Space and Defense Margins

First quarter, Space and Defense margins of 11.7% were down slightly from the 12.3% in last year's first quarter. We had been projecting margin performance for the year of 11%. The increased volume generated by the new QuickSet program will improve margins and we're now looking for Space and Defense margins for the year of 12%.

Industrial Systems Q1'08

Our Industrial segment maintained its momentum and delivered another excellent quarter. Sales of $122.7 million were up 20% from a year ago. About 75% of our Industrial revenues are generated outside the U.S. Strong foreign currencies result in increased Industrial sales. In this quarter, 39% of the revenue increase is related to currency effects. Nevertheless, our real growth was 12%, which is a remarkable growth rate for industrial product sales.

As you know, in our Industrial business, we direct our energies to a number of focus markets. In this particular quarter, the most dramatic growth was in controls for equipment used in steel mills. Sales increased by 52% to $13.5 million. In previous conference calls, I've related this extraordinary growth to the development of the steel industry in China. We are now seeing, though, the upgrading of steel mills on every continent. It seems that as China continues to make more steel, many of the other steel-producing countries are determined to make better steel.

Our simulator business continues to build. Sales of $15.2 million were up 42%. The majority of our revenues are in electric-motion platforms sold to CAE and Flight Safety for flight-training simulators. It's a vibrant business, these days, and we're optimistic that it will continue.

At $11.5 million our sales in the metal-forming business were the highest that they've ever been. Sales are particularly strong in Europe, but a third of the $3 million increase occurred in Asia.

Controls for injection and blow-molding machines continued to be our largest market. We had excellent growth in the quarter, 17% to a total of $18.6 million. Business was particularly strong in Asia.

Our turbine control product line with sales of $10.9 million was up only about 7% from last year, but the incoming order rate would suggest that this business will strengthen over the balance of the year.

In our last conference call, we presented our '08 Industrial forecast as a range centered around $493 million. In that forecast, we were using a Euro of about $1.38. The Euro has been consistently stronger than that and, although there are some forecasts that suggest a strengthening dollar, we now think we should update our forecast using a Euro of about $1.45. That leads to a forecast centered around $506 million. One might expect that stronger foreign currencies would also produce higher profits and, to some extent, they will. On the other hand, some of our Industrial product is built in our factory in the Philippines and, therefore, experiences the same cost pressures that I described in the Aircraft segment.

Industrial Margins