Medical Devices Q1'08

The Medical Devices segment got off to a strong start in quarter one. Sales of $27.2 million were up 16% from the most recent quarter. The comparison to the first quarter of '07 doesn't mean much since the Zevex products were not part of our Company at that time and those products now generate over two-thirds of our revenue.

Our sales volume in pumps improved nicely. The increase was 17%, or about $1.7 million, and it occurred primarily in the Curlin product line. We've gotten squared away with our major distributor, the B. Braun organization, and sales of Curlin pumps in the quarter were much improved over last quarter.

Sales of administration sets were also up nicely -- 8% to $7.5 million. The balance of our sales, in the quarter of $7.7 million, was sensors, support equipment for pumps and surgical handpieces. We saw sales increases in all of these product lines. The most dramatic was in handpieces used in cataract surgery.

Our plan for the year calls for revenues of just under $102 million. Given the results of the first quarter, that plan anticipates three more quarters at just under $25 million. We've now had one year's experience with seasonality in this business, so we'll stick with that forecast.

Medical Devices Margins

We achieved margins in the quarter of 13.2% -- pretty close to the 14.5% we had projected for the year. We are expecting that some of our cost-reduction initiatives will improve margins over the balance of the year, so we're projecting some improvement and hope to end the year at 14%.

Summary of '08 Guidance

Let me summarize the revisions I've just described to our guidance for '08. We've increased our sales forecast in Space and Defense by $15 million, Industrial Controls by $13 million, and in the Components Group by $5 million. So, we're now projecting sales in a range centered around $1.828 billion. If we achieve that sales level, it will represent a 17% increase over fiscal '07.

In view of the cost pressures that we're experiencing in our Aircraft Group, we're revising our Aircraft margin projection to 10%. On the other hand, increased volume in Space and Defense should result in higher margins there -- 12%. And, stronger foreign currencies will boost margins in our Industrial segment to 13.7%. In Medical Devices, like Aircraft, we're reflecting recent experience and revising our margin projection to 14%. All-in-all though, this should result in operating profit of $229 million. We're now looking for net earnings in a range centered around $117.7 million, which would produce earnings per share of $2.71, an increase over last year of 16%. We expect that the quarters will build. We're projecting $.66 in Quarter Two and then $.68 and $.73.

It's at this point in our conference call that I would normally call on Bob Banta to comment on cash flow and our capital structure. I'm sure you're all aware that Bob Banta has recently retired so this morning that part of our presentation will be made by our new CFO, John Scannell. With just the smallest hint of an Irish accent, John will be describing a cash flow situation that's changed somewhat from what we presented ninety days ago. Since that time, we've won the opportunity to provide the primary flight control actuation for the A350, a job that's almost on the scale of what we are doing for the 787. In addition, we have a couple of smaller programs, which we're not allowed to describe in detail. These new opportunities and the accelerating sales growth in the rest of our business will result in somewhat greater working capital requirements and an increase in capital expenditures. And, then, there's the mystery of when Boeing will pay on the 787.