UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549










FORM
10-Q










QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF


THE
SECURITIES EXCHANGE ACT OF 1934





For
      the quarterly period ended
                September
      30, 2009Commission
      File Number 033-88878










AEROFLEX
INCORPORATED





(Exact
name of Registrant as specified in its Charter)




DELAWARE
                11-1974412(State
      or other jurisdiction
                (I.R.S.
      Employerof
      incorporation or organization)
                Identification
      No.)35
      South Service RoadP.O.
      Box 6022Plainview,
      N.Y.
                11803-0622(Address
      of principal executive offices)
                (Zip
      Code)




(516)
694-6700


(Registrant’s
telephone number, including area code)











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 x     No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes o     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):




Large
      accelerated filer o
                Accelerated
      filer oNon-accelerated
      filer x
                Smaller
      reporting company o(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o    No
x





Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as of the latest practicable date.




November
      5, 2009
                    1,000(Date)
                    (Number
      of
Shares)








AEROFLEX
INCORPORATED


AND
SUBSIDIARIES





INDEX





PAGEPART
      1:        FINANCIAL
      INFORMATIONItem
      1
                                                UNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEETSSeptember
      30, 2009 and June 30, 2009
                                                2UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSThree
      Months Ended September 30, 2009 and 2008
                                                3UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSThree
      Months Ended September 30, 2009 and 2008
                                                4NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                5
      – 26Item
      2
                                                MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
      OF OPERATIONSThree
      Months Ended September  30, 2009 and 2008
                                                26
      – 35Item
      3
                                                QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                                35Item
      4T
                                                CONTROLS
      AND PROCEDURES
                                                36PART
      II:          OTHER
      INFORMATIONItem
      1
                                                LEGAL
      PROCEEDINGS
                                                36Item
      1A
                                                RISK
      FACTORS
                                                36Item
      2
                                                UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                                                36Item
      3
                                                DEFAULTS
      UPON SENIOR SECURITIES
                                                36Item
      4
                                                SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                37Item
      5
                                                OTHER
      INFORMATION
                                                37Item
      6
                                                EXHIBITS
                                                37SIGNATURES
                                                38EXHIBIT
      INDEX
                                                39CERTIFICATIONS
                                                40
      -
44


- 1
-




Aeroflex
Incorporated
 and
Subsidiaries
 Unaudited
Condensed Consolidated Balance Sheets
 (In
thousands, except share and per share data )
 
 September
      30,
                                          
                                          
                                          June
      30,2009
                                          
                                          
                                          2009AssetsCurrent
      assets:Cash
      and cash equivalents
                                          
                                          $
                                          67,004
                                          
                                          
                                          $
                                          57,748Accounts
      receivable, less allowance for doubtfulaccounts of $2,664 and
      $2,250
                                          
                                          
                                          89,553
                                          
                                          
                                          
                                          130,429Inventories
                                          
                                          
                                          138,004
                                          
                                          
                                          
                                          135,603Deferred
      income taxes
                                          
                                          
                                          35,212
                                          
                                          
                                          
                                          35,164Prepaid
      expenses and other current assets
                                          
                                          
                                          10,557
                                          
                                          
                                          
                                          9,938Total
      current assets
                                          
                                          
                                          340,330
                                          
                                          
                                          
                                          368,882Property,
      plant and equipment, net
                                          
                                          
                                          98,053
                                          
                                          
                                          
                                          100,907Non-current
      marketable securities
                                          
                                          
                                          16,946
                                          
                                          
                                          
                                          17,677Deferred
      financing costs, net
                                          
                                          
                                          24,561
                                          
                                          
                                          
                                          25,754Other
      assets
                                          
                                          
                                          17,615
                                          
                                          
                                          
                                          15,425Intangible
      assets with definite lives, net
                                          
                                          
                                          277,089
                                          
                                          
                                          
                                          292,553Intangible
      assets with indefinite lives
                                          
                                          
                                          111,604
                                          
                                          
                                          
                                          112,266Goodwill
                                          
                                          
                                          429,022
                                          
                                          
                                          
                                          428,133Total
      assets
                                          
                                          $
                                          1,315,220
                                          
                                          
                                          $
                                          1,361,597Liabilities
      and Stockholder's EquityCurrent
      liabilities:Current
      portion of long-term debt
                                          
                                          $
                                          5,590
                                          
                                          
                                          $
                                          5,590Accounts
      payable
                                          
                                          
                                          26,467
                                          
                                          
                                          
                                          36,574Advance
      payments by customers and deferred revenue
                                          
                                          
                                          24,736
                                          
                                          
                                          
                                          33,418Income
      taxes payable
                                          
                                          
                                          2,936
                                          
                                          
                                          
                                          5,080Accrued
      payroll expenses
                                          
                                          
                                          19,926
                                          
                                          
                                          
                                          18,876Accrued
      expenses and other current liabilities
                                          
                                          
                                          40,067
                                          
                                          
                                          
                                          47,938Total
      current liabilities
                                          
                                          
                                          119,722
                                          
                                          
                                          
                                          147,476Long-term
      debt
                                          
                                          
                                          886,809
                                          
                                          
                                          
                                          883,758Deferred
      income taxes
                                          
                                          
                                          136,625
                                          
                                          
                                          
                                          143,048Defined
      benefit plan obligations
                                          
                                          
                                          6,033
                                          
                                          
                                          
                                          6,079Other
      long-term liabilities
                                          
                                          
                                          19,907
                                          
                                          
                                          
                                          21,476Total
      liabilities
                                          
                                          
                                          1,169,096
                                          
                                          
                                          
                                          1,201,837Stockholder's
      equity:Common
      stock, par value $.10 per share; authorized 1,000shares; issued
      and outstanding 1,000
      shares
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Additional
      paid-in capital
                                          
                                          
                                          397,131
                                          
                                          
                                          
                                          396,573Accumulated
      other comprehensive income (loss)
                                          
                                          
                                          (48,351
                                          )
                                          
                                          
                                          (54,700
                                          )Accumulated
      deficit
                                          
                                          
                                          (202,656
                                          )
                                          
                                          
                                          (182,113
                                          )Total
      stockholder's equity
                                          
                                          
                                          146,124
                                          
                                          
                                          
                                          159,760Total
      liabilities and stockholder's equity
                                          
                                          $
                                          1,315,220
                                          
                                          
                                          $
                                          1,361,597
 
 See notes
to unaudited condensed consolidated financial statements.
  - 2
-
 
 Aeroflex
Incorporated and Subsidiaries
 Unaudited
Condensed Consolidated Statements of Operations
 (In
thousands)
 
 Three
      Months Ended September 30,2009
                                                  
                                                  
                                                  2008Net
      sales
                                                  
                                                  $
                                                  130,116
                                                  
                                                  
                                                  $
                                                  140,845Cost
      of sales
                                                  
                                                  
                                                  65,122
                                                  
                                                  
                                                  
                                                  73,486Gross
      profit
                                                  
                                                  
                                                  64,994
                                                  
                                                  
                                                  
                                                  67,359Selling,
      general and administrative costs
                                                  
                                                  
                                                  30,238
                                                  
                                                  
                                                  
                                                  31,484Research
      and development costs
                                                  
                                                  
                                                  17,181
                                                  
                                                  
                                                  
                                                  17,029Amortization
      of acquired intangibles
                                                  
                                                  
                                                  15,605
                                                  
                                                  
                                                  
                                                  17,968Loss
      on liquidation of foreign subsidiary (Note 10)
                                                  
                                                  
                                                  7,696
                                                  
                                                  
                                                  
                                                  -70,720
                                                  
                                                  
                                                  
                                                  66,481Operating
      income (loss)
                                                  
                                                  
                                                  (5,726
                                                  )
                                                  
                                                  
                                                  878Other
      income (expense)Interest
      expense
                                                  
                                                  
                                                  (21,039
                                                  )
                                                  
                                                  
                                                  (21,215
                                                  )Other
      income (expense), net
                                                  
                                                  
                                                  57
                                                  
                                                  
                                                  
                                                  3,086Total
      other income (expense)
                                                  
                                                  
                                                  (20,982
                                                  )
                                                  
                                                  
                                                  (18,129
                                                  )Income
      (loss) before income taxes
                                                  
                                                  
                                                  (26,708
                                                  )
                                                  
                                                  
                                                  (17,251
                                                  )Provision
      (benefit) for income taxes
                                                  
                                                  
                                                  (6,165
                                                  )
                                                  
                                                  
                                                  (10,354
                                                  )Net
      income (loss)
                                                  
                                                  $
                                                  (20,543
                                                  )
                                                  
                                                  $
                                                  (6,897
                                                  )
 
 See notes
to unaudited condensed consolidated financial statements.
  - 3
-
 
 Aeroflex
Incorporated
 and
Subsidiaries
 Unaudited
Condensed Consolidated Statements of Cash Flows
 (In
thousands)
 
 Three
      Months Ended September 30,2009
                                      
                                      
                                      2008Cash
      flows from operating activities:Net
      income (loss)
                                      
                                      $
                                      (20,543
                                      )
                                      
                                      $
                                      (6,897
                                      )Adjustments
      to reconcile net income (loss)to
      net cash provided by (used in) operating activities:Depreciation
      and amortization
                                      
                                      
                                      21,246
                                      
                                      
                                      
                                      23,497Loss
      on liquidation of foreign subsidiary
                                      
                                      
                                      7,696
                                      
                                      
                                      
                                      -Deferred
      income taxes
                                      
                                      
                                      (6,656
                                      )
                                      
                                      
                                      (12,444
                                      )Share
      based compensation
                                      
                                      
                                      489
                                      
                                      
                                      
                                      489Amortization
      of deferred financing costs
                                      
                                      
                                      1,193
                                      
                                      
                                      
                                      1,189Paid
      in kind interest
                                      
                                      
                                      4,363
                                      
                                      
                                      
                                      3,888Other,
      net
                                      
                                      
                                      572
                                      
                                      
                                      
                                      605Change
      in operating assets and liabilities,net
      of effects from purchases of businesses:Decrease
      (increase) in accounts receivable
                                      
                                      
                                      40,066
                                      
                                      
                                      
                                      32,411Decrease
      (increase) in inventories
                                      
                                      
                                      (3,729
                                      )
                                      
                                      
                                      (7,024
                                      )Decrease
      (increase) in prepaid expensesand
      other assets
                                      
                                      
                                      (2,872
                                      )
                                      
                                      
                                      (9
                                      )Increase
      (decrease) in accounts payable, accruedexpenses
      and other liabilities
                                      
                                      
                                      (28,605
                                      )
                                      
                                      
                                      (7,195
                                      )Net
      cash provided by (used in) operating activities
                                      
                                      
                                      13,220
                                      
                                      
                                      
                                      28,510Cash
      flows from investing activities:Capital
      expenditures
                                      
                                      
                                      (3,224
                                      )
                                      
                                      
                                      (3,343
                                      )Proceeds
      from sale of marketable securities
                                      
                                      
                                      1,000
                                      
                                      
                                      
                                      -Other,
      net
                                      
                                      
                                      (236
                                      )
                                      
                                      
                                      2Net
      cash provided by (used in) investing activities
                                      
                                      
                                      (2,460
                                      )
                                      
                                      
                                      (3,341
                                      )Cash
      flows from financing activities:Debt
      repayments
                                      
                                      
                                      (1,313
                                      )
                                      
                                      
                                      (1,317
                                      )Debt
      financing costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (439
                                      )Net
      cash provided by (used in) financing activities
                                      
                                      
                                      (1,313
                                      )
                                      
                                      
                                      (1,756
                                      )Effect
      of exchange rate changes on cashand
      cash equivalents
                                      
                                      
                                      (191
                                      )
                                      
                                      
                                      (4,496
                                      )Net
      increase (decrease) in cash and cash equivalents
                                      
                                      
                                      9,256
                                      
                                      
                                      
                                      18,917Cash
      and cash equivalents at beginning of period
                                      
                                      
                                      57,748
                                      
                                      
                                      
                                      54,149Cash
      and cash equivalents at end of period
                                      
                                      $
                                      67,004
                                      
                                      
                                      $
                                      73,066
  See notes
to unaudited condensed consolidated financial statements.
  - 4
-




AEROFLEX
INCORPORATED AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.   
Basis of Presentation





We
design, engineer and manufacture microelectronics and test solution and
measurement equipment that are sold primarily to the broadband communications,
aerospace and defense markets.  Our fiscal year ends on June
30.





The
accompanying unaudited condensed consolidated financial information of Aeroflex
Incorporated and subsidiaries (the “Company”, “we”, or “our”) has been prepared
in accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”) and the rules and regulations of the United States Securities and
Exchange Commission (“SEC”), and reflects all adjustments, consisting only of
normal recurring adjustments, which in management’s opinion are necessary to
state fairly the Company’s financial position as of  September 30,
2009, results of operations for the three month periods ended
September  30, 2009 and 2008 and cash flows for the three month
periods ended September 30, 2009 and 2008. The June 30, 2009 balance sheet
information has been derived from audited financial statements, but does not
include all information or disclosures required by U.S. GAAP.





The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, as well as the reported amounts of
sales and expenses during the reporting period. Actual results may differ
from those estimates, and such differences may be material to the financial
statements.





These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements for the fiscal year ended June 30,
2009 included in the Company’s Annual Report on Form 10-K for the fiscal year
ended June 30, 2009 (the “Fiscal 2009 Form 10-K”).





Results
of operations for interim periods are not necessarily indicative of results to
be expected for the full fiscal year or any future periods.





Revenue
Recognition





We
recognize revenue, net of trade discounts and allowances, when (1) persuasive
evidence of an arrangement exists, (2) delivery of the product has occurred or
the services have been performed, (3) the selling price is fixed or
determinable, and (4) collectability of the resulting receivable is reasonably
assured.





Our
product revenue is generated predominantly from the sales of various types of
microelectronic products and test and measurement equipment. For
arrangements other than certain long-term contracts, revenue (including shipping
and handling fees) is recognized when products are shipped and title has passed
to the customer. If title does not pass until the product reaches the customer’s
delivery site, recognition of the revenue is deferred until that time. Certain
of our sales are to distributors, which have a right to return some portion of
product within up to eighteen months of sale. We recognize revenue on these
sales at the time of shipment to the distributor, as the returns under these
arrangements have been insignificant and can be reasonably estimated. A
provision for such estimated returns is recorded at the time revenues are
recognized. For transactions that include customer-specified acceptance
criteria, including those where acceptance is required upon achievement of
performance milestones, revenue is recognized after the acceptance criteria have
been met.


- 5
-




Long-term
contracts are accounted for by determining estimated contract profit rates and
use of the percentage-of-completion method to recognize revenues and associated
costs as work progresses. We measure the extent of progress toward completion
generally based upon one of the following methods (based upon an assessment of
which method most closely aligns to the underlying earnings process): (i) the
units-of-delivery method, (ii) the cost-to-cost method, the ratio of contract
costs incurred as a percentage of total estimated costs at contract completion
(based upon engineering and production estimates), or (iii) the achievement of
contractual milestones. Provisions for anticipated losses or revisions in
estimated profits on contracts-in-process are recorded in the period in which
such anticipated losses or revisions become evident.





Where an
arrangement includes only a software license, revenue is recognized when the
software is delivered and title has been transferred to the customer or, in
the case of electronic delivery of software, when the customer is given access
to the licensed software programs. We also evaluate whether persuasive evidence
of an arrangement exists, collection of the receivable is probable, the fee
is fixed or determinable and whether any other undelivered elements of the
arrangement exist for which a portion of the total fee would be allocated based
on vendor-specific objective evidence of the fair value of the undelivered
element. When a customer purchases software together with post contract support,
we allocate a portion of the fee to the post contract support for its fair value
based on the contractual renewal rate. Post contract support fees are deferred
in Advance Payments by Customers and Deferred Revenue in the consolidated
balance sheets, and recognized as revenue ratably over the term of the related
contract.





Service
revenue is derived from extended warranty, customer support and training.
Service revenue is deferred and recognized over the contractual term or as
services are rendered and accepted by the customer. For example, customer
support contracts are recognized ratably over the contractual term, while
training revenue is recognized as the training is provided to the customer. In
addition, the four revenue recognition criteria described above must be met
before service revenue is recognized.





We use
vendor-specific objective evidence of selling price, verifiable objective
evidence of selling price, such as third party selling prices, or estimating
selling price, in that order,  to allocate revenue to elements in
multiple element arrangements. Revenue is recognized on only those elements that
meet the four criteria described above.





Effective
July 1, 2009, we no longer use the residual method to determine the portion of
the arrangement consideration to allocate to undelivered elements of a multiple
element arrangement.





At
September 30, 2009, we have $24.7 million in Advance Payments by Customers and
Deferred Revenue, which is comprised of $10.2 million of customer advance
payments primarily for the purchase of materials, $6.5 million of deferred
service and software support revenue, $4.2 million of deferred warranty revenue
and $3.8 million of revenue deferred due to software arrangements for which
there is no vendor specific objective evidence of fair value of the undelivered
elements of the arrangements or product delivered to a customer that has not
been accepted or is incomplete. We generally sell non-software service and
extended warranty contracts on a standalone basis. The amount of deferred
revenue at September 30, 2009 and revenue for the three months ended September
30, 2009 derived from non-software multiple element arrangements was
insignificant.





The
adoption on July 1, 2009 of the guidance issued by the FASB in Accounting
Standard Updates 2009-13 and 2009-14 did not have a material impact on our
pattern or timing of revenue recognition and is not expected to have a material
impact on revenues in future periods. We have one test equipment product line,
which includes software that is more than incidental to the hardware component,
that prior to July 1, 2009 was accounted for as a software product for revenue
recognition purposes. Effective July 1, 2009, the new revenue recognition
guidance provides that products such as these that contain software which is
essential to overall product functionality are outside the scope of software
revenue recognition guidance and are now accounted for under new rules
pertaining to revenue arrangements with multiple
deliverables.  Although this change had no impact on revenue
recognized for the three months ended September 30, 2009, if this product were
delivered in a multiple element arrangement in the future, certain revenue
recognition could be accelerated. We do not believe that this will result in a
material impact on our revenues.


- 6
-





2.    Accounting
Pronouncements





Recently
Adopted Accounting Pronouncements




On
July 1, 2009, we adopted the authoritative implementation guidance issued
by the Financial Accounting Standards Board (“FASB”) for fair value
measurement for nonfinancial assets and liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). Adoption of the new guidance did not have a material
impact on our financial statements.





On
July 1, 2009, we adopted the authoritative guidance issued by the FASB on
business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the fair value of contingent consideration to be recorded on the acquisition
date, the capitalization of in-process research and development at fair value
and the expensing of acquisition-related costs as incurred. Adoption of the
new guidance, which is effective for acquisitions consummated by us after June
30, 2009, did not have an impact on our consolidated financial statements as of
and for the three months ended September 30, 2009.





On
July 1, 2009, we adopted the authoritative guidance issued by the FASB for
the determination of the useful life of intangible assets. This guidance amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset.
This guidance also adds certain disclosures to those already
prescribed.  The guidance for determining useful lives must be applied
prospectively to intangible assets acquired after the effective date. The
disclosure requirements must also be applied prospectively to all intangible
assets recognized as of the effective date.  The adoption of this
guidance did not have a material impact on our consolidated financial statements
for the three months ended September 30, 2009.





In
September 2009, we adopted the authoritative guidance issued by the FASB which
establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied in the
preparation of financial statements in conformity with U.S.
GAAP.  This guidance explicitly recognizes the rules and interpretive
releases of the SEC under federal securities laws as authoritative GAAP for SEC
registrants.  The Company has updated references to U.S. GAAP in its
financial statements issued for the period ended September 30, 2009. The
adoption did not have an impact on our consolidated financial
statements.




In
October 2009, the FASB issued authoritative guidance on revenue recognition that
becomes effective for us commencing July 1, 2010.  However, earlier
adoption was permitted. Under the new guidance on sales arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance. Additionally, the FASB issued authoritative guidance on
revenue arrangements with multiple deliverables that are outside the scope of
the software revenue recognition guidance. Under the new guidance, when vendor
specific objective evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling price is
required to separate deliverables and allocate arrangement consideration and the
use of the relative selling price method is required. The new guidance
eliminated the residual method of allocating arrangement consideration to
deliverables and includes new disclosure requirements on how the application of
the relative selling price method affects the timing and amount of revenue
recognition. We chose to early adopt such authoritative guidance on a
prospective basis effective July 1, 2009 and, therefore, it has been applied to
multiple deliverable revenue arrangements and arrangements for the sale of
tangible products with software components entered into or materially modified
on or after July 1, 2009.  The adoption of this new guidance did not
have a material impact on our financial statements.


- 7
-




In
December 2007, the FASB issued guidance which requires that the non-controlling
interests in consolidated subsidiaries be presented as a separate component of
stockholders’ equity in the balance sheet, that the amount of consolidated net
earnings attributable to the parent and the non-controlling interest be
separately presented in the statement of earnings, and that the amount of
consolidated other comprehensive income attributable to the non-controlling
interest be separately disclosed. The standard also requires gains or losses
from the sale of stock of subsidiaries where control is maintained to be
recognized as an equity transaction. The guidance was effective beginning with
the first quarter of the fiscal year 2010 financial reporting.  In
connection with the adoption of this guidance, we did not apply the presentation
or disclosure provisions to our one non-controlling interest as the
effect on our financial statements was insignificant.





Recently
Issued Accounting Pronouncements Not Yet Adopted





In June
2009, the FASB issued authoritative guidance on the consolidation of variable
interest entities, which is effective for us beginning July 1, 2010. The
new guidance requires revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such entities, and
additional disclosures for variable interests. We believe adoption of this new
guidance will not have a material impact on our financial
statements.





3.    Intangible
Assets





Intangible
Assets with Definite Lives





The
components of amortizable intangible assets are as follows:





September
      30, 2009
                          
                          
                          June
      30, 2009(In
      thousands)Gross
                          
                          
                          
                          
                          
                          GrossCarrying
                          
                          
                          Accumulated
                          
                          
                          Carrying
                          
                          
                          AccumulatedAmount
                          
                          
                          Amortization
                          
                          
                          Amount
                          
                          
                          AmortizationDeveloped
      technology
                          
                          $
                          197,669
                          
                          
                          $
                          70,343
                          
                          
                          $
                          197,684
                          
                          
                          $
                          62,021Customer
      related intangibles
                          
                          
                          216,618
                          
                          
                          
                          75,759
                          
                          
                          
                          216,956
                          
                          
                          
                          69,339Non-compete
      arrangements
                          
                          
                          10,252
                          
                          
                          
                          3,203
                          
                          
                          
                          10,090
                          
                          
                          
                          2,692Tradenames
                          
                          
                          2,211
                          
                          
                          
                          356
                          
                          
                          
                          2,105
                          
                          
                          
                          230Total
                          
                          $
                          426,750
                          
                          
                          $
                          149,661
                          
                          
                          $
                          426,835
                          
                          
                          $
                          134,282





The
aggregate amortization expense for amortizable intangible assets was $15.6
million and $18.0 million for the three months ended September 30, 2009 and
2008, respectively.


- 8
-





The
estimated aggregate amortization expense for each of the twelve month periods
ending September 30, is as follows:





(In
      thousands)2010
                  
                  $
                  61,5472011
                  
                  
                  60,6802012
                  
                  
                  59,5232013
                  
                  
                  50,2982014
                  
                  
                  22,717





Goodwill





The
carrying amount of goodwill, by segment, is as follows:





AMS
                            
                            
                            ATS
                            
                            
                            Total(In
      thousands)Balance
      at June 30, 2009
                            
                            $
                            266,813
                            
                            
                            $
                            161,320
                            
                            
                            $
                            428,133Adjustment
      to goodwill for acquisitions, primarilyfor
      Airflyte Electronics
                            
                            
                            679
                            
                            
                            
                            433
                            
                            
                            
                            1,112Impact
      of foreign currency translation
                            
                            
                            584
                            
                            
                            
                            (807
                            )
                            
                            
                            (223
                            )Balance
      at September 30, 2009
                            
                            $
                            268,076
                            
                            
                            $
                            160,946
                            
                            
                            $
                            429,022





4.    Restructuring
Charges





The
following table sets forth the charges and payments related to the restructuring
liability for the periods indicated:





Balance
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          BalanceJune
      30,
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          September
      30,2009
                          
                          
                          Three
      Months Ended September 30, 2009
                          
                          
                          2009Effect
      ofRestructuring
                          
                          
                          
                          
                          
                          
                          
                          
                          foreign
                          
                          
                          RestructuringLiability
                          
                          
                          Net
      Additions
                          
                          
                          Cash
      Payments
                          
                          
                          currency
                          
                          
                          Liability(In
      thousands)Work
      force reduction
                          
                          $
                          756
                          
                          
                          $
                          187
                          
                          
                          $
                          (933
                          )
                          
                          $
                          (4
                          )
                          
                          $
                          6Closure
      of facilities
                          
                          
                          1,722
                          
                          
                          
                          -
                          
                          
                          
                          (182
                          )
                          
                          
                          (36
                          )
                          
                          
                          1,504Total
                          
                          $
                          2,478
                          
                          
                          $
                          187
                          
                          
                          $
                          (1,115
                          )
                          
                          $
                          (40
                          )
                          
                          $
                          1,510


- 9
-





5.  
  Inventories





Inventories
consist of the following:





September
      30,
                        
                        
                        June
      30,2009
                        
                        
                        2009(In
      thousands)Raw
      materials
                        
                        $
                        64,178
                        
                        
                        $
                        67,388Work
      in process
                        
                        
                        52,284
                        
                        
                        
                        47,185Finished
      goods
                        
                        
                        21,542
                        
                        
                        
                        21,030$
                        138,004
                        
                        
                        $
                        135,603





6. 
   Product Warranty




We
warrant our products against defects in design, materials and workmanship,
generally for one year from their date of shipment. A provision for estimated
future costs relating to these warranties is recorded in cost of sales when the
related revenue is recognized. Quarterly we analyze our warranty liability for
reasonableness based on a 15-month history of warranty costs incurred, the
nature of the products shipped subject to warranty and anticipated warranty
trends.





Activity
related to our product warranty liability, which is reflected in accrued
expenses and other current liabilities in the accompanying consolidated balance
sheets, was as follows:





Three
      Months
                              
                              
                              Three
      MonthsEnded
                              
                              
                              EndedSeptember
      30, 2009
                              
                              
                              September
      30, 2008(In
      thousands)Balance
      at beginning of period
                              
                              $
                              2,645
                              
                              
                              $
                              2,944Provision
      for warranty obligations
                              
                              
                              570
                              
                              
                              
                              618Cost
      of warranty obligations
                              
                              
                              (555
                              )
                              
                              
                              (654
                              )Foreign
      currency impact
                              
                              
                              (13
                              )
                              
                              
                              (100
                              )Balance
      at end of period
                              
                              $
                              2,647
                              
                              
                              $
                              2,808





7.  
  Derivative Financial Instruments





We
address certain financial exposures through a controlled program of risk
management that includes the use of derivative financial instruments. We enter
into interest rate swap derivatives to manage the effects of interest rate
movements on portions of our debt. We also enter into foreign currency forward
contracts, not designated as hedging instruments, to protect us from
fluctuations in exchange rates.


- 10
-








The fair
values of our derivative financial instruments included in the consolidated
balance sheet as of September 30, 2009 and June 30, 2009 are presented as
follows:





Asset
      (Liability) DerivativesSeptember
      30, 2009
                                                                                                        
                                                                                                        June
      30, 2009Balance
      Sheet
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        Balance
      Sheet(In
      thousands)
                                                                                                        
                                                                                                        Location
                                                                                                        
                                                                                                        Fair
      Value(1)
                                                                                                        
                                                                                                        Location
                                                                                                        
                                                                                                        Fair
      Value(1)Derivatives
      designated as hedginginstruments:Interest
      rate swap contracts
                                                                                                        
                                                                                                        Accrued
      expenses and other current liabilities
                                                                                                        
                                                                                                        $
                                                                                                        (451
                                                                                                        )
                                                                                                        Accrued
      expenses and other current liabilities
                                                                                                        
                                                                                                        $
                                                                                                        (615
                                                                                                        )Interest
      rate swap contracts
                                                                                                        
                                                                                                        Other
      long-term liabilities
                                                                                                        
                                                                                                        
                                                                                                        (14,850
                                                                                                        )
                                                                                                        Other
      long-term liabilities
                                                                                                        
                                                                                                        
                                                                                                        (15,006
                                                                                                        )Total
      derivatives designated as hedging instruments
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (15,301
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (15,621
                                                                                                        )Derivatives
      not designated ashedging
      instruments:Foreign
      currency forward contracts
                                                                                                        
                                                                                                        Prepaid
      expenses and other current assets
                                                                                                        
                                                                                                        
                                                                                                        122
                                                                                                        
                                                                                                        Accrued
      expenses and other current liabilities
                                                                                                        
                                                                                                        
                                                                                                        (195
                                                                                                        )Total
      derivatives, net
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (15,179
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (15,816
                                                                                                        )





(1)  See
Note 8 for further information about how the fair values of derivative assets
and liabilities are determined.





The
amounts of the gains and losses related to our derivative financial instruments
designated as hedging instruments for the three months ended September 30, 2009
and 2008 are presented as follows:





Amount
      of Gain or (Loss)Recognized
      on Derivatives inDerivatives
      in Cash Flow
                                                    
                                                    
                                                    Other
      Comprehensive IncomeHedging
      Relationships
                                                    
                                                    
                                                    (Effective
      Portion)(1)Three
      Months
                                                    
                                                    
                                                    Three
      MonthsEnded
                                                    
                                                    
                                                    EndedSeptember 30, 2009
                                                    
                                                    
                                                    September 30, 2008(In
      thousands)Interest
      rate swap contracts
                                                    
                                                    $
                                                    (3,081
                                                    )
                                                    $
                                                    (3,796
                                                    )





Location
      of Gain or (Loss)
                                                        
                                                        
                                                        Amount
      of Gain or (Loss)Reclassified
      from
                                                        
                                                        
                                                        Reclassified
      fromAccumulated
      Other Comprehensive Income
                                                        
                                                        
                                                        Accumulated
      Other Comprehensive Incomeinto
      Income (Effective Portion)
                                                        
                                                        
                                                        into Income
      (Effective Portion) (1)Three
      Months
                                                        
                                                        
                                                        
                                                        Three
      MonthsEnded
                                                        
                                                        
                                                        
                                                        EndedSeptember 30, 2009
                                                        
                                                        
                                                        
                                                        September 30, 2008(In
      thousands)Interest
      expense
                                                        
                                                        $
                                                        (3,401
                                                        )
                                                        
                                                        $
                                                        (890
                                                        )





(1)See
Note 11 for additional information on changes to accumulated other comprehensive
income (loss).


- 11
-





The
amounts of the gains and losses related to our derivative financial instruments
not designated as hedging instruments for the three months ended September 30,
2009 and 2008 are presented as follows:





Derivatives
      Not Designated
                                                      
                                                      Location
      of Gain or (Loss)
                                                        Recognized
      in Earnings on
                                                      
                                                      
                                                      Amount
      of Gain or (Loss)
                                                        Recognized
      in Earnings onas
      Hedging Instruments
                                                      
                                                      Derivative
                                                      
                                                      
                                                      DerivativeThree
      Months
                                                      
                                                      Three
      MonthsEnded
                                                      
                                                      EndedSeptember 30, 2009
                                                      
                                                      September 30, 2008(In
      thousands)Foreign
      currency forward contracts
                                                      
                                                      Other
      income (expense)
                                                      
                                                      $
                                                      318
                                                      
                                                      $
                                                      (165
                                                      )





Interest
Rate Swap Cash-Flow Hedges





We enter
into interest rate swap contracts to manage the effects of interest rate
movements on portions of our debt. Such contracts effectively fix the borrowing
rates on floating rate debt to limit the exposure against the risk of rising
rates.  We do not enter into interest rate swap contracts for
speculative purposes and we have entered into transactions with counterparties
that are rated investment grade. Our interest rate swap contracts, all of which
were entered into in fiscal 2008 for an aggregate notional amount of $475
million, have varying maturities through February 2011.





Foreign
      Currency Contract Derivatives





Foreign
currency contracts are used to protect us from fluctuations in exchange rates.
We enter into foreign currency contracts, which are not designated as hedges.
The change in fair value is included in income as it occurs, within other income
(expense). As of September 30, 2009, we had $28.4 million of notional value
foreign currency forward contracts maturing through October 31, 2009. Notional
amounts do not quantify risk or represent assets or liabilities of the Company,
but are used in the calculation of cash settlements under the
contracts.





8.    Fair
Value Measurements





We
account for certain assets and liabilities at fair value.  The
hierarchy below lists three levels of fair value based on the extent to which
inputs used in measuring the fair value are observable in the
market.  We categorize each of our fair value measurements in one of
these three levels based on the lowest level input that is significant to the
fair value measurement in its entirety.  These levels
are:




Level 1:
                Inputs
      based on quoted market prices for identical assets or liabilities in
      active markets at the measurement date.Level 2:
                Observable
      inputs other than quoted prices included in Level 1, such as quoted prices
      for similar assets and liabilities in active markets; quoted prices for
      identical or similar assets and liabilities in markets that are not
      active; or other inputs that are observable or can be corroborated by
      observable market data.Level 3:
                Inputs
      reflect management’s best estimate of what market participants would use
      in pricing the asset or liability at the measurement date.  The
      inputs are unobservable in the market and significant to the instruments’
      valuation.


- 12
-





The
following table presents for each hierarchy level, financial assets and
liabilities measured at fair value on a recurring basis:





Quoted
      Prices inActive
      Markets
                                                
                                                
                                                Significant
      Other
                                                
                                                
                                                Significantfor
      Identical
                                                
                                                
                                                Observable
                                                
                                                
                                                UnobservableAssets
                                                
                                                
                                                Inputs
                                                
                                                
                                                InputsAs
      of September 30, 2009
                                                
                                                (Level
      1)
                                                
                                                
                                                (Level
      2)
                                                
                                                
                                                (Level
      3)
                                                
                                                
                                                Total(In
      thousands)Assets:Non-current
      marketable securities
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                16,946
                                                
                                                
                                                $
                                                16,946Foreign
      currency forward contracts
                                                
                                                
                                                -
                                                
                                                
                                                
                                                122
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                122Total
      Assets
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                122
                                                
                                                
                                                $
                                                16,946
                                                
                                                
                                                $
                                                17,068Liabilities:Interest
      rate swap contracts
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                15,301
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                15,301





Quoted
      Prices inActive
      Markets
                                              
                                              
                                              Significant
      Other
                                              
                                              
                                              Significantfor
      Identical
                                              
                                              
                                              Observable
                                              
                                              
                                              UnobservableAssets
                                              
                                              
                                              Inputs
                                              
                                              
                                              InputsAs
      of June 30, 2009
                                              
                                              (Level
      1)
                                              
                                              
                                              (Level
      2)
                                              
                                              
                                              (Level
      3)
                                              
                                              
                                              Total(In
      thousands)Assets:Non-current
      marketable securities
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              17,677
                                              
                                              
                                              $
                                              17,677Liabilities:Foreign
      currency forward contracts
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              195
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              195Interest
      rate swap contracts
                                              
                                              
                                              -
                                              
                                              
                                              
                                              15,621
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              15,621Total
      Liabilities
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              15,816
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              15,816





The
following table presents the changes in the carrying value of the Company’s
assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the three months ended September 30,
2009:





Fair
      Value MeasurementsUsing
      SignificantUnobservable
      Inputs(Level 3)AuctionRateSecurities(In
      thousands)Balance
      at June 30, 2009
                      
                      $
                      17,677Redeemed
      by the issuer at par
                      
                      
                      (1,000
                      )Total
      unrealized gain (loss) in accumulated other comprehensive income
      (loss)
                      
                      
                      269Balance
      at September 30, 2009
                      
                      $
                      16,946





Non-Current Marketable
Securities – Non-current marketable securities consist of auction rate
securities that currently have no active market from which we could obtain
pricing.  We have classified auction rate securities as Level 3 as
their valuation requires substantial judgment and estimation of factors that are
not currently observable in the market due to the lack of trading in the
securities.  Since June 30, 2009, $1.0 million of our auction rate
securities were redeemed by the issuer at par.  To date, we have
collected all interest payments on all of our auction rate securities when due.
Furthermore, we have the intent and are able to hold these securities until the
credit markets recover, or until their maturities, which range from 2029 through
2042, if necessary.   However, based on a discounted cash flow
analysis, which considered, among other items, the collateral underlying the
securities, the credit worthiness of the issuer, the timing of future cash flows
and liquidity risks, we have recorded a $2.0 million valuation allowance against
the auction rate securities.


- 13
-





As fair
values have continued to be below cost, we have considered various factors in
determining that at September 30, 2009 a credit loss did not exist and there was
no requirement to recognize an other than temporary impairment charge, including
the length of time and the extent to which the fair value has been below the
cost basis, the timely receipt of all interest payments, the rating of the
security, the relatively low volatility of the security’s fair value, the
current financial condition of the issuer and our intent and ability to hold the
investment for a period of time sufficient to allow for any anticipated recovery
in market value.





Foreign Currency Forward
Contracts – The fair value of our foreign currency forward contracts were
valued using a pricing model with all significant inputs based on observable
market data such as measurement date spot and forward rates.





Interest Rate Swap Contracts –
The fair value of our outstanding interest rate swap contracts were based on
valuations received from the counterparties and corroborated by measurement date
equivalent swap rates.





9.    Long
Term Debt and Credit Agreements





On August
7, 2008, our 11.75% exchangeable senior unsecured loan in the amount of $225
million with an ultimate maturity on February 15, 2015 was refinanced with
unsecured senior notes with the same interest rate and maturity
date.  We may prepay the senior notes commencing August 15, 2011 at
105.875% of the principal amount prepaid, which decreases to 102.938% on August
15, 2012 and to 100% on or after August 15, 2013.  In addition, we may
redeem up to 35% of the original aggregate principal balance of the senior
notes, at any time prior to August 15, 2010, with the net proceeds of certain
equity offerings at 111.75% of the principal amount redeemed.  On
January 21, 2009, the SEC declared effective our exchange offer registration
statement which resulted in the exchange of the unregistered unsecured senior
notes for publicly registered 11.75% unsecured senior notes due February 15,
2015 with substantially identical terms as the exchanged notes.  The
exchange offer was consummated in March 2009.





As of
September 30, 2009, we are in compliance with all of the covenants contained in
our loan agreements.





Interest
paid was $22.0 million and $11.9 million for the three months ended September
30, 2009 and 2008, respectively.





Accrued
interest of $7.4 million and $14.0 million was included in accrued expenses and
other current liabilities at September 30, 2009 and June 30, 2009,
respectively.


- 14
-





The fair
value of our debt instruments are summarized as follows:





September
      30, 2009Carrying
                  
                  
                  EstimatedAmount
                  
                  
                  Fair Value(In
      thousands)Senior
      secured B-1 term loan
                  
                  $
                  392,000
                  
                  
                  $
                  359,660Senior
      secured B-2 term loan
                  
                  
                  122,500
                  
                  
                  
                  105,350Senior
      unsecured notes
                  
                  
                  225,000
                  
                  
                  
                  211,500Senior
      subordinated unsecured term loan
                  
                  
                  151,814
                  
                  
                  
                  135,114Other
                  
                  
                  1,085
                  
                  
                  
                  1,085Total
      debt
                  
                  $
                  892,399
                  
                  
                  $
                  812,709





The
carrying value of debt of $889.3 million as of June 30, 2009 had a fair value of
$661.9 million.





The
estimated fair values of each of our debt instruments are based on quoted market
prices for the same or similar issues. Fair value estimates related to our debt
instruments are made at a specific point in time based on relevant market
information.  These estimates are subjective in nature and involve
uncertainties and matters of significant judgments and therefore cannot be
determined with precision.  Changes in assumptions could significantly
affect the estimates.





10.
            Loss onLiquidationof Foreign
      Subsidiary




In
connection with the acquisition of one of our Wireless businesses in the U.K. in
2003, we set up a foreign partnership to finance the acquisition.  We
invested $19.5 million in the partnership and the partnership advanced those
funds to our foreign holding company in the form of a loan, the proceeds of
which was used for the acquisition.




During
the quarter ended September 30, 2009, the loan was fully repaid to the
partnership, with interest, and we received a return of capital and
dividends.  The partnership is substantially liquidated.




As a
result of changes in foreign currency rates, there was a cumulative translation
adjustment of $7.7 million remaining after substantially all of the assets have
been returned to us and substantially all of the liabilities have been
satisfied.  In accordance with U.S. GAAP, this remaining cumulative
translation adjustment has been expensed in the period during which the
substantial liquidation of the partnership occurred and presented as a non-cash
loss on liquidation of foreign subsidiary in our Condensed Consolidated
Statement of Operations for the quarter ended September 30,
2009.  This loss is not deductible for income tax
purposes.




- 15
-




11.
            Comprehensive
      Income




The components of comprehensive
income(loss)are as follows:





Three
      Months
                      
                      
                      Three
      MonthsEnded
                      
                      
                      EndedSeptember 30, 2009
                      
                      
                      September 30, 2008(In
      thousands)Net
      income (loss)
                      
                      $
                      (20,543
                      )
                      
                      $
                      (6,897
                      )Increase
      (decrease) in fair value of interest rate swap contracts, net of tax
      provision (benefit) of $124 and $(1,075)
                      
                      
                      196
                      
                      
                      
                      (1,831
                      )Valuation
      allowance against non-current marketable securities
                      
                      
                      269
                      
                      
                      
                      (1,198
                      )Foreign
      currency translation adjustment
                      
                      
                      5,884
                      
                      
                      
                      (21,781
                      )Total
      comprehensive income (loss)
                      
                      $
                      (14,194
                      )
                      
                      $
                      (31,707
                      )





Accumulated other comprehensive income
(loss) is as follows:





UnrealizedGain (Loss)
                    
                    
                    Valuation
                    
                    
                    Minimumon Interest
                    
                    
                    Allowance Against
                    
                    
                    Pension
                    
                    
                    ForeignRate Swap
                    
                    
                    Non-Current
                    
                    
                    Liability
                    
                    
                    CurrencyContracts
                    
                    
                    Marketable
                    
                    
                    Adjustment
                    
                    
                    Translation
                    
                    
                    Total(net of tax)
                    
                    
                    Securities
                    
                    
                    (net of tax)
                    
                    
                    Adjustment
                    
                    
                    (net of tax)(In
      thousands)Balance,
      June 30, 2009
                    
                    $
                    (9,602
                    )
                    
                    $
                    (2,268
                    )
                    
                    $
                    (499
                    )
                    
                    $
                    (42,331
                    )
                    
                    $
                    (54,700
                    )Three
      months' activity
                    
                    
                    196
                    
                    
                    
                    269
                    
                    
                    
                    -
                    
                    
                    
                    5,884
                    
                    
                    
                    6,349Balance,
      September 30, 2009
                    
                    $
                    (9,406
                    )
                    
                    $
                    (1,999
                    )
                    
                    $
                    (499
                    )
                    
                    $
                    (36,447
                    )
                    
                    $
                    (48,351
                    )





The foreign currency translation
adjustments are not adjusted for income taxes as they relate to indefinite
investments in non-U.S. subsidiaries.The valuation allowance for
non-current marketable securities is not adjusted for income taxes as it would
create a capital loss carryforward upon realization for which we would record a
valuation allowance against the related deferred tax asset.





12.
            Legal
      Matters





In March
2005, we sold the net assets of our shock and vibration control device
manufacturing business (“VMC”).  Under the terms of the sale
agreements, we retained certain liabilities relating to adverse environmental
conditions that existed at the premises occupied by VMC as of the date of sale
and recorded a liability for the estimated remediation costs.  The
accrued environmental liability at September 30, 2009 is $1.1 million, of which
$322,000 is expected to be paid within one year.




- 16
-


During
the quarter ended March 31, 2007, we became aware that certain RadHard
bidirectional multipurpose transceivers sold by us since 1999 may have been
subject to the licensing jurisdiction of the U.S. Department of State in
accordance with the International Traffic in Arms
Regulations  (“ITAR”). Accordingly, we filed a Voluntary Disclosure
with the Directorate of Defense Trade Controls, Department of State, describing
the details of the possible inadvertent misclassification. Simultaneously, we
filed a Commodity Jurisdiction request providing detailed information and data
supporting our contention that the product is not subject to ITAR and requesting
a determination that such product is not ITAR controlled. On November 15, 2007,
we were informed that the U.S. Department of State had determined in response to
our Commodity Jurisdiction request, that the product is subject to the licensing
jurisdiction of the U.S. Department of State in accordance with ITAR. We
requested reconsideration of this determination. On February 7, 2008, we filed
an addendum to the above referenced Voluntary Disclosure advising the
Directorate of Defense Trade Controls that other products sold by us, similar in
nature to the transceiver described above, may also be subject to the ITAR. The
Directorate of Defense Trade Controls agreed to extend our time to file such
addendum to the Voluntary Disclosure until a decision was rendered with respect
to our request for reconsideration of the determination in connection with the
above-referenced Commodity Jurisdiction request. On August 5, 2008, we received
a letter from the Office of Defense Trade Controls Compliance (“DTCC”)
requesting that we provide documentation and/or information relating to our
compliance initiatives after November 15, 2007 as well as the results of any
product reviews conducted by us, and indicating that a civil penalty against us
could be warranted in connection with this matter following the review of such
materials. We have provided all of the materials and documentation requested by
the DTCC.  Our request for reconsideration was denied by the
Directorate of Defense Trade Controls on August 19, 2008 which determined that
the product is subject to the licensing jurisdiction of the Department of State
in accordance with ITAR. Accordingly, on September 18, 2008, we filed an
addendum to our Voluntary Disclosure identifying other products that may have
been subject to the licensing jurisdiction of the U.S. Department of State in
accordance with the ITAR but were inadvertently misclassified.  At
this time it is not possible to determine whether any fines or other penalties
will be asserted against us or the materiality of any outcome.





We are
involved in various other ITAR related matters, including some recently
identified with the prior practices of a newly acquired business, which have
been disclosed to the U.S. Department of State.  Although we are in
the process of addressing these matters, we cannot provide assurance that we
will be able to adequately correct all possible ITAR violations. At this time it
is not possible to determine whether any fines or other penalties will be
asserted against us related to these other ITAR matters, or the materiality of
any outcome.





On
October 14, 2009, BAE Systems Information and Electronic Systems (“BAE”)
commenced an action against both us and one of our subsidiaries in the United
States District Court for the District of Delaware.  BAE essentially
is alleging that under a subcontract it entered into with us in 2002, BAE
provided to us certain proprietary information and know how relating to a high
performance direct infrared countermeasure system for use in military aircraft
and certain other platforms (“DIRCM System”), which enabled us to fabricate for
BAE an assembly component of the third generation of the DIRCM
System.  BAE is alleging that, in violation of the provisions of the
subcontract and a Proprietary Information Agreement, we fabricated or
facilitated the fabrication of one or more items that were identical or
substantially identical to items that we exclusively fabricated for BAE under
the subcontract.  BAE further claims that our actions ostensibly
enabled a prime competitor of BAE to build and market, in competition with BAE,
an infrared countermeasure system that included an unlawful copy of the
component.  Based on these allegations, BAE has asserted claims
against us for patent infringement, trade secret misappropriation, breach of
contract, conversion and unjust enrichment and has requested, by way of relief,
unspecified damages, injunctive relief and an accounting.  We have
evaluated BAE’s claims and believe that there is no basis for the allegations or
claims made by BAE.  Nevertheless, there can be no assurance that we
will prevail in the matter.  We do not believe that the ultimate
resolution of this matter will have a material adverse effect on our financial
position, results of operations, liquidity or capital resources.





We are
also involved in various other claims and legal actions that arise in the
ordinary course of business. We do not believe that the ultimate resolution of
any of these actions will have a material adverse effect on our financial
position, results of operations, liquidity or capital
resources.


- 17
-




13.
            Business
      Segments





Our
business segments and major products included in each segment, are as
follows:





Microelectronic
Solutions





·
            Microelectronic
      Components, Sub-assemblies and
Modules


·
            Integrated
      Circuits


·
            Motion
      Control Systems





Test
Solutions





·
            Instrument
      Products and Test Systems





We are a
manufacturer of advanced technology systems and components for commercial
industry, government and defense contractors. Approximately 35.7% of our sales
for the three months ended September 30, 2009 and 32.6% for the three months
ended September 30, 2008 were to agencies of the United States government or to
prime defense contractors or subcontractors of the United States government. No
customer constituted more than 10% of sales during any of the periods presented.
Inter-segment sales were not material and have been eliminated from the tables
below.





The
majority of our operations are located in the United States; however, we also
have operations in Europe and Asia, with our most significant operations in the
United Kingdom (“U.K.”).  Net sales from facilities located in the
U.K. were approximately $26.3 million for the three months ended September 30,
2009 and $34.4 million for the three months ended September 30,
2008.  Total assets of the U.K. operations were $164.0 million as of
September 30, 2009 and $188.2 million as of June 30, 2009.





Net
sales, based on the customers’ locations, attributed to the United States and
other regions are as follows:





Three
      Months
                  
                  
                  Three
      MonthsEnded
                  
                  
                  EndedSeptember 30, 2009
                  
                  
                  September 30, 2008(In
      thousands)United
      States of America
                  
                  $
                  80,185
                  
                  
                  $
                  75,015Europe
      and Middle East
                  
                  
                  28,467
                  
                  
                  
                  37,121Asia
      and Australia
                  
                  
                  19,515
                  
                  
                  
                  26,886Other
      regions
                  
                  
                  1,949
                  
                  
                  
                  1,823$
                  130,116
                  
                  
                  $
                  140,845


- 18
-





Selected
financial data by segment is as follows:





Three
      Months
                      
                      
                      Three
      MonthsEnded
                      
                      
                      EndedSeptember 30, 2009
                      
                      
                      September 30, 2008(In
      thousands)Net
      sales:Microelectronic
      solutions ("AMS")
                      
                      $
                      67,361
                      
                      
                      $
                      67,580Test
      solutions ("ATS")
                      
                      
                      62,755
                      
                      
                      
                      73,265Net
      sales
                      
                      $
                      130,116
                      
                      
                      $
                      140,845Segment
      adjusted operating income:-
      AMS
                      
                      $
                      15,024
                      
                      
                      $
                      14,613-
      ATS
                      
                      
                      7,965
                      
                      
                      
                      9,630General
      corporate expense
                      
                      
                      (2,931
                      )
                      
                      
                      (2,696
                      )Adjusted
      operating income
                      
                      
                      20,058
                      
                      
                      
                      21,547Amortization
      of acquired intangibles-
      AMS
                      
                      
                      (8,836
                      )
                      
                      
                      (10,677
                      )-
      ATS
                      
                      
                      (6,769
                      )
                      
                      
                      (7,291
                      )Share
      based compensation-
      Corporate
                      
                      
                      (489
                      )
                      
                      
                      (489
                      )Restructuring
      charges-
      ATS
                      
                      
                      (187
                      )
                      
                      
                      (402
                      )Merger
      related expenses - Corporate
                      
                      
                      (693
                      )
                      
                      
                      (634
                      )Loss
      on liquidation of foreign subsidiary
                      
                      
                      (7,696
                      )
                      
                      
                      -Current
      period impact of acquisitionrelated
      adjustments:Inventory
      - AMS
                      
                      
                      (246
                      )
                      
                      
                      -Depreciation
      - AMS
                      
                      
                      (275
                      )
                      
                      
                      (286
                      )Depreciation
      - ATS
                      
                      
                      (506
                      )
                      
                      
                      (738
                      )Depreciation
      - Corporate
                      
                      
                      (55
                      )
                      
                      
                      (55
                      )Deferred
      revenue - ATS
                      
                      
                      (32
                      )
                      
                      
                      (97
                      )Operating
      income (GAAP)
                      
                      
                      (5,726
                      )
                      
                      
                      878Interest
      expense
                      
                      
                      (21,039
                      )
                      
                      
                      (21,215
                      )Other
      income (expense), net
                      
                      
                      57
                      
                      
                      
                      3,086Income
      (loss) before income taxes
                      
                      $
                      (26,708
                      )
                      
                      $
                      (17,251
                      )





Management
evaluates the operating results of the two segments based upon pre-tax operating
income, before costs related to restructuring, amortization of acquired
intangibles, share-based compensation, acquired in-process research and
development costs, merger related expenses and the impact of any acquisition
related adjustments.





14.
            Guarantor/Non-Guarantor
      Financial Information





The
following supplemental condensed consolidating financial information sets forth,
on an unconsolidated basis, the balance sheets at September 30, 2009 and June
30, 2009 and the statements of operations and cash flows for the three months
ended September 30, 2009 and 2008 for Aeroflex Incorporated (the “Parent
Company”), the Guarantor Subsidiaries and, on a combined basis, the
Non-Guarantor Subsidiaries.  The supplemental condensed consolidating
financial information reflects for all fiscal periods presented, the investments
of the Parent Company in the Guarantor Subsidiaries as well as the investments
of the Parent Company and the Guarantor Subsidiaries in the Non-Guarantor
Subsidiaries, in all cases using the equity method.  The Parent
Company’s purchase price allocation adjustments, including applicable intangible
assets, arising from business acquisitions have been pushed down to the
applicable subsidiary columns (see Note 3).


- 19
-





Condensed
Consolidating Statement of Operations


For
the Three Months Ended September 30, 2009


(In
thousands)





Guarantor
                              
                              
                              Non-GuarantorParent
                              
                              
                              Subsidiaries
                              
                              
                              Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedNet
      sales
                              
                              $
                              -
                              
                              
                              $
                              97,895
                              
                              
                              $
                              33,390
                              
                              
                              $
                              (1,169
                              )
                              
                              $
                              130,116Cost
      of sales
                              
                              
                              -
                              
                              
                              
                              51,320
                              
                              
                              
                              14,993
                              
                              
                              
                              (1,191
                              )
                              
                              
                              65,122Gross
      profit
                              
                              
                              -
                              
                              
                              
                              46,575
                              
                              
                              
                              18,397
                              
                              
                              
                              22
                              
                              
                              
                              64,994Selling,
      general and administrative costs
                              
                              
                              4,169
                              
                              
                              
                              18,213
                              
                              
                              
                              7,856
                              
                              
                              
                              -
                              
                              
                              
                              30,238Research
      and development costs
                              
                              
                              -
                              
                              
                              
                              10,686
                              
                              
                              
                              6,495
                              
                              
                              
                              -
                              
                              
                              
                              17,181Amortization
      of acquired intangibles
                              
                              
                              -
                              
                              
                              
                              13,383
                              
                              
                              
                              2,222
                              
                              
                              
                              -
                              
                              
                              
                              15,605Loss
      on liquidation of foreign subsidiary
                              
                              
                              -
                              
                              
                              
                              7,696
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              7,696Operating
      income (loss)
                              
                              
                              (4,169
                              )
                              
                              
                              (3,403
                              )
                              
                              
                              1,824
                              
                              
                              
                              22
                              
                              
                              
                              (5,726
                              )Other
      income (expense):Interest
      expense
                              
                              
                              (21,022
                              )
                              
                              
                              (17
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (21,039
                              )Other
      income (expense), net
                              
                              
                              381
                              
                              
                              
                              (106
                              )
                              
                              
                              (218
                              )
                              
                              
                              -
                              
                              
                              
                              57Intercompany
      charges
                              
                              
                              19,794
                              
                              
                              
                              (19,318
                              )
                              
                              
                              (476
                              )
                              
                              
                              -
                              
                              
                              
                              -Income
      (loss) from continuing operationsbefore
      income taxes
                              
                              
                              (5,016
                              )
                              
                              
                              (22,844
                              )
                              
                              
                              1,130
                              
                              
                              
                              22
                              
                              
                              
                              (26,708
                              )Provision
      (benefit) for income taxes
                              
                              
                              (4,436
                              )
                              
                              
                              (2,690
                              )
                              
                              
                              219
                              
                              
                              
                              742
                              
                              
                              
                              (6,165
                              )Income
      (loss) from continuingoperations
                              
                              
                              (580
                              )
                              
                              
                              (20,154
                              )
                              
                              
                              911
                              
                              
                              
                              (720
                              )
                              
                              
                              (20,543
                              )Equity
      income (loss) of subsidiaries
                              
                              
                              (19,963
                              )
                              
                              
                              702
                              
                              
                              
                              -
                              
                              
                              
                              19,261
                              
                              
                              
                              -Net
      income (loss)
                              
                              $
                              (20,543
                              )
                              
                              $
                              (19,452
                              )
                              
                              $
                              911
                              
                              
                              $
                              18,541
                              
                              
                              $
                              (20,543
                              )


- 20
-





Condensed
Consolidating Statement of Operations


For
the Three Months Ended September 30, 2008


(In
thousands)





Guarantor
                      
                      
                      Non-GuarantorParent
                      
                      
                      Subsidiaries
                      
                      
                      Subsidiaries
                      
                      
                      Eliminations
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      -
                      
                      
                      $
                      95,641
                      
                      
                      $
                      46,807
                      
                      
                      $
                      (1,603
                      )
                      
                      $
                      140,845Cost
      of sales
                      
                      
                      -
                      
                      
                      
                      50,454
                      
                      
                      
                      24,686
                      
                      
                      
                      (1,654
                      )
                      
                      
                      73,486Gross
      profit
                      
                      
                      -
                      
                      
                      
                      45,187
                      
                      
                      
                      22,121
                      
                      
                      
                      51
                      
                      
                      
                      67,359Selling,
      general and administrative costs
                      
                      
                      3,873
                      
                      
                      
                      17,985
                      
                      
                      
                      9,626
                      
                      
                      
                      -
                      
                      
                      
                      31,484Research
      and development costs
                      
                      
                      -
                      
                      
                      
                      11,167
                      
                      
                      
                      5,862
                      
                      
                      
                      -
                      
                      
                      
                      17,029Amortization
      of acquired intangibles
                      
                      
                      -
                      
                      
                      
                      15,313
                      
                      
                      
                      2,655
                      
                      
                      
                      -
                      
                      
                      
                      17,968Operating
      income (loss)
                      
                      
                      (3,873
                      )
                      
                      
                      722
                      
                      
                      
                      3,978
                      
                      
                      
                      51
                      
                      
                      
                      878Other
      income (expense):Interest
      expense
                      
                      
                      (21,183
                      )
                      
                      
                      (22
                      )
                      
                      
                      (10
                      )
                      
                      
                      -
                      
                      
                      
                      (21,215
                      )Other
      income (expense), net
                      
                      
                      63
                      
                      
                      
                      242
                      
                      
                      
                      2,781
                      
                      
                      
                      -
                      
                      
                      
                      3,086Intercompany
      charges
                      
                      
                      22,186
                      
                      
                      
                      (21,573
                      )
                      
                      
                      (613
                      )
                      
                      
                      -
                      
                      
                      
                      -Income
      (loss) from continuing operationsbefore
      income taxes
                      
                      
                      (2,807
                      )
                      
                      
                      (20,631
                      )
                      
                      
                      6,136
                      
                      
                      
                      51
                      
                      
                      
                      (17,251
                      )Provision
      (benefit) for income taxes
                      
                      
                      (1,047
                      )
                      
                      
                      (7,843
                      )
                      
                      
                      1,196
                      
                      
                      
                      (2,660
                      )
                      
                      
                      (10,354
                      )Income
      (loss) from continuing operations
                      
                      
                      (1,760
                      )
                      
                      
                      (12,788
                      )
                      
                      
                      4,940
                      
                      
                      
                      2,711
                      
                      
                      
                      (6,897
                      )Equity
      in income (loss) of subsidiaries
                      
                      
                      (5,137
                      )
                      
                      
                      5,228
                      
                      
                      
                      -
                      
                      
                      
                      (91
                      )
                      
                      
                      -Net
      income (loss)
                      
                      $
                      (6,897
                      )
                      
                      $
                      (7,560
                      )
                      
                      $
                      4,940
                      
                      
                      $
                      2,620
                      
                      
                      $
                      (6,897
                      )




- 21
-





Condensed
Consolidating Balance Sheet


As
of September 30, 2009


(In
thousands)





Guarantor
                                
                                
                                Non-GuarantorParent
                                
                                
                                Subsidiaries
                                
                                
                                Subsidiaries
                                
                                
                                Eliminations
                                
                                
                                ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
                                
                                $
                                48,316
                                
                                
                                $
                                (370
                                )
                                
                                $
                                19,058
                                
                                
                                $
                                -
                                
                                
                                $
                                67,004Accounts
      receivable, net
                                
                                
                                -
                                
                                
                                
                                57,254
                                
                                
                                
                                32,299
                                
                                
                                
                                -
                                
                                
                                
                                89,553Inventories
                                
                                
                                -
                                
                                
                                
                                106,240
                                
                                
                                
                                32,638
                                
                                
                                
                                (874
                                )
                                
                                
                                138,004Deferred
      income taxes
                                
                                
                                3,628
                                
                                
                                
                                25,693
                                
                                
                                
                                5,891
                                
                                
                                
                                -
                                
                                
                                
                                35,212Prepaid
      expenses and other current assets
                                
                                
                                3,517
                                
                                
                                
                                3,383
                                
                                
                                
                                3,657
                                
                                
                                
                                -
                                
                                
                                
                                10,557Total
      current assets
                                
                                
                                55,461
                                
                                
                                
                                192,200
                                
                                
                                
                                93,543
                                
                                
                                
                                (874
                                )
                                
                                
                                340,330Property,
      plant and equipment, net
                                
                                
                                12,722
                                
                                
                                
                                65,853
                                
                                
                                
                                19,478
                                
                                
                                
                                -
                                
                                
                                
                                98,053Non-current
      marketable securities
                                
                                
                                16,946
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                16,946Deferred
      financing costs, net
                                
                                
                                24,561
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                24,561Other
      assets
                                
                                
                                13,009
                                
                                
                                
                                3,993
                                
                                
                                
                                613
                                
                                
                                
                                -
                                
                                
                                
                                17,615Intangible
      assets with definite lives, net
                                
                                
                                -
                                
                                
                                
                                239,842
                                
                                
                                
                                37,247
                                
                                
                                
                                -
                                
                                
                                
                                277,089Intangible
      assets with indefinite lives
                                
                                
                                -
                                
                                
                                
                                85,404
                                
                                
                                
                                26,200
                                
                                
                                
                                -
                                
                                
                                
                                111,604Goodwill
                                
                                
                                (10
                                )
                                
                                
                                389,766
                                
                                
                                
                                39,266
                                
                                
                                
                                -
                                
                                
                                
                                429,022Total
      assets
                                
                                $
                                122,689
                                
                                
                                $
                                977,058
                                
                                
                                $
                                216,347
                                
                                
                                $
                                (874
                                )
                                
                                $
                                1,315,220Liabilities and Stockholder's
      EquityCurrent
      liabilities:Current
      portion of long-term debt
                                
                                $
                                5,250
                                
                                
                                $
                                340
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                5,590Accounts
      payable
                                
                                
                                19
                                
                                
                                
                                15,175
                                
                                
                                
                                11,273
                                
                                
                                
                                -
                                
                                
                                
                                26,467Advance
      payments by customers and deferredrevenue
                                
                                
                                -
                                
                                
                                
                                13,219
                                
                                
                                
                                11,517
                                
                                
                                
                                -
                                
                                
                                
                                24,736Income
      taxes payable
                                
                                
                                783
                                
                                
                                
                                (54
                                )
                                
                                
                                2,207
                                
                                
                                
                                -
                                
                                
                                
                                2,936Accrued
      payroll expenses
                                
                                
                                2,023
                                
                                
                                
                                16,384
                                
                                
                                
                                1,519
                                
                                
                                
                                -
                                
                                
                                
                                19,926Accrued
      expenses and other current liabilities
                                
                                
                                18,277
                                
                                
                                
                                11,390
                                
                                
                                
                                10,400
                                
                                
                                
                                -
                                
                                
                                
                                40,067Total
      current liabilities
                                
                                
                                26,352
                                
                                
                                
                                56,454
                                
                                
                                
                                36,916
                                
                                
                                
                                -
                                
                                
                                
                                119,722Long-term
      debt
                                
                                
                                886,064
                                
                                
                                
                                745
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                886,809Deferred
      income taxes
                                
                                
                                (15,552
                                )
                                
                                
                                136,237
                                
                                
                                
                                15,199
                                
                                
                                
                                741
                                
                                
                                
                                136,625Defined
      benefit plan obligations
                                
                                
                                6,033
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                6,033Other
      long-term liabilities
                                
                                
                                15,879
                                
                                
                                
                                1,278
                                
                                
                                
                                2,750
                                
                                
                                
                                -
                                
                                
                                
                                19,907Intercompany
      investment
                                
                                
                                (268,838
                                )
                                
                                
                                42,289
                                
                                
                                
                                226,549
                                
                                
                                
                                -
                                
                                
                                
                                -Intercompany
      receivable/payable
                                
                                
                                (851,079
                                )
                                
                                
                                888,345
                                
                                
                                
                                (36,783
                                )
                                
                                
                                (483
                                )
                                
                                
                                -Total
      liabilities
                                
                                
                                (201,141
                                )
                                
                                
                                1,125,348
                                
                                
                                
                                244,631
                                
                                
                                
                                258
                                
                                
                                
                                1,169,096Stockholder's
      equity
                                
                                
                                323,830
                                
                                
                                
                                (148,290
                                )
                                
                                
                                (28,284
                                )
                                
                                
                                (1,132
                                )
                                
                                
                                146,124Total
      liabilities and stockholder's equity
                                
                                $
                                122,689
                                
                                
                                $
                                977,058
                                
                                
                                $
                                216,347
                                
                                
                                $
                                (874
                                )
                                
                                $
                                1,315,220


- 22
-





Condensed
Consolidating Balance Sheet


As
of June 30, 2009


(In
thousands)





Guarantor
                              
                              
                              Non-GuarantorParent
                              
                              
                              Subsidiaries
                              
                              
                              Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
                              
                              $
                              31,221
                              
                              
                              $
                              (15
                              )
                              
                              $
                              26,542
                              
                              
                              $
                              -
                              
                              
                              $
                              57,748Accounts
      receivable, net
                              
                              
                              -
                              
                              
                              
                              86,530
                              
                              
                              
                              43,899
                              
                              
                              
                              -
                              
                              
                              
                              130,429Inventories
                              
                              
                              -
                              
                              
                              
                              103,674
                              
                              
                              
                              32,827
                              
                              
                              
                              (898
                              )
                              
                              
                              135,603Deferred
      income taxes
                              
                              
                              3,452
                              
                              
                              
                              25,681
                              
                              
                              
                              6,031
                              
                              
                              
                              -
                              
                              
                              
                              35,164Prepaid
      expenses and other current assets
                              
                              
                              2,623
                              
                              
                              
                              2,542
                              
                              
                              
                              4,773
                              
                              
                              
                              -
                              
                              
                              
                              9,938Total
      current assets
                              
                              
                              37,296
                              
                              
                              
                              218,412
                              
                              
                              
                              114,072
                              
                              
                              
                              (898
                              )
                              
                              
                              368,882Property,
      plant and equipment, net
                              
                              
                              12,720
                              
                              
                              
                              67,624
                              
                              
                              
                              20,563
                              
                              
                              
                              -
                              
                              
                              
                              100,907Non-current
      marketable securities
                              
                              
                              17,677
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              17,677Deferred
      financing costs, net
                              
                              
                              25,754
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              25,754Other
      assets
                              
                              
                              12,551
                              
                              
                              
                              2,243
                              
                              
                              
                              631
                              
                              
                              
                              -
                              
                              
                              
                              15,425Intangible
      assets with definite lives, net
                              
                              
                              -
                              
                              
                              
                              253,225
                              
                              
                              
                              39,328
                              
                              
                              
                              -
                              
                              
                              
                              292,553Intangible
      assets with indefinite lives
                              
                              
                              -
                              
                              
                              
                              85,404
                              
                              
                              
                              26,862
                              
                              
                              
                              -
                              
                              
                              
                              112,266Goodwill
                              
                              
                              (10
                              )
                              
                              
                              388,913
                              
                              
                              
                              39,230
                              
                              
                              
                              -
                              
                              
                              
                              428,133Total
      assets
                              
                              $
                              105,988
                              
                              
                              $
                              1,015,821
                              
                              
                              $
                              240,686
                              
                              
                              $
                              (898
                              )
                              
                              $
                              1,361,597Liabilities and Stockholder's
      EquityCurrent
      liabilities:Current
      portion of long-term debt
                              
                              $
                              5,250
                              
                              
                              $
                              340
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              5,590Accounts
      payable
                              
                              
                              285
                              
                              
                              
                              20,553
                              
                              
                              
                              15,736
                              
                              
                              
                              -
                              
                              
                              
                              36,574Advance
      payments by customers and deferredrevenue
                              
                              
                              -
                              
                              
                              
                              17,433
                              
                              
                              
                              15,985
                              
                              
                              
                              -
                              
                              
                              
                              33,418Income
      taxes payable
                              
                              
                              587
                              
                              
                              
                              -
                              
                              
                              
                              4,493
                              
                              
                              
                              -
                              
                              
                              
                              5,080Accrued
      payroll expenses
                              
                              
                              1,600
                              
                              
                              
                              15,148
                              
                              
                              
                              2,128
                              
                              
                              
                              -
                              
                              
                              
                              18,876Accrued
      expenses and other current liabilities
                              
                              
                              25,418
                              
                              
                              
                              11,079
                              
                              
                              
                              11,441
                              
                              
                              
                              -
                              
                              
                              
                              47,938Total
      current liabilities
                              
                              
                              33,140
                              
                              
                              
                              64,553
                              
                              
                              
                              49,783
                              
                              
                              
                              -
                              
                              
                              
                              147,476Long-term
      debt
                              
                              
                              883,013
                              
                              
                              
                              745
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              883,758Deferred
      income taxes
                              
                              
                              (11,453
                              )
                              
                              
                              138,725
                              
                              
                              
                              15,776
                              
                              
                              
                              -
                              
                              
                              
                              143,048Defined
      benefit plan obligations
                              
                              
                              6,079
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              6,079Other
      long-term liabilities
                              
                              
                              16,825
                              
                              
                              
                              1,271
                              
                              
                              
                              3,380
                              
                              
                              
                              -
                              
                              
                              
                              21,476Intercompany
      investment
                              
                              
                              (268,635
                              )
                              
                              
                              41,022
                              
                              
                              
                              227,613
                              
                              
                              
                              -
                              
                              
                              
                              -Intercompany
      receivable/payable
                              
                              
                              (880,752
                              )
                              
                              
                              902,126
                              
                              
                              
                              (20,891
                              )
                              
                              
                              (483
                              )
                              
                              
                              -Total
      liabilities
                              
                              
                              (221,783
                              )
                              
                              
                              1,148,442
                              
                              
                              
                              275,661
                              
                              
                              
                              (483
                              )
                              
                              
                              1,201,837Stockholder's
      equity
                              
                              
                              327,771
                              
                              
                              
                              (132,621
                              )
                              
                              
                              (34,975
                              )
                              
                              
                              (415
                              )
                              
                              
                              159,760Total
      liabilities and stockholder's equity
                              
                              $
                              105,988
                              
                              
                              $
                              1,015,821
                              
                              
                              $
                              240,686
                              
                              
                              $
                              (898
                              )
                              
                              $
                              1,361,597


- 23
-





Condensed
Consolidating Statement of Cash Flows


For
the Three Months Ended September 30, 2009


(In
thousands)





Non-Guarantor
                      
                      
                      Guarantor
                      
                      
                      ConsolidatingParent
                      
                      
                      Subsidiaries
                      
                      
                      Subsidiaries
                      
                      
                      Adjustments
                      
                      
                      ConsolidatedCash
      flows from operating activities:Net
      income (loss)
                      
                      $
                      (20,543
                      )
                      
                      $
                      (19,452
                      )
                      
                      $
                      911
                      
                      
                      $
                      18,541
                      
                      
                      $
                      (20,543
                      )Changes
      in operating assets and liabilities andnon-cash
      items included in net income (loss)
                      
                      
                      38,477
                      
                      
                      
                      21,245
                      
                      
                      
                      (7,418
                      )
                      
                      
                      (18,541
                      )
                      
                      
                      33,763Net
      cash provided by (used in) operating activities
                      
                      
                      17,934
                      
                      
                      
                      1,793
                      
                      
                      
                      (6,507
                      )
                      
                      
                      -
                      
                      
                      
                      13,220Cash
      flows from investing activities:Capital
      expenditures
                      
                      
                      (171
                      )
                      
                      
                      (2,195
                      )
                      
                      
                      (858
                      )
                      
                      
                      -
                      
                      
                      
                      (3,224
                      )Proceeds
      from sale of marketable securities
                      
                      
                      1,000
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,000Other,
      net
                      
                      
                      (355
                      )
                      
                      
                      47
                      
                      
                      
                      72
                      
                      
                      
                      -
                      
                      
                      
                      (236
                      )Net
      cash provided by (used in) investing activities
                      
                      
                      474
                      
                      
                      
                      (2,148
                      )
                      
                      
                      (786
                      )
                      
                      
                      -
                      
                      
                      
                      (2,460
                      )Cash
      flows from financing activities:Debt
      repayments
                      
                      
                      (1,313
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,313
                      )Net
      cash provided by (used in) financing activities
                      
                      
                      (1,313
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,313
                      )Effect
      of exchange rate changes on cash and cashequivalents
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (191
                      )
                      
                      
                      -
                      
                      
                      
                      (191
                      )Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      17,095
                      
                      
                      
                      (355
                      )
                      
                      
                      (7,484
                      )
                      
                      
                      -
                      
                      
                      
                      9,256Cash
      and cash equivalents at beginning of period
                      
                      
                      31,221
                      
                      
                      
                      (15
                      )
                      
                      
                      26,542
                      
                      
                      
                      -
                      
                      
                      
                      57,748Cash
      and cash equivalents at end of period
                      
                      $
                      48,316
                      
                      
                      $
                      (370
                      )
                      
                      $
                      19,058
                      
                      
                      $
                      -
                      
                      
                      $
                      67,004


- 24
-


Condensed
Consolidating Statement of Cash Flows


For
the Three Months Ended September 30, 2008


(In
thousands)





Non-Guarantor
                
                
                Guarantor
                
                
                ConsolidatingParent
                
                
                Subsidiaries
                
                
                Subsidiaries
                
                
                Adjustments
                
                
                ConsolidatedCash
      flows from operating activities:Net
      income (loss)
                
                $
                (6,897
                )
                
                $
                (7,560
                )
                
                $
                4,940
                
                
                $
                2,620
                
                
                $
                (6,897
                )Changes
      in operating assets and liabilities and non cash items included in
      net income (loss)
                
                
                19,121
                
                
                
                10,397
                
                
                
                8,509
                
                
                
                (2,620
                )
                
                
                35,407Net
      cash provided by (used in) operating activities
                
                
                12,224
                
                
                
                2,837
                
                
                
                13,449
                
                
                
                -
                
                
                
                28,510Cash
      flows from investing activities:Capital
      expenditures
                
                
                (5
                )
                
                
                (1,746
                )
                
                
                (1,592
                )
                
                
                -
                
                
                
                (3,343
                )Other,
      net
                
                
                (13
                )
                
                
                -
                
                
                
                15
                
                
                
                -
                
                
                
                2Net
      cash provided by (used in) investing activities
                
                
                (18
                )
                
                
                (1,746
                )
                
                
                (1,577
                )
                
                
                -
                
                
                
                (3,341
                )Cash
      flows from financing activities:Debt
      repayments
                
                
                (1,313
                )
                
                
                (4
                )
                
                
                -
                
                
                
                -
                
                
                
                (1,317
                )Debt
      financing costs
                
                
                (439
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (439
                )Net
      cash provided by (used in) financing activities
                
                
                (1,752
                )
                
                
                (4
                )
                
                
                -
                
                
                
                -
                
                
                
                (1,756
                )Effect
      of exchange rate changes on cash and cash equivalents
                
                
                -
                
                
                
                -
                
                
                
                (4,496
                )
                
                
                -
                
                
                
                (4,496
                )Net
      increase in cash and cash equivalents
                
                
                10,454
                
                
                
                1,087
                
                
                
                7,376
                
                
                
                -
                
                
                
                18,917Cash
      and cash equivalents at beginning of period
                
                
                39,285
                
                
                
                (2,379
                )
                
                
                17,243
                
                
                
                -
                
                
                
                54,149Cash
      and cash equivalents at end of period
                
                $
                49,739
                
                
                $
                (1,292
                )
                
                $
                24,619
                
                
                $
                -
                
                
                $
                73,066


- 25
-





15.
            Subsequent
      Events





The
Company evaluated all events or transactions that occurred after September 30,
2009 up through November 6, 2009, the date the Company issued these consolidated
financial statements.  Based on that evaluation, we have determined no
material events or transactions occurred after September 30, 2009 up through
November 6, 2009 that would affect the September 30, 2009 consolidated financial
statements.





ITEM
2.    MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





Forward-Looking
Statements





This
Report contains "forward-looking statements." All statements other than
statements of historical fact are "forward-looking" statements for purposes of
the U.S. federal and state securities laws. These statements may be identified
by the use of forward looking terminology such as "anticipate," "believe,"
"continue," "could," "estimate," "expect," "intend," "may," "might," "plan,"
"potential," "predict," "should" or "will" or the negative thereof or other
variations thereon or comparable terminology.





We have
based these forward-looking statements on our current expectations, assumptions,
estimates and projections. While we believe these expectations, assumptions,
estimates and projections are reasonable, such forward looking statements are
only predictions and involve known and unknown risks and uncertainties, many of
which are beyond our control. These and other important factors may cause our
actual results, performance or achievements to differ materially from any future
results, performance or achievements expressed or implied by these
forward-looking statements. Some of the key factors that could cause actual
results to differ from our expectations include:





•
            adverse
      developments in general business, economic and political conditions
      domestically or internationally;





•
            our
      ability to remain competitive in the markets we
  serve;




•
            our
      failure to comply with regulations such as ITAR and any changes in
      regulations;




•
            our
      inability to continue to develop, manufacture and market innovative
      products and services that meet customer requirements for performance and
      reliability;




•
            our
      exposure to foreign currency exchange rate
  risks;




•
            our
      exposure to auction rate securities and the impact this exposure has on
      our liquidity;




•
            our
      failure to realize anticipated benefits from completed acquisitions,
      divestitures or restructurings, or the possibility that such acquisitions,
      divestitures or restructurings could adversely affect
  us;




•
            the
      loss of key employees;




•
            terrorist
      acts or acts of war; and





•
            other
      risks and uncertainties, including those listed under the caption "Risk
      Factors" disclosed in our   Fiscal 2009 Form
      10-K.


- 26
-





Overview





We are a
leading provider of highly specialized microelectronics and test and measurement
equipment, primarily tothe global aerospace
and defense and broadband communications markets. We also design application
specific integrated circuits (“ASICs”) for CT scan equipment for the medical
industry. Founded in 1937, we have developed a substantial intellectual property
portfolio that includes more than 150 patents, extensive know-how, years of
collaborative research and development with our customers and a demonstrated
history in space, validating the high quality performance of our products. We
believe that the combination of our leading market positions, complementary
portfolio of products, years of experience and engineering capabilities provides
us with a competitive advantage and enables us to deliver high performance, high
value products to our customers.





Results
of Operations





The
following table sets forth our historical results of operations as a percentage
of net sales for the periods indicated below:





Three
      Months
                  
                  
                  Three
      MonthsEnded
                  
                  
                  EndedSeptember 30, 2009
                  
                  
                  September 30, 2008Net
      sales
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %Costs
      of sales
                  
                  
                  50.0
                  
                  
                  
                  52.2Gross
      profit
                  
                  
                  50.0
                  
                  
                  
                  47.8Operating
      expenses:Selling,
      general and administrative costs
                  
                  
                  23.3
                  
                  
                  
                  22.3Research
      and development costs
                  
                  
                  13.2
                  
                  
                  
                  12.1Amortization
      of acquired intangibles
                  
                  
                  12.0
                  
                  
                  
                  12.8Loss
      on liquidation of foreign subsidiary
                  
                  
                  5.9
                  
                  
                  
                  -Total
      operating expenses
                  
                  
                  54.4
                  
                  
                  
                  47.2Operating
      income (loss)
                  
                  
                  (4.4
                  )
                  
                  
                  0.6Other
      income (expense), net
                  
                  
                  (16.1
                  )
                  
                  
                  (12.9
                  )Income
      (loss) before income taxes
                  
                  
                  (20.5
                  )
                  
                  
                  (12.3
                  )Provision
      (benefit) for income taxes
                  
                  
                  (4.7
                  )
                  
                  
                  (7.4
                  )Net
      income (loss)
                  
                  
                  (15.8
                  )%
                  
                  
                  (4.9
                  )%





Statements
of Operations





Management
evaluates the operating results of the Company’s two segments based upon pre-tax
operating income, before costs related to restructuring, amortization of
acquired intangibles, share-based compensation, acquired in-process research and
development costs, merger related expenses and the impact of any acquisition
related adjustments.


- 27
-





Three
      Months
                              
                              
                              Three
      MonthsEnded
                              
                              
                              EndedSeptember
      30, 2009
                              
                              
                              September
      30, 2008(In
      thousands)Net
      sales:Microelectronic
      solutions ("AMS")
                              
                              $
                              67,361
                              
                              
                              $
                              67,580Test
      solutions ("ATS")
                              
                              
                              62,755
                              
                              
                              
                              73,265Net
      sales
                              
                              $
                              130,116
                              
                              
                              $
                              140,845Segment
      adjusted operating income:-
      AMS
                              
                              $
                              15,024
                              
                              
                              $
                              14,613-
      ATS
                              
                              
                              7,965
                              
                              
                              
                              9,630General
      corporate expense
                              
                              
                              (2,931
                              )
                              
                              
                              (2,696
                              )Adjusted
      operating income
                              
                              
                              20,058
                              
                              
                              
                              21,547Amortization
      of acquired intangibles-
      AMS
                              
                              
                              (8,836
                              )
                              
                              
                              (10,677
                              )-
      ATS
                              
                              
                              (6,769
                              )
                              
                              
                              (7,291
                              )Share
      based compensation-
      Corporate
                              
                              
                              (489
                              )
                              
                              
                              (489
                              )Restructuring
      charges-
      ATS
                              
                              
                              (187
                              )
                              
                              
                              (402
                              )Merger
      related expenses - Corporate
                              
                              
                              (693
                              )
                              
                              
                              (634
                              )Loss
      on liquidation of foreign subsidiary
                              
                              
                              (7,696
                              )
                              
                              
                              -Current
      period impact of acquisitionrelated
      adjustments:Inventory
      - AMS
                              
                              
                              (246
                              )
                              
                              
                              -Depreciation
      - AMS
                              
                              
                              (275
                              )
                              
                              
                              (286
                              )Depreciation
      - ATS
                              
                              
                              (506
                              )
                              
                              
                              (738
                              )Depreciation
      - Corporate
                              
                              
                              (55
                              )
                              
                              
                              (55
                              )Deferred
      revenue - ATS
                              
                              
                              (32
                              )
                              
                              
                              (97
                              )Operating
      income  (loss) (GAAP)
                              
                              
                              (5,726
                              )
                              
                              
                              878Interest
      expense
                              
                              
                              (21,039
                              )
                              
                              
                              (21,215
                              )Other
      income (expense), net
                              
                              
                              57
                              
                              
                              
                              3,086Income
      (loss) before income taxes
                              
                              $
                              (26,708
                              )
                              
                              $
                              (17,251
                              )





Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008





Net Sales.Net
sales decreased 8% to $130.1 million for the three months ended September 30,
2009 from $140.8 million for the three months ended September 30,
2008.





Net sales
in the microelectronic solutions (“AMS”) segment decreased slightly to $67.4
million for the three months ended September 30, 2009 from $67.6 million for the
three months ended September 30, 2008.  Increases in sales volumes of
$2.4 million of integrated circuits and $2.2 million of microelectronic modules,
combined with additional sales of $2.6 million related to our acquisition of
Airflyte Electronics in June 2009, were offset by a reduction of $5.0 million in
sales of components, due to decreased sales volumes and price concessions
created by industry competition, and $2.2 million reduction in sales of motion
control products.





Net sales
in the test solutions (“ATS”)segment decreased 14% to
$62.8 million for the three months ended September 30, 2009 from $73.3 million
for the three months ended September 30, 2008.  The change in foreign
currency exchange rates has negatively impacted sales by approximately $3.4
million.  Excluding the impact of foreign currency exchange rates,
sales in the ATS segment for the three months ended September 30, 2009 decreased
approximately $7.2 million.  The decrease was primarily due to lower
PXI, radio test, avionics and frequency synthesizer product sales, partially
offset by increases in synthetic test system sales.


- 28
-





Gross
Profit.Gross profit equals net sales less cost of sales. Cost
of sales includes materials, direct labor, amortization of capitalized software
development costs and overhead expenses such as engineering labor, fringe
benefits, depreciation, allocable occupancy costs and manufacturing
supplies.





On a
consolidated basis, gross margin was 50.0% for the three months ended September
30, 2009 and 47.8% for the three months ended September 30,
2008.  Gross margin was adversely affected by purchase accounting
adjustments aggregating $714,000 and $612,000 in 2009 and 2008,
respectively.





Gross ProfitThree
      MonthsEnded
                                    
                                    
                                    
                                    
                                    %
      of
                                    
                                    
                                    
                                    
                                    
                                    %
      of
                                    
                                    
                                    
                                    
                                    
                                    %
      ofSeptember 30,
                                    
                                    AMS
                                    
                                    
                                    Net Sales
                                    
                                    
                                    ATS
                                    
                                    
                                    Net Sales
                                    
                                    
                                    Total
                                    
                                    
                                    Net Sales(In
      thousands, except percentages)2009
                                    
                                    $
                                    30,999
                                    
                                    
                                    
                                    46.0
                                    %
                                    
                                    $
                                    33,995
                                    
                                    
                                    
                                    54.2
                                    %
                                    
                                    $
                                    64,994
                                    
                                    
                                    
                                    50.0
                                    %2008
                                    
                                    $
                                    32,021
                                    
                                    
                                    
                                    47.4
                                    %
                                    
                                    $
                                    35,338
                                    
                                    
                                    
                                    48.2
                                    %
                                    
                                    $
                                    67,359
                                    
                                    
                                    
                                    47.8
                                    %





Gross
margins in the AMS segment were 46.0% in 2009 and 47.4% in 2008.  The
decrease in gross margins is principally attributable to (i) unfavorable product
mix, sale price reductions for certain products and higher inventory costs in
components, and (ii) increased sales of motion control products and our acquired
company Airflyte Electronics (which have margins lower than the segment
average).  The decrease in margins is slightly offset by increased
sales of microelectronic modules and integrated circuits (which have margins
higher than the segment average).





Gross
margins in the ATS segment were 54.2% in 2009 and 48.2% in 2008.  The
increase in gross margins is principally attributable to increased sales of
wireless and synthetic test products (which have margins higher than the segment
average).  The margins of wireless products were also favorably
impacted by cost savings resulting from prior year restructuring of our U.K.
locations.





Selling, General and Administrative
Costs.  Selling, general and administrative costs include
office and management salaries, fringe benefits, commissions, insurance and
professional fees.





On a
consolidated basis SG&A costs decreased $1.2 million.  As a
percentage of sales, SG&A increased 100 basis points from the three months
ended September 30, 2008 to the three months ended September 30,
2009.





Selling, General and Administrative
      CostsThree
      MonthsEnded
                                          
                                          
                                          
                                          
                                          %
      of
                                          
                                          
                                          
                                          
                                          
                                          %
      of
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          %
      ofSeptember 30,
                                          
                                          AMS
                                          
                                          
                                          Net Sales
                                          
                                          
                                          ATS
                                          
                                          
                                          Net Sales
                                          
                                          
                                          Corporate
                                          
                                          
                                          Total
                                          
                                          
                                          Net Sales(In
      thousands, except percentages)2009
                                          
                                          $
                                          9,988
                                          
                                          
                                          
                                          14.8
                                          %
                                          
                                          $
                                          16,082
                                          
                                          
                                          
                                          25.6
                                          %
                                          
                                          $
                                          4,168
                                          
                                          
                                          $
                                          30,238
                                          
                                          
                                          
                                          23.3
                                          %2008
                                          
                                          $
                                          10,362
                                          
                                          
                                          
                                          15.3
                                          %
                                          
                                          $
                                          17,248
                                          
                                          
                                          
                                          23.5
                                          %
                                          
                                          $
                                          3,874
                                          
                                          
                                          $
                                          31,484
                                          
                                          
                                          
                                          22.3
                                          %





In the
AMS segment, SG&A costs decreased $374,000, or 4%.  As a
percentage of sales, selling, general and administrative costs decreased 50
basis points for AMS.   The components group reduced SG&A
costs by $773,000, or 16%, as compared to the prior year, primarily due to cost
savings initiatives.  These savings, in the AMS segment, are partially
offset by additional costs of $370,000 related to Airflyte
Electronics,  acquired in June 2009.





In the
ATS segment, SG&A costs decreased $1.2 million, or 7%.  As a
percentage of sales, selling, general and administrative costs increased 210
basis points for ATS.  We realized savings of $1.6 million primarily
as a result of our prior year efforts to consolidate and reorganize various
European locations. These savings, in the
ATS segment, are partially offset by additional costs of $709,000 related to VI
Technology, acquired in March 2009.


- 29
-


Corporate
general and administrative expenses increased $295,000.





Research and Development
Costs. Research and development costs include materials, engineering
labor and allocated overhead.   On a consolidated basis, research
and development costs increased 110 basis points as a percentage of
sales.





Research and Development
    CostsThree
      MonthsEnded
                                    
                                    
                                    
                                    
                                    %
      of
                                    
                                    
                                    
                                    
                                    
                                    %
      of
                                    
                                    
                                    
                                    
                                    
                                    %
      ofSeptember 30,
                                    
                                    AMS
                                    
                                    
                                    Net Sales
                                    
                                    
                                    ATS
                                    
                                    
                                    Net Sales
                                    
                                    
                                    Total
                                    
                                    
                                    Net Sales(In
      thousands, except percentages)2009
                                    
                                    $
                                    6,508
                                    
                                    
                                    
                                    9.7
                                    %
                                    
                                    $
                                    10,673
                                    
                                    
                                    
                                    17.0
                                    %
                                    
                                    $
                                    17,181
                                    
                                    
                                    
                                    13.2
                                    %2008
                                    
                                    $
                                    7,331
                                    
                                    
                                    
                                    10.8
                                    %
                                    
                                    $
                                    9,698
                                    
                                    
                                    
                                    13.2
                                    %
                                    
                                    $
                                    17,029
                                    
                                    
                                    
                                    12.1
                                    %





AMS
segment self-funded research and development costs decreased $823,000, or 11%,
primarily due to lower spending on microelectronic modules and
components.  As a percentage of sales, research and development costs
decreased 110 basis points.





ATS
segment self-funded research and development costs increased $975,000, or 10%,
primarily due to an increase in our radio test division of $1.9 million, aimed
at enhancing existing next generation products, partially offset by a reduction
of $1.0 million in our wireless business due to cost savings related to the
closing of our Burnham facility and a reduction of wireless related
projects.





Amortization of Acquired
Intangibles.Amortization of acquired intangibles decreased
$2.4 million in the three months ended September 30, 2009 primarily due to
certain intangibles becoming fully amortized in August 2008. This reduction is
slightly offset by additional amortization related to our acquisitions of VI
Technology in March 2009 and Airflyte Electronics in June 2009.  By
segment, the amortization decreased $1.8 million in the AMS segment and $523,000
in the ATS segment.




Loss on Liquidation of Foreign Subsidiary




Other Income
(Expense).Interest expense was $21.0 million in 2009 and
$21.2 million in 2008. Other income (expense) was $57,000 for the three months
ended September 30, 2009. Other income (expense) of $3.1 million for the three
months ended September 30, 2008 consisted primarily of $2.3 million of foreign
currency transaction gains and $741,000 of interest and miscellaneous
income.





Provision for Income
Taxes.The income tax benefit was $6.2 million for the
three months ended September 30, 2009, an effective income tax rate of
23.1%.  We had an income tax benefit for the three months ended
September 30, 2008 of $10.4 million, an effective income tax rate of 60.0%. The
effective income tax rate for both periods differed from the amount computed by
applying the U.S. Federal income tax rate to income before income taxes
primarily due to foreign, state and local income taxes.  The tax
benefit of $6.2 million in 2009 was also affected by the unfavorable impact of a
$7.7 million nondeductible loss on the liquidation of a foreign subsidiary, and
the favorable impact of a $10.3 million loss for tax purposes on the write off
of our investment in a foreign subsidiary in fiscal 2009.  For
financial statement purposes, the loss had been recognized in the prior periods,
however, for tax purposes the loss is recognized at the time of divesture,
effective September 2009.





In the
three months ended September 30, 2009, we paid income taxes of $3.1 million and
received tax refunds of $603,000 related to federal, state and foreign income
taxes.  In the three months ended September 30, 2008, we paid income
taxes of $2.1 million and received refunds of $240,000.





Net income
(loss).  The net loss was $20.5 million for the three months
ended September 30, 2009 and $6.9 million for the three months ended September
30, 2008.


- 30
-





Liquidity
and Capital Resources





As of
September 30, 2009, we had $67.0 million of cash and cash equivalents,$220.6 million in working
capital and our current ratio was 2.8 to 1.  As of June 30, 2009, we
had $57.7 million of cash and cash equivalents, $221.4 million in working
capital and our current ratio was 2.5 to 1.





At
September 30, 2009, our marketable securities consisted of $16.9 million of
auction rate securities, net of a $2.0 million valuation allowance. Auction rate
securities represent long-term (generally maturities of ten years to thirty-five
years from the date of issuance) variable rate bonds tied to short-term interest
rates that are reset through an auction process every seven to thirty-five days,
and are classified as available for sale securities. All but one (with the one
security having a carrying value of $1.7 million and an A rating) of our auction
rate securities retain a triple-A rating by at least one nationally recognized
statistical rating organization. In addition, certain of our auction rate
securities are backed by student loans whose principal and interest are
federally guaranteed by the Family Federal Education Loan Program.





In July
2009, $1.0 million of our auction rate securities, that had been outstanding at
June 30, 2009, were redeemed at par. Given the high credit quality of our
auction rate securities and our intent and ability to hold these securities
until liquidity returns to the market or maturity, we believe we will recover
the full remaining principal amount of $18.9 million, in the future. However, at
September 30, 2009, we concluded that the fair value of our auction rate
securities was $16.9 million. Since many auctions are failing and given that
there is currently no active secondary market for our investment in auction rate
securities, the determination of fair value was based on the following
factors:





·
            continuing
      illiquidity;


·
            lack
      of action by the issuers to establish different forms of financing to
      replace or redeem these securities;
and


·
            the
      credit quality of the underlying
securities.





Should
credit market disruptions continue or increase in magnitude, we may be required
to record a further impairment on our investments or consider that an ultimate
liquidity event may take longer than currently anticipated.





Our
principal liquidity requirements are to service our debt and interest and meet
our working capital and capital expenditure needs. As of September 30, 2009, we
had $892.4 million of debt outstanding (of which $886.8 million was long-term),
including approximately $514.5 million under our senior secured credit facility,
$225.0 million of senior unsecured notes and $151.8 million under our senior
subordinated unsecured credit facility, including paid-in-kind interest.
Additionally, at September 30, 2009 we were able to borrow an additional $50.0
million under the revolving portion of our senior secured credit
facility.





The
following is a summary of required principal repayments of our debt for the next
five years and thereafter as of September 30, 2009:





Twelve
      Months Ended
                      September
      30,
                    
                    (In
      thousands)2010
                    
                    $
                    5,5902011
                    
                    
                    5,6102012
                    
                    
                    5,6352013
                    
                    
                    5,2502014
                    
                    
                    493,500Thereafter
                    
                    
                    376,814Total
                    
                    $
                    892,399


- 31
-


As of
September 30, 2009, we are in compliance with all of the covenants contained in
our loan agreements. Certain loan covenants are based on Adjusted EBITDA.
Adjusted EBITDA is defined as EBITDA (net income (loss) before interest expense,
income taxes, depreciation and amortization), adjusted to add back certain
non-cash, non-recurring and other items, as required by various covenants in our
debt agreements.  Our use of the term Adjusted EBITDA may vary from
others in our industry.  EBITDA and Adjusted EBITDA are not measures
of operating income (loss), performance or liquidity under U.S. GAAP and are
subject to important limitations.  A reconciliation of net income
(loss), which is a U.S. GAAP measure of our operating results, to Adjusted
EBITDA, as defined in our debt agreements, is as follows:





Three
      Months Ended
                          
                          
                          Three
      Months EndedSeptember
      30, 2009
                          
                          
                          September
      30, 2008(In
      thousands)Net
      income (loss)
                          
                          $
                          (20,543
                          )
                          
                          $
                          (6,897
                          )Interest
      expense
                          
                          
                          21,039
                          
                          
                          
                          21,215Provision
      (benefit) for income taxes
                          
                          
                          (6,165
                          )
                          
                          
                          (10,354
                          )Depreciation
      and amortization
                          
                          
                          21,246
                          
                          
                          
                          23,497EBITDA
                          
                          
                          15,577
                          
                          
                          
                          27,461Non-cash
      purchase accounting adjustments
                          
                          
                          278
                          
                          
                          
                          97Merger
      related expenses
                          
                          
                          693
                          
                          
                          
                          634Restructuring
      costs (a)
                          
                          
                          187
                          
                          
                          
                          402Share
      based compensation (b)
                          
                          
                          489
                          
                          
                          
                          489Non-cash
      loss on liquidation of foreign subsidiary
                          
                          
                          7,696
                          
                          
                          
                          -Other
      defined items (c)
                          
                          
                          (374
                          )
                          
                          
                          1,696Adjusted
      EBITDA
                          
                          $
                          24,546
                          
                          
                          $
                          30,779





(a)
            Primarily
      reflects costs associated with the reorganization of our U.K.
      operations.


(b)
            Reflects
      non-cash share-based compensation
expense.


(c)
            Reflects
      other adjustments required in calculating our debt covenant compliance
      such as pro forma Adjusted EBITDA, for periods prior to the acquisition
      date, for companies acquired during the year and other non-cash
      charges.





Financial
covenants in the senior secured credit facility include (i) a maximum leverage
ratio of total debt (less up to $15 million of cash) to Adjusted EBITDA, as
defined in the agreement, and (ii) maximum consolidated capital
expenditures.   The maximum leverage ratio permitted for the
twelve months ended September 30, 2009 and 2008 was 7.40 and 8.40, respectively,
whereas our actual leverage ratio was 6.31 and 6.06,
respectively.  For fiscal 2010 and 2011 the maximum leverage ratio
permitted decreases to 6.80 and 5.90, respectively.





We expect
that cash generated from operating activities and availability under the
revolving portion of the senior secured credit facility will be our principal
sources of liquidity. Our ability to make payments on and to refinance our
indebtedness and to fund working capital needs and planned capital expenditures
will depend on our ability to generate cash in the future. This, to a certain
extent, is subject to general economic, financial, competitive and other factors
that are beyond our control. Based on our current level of operations, we
believe our cash flow from operations and available borrowings under our senior
secured credit facility will be adequate to meet our liquidity needs for at
least the next twelve months. We cannot assure you, however, that our business
will generate sufficient cash flow from operations, or those future borrowings
will be available to us under our senior secured credit facility in an amount
sufficient to enable us to repay our indebtedness or to fund other liquidity
needs. We may need to refinance all or a portion of our indebtedness on or
before the maturity thereof. We cannot assure you that we will be able to
refinance any of our indebtedness on commercially reasonable terms or at
all.


- 32
-





Cash
Flows





For the
three months ended September 30, 2009, our cash flow provided by operations was
$13.2 million.  Our investing activities used cash of $2.5 million,
primarily for capital expenditures of $3.2 million, partially offset by proceeds
from the sale of marketable securities of $1.0 million. Our financing activities
used cash of $1.3 million to repay indebtedness.





For the
three months ended September 30, 2008, our cash flow from operations was $28.5
million. Our investing activities used cash of $3.3 million, primarily for
capital expenditures.  Our financing activities used cash of $1.8
million, primarily to repay indebtedness ($1.3 million).





Capital
Expenditures





Capital
expenditures were $3.2 million and $3.3 million for the three months ended
September 30, 2009 and 2008, respectively.  Our capital expenditures
primarily consist of equipment replacements.





Contractual
Obligations





The
following table summarizes our obligations and commitments to make future
payments under debt, and other obligations as of September 30,
2009:


Payments
      Due By Period (1)(In
      millions)BeyondTotal
                    
                    
                    Year 1
                    
                    
                    Years 2 - 3
                    
                    
                    Years 4 - 5
                    
                    
                    5 YearsSenior
      secured credit facility
                    
                    $
                    514.5
                    
                    
                    $
                    5.3
                    
                    
                    $
                    10.5
                    
                    
                    $
                    498.7
                    
                    
                    $
                    -Senior
      unsecured notes
                    
                    
                    225.0
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    225.0Subordinated
      unsecured credit facility
                    
                    
                    151.8
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    151.8Other
      long-term debt
                    
                    
                    1.1
                    
                    
                    
                    0.3
                    
                    
                    
                    0.8
                    
                    
                    
                    -
                    
                    
                    
                    -Operating
      leases(2)
                    
                    
                    22.1
                    
                    
                    
                    6.8
                    
                    
                    
                    9.4
                    
                    
                    
                    3.7
                    
                    
                    
                    2.2Employment
      agreements
                    
                    
                    8.4
                    
                    
                    
                    4.2
                    
                    
                    
                    3.8
                    
                    
                    
                    0.4
                    
                    
                    
                    -Advisory
      fee (3)
                    
                    
                    7.9
                    
                    
                    
                    2.7
                    
                    
                    
                    4.4
                    
                    
                    
                    0.8
                    
                    
                    
                    -Total
                    
                    $
                    930.8
                    
                    
                    $
                    19.3
                    
                    
                    $
                    28.9
                    
                    
                    $
                    503.6
                    
                    
                    $
                    379.0





(1)
            Amounts
      do not include interest payments.





(2)
            The
      Company does not expect any future minimum sub-lease rentals associated
      with operating lease commitments shown in the above
  table.





(3)
            The
      annual advisory fee is payable to our Sponsors throughout the term of an
      advisory agreement, which has an initial term expiring on December 31,
      2013 and is automatically renewable for additional one year terms
      thereafter unless terminated. For purposes of this table we have assumed
      that such agreement terminates December 31, 2013. The annual fee will be
      the greater of $2.2 million or 1.8% of adjusted EBITDA for the prior
      fiscal year, as defined in the
agreement.





In the
normal course of business, we routinely enter into binding and non-binding
purchase obligations primarily covering anticipated purchases of inventory and
equipment. None of these obligations are individually significant. We do not
expect that these commitments, as of September 30, 2009, will have a material
adverse affect on our liquidity.


- 33
-





Off-Balance
Sheet Arrangements





We do not
maintain any off-balance sheet arrangements, transactions, obligations or other
relationships with unconsolidated entities that would be expected to have
material current or future effect upon our financial condition or results of
operations.




Seasonality




Historically
our net sales and earnings increase sequentially from quarter to quarter within
a fiscal year, but the first quarter is typically less than the previous year’s
fourth quarter.




Critical
Accounting Policies and Estimates





This
discussion and analysis of the Company’s financial condition and results of
operations is based upon the unaudited condensed consolidated financial
statements included in this Quarterly Report, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) and applicable SEC regulations for preparation of interim
financial statements.





The
preparation of financial statements and related disclosures in conformity with
U.S. GAAP requires that management of the Company make a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Among the more significant estimates included in our
consolidated financial statements are revenue and cost recognition under
long-term contracts; the valuation of accounts receivable, inventories,
investments and deferred tax assets; the depreciable lives of fixed assets and
useful lives of amortizable intangible assets; the valuation of assets acquired
and liabilities assumed in business combinations; the recoverability of
long-lived amortizable intangible assets, tradenames and goodwill; share-based
compensation; restructuring charges; asset retirement obligations; fair value
measurement of financial assets and liabilities and certain accrued expenses and
contingencies.





We are
subject to uncertainties such as the impact of future events, economic,
environmental and political factors and changes in the business climate;
therefore, actual results may differ from those estimates. When no estimate in a
given range is deemed to be better than any other when estimating contingent
liabilities, the low end of the range is accrued. Accordingly, the accounting
estimates in the preparation of our consolidated financial statements will
change as new events occur, as more experience is acquired, as additional
information is obtained and as our operating environment changes. Changes in
estimates are made when circumstances warrant them. Such changes and refinements
in estimation methodologies are reflected in reported results of operations; if
material, the effects of changes in estimates are disclosed in the notes to the
condensed consolidated financial statements.





We
believe that the critical accounting policies involving significant estimates
listed below are important to the portrayal of our financial condition, results
of operations and cash flows, and require critical management judgments and
estimates about matters that are inherently uncertain.





·
            Cash
      and Cash Equivalents





·
            Marketable
      Securities





·
            Inventories





·
            Financial
      Instruments and Derivatives





·
            Revenue
      Recognition


- 34
-




·
            Acquisition
      Accounting





·
            Long-Lived
      Assets





·
            Research
      and Development Costs





·
            Income
      Taxes





·
            Share
      Based Compensation





·
            Foreign
      Currency Translations





Further
information regarding these policies appears within the “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” included in the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30,
2009.  During the three month period ended September 30, 2009, there
were no significant changes to any critical accounting policies or to the
related estimates and judgments involved in applying those
policies.





Recently
Adopted Accounting Pronouncements





See Note
2 of the notes to the condensed consolidated financial statements.





Recently
Issued Accounting Pronouncements Not Yet Adopted





See Note
2 of the notes to the condensed consolidated financial statements





ITEM
3.   QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





Interest Rate
Risk.We are subject to interest rate risk in connection with
borrowings under our senior secured credit facility.  Although we
currently have interest rate swap agreements hedging portions of this debt,
these will expire before the borrowings are fully repaid. As of September 30,
2009, we have $514.5 million outstanding under the term-loan portion of our
senior secured credit facility, the un-hedged portion of which is subject to
variable interest rates. Each change of 1% in interest rates would result in a
$696,000 change in our annual interest expense on the un-hedged portion of the
term-loan borrowings and a $507,000 change in our annual interest expense on the
revolving loan borrowings, assuming the entire $50.0 million was
outstanding.  Any debt we incur in the future may also bear interest
at floating rates.





Foreign Currency
Risk.Foreign
currency contracts are used to protect us from exchange rate fluctuation from
the time customers are invoiced in local currency until such currency is
exchanged for U.S. dollars. We periodically enter into foreign currency
contracts, which are not designated as hedges, and the change in the fair value
is included in income currently within other income (expense). As of September
30, 2009, we had $28.4 million of notional value foreign currency forward
contracts maturing through October 31, 2009. As of September 30, 2008, we had
$2.4 million of notional value foreign currency forward contracts maturing
through December 2008. Notional amounts do not quantify risk or represent assets
or liabilities of the Company, but are used in the calculation of cash
settlements under the contracts. The fair value of these contracts at September
30, 2009 and 2008 was immaterial.  If foreign currency exchange rates
(primarily the British pound and the Euro) change by 10% from the levels at
September 30, 2009, the effect on our comprehensive income would be
approximately $19.7 million.





Inflation
Risk.Inflation has not had a material impact on our results
of operations or financial condition during the preceding three
years.


- 35
-





ITEM
4T.   CONTROLS AND
PROCEDURES





Our
disclosure controls and procedures under the Securities Exchange Act of 1934, as
amended, are designed to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission. The Principal Executive Officer and the Principal Financial Officer,
with the assistance from other members of management, have reviewed the
effectiveness of our disclosure controls and procedures as of September 30, 2009
and, based on their evaluation, have concluded that the disclosure controls and
procedures were effective as of such date.





There
have been no changes in our internal controls over financial reporting that
occurred during the quarter ended September 30, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.





PART
II – OTHER INFORMATION





Item
1.    Legal Proceedings





On
October 14, 2009, BAE Systems Information and Electronic Systems (“BAE”)
commenced an action against both us and one of our subsidiaries in the United
States District Court for the District of Delaware.  BAE essentially
is alleging that under a subcontract it entered into with us in 2002, BAE
provided to us certain proprietary information and know how relating to a high
performance direct infrared countermeasure system for use in military aircraft
and certain other platforms (“DIRCM System”), which enabled us to fabricate for
BAE an assembly component of the third generation of the DIRCM
System.  BAE is alleging that, in violation of the provisions of the
subcontract and a Proprietary Information Agreement, we fabricated or
facilitated the fabrication of one or more items that were identical or
substantially identical to items that we exclusively fabricated for BAE under
the subcontract.  BAE further claims that our actions ostensibly
enabled a prime competitor of BAE to build and market, in competition with BAE,
an infrared countermeasure system that included an unlawful copy of the
component.  Based on these allegations, BAE has asserted claims
against us for patent infringement, trade secret misappropriation, breach of
contract, conversion and unjust enrichment and has requested, by way of relief,
unspecified damages, injunctive relief and an accounting.  We have
evaluated BAE’s claims and believe that there is no basis for the allegations or
claims made by BAE.  Nevertheless, there can be no assurance that we
will prevail in the matter.  We do not believe that the ultimate
resolution of this matter will have a material adverse effect on our financial
position, results of operations, liquidity or capital resources.




Reference
is made to Item 3 of our Fiscal 2009 Form 10-K for information as to other legal
matters and proceedings.





Item 1A.  Risk
Factors





There
have been no material changes in our risk factors disclosed in the Fiscal 2009
Form 10-K.





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





None





Item 3.  Defaults
upon Senior Securities





None


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Item 4.  Submission
of Matters to a Vote of Security Holders





None





Item 5.   Other
Information





None





Item
6.   Exhibits





Exhibit No.
              
              Exhibit Description10.1
              
              Amendment
      No. 4 to Employment Agreement, dated September 17, 2009, between Aeroflex
      Incorporated and John Adamovich, Jr. (incorporated by reference to Exhibit
      10.1 to the Current Report on Form 8-K of Aeroflex Incorporated filed on
      September 21, 2009.)31.1
              
              Certification
      pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.2
              
              Certification
      pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.31.3
              
              Certification
      pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.


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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.





AEROFLEX
      INCORPORATED(REGISTRANT)





November 5, 2009
                  
                  /s/ John Adamovich, Jr.John
      Adamovich, Jr.Senior
      Vice President andChief
      Financial Officer




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EXHIBIT
INDEX





Exhibit No.
                          
                          Exhibit Description10.1
                          
                          Amendment
      No. 4 to Employment Agreement, dated September 17, 2009, between Aeroflex
      Incorporated and John Adamovich, Jr. (incorporated by reference to Exhibit
      10.1 to the Current Report on Form 8-K of Aeroflex Incorporated filed on
      September 21, 2009.)31.1
                          
                          Certification
      pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.2
                          
                          Certification
      pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.3
                          
                          Certification
      pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.32.1
                          
                          Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.32.2
                          
                          Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of
  2002.




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