarter, total debt was $303 million with $21 million of cash, or net debt of $282 million.

For six months, we’ve reduced net debt by $18 million which is close to our guidance for all of FY03. What can be said of this favorable news. First, we’re conservative in our forecasts. The second is that our contract folks had great success in negotiating increased customer advances on a number of programs. Customer advances increased by $5.3 million. To be sure, this means cash flow will slow in the next few quarters. We’ve collected, in advance, money for costs, like labor and materials, that we’ll incur in the periods ahead. Also, in May we’ll pay the last half of a year’s worth of interest on the 10% high-yield notes. That’s a $6 million use of cash in Q3.

As you know, that will be our final interest payment on our 10% bonds. They’ll be paid off early next week out of borrowings under our new $390 million 5-year bank credit facilities. The cost and cash savings will start from May on. For all of ’03, we think interest expense will now total only $18.0 million. Our interest cost estimate assumes that we’ll swap out a fair amount of variable rate libor for fixed rates for an intermediate time period. Like you, we’ll watch the economic tea leaves to determine exactly how much we might swap.

All in all, we think it’s fairly safe to assume we’ll exceed $20 million of net pay down for the year. At the halfway point, we’re slightly ahead of our planned cash pension contributions. Capital expenditures for the quarter matched depreciation at $7.3 million.

Thank you for joining us. An audio broadcast of this call will be available for replay until Friday May 2, 2003 at midnight by calling 1-800-475-6701 access code 682999.