BZC Breeze-Eastern Corp.

 

 

FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                      

Commission file number 1-7872

BREEZE-EASTERN CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		95-4062211 (I.R.S. employer identification no.)
700 Liberty Avenue Union, New Jersey (Address of principal executive offices)		07083 (Zip Code)

Registrant’s telephone number, including area code: (908) 686-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  þ  No  o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  þ

As of July 30, 2008, the total number of outstanding shares of registrant’s one class of common stock was 9,345,367.

 

 

INDEX

				Page No.
PART 1		Financial Information
Item 1.		Condensed Financial Statements (Unaudited)		3
		Condensed Statements of Consolidated Operations Three Month Periods Ended June 29, 2008 and July 1, 2007 (Unaudited)		4
		Condensed Consolidated Balance Sheets June 29, 2008 (Unaudited) and March 31, 2008		5
		Condensed Statements of Consolidated Cash Flows Three Month Periods Ended June 29, 2008 and July 1, 2007 (Unaudited)		6
		Notes to Condensed Consolidated Financial Statements (Unaudited)		7–16
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16–25
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		25
Item 4.		Controls and Procedures		25
PART II.		Other Information
Item 1.		Legal Proceedings		26
Item 1A.		Risk Factors		26
Item 2.		Unregistered Sale of Equity Securities and Use of Proceeds		26
Item 6.		Exhibits		26
SIGNATURES				26
EX-10.36: AMENDMENT TO EMPLOYMENT AGREEMENT
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

PART I. FINANCIAL INFORMATION

Item 1. CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

The following unaudited, condensed Statements of Consolidated Operations, Consolidated Balance Sheets, and Statements of Consolidated Cash Flows are of Breeze-Eastern Corporation and its consolidated subsidiaries (collectively, the “Company”). These reports reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim periods reflected therein. The results reflected in the unaudited, condensed Statement of Consolidated Operations for the period ended June 29, 2008, are not necessarily indicative of the results to be expected for the entire fiscal year. The following unaudited, condensed Consolidated Financial Statements should be read in conjunction with the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 2 of Part I of this report, as well as the audited financial statements and related notes thereto contained in the Company’s Annual Report on Form 10-K filed for the fiscal year ended March 31, 2008.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

BREEZE-EASTERN CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(In Thousands of Dollars, Except Share and Per Share Data)

		Three Months Ended
		June 29, 2008				July 1, 2007
Net sales		$	13,968			$	16,255
Cost of sales			7,946				9,838
Gross profit			6,022				6,417
General, administrative and selling expenses			4,227				4,402
Interest expense			439				932
Other expense — net			37				14
Income before income taxes			1,319				1,069
Income tax provision			554				428
Net income		$	765			$	641
Earnings per share:
Basic:
Net income per share:		$	0.08			$	0.07
Diluted:
Net income per share:		$	0.08			$	0.07
Weighted — average basic shares outstanding			9,340,000				9,286,000
Weighted — average diluted shares outstanding			9,409,000				9,376,000

See notes to consolidated financial statements.

BREEZE-EASTERN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands of Dollars, Except Share Data)

		(Unaudited)
		June 29, 2008				March 31, 2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	1,801			$	1,876
Accounts receivable (net of allowance for doubtful accounts of $102 at June 29, 2008 and $101 at March 31, 2008)			13,775				19,733
Inventories			21,059				18,227
Prepaid expenses and other current assets			425				410
Deferred income taxes			7,403				7,545
Total current assets			44,463				47,791
PROPERTY:
Property, plant and equipment			13,759				13,226
Less accumulated depreciation and amortization			9,696				9,393
Property, plant and equipment — net			4,063				3,833
OTHER ASSETS:
Deferred income taxes			13,523				13,819
Goodwill			402				402
Real estate held for sale			4,000				4,000
Other			6,401				6,345
Total other assets			24,326				24,566
TOTAL		$	72,852			$	76,190
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving credit facility		$	—			$	2,920
Current portion of long-term debt			3,057				3,057
Accounts payable — trade			5,021				3,934
Accrued compensation			2,089				2,952
Accrued income taxes			130				353
Accrued interest			106				136
Other current liabilities			5,494				5,895
Total current liabilities			15,897				19,247
LONG-TERM DEBT PAYABLE TO BANKS			19,085				19,849
OTHER LONG-TERM LIABILITIES			10,046				10,202
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS’ EQUITY
Preferred stock — authorized, 300,000 shares; none issued			—				—
Common stock — authorized, 14,700,000 shares of $.01 par value; issued, 9,758,098 at June 29, 2008 and 9,751,315 shares at March 31, 2008			97				97
Additional paid-in capital			93,262				93,090
Accumulated deficit			(58,815	)			(59,580	)
Accumulated other comprehensive loss			(16	)			(16	)
			34,528				33,591
Less treasury stock, at cost — 412,731 at June 29, 2008 and 412,323 shares at March 31, 2008			(6,704	)			(6,699	)
Total stockholders’ equity			27,824				26,892
TOTAL		$	72,852			$	76,190

See notes to consolidated financial statements.

BREEZE-EASTERN CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(In Thousands of Dollars)

		Three Months Ended
		June 29, 2008				July 1, 2007
Cash flows from operating activities:
Net income		$	765			$	641
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			328				292
Noncash interest expense, net			21				26
Stock based compensation			160				163
Provision for losses on accounts receivable			1				13
Deferred taxes-net			438				428
Changes in assets and liabilities :
Decrease in accounts receivable and other receivables			5,957				3,048
Increase in inventories			(2,832	)			(2,081	)
Decrease in other assets			113				47
Increase in accounts payable			1,200				1,367
Decrease in accrued compensation			(863	)			(1,487	)
Decrease in income taxes payable			(223	)			(72	)
Decrease in other liabilities			(611	)			(249	)
Net cash provided by operating activities			4,454				2,136
Cash flows from investing activities:
Capital expenditures			(677	)			(80	)
Capitalized project costs			(175	)			—
Decrease in restricted cash			—				4
Net cash used in investing activities			(852	)			(76	)
Cash flows from financing activities:
Payments on long-term debt			(764	)			(1,052	)
Repayments of other debt			(2,920	)			(2,184	)
Expenses related to the private placement of common stock			—				(5	)
Exercise of stock options			7				57
Net cash used in financing activities			(3,677	)			(3,184	)
Decrease in cash			(75	)			(1,124	)
Cash at beginning of period			1,876				2,127
Cash at end of period		$	1,801			$	1,003
Supplemental information:
Interest payments		$	444			$	925
Income tax payments		$	343			$	73
Non-cash financing activity for stock option exercise		$	—			$	210
Non-cash investing activity for additions to capitalized project costs		$	31			$	—
Non-cash investing activity for additions to property plant and equipment		$	30			$	14

See notes to consolidated financial statements.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Earnings Per Share

The computation of basic earnings per share is based on the weighted-average number of common shares outstanding. The computation of diluted earnings per share assumes the foregoing and, in addition, the exercise of all dilutive stock options using the treasury stock method.

The components of the denominator for basic earnings per common share and diluted earnings per common share are reconciled as follows:

		Three Months Ended
		June 29,				July 1,
		2008				2007
Basic Earnings per Common Share:
Weighted-average common stock outstanding for basic earnings per share calculation			9,340,000				9,286,000
Diluted Earnings per Common Share:
Weighted-average common shares outstanding			9,340,000				9,286,000
Stock options*			69,000				90,000
Weighted-average common stock outstanding for diluted earnings per share calculation			9,409,000				9,376,000

NOTE 2. Stock-Based Compensation

Net income for both three month periods ended June 29, 2008 and July 1, 2007 includes $0.1 million net of tax, or $0.01 per diluted share, of stock based compensation expense. Stock based compensation expense was recorded in general, administrative and selling expenses.

The Company maintains the Amended and Restated 1992 Long Term Incentive Plan (the “1992 Plan”), the Amended and Restated 1998 Non-Employee Directors Stock Option Plan (the “1998 Plan”), the 1999 Long Term Incentive Plan (the “1999 Plan”), the 2004 Long Term Incentive Plan (the “2004 Plan”) and the 2006 Long Term Incentive Plan (the “2006 Plan”).

Under the terms of the 2006 Plan, 500,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through

July 2016. Under the terms of the 2004 Plan, 200,000 of the Company’s common shares may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through September 2014. Under the terms of the 1999 Plan, 300,000 of the Company’s common shares may be granted as stock options or awarded as restricted stock to officers, non-employee directors and certain employees of the Company through July 2009. Under the terms of the 1998 Plan, 250,000 of the Company’s common shares may be granted as stock options to non-employee directors of the Company through July 2008. The 1992 Plan expired in September 2002 and no grants or awards may be made thereafter under the 1992 Plan, however, there remain outstanding unexercised options granted in fiscal year 2000 and in fiscal year 2002 under the 1992 Plan.

Under each of the 1992, 1998, 1999, 2004 and 2006 Plans, option exercise prices equal the fair market value of the common shares at the respective grant dates. Options granted prior to May 1999 to officers and employees, and all options granted to non-employee directors, expire if not exercised on or before five years after the date of the grant. Options granted beginning in May 1999 to officers and employees expire no later than 10 years after the date of the grant. Options granted to directors, officers and employees vest ratably over three years beginning one year after the date of the grant. In the event of the occurrence of certain circumstances, including a change of control of the Company as defined in the various Plans, vesting of options may be accelerated.

The weighted-average Black-Scholes value per option granted in fiscal 2008 was $6.80. No options were granted in the first quarter of fiscal 2009. The following assumptions were used in the Black-Scholes option pricing model for options granted in fiscal 2008. Expected volatilities are based on historical volatility of the Company’s common stock and other factors. The Company uses historical data to estimate the expected term of the options granted. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company has assumed no forfeitures due to the limited number of employees at the executive and senior management level who receive stock options, past employment history and current stock price projections.

		2008
Dividend yield			0.0	%
Volatility			48.9	%
Risk-free interest rate			4.7	%
Expected term of options (in years)			7.0

The following table summarizes stock option activity under all plans:

						Aggregate				Approximate				Weighted-
						Intrinsic				Remaining				Average
		Number				Value				Contractual				Exercise
		of Shares				(in thousands)				Term (Years)				Price
Outstanding at March 31, 2008			380,911			$	738				6			$	9.90
Granted			—				—				—				—
Exercised			(1,000	)		$	4				—			$	7.05
Canceled or expired			( 5,667	)			—				—			$	11.90
Outstanding at June 29, 2008			374,244			$	735				6			$	9.88
Options exercisable at June 29, 2008			282,579			$	735				5			$	9.24
Unvested options expected to become exercisable after June 29, 2008			91,665			$	0				8			$	11.85
Shares available for future option grants at June 29, 2008 (a)			642,688

Cash received from stock option exercises during the first three months of fiscal 2009 was approximately $7,000. There was no tax benefit generated to the Company from options granted prior to April 1, 2006 and exercised during the first three months of fiscal 2009.

As noted above, stock options granted to non-employee directors, officers and employees vest ratably over three years beginning one year after the date of the grant. During the first three months of fiscal 2009 and fiscal 2008, compensation expense associated with stock options was approximately $97,000 and $100,000, respectively, before taxes of approximately $41,000 and $40,000 respectively, and such expense was recorded in general, administrative and selling expenses. As of June 29, 2008, there was approximately $0.5 million of unrecognized compensation cost related to stock options granted but not yet vested that are expected to become exercisable, which cost is expected to be recognized over a weighted-average period of 1.6 years.

It is the policy of the Company that the stock underlying option grants consist of authorized and unissued shares available for distribution under the applicable Plan. Under the 1992, 1999, 2004 and 2006 Plans, the Incentive and Compensation Committee of the Board of Directors (made up of independent Directors) may at any time offer to repurchase a stock option that is exercisable and has not expired. There is no such provision permitting the repurchase of stock options under the 1998 Plan. The Company is prohibited by its Senior Credit Facility from repurchasing shares on the open market to satisfy option exercises.

A summary of restricted stock award activity under all plans is as follows:

						Weighted
						Average Grant
						Date
		Number of Shares				Fair Value
Non-vested at March 31, 2008			26,899			$	12.17
Granted			5,783			$	11.07
Vested			(3,702	)		$	11.27
Cancelled			( 408	)		$	12.04
Non-vested at June 29, 2008			28,572			$	12.06

Restricted stock awards are utilized both for director compensation and awards to officers and employees. Restricted stock awards are distributed in a single grant of shares, which shares are subject to forfeiture prior to vesting and have voting and dividend rights from the date of distribution. With respect to restricted stock awards to officers and employees, forfeiture and transfer restrictions lapse ratably over three years beginning one year after the date of the award. With respect to restricted stock awards granted to non-employee directors, the possibility of forfeiture lapses after one year and transfer restrictions lapse on the date which is six months after the director ceases to be a member of the board of directors. In the event of the occurrence of certain circumstances, including a change of control of the Company as defined in the various Plans, the lapse of restrictions on restricted stock may be accelerated.

The fair value of restricted stock awards is based on the market price of the stock at the grant date and compensation cost is amortized to expense on a straight line basis over the requisite service period as stated above. The Company expects no forfeitures during the vesting period with respect to unvested restricted stock awards granted. As of June 29, 2008, there was approximately $164,000 of unrecognized compensation cost related to non-vested restricted stock awards, which is expected to be recognized over a period of approximately 1.9 years.

NOTE 3. Inventories

Inventories are summarized as follows (in thousands):

		June 29,				March 31,
		2008				2008
Finished goods		$	—			$	—
Work in process			4,353				3,782
Purchased and manufactured parts			16,706				14,445
Total		$	21,059			$	18,227

NOTE 4. Property and Related Depreciation

Property is recorded at cost. Provisions for depreciation are made on a straight-line basis over the estimated useful lives of depreciable assets. Depreciation expense was $0.3 million for both three month periods.

Average useful lives for property, plant and equipment are as follows:

Buildings		10 to 33 years
Machinery and equipment		3 to 10 years
Furniture and fixtures		3 to 10 years
Computer hardware and software		3 to 5 years

NOTE 5. Product Warranty Costs

Equipment has a one year warranty for which a reserve is established using historical averages and specific program contingencies when considered necessary. Changes in the carrying amount of accrued product warranty costs for the three month period ended June 29, 2008 are summarized as follows (in thousands):

Balance at March 31, 2008		$	397
Warranty costs incurred			(39	)
Change in estimates to pre-existing warranties			(116	)
Product warranty accrual			56
Balance at June 29, 2008		$	298

NOTE 6. Income Taxes

At June 29, 2008, the Company has federal and state net operating loss carry forwards, or NOLs, of approximately $29.4 million and $67.7 million, respectively, which are due to expire in fiscal 2022 through fiscal 2025 and fiscal 2009 through fiscal 2012, respectively. The benefit of the state NOLs due to expire in fiscal 2009 is approximately $4.5 million. These NOLs may be used to offset future taxable income through their respective expiration dates and thereby reduce or eliminate the federal and state income taxes otherwise payable. A corresponding valuation allowance of $5.6 million has been established relating to the state NOLs, as it is management’s belief that it is more likely than not that a portion of the state NOLs are not realizable. Failure to achieve sufficient taxable income to utilize the NOLs would require the recording of an additional valuation allowance against the deferred tax assets.

If the Company does not generate adequate taxable earnings, some or all of our deferred tax assets may not be realized. Additionally, changes to the federal and state income tax laws also could impact its ability to use the NOLs. In such cases, the Company may need to revise the valuation allowance established related to deferred tax assets for state purposes.

The Internal Revenue Code of 1986, as amended (the “Code”), imposes significant limitations on the utilization of NOLs in the event of an “ownership change” as defined under section 382 of the Code (the “Section 382 Limitation”). The Section 382 Limitation is an annual limitation on the amount of pre-ownership NOLs that a corporation may use to offset its post-ownership change income. The Section 382 Limitation is calculated by multiplying the value of a corporation’s stock immediately before an ownership change by the long-term tax-exempt rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% shareholders (including specified groups of shareholders who, in the aggregate, own at least 5% of that corporation’s stock) exceeds 50 percentage points over a three-year testing period. The Company believes that it has not gone through an ownership change that would cause its NOLs to be subject to the Section 382 Limitation.

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes”, on April 1, 2007. As required by FIN No. 48, which clarifies Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At June 29, 2008, the Company has a balance of $350,000 for unrecognized tax benefits that, if ultimately realized, will reduce the Company’s annual effective tax rate. An examination by the Internal Revenue Service of the Company’s federal income tax returns for fiscal 2006 began this quarter. No material changes to the unrecognized tax benefit balance occurred during the three month period ended June 29, 2008.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.

NOTE 7. Debt

Debt payable to banks, including current maturities consisted of the following (in thousands):

		June 29, 2008				March 31, 2008
Senior Credit Facility		$	22,142			$	25,826
Less current maturities			3,057				5,977
Total long-term debt		$	19,085			$	19,849

Senior Credit Facility — On May 1, 2006, the Company refinanced and paid in full its former senior credit facility with a new five year $50.0 million Senior Credit Facility consisting of a $10.0 million revolving credit facility, and two term loans of $20.0 million each, which had a blended interest rate of 6.6% at June 29, 2008 (the “Senior Credit Facility”). The term loans require monthly principal payments of $0.2 million, an additional quarterly principal payment of $50,000, and certain mandatory prepayment provisions which are linked to cash flow, as discussed below. The remaining payments under the term loans are due at maturity. The Company did not have a mandatory prepayment for Fiscal 2008 due to the pay down of principal made from the net proceeds received from the sale of the Company’s headquarters facility and plant in Union, New Jersey, which was completed in February 2008. Accordingly, the balance sheet reflects $3.1 million of current maturities due under term loans of the Senior Credit Facility as of June 29, 2008.

The Senior Credit Facility contains certain mandatory prepayment provisions in the event of extraordinary income, the issuance of equity in the Company or items which are linked to cash flow. The cash flow provision requires prepayment of the Senior Credit Facility in an amount equal to 50% of earnings before interest, taxes, depreciation and amortization (EBITDA) less principal payments, interest payments, tax payments and capital expenditures. Each

such prepayment is applied first to the outstanding principal of one of the term loans up to a certain recapture amount, then ratably to the outstanding principal of all of the term loans until paid in full, and then to the outstanding principal of the revolver in the credit facility. The Company did not have a mandatory prepayment for Fiscal 2008 due to the pay down of principal made from the net proceeds received from the sale of the Company’s headquarters facility and plant in Union, New Jersey, which was completed in February 2008.

The Senior Credit Facility prohibits the payment of dividends. The Senior Credit Facility is secured by all of the assets of the Company. The Senior Credit Facility allows the Company to issue letters of credit against the total borrowing capacity of the facility. At June 29, 2008, the Company was in compliance with the provisions of the Senior Credit Facility. At June 29, 2008, there were no outstanding borrowings, a $0.8 million outstanding letter of credit and $9.2 million in availability under the revolving portion of the Senior Credit Facility.

NOTE 8. Employee Benefit Plans

The Company has a defined contribution plan covering all eligible employees. Contributions are based on certain percentages of an employee’s eligible compensation. Expenses related to this plan were $0.2 million for the three month periods ended June 29, 2008 and July 1, 2007.

The Company provides postretirement benefits to certain union employees. The Company funds these benefits on a pay-as-you-go basis. The measurement date is March 31.

In February 2002, the Company’s subsidiary, Seeger-Orbis GmbH & Co. OHG, now known as TransTechnology Germany GmbH (the “Selling Company”), sold its retaining ring business in Germany to Barnes Group Inc. (“Barnes”). As German law prohibits the transfer of unfunded pension obligations which have vested for retired and former employees, the legal responsibility for the pension plan that related to the business (the “Pension Plan”) remained with the Selling Company. At the time of the sale and subsequent to the sale, that pension liability was recorded based on the projected benefit obligation since future compensation levels will not affect the level of pension benefits. The relevant information for the Pension Plan is shown below under the caption Pension Plan. The measurement date is December 31. Barnes has entered into an agreement with the Company and its subsidiary, the Selling Company, whereby Barnes is obligated to administer and discharge the pension obligation as well as indemnify and hold the Selling Company and the Company harmless from these pension obligations. Accordingly, the Company has a recorded asset equal to the benefit obligation for the Pension Plan of $4.2 million at June 29, 2008 and March 31, 2008. This asset is included in other long-term assets and is restricted in use to satisfy the legal liability associated with the Pension Plan.

The net periodic pension cost is based on estimated values provided by independent actuaries. The following tables provide the components of the net periodic benefit cost (in thousands):

		Postretirement
		Benefits								Pension Plan
		Three Months Ended								Three Months Ended
		June 29,				July 1,				June 29,				July 1,
		2008				2007				2008				2007
Interest cost		$	11			$	13			$	55			$	44
Amortization of net (gain) loss			—				—				—				—
Net periodic cost		$	11			$	13			$	55			$	44

NOTE 9. New Accounting Standards

In May 2008, FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of the financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the Security and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In March 2007, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, An Amendment of FASB Statement No. 133.” SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, does not provide adequate information about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. Accordingly, SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption of the provisions of SFAS 161 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, research and development assets and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of the provisions of SFAS 141R is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51.” SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted. The adoption of the provisions of SFAS 160 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The effective date of SFAS 159 for the Company is April 1, 2008. The adoption of the provisions of SFAS 159 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R).” SFAS 158 requires companies to recognize a net asset for a defined benefit postretirement pension or healthcare plan’s over funded status or a net liability for a plan’s under funded status in its balance sheet. SFAS 158 also requires companies to recognize changes in the funded status of a defined benefit postretirement plan in accumulated other comprehensive income in the year in which the changes occur. SFAS 158 was adopted on March 31, 2007. See Footnote 9 of “Notes to Consolidated Financial Statements” which is included elsewhere in this Report related to the adoption of SFAS 158. Additionally, SFAS 158 requires companies to measure plan assets and benefit obligations as of the date of our fiscal year end balance sheet, which is consistent with the Company’s current practice. This requirement is effective for fiscal years ending after December 15, 2008. The adoption of the provisions of SFAS 158 is not expected to have a material effect on the Company’s financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of the provisions of SFAS 157 did not have a material effect on the Company’s financial position, results of operations, or cash flows.

NOTE 10. Contingencies

Environmental Matters . The Company evaluates the exposure to environmental liabilities using a financial risk assessment methodology, including a system of internal environmental audits and tests, and outside consultants. This risk assessment includes the identification of risk events/issues, including potential environmental contamination at Company and off-site facilities; characterizes risk issues in terms of likelihood, consequences and costs, including the year(s) when these costs could be incurred; analyzes risks using statistical techniques; and, constructs risk cost profiles for each site. Remediation cost estimates are prepared from this analysis and are taken into consideration in developing project budgets from third party contractors. Although the Company takes great care in the development of these risk assessments and future cost estimates, the actual amount of the remediation costs may be different from those estimated as a result of a number of factors including: changes to government regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and other similar uncertainties. The Company does not include any unasserted claims that it might have against others in determining the liability for such costs, and, except as noted with regard to specific cost sharing arrangements, has no such arrangements, nor has the Company taken into consideration any future claims against insurance carriers that it might have in determining its environmental liabilities. In those situations where the Company is considered a de minimis participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in the Company’s liability with regard to such a site.

The Company continues to participate in environmental assessments and remediation work at eleven locations, including certain former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to 30 years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. In calculating the net present value (where appropriate) of those costs expected to be incurred in the future, the Company used a discount rate of 4.69%, which is the 20 year Treasury Bill rate at the end of the fiscal first quarter and represents the risk free rate for the 20 years those costs are expected to be paid. The Company believes that the application of this rate produces a result which approximates the amount that would hypothetically satisfy the Company’s liability in an arms-length transaction. Based on the above, the Company estimates the current range of undiscounted cost for remediation and monitoring to be between $5.4 million and $9.4 million with an undiscounted amount of $6.6 million to be most probable. Current estimates for expenditures, net of recoveries pursuant to cost sharing agreements, for each of the five succeeding fiscal years are $1.6 million, $0.6 million, $1.4 million, $0.8 million, and $0.6 million respectively, with $1.6 million payable thereafter. Of the total undiscounted costs, the Company estimates that approximately 50% will relate to remediation activities and that 50% will be associated with monitoring activities.

The Company estimates that the potential cost for implementing corrective action at nine of these sites will not exceed $0.5 million in the aggregate, payable over the next several years, and has provided for the estimated costs, without discounting for present value, in the Company’s accrual for environmental liabilities. In the first quarter of fiscal 2003, the Company entered into a consent order for a former facility in New York, which is currently subject to a contract for sale, pursuant to which the Company has developed a remediation plan for review and approval by the New York Department of Environmental Conservation. Based upon the characterization work performed to date, the Company has accrued estimated costs of approximately $1.7 million without discounting for present value. The amounts and timing of such payments are subject to the approved remediation plan.

The environmental cleanup plan the Company presented during the fourth quarter of fiscal 2000 for a portion of a site in Pennsylvania which continues to be owned by the Company, although the related business has been sold, was approved during the third quarter of fiscal 2004. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection (“PaDEP”) concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution the Company paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third quarter of fiscal 2001 for another portion of the site, and a third Consent Order for the remainder of the site was concluded in the third quarter of fiscal 2003 (the “2003 Consent Order”). An environmental cleanup plan for the portion of the site covered by the 2003 Consent Order was presented during the second quarter of fiscal 2004. The Company is also administering an agreed settlement with the Federal government, concluded in the first quarter of fiscal 2000, under which the government pays 50% of the direct and indirect environmental response costs associated with a portion of the site. The Company also concluded an agreement in the first quarter of fiscal 2006, under which the Federal government paid an amount equal to 45% of the estimated environmental response costs associated with another portion of the site. No future payments are due under this second agreement. At June 29, 2008, the cleanup reserve was $2.4 million based on the net present value of future expected cleanup and monitoring costs and is net of expected reimbursement by the Federal Government of $0.5 million. The aggregate undiscounted amount associated with the estimated environmental response costs for the site in Pennsylvania is $3.4 million. The Company expects that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs, although expected to be incurred over twenty years, could extend for up to thirty years.

In addition, the Company has been named as a potentially responsible party in four environmental proceedings pending in several states in which it is alleged that the Company is a generator of waste that was sent to landfills and other treatment facilities. Such properties generally relate to businesses which have been sold or discontinued. The Company estimates that expected future costs, and the estimated proportional share of remedial work to be performed associated with these proceedings, will not exceed $0.1 million without discounting for present value and has provided for these estimated costs in the Company’s accrual for environmental liabilities.

Litigation . The Company is also engaged in various other legal proceedings incidental to its business. Management is of the opinion that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on the consolidated financial position, results of operations, or cash flows of the Company in future periods.

NOTE 11. Segment, Geographic Location and Customer Information

The Company has three operating segments which it aggregates into one reportable segment; sophisticated lifting equipment for specialty aerospace and defense applications. The operating segments are Hoist and Winch, Cargo Hooks, and Weapons Handling. The nature of the production process (assemble, inspect, and test) is similar for each operating segment, as are the customers and the methods of distribution for the products.

Revenues from the three operating segments for the three month periods ended June 29, 2008 and July 1, 2007 are as follows (in thousands):

		Three Months Ended
		June 29, 2008				July 1, 2007
Hoist and Winch		$	8,559			$	11,744
Cargo Hooks			3,791				2,625
Weapons Handling			538				1,548
Other Sales			1,080				338
Total		$	13,968			$	16,255

During the three month period ended June 29, 2008, 29%, 16% and 12% of net sales were made to three major customers, respectively. During the three month period ended July 1, 2007, net sales to three major customers accounted for 19%, 19% and 12%, respectively, of total revenues.

Net sales below show the geographic location of customers (in thousands):

		Three Months Ended
		June 29, 2008				July 1, 2007
Location:
United States		$	9,221			$	8,672
England			382				1,315
Italy			1,262				2,176
Other European Countries			966				1,664
Pacific and Far East			498				631
Other non-United States			1,639				1,797
Total		$	13,968			$	16,255

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934:

Certain of the statements contained in the body of this Quarterly Report on Form 10-Q (“Report”) are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. In the preparation of this Report, where such forward-looking statements appear, the Company has sought to accompany such statements with meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those described in the forward-looking statements.

Forward Looking Statements

Certain statements in this Report constitute “forward-looking statements” within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Acts”). Any statements contained herein that are not statements of historical fact are deemed to be forward-looking statements.

This Report contains forward-looking statements within the meaning of the federal securities laws, including information regarding our fiscal 2009 financial outlook, future plans, objectives, business prospects and anticipated financial performance. These forward-looking statements are not statements of historical facts and represent only our current expectations regarding such matters. These statements inherently involve a wide range of known and unknown uncertainties. Our actual actions and results could differ materially from what is expressed or implied by these statements. Specific factors that could cause such a difference include, but are not limited to, those set forth

below and other important factors disclosed previously and from time to time in our other filings with the Securities and Exchange Commission. Given these factors, as well as other variables that may affect our operating results, you should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance, nor use historical trends to anticipate results or trends in future periods. We expressly disclaim any obligation or intention to provide updates to the forward-looking statements and the estimates and assumptions associated with them. Forward-looking statements are subject to the safe harbors created in the Acts.

Any number of factors could affect future operations and results, including, without limitation, competition from other companies; changes in applicable laws, rules, and regulations affecting the Company in the locations in which it conducts its business; the availability of equity and/or debt financing in the amounts and on the terms necessary to support the Company’s future business; interest rate trends; a decrease in the United States Government defense spending, changes in spending allocation or the termination, postponement, or failure to fund one or more significant contracts by the United States Government; determination by the Company to dispose of or acquire additional assets; general industry and economic conditions; events impacting the U.S. and world financial markets and economies; and those specific risks that are discussed elsewhere in this Annual Report on Form 10-K.

The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information or future events.

General

We design, develop, manufacture, sell and service sophisticated lifting equipment for specialty aerospace and defense applications. With over 50% of the global market, we have long been recognized as the world’s leading designer, manufacturer, service provider and supplier of performance-critical rescue hoists and cargo-hook systems. We also manufacture weapons-handling systems, cargo winches, and tie-down equipment. Our products are designed to be efficient and reliable in extreme operating conditions and are used to complete rescue operations and military insertion/extraction operations, move and transport cargo, and load weapons onto aircraft and ground-based launching systems. We have three operating segments which we aggregate into one reportable segment. The operating segments are Hoist and Winch, Cargo Hooks, and Weapons Handling. The nature of the production process (assemble, inspect, and test) is similar for each operating segment, as are the customers and the methods of distribution for the products.

All references to years in the Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to the fiscal year ended on or ending on March 31 of the indicated year unless otherwise specified.

Results of Operations

Three Months Ended June 29, 2008 Compared with Three Months Ended July 1, 2007 (in thousands)

		Three Months Ended								Increase (decrease)
		June 29,				July 1,
		2008				2007				$				%
New Equipment		$	6,279			$	8,550			$	(2,271	)			(26.6	)
Spare Parts			2,929				3,789				(860	)			(22.7	)
Overhaul and Repair			3,809				3,647				162				4.4
Engineering Services			951				269				682				253.5
Net Sales			13,968				16,255				(2,287	)			(14.1	)
Cost of Sales			7,946				9,838				(1,892	)			(19.2	)
Gross Profit			6,022				6,417				(395	)			(6.2	)
General, administrative and selling expenses			4,227				4,402				(175	)			(4.0	)
Interest expense			439				932				(493	)			(52.9	)
Net income		$	765			$	641			$	124				19.3

Net Sales . Our net sales decreased to $14.0 million in the first quarter of fiscal 2009, a decrease of $2.3 million from net sales of $16.3 million in the first quarter of fiscal 2008. The $2.3 million decrease in sales of new equipment for the first quarter of fiscal 2009 as compared to the same period last year was driven primarily by lower shipments in the hoist and winch and weapons handling operating segments. The $1.7 million decrease of new equipment sales in the hoist and winch operating segment was attributable to lower shipment volume over the prior period and order patterns of customers. The $1.3 million decrease in new equipment sales in the weapons handling operating segments was due primarily to the timing of shipments for the High Mobility Artillery Rocket System (HIMARS). The decrease in new equipments sales in the hoist and winch and weapons handling operating segments were slightly offset by an increase of $0.7 million of new equipment sales in the cargo hook operating segment. Shipments of spare parts in the hoist and winch operating segment decreased $1.4 million, but were partially offset by an increase in spare parts shipments of $0.3 million and $0.2 million in the cargo hook and weapons handling operating segments, respectively. The demand for spare parts remained weak during the first quarter of fiscal 2009 due primarily, we believe, to the delay in fully funding the war effort in Iraq and Afghanistan. This delay is the single biggest factor impacting the shift in our sales mix. Sales during the first three months of fiscal 2009 in the overhaul and repair operating segment had a slight increase of $0.2 million as compared to the same period last year. The overall $0.7 million increase in engineering sales during the first the quarter of fiscal 2009 as compared to the first quarter of fiscal 2008 is primarily attributable to the weapons handling operating segment. Specifically, it is the result of the development and design of a recovery winch being developed for the U.S. Army under the Future Combat Systems (FCS) program. In recent years, our revenues in the second half of the fiscal year have generally exceeded revenues in the first half of the fiscal year. The timing of U.S. Government awards, the availability of U.S. Government funding and product delivery schedules are among the factors that affect the period in which revenues are recorded. We expect this trend to continue in fiscal 2009.

Cost of Sales. The three operating segments of hoist and winch, cargo hooks, and weapons handling equipment have generated sales in three separate components: new equipment, overhaul and repair, and spare parts, each of which has progressively better margins. Accordingly, the cost of sales as a percent of sales will be affected by the weighting of these components to the total sales volume. In the first quarter of fiscal 2009, the $7.9 million cost of sales as a percent of sales was 56.9%. In the first quarter of fiscal 2008, the $9.8 million cost of sales as a percent of sales was 60.5%. This 3.6% decrease in cost of sales as a percentage of sales in the first quarter of fiscal 2009 as compared to the same period last year is the result of better performance and product mix in the production of new equipment, and improved operating efficiencies in the overhaul and repair operating segment.

Gross Profit . As discussed in the “Cost of Sales” section above, the three components of sales in each of the operating segments have margins reflective of the market. During the last four fiscal years, the gross profit margin on new equipment was generally in the range of 31% to 35%, with overhaul and repair 27% to 43% and spare parts ranging from 64% to 71%. The balance, or mix, of this activity, in turn, will have an impact on overall gross profit and overall gross profit margins. While the demand for spare parts was lower in the first quarter of fiscal 2009 compared to the same period last year, our overall gross margin for the first quarter of fiscal 2009 was 43%, compared to 39% in the first quarter of fiscal 2008, which was principally the result of better operating efficiencies and product mix in new equipment sales in both the cargo hook and hoist and winch operating segments.

General, administrative and selling expenses . General, administrative and selling expenses for the first quarter of fiscal 2009, as compared to the first quarter of fiscal 2008, decreased approximately $0.2 million. This decrease was primarily due to lower engineering expenditures related to the Company’s Airbus A400M military transport aircraft project.

Interest expense . In the first quarter of fiscal 2009, there was a decline in the overall effective interest rate of 2% as compared to the first quarter of fiscal 2008. The decline in the interest rate coupled with a reduction of our outstanding Senior Credit Facility (as detailed below) through cash flows from operations and proceeds from the sale of the Company’s Union, New Jersey facility in the fourth quarter of fiscal 2008, caused the decrease in interest expense of $0.5 million for the three month period ended June 29, 2008 as compared to the same prior year period. A new senior credit facility is expected to be in place during the second quarter of fiscal 2009. With this, we expect our annualized interest expense for fiscal 2009 to be lower than fiscal 2008 by an amount in excess of $1.0 million.

Net Income . We reported net income of $0.8 million in the first quarter of fiscal 2009 versus net income of $0.6 million in the first quarter of fiscal 2008. This increase in net income resulted from the reasons discussed above.

New orders . New orders received during the first quarter of fiscal 2009 totaled $23.0 million, as compared with $8.1 million in the first quarter of fiscal 2008. Orders for new equipment increased $9.1 million and $4.5 million in the hoist and winch and cargo hook operating segments, respectively, and remained essentially unchanged in the weapons handling operating segment in the first quarter of fiscal 2009 as compared to the same period in the prior fiscal year. The increase in orders of new equipment in the hoist and winch operating segment is mainly attributable to a $5.1 million order for the manufacture of the probe hoist for the MH-60R Naval Hawk and a $3.4 million order for the manufacture of the electric rescue hoist system for the H-60 Black Hawk MEDEVAC helicopter. New orders for engineering in the weapons handling operating segment increased approximately $0.7 million, and orders for overhaul and repair in all operating segments remained essentially unchanged. Orders for spare parts in the cargo hook operating segment increased approximately $0.5 million, but were offset by a decrease of approximately $0.4 million in the hoist and winch operating segment. The demand for spare parts remained weak during the first quarter of fiscal 2009, due we believe, primarily to the delay in fully funding the war effort in Iraq and Afghanistan. While we remain confident that the unrealized portion of the anticipated spare part sales will eventually be ordered, it is not clear at this time when that will happen.

Backlog . Backlog at June 29, 2008 was $133.3 million, an increase of $9.0 million from the $124.3 million at March 31, 2008. The increase in backlog is mainly attributable to a $5.1 million order for the manufacture of the probe hoist for the MH-60R Naval Hawk and a $3.4 million order for the manufacture of the electric rescue hoist system for the H-60 Black Hawk MEDEVAC helicopter. The backlog at June 29, 2008 includes approximately $65.0 million relating to the Airbus A400M military transport aircraft, which is scheduled to commence shipping in late calendar 2009 and continue through 2020. The product backlog varies substantially from time to time due to the size and timing of orders. We measure backlog by the amount of products or services that our customers have committed by contract to purchase from us as of a given date. Approximately $38.6 million of backlog at June 29, 2008 is scheduled for shipment during the next twelve months. The book-to-bill ratio is computed by dividing the new orders received during the period by the sales for the period. A book-to-bill ratio in excess of 1.0 is potentially indicative of continued overall growth in our sales. Our book to bill ratio for the first quarter of fiscal 2009 was 1.6 as compared to 0.5 for the first quarter of fiscal 2008. The increase in the book to bill ratio was directly related to the higher order intake during the first quarter of fiscal 2009, as compared to the first quarter of fiscal 2008. Cancellations of purchase orders or reductions of product quantities in existing contracts, although seldom occurring, could substantially and materially reduce our backlog. Therefore, our backlog may not represent the actual amount of shipments or sales for any future period.

Liquidity and Capital Resources

Our principal sources of liquidity are cash on hand, cash generated from operations, and our Senior Credit Facility, as defined below. Our liquidity requirements depend on a number of factors, many of which are beyond our control, including the timing of production under our contracts with the U.S. Government. Our working capital needs fluctuate between periods as a result of changes in program status and the timing of payments by program. Additionally, as our sales are generally made on the basis of individual purchase orders, our liquidity requirements vary based on the timing and volume of orders. Based on cash on hand, future cash expected to be generated from operations and the Senior Credit Facility, we expect to have sufficient cash to meet our requirements for at least the next twelve months.

At June 29, 2008, there were no outstanding borrowings, a $0.8 million outstanding letter of credit and $9.2 million in availability under the revolving portion of the Senior Credit Facility. The Senior Credit Facility prohibits the payment of dividends. We were in compliance with all of the covenants in the Senior Credit Facility at June 29, 2008. We are also in the process of negotiating a new senior credit facility. Through this facility, and assuming stable interest rates, we expect to lower our annualized interest expense on our debt in fiscal 2009 by an amount in excess of $1.0 million.

In February, 2008, we completed the sale of our headquarters facility and plant in Union, New Jersey. The sales price for the facility was $10.5 million and net proceeds at closing from the sale of the facility of $9.8 million were applied to reduce our Senior Credit Facility. The agreement of sale permits us to lease the facility for up to two years after closing, pending our relocation to a new site, and accordingly we are currently leasing the facility. We are in the process of selecting a new site for our facilities that will be better suited to our current and expected needs, and expect to initiate the relocation to the new site in the fourth quarter of fiscal 2009.

Our common stock is listed on the American Stock Exchange (“AMEX”) under the trading symbol BZC.

Working Capital

Our working capital at June 29, 2008 was $28.6 million, essentially unchanged as compared to $28.5 million at March 31, 2008. The ratio of current assets to current liabilities was 2.8 to 1 at June 29, 2008 and 2.5 to 1 at March 31, 2008.

The major working capital changes during the first three months of fiscal 2009 resulted from a decrease in accounts receivable of $6.0 million, an increase in inventory of $2.8 million, an increase in accounts payable of $1.1 million, and a decrease in accrued compensation of $0.9 million. In addition, the revolving portion of our Senior Credit Facility decreased $2.9 million.

The decrease in accounts receivable reflects collection of amounts due from customers related to the heavy shipments that occurred late in the fourth quarter of fiscal 2008. The increase in inventory and accounts payable is due to parts being purchased in advance in order to meet the shipping demands of the second quarter of fiscal 2009, which are more heavily weighted toward new equipment sales and require longer lead time. The decrease in accrued compensation was primarily due to incentive payments made in the first quarter of fiscal 2009. The decrease in the revolving portion of the Senior Credit Facility reflects the strong cash flow produced in the first three months of fiscal 2009 derived from the collections on accounts receivable as discussed above.

The number of days that sales were outstanding in accounts receivable decreased to 63.8 days at June 29, 2008 from 67.3 days at March 31, 2008. The decrease in days was attributable to higher shipments made in March of fiscal 2008 as compared to June of fiscal 2009. Inventory turnover decreased to 1.6 turns at June 29, 2008 versus 1.8 turns at July 1, 2007. The decrease in inventory turns is reflective of the higher inventory levels due to the shift in product mix discussed above.

Capital Expenditures

Cash paid for our additions to property, plant and equipment were approximately $0.7 million for the first three months of fiscal 2009, compared to $0.1 million for the first three months of fiscal 2008. Additions to property, plant and equipment budgeted in fiscal 2009 total approximately $3.2 million and include projected expenditures for the fit-out of the Company’s new facility (See “Liquidity and Capital Resources”, above).

Cash paid for capitalized project costs, representing qualification and proto-type units on several programs, were approximately $0.2 million for the first three months of fiscal 2009 and will be amortized on a per unit basis based on the shipping schedule. There were no capitalized project costs for the first three months of fiscal 2008. Capitalized project costs budgeted in fiscal 2009 total approximately $2.9 million.

Senior Credit Facility

Senior Credit Facility — On May 1, 2006, we refinanced and paid in full our former senior credit facility with a new five year $50.0 million Senior Credit Facility consisting of a $10.0 million revolving credit facility, and two term loans of $20.0 million each, which had a blended interest rate of 6.6% at June 29, 2008 (the “Senior Credit Facility”). The term loans require monthly principal payments of $0.2 million, an additional quarterly principal

payment of $50,000, and certain mandatory prepayment provisions which are linked to cash flow, as discussed below. The remaining payments under the term loans are due at maturity. We did not have a mandatory prepayment for Fiscal 2008 due to the pay down of principal made from the net proceeds received from the sale of our headquarters facility and plant in Union, New Jersey, which was completed in February 2008. Accordingly, the balance sheet reflects $3.1 million of current maturities due under term loans of the Senior Credit Facility as of June 29, 2008.

The Senior Credit Facility contains certain mandatory prepayment provisions in the event of extraordinary income, the issuance of equity in the Company or items which are linked to cash flow. The cash flow provision requires prepayment of the Senior Credit Facility in an amount equal to 50% of earnings before interest, taxes, depreciation and amortization (EBITDA) less principal payments, interest payments, tax payments and capital expenditures. Each such prepayment is applied first to the outstanding principal of one of the term loans up to a certain recapture amount, then ratably to the outstanding principal of all of the term loans until paid in full, and then to the outstanding principal of the revolver in the credit facility. We did not have a mandatory prepayment for Fiscal 2008 due to the pay down of principal made from the net proceeds received from the sale of our headquarters facility and plant in Union, New Jersey, which was completed in February 2008.

The Senior Credit Facility prohibits the payment of dividends. The Senior Credit Facility is secured by all of our assets. The Senior Credit Facility allows us to issue letters of credit against the total borrowing capacity of the facility. At June 29, 2008, we were in compliance with the provisions of the Senior Credit Facility. At June 29, 2008, there were no outstanding borrowings, a $0.8 million outstanding letter of credit and $9.2 million in availability under the revolving portion of the Senior Credit Facility.

Tax Benefits from Net Operating Losses

At June 29, 2008, we had federal and state net operating loss carry forwards, or NOLs, of approximately $29.4 million and $67.7 million, respectively, which are due to expire in fiscal 2022 through fiscal 2025 and fiscal 2009 through fiscal 2012, respectively. The state NOLs due to expire in fiscal 2009 is approximately $4.5 million against which we have a valuation allowance. The NOLs may be used to offset future taxable income through their respective expiration dates and thereby reduce or eliminate our federal and state income taxes otherwise payable. A corresponding valuation allowance of $5.6 million has been established relating to the state NOLs, as it is management’s belief that it is more likely than not that a portion of the state NOLs are not realizable. Failure to achieve sufficient taxable income to utilize the NOLs would require the recording of an additional valuation allowance against the deferred tax assets.

The Internal Revenue Code of 1986, as amended (the “Code”) imposes significant limitations on the utilization of NOLs in the event of an “ownership change” as defined under section 382 of the Code (the “Section 382 Limitation”). The Section 382 Limitation is an annual limitation on the amount of pre-ownership NOLs that a corporation may use to offset its post-ownership change income. The Section 382 Limitation is calculated by multiplying the value of a corporation’s stock immediately before an ownership change by the long-term tax-exempt interest rate (as published by the Internal Revenue Service). Generally, an ownership change occurs with respect to a corporation if the aggregate increase in the percentage of stock ownership by value of that corporation by one or more 5% shareholders (including specified groups of shareholders who in the aggregate own at least 5% of that corporation’s stock) exceeds 50 percentage points over a three-year testing period. We believe that we have not gone through an ownership change that would cause our NOLs to be subject to the Section 382 Limitation.

If we do not generate adequate taxable earnings, some or all of the deferred tax assets represented by our NOLs may not be realized. Additionally, changes to the federal and state income tax laws also could impact our ability to use the NOLs. In such cases, we may need to revise the valuation allowance established related to deferred tax assets for state purposes.

Summary Disclosure About Contractual Obligations and Commercial Commitments

The following table reflects a summary of our contractual cash obligations for the next several fiscal years as of June 29, 2008 (in thousands):

Payments Due By Period

						Less Than												More Than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
Debt principal repayments (a)		$	22,142			$	3,057			$	19,085			$	—			$	—
Estimated interest payments on long-term debt (b)			3,516				1,370				2,146				—				—
Operating leases			951				736				212				3				—
FIN48 obligations, including interest and penalties (c)			350				350				—				—				—
Total		$	26,959			$	5,513			$	21,443			$	3			$	—

Inflation

While neither inflation nor deflation has had, and we do not expect it to have, a material impact upon operating results, we cannot be certain that our business will not be affected by inflation or deflation in the future.

Environmental Matters

We evaluate the exposure to environmental liabilities using a financial risk assessment methodology, including a system of internal environmental audits and tests, and outside consultants. This risk assessment includes the identification of risk events/issues, including potential environmental contamination at Company and off-site facilities; characterizes risk issues in terms of likelihood, consequences and costs, including the year(s) when these costs could be incurred; analyzes risks using statistical techniques; and, constructs risk cost profiles for each site. Remediation cost estimates are prepared from this analysis and are taken into consideration in developing project budgets from third party contractors. Although we take great care in the development of these risk assessments and future cost estimates, the actual amount of the remediation costs may be different from those estimated as a result of a number of factors including: changes to government regulations or laws; changes in local construction costs and the availability of personnel and materials; unforeseen remediation requirements that are not apparent until the work actually commences; and other similar uncertainties. We do not include any unasserted claims that we might have against others in determining the liability for such costs, and, except as noted with regard to specific cost sharing arrangements, have no such arrangements, nor have we taken into consideration any future claims against insurance carriers that we might have in determining our environmental liabilities. In those situations where we are considered a de minimis participant in a remediation claim, the failure of the larger participants to meet their obligations could result in an increase in our liability with regard to such a site.

We continue to participate in environmental assessments and remediation work at eleven locations, including certain former facilities. Due to the nature of environmental remediation and monitoring work, such activities can extend for up to thirty years, depending upon the nature of the work, the substances involved, and the regulatory requirements associated with each site. In calculating the net present value (where appropriate) of those costs expected to be incurred in the future, we used a discount rate of 4.69%, which is the 20 year Treasury Bill rate at the end of the fiscal first quarter and represents the risk free rate for the 20 years those costs are expected to be paid. We believe that the application of this rate produces a result which approximates the amount that would hypothetically satisfy our liability in an arms-length transaction. Based on the above, we estimate the current range of undiscounted cost for remediation and monitoring to be between $5.4 million and $9.4 million with an undiscounted amount of $6.6 million to be most probable. Current estimates for expenditures, net of recoveries pursuant to cost sharing agreements, for each of the five succeeding fiscal years are $1.6 million, $0.6 million, $1.4 million, $0.8 million, and $0.6 million respectively, with $1.6 million payable thereafter. Of the total undiscounted costs, we estimate that approximately 50% will relate to remediation activities and that 50% will be associated with monitoring activities.

We estimate that the potential cost for implementing corrective action at nine of these sites will not exceed $0.5 million in the aggregate, payable over the next several years, and have provided for the estimated costs, without discounting for present value, in our accrual for environmental liabilities. In the first quarter of fiscal 2003, we entered into a consent order for a former facility in New York, which is currently subject to a contract for sale, pursuant to which we have developed a remediation plan for review and approval by the New York Department of Environmental Conservation. Based upon the characterization work performed to date, we have accrued estimated costs of approximately $1.7 million without discounting for present value. The amounts and timing of such payments are subject to the approved remediation plan.

The environmental cleanup plan we presented during the fourth quarter of fiscal 2000 for a portion of a site in Pennsylvania which continues to be owned, although the related business has been sold, was approved during the third quarter of fiscal 2004. This plan was submitted pursuant to the Consent Order and Agreement with the Pennsylvania Department of Environmental Protection (“PaDEP”) concluded in fiscal 1999. Pursuant to the Consent Order, upon its execution we paid $0.2 million for past costs, future oversight expenses and in full settlement of claims made by PaDEP related to the environmental remediation of the site with an additional $0.2 million paid in fiscal 2001. A second Consent Order was concluded with PaDEP in the third quarter of fiscal 2001 for another portion of the site, and a third Consent Order for the remainder of the site was concluded in the third quarter of fiscal 2003 (the “2003 Consent Order”). An environmental cleanup plan for the portion of the site covered by the 2003 Consent Order was presented during the second quarter of fiscal 2004. We are also administering an agreed settlement with the Federal government, concluded in the first quarter of fiscal 2000, under which the government pays 50% of the direct and indirect environmental response costs associated with a portion of the site. We also concluded an agreement in the first quarter of fiscal 2006, under which the Federal government paid an amount equal to 45% of the estimated environmental response costs associated with another portion of the site. No future payments are due under this second agreement. At June 29, 2008, the cleanup reserve was $2.4 million based on the net present value of future expected cleanup and monitoring costs and is net of expected reimbursement by the Federal Government of $0.5 million. The aggregate undiscounted amount associated with the estimated environmental response costs for the site in Pennsylvania is $3.4 million. We expect that remediation at this site, which is subject to the oversight of the Pennsylvania authorities, will not be completed for several years, and that monitoring costs, although expected to be incurred over twenty years, could extend for up to thirty years.

In addition, we have been named as a potentially responsible party in four environmental proceedings pending in several states in which it is alleged that we are a generator of waste that was sent to landfills and other treatment facilities. Such properties generally relate to businesses which have been sold or discontinued. We estimate that expected future costs, and the estimated proportional share of remedial work to be performed associated with these proceedings, will not exceed $0.1 million without discounting for present value and we have provided for these estimated costs in our accrual for environmental liabilities.

Litigation

We are also engaged in various other legal proceedings incidental to our business. It is our opinion that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on our consolidated financial position, results of operations, or cash flows in future periods.

Recently Issued Accounting Standards

In May 2008, FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of the financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the Security and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of the provisions of SFAS 162 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In March 2007, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, An Amendment of FASB Statement No. 133.” SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, does not provide adequate information about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. Accordingly, SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The adoption of the provisions of SFAS 161 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, research and development assets and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of the provisions of SFAS 141R is not expected to have a material effect on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, An Amendment of ARB No. 51.” SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The statement shall be applied prospectively as of the beginning of the fiscal year in which the statement is initially adopted. The adoption of the provisions of SFAS 160 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, providing companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other

users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The effective date of SFAS 159 for our Company is April 1, 2008. The adoption of the provisions of SFAS 159 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R).” SFAS 158 requires companies to recognize a net asset for a defined benefit postretirement pension or healthcare plan’s over funded status or a net liability for a plan’s under funded status in its balance sheet. SFAS 158 also requires companies to recognize changes in the funded status of a defined benefit postretirement plan in accumulated other comprehensive income in the year in which the changes occur. SFAS 158 was adopted on March 31, 2007. See Footnote 9 of “Notes to Consolidated Financial Statements” which is included elsewhere in this Report related to the adoption of SFAS 158. Additionally, SFAS 158 requires companies to measure plan assets and benefit obligations as of the date of our fiscal year end balance sheet, which is consistent with our current practice. This requirement is effective for fiscal years ending after December 15, 2008. The adoption of the provisions of SFAS 158 is not expected to have a material effect on our financial position, results of operations, or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The adoption of the provisions of SFAS 157 did not have a material effect on our financial position, results of operations, or cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various market risks, primarily changes in interest rates associated with the Senior Credit Facility. At June 29, 2008, $21.8 million of the Senior Credit Facility was tied to LIBOR and, as such, a 1% increase or decrease will have the effect of increasing or decreasing annual interest expense by approximately $0.2 million based on the amount outstanding under the facility at June 29, 2008.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports required under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of June 29, 2008, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15f under the Securities Exchange Act of 1934, as amended) during the first three months of the fiscal year to which this

report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are engaged in various legal proceedings incidental to our business. It is the opinion of management that, after taking into consideration information furnished by our counsel, these matters will not have a material effect on our consolidated financial position, results of operations, or cash flows in future periods.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2008, as filed with the Securities and Exchange Commission, and incorporated herein by reference, which factors could materially affect our business, financial condition, financial results or future performance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Senior Credit Facility described in Part I above prohibits the payment of dividends.

Item 6. Exhibits

10.36		Amendment dated as of April 1, 2008, to Employment Agreement dated as of January 19, 2006, by and between Joseph F. Spanier and the Company.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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