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
                  
                  December
      31, 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.
  February  11,
      2010
                      
                      1,000(Date)
                      
                      (Number
      of
Shares)
  
 
 AEROFLEX
INCORPORATED
 AND
SUBSIDIARIES
 
 INDEX
 
 PAGEPART
      1:        FINANCIAL
      INFORMATIONItem
      1
                                                        UNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEETS
                                                        2December
      31, 2009 and June 30, 2009UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        3 –
      4Three
      Months Ended December 31, 2009 and 2008Six
      Months Ended December 31, 2009 and 2008UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        5Six
      Months Ended December 31, 2009 and 2008NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                                        6
      – 29Item
      2
                                                        MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS
      OF OPERATIONS
                                                        29
      – 40Three
      and Six Months Ended December 31, 2009 and 2008Item
      3
                                                        QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                                        40
      – 41Item
      4T
                                                        CONTROLS
      AND PROCEDURES
                                                        41PART
      II:          OTHER
      INFORMATIONItem
      1
                                                        LEGAL
      PROCEEDINGS
                                                        41Item
      1A
                                                        RISK
      FACTORS
                                                        42Item
      2
                                                        UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                                                        42Item
      3
                                                        DEFAULTS
      UPON SENIOR SECURITIES
                                                        42Item
      4
                                                        SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                        42Item
      5
                                                        OTHER
      INFORMATION
                                                        42Item
      6
                                                        EXHIBITS
                                                        42SIGNATURES
                                                        43EXHIBIT
      INDEX
                                                        44CERTIFICATIONS
                                                        45
      –
49
  - 1
-
  Aeroflex
Incorporated
 and
Subsidiaries
 Unaudited
Condensed Consolidated Balance Sheets
 (In
thousands, except share and per share data )
 
 December 31,
                                        
                                        
                                        June 30,2009
                                        
                                        
                                        2009AssetsCurrent
      assets:Cash
      and cash equivalents
                                        
                                        $
                                        68,799
                                        
                                        
                                        $
                                        57,748Accounts
      receivable, less allowance for doubtful accounts of $3,027 and
      $2,250
                                        
                                        
                                        117,281
                                        
                                        
                                        
                                        130,429Inventories
                                        
                                        
                                        134,901
                                        
                                        
                                        
                                        135,603Deferred
      income taxes
                                        
                                        
                                        37,022
                                        
                                        
                                        
                                        35,164Prepaid
      expenses and other current assets
                                        
                                        
                                        11,563
                                        
                                        
                                        
                                        9,938Total
      current assets
                                        
                                        
                                        369,566
                                        
                                        
                                        
                                        368,882Property,
      plant and equipment, net
                                        
                                        
                                        98,203
                                        
                                        
                                        
                                        100,907Non-current
      marketable securities, net
                                        
                                        
                                        16,899
                                        
                                        
                                        
                                        17,677Deferred
      financing costs, net
                                        
                                        
                                        23,369
                                        
                                        
                                        
                                        25,754Other
      assets
                                        
                                        
                                        18,011
                                        
                                        
                                        
                                        15,425Intangible
      assets with definite lives, net
                                        
                                        
                                        261,701
                                        
                                        
                                        
                                        292,553Intangible
      assets with indefinite lives
                                        
                                        
                                        111,894
                                        
                                        
                                        
                                        112,266Goodwill
                                        
                                        
                                        428,886
                                        
                                        
                                        
                                        428,133Total
      assets
                                        
                                        $
                                        1,328,529
                                        
                                        
                                        $
                                        1,361,597Liabilities
      and Stockholder's
      EquityCurrent
      liabilities:Current
      portion of long-term debt
                                        
                                        $
                                        4,203
                                        
                                        
                                        $
                                        5,590Accounts
      payable
                                        
                                        
                                        27,138
                                        
                                        
                                        
                                        36,574Advance
      payments by customers and deferred revenue
                                        
                                        
                                        32,490
                                        
                                        
                                        
                                        33,418Income
      taxes payable
                                        
                                        
                                        4,135
                                        
                                        
                                        
                                        5,080Accrued
      payroll expenses
                                        
                                        
                                        16,016
                                        
                                        
                                        
                                        18,876Accrued
      expenses and other current liabilities
                                        
                                        
                                        50,005
                                        
                                        
                                        
                                        47,938Total
      current liabilities
                                        
                                        
                                        133,987
                                        
                                        
                                        
                                        147,476Long-term
      debt
                                        
                                        
                                        889,990
                                        
                                        
                                        
                                        883,758Deferred
      income taxes
                                        
                                        
                                        149,133
                                        
                                        
                                        
                                        143,048Defined
      benefit plan obligations
                                        
                                        
                                        5,988
                                        
                                        
                                        
                                        6,079Other
      long-term liabilities
                                        
                                        
                                        11,582
                                        
                                        
                                        
                                        21,476Total
      liabilities
                                        
                                        
                                        1,190,680
                                        
                                        
                                        
                                        1,201,837Stockholder's
      equity:Common
      stock, par value $.10 per share; authorized 1,000 shares; issued and
      outstanding 1,000 shares
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Additional
      paid-in capital
                                        
                                        
                                        397,759
                                        
                                        
                                        
                                        396,573Accumulated
      other comprehensive income (loss)
                                        
                                        
                                        (46,640
                                        )
                                        
                                        
                                        (54,700
                                        )Accumulated
      deficit
                                        
                                        
                                        (213,270
                                        )
                                        
                                        
                                        (182,113
                                        )Total
      stockholder's equity
                                        
                                        
                                        137,849
                                        
                                        
                                        
                                        159,760Total
      liabilities and stockholder's equity
                                        
                                        $
                                        1,328,529
                                        
                                        
                                        $
                                        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 December 31,2009
                                
                                
                                2008Net
      sales
                                
                                $
                                166,739
                                
                                
                                $
                                156,815Cost
      of sales
                                
                                
                                80,145
                                
                                
                                
                                83,656Gross
      profit
                                
                                
                                86,594
                                
                                
                                
                                73,159Selling,
      general and administrative costs
                                
                                
                                31,573
                                
                                
                                
                                34,174Research
      and development costs
                                
                                
                                17,261
                                
                                
                                
                                17,075Amortization
      of acquired intangibles
                                
                                
                                15,514
                                
                                
                                
                                14,62264,348
                                
                                
                                
                                65,871Operating
      income
                                
                                
                                22,246
                                
                                
                                
                                7,288Other
      income (expense)Interest
      expense
                                
                                
                                (21,418
                                )
                                
                                
                                (21,250
                                )Other
      income (expense), net
                                
                                
                                422
                                
                                
                                
                                9,327Total
      other income (expense)
                                
                                
                                (20,996
                                )
                                
                                
                                (11,923
                                )Income
      (loss) before income taxes
                                
                                
                                1,250
                                
                                
                                
                                (4,635
                                )Provision
      (benefit) for income taxes
                                
                                
                                11,864
                                
                                
                                
                                (528
                                )Net
      income (loss)
                                
                                $
                                (10,614
                                )
                                
                                $
                                (4,107
                                )
 
 See notes
to unaudited condensed consolidated financial statements.
  - 3
-
 
 Aeroflex
Incorporated and Subsidiaries
 Unaudited
Condensed Consolidated Statements of Operations
 (In
thousands)
 
 Six Months Ended December 31,2009
                              
                              
                              2008Net
      sales
                              
                              $
                              296,855
                              
                              
                              $
                              297,660Cost
      of sales
                              
                              
                              145,267
                              
                              
                              
                              157,142Gross
      profit
                              
                              
                              151,588
                              
                              
                              
                              140,518Selling,
      general and administrative costs
                              
                              
                              61,811
                              
                              
                              
                              65,658Research
      and development costs
                              
                              
                              34,442
                              
                              
                              
                              34,104Amortization
      of acquired intangibles
                              
                              
                              31,119
                              
                              
                              
                              32,590Loss
      on liquidation of foreign subsidiary (Note 10)
                              
                              
                              7,696
                              
                              
                              
                              -135,068
                              
                              
                              
                              132,352Operating
      income
                              
                              
                              16,520
                              
                              
                              
                              8,166Other
      income (expense)Interest
      expense
                              
                              
                              (42,457
                              )
                              
                              
                              (42,465
                              )Other
      income (expense), net
                              
                              
                              479
                              
                              
                              
                              12,413Total
      other income (expense)
                              
                              
                              (41,978
                              )
                              
                              
                              (30,052
                              )Income
      (loss) before income taxes
                              
                              
                              (25,458
                              )
                              
                              
                              (21,886
                              )Provision
      (benefit) for income taxes
                              
                              
                              5,699
                              
                              
                              
                              (10,882
                              )Net
      income (loss)
                              
                              $
                              (31,157
                              )
                              
                              $
                              (11,004
                              )
 
 See notes
to unaudited condensed consolidated financial statements.
  - 4
-
 
 Aeroflex
Incorporated
 and
Subsidiaries
 Unaudited
Condensed Consolidated Statements of Cash Flows
 (In
thousands)
 
 Six Months Ended December 31,2009
                                    
                                    
                                    2008Cash
      flows from operating activities:Net
      income (loss)
                                    
                                    $
                                    (31,157
                                    )
                                    
                                    $
                                    (11,004
                                    )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                                    
                                    
                                    41,774
                                    
                                    
                                    
                                    43,651Loss
      on liquidation of foreign subsidiary
                                    
                                    
                                    7,696
                                    
                                    
                                    
                                    -Deferred
      income taxes
                                    
                                    
                                    2,437
                                    
                                    
                                    
                                    (18,808
                                    )Share
      based compensation
                                    
                                    
                                    1,045
                                    
                                    
                                    
                                    977Amortization
      of deferred financing costs
                                    
                                    
                                    2,386
                                    
                                    
                                    
                                    2,399Paid
      in kind interest
                                    
                                    
                                    8,857
                                    
                                    
                                    
                                    7,889Other,
      net
                                    
                                    
                                    646
                                    
                                    
                                    
                                    96Change
      in operating assets and liabilities, net of effects from purchases of
      businesses:Decrease
      (increase) in accounts receivable
                                    
                                    
                                    12,136
                                    
                                    
                                    
                                    12,687Decrease
      (increase) in inventories
                                    
                                    
                                    (358
                                    )
                                    
                                    
                                    (4,698
                                    )Decrease
      (increase) in prepaid expenses and other assets
                                    
                                    
                                    (4,319
                                    )
                                    
                                    
                                    1,224Increase
      (decrease) in accounts payable, accrued expenses and other
      liabilities
                                    
                                    
                                    (19,030
                                    )
                                    
                                    
                                    7,247Net
      cash provided by (used in) operating activities
                                    
                                    
                                    22,113
                                    
                                    
                                    
                                    41,660Cash
      flows from investing activities:Capital
      expenditures
                                    
                                    
                                    (8,401
                                    )
                                    
                                    
                                    (8,353
                                    )Proceeds
      from sale of marketable securities
                                    
                                    
                                    1,000
                                    
                                    
                                    
                                    -Proceeds
      from the sale of property, plant and equipment
                                    
                                    
                                    845
                                    
                                    
                                    
                                    866Other,
      net
                                    
                                    
                                    (11
                                    )
                                    
                                    
                                    (12
                                    )Net
      cash provided by (used in) investing activities
                                    
                                    
                                    (6,567
                                    )
                                    
                                    
                                    (7,499
                                    )Cash
      flows from financing activities:Debt
      repayments
                                    
                                    
                                    (4,012
                                    )
                                    
                                    
                                    (4,129
                                    )Debt
      financing costs
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (340
                                    )Net
      cash provided by (used in) financing activities
                                    
                                    
                                    (4,012
                                    )
                                    
                                    
                                    (4,469
                                    )Effect
      of exchange rate changes on cash and cash equivalents
                                    
                                    
                                    (483
                                    )
                                    
                                    
                                    (10,177
                                    )Net
      increase (decrease) in cash and cash equivalents
                                    
                                    
                                    11,051
                                    
                                    
                                    
                                    19,515Cash
      and cash equivalents at beginning of period
                                    
                                    
                                    57,748
                                    
                                    
                                    
                                    54,149Cash
      and cash equivalents at end of period
                                    
                                    $
                                    68,799
                                    
                                    
                                    $
                                    73,664
  See notes
to unaudited condensed consolidated financial statements.
  - 5
-
  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  December 31,
2009, results of operations for the three and six  month periods ended
December  31, 2009 and 2008 and cash flows for the six month periods
ended December 31, 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 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 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 historically 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.
  - 6
-
 
 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 (using 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 estimated
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
December 31, 2009, we have $32.5 million in Advance Payments by Customers and
Deferred Revenue, which is comprised of $15.3 million of customer advance
payments primarily for the purchase of materials, $7.4 million of deferred
service and software support revenue, $3.6 million of deferred warranty revenue
and $6.2 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, contingent revenue, billings for which the related
product has not been delivered 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 December 31, 2009 and revenue for the three and six months ended
December 31, 2009 derived from non-software multiple element arrangements was
insignificant.
 
 The
adoption on July 1, 2009 of the guidance issued by the Financial Accounting
Standards Board (“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 and six months ended December 31, 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.
  - 7
-
  2.
              Accounting
      Pronouncements
 
 Recently
Adopted Accounting Pronouncements
  On
July 1, 2009, we adopted the authoritative implementation guidance issued
by the 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.
 
 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.
 
 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 December 31, 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.
  - 8
-
  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
January 2010, the FASB issued authoritative guidance to amend the disclosure
requirements related to recurring and nonrecurring fair value measurements. The
guidance requires new disclosures on the transfers of assets and liabilities
between Level 1 (quoted prices in active market for identical assets or
liabilities) and Level 2 (significant other observable inputs) of the fair value
measurement hierarchy, including the reasons and the timing of the transfers.
Additionally, the guidance requires a roll forward of activities on purchases,
sales, issuance, and settlements on a gross basis of the assets and liabilities
measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance will become effective for us beginning with the
third quarter of the fiscal year 2010 financial reporting, except for the
disclosure on the roll forward activities for Level 3 fair value measurements,
which will become effective for us beginning with the third quarter of the
fiscal year 2011 financial reporting. The adoption of this new guidance will not
have a material impact on our financial statements.
 
 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.
  - 9
-
 
 3.
              Intangible
      Assets
 
 Intangible
Assets with Definite Lives
 
 The
components of amortizable intangible assets are as follows:
 
 December
      31, 2009
                                
                                
                                June
      30, 2009(In
      thousands)Gross
                                
                                
                                
                                
                                
                                GrossCarrying
                                
                                
                                Accumulated
                                
                                
                                Carrying
                                
                                
                                AccumulatedAmount
                                
                                
                                Amortization
                                
                                
                                Amount
                                
                                
                                AmortizationDeveloped
      technology
                                
                                $
                                197,803
                                
                                
                                $
                                78,950
                                
                                
                                $
                                197,684
                                
                                
                                $
                                62,021Customer
      related intangibles
                                
                                
                                216,784
                                
                                
                                
                                82,251
                                
                                
                                
                                216,956
                                
                                
                                
                                69,339Non-compete
      arrangements
                                
                                
                                10,212
                                
                                
                                
                                3,621
                                
                                
                                
                                10,090
                                
                                
                                
                                2,692Tradenames
                                
                                
                                2,185
                                
                                
                                
                                461
                                
                                
                                
                                2,105
                                
                                
                                
                                230Total
                                
                                $
                                426,984
                                
                                
                                $
                                165,283
                                
                                
                                $
                                426,835
                                
                                
                                $
                                134,282
 
 The
aggregate amortization expense for amortizable intangible assets was $15.5
million and $14.6 million for the three months ended December 31, 2009 and 2008,
respectively, and $31.1 million and $32.6 million for the six months ended
December 31, 2009 and 2008, respectively.
 
 The
estimated aggregate amortization expense for each of the twelve month periods
ending December 31, is as follows:
 (In thousands)2010
                        
                        $
                        61,2772011
                        
                        
                        60,7202012
                        
                        
                        57,9382013
                        
                        
                        43,3482014
                        
                        
                        20,300
 
 Goodwill
 
 The
carrying amount of goodwill, by segment, is as follows:
 
 Microelectronic
                                              
                                              
                                              TestSolutions
                                              
                                              
                                              Solutions
                                              
                                              
                                              Total(In thousands)Balance
      at June 30, 2009
                                              
                                              $
                                              266,813
                                              
                                              
                                              $
                                              161,320
                                              
                                              
                                              $
                                              428,133Adjustment
      to goodwill for acquisitions
                                              
                                              
                                              313
                                              
                                              
                                              
                                              455
                                              
                                              
                                              
                                              768Impact
      of foreign currency translation
                                              
                                              
                                              437
                                              
                                              
                                              
                                              (452
                                              )
                                              
                                              
                                              (15
                                              )Balance
      at December 31, 2009
                                              
                                              $
                                              267,563
                                              
                                              
                                              $
                                              161,323
                                              
                                              
                                              $
                                              428,886
  - 10
-
 
 4.
              Restructuring
      Charges
 
 The
following table sets forth the charges and payments related to the restructuring
liability for the periods indicated:
 
 Balance
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            BalanceJune 30,
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            December 31,2009
                            
                            
                            Six Months Ended December 31, 2009
                            
                            
                            2009Effect ofRestructuring
                            
                            
                            
                            
                            
                            
                            
                            
                            foreign
                            
                            
                            RestructuringLiability
                            
                            
                            Net Additions
                            
                            
                            Cash Payments
                            
                            
                            currency
                            
                            
                            Liability(In
      thousands)Work
      force reduction
                            
                            $
                            756
                            
                            
                            $
                            225
                            
                            
                            $
                            (970
                            )
                            
                            $
                            2
                            
                            
                            $
                            13Closure
      of facilities
                            
                            
                            1,722
                            
                            
                            
                            26
                            
                            
                            
                            (302
                            )
                            
                            
                            (24
                            )
                            
                            
                            1,422Total
                            
                            $
                            2,478
                            
                            
                            $
                            251
                            
                            
                            $
                            (1,272
                            )
                            
                            $
                            (22
                            )
                            
                            $
                            1,435
 
 5.
              Inventories
 
 Inventories
consist of the following:
 December 31,
                          
                          
                          June 30,2009
                          
                          
                          2009(In thousands)Raw
      materials
                          
                          $
                          64,142
                          
                          
                          $
                          67,388Work
      in process
                          
                          
                          47,824
                          
                          
                          
                          47,185Finished
      goods
                          
                          
                          22,935
                          
                          
                          
                          21,030$
                          134,901
                          
                          
                          $
                          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:
 
 Six Months
                          
                          
                          Six MonthsEnded
                          
                          
                          EndedDecember 31,
                          
                          
                          December 31,2009
                          
                          
                          2008(In thousands)Balance
      at beginning of period
                          
                          $
                          2,645
                          
                          
                          $
                          2,944Provision
      for warranty obligations
                          
                          
                          968
                          
                          
                          
                          1,256Cost
      of warranty obligations
                          
                          
                          (1,083
                          )
                          
                          
                          (1,446
                          )Foreign
      currency impact
                          
                          
                          (10
                          )
                          
                          
                          (244
                          )Balance
      at end of period
                          
                          $
                          2,520
                          
                          
                          $
                          2,510
  - 11
-
 
 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.
 
 The fair
values of our derivative financial instruments included in the consolidated
balance sheets as of December 31, 2009 and June 30, 2009 are presented as
follows:
  Asset (Liability) DerivativesDecember 31, 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
                    
                    
                    
                    Accrued
      expenses andother
      current liabilities
                    
                    $
                    (4,925
                    )
                    other
      current liabilities
                    
                    $
                    (615
                    )Interest
      rate swap contracts
                    
                    Other
      long-term
                    
                    
                    
                    
                    Other
      long-termliabilities
                    
                    
                    (7,785
                    )
                    liabilities
                    
                    
                    (15,006
                    )Total
      derivatives designated ashedging
      instruments
                    
                    
                    
                    
                    (12,710
                    )
                    
                    
                    
                    (15,621
                    )Derivatives
      not designated ashedging
      instruments:Foreign
      currency forward contracts
                    
                    Prepaid
      expenses and
                    
                    
                    
                    
                    Accrued
      expenses andother
      current assets
                    
                    
                    36
                    
                    other
      current liabilities
                    
                    
                    (195
                    )Total
      derivatives, net
                    
                    
                    
                    $
                    (12,674
                    )
                    
                    
                    $
                    (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 and six months ended December
31, 2009 and 2008 are as follows:
 
 Amount of Gain or (Loss)Recognized on Derivatives inDerivatives in Cash Flow
                                                                  
                                                                  Other Comprehensive IncomeHedging Relationships
                                                                  
                                                                  (Effective Portion)(1)Three Months
                                                                  
                                                                  
                                                                  
                                                                  Three Months
                                                                  
                                                                  
                                                                  
                                                                  Six Months
                                                                  
                                                                  
                                                                  
                                                                  Six MonthsEnded
                                                                  
                                                                  
                                                                  
                                                                  Ended
                                                                  
                                                                  
                                                                  
                                                                  Ended
                                                                  
                                                                  
                                                                  
                                                                  EndedDecember 31,
                                                                  
                                                                  
                                                                  
                                                                  December 31,
                                                                  
                                                                  
                                                                  
                                                                  December 31,
                                                                  
                                                                  
                                                                  
                                                                  December 31,2009
                                                                  
                                                                  
                                                                  
                                                                  2008
                                                                  
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  
                                                                  2008(In
      thousands)Interest
      rate swap contracts
                                                                  $
                                                                  (1,191
                                                                  )
                                                                  
                                                                  $
                                                                  (18,724
                                                                  )
                                                                  
                                                                  $
                                                                  (4,271
                                                                  )
                                                                  
                                                                  $
                                                                  (22,519
                                                                  )
  - 12
-
 
 Location of Gain or (Loss)
                                                            
                                                            
                                                            Amount of Gain or (Loss)Reclassified from Accumulated
                                                            
                                                            
                                                            Reclassified fromOther Comprehensive Income
                                                            
                                                            
                                                            Accumulated Other Comprehensive Incomeinto Income (Effective Portion)
                                                            
                                                            
                                                            into Income (Effective Portion)(1)Three Months
                                                            
                                                            
                                                            
                                                            Three Months
                                                            
                                                            
                                                            
                                                            Six Months
                                                            
                                                            
                                                            Six MonthsEnded
                                                            
                                                            
                                                            
                                                            Ended
                                                            
                                                            
                                                            
                                                            Ended
                                                            
                                                            
                                                            EndedDecember 31,
                                                            
                                                            
                                                            
                                                            December 31,
                                                            
                                                            
                                                            
                                                            December 31,
                                                            
                                                            
                                                            December 31,2009
                                                            
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            
                                                            2009
                                                            
                                                            
                                                            2008(In
      thousands)Interest
      expense
                                                            
                                                            $
                                                            (3,781
                                                            )
                                                            
                                                            $
                                                            (1,192
                                                            )
                                                            
                                                            $
                                                            (7,182
                                                            )
                                                            $
                                                            (2,082
                                                            )
 
 (1)
              See
      Note 11 for additional information on changes to accumulated other
      comprehensive income (loss).
 
 The
amounts of the gains and losses related to our derivative financial instruments
not designated as hedging instruments for the three and six months ended
December 31, 2009 and 2008 are as follows:
 
 Derivatives Not
                                                                        
                                                                        Location of Gain or (Loss)
                                                                        
                                                                        
                                                                        Amount of Gain or (Loss)Designated as
                                                                        
                                                                        Recognized in Earnings on
                                                                        
                                                                        
                                                                        Recognized in Earnings onHedging Instruments
                                                                        
                                                                        Derivative
                                                                        
                                                                        
                                                                        DerivativeThree Months
                                                                        
                                                                        
                                                                        Three Months
                                                                        
                                                                        
                                                                        Six Months
                                                                        
                                                                        
                                                                        Six MonthsEnded
                                                                        
                                                                        
                                                                        Ended
                                                                        
                                                                        
                                                                        Ended
                                                                        
                                                                        
                                                                        EndedDecember 31,
                                                                        
                                                                        
                                                                        December 31,
                                                                        
                                                                        
                                                                        December 31,
                                                                        
                                                                        
                                                                        December 31,2009
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        2009
                                                                        
                                                                        
                                                                        2008(In
      thousands)Foreign currency
                                                                          forward contracts
                                                                        
                                                                        Other
      income (expense)
                                                                        
                                                                        $
                                                                        (87
                                                                        )
                                                                        $
                                                                        (639
                                                                        )
                                                                        $
                                                                        231
                                                                        
                                                                        $
                                                                        (804
                                                                        )
 
 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 December 31, 2009, we had $26.7 million of notional value
foreign currency forward contracts maturing through January 29, 2010. 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.
  - 13
-
 
 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.
 
 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 December 31, 2009
                                  
                                  (Level 1)
                                  
                                  
                                  (Level 2)
                                  
                                  
                                  (Level 3)
                                  
                                  
                                  Total(In
      thousands)Assets:Non-current
      marketable securities
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  16,899
                                  
                                  
                                  $
                                  16,899Foreign
      currency forward contracts
                                  
                                  
                                  -
                                  
                                  
                                  
                                  36
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  36Total
      Assets
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  36
                                  
                                  
                                  $
                                  16,899
                                  
                                  
                                  $
                                  16,935Liabilities:Interest
      rate swap contracts
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  12,710
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  12,710
 
 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
  - 14
-
 
 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 six months ended December 31,
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 accumulatedother
      comprehensive income (loss)
                          
                          
                          222Balance
      at December 31, 2009
                          
                          $
                          16,899
 
 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.    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, at December 31, 2009 we have a $2.0 million valuation allowance
against the auction rate securities.
 
 As fair
values have continued to be below cost, we have considered various factors in
determining that at December 31, 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.
 
 In July
2009, $1.0 million of our auction rate securities were redeemed by the issuer at
par. In January 2010, an additional $4.0 million of our auction rate securities
were redeemed by the issuer at 92% of par. The resulting $320,000 realized loss
will be recorded in the statement of operations in the third quarter of fiscal
2010. The $4.0 million of auction rate securities redeemed in January 2010 are
classified as non-current marketable securities as of December 31, 2009, as we
were not aware at the balance sheet date that these auction rate securities
would be redeemed.
 
 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.
  - 15
-
  9.
              Long
      Term Debt and Credit Agreements
 
 The fair
value of our debt instruments are summarized as follows:
 
 December
      31, 2009Carrying
                                  
                                  
                                  EstimatedAmount
                                  
                                  
                                  Fair
      Value(In
      thousands)Senior
      secured B-1 term loan
                                  
                                  $
                                  389,943
                                  
                                  
                                  $
                                  352,899Senior
      secured B-2 term loan
                                  
                                  
                                  121,857
                                  
                                  
                                  
                                  105,407Senior
      unsecured notes
                                  
                                  
                                  225,000
                                  
                                  
                                  
                                  228,375Senior
      subordinated unsecured term loan
                                  
                                  
                                  156,308
                                  
                                  
                                  
                                  133,643Other
                                  
                                  
                                  1,085
                                  
                                  
                                  
                                  1,085Total
      debt
                                  
                                  $
                                  894,193
                                  
                                  
                                  $
                                  821,409
 
 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.
 
 As of
December 31, 2009, we are in compliance with all of the covenants contained in
our loan agreements.
 
 Interest
paid was $30.6 million and $21.1 million for the six months ended December 31,
2009 and 2008, respectively. Accrued interest of $14.2 million and $14.0 million
was included in accrued expenses and other current liabilities at December 31,
2009 and June 30, 2009, respectively.
 
 10.
                Loss
      on Liquidation of 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 six months ended December 31,
2009.  This loss is not deductible for income tax
purposes.
  - 16
-





11.
            Comprehensive
      Income




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





Three Months
                                                      
                                                      
                                                      Three Months
                                                      
                                                      
                                                      Six Months
                                                      
                                                      
                                                      Six MonthsEnded
                                                      
                                                      
                                                      Ended
                                                      
                                                      
                                                      Ended
                                                      
                                                      
                                                      EndedDecember 31,
                                                      
                                                      
                                                      December 31,
                                                      
                                                      
                                                      December 31,
                                                      
                                                      
                                                      December 31,2009
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      2009
                                                      
                                                      
                                                      2008(In thousands)Net
      income (loss)
                                                      
                                                      $
                                                      (10,614
                                                      )
                                                      
                                                      $
                                                      (4,107
                                                      )
                                                      
                                                      $
                                                      (31,157
                                                      )
                                                      
                                                      $
                                                      (11,004
                                                      )Increase
      (decrease) in fair value ofinterest
      rate swap contracts, net of taxprovision
      (benefit) of $961, $(6,487),$1,086
      and $(7,562)
                                                      
                                                      
                                                      1,629
                                                      
                                                      
                                                      
                                                      (11,045
                                                      )
                                                      
                                                      
                                                      1,825
                                                      
                                                      
                                                      
                                                      (12,875
                                                      )Valuation
      allowance againstnon-current
      marketable securities
                                                      
                                                      
                                                      (47
                                                      )
                                                      
                                                      
                                                      (1,005
                                                      )
                                                      
                                                      
                                                      222
                                                      
                                                      
                                                      
                                                      (2,203
                                                      )Foreign
      currency translation adjustment,net
      of tax provision of $617, $0,$617
      and $0
                                                      
                                                      
                                                      129
                                                      
                                                      
                                                      
                                                      (34,199
                                                      )
                                                      
                                                      
                                                      6,013
                                                      
                                                      
                                                      
                                                      (55,981
                                                      )Total
      comprehensive income (loss)
                                                      
                                                      $
                                                      (8,903
                                                      )
                                                      
                                                      $
                                                      (50,356
                                                      )
                                                      
                                                      $
                                                      (23,097
                                                      )
                                                      
                                                      $
                                                      (82,063
                                                      )





Accumulated
other comprehensive income (loss) is as follows:





UnrealizedGain (Loss)
                                                  
                                                  
                                                  Valuation
                                                  
                                                  
                                                  Minimum
                                                  
                                                  
                                                  Foreignon Interest
                                                  
                                                  
                                                  Allowance Against
                                                  
                                                  
                                                  Pension
                                                  
                                                  
                                                  CurrencyRate Swap
                                                  
                                                  
                                                  Non-Current
                                                  
                                                  
                                                  Liability
                                                  
                                                  
                                                  TranslationContracts
                                                  
                                                  
                                                  Marketable
                                                  
                                                  
                                                  Adjustment
                                                  
                                                  
                                                  Adjustment
                                                  
                                                  
                                                  Total(net of tax)
                                                  
                                                  
                                                  Securities
                                                  
                                                  
                                                  (net of tax)
                                                  
                                                  
                                                  (net of tax)
                                                  
                                                  
                                                  (net of tax)(In thousands)Balance,
      June 30, 2009
                                                  
                                                  $
                                                  (9,602
                                                  )
                                                  
                                                  $
                                                  (2,268
                                                  )
                                                  
                                                  $
                                                  (499
                                                  )
                                                  
                                                  $
                                                  (42,331
                                                  )
                                                  
                                                  $
                                                  (54,700
                                                  )Six
      months' activity
                                                  
                                                  
                                                  1,825
                                                  
                                                  
                                                  
                                                  222
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  6,013
                                                  
                                                  
                                                  
                                                  8,060Balance,
      December 31, 2009
                                                  
                                                  $
                                                  (7,777
                                                  )
                                                  
                                                  $
                                                  (2,046
                                                  )
                                                  
                                                  $
                                                  (499
                                                  )
                                                  
                                                  $
                                                  (36,318
                                                  )
                                                  
                                                  $
                                                  (46,640
                                                  )





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.





Prior to
fiscal 2009, the foreign currency translation adjustments were not adjusted for
income taxes as they related to indefinite investments in non-U.S.
subsidiaries.  Deferred U.S. income taxes have been provided on
undistributed foreign earnings for years subsequent to fiscal 2008 since we
expect that substantially all of these earnings will be distributed to the
U.S.  As of December 31, 2009, we have recorded a deferred U.S. income
tax on the foreign currency translation adjustment created by the post-fiscal
2008 undistributed foreign earnings.


- 17
-





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 December 31, 2009 is $1.1 million, of which
$322,000 is expected to be paid within one year.





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.


- 18
-





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.





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 32% and
39% of our sales for the three months ended December 31, 2009 and 2008, and 34%
and 36% of our sales for the six months ended December 31, 2009 and 2008,
respectively, 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 foreign operations
in the United Kingdom (“U.K.”).  Net sales from facilities located in
the U.K. were approximately $29.6 million and $33.4 million for the three months
ended December 31, 2009 and 2008 and $55.9 million and $67.8 million for the six
months ended December 31, 2009 and 2008, respectively.  Total assets
of the U.K. operations were $167.9 million as of December 31, 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 Months
                                            
                                            
                                            Six Months
                                            
                                            
                                            Six MonthsEnded
                                            
                                            
                                            Ended
                                            
                                            
                                            Ended
                                            
                                            
                                            EndedDecember 31,
                                            
                                            
                                            December 31,
                                            
                                            
                                            December 31,
                                            
                                            
                                            December 31,2009
                                            
                                            
                                            2008
                                            
                                            
                                            2009
                                            
                                            
                                            2008(In thousands)United
      States of America
                                            
                                            $
                                            92,204
                                            
                                            
                                            $
                                            97,042
                                            
                                            
                                            $
                                            172,389
                                            
                                            
                                            $
                                            172,057Europe
      and Middle East
                                            
                                            
                                            34,242
                                            
                                            
                                            
                                            22,777
                                            
                                            
                                            
                                            62,709
                                            
                                            
                                            
                                            59,898Asia
      and Australia
                                            
                                            
                                            36,590
                                            
                                            
                                            
                                            34,176
                                            
                                            
                                            
                                            56,105
                                            
                                            
                                            
                                            61,062Other
      regions
                                            
                                            
                                            3,703
                                            
                                            
                                            
                                            2,820
                                            
                                            
                                            
                                            5,652
                                            
                                            
                                            
                                            4,643$
                                            166,739
                                            
                                            
                                            $
                                            156,815
                                            
                                            
                                            $
                                            296,855
                                            
                                            
                                            $
                                            297,660


- 19
-





Selected
financial data by segment is as follows:





Three Months
                                                          
                                                          
                                                          Three Months
                                                          
                                                          
                                                          Six Months
                                                          
                                                          
                                                          Six MonthsEnded
                                                          
                                                          
                                                          Ended
                                                          
                                                          
                                                          Ended
                                                          
                                                          
                                                          EndedDecember 31,
                                                          
                                                          
                                                          December 31,
                                                          
                                                          
                                                          December 31,
                                                          
                                                          
                                                          December 31,2009
                                                          
                                                          
                                                          2008
                                                          
                                                          
                                                          2009
                                                          
                                                          
                                                          2008(In thousands)Net
      sales:Microelectronic
      solutions ("AMS")
                                                          
                                                          $
                                                          79,160
                                                          
                                                          
                                                          $
                                                          70,752
                                                          
                                                          
                                                          $
                                                          146,521
                                                          
                                                          
                                                          $
                                                          138,332Test
      solutions ("ATS")
                                                          
                                                          
                                                          87,579
                                                          
                                                          
                                                          
                                                          86,063
                                                          
                                                          
                                                          
                                                          150,334
                                                          
                                                          
                                                          
                                                          159,328Net
      sales
                                                          
                                                          $
                                                          166,739
                                                          
                                                          
                                                          $
                                                          156,815
                                                          
                                                          
                                                          $
                                                          296,855
                                                          
                                                          
                                                          $
                                                          297,660Segment
      adjusted operating income:-
      AMS
                                                          
                                                          $
                                                          21,887
                                                          
                                                          
                                                          $
                                                          15,371
                                                          
                                                          
                                                          $
                                                          36,911
                                                          
                                                          
                                                          $
                                                          29,984-
      ATS
                                                          
                                                          
                                                          20,186
                                                          
                                                          
                                                          
                                                          15,974
                                                          
                                                          
                                                          
                                                          28,151
                                                          
                                                          
                                                          
                                                          25,604-
      General corporate expense
                                                          
                                                          
                                                          (2,258
                                                          )
                                                          
                                                          
                                                          (3,870
                                                          )
                                                          
                                                          
                                                          (5,189
                                                          )
                                                          
                                                          
                                                          (6,567
                                                          )Adjusted
      operating income
                                                          
                                                          
                                                          39,815
                                                          
                                                          
                                                          
                                                          27,475
                                                          
                                                          
                                                          
                                                          59,873
                                                          
                                                          
                                                          
                                                          49,021Amortization
      of acquired intangibles-
      AMS
                                                          
                                                          
                                                          (8,743
                                                          )
                                                          
                                                          
                                                          (8,462
                                                          )
                                                          
                                                          
                                                          (17,579
                                                          )
                                                          
                                                          
                                                          (19,139
                                                          )-
      ATS
                                                          
                                                          
                                                          (6,771
                                                          )
                                                          
                                                          
                                                          (6,160
                                                          )
                                                          
                                                          
                                                          (13,540
                                                          )
                                                          
                                                          
                                                          (13,451
                                                          )Share
      based compensation-
      Corporate
                                                          
                                                          
                                                          (556
                                                          )
                                                          
                                                          
                                                          (489
                                                          )
                                                          
                                                          
                                                          (1,045
                                                          )
                                                          
                                                          
                                                          (977
                                                          )Restructuring
      charges-
      ATS
                                                          
                                                          
                                                          (64
                                                          )
                                                          
                                                          
                                                          (1,808
                                                          )
                                                          
                                                          
                                                          (251
                                                          )
                                                          
                                                          
                                                          (2,210
                                                          )Merger
      related expenses - Corporate
                                                          
                                                          
                                                          (771
                                                          )
                                                          
                                                          
                                                          (2,172
                                                          )
                                                          
                                                          
                                                          (1,464
                                                          )
                                                          
                                                          
                                                          (2,806
                                                          )Loss
      on liquidation of foreignsubsidiary
      - ATS
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (7,696
                                                          )
                                                          
                                                          
                                                          -Current
      period impact of acquisitionrelated
      adjustments:Inventory
      - AMS
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (246
                                                          )
                                                          
                                                          
                                                          -Depreciation
      - AMS
                                                          
                                                          
                                                          (265
                                                          )
                                                          
                                                          
                                                          (286
                                                          )
                                                          
                                                          
                                                          (540
                                                          )
                                                          
                                                          
                                                          (572
                                                          )Depreciation
      - ATS
                                                          
                                                          
                                                          (311
                                                          )
                                                          
                                                          
                                                          (676
                                                          )
                                                          
                                                          
                                                          (817
                                                          )
                                                          
                                                          
                                                          (1,414
                                                          )Depreciation
      - Corporate
                                                          
                                                          
                                                          (55
                                                          )
                                                          
                                                          
                                                          (55
                                                          )
                                                          
                                                          
                                                          (110
                                                          )
                                                          
                                                          
                                                          (110
                                                          )Deferred
      revenue - ATS
                                                          
                                                          
                                                          (33
                                                          )
                                                          
                                                          
                                                          (79
                                                          )
                                                          
                                                          
                                                          (65
                                                          )
                                                          
                                                          
                                                          (176
                                                          )Operating
      income (GAAP)
                                                          
                                                          
                                                          22,246
                                                          
                                                          
                                                          
                                                          7,288
                                                          
                                                          
                                                          
                                                          16,520
                                                          
                                                          
                                                          
                                                          8,166Interest
      expense
                                                          
                                                          
                                                          (21,418
                                                          )
                                                          
                                                          
                                                          (21,250
                                                          )
                                                          
                                                          
                                                          (42,457
                                                          )
                                                          
                                                          
                                                          (42,465
                                                          )Other
      income (expense), net
                                                          
                                                          
                                                          422
                                                          
                                                          
                                                          
                                                          9,327
                                                          
                                                          
                                                          
                                                          479
                                                          
                                                          
                                                          
                                                          12,413Income
      (loss) before income taxes
                                                          
                                                          $
                                                          1,250
                                                          
                                                          
                                                          $
                                                          (4,635
                                                          )
                                                          
                                                          $
                                                          (25,458
                                                          )
                                                          
                                                          $
                                                          (21,886
                                                          )





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, loss on liquidation of foreign subsidiary
costs, merger related expenses and the impact of any acquisition related
adjustments.


- 20
-





14.
            Guarantor/Non-Guarantor
      Financial Information





The
following supplemental condensed consolidating financial information sets forth,
on an unconsolidated basis, the balance sheets at December 31, 2009 and June 30,
2009, the statements of operations for the three and six months ended December
31, 2009 and 2008 and the statements of cash flows for the six months ended
December 31, 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.  For purposes of this footnote,
guarantor subsidiaries refer to the subsidiaries of the Parent Company that have
guaranteed principal debt obligations of the Parent Company.  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).





Condensed
Consolidating Statement of Operations


For
the Three Months Ended December 31, 2009


(In
thousands)





Guarantor
                              
                              
                              Non-GuarantorParent
                              
                              
                              Subsidiaries
                              
                              
                              Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedNet
      sales
                              
                              $
                              -
                              
                              
                              $
                              120,120
                              
                              
                              $
                              47,969
                              
                              
                              $
                              (1,350
                              )
                              
                              $
                              166,739Cost
      of sales
                              
                              
                              -
                              
                              
                              
                              60,394
                              
                              
                              
                              20,974
                              
                              
                              
                              (1,223
                              )
                              
                              
                              80,145Gross
      profit
                              
                              
                              -
                              
                              
                              
                              59,726
                              
                              
                              
                              26,995
                              
                              
                              
                              (127
                              )
                              
                              
                              86,594Selling,
      general and administrative costs
                              
                              
                              3,640
                              
                              
                              
                              18,942
                              
                              
                              
                              8,991
                              
                              
                              
                              -
                              
                              
                              
                              31,573Research
      and development costs
                              
                              
                              -
                              
                              
                              
                              11,460
                              
                              
                              
                              5,801
                              
                              
                              
                              -
                              
                              
                              
                              17,261Amortization
      of acquired intangibles
                              
                              
                              -
                              
                              
                              
                              13,276
                              
                              
                              
                              2,238
                              
                              
                              
                              -
                              
                              
                              
                              15,514Operating
      income (loss)
                              
                              
                              (3,640
                              )
                              
                              
                              16,048
                              
                              
                              
                              9,965
                              
                              
                              
                              (127
                              )
                              
                              
                              22,246Other
      income (expense):Interest
      expense
                              
                              
                              (21,399
                              )
                              
                              
                              (17
                              )
                              
                              
                              (2
                              )
                              
                              
                              -
                              
                              
                              
                              (21,418
                              )Other
      income (expense), net
                              
                              
                              (40
                              )
                              
                              
                              480
                              
                              
                              
                              (18
                              )
                              
                              
                              -
                              
                              
                              
                              422Intercompany
      charges
                              
                              
                              19,797
                              
                              
                              
                              (19,318
                              )
                              
                              
                              (479
                              )
                              
                              
                              -
                              
                              
                              
                              -Income
      (loss) before income taxes
                              
                              
                              (5,282
                              )
                              
                              
                              (2,807
                              )
                              
                              
                              9,466
                              
                              
                              
                              (127
                              )
                              
                              
                              1,250Provision
      (benefit) for income taxes
                              
                              
                              (364
                              )
                              
                              
                              2,199
                              
                              
                              
                              2,046
                              
                              
                              
                              7,983
                              
                              
                              
                              11,864Equity
      income (loss) of subsidiaries
                              
                              
                              (5,696
                              )
                              
                              
                              6,932
                              
                              
                              
                              -
                              
                              
                              
                              (1,236
                              )
                              
                              
                              -Net
      income (loss)
                              
                              $
                              (10,614
                              )
                              
                              $
                              1,926
                              
                              
                              $
                              7,420
                              
                              
                              $
                              (9,346
                              )
                              
                              $
                              (10,614
                              )


- 21
-





Condensed
Consolidating Statement of Operations


For
the Three Months Ended December 31, 2008


(In
thousands)





Guarantor
                              
                              
                              Non-GuarantorParent
                              
                              
                              Subsidiaries
                              
                              
                              Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedNet
      sales
                              
                              $
                              -
                              
                              
                              $
                              112,157
                              
                              
                              $
                              45,852
                              
                              
                              $
                              (1,194
                              )
                              
                              $
                              156,815Cost
      of sales
                              
                              
                              -
                              
                              
                              
                              58,298
                              
                              
                              
                              26,554
                              
                              
                              
                              (1,196
                              )
                              
                              
                              83,656Gross
      profit
                              
                              
                              -
                              
                              
                              
                              53,859
                              
                              
                              
                              19,298
                              
                              
                              
                              2
                              
                              
                              
                              73,159Selling,
      general and administrative costs
                              
                              
                              6,586
                              
                              
                              
                              18,345
                              
                              
                              
                              9,243
                              
                              
                              
                              -
                              
                              
                              
                              34,174Research
      and development costs
                              
                              
                              -
                              
                              
                              
                              11,275
                              
                              
                              
                              5,800
                              
                              
                              
                              -
                              
                              
                              
                              17,075Amortization
      of acquired intangibles
                              
                              
                              -
                              
                              
                              
                              12,563
                              
                              
                              
                              2,059
                              
                              
                              
                              -
                              
                              
                              
                              14,622Operating
      income (loss)
                              
                              
                              (6,586
                              )
                              
                              
                              11,676
                              
                              
                              
                              2,196
                              
                              
                              
                              2
                              
                              
                              
                              7,288Other
      income (expense):Interest
      expense
                              
                              
                              (21,227
                              )
                              
                              
                              (23
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (21,250
                              )Other
      income (expense), net
                              
                              
                              (725
                              )
                              
                              
                              123
                              
                              
                              
                              9,929
                              
                              
                              
                              -
                              
                              
                              
                              9,327Intercompany
      charges
                              
                              
                              14,726
                              
                              
                              
                              (14,653
                              )
                              
                              
                              (73
                              )
                              
                              
                              -
                              
                              
                              
                              -Income
      (loss) before income taxes
                              
                              
                              (13,812
                              )
                              
                              
                              (2,877
                              )
                              
                              
                              12,052
                              
                              
                              
                              2
                              
                              
                              
                              (4,635
                              )Provision
      (benefit) for income taxes
                              
                              
                              (4,387
                              )
                              
                              
                              (218
                              )
                              
                              
                              1,507
                              
                              
                              
                              2,570
                              
                              
                              
                              (528
                              )Equity
      income (loss) of subsidiaries
                              
                              
                              5,318
                              
                              
                              
                              10,663
                              
                              
                              
                              -
                              
                              
                              
                              (15,981
                              )
                              
                              
                              -Net
      income (loss)
                              
                              $
                              (4,107
                              )
                              
                              $
                              8,004
                              
                              
                              $
                              10,545
                              
                              
                              $
                              (18,549
                              )
                              
                              $
                              (4,107
                              )


- 22
-





Condensed
Consolidating Statement of Operations


For
the Six Months Ended December 31, 2009


(In
thousands)





Guarantor
                              
                              
                              Non-GuarantorParent
                              
                              
                              Subsidiaries
                              
                              
                              Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedNet
      sales
                              
                              $
                              -
                              
                              
                              $
                              218,015
                              
                              
                              $
                              81,359
                              
                              
                              $
                              (2,519
                              )
                              
                              $
                              296,855Cost
      of sales
                              
                              
                              -
                              
                              
                              
                              111,714
                              
                              
                              
                              35,967
                              
                              
                              
                              (2,414
                              )
                              
                              
                              145,267Gross
      profit
                              
                              
                              -
                              
                              
                              
                              106,301
                              
                              
                              
                              45,392
                              
                              
                              
                              (105
                              )
                              
                              
                              151,588Selling,
      general and administrative costs
                              
                              
                              7,808
                              
                              
                              
                              37,156
                              
                              
                              
                              16,847
                              
                              
                              
                              -
                              
                              
                              
                              61,811Research
      and development costs
                              
                              
                              -
                              
                              
                              
                              22,146
                              
                              
                              
                              12,296
                              
                              
                              
                              -
                              
                              
                              
                              34,442Amortization
      of acquired intangibles
                              
                              
                              -
                              
                              
                              
                              26,659
                              
                              
                              
                              4,460
                              
                              
                              
                              -
                              
                              
                              
                              31,119Loss
      on liquidation of foreign subsidiary
                              
                              
                              -
                              
                              
                              
                              7,696
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              7,696Operating
      income (loss)
                              
                              
                              (7,808
                              )
                              
                              
                              12,644
                              
                              
                              
                              11,789
                              
                              
                              
                              (105
                              )
                              
                              
                              16,520Other
      income (expense):Interest
      expense
                              
                              
                              (42,421
                              )
                              
                              
                              (34
                              )
                              
                              
                              (2
                              )
                              
                              
                              -
                              
                              
                              
                              (42,457
                              )Other
      income (expense), net
                              
                              
                              341
                              
                              
                              
                              374
                              
                              
                              
                              (236
                              )
                              
                              
                              -
                              
                              
                              
                              479Intercompany
      charges
                              
                              
                              39,591
                              
                              
                              
                              (38,636
                              )
                              
                              
                              (955
                              )
                              
                              
                              -
                              
                              
                              
                              -Income
      (loss) before income taxes
                              
                              
                              (10,297
                              )
                              
                              
                              (25,652
                              )
                              
                              
                              10,596
                              
                              
                              
                              (105
                              )
                              
                              
                              (25,458
                              )Provision
      (benefit) for income taxes
                              
                              
                              (4,799
                              )
                              
                              
                              (492
                              )
                              
                              
                              2,265
                              
                              
                              
                              8,725
                              
                              
                              
                              5,699Equity
      income (loss) of subsidiaries
                              
                              
                              (25,659
                              )
                              
                              
                              7,634
                              
                              
                              
                              -
                              
                              
                              
                              18,025
                              
                              
                              
                              -Net
      income (loss)
                              
                              $
                              (31,157
                              )
                              
                              $
                              (17,526
                              )
                              
                              $
                              8,331
                              
                              
                              $
                              9,195
                              
                              
                              $
                              (31,157
                              )


- 23
-





Condensed
Consolidating Statement of Operations


For
the Six Months Ended December 31, 2008


(In
thousands)





Guarantor
                              
                              
                              Non-GuarantorParent
                              
                              
                              Subsidiaries
                              
                              
                              Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedNet
      sales
                              
                              $
                              -
                              
                              
                              $
                              207,798
                              
                              
                              $
                              92,659
                              
                              
                              $
                              (2,797
                              )
                              
                              $
                              297,660Cost
      of sales
                              
                              
                              -
                              
                              
                              
                              108,752
                              
                              
                              
                              51,240
                              
                              
                              
                              (2,850
                              )
                              
                              
                              157,142Gross
      profit
                              
                              
                              -
                              
                              
                              
                              99,046
                              
                              
                              
                              41,419
                              
                              
                              
                              53
                              
                              
                              
                              140,518Selling,
      general and administrative costs
                              
                              
                              10,459
                              
                              
                              
                              36,330
                              
                              
                              
                              18,869
                              
                              
                              
                              -
                              
                              
                              
                              65,658Research
      and development costs
                              
                              
                              -
                              
                              
                              
                              22,442
                              
                              
                              
                              11,662
                              
                              
                              
                              -
                              
                              
                              
                              34,104Amortization
      of acquired intangibles
                              
                              
                              -
                              
                              
                              
                              27,876
                              
                              
                              
                              4,714
                              
                              
                              
                              -
                              
                              
                              
                              32,590Operating
      income (loss)
                              
                              
                              (10,459
                              )
                              
                              
                              12,398
                              
                              
                              
                              6,174
                              
                              
                              
                              53
                              
                              
                              
                              8,166Other
      income (expense):Interest
      expense
                              
                              
                              (42,410
                              )
                              
                              
                              (45
                              )
                              
                              
                              (10
                              )
                              
                              
                              -
                              
                              
                              
                              (42,465
                              )Other
      income (expense), net
                              
                              
                              (662
                              )
                              
                              
                              365
                              
                              
                              
                              12,710
                              
                              
                              
                              -
                              
                              
                              
                              12,413Intercompany
      charges
                              
                              
                              36,912
                              
                              
                              
                              (36,226
                              )
                              
                              
                              (686
                              )
                              
                              
                              -
                              
                              
                              
                              -Income
      (loss) before income taxes
                              
                              
                              (16,619
                              )
                              
                              
                              (23,508
                              )
                              
                              
                              18,188
                              
                              
                              
                              53
                              
                              
                              
                              (21,886
                              )Provision
      (benefit) for income taxes
                              
                              
                              (5,434
                              )
                              
                              
                              (8,061
                              )
                              
                              
                              2,703
                              
                              
                              
                              (90
                              )
                              
                              
                              (10,882
                              )Equity
      income (loss) of subsidiaries
                              
                              
                              181
                              
                              
                              
                              15,891
                              
                              
                              
                              -
                              
                              
                              
                              (16,072
                              )
                              
                              
                              -Net
      income (loss)
                              
                              $
                              (11,004
                              )
                              
                              $
                              444
                              
                              
                              $
                              15,485
                              
                              
                              $
                              (15,929
                              )
                              
                              $
                              (11,004
                              )


- 24
-





Condensed
Consolidating Balance Sheet


As
of December 31, 2009


(In
thousands)





Guarantor
                                        
                                        
                                        Non-GuarantorParent
                                        
                                        
                                        Subsidiaries
                                        
                                        
                                        Subsidiaries
                                        
                                        
                                        Eliminations
                                        
                                        
                                        ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
                                        
                                        $
                                        53,071
                                        
                                        
                                        $
                                        (640
                                        )
                                        
                                        $
                                        16,368
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        68,799Accounts
      receivable, net
                                        
                                        
                                        -
                                        
                                        
                                        
                                        74,068
                                        
                                        
                                        
                                        43,213
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        117,281Inventories
                                        
                                        
                                        -
                                        
                                        
                                        
                                        101,847
                                        
                                        
                                        
                                        34,057
                                        
                                        
                                        
                                        (1,003
                                        )
                                        
                                        
                                        134,901Deferred
      income taxes
                                        
                                        
                                        5,365
                                        
                                        
                                        
                                        25,706
                                        
                                        
                                        
                                        5,951
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        37,022Prepaid
      expenses and other current assets
                                        
                                        
                                        2,742
                                        
                                        
                                        
                                        5,285
                                        
                                        
                                        
                                        3,536
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11,563Total
      current assets
                                        
                                        
                                        61,178
                                        
                                        
                                        
                                        206,266
                                        
                                        
                                        
                                        103,125
                                        
                                        
                                        
                                        (1,003
                                        )
                                        
                                        
                                        369,566Property,
      plant and equipment, net
                                        
                                        
                                        12,561
                                        
                                        
                                        
                                        66,118
                                        
                                        
                                        
                                        19,524
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        98,203Non-current
      marketable securities, net
                                        
                                        
                                        16,899
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        16,899Deferred
      financing costs, net
                                        
                                        
                                        23,369
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        23,369Other
      assets
                                        
                                        
                                        13,256
                                        
                                        
                                        
                                        4,417
                                        
                                        
                                        
                                        338
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        18,011Intangible
      assets with definite lives, net
                                        
                                        
                                        -
                                        
                                        
                                        
                                        226,566
                                        
                                        
                                        
                                        35,135
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        261,701Intangible
      assets with indefinite lives
                                        
                                        
                                        -
                                        
                                        
                                        
                                        85,404
                                        
                                        
                                        
                                        26,490
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        111,894Goodwill
                                        
                                        
                                        (10
                                        )
                                        
                                        
                                        389,422
                                        
                                        
                                        
                                        39,474
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        428,886Total
      assets
                                        
                                        $
                                        127,253
                                        
                                        
                                        $
                                        978,193
                                        
                                        
                                        $
                                        224,086
                                        
                                        
                                        $
                                        (1,003
                                        )
                                        
                                        $
                                        1,328,529Liabilities
      and Stockholder's EquityCurrent
      liabilities:Current
      portion of long-term debt
                                        
                                        $
                                        3,863
                                        
                                        
                                        $
                                        340
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        4,203Accounts
      payable
                                        
                                        
                                        32
                                        
                                        
                                        
                                        13,877
                                        
                                        
                                        
                                        13,229
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        27,138Advance
      payments by customers and
    deferred revenue
                                        
                                        
                                        -
                                        
                                        
                                        
                                        17,110
                                        
                                        
                                        
                                        15,380
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        32,490Income
      taxes payable
                                        
                                        
                                        (591
                                        )
                                        
                                        
                                        (98
                                        )
                                        
                                        
                                        4,824
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,135Accrued
      payroll expenses
                                        
                                        
                                        958
                                        
                                        
                                        
                                        13,716
                                        
                                        
                                        
                                        1,342
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        16,016Accrued
      expenses and other current liabilities
                                        
                                        
                                        25,885
                                        
                                        
                                        
                                        11,176
                                        
                                        
                                        
                                        12,944
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        50,005Total
      current liabilities
                                        
                                        
                                        30,147
                                        
                                        
                                        
                                        56,121
                                        
                                        
                                        
                                        47,719
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        133,987Long-term
      debt
                                        
                                        
                                        889,245
                                        
                                        
                                        
                                        745
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        889,990Deferred
      income taxes
                                        
                                        
                                        (13,219
                                        )
                                        
                                        
                                        138,492
                                        
                                        
                                        
                                        15,135
                                        
                                        
                                        
                                        8,725
                                        
                                        
                                        
                                        149,133Defined
      benefit plan obligations
                                        
                                        
                                        5,988
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,988Other
      long-term liabilities
                                        
                                        
                                        8,776
                                        
                                        
                                        
                                        1,300
                                        
                                        
                                        
                                        1,506
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11,582Intercompany
      investment
                                        
                                        
                                        (268,858
                                        )
                                        
                                        
                                        46,154
                                        
                                        
                                        
                                        222,704
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Intercompany
      receivable/payable
                                        
                                        
                                        (847,317
                                        )
                                        
                                        
                                        882,523
                                        
                                        
                                        
                                        (34,723
                                        )
                                        
                                        
                                        (483
                                        )
                                        
                                        
                                        -Total
      liabilities
                                        
                                        
                                        (195,238
                                        )
                                        
                                        
                                        1,125,335
                                        
                                        
                                        
                                        252,341
                                        
                                        
                                        
                                        8,242
                                        
                                        
                                        
                                        1,190,680Stockholder's
      equity
                                        
                                        
                                        322,491
                                        
                                        
                                        
                                        (147,142
                                        )
                                        
                                        
                                        (28,255
                                        )
                                        
                                        
                                        (9,245
                                        )
                                        
                                        
                                        137,849Total
      liabilities and stockholder's equity
                                        
                                        $
                                        127,253
                                        
                                        
                                        $
                                        978,193
                                        
                                        
                                        $
                                        224,086
                                        
                                        
                                        $
                                        (1,003
                                        )
                                        
                                        $
                                        1,328,529


- 25
-





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, net
                                        
                                        
                                        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
    deferred revenue
                                        
                                        
                                        -
                                        
                                        
                                        
                                        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


- 26
-





Condensed
Consolidating Statement of Cash Flows


For
the Six Months Ended December 31, 2009


(In
thousands)





Guarantor
                                          
                                          
                                          Non-GuarantorParent
                                          
                                          
                                          Subsidiaries
                                          
                                          
                                          Subsidiaries
                                          
                                          
                                          Eliminations
                                          
                                          
                                          ConsolidatedCash
      flows from operating activities:Net
      income (loss)
                                          
                                          $
                                          (31,157
                                          )
                                          
                                          $
                                          (17,526
                                          )
                                          
                                          $
                                          8,331
                                          
                                          
                                          $
                                          9,195
                                          
                                          
                                          $
                                          (31,157
                                          )Changes
      in operating assets and liabilities andnon-cash
      items included in net income (loss)
                                          
                                          
                                          56,201
                                          
                                          
                                          
                                          22,336
                                          
                                          
                                          
                                          (16,072
                                          )
                                          
                                          
                                          (9,195
                                          )
                                          
                                          
                                          53,270Net
      cash provided by (used in) operating activities
                                          
                                          
                                          25,044
                                          
                                          
                                          
                                          4,810
                                          
                                          
                                          
                                          (7,741
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          22,113Cash
      flows from investing activities:Capital
      expenditures
                                          
                                          
                                          (171
                                          )
                                          
                                          
                                          (6,172
                                          )
                                          
                                          
                                          (2,058
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (8,401
                                          )Proceeds
      from sale of marketable securities
                                          
                                          
                                          1,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,000Proceeds
      from the sale of property, plant and equipment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          737
                                          
                                          
                                          
                                          108
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          845Other,
      net
                                          
                                          
                                          (11
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (11
                                          )Net
      cash provided by (used in) investing activities
                                          
                                          
                                          818
                                          
                                          
                                          
                                          (5,435
                                          )
                                          
                                          
                                          (1,950
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (6,567
                                          )Cash
      flows from financing activities:Debt
      repayments
                                          
                                          
                                          (4,012
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (4,012
                                          )Net
      cash provided by (used in) financing activities
                                          
                                          
                                          (4,012
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (4,012
                                          )Effect
      of exchange rate changes on cash and cashequivalents
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (483
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (483
                                          )Net
      increase (decrease) in cash and cash equivalents
                                          
                                          
                                          21,850
                                          
                                          
                                          
                                          (625
                                          )
                                          
                                          
                                          (10,174
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          11,051Cash
      and cash equivalents at beginning of period
                                          
                                          
                                          31,221
                                          
                                          
                                          
                                          (15
                                          )
                                          
                                          
                                          26,542
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          57,748Cash
      and cash equivalents at end of period
                                          
                                          $
                                          53,071
                                          
                                          
                                          $
                                          (640
                                          )
                                          
                                          $
                                          16,368
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          68,799


- 27
-





Condensed
Consolidating Statement of Cash Flows


For
the Six Months Ended December 31, 2008


(In
thousands)





Guarantor
                                            
                                            
                                            Non-GuarantorParent
                                            
                                            
                                            Subsidiaries
                                            
                                            
                                            Subsidiaries
                                            
                                            
                                            Eliminations
                                            
                                            
                                            ConsolidatedCash
      flows from operating activities:Net
      income (loss)
                                            
                                            $
                                            (11,004
                                            )
                                            
                                            $
                                            444
                                            
                                            
                                            $
                                            15,485
                                            
                                            
                                            $
                                            (15,929
                                            )
                                            
                                            $
                                            (11,004
                                            )Changes
      in operating assets and liabilities andnon-cash
      items included in net income (loss)
                                            
                                            
                                            23,477
                                            
                                            
                                            
                                            5,928
                                            
                                            
                                            
                                            7,330
                                            
                                            
                                            
                                            15,929
                                            
                                            
                                            
                                            52,664Net
      cash provided by (used in) operating activities
                                            
                                            
                                            12,473
                                            
                                            
                                            
                                            6,372
                                            
                                            
                                            
                                            22,815
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            41,660Cash
      flows from investing activities:Capital
      expenditures
                                            
                                            
                                            (11
                                            )
                                            
                                            
                                            (5,041
                                            )
                                            
                                            
                                            (3,301
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (8,353
                                            )Proceeds
      from the sale of property, plant andequipment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            687
                                            
                                            
                                            
                                            179
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            866Other,
      net
                                            
                                            
                                            (12
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (12
                                            )Net
      cash provided by (used in) investing activities
                                            
                                            
                                            (23
                                            )
                                            
                                            
                                            (4,354
                                            )
                                            
                                            
                                            (3,122
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (7,499
                                            )Cash
      flows from financing activities:Debt
      repayments
                                            
                                            
                                            (4,125
                                            )
                                            
                                            
                                            (4
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (4,129
                                            )Debt
      financing costs
                                            
                                            
                                            (340
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (340
                                            )Net
      cash provided by (used in) financing activities
                                            
                                            
                                            (4,465
                                            )
                                            
                                            
                                            (4
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (4,469
                                            )Effect
      of exchange rate changes on cash andcash
      equivalents
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (10,177
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (10,177
                                            )Net
      increase in cash and cash equivalents
                                            
                                            
                                            7,985
                                            
                                            
                                            
                                            2,014
                                            
                                            
                                            
                                            9,516
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            19,515Cash
      and cash equivalents at beginning of period
                                            
                                            
                                            39,285
                                            
                                            
                                            
                                            (2,379
                                            )
                                            
                                            
                                            17,243
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            54,149Cash
      and cash equivalents at end of period
                                            
                                            $
                                            47,270
                                            
                                            
                                            $
                                            (365
                                            )
                                            
                                            $
                                            26,759
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            73,664


- 28
-





15.
            Subsequent
      Events





The
Company evaluated all events or transactions that occurred after December 31,
2009 up through February 11, 2010, the date the Company issued these
consolidated financial statements.  Based on that evaluation, we have
determined no material events or transactions occurred after December 31, 2009
up through February 11, 2010 that would affect the December 31, 2009
consolidated financial statements.





ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS 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 make payments on our significant
  indebtedness;




•
            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.




- 29
-




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 Months
                        
                        
                        Six Months
                        
                        
                        Six MonthsEnded
                        
                        
                        Ended
                        
                        
                        Ended
                        
                        
                        EndedDecember 31,2009
                        
                        
                        December 31,2008
                        
                        
                        December 31,2009
                        
                        
                        December 31,2008Net
      sales
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %
                        
                        
                        100.0
                        %Costs
      of sales
                        
                        
                        48.1
                        
                        
                        
                        53.3
                        
                        
                        
                        48.9
                        
                        
                        
                        52.8Gross
      profit
                        
                        
                        51.9
                        
                        
                        
                        46.7
                        
                        
                        
                        51.1
                        
                        
                        
                        47.2Operating
      expenses:Selling,
      general and administrative costs
                        
                        
                        18.9
                        
                        
                        
                        21.8
                        
                        
                        
                        20.8
                        
                        
                        
                        22.0Research
      and development costs
                        
                        
                        10.4
                        
                        
                        
                        10.9
                        
                        
                        
                        11.6
                        
                        
                        
                        11.5Amortization
      of acquired intangibles
                        
                        
                        9.3
                        
                        
                        
                        9.3
                        
                        
                        
                        10.5
                        
                        
                        
                        11.0Loss
      on liquidation of foreign subsidiary
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2.6
                        
                        
                        
                        -Total
      operating expenses
                        
                        
                        38.6
                        
                        
                        
                        42.0
                        
                        
                        
                        45.5
                        
                        
                        
                        44.5Operating
      income (loss)
                        
                        
                        13.3
                        
                        
                        
                        4.7
                        
                        
                        
                        5.6
                        
                        
                        
                        2.7Interest
      expense
                        
                        
                        (12.9
                        )
                        
                        
                        (13.6
                        )
                        
                        
                        (14.3
                        )
                        
                        
                        (14.3
                        )Other
      income (expense), net
                        
                        
                        0.3
                        
                        
                        
                        6.0
                        
                        
                        
                        0.1
                        
                        
                        
                        4.2Income
      (loss) before income taxes
                        
                        
                        0.7
                        
                        
                        
                        (2.9
                        )
                        
                        
                        (8.6
                        )
                        
                        
                        (7.4
                        )Provision
      (benefit) for income taxes
                        
                        
                        7.1
                        
                        
                        
                        (0.3
                        )
                        
                        
                        1.9
                        
                        
                        
                        (3.7
                        )Net
      income (loss)
                        
                        
                        (6.4
                        )%
                        
                        
                        (2.6
                        )%
                        
                        
                        (10.5
                        )%
                        
                        
                        (3.7
                        )%


- 30
-





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, loss on liquidation of foreign
subsidiary, merger related expenses and the impact of any acquisition related
adjustments.


Three Months
                                                              
                                                              
                                                              Three Months
                                                              
                                                              
                                                              Six Months
                                                              
                                                              
                                                              Six MonthsEnded
                                                              
                                                              
                                                              Ended
                                                              
                                                              
                                                              Ended
                                                              
                                                              
                                                              EndedDecember 31,
                                                              
                                                              
                                                              December 31,
                                                              
                                                              
                                                              December 31,
                                                              
                                                              
                                                              December 31,2009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2009
                                                              
                                                              
                                                              2008(In thousands)Net
      sales:Microelectronic
      solutions ("AMS")
                                                              
                                                              $
                                                              79,160
                                                              
                                                              
                                                              $
                                                              70,752
                                                              
                                                              
                                                              $
                                                              146,521
                                                              
                                                              
                                                              $
                                                              138,332Test
      solutions ("ATS")
                                                              
                                                              
                                                              87,579
                                                              
                                                              
                                                              
                                                              86,063
                                                              
                                                              
                                                              
                                                              150,334
                                                              
                                                              
                                                              
                                                              159,328Net
      sales
                                                              
                                                              $
                                                              166,739
                                                              
                                                              
                                                              $
                                                              156,815
                                                              
                                                              
                                                              $
                                                              296,855
                                                              
                                                              
                                                              $
                                                              297,660Segment
      adjusted operating income:-
      AMS
                                                              
                                                              $
                                                              21,887
                                                              
                                                              
                                                              $
                                                              15,371
                                                              
                                                              
                                                              $
                                                              36,911
                                                              
                                                              
                                                              $
                                                              29,984-
      ATS
                                                              
                                                              
                                                              20,186
                                                              
                                                              
                                                              
                                                              15,974
                                                              
                                                              
                                                              
                                                              28,151
                                                              
                                                              
                                                              
                                                              25,604-
      General corporate expense
                                                              
                                                              
                                                              (2,258
                                                              )
                                                              
                                                              
                                                              (3,870
                                                              )
                                                              
                                                              
                                                              (5,189
                                                              )
                                                              
                                                              
                                                              (6,567
                                                              )Adjusted
      operating income
                                                              
                                                              
                                                              39,815
                                                              
                                                              
                                                              
                                                              27,475
                                                              
                                                              
                                                              
                                                              59,873
                                                              
                                                              
                                                              
                                                              49,021Amortization
      of acquired intangibles-
      AMS
                                                              
                                                              
                                                              (8,743
                                                              )
                                                              
                                                              
                                                              (8,462
                                                              )
                                                              
                                                              
                                                              (17,579
                                                              )
                                                              
                                                              
                                                              (19,139
                                                              )-
      ATS
                                                              
                                                              
                                                              (6,771
                                                              )
                                                              
                                                              
                                                              (6,160
                                                              )
                                                              
                                                              
                                                              (13,540
                                                              )
                                                              
                                                              
                                                              (13,451
                                                              )Share
      based compensation-
      Corporate
                                                              
                                                              
                                                              (556
                                                              )
                                                              
                                                              
                                                              (489
                                                              )
                                                              
                                                              
                                                              (1,045
                                                              )
                                                              
                                                              
                                                              (977
                                                              )Restructuring
      charges-
      ATS
                                                              
                                                              
                                                              (64
                                                              )
                                                              
                                                              
                                                              (1,808
                                                              )
                                                              
                                                              
                                                              (251
                                                              )
                                                              
                                                              
                                                              (2,210
                                                              )Merger
      related expenses - Corporate
                                                              
                                                              
                                                              (771
                                                              )
                                                              
                                                              
                                                              (2,172
                                                              )
                                                              
                                                              
                                                              (1,464
                                                              )
                                                              
                                                              
                                                              (2,806
                                                              )Loss
      on liquidation of foreignsubsidiary
      - ATS
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (7,696
                                                              )
                                                              
                                                              
                                                              -Current
      period impact of acquisitionrelated
      adjustments:Inventory
      - AMS
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (246
                                                              )
                                                              
                                                              
                                                              -Depreciation
      - AMS
                                                              
                                                              
                                                              (265
                                                              )
                                                              
                                                              
                                                              (286
                                                              )
                                                              
                                                              
                                                              (540
                                                              )
                                                              
                                                              
                                                              (572
                                                              )Depreciation
      - ATS
                                                              
                                                              
                                                              (311
                                                              )
                                                              
                                                              
                                                              (676
                                                              )
                                                              
                                                              
                                                              (817
                                                              )
                                                              
                                                              
                                                              (1,414
                                                              )Depreciation
      - Corporate
                                                              
                                                              
                                                              (55
                                                              )
                                                              
                                                              
                                                              (55
                                                              )
                                                              
                                                              
                                                              (110
                                                              )
                                                              
                                                              
                                                              (110
                                                              )Deferred
      revenue - ATS
                                                              
                                                              
                                                              (33
                                                              )
                                                              
                                                              
                                                              (79
                                                              )
                                                              
                                                              
                                                              (65
                                                              )
                                                              
                                                              
                                                              (176
                                                              )Operating
      income (GAAP)
                                                              
                                                              
                                                              22,246
                                                              
                                                              
                                                              
                                                              7,288
                                                              
                                                              
                                                              
                                                              16,520
                                                              
                                                              
                                                              
                                                              8,166Interest
      expense
                                                              
                                                              
                                                              (21,418
                                                              )
                                                              
                                                              
                                                              (21,250
                                                              )
                                                              
                                                              
                                                              (42,457
                                                              )
                                                              
                                                              
                                                              (42,465
                                                              )Other
      income (expense), net
                                                              
                                                              
                                                              422
                                                              
                                                              
                                                              
                                                              9,327
                                                              
                                                              
                                                              
                                                              479
                                                              
                                                              
                                                              
                                                              12,413Income
      (loss) before income taxes
                                                              
                                                              $
                                                              1,250
                                                              
                                                              
                                                              $
                                                              (4,635
                                                              )
                                                              
                                                              $
                                                              (25,458
                                                              )
                                                              
                                                              $
                                                              (21,886
                                                              )





Three
Months Ended December 31, 2009 Compared to Three Months Ended December 31,
2008





Net Sales.Net
sales increased 6% to $166.7 million for the three months ended December 31,
2009 from $156.8 million for the three months ended December 31,
2008.





Net sales
in the microelectronic solutions (“AMS”) segment increased 12% to $79.2 million
for the three months ended December 31, 2009 from $70.8 million for the three
months ended December 31, 2008.  Increases in sales volumes of
integrated circuits ($4.0 million) and microelectronic modules ($3.8
million),  combined with sales of $2.7 million from Airflyte
Electronics, acquired in June 2009, were offset by the reduction of $2.0 million
in sales of components due to decreased sales volumes and price concessions
created by industry competition.




Net sales
in the test solutions (“ATS”)segment increased 2% to
$87.6 million for the three months ended December 31, 2009 from $86.1 million
for the three months ended December 31, 2008.  The increase was
primarily due to additional sales of wireless products of $7.4 million combined
with sales of $3.8 million from VI Technology, acquired in March 2009, and was
largely offset by a reduction in sales of PXI and other test equipment
products.




- 31
-




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 51.9% for the three months ended December
31, 2009 and 46.7% for the three months ended December 31,
2008.  Gross margin was adversely affected by purchase accounting
adjustments aggregating $402,000 in 2009 and $572,000 in 2008.





Gross ProfitThree MonthsEnded
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      % of
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      % of
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      % ofDecember 31,
                                                                      
                                                                      AMS
                                                                      
                                                                      
                                                                      Net Sales
                                                                      
                                                                      
                                                                      ATS
                                                                      
                                                                      
                                                                      Net Sales
                                                                      
                                                                      
                                                                      Total
                                                                      
                                                                      
                                                                      Net Sales(In thousands, except percentages)2009
                                                                      
                                                                      $
                                                                      39,202
                                                                      
                                                                      
                                                                      
                                                                      49.5
                                                                      %
                                                                      
                                                                      $
                                                                      47,392
                                                                      
                                                                      
                                                                      
                                                                      54.1
                                                                      %
                                                                      
                                                                      $
                                                                      86,594
                                                                      
                                                                      
                                                                      
                                                                      51.9
                                                                      %2008
                                                                      
                                                                      $
                                                                      33,076
                                                                      
                                                                      
                                                                      
                                                                      46.7
                                                                      %
                                                                      
                                                                      $
                                                                      40,083
                                                                      
                                                                      
                                                                      
                                                                      46.6
                                                                      %
                                                                      
                                                                      $
                                                                      73,159
                                                                      
                                                                      
                                                                      
                                                                      46.7
                                                                      %


Gross
margins in the AMS segment were 49.5% in 2009 and 46.7% in 2008.  The
increase in gross margins is principally attributable to (i) increased sales of
integrated circuits and microelectronics modules (which have margins higher than
the segment average) and decreased sales of components and motion control
products (which have margins lower than the segment average).





Gross
margins in the ATS segment were 54.1% in 2009 and 46.6% in 2008.  The
increase in gross margins is principally attributable to increased sales of
wireless test products, which have margins higher than the segment
average.





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 $2.6 million.  As a
percentage of sales, SG&A costs decreased 290 basis points from the three
months ended December 31, 2008 to the three months ended December 31,
2009.





Selling, General and Administrative CostsThree MonthsEnded
                                                              
                                                              
                                                              
                                                              
                                                              % of
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              % of
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              % ofDecember 31,
                                                              
                                                              AMS
                                                              
                                                              
                                                              Net Sales
                                                              
                                                              
                                                              ATS
                                                              
                                                              
                                                              Net Sales
                                                              
                                                              
                                                              Corporate
                                                              
                                                              
                                                              Total
                                                              
                                                              
                                                              Net Sales(In thousands, except percentages)2009
                                                              
                                                              $
                                                              10,595
                                                              
                                                              
                                                              
                                                              13.4
                                                              %
                                                              
                                                              $
                                                              17,338
                                                              
                                                              
                                                              
                                                              19.8
                                                              %
                                                              
                                                              $
                                                              3,640
                                                              
                                                              
                                                              $
                                                              31,573
                                                              
                                                              
                                                              
                                                              18.9
                                                              %2008
                                                              
                                                              $
                                                              10,723
                                                              
                                                              
                                                              
                                                              15.2
                                                              %
                                                              
                                                              $
                                                              16,865
                                                              
                                                              
                                                              
                                                              19.6
                                                              %
                                                              
                                                              $
                                                              6,586
                                                              
                                                              
                                                              $
                                                              34,174
                                                              
                                                              
                                                              
                                                              21.8
                                                              %





In the
AMS segment, SG&A costs decreased $128,000 or 1%.  As a percentage
of sales, SG&A costs decreased 180 basis points for AMS. The components
product group reduced SG&A costs by $799,000, 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 $408,000 related to
Airflyte Electronics, acquired in June 2009.





In the
ATS segment, SG&A costs increased $473,000 or 3%.  As a percentage
of sales, SG&A costs increased 20 basis points for ATS.  The
increase primarily relates to additional costs of $684,000 related to VI
Technology, acquired in March 2009.




- 32
-




Corporate
general and administrative expenses decreased $2.9 million, primarily due to
reductions in merger related expenses ($1.4 million) and various other expenses
including professional fees and employee related expenses.





Research and Development
Costs. Research and development costs include materials, engineering
labor and allocated overhead. On a consolidated basis, research and development
costs decreased 50 basis points as a percentage of sales.





Research and Development CostsThree MonthsEnded
                                                          
                                                          
                                                          
                                                          
                                                          % of
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          % of
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          % ofDecember 31,
                                                          
                                                          AMS
                                                          
                                                          
                                                          Net Sales
                                                          
                                                          
                                                          ATS
                                                          
                                                          
                                                          Net Sales
                                                          
                                                          
                                                          Total
                                                          
                                                          
                                                          Net Sales(In thousands, except percentages)2009
                                                          
                                                          $
                                                          6,986
                                                          
                                                          
                                                          
                                                          8.8
                                                          %
                                                          
                                                          $
                                                          10,275
                                                          
                                                          
                                                          
                                                          11.7
                                                          %
                                                          
                                                          $
                                                          17,261
                                                          
                                                          
                                                          
                                                          10.4
                                                          %2008
                                                          
                                                          $
                                                          7,268
                                                          
                                                          
                                                          
                                                          10.3
                                                          %
                                                          
                                                          $
                                                          9,807
                                                          
                                                          
                                                          
                                                          11.4
                                                          %
                                                          
                                                          $
                                                          17,075
                                                          
                                                          
                                                          
                                                          10.9
                                                          %





AMS
segment self-funded research and development costs decreased $282,000, or 4%,
primarily due to lower spending on components.  As a percentage of
sales, research and development costs decreased 150 basis points.





ATS
segment self-funded research and development costs increased $468,000, or 5%,
primarily due to efforts aimed at enhancing existing next generation radio test
products.  As a percentage of sales, research and development costs
increased 30 basis points.





Amortization of Acquired
Intangibles.Amortization of acquired intangibles increased
$892,000 in the three months ended December 31, 2009 primarily due to increases
for recently acquired businesses.  By segment, amortization increased
$281,000 in the AMS segment primarily due to additional amortization of $290,000
for Airflyte Electronics, acquired in June 2009.  Amortization
increased $611,000 in the ATS segment, primarily due to additional amortization
of $594,000 for VI Technology, acquired in March 2009.





Other Income
(Expense).Interest expense was $21.4 million in 2009 and
$21.3 million in 2008. Other income (expense) of $422,000 for the three months
ended December 31, 2009 consisted primarily of $768,000 of interest and
miscellaneous income offset by $346,000 of foreign currency transaction
losses.  Other income (expense) of $9.3 million for the three months
ended December 31, 2008 consisted primarily of $8.8 million of foreign currency
transaction gains and $506,000 of interest and miscellaneous
income.





Provision for Income
Taxes.The income tax provision was $11.9 million for
the three months ended December 31, 2009 on pre-tax income of $1.3
million.  We had an income tax benefit for the three months ended
December 31, 2008 of $528,000, an effective income tax rate of 11.4%. 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
combination of U.S. tax benefits on domestic losses and foreign and domestic
taxes on foreign earnings (as we expect that substantially all these earnings
will be distributed to the U.S.) distorts the effective tax rate.





In the
three months ended December 31, 2009, we paid income taxes of $1.5 million and
received tax refunds of $29,000 related to federal, state and foreign income
taxes.  In the three months ended December 31, 2008, we paid income
taxes of $372,000.





Net income
(loss).  The net loss was $10.6 million for the three months
ended December 31, 2009 and $4.1 million for the three months ended December 31,
2008.


- 33
-


Six
Months Ended December 31, 2009 Compared to Six Months Ended December 31,
2008





Net Sales.Net
sales were $296.9 million for the six months ended December 31, 2009 and $297.7
million for the six months ended December 31, 2008.





Net sales
in the AMS segment increased 6% to $146.5 million for the six months ended
December 31, 2009 from $138.3 million for the six months ended December 31,
2008.  Increases in sales volumes of $6.4 million of integrated
circuits and $6.0 million of microelectronic modules, combined with sales of
$5.3 million from Airflyte Electronics, acquired in June 2009, were partially
offset by a reduction of $7.1 million in sales of components, due to decreased
sales volumes and price concessions created by industry competition, and a $2.6
million reduction in motion control products.





Net sales
in the ATSsegment
decreased 6% to $150.3 million for the six months ended December 31, 2009 from
$159.3 million for the six months ended December 31, 2008.  Increases
in wireless test products, synthetic test products and additional sales of $7.3
million from VI Technology, acquired in March 2009, were more than offset by the
decrease in sales volumes of PXI and other test equipment products.





Gross Profit.On a
consolidated basis, gross margin was 51.1% for the six months ended December 31,
2009 and 47.2% for the six months ended December 31, 2008.





Gross ProfitSix
      MonthsEnded
                                          
                                          
                                          
                                          
                                          %
      of
                                          
                                          
                                          
                                          
                                          
                                          %
      of
                                          
                                          
                                          
                                          
                                          
                                          %
      ofDecember
      31,
                                          
                                          AMS
                                          
                                          
                                          Net
      Sales
                                          
                                          
                                          ATS
                                          
                                          
                                          Net
      Sales
                                          
                                          
                                          Total
                                          
                                          
                                          Net
      Sales(In
      thousands, except percentages)2009
                                          
                                          $
                                          70,201
                                          
                                          
                                          
                                          47.9
                                          %
                                          
                                          $
                                          81,387
                                          
                                          
                                          
                                          54.1
                                          %
                                          
                                          $
                                          151,588
                                          
                                          
                                          
                                          51.1
                                          %2008
                                          
                                          $
                                          65,096
                                          
                                          
                                          
                                          47.1
                                          %
                                          
                                          $
                                          75,422
                                          
                                          
                                          
                                          47.3
                                          %
                                          
                                          $
                                          140,518
                                          
                                          
                                          
                                          47.2
                                          %





Gross
margins in the AMS segment were 47.9% in 2009 and 47.1% in
2008.  Margins were favorably impacted by increased sales of
microelectronic modules and integrated circuits (which have margins higher than
the segment average), offset by unfavorable product mix and sale price
reductions for certain products in components.





Gross
margins in the ATS segment were 54.1% in 2009 and 47.3% in 2008.  The
increase in gross margins is principally attributable to increased sales of
wireless products, which have margins higher than the segment
average.





Selling, General and Administrative
Costs.  On a consolidated basis SG&A costs decreased $3.8
million.  As a percentage of sales, SG&A costs decreased 120 basis
points from the six months ended December 31, 2008 to the six months ended
December 31, 2009.





Selling, General and Administrative
      CostsSix
      MonthsEnded
                                              
                                              
                                              
                                              
                                              %
      of
                                              
                                              
                                              
                                              
                                              
                                              %
      of
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              %
      ofDecember
      31,
                                              
                                              AMS
                                              
                                              
                                              Net
      Sales
                                              
                                              
                                              ATS
                                              
                                              
                                              Net
      Sales
                                              
                                              
                                              Corporate
                                              
                                              
                                              Total
                                              
                                              
                                              Net
      Sales(In
      thousands, except percentages)2009
                                              
                                              $
                                              20,583
                                              
                                              
                                              
                                              14.0
                                              %
                                              
                                              $
                                              33,420
                                              
                                              
                                              
                                              22.2
                                              %
                                              
                                              $
                                              7,808
                                              
                                              
                                              $
                                              61,811
                                              
                                              
                                              
                                              20.8
                                              %2008
                                              
                                              $
                                              21,085
                                              
                                              
                                              
                                              15.2
                                              %
                                              
                                              $
                                              34,114
                                              
                                              
                                              
                                              21.4
                                              %
                                              
                                              $
                                              10,459
                                              
                                              
                                              $
                                              65,658
                                              
                                              
                                              
                                              22.0
                                              %





In the
AMS segment, SG&A costs decreased $502,000, or 2%.  As a
percentage of sales, SG&A costs decreased 120 basis points for
AMS.  The components group reduced SG&A costs by $1.6 million,
primarily due to cost savings initiatives.  These savings, in the AMS
segment, are partially offset by additional costs of $779,000 related to
Airflyte Electronics, acquired in June 2009.


- 34
-





In the
ATS segment, SG&A costs decreased $694,000, or 2%.  This was
primarily the result of a decrease of $1.7 million due to cost savings
initiatives and efforts to consolidate and reorganize our various European
locations, partially offset by additional costs of $1.4 million related to VI
Technology, acquired in March 2009.  As a percentage of sales,
SG&A costs increased 80 basis points for ATS.





Corporate
general and administrative expenses decreased $2.7 million, primarily due to
reductions in merger related expenses and other professional fees.





Research and Development
Costs.  On a consolidated basis, research and development costs
increased 10 basis points as a percentage of sales.


Research and Development
    CostsSix
      MonthsEnded
                                        
                                        
                                        
                                        
                                        %
      of
                                        
                                        
                                        
                                        
                                        
                                        %
      of
                                        
                                        
                                        
                                        
                                        
                                        %
      ofDecember
      31,
                                        
                                        AMS
                                        
                                        
                                        Net
      Sales
                                        
                                        
                                        ATS
                                        
                                        
                                        Net
      Sales
                                        
                                        
                                        Total
                                        
                                        
                                        Net
      Sales(In
      thousands, except percentages)2009
                                        
                                        $
                                        13,493
                                        
                                        
                                        
                                        9.2
                                        %
                                        
                                        $
                                        20,949
                                        
                                        
                                        
                                        13.9
                                        %
                                        
                                        $
                                        34,442
                                        
                                        
                                        
                                        11.6
                                        %2008
                                        
                                        $
                                        14,599
                                        
                                        
                                        
                                        10.6
                                        %
                                        
                                        $
                                        19,505
                                        
                                        
                                        
                                        12.2
                                        %
                                        
                                        $
                                        34,104
                                        
                                        
                                        
                                        11.5
                                        %





AMS
segment self-funded research and development costs decreased $1.1 million, or
8%, primarily due to lower spending on microelectronic modules and
components.  As a percentage of sales, research and development costs
decreased 140 basis points.





ATS
segment self-funded research and development costs increased $1.4 million, or
7%, primarily due to the development of products within our radio and avionics
test division and PXI-related products in wireless.  As a percentage
of sales, research and development costs increased 170 basis
points.





Amortization of Acquired
Intangibles.Amortization of acquired intangibles decreased
$1.5 million in the six months ended December 31, 2009 primarily due to certain
intangibles becoming fully amortized during the first quarter of fiscal 2009.
The decrease is offset by additional amortization related to VI Technology,
acquired in March 2009, of $1.2 million and Airflyte, acquired in June 2009, of
$581,000. By segment, the amortization decreased $1.6 million in the AMS segment
and increased $89,000 in the ATS segment.





Loss on Liquidation of Foreign
Subsidiary.During the six months ended December 31, 2009, we recognized
a $7.7 million non-cash loss on liquidation of a foreign
subsidiary.  There was no similar charge recorded in the six months
ended December 31, 2008.





Other Income
(Expense).Interest expense was $42.5 million in both 2009 and
2008. Other income (expense) was $479,000 for the six months ended December 31,
2009 consisting primarily of $1.1 million of interest and miscellaneous income,
offset by $584,000 of foreign currency transaction losses.  Other
income (expense) of $12.4 million for the six months ended December 31, 2008
consisted primarily of $11.2 million of foreign currency transaction gains and
$1.2 million of interest and miscellaneous income.





Provision for Income
Taxes.The income tax provision was $5.7 million for the
six months ended December 31, 2009, on pre-tax loss of $25.5
million.  We had an income tax benefit for the six months ended
December 31, 2008 of $10.9 million, an effective income tax rate of 49.7%. 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
provisions are a combination of U.S. tax benefits on domestic losses and foreign
and domestic taxes provided on foreign earnings as we expect that substantially
all these earnings will be distributed to the U.S. The projected provision of
U.S. taxes on foreign source income for fiscal 2010 in relation to the fiscal
2010 pre-tax projected amounts resulted in a negative effective tax rate for
fiscal 2010, which when applied to the pre-tax loss for the six months ended
December 31, 2009, resulted in a tax expense of $5.7 million.


- 35
-





In the
six months ended December 31, 2009, we paid income taxes of $4.5 million and
received tax refunds of $631,000 related to federal, state and foreign income
taxes.  In the six months ended December 31, 2008, we paid income
taxes of $2.4 million.





Net income
(loss).  The net loss was $31.2 million for the six months
ended December 31, 2009 and $11.0 million for the six months ended December 31,
2008.





Liquidity
and Capital Resources





As of
December 31, 2009, we had $68.8 million of cash and cash equivalents,$235.6 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
December 31, 2009, our gross investment in marketable securities consisted of
$18.9 million of auction rate securities. 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.





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.





In July
2009, $1.0 million of our auction rate securities were redeemed by the issuer at
par.  In January 2010, an additional $4.0 million of our auction rate
securities were redeemed by the issuer at 92% of par.  The resulting
$320,000 realized loss will be recorded in the statement of operations in the
third quarter of fiscal 2010.  Since February 2008, when auctions
began to fail, through February 2010, $31.5 million of auction rate securities
were redeemed at par, except for the January 2010 redemption discussed above.
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 in the
future. However, at December 31, 2009, we concluded that the fair value of our
auction rate securities was $16.9 million, which reflects a $2.0 million
valuation allowance.





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 December 31, 2009, we
had $894.2 million of debt outstanding (of which $890.0 million was long-term),
including approximately $511.8 million under our senior secured credit facility,
$225.0 million of senior unsecured notes and $156.3 million under our senior
subordinated unsecured credit facility, including paid-in-kind interest.
Additionally, at December 31, 2009 we were able to borrow an additional $50.0
million under the revolving portion of our senior secured credit
facility.


- 36
-





Twelve Months Ended
                            December 31,
                          
                          (Inthousands)2010
                          
                          $
                          4,2032011
                          
                          
                          5,6102012
                          
                          
                          5,6352013
                          
                          
                          5,2502014
                          
                          
                          492,187Thereafter
                          
                          
                          381,308Total
                          
                          $
                          894,193




As of
December 31, 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 December 31,
                                          
                                          
                                          Six
      Months Ended December 31,2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008(In
      thousands)Net
      income (loss)
                                          
                                          $
                                          (10,614
                                          )
                                          
                                          $
                                          (4,107
                                          )
                                          
                                          $
                                          (31,157
                                          )
                                          
                                          $
                                          (11,004
                                          )Interest
      expense
                                          
                                          
                                          21,418
                                          
                                          
                                          
                                          21,250
                                          
                                          
                                          
                                          42,457
                                          
                                          
                                          
                                          42,465Provision
      (benefit) for income taxes
                                          
                                          
                                          11,864
                                          
                                          
                                          
                                          (528
                                          )
                                          
                                          
                                          5,699
                                          
                                          
                                          
                                          (10,882
                                          )Depreciation
      and amortization
                                          
                                          
                                          20,528
                                          
                                          
                                          
                                          20,154
                                          
                                          
                                          
                                          41,774
                                          
                                          
                                          
                                          43,651EBITDA
                                          
                                          
                                          43,196
                                          
                                          
                                          
                                          36,769
                                          
                                          
                                          
                                          58,773
                                          
                                          
                                          
                                          64,230Non-cash
      purchase accounting adjustments
                                          
                                          
                                          33
                                          
                                          
                                          
                                          79
                                          
                                          
                                          
                                          311
                                          
                                          
                                          
                                          176Merger
      related expenses
                                          
                                          
                                          771
                                          
                                          
                                          
                                          2,172
                                          
                                          
                                          
                                          1,464
                                          
                                          
                                          
                                          2,806Restructuring
      costs (a)
                                          
                                          
                                          64
                                          
                                          
                                          
                                          1,808
                                          
                                          
                                          
                                          251
                                          
                                          
                                          
                                          2,210Share
      based compensation (b)
                                          
                                          
                                          556
                                          
                                          
                                          
                                          489
                                          
                                          
                                          
                                          1,045
                                          
                                          
                                          
                                          977Non-cash
      loss on liquidation of foreign subsidiary
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,696
                                          
                                          
                                          
                                          -Other
      defined items (c)
                                          
                                          
                                          32
                                          
                                          
                                          
                                          5,278
                                          
                                          
                                          
                                          (342
                                          )
                                          
                                          
                                          6,975Adjusted
      EBITDA
                                          
                                          $
                                          44,652
                                          
                                          
                                          $
                                          46,595
                                          
                                          
                                          $
                                          69,198
                                          
                                          
                                          $
                                          77,374





(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 December 31, 2009 and 2008 was 7.30 and 8.20, respectively,
whereas our actual leverage ratio was 6.41 and 5.75,
respectively.  For fiscal 2010 and 2011 the maximum leverage ratio
permitted decreases to 6.80 and 5.90, respectively.


- 37
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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 that 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.





Cash
Flows





For the
six months ended December 31, 2009, our cash flow provided by operations was
$22.1 million.  Our investing activities used cash of $6.6 million,
primarily for capital expenditures of $8.4 million, partially offset by proceeds
from the sale of marketable securities ($1.0 million) combined with the sale of
property, plant and equipment ($845,000). Our financing activities used cash of
$4.0 million to repay indebtedness.





For the
six months ended December 31, 2008, our cash flow provided by operations was
$41.7 million. Our investing activities used cash of $7.5 million, primarily for
capital expenditures.  Our financing activities used cash of $4.5
million, primarily to repay indebtedness ($4.1 million).





Capital
Expenditures





Capital
expenditures were $8.4 million for both the six months ended December 31, 2009
and 2008.  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 December 31, 2009:





Payments Due By Period(1)(In millions)BeyondTotal
                            
                            
                            Year 1
                            
                            
                            Years 2 - 3
                            
                            
                            Years 4 - 5
                            
                            
                            5 YearsSenior
      secured credit facility
                            
                            $
                            511.8
                            
                            
                            $
                            3.9
                            
                            
                            $
                            10.5
                            
                            
                            $
                            497.4
                            
                            
                            $
                            -Senior
      unsecured notes
                            
                            
                            225.0
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            225.0Subordinated
      unsecured credit facility
                            
                            
                            156.3
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            156.3Other
      long-term debt
                            
                            
                            1.1
                            
                            
                            
                            0.3
                            
                            
                            
                            0.8
                            
                            
                            
                            -
                            
                            
                            
                            -Operating
      leases(2)
                            
                            
                            20.6
                            
                            
                            
                            6.8
                            
                            
                            
                            8.5
                            
                            
                            
                            3.2
                            
                            
                            
                            2.1Employment
      agreements
                            
                            
                            8.1
                            
                            
                            
                            4.3
                            
                            
                            
                            3.5
                            
                            
                            
                            0.3
                            
                            
                            
                            -Advisory
      fee (3)
                            
                            
                            7.4
                            
                            
                            
                            2.2
                            
                            
                            
                            4.4
                            
                            
                            
                            0.8
                            
                            
                            
                            -Total
                            
                            $
                            930.3
                            
                            
                            $
                            17.5
                            
                            
                            $
                            27.7
                            
                            
                            $
                            501.7
                            
                            
                            $
                            383.4





(1)
              Amounts
      do not include interest
payments.





(2)
              The
      Company does not expect any future minimum sub-lease rentals associated
      with operatinglease
      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.


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-





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 December 31, 2009, will have a material
adverse affect on our liquidity.





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.


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-





·
              Cash
      and Cash Equivalents


·
              Marketable
      Securities


·
              Inventories


·
              Financial Instruments and
      Derivatives


·
              Revenue
      Recognition


·
              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 six month period ended December 31, 2009, there were
no significant changes to any critical accounting policies or to the related
estimates and judgments involved in applying those policies, except that
effective July 1, 2009 we adopted new authoritative revenue recognition
principles, the effect of which was immaterial.  This is further
discussed in Note 1 to the unaudited financial statements contained elsewhere in
this Form 10-Q.





Recently
Adopted Accounting Pronouncements





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





Recently
Issued Accounting Pronouncements Not Yet Adopted





See Note
2 of the notes to the unaudited 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 December 31,
2009, we have $511.8 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
$806,000 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 December
31, 2009, we had $26.7 million of notional value foreign currency forward
contracts maturing through January 29, 2010. As of December 31, 2008, we had
$8.1 million of notional value foreign currency forward contracts maturing
through March 12, 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. The fair value of these contracts at December
31, 2009 and 2008 was immaterial.  If foreign currency exchange rates
(primarily the British pound and the Euro) change by 10% from the levels at
December 31, 2009, the effect on our comprehensive income would be approximately
$19.5 million.


- 40
-





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





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 December 31, 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 December 31, 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.


- 41
-





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





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





None





Item 5.   Other
Information





None





Item
6.   Exhibits





Exhibit No.
                
                Exhibit Description31.1
                
                Certification
      pursuant to Rules 13a-14(a)/15d-14(a) as adopted pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.31.2
                
                Certification
      pursuant to Rules 13a-14(a)/15d-14(a) as adopted pursuant to Section 302
      of the Sarbanes-Oxley Act of 2002.31.3
                
                Certification
      pursuant to Rules 13a-14(a)/15d-14(a) 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.




- 42
-





SIGNATURE





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)February
      11, 2010
                    
                    /s/ John Adamovich, Jr.John
      Adamovich, Jr.Senior
      Vice President andChief
      Financial Officer




- 43
-





EXHIBIT
INDEX





Exhibit No.
            
            Exhibit Description31.1
            
            Certification
      pursuant to Rules 13a-14(a)/15d-14(a) as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            
            Certification
      pursuant to Rules 13a-14(a)/15d-14(a) as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.3
            
            Certification
      pursuant to Rules 13a-14(a)/15d-14(a) 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.




- 44
-