I probably shouldn't leave our commercial airplane product line without a brief status report on the 787 program. In the quarter, we spent $9.4 million in R&D, down from $12 million in the most recent quarter, and down a million from the first quarter of '07. So, our R&D spending on the 787 has begun to come down. All of our equipment is ready to fly. We have a couple of issues that arose out of safety-of-flight testing on the electronic control for the horizontal stabilizer actuator, but nothing that would delay a first flight. We're now in qualification test and we, like all of Boeing's other suppliers, are waiting to learn what our production schedule should be for the next year or two, and when we're likely to be paid. We've done a lot of work on this program, we've delivered a lot of hardware, and our receivable balance stands at about $25 million. As you probably know, Boeing's contract terms on the 787 delay first payment until they deliver the first aircraft. We have the impression that since they've now delayed that delivery by at least nine months, they've been negotiating payment terms with Tier One suppliers. We, of course, hope to become part of that negotiation once they've sorted out their delivery schedule and are available to discuss money matters.

Based on the results of the first quarter, we think that Aircraft sales for the next three quarters will probably bring us pretty close to our forecast for the year of $651 million. We are expecting some acceleration in the military aftermarket and we hope to see higher sales in the commercial aftermarket. In prior years the commercial aftermarket has strengthened as the year goes on. There are two big programs though on which our revenue forecast could change. We have $75 million forecasted on the F-35. The first quarter at $23 million would suggest that that might be light. On the other hand, we won't be surprised if our customer reschedules some of our activity in order to live within program funding constraints. On the 787, we have a forecast for the year of $25 million and that, of course, will depend on our production schedule and that's the schedule that Boeing is likely to change. So, our sales could be affected by changing requirements on either or both of these programs. On the other hand, neither of them are major contributors to profitability.

Aircraft Margins

Speaking of profitability, our Aircraft margins for the quarter were 9.5%, down from 10.2% in the first quarter of last year. In our plan for the year, we were anticipating that Aircraft margins would improve. But in this first quarter, we had strong revenue growth on both the Joint Strike Fighter and the 787, neither of which, as I said a minute ago, are strong contributors to profitability. The aftermarket content, in this quarter, was relatively modest. Our R&D expenditures in Aircraft, although they're down on the 787, in total are actually up slightly. In addition to 787, we have R&D efforts underway on the 747-8, where we're developing lateral control electronics, we're doing a demo on an electric actuator for Airbus, and we've begun work on the Airbus A350. One other thing. We normally associate foreign exchange issues with our Industrial product line. In that business, strong Euros and Yen increase sales and earnings. In our aircraft business though, we produce a lot in the Philippines. Half of our costs there are in pesos and the peso has strengthened against the dollar by 20% over the last 12 months. This doesn't help our Aircraft margins. Stronger aftermarket revenue in subsequent quarters and slightly improved profitability on some of our production programs will bring us closer to our margin objective, but for the year, we're now moderating our margin forecast to 10%.

Space and Defense Q1 '08

Fortune continues to smile on our Space and Defense segment. Sales of $57.3 million were up 31% from last year. As you'll see in a minute, much of the sales growth, but not all, came through our acquisition of QuickSet International. Looked at by market, the biggest increase was in Defense Controls. Sales were up by $5.9 million to over $20 million. You may remember that we had a big sales increase in this product line last year because of the Marines' Light Armored Vehicle. That program came to an end, and we were predicting a decline in Defense Controls. However, the QuickSet acquisition has products that fit in that category and those sales turned an expected decline into an increase. I'll be more specific about that in a minute.

Sales continue to be strong in the satellites and spacecraft business. We had a 40% increase to $14.3 million resulting from a resurgence in commercial satellites and stepped up activity on a broad range of programs in spacecraft mechanisms.

The Constellation program is the Space Shuttle replacement. We've begun work on Ares I, the crew launch vehicle, and Orion, the crew exploration vehicle. Revenue in the quarter was $3.5 million. We had been forecasting over $20 million in revenue on these two programs for fiscal '08, but they're taking shape a little more slowly than we'd anticipated, so we'll moderate that forecast somewhat. The rest of our Space and Defense segment, which includes launch vehicles, strategic missiles, missile defense, and tactical missiles, generated $15.9 million in sales in the quarter. This book of business was fairly stable except for the decline in revenues on Space Shuttle. That program is winding to a close.

At $3.5 million, our Homeland Defense market is beginning to take off. But the big news in Homeland Defense is our acquisition of QuickSet. We closed this acquisition in September. We had been exploring opportunities in the Homeland Defense arena for sometime. We have identified some product opportunities including actuators used in vehicle barriers and a really interesting acoustic hailing device. You'll hear more about these in the future. But our strategic interest also led us to precision pan and tilt mechanisms used in border surveillance and in critical infrastructure protection. As we began to develop our own product, we, of course, discovered the company with the strongest established position and that was QuickSet International. After a 2-year courtship, we completed the acquisition in September. When we did, we projected that QuickSet would add $32 million in revenue to our Space and Defense segment. Based on what's happened in the first quarter, we're now able to report that QuickSet revenues, which were $10.7 million in the first quarter, will add $47 million to this segment and $4 million to our Industrial segment. Shortly after the acquisition, the company started receiving orders for a system that's called the Driver's Vision Enhancer. This is a pan and tilt mechanism used on frontline U.S. Army tactical and combat vehicles. It's a system that carries an infrared camera and provides night vision that allows military vehicles to drive at night. Over the last couple of months, QuickSet has received orders for over 7,000 of these units. Most will be used on the Army's MRAP vehicles. The systems, currently on order, will all be delivered in our fiscal '08 and will generate revenue of about $24 million. When we acquired QuickSet, we thought of it as a Homeland Defense product line, but clearly a product that is used on military vehicles is defense controls and, as a result of this new business, we now expect that our Defense Controls product line will increase from $62 million last year to $83 million this year.

For the year, we had forecasted Space and Defense sales of $228 million. The increased QuickSet sales will offset the slightly lower revenue I mentioned on the Constellation program, and a few other small reductions in missile programs. We're now forecasting Space and Defense sales for the year of $243 million, a 31% increase over last year.