Margins for the quarter are down to 8.2%, even lower than last quarter’s 9.1%, and substantially down from the 11.2% last year. The lost margin has to do with the two situations I described a minute ago. In the case of the turbine controls products for G.E., the price reduction snapped into effect a lot faster than our cost-reduction efforts could be accomplished and moved through inventory to be reflected in the P&L. In the plastics market, our product margins are suffering from the current low volume. Our plan is to improve the volume by developing new customers. But it takes time for the new business to develop and get into production, and, in the slow market that exists for manufacturers of injection molding machines and metal-forming presses, it takes even longer. We are anticipating a slight improvement in the fourth quarter which would allow us to finish the year at 8.5%, only slightly better than this quarter.

Industrial FY’02

Although we expect the conditions in the plastics market to continue, and in spite of the situation we described in the turbines business, we are predicting modest growth in our Industrial business from $264 million this year to $280 million next year. The growth comes about principally because we have an additional quarter’s worth of sales of the Bosch RKP Pump and we have some developing projects in Ground Vehicles. Neither of these factors anticipates an improvement in the general economic environment. In addition, we’re budgeting margins at this year’s very modest level (8.5%) and we think that’s an estimate we can make in spite of the damage that G.E. has inflicted.

Summary

So, if we put it altogether, we’re now predicting revenues for the fiscal year ’01 of $700 million, a 9% increase from the $644 million last year. We expect to achieve our net earnings forecast of $27.9 million, or $3.16 per share, an 11% increase over last year. We’re still comfortable with our prediction of 84 cents per share for the fourth quarter.

With respect to fiscal year ’02, we’re confirming the 8% revenue increase that we estimated in our last conference call. It will take us to revenues of about $755 million and we continue to believe that, on that kind of sales growth, we can generate earnings growth of 12% which would get us to $31.4 million in earnings, or $3.55 per share.

We’ll achieve this earnings growth because our Aerospace businesses have resumed a growth trend of close to 9% overall and are maintaining the fine margin performance demonstrated this year. The Aerospace results will carry us, gracefully, we hope, through a period when the plastic market is soft and we’re under a lot of margin pressure in turbines. But don’t count these Industrial markets out. The pendulum will swing and we will see better days in the industrial markets. The balance in our portfolio will work then as well.

Before we go to Q & A, Bob will provide an update on our balance sheet and our cash flow.


At the end of June, our total debt, net of cash, was $373 million, compared to $366 million at the end of March. In the past 90 days, net borrowings increased by $7.2 million. $6.0 million of this increase was the cash purchase of a satellite valve product line from PerkinElmer. Other uses of free cash flow in the period were $6 million of semi-annual interest payments made in May on our subordinated notes and $2 million paid into our pension fund. Those items won’t recur in the fourth quarter, and we’re expecting total debt less cash balances to end the year at September 30, 2001, somewhere in the range of $360 million to $365 million.