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
              March
      31, 2010


Commission
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
 ̈





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  ̈     No
 ̈





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  ̈
              Accelerated
      filer  ̈Non-accelerated
      filer x
              Smaller
      reporting company  ̈(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  ̈    No
x





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





May
      12, 2010
                  
                  1,000(Date)
                  
                  (Number
      of Shares)










AEROFLEX
INCORPORATED


AND
SUBSIDIARIES





INDEX





PAGEPART
      1:        FINANCIAL
      INFORMATIONItem
      1
                                  UNAUDITED
      CONDENSED CONSOLIDATED BALANCE SHEETS
                                    March
      31, 2010 and June 30, 2009
                                  
                                  2UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                    Three
      Months Ended March 31, 2010 and 2009
                                    Nine
      Months Ended March 31, 2010 and 2009
                                  
                                  3 –
      4UNAUDITED
      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    Nine
      Months Ended March 31, 2010 and 2009
                                  
                                  5NOTES
      TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  
                                  6
      – 30Item
      2
                                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                                    RESULTS
      OF OPERATIONS
                                    Three
      and Nine Months Ended March 31, 2010 and 2009
                                  
                                  30 – 45Item
      3
                                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                  
                                  45Item
      4T
                                  CONTROLS
      AND PROCEDURES
                                  
                                  45PART
      II:          OTHER
      INFORMATIONItem
      1
                                  LEGAL
      PROCEEDINGS
                                  
                                  46Item
      1A
                                  RISK
      FACTORS
                                  
                                  46Item
      2
                                  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                                  
                                  46Item
      3
                                  DEFAULTS
      UPON SENIOR SECURITIES
                                  
                                  46Item
      4
                                  [REMOVED
      AND RESERVED]
                                  
                                  46Item
      5
                                  OTHER
      INFORMATION
                                  
                                  46Item
      6
                                  EXHIBITS
                                  
                                  47SIGNATURE
                                  
                                  48EXHIBIT
      INDEX
                                  
                                  49CERTIFICATIONS
                                  
                                  50-54


- 1
-


Aeroflex
Incorporated and Subsidiaries


Unaudited
Condensed Consolidated Balance Sheets


(In
thousands, except share and per share data )





March 31,
                            
                            
                            June 30,2010
                            
                            
                            2009AssetsCurrent
      assets:Cash
      and cash equivalents
                            
                            $
                            96,348
                            
                            
                            $
                            57,748Accounts
      receivable, less allowance for doubtful accounts of $2,189 and
      $2,250
                            
                            
                            116,708
                            
                            
                            
                            130,429Inventories
                            
                            
                            128,441
                            
                            
                            
                            135,603Deferred
      income taxes
                            
                            
                            38,769
                            
                            
                            
                            35,164Prepaid
      expenses and other current assets
                            
                            
                            9,818
                            
                            
                            
                            9,938Total
      current assets
                            
                            
                            390,084
                            
                            
                            
                            368,882Property,
      plant and equipment, net
                            
                            
                            96,908
                            
                            
                            
                            100,907Non-current
      marketable securities, net
                            
                            
                            9,779
                            
                            
                            
                            17,677Deferred
      financing costs, net
                            
                            
                            22,176
                            
                            
                            
                            25,754Other
      assets
                            
                            
                            17,880
                            
                            
                            
                            15,425Intangible
      assets with definite lives, net
                            
                            
                            244,679
                            
                            
                            
                            292,553Intangible
      assets with indefinite lives
                            
                            
                            110,291
                            
                            
                            
                            112,266Goodwill
                            
                            
                            426,884
                            
                            
                            
                            428,133Total
      assets
                            
                            $
                            1,318,681
                            
                            
                            $
                            1,361,597Liabilities and Stockholder's
      EquityCurrent
      liabilities:Current
      portion of long-term debt
                            
                            $
                            5,516
                            
                            
                            $
                            5,590Accounts
      payable
                            
                            
                            26,703
                            
                            
                            
                            36,574Advance
      payments by customers and deferred revenue
                            
                            
                            29,004
                            
                            
                            
                            33,418Income
      taxes payable
                            
                            
                            6,610
                            
                            
                            
                            5,080Accrued
      payroll expenses
                            
                            
                            19,490
                            
                            
                            
                            18,876Accrued
      expenses and other current liabilities
                            
                            
                            45,968
                            
                            
                            
                            47,938Total
      current liabilities
                            
                            
                            133,291
                            
                            
                            
                            147,476Long-term
      debt
                            
                            
                            893,197
                            
                            
                            
                            883,758Deferred
      income taxes
                            
                            
                            146,671
                            
                            
                            
                            143,048Defined
      benefit plan obligations
                            
                            
                            5,942
                            
                            
                            
                            6,079Other
      long-term liabilities
                            
                            
                            3,933
                            
                            
                            
                            21,476Total
      liabilities
                            
                            
                            1,183,034
                            
                            
                            
                            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
                            
                            
                            398,351
                            
                            
                            
                            396,573Accumulated
      other comprehensive income (loss)
                            
                            
                            (52,290
                            )
                            
                            
                            (54,700
                            )Accumulated
      deficit
                            
                            
                            (210,414
                            )
                            
                            
                            (182,113
                            )Total
      stockholder's equity
                            
                            
                            135,647
                            
                            
                            
                            159,760Total
      liabilities and stockholder's equity
                            
                            $
                            1,318,681
                            
                            
                            $
                            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 March 31,2010
                          
                          
                          2009Net
      sales
                          
                          $
                          168,435
                          
                          
                          $
                          139,439Cost
      of sales
                          
                          
                          78,138
                          
                          
                          
                          72,834Gross
      profit
                          
                          
                          90,297
                          
                          
                          
                          66,605Selling,
      general and administrative costs
                          
                          
                          31,377
                          
                          
                          
                          30,954Research
      and development costs
                          
                          
                          20,854
                          
                          
                          
                          17,941Amortization
      of acquired intangibles
                          
                          
                          15,408
                          
                          
                          
                          14,956Acquired
      in-process research and development costs
                          
                          
                          -
                          
                          
                          
                          2,29167,639
                          
                          
                          
                          66,142Operating
      income
                          
                          
                          22,658
                          
                          
                          
                          463Other
      income (expense):Interest
      expense
                          
                          
                          (20,815
                          )
                          
                          
                          (20,566
                          )Other
      income (expense), net
                          
                          
                          222
                          
                          
                          
                          (47
                          )Total
      other income (expense)
                          
                          
                          (20,593
                          )
                          
                          
                          (20,613
                          )Income
      (loss) before income taxes
                          
                          
                          2,065
                          
                          
                          
                          (20,150
                          )Provision
      (benefit) for income taxes
                          
                          
                          (791
                          )
                          
                          
                          (6,416
                          )Net
      income (loss)
                          
                          $
                          2,856
                          
                          
                          $
                          (13,734
                          )




See notes
to unaudited condensed consolidated financial statements.


- 3
-




Aeroflex
Incorporated and Subsidiaries


Unaudited
Condensed Consolidated Statements of Operations


(In
thousands)




Nine Months Ended March 31,2010
                            
                            
                            2009Net
      sales
                            
                            $
                            465,290
                            
                            
                            $
                            437,099Cost
      of sales
                            
                            
                            223,405
                            
                            
                            
                            229,976Gross
      profit
                            
                            
                            241,885
                            
                            
                            
                            207,123Selling,
      general and administrative costs
                            
                            
                            93,188
                            
                            
                            
                            96,612Research
      and development costs
                            
                            
                            55,296
                            
                            
                            
                            52,045Amortization
      of acquired intangibles
                            
                            
                            46,527
                            
                            
                            
                            47,546Acquired
      in-process research and development costs
                            
                            
                            -
                            
                            
                            
                            2,291Loss
      on liquidation of foreign subsidiary (Note 10)
                            
                            
                            7,696
                            
                            
                            
                            -202,707
                            
                            
                            
                            198,494Operating
      income
                            
                            
                            39,178
                            
                            
                            
                            8,629Other
      income (expense):Interest
      expense
                            
                            
                            (63,272
                            )
                            
                            
                            (63,031
                            )Other
      income (expense), net
                            
                            
                            701
                            
                            
                            
                            12,366Total
      other income (expense)
                            
                            
                            (62,571
                            )
                            
                            
                            (50,665
                            )Loss
      before income taxes
                            
                            
                            (23,393
                            )
                            
                            
                            (42,036
                            )Provision
      (benefit) for income taxes
                            
                            
                            4,908
                            
                            
                            
                            (17,298
                            )Net
      Loss
                            
                            $
                            (28,301
                            )
                            
                            $
                            (24,738
                            )




See notes
to unaudited condensed consolidated financial statements.




- 4
-


Aeroflex Incorporated and Subsidiaries


Unaudited
Condensed Consolidated Statements of Cash Flows


(In
thousands)





Nine Months Ended March 31,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income (loss)
                    
                    $
                    (28,301
                    )
                    
                    $
                    (24,738
                    )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                    
                    
                    62,178
                    
                    
                    
                    63,659Acquired
      in-process research and development costs
                    
                    
                    -
                    
                    
                    
                    2,291Acquisition
      related adjustment to sales
                    
                    
                    96
                    
                    
                    
                    240Loss
      on liquidation of foreign subsidiary
                    
                    
                    7,696
                    
                    
                    
                    -Deferred
      income taxes
                    
                    
                    (1,286
                    )
                    
                    
                    (27,851
                    )Share-based
      compensation
                    
                    
                    1,563
                    
                    
                    
                    1,466Amortization
      of deferred financing costs
                    
                    
                    3,579
                    
                    
                    
                    3,579Paid
      in kind interest
                    
                    
                    13,377
                    
                    
                    
                    11,913Other,
      net
                    
                    
                    908
                    
                    
                    
                    729Change
      in operating assets and liabilities, net of effects from purchases of
      businesses:Decrease
      (increase) in accounts receivable
                    
                    
                    10,754
                    
                    
                    
                    21,185Decrease
      (increase) in inventories
                    
                    
                    4,450
                    
                    
                    
                    (14,451
                    )Decrease
      (increase) in prepaid expenses and other assets
                    
                    
                    (2,711
                    )
                    
                    
                    2,253Increase
      (decrease) in accounts payable, accrued expenses and other
      liabilities
                    
                    
                    (20,053
                    )
                    
                    
                    (5,282
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    52,250
                    
                    
                    
                    34,993Cash
      flows from investing activities:Payments
      for purchase of businesses, net of cash acquired
                    
                    
                    (4,000
                    )
                    
                    
                    (7,832
                    )Capital
      expenditures
                    
                    
                    (13,176
                    )
                    
                    
                    (12,958
                    )Proceeds
      from sale of marketable securities
                    
                    
                    8,580
                    
                    
                    
                    -Proceeds
      from the sale of property, plant and equipment
                    
                    
                    1,021
                    
                    
                    
                    1,359Other,
      net
                    
                    
                    (12
                    )
                    
                    
                    (4
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    (7,587
                    )
                    
                    
                    (19,435
                    )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
                    
                    
                    (2,051
                    )
                    
                    
                    (11,307
                    )Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    38,600
                    
                    
                    
                    (218
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    57,748
                    
                    
                    
                    54,149Cash
      and cash equivalents at end of period
                    
                    $
                    96,348
                    
                    
                    $
                    53,931





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 microelectronic products and test and
measurement equipment that are sold primarily to the space, avionics, defense,
commercial wireless  communications, medical and other
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  March 31, 2010,
results of operations for the three and nine  month periods ended
March 31, 2010 and 2009 and cash flows for the nine month periods ended March
31, 2010 and 2009. 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 specified periods from delivery. 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 March
31, 2010, we have $29.0 million in Advance Payments by Customers and Deferred
Revenue, which is comprised of $14.2 million of customer advance payments
primarily for the purchase of materials, $8.1 million of deferred service and
software support revenue, $4.0 million of deferred warranty revenue and $2.7
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 March 31,
2010 and revenue for the three and nine months ended March 31, 2010 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 nine months ended March 31, 2010, 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 non-financial 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). The adoption
of this new guidance did not have a material impact on our consolidated
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 at the acquisition
date, the capitalization of in-process research and development at fair value
and the expensing of acquisition-related costs as incurred. The adoption of
this 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 new
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.  We have updated references to U.S. GAAP in our financial
statements issued for the period ended March 31, 2010. The adoption of this new
guidance 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 consolidated 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 consolidated financial statements was insignificant.





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).  We adopted the fair value disclosures guidance on
January 1, 2010, except for the gross presentation of the Level 3 roll forward,
which is not required to be adopted until July 1, 2011.  The adoption
of this new guidance did not have a material impact on our consolidated
financial statements.  We believe the adoption on July 1, 2011 of the
gross presentation of the Level 3 roll forward will not have a material impact
on our consolidated financial statements.





In
February 2010, the FASB amended its authoritative guidance related to subsequent
events to alleviate potential conflicts with current SEC
guidance.  Effective immediately, these amendments remove the
requirement that an SEC filer disclose the date through which it has evaluated
subsequent events.  The adoption of this new guidance did not have a
material impact on our consolidated financial statements.





Recently
Issued Accounting Pronouncements Not Yet Adopted





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


- 9
-




3.
            Intangible
      Assets





Intangible
Assets with Definite Lives





The
components of amortizable intangible assets were as follows:





March 31, 2010
                  
                  
                  June 30, 2009Gross
                  
                  
                  
                  
                  
                  GrossCarrying
                  
                  
                  Accumulated
                  
                  
                  Carrying
                  
                  
                  AccumulatedAmount
                  
                  
                  Amortization
                  
                  
                  Amount
                  
                  
                  Amortization(In
      thousands)Developed
      technology
                  
                  $
                  196,083
                  
                  
                  $
                  86,570
                  
                  
                  $
                  197,684
                  
                  
                  $
                  62,021Customer
      related intangibles
                  
                  
                  215,733
                  
                  
                  
                  88,326
                  
                  
                  
                  216,956
                  
                  
                  
                  69,339Non-compete
      arrangements
                  
                  
                  10,198
                  
                  
                  
                  4,046
                  
                  
                  
                  10,090
                  
                  
                  
                  2,692Tradenames
                  
                  
                  2,176
                  
                  
                  
                  569
                  
                  
                  
                  2,105
                  
                  
                  
                  230Total
                  
                  $
                  424,190
                  
                  
                  $
                  179,511
                  
                  
                  $
                  426,835
                  
                  
                  $
                  134,282





The
aggregate amortization expense for amortizable intangible assets was $15.4
million and $15.0 million for the three months ended March 31, 2010 and 2009,
respectively, and $46.5 million and $47.5 million for the nine months ended
March 31, 2010 and 2009, respectively.





The
estimated aggregate amortization expense for each of the twelve month periods
ending March 31, is as follows:


(In thousands)2011
                      
                      $
                      60,5482012
                      
                      
                      60,2002013
                      
                      
                      56,0722014
                      
                      
                      35,7492015
                      
                      
                      18,362





Goodwill





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





Microelectronic
                  
                  
                  TestSolutions
                  
                  
                  Solutions
                  
                  
                  Total(In
      thousands)Balance
      at June 30, 2009
                  
                  $
                  266,813
                  
                  
                  $
                  161,320
                  
                  
                  $
                  428,133Adjustment
      to goodwill for acquisitions
                  
                  
                  314
                  
                  
                  
                  455
                  
                  
                  
                  769Impact
      of foreign currency translation
                  
                  
                  387
                  
                  
                  
                  (2,405
                  )
                  
                  
                  (2,018
                  )Balance
      at March 31, 2010
                  
                  $
                  267,514
                  
                  
                  $
                  159,370
                  
                  
                  $
                  426,884




- 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,
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  March 31,2009
                  
                  
                  NineMonthsEndedMarch31,2010
                  
                  
                  2010Effect ofRestructuring
                  
                  
                  
                  
                  
                  
                  
                  
                  foreign
                  
                  
                  RestructuringLiability
                  
                  
                  NetAdditions
                  
                  
                  CashPayments
                  
                  
                  currency
                  
                  
                  Liability(In
      thousands)Work
      force reduction
                  
                  $
                  756
                  
                  
                  $
                  330
                  
                  
                  $
                  (1,076
                  )
                  
                  $
                  2
                  
                  
                  $
                  12Closure
      of facilities
                  
                  
                  1,722
                  
                  
                  
                  26
                  
                  
                  
                  (463
                  )
                  
                  
                  (217
                  )
                  
                  
                  1,068Total
                  
                  $
                  2,478
                  
                  
                  $
                  356
                  
                  
                  $
                  (1,539
                  )
                  
                  $
                  (215
                  )
                  
                  $
                  1,080





5.
            Inventories





Inventories
consisted of the following:


March 31,
                            
                            
                            June 30,2010
                            
                            
                            2009(In
      thousands)Raw
      materials
                            
                            $
                            62,205
                            
                            
                            $
                            67,388Work
      in process
                            
                            
                            47,533
                            
                            
                            
                            47,185Finished
      goods
                            
                            
                            18,703
                            
                            
                            
                            21,030$
                            128,441
                            
                            
                            $
                            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.


- 11
-





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:





Nine months
                          
                          
                          Nine monthsEnded
                          
                          
                          EndedMarch 31,
                          
                          
                          March 31,2010
                          
                          
                          2009(In
      thousands)Balance
      at beginning of period
                          
                          $
                          2,645
                          
                          
                          $
                          2,944Provision
      for warranty obligations
                          
                          
                          1,696
                          
                          
                          
                          2,028Cost
      of warranty obligations
                          
                          
                          (1,622
                          )
                          
                          
                          (2,147
                          )Foreign
      currency impact
                          
                          
                          (64
                          )
                          
                          
                          (285
                          )Balance
      at end of period
                          
                          $
                          2,655
                          
                          
                          $
                          2,540





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 March 31, 2010 and June 30, 2009 are presented as
follows:





Asset
      (Liability) DerivativesMarch
      31, 2010
                                                          
                                                          June
      30, 2009Balance
      Sheet
                                                          
                                                          
                                                          
                                                          Balance
      Sheet(In
      thousands)
                                                          
                                                          Location
                                                          
                                                          Fair Value(1)
                                                          
                                                          Location
                                                          
                                                          Fair Value(1)Derivatives
      designated as hedging instruments:Interest
      rate swap contracts
                                                          
                                                          Accrued
      expenses and other current liabilities
                                                          
                                                          $
                                                          (10,323
                                                          )
                                                          Accrued
      expenses and other current liabilities
                                                          
                                                          $
                                                          (615
                                                          )Interest
      rate swap contracts
                                                          
                                                          Other
      long-term liabilities
                                                          
                                                          
                                                          -
                                                          
                                                          Other
      long-term liabilities
                                                          
                                                          
                                                          (15,006
                                                          )Total
      derivatives designated as hedging instruments
                                                          
                                                          
                                                          
                                                          
                                                          (10,323
                                                          )
                                                          
                                                          
                                                          
                                                          (15,621
                                                          )Derivatives
      not designated as hedging instruments:Foreign
      currency forward contracts
                                                          
                                                          Prepaid
      expenses and other current assets
                                                          
                                                          
                                                          446
                                                          
                                                          Accrued
      expenses and other current liabilities
                                                          
                                                          
                                                          (195
                                                          )Total
      derivatives, net
                                                          
                                                          
                                                          
                                                          $
                                                          (9,877
                                                          )
                                                          
                                                          
                                                          $
                                                          (15,816
                                                          )





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


- 12
-





The
amounts of the gains and losses related to our derivative financial instruments
designated as hedging instruments for the three and nine months ended March 31,
2010 and 2009 were 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
                                  
                                  
                                  Nine Months
                                  
                                  
                                  Nine MonthsEnded
                                  
                                  
                                  Ended
                                  
                                  
                                  Ended
                                  
                                  
                                  EndedMarch
      31,
                                  
                                  
                                  March
      31,
                                  
                                  
                                  March
      31,
                                  
                                  
                                  March
      31,2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009(In
      thousands)Interest
      rate swap contracts
                                  
                                  $
                                  (1,279
                                  )
                                  
                                  $
                                  (1,318
                                  )
                                  
                                  $
                                  (5,550
                                  )
                                  
                                  $
                                  (23,837
                                  )





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
                      
                      
                      Nine Months
                      
                      
                      Nine MonthsEnded
                      
                      
                      Ended
                      
                      
                      Ended
                      
                      
                      EndedMarch
      31,
                      
                      
                      March
      31,
                      
                      
                      March
      31,
                      
                      
                      March
      31,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009(In
      thousands)Interest
      expense
                      
                      $
                      (3,666
                      )
                      
                      $
                      (2,079
                      )
                      
                      $
                      (10,848
                      )
                      
                      $
                      (4,161
                      )





(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 nine months ended March
31, 2010 and 2009 were 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
                                
                                
                                Nine Months
                                
                                
                                Nine MonthsEnded
                                
                                
                                Ended
                                
                                
                                Ended
                                
                                
                                EndedMarch
      31,
                                
                                
                                March
      31,
                                
                                
                                March
      31,
                                
                                
                                March
      31,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009(In
      thousands)Foreign
      currency forward contracts
                                
                                Other
      income (expense)
                                
                                $
                                410
                                
                                
                                $
                                759
                                
                                
                                $
                                641
                                
                                
                                $
                                (46
                                )





Interest Rate Swap Cash-Flow
Hedges





We enter
into interest rate swap contracts with counterparties that are rated investment
grade 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. Our interest rate
swap contracts outstanding as of March 31, 2010, all of which were entered into
in fiscal 2008 for an aggregate notional amount of $425 million, have varying
maturities through February 2011.


- 13
-




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 other income (expense) as it
occurs.  As of March 31, 2010, we had $43.4 million of notional value
foreign currency forward contracts maturing through April 30, 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.





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 March 31, 2010
                  
                  (Level 1)
                  
                  
                  (Level 2)
                  
                  
                  (Level 3)
                  
                  
                  Total(In
      thousands)Assets:Non-current
      marketable securities
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  9,779
                  
                  
                  $
                  9,779Foreign
      currency forward contracts
                  
                  
                  -
                  
                  
                  
                  446
                  
                  
                  
                  -
                  
                  
                  
                  446Total
      Assets
                  
                  $
                  -
                  
                  
                  $
                  446
                  
                  
                  $
                  9,779
                  
                  
                  $
                  10,225Liabilities:Interest
      rate swap contracts
                  
                  $
                  -
                  
                  
                  $
                  10,323
                  
                  
                  $
                  -
                  
                  
                  $
                  10,323




- 14
-





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





The
following table presents the changes in the carrying value of the Company’s
assets measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) for the nine months ended March 31,
2010:


Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)AuctionRateSecurities(In thousands)Balance
      at June 30, 2009
                  
                  $
                  17,677Redeemed
      by the issuer
                  
                  
                  (8,900
                  )Total
      unrealized gain (loss) in accumulated other comprehensive income
      (loss)
                  
                  
                  1,002Balance
      at March 31, 2010
                  
                  $
                  9,779





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 2037 through 2041, 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 March 31, 2010 we have a $1.3 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 March 31, 2010 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.





During
the nine months ended March 31, 2010 $8.9 million of our auction rate securities
were redeemed by the issuer at an average of 96.4% of par. The resulting
$320,000 realized loss was recorded in the statement of operations for the three
and nine months ended March 31, 2010.


- 15
-





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





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





9.
            Long
      Term Debt and Credit Agreements





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





March 31, 2010Carrying
                        
                        
                        EstimatedAmount
                        
                        
                        FairValue(In
      thousands)Senior
      secured B-1 term loan
                        
                        $
                        389,944
                        
                        
                        $
                        370,446Senior
      secured B-2 term loan
                        
                        
                        121,857
                        
                        
                        
                        114,546Senior
      unsecured notes
                        
                        
                        225,000
                        
                        
                        
                        236,250Senior
      subordinated unsecured term loan
                        
                        
                        160,827
                        
                        
                        
                        140,724Other
                        
                        
                        1,085
                        
                        
                        
                        1,085Total
      debt
                        
                        $
                        898,713
                        
                        
                        $
                        863,051





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
March 31, 2010, we are in compliance with all of the covenants contained in our
loan agreements.





Interest
paid was $52.8 million and $44.1 million for the nine months ended March 31,
2010 and 2009, respectively. Accrued interest of $7.2 million and $14.0 million
was included in accrued expenses and other current liabilities at March 31, 2010
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 nine months ended March 31,
2010.  This loss is not deductible for income tax
purposes.


- 16
-




11.
            Comprehensive
      Income




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





Three Months
                    
                    
                    Three Months
                    
                    
                    Nine Months
                    
                    
                    Nine MonthsEnded
                    
                    
                    Ended
                    
                    
                    Ended
                    
                    
                    EndedMarch 31,
                    
                    
                    March 31,
                    
                    
                    March 31,
                    
                    
                    March 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(In
      thousands)Net
      income (loss)
                    
                    $
                    2,856
                    
                    
                    $
                    (13,734
                    )
                    
                    $
                    (28,301
                    )
                    
                    $
                    (24,738
                    )Increase
      (decrease) in fair value of interest rate swap contracts, net of tax
      provision (benefit) of $927, $282, $2,013 and $(7,280)
                    
                    
                    1,460
                    
                    
                    
                    479
                    
                    
                    
                    3,285
                    
                    
                    
                    (12,396
                    )Valuation
      allowance against non-current marketable securities
                    
                    
                    780
                    
                    
                    
                    (219
                    )
                    
                    
                    1,002
                    
                    
                    
                    (2,422
                    )Foreign
      currency translation adjustment, net of tax benefit of $1,033, $0, $416
      and $0
                    
                    
                    (7,890
                    )
                    
                    
                    (4,467
                    )
                    
                    
                    (1,877
                    )
                    
                    
                    (60,447
                    )Total
      comprehensive income (loss)
                    
                    $
                    (2,794
                    )
                    
                    $
                    (17,941
                    )
                    
                    $
                    (25,891
                    )
                    
                    $
                    (100,003
                    )





Accumulated
other comprehensive income (loss) was 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
                  )Nine
      months' activity
                  
                  
                  3,285
                  
                  
                  
                  1,002
                  
                  
                  
                  -
                  
                  
                  
                  (1,877
                  )
                  
                  
                  2,410Balance,
      March 31, 2010
                  
                  $
                  (6,317
                  )
                  
                  $
                  (1,266
                  )
                  
                  $
                  (499
                  )
                  
                  $
                  (44,208
                  )
                  
                  $
                  (52,290
                  )





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 March 31, 2010, 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, which we refer to as 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.  We recorded a liability for the estimated remediation
costs related to adverse environmental conditions that existed at the VMC
premises when it was sold. The accrued environmental liability at March 31, 2010
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,
or   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 and identifying certain
unauthorized exports from the United States to end-users in a number of
countries, including China and Russia. 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 the 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, or 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 of the Commodity
Jurisdiction request 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 the 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 and exported without a
license.  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 have
also identified other ITAR noncompliance in our past business activities as well
as in the pre-acquisition business activities of a recently acquired company.
These include the inadvertent export of products without a required license and
the disclosure of controlled technology to certain foreign national employees.
These matters were formally disclosed to the U.S. Department of State in 2009
and 2010.
 
 Compliance
with the directives of the U.S. Department of State may result in substantial
legal and other expenses and the diversion of management time. In the event that
a determination is made that we or any entity we have acquired has violated ITAR
with respect to any matters, we may be subject to substantial monetary penalties
that we are unable to quantify at this time, and/or suspension or revocation of
its export privileges and criminal sanctions, which may adversely affect our
business, results of operations and financial condition.


- 18
-


On
October 14, 2009, BAE Systems Information and Electronic Systems, or BAE,
commenced an action against both us and one of our subsidiaries in the United
States District Court for the District of Delaware.  BAE 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, known as the “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 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 business,
results of operations, financial position, liquidity or capital
resources.





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





13.
            Business
      Segments





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





Microelectronic
Solutions





·
            Hi-Rel
      microelectronics/semiconductors


·
            RF
      and microwave components


·
            Mixed-signal/digital
      ASICs


·
            Motion
      control products





Test
Solutions





·
            Wireless
      test equipment


·
            Military
      and Private Mobile Radio, or PMR, test
equipment


·
            Avionics
      test equipment


·
            Synthetic
      test equipment


·
            General
      purpose test equipment and other





We are a
manufacturer of advanced technology systems and components for commercial
industry, government and defense contractors.  Approximately 32% and
34% of our sales for the three months ended March 31, 2010 and 2009, and 33% and
35% of our sales for the nine months ended March 31, 2010 and 2009,
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 $33.6 million and $32.2 million for the three months
ended March 31, 2010 and 2009 and $89.5 million and $100.0 million for the nine
months ended March 31, 2010 and 2009, respectively.  Total assets of
the U.K. operations were $163.1 million as of March 31, 2010 and $188.2 million
as of June 30, 2009.


- 19
-




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





Three Months
                  
                  
                  Three Months
                  
                  
                  Nine Months
                  
                  
                  Nine MonthsEnded
                  
                  
                  Ended
                  
                  
                  Ended
                  
                  
                  EndedMarch 31,
                  
                  
                  March 31,
                  
                  
                  March 31,
                  
                  
                  March 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(In
      thousands)United
      States of America
                  
                  $
                  94,700
                  
                  
                  $
                  79,397
                  
                  
                  $
                  267,089
                  
                  
                  $
                  251,454Europe
      and Middle East
                  
                  
                  40,975
                  
                  
                  
                  43,583
                  
                  
                  
                  103,684
                  
                  
                  
                  103,481Asia
      and Australia
                  
                  
                  29,550
                  
                  
                  
                  14,201
                  
                  
                  
                  85,655
                  
                  
                  
                  75,263Other
      regions
                  
                  
                  3,210
                  
                  
                  
                  2,258
                  
                  
                  
                  8,862
                  
                  
                  
                  6,901$
                  168,435
                  
                  
                  $
                  139,439
                  
                  
                  $
                  465,290
                  
                  
                  $
                  437,099




- 20
-




Selected
financial data by segment was as follows:





Three Months
                  
                  
                  Three Months
                  
                  
                  Nine Months
                  
                  
                  Nine MonthsEnded
                  
                  
                  Ended
                  
                  
                  Ended
                  
                  
                  EndedMarch
      31,
                  
                  
                  March
      31,
                  
                  
                  March
      31,
                  
                  
                  March
      31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(In
      thousands)Net
      sales:Microelectronic
      solutions ("AMS")
                  
                  $
                  83,418
                  
                  
                  $
                  70,232
                  
                  
                  $
                  229,939
                  
                  
                  $
                  208,564Test
      solutions ("ATS")
                  
                  
                  85,017
                  
                  
                  
                  69,207
                  
                  
                  
                  235,351
                  
                  
                  
                  228,535Net
      sales
                  
                  $
                  168,435
                  
                  
                  $
                  139,439
                  
                  
                  $
                  465,290
                  
                  
                  $
                  437,099Segment
      adjusted operating income:-
      AMS
                  
                  $
                  23,029
                  
                  
                  $
                  14,783
                  
                  
                  $
                  59,940
                  
                  
                  $
                  44,767-
      ATS
                  
                  
                  19,005
                  
                  
                  
                  8,700
                  
                  
                  
                  47,156
                  
                  
                  
                  34,304-
      General corporate expense
                  
                  
                  (2,189
                  )
                  
                  
                  (2,854
                  )
                  
                  
                  (7,378
                  )
                  
                  
                  (9,421
                  )Adjusted
      operating income
                  
                  
                  39,845
                  
                  
                  
                  20,629
                  
                  
                  
                  99,718
                  
                  
                  
                  69,650Amortization
      of acquired intangibles-
      AMS
                  
                  
                  (8,733
                  )
                  
                  
                  (8,829
                  )
                  
                  
                  (26,312
                  )
                  
                  
                  (27,968
                  )-
      ATS
                  
                  
                  (6,675
                  )
                  
                  
                  (6,127
                  )
                  
                  
                  (20,215
                  )
                  
                  
                  (19,578
                  )Share-based
      compensation-
      Corporate
                  
                  
                  (518
                  )
                  
                  
                  (489
                  )
                  
                  
                  (1,563
                  )
                  
                  
                  (1,466
                  )Restructuring
      charges-
      ATS
                  
                  
                  (105
                  )
                  
                  
                  (582
                  )
                  
                  
                  (356
                  )
                  
                  
                  (2,792
                  )Merger
      related expenses - Corporate
                  
                  
                  (647
                  )
                  
                  
                  (815
                  )
                  
                  
                  (2,111
                  )
                  
                  
                  (3,621
                  )Acquired
      in-process R&D costs-
      AMS
                  
                  
                  -
                  
                  
                  
                  (1,665
                  )
                  
                  
                  -
                  
                  
                  
                  (1,665
                  )-
      ATS
                  
                  
                  -
                  
                  
                  
                  (626
                  )
                  
                  
                  -
                  
                  
                  
                  (626
                  )Loss
      on liquidation of foreign subsidiary - ATS
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,696
                  )
                  
                  
                  -Current
      period impact of acquisition related adjustments:Inventory
      – AMS
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (246
                  )
                  
                  
                  -Depreciation
      - AMS
                  
                  
                  (251
                  )
                  
                  
                  (285
                  )
                  
                  
                  (791
                  )
                  
                  
                  (857
                  )Depreciation
      – ATS
                  
                  
                  (172
                  )
                  
                  
                  (629
                  )
                  
                  
                  (989
                  )
                  
                  
                  (2,043
                  )Depreciation
      - Corporate
                  
                  
                  (55
                  )
                  
                  
                  (55
                  )
                  
                  
                  (165
                  )
                  
                  
                  (165
                  )Deferred
      revenue - ATS
                  
                  
                  (31
                  )
                  
                  
                  (64
                  )
                  
                  
                  (96
                  )
                  
                  
                  (240
                  )Operating
      income (GAAP)
                  
                  
                  22,658
                  
                  
                  
                  463
                  
                  
                  
                  39,178
                  
                  
                  
                  8,629Interest
      expense
                  
                  
                  (20,815
                  )
                  
                  
                  (20,566
                  )
                  
                  
                  (63,272
                  )
                  
                  
                  (63,031
                  )Other
      income (expense), net
                  
                  
                  222
                  
                  
                  
                  (47
                  )
                  
                  
                  701
                  
                  
                  
                  12,366Income
      (loss) before income taxes
                  
                  $
                  2,065
                  
                  
                  $
                  (20,150
                  )
                  
                  $
                  (23,393
                  )
                  
                  $
                  (42,036
                  )





Management
evaluates the operating results of the two segments based upon adjusted
operating income, which is pre-tax operating income, before costs related to
amortization of acquired intangibles, share-based compensation, restructuring
charges, merger related expenses, acquired in-process research and development
costs, loss on liquidation of foreign subsidiary and the impact of any
acquisition related adjustments.  We have set out above our adjusted
operating income (loss) by segment and in the aggregate, and have provided a
reconciliation of operating income (loss) to adjusted operating income (loss)
for the periods presented.





- 21
-





14.
            Guarantor/Non-Guarantor
      Financial Information





The
following supplemental condensed consolidating financial information sets forth,
on an unconsolidated basis, the balance sheets at March 31, 2010 and June 30,
2009, the statements of operations for the three and nine months ended March 31,
2010 and 2009 and the statements of cash flows for the nine months ended March
31, 2010 and 2009 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).





Each of
the subsidiary guarantors is 100% owned by the Parent Company and guarantees the
debt on an unconditional and joint and several basis.  The Parent
Company, as the registrant and issuer of the registered debt, files annual and
quarterly financial statements with the Securities and Exchange Commission and
includes, in a note to the financial statements, condensed consolidating
financial information as described above.





Condensed
Consolidating Statement of Operations


For
the Three Months Ended March 31, 2010


(In
thousands)





Guarantor
                      
                      
                      Non-GuarantorParent
                      
                      
                      Subsidiaries
                      
                      
                      Subsidiaries
                      
                      
                      Eliminations
                      
                      
                      ConsolidatedNet
      sales
                      
                      $
                      -
                      
                      
                      $
                      115,931
                      
                      
                      $
                      54,171
                      
                      
                      $
                      (1,667
                      )
                      
                      $
                      168,435Cost
      of sales
                      
                      
                      -
                      
                      
                      
                      59,178
                      
                      
                      
                      20,776
                      
                      
                      
                      (1,816
                      )
                      
                      
                      78,138Gross
      profit
                      
                      
                      -
                      
                      
                      
                      56,753
                      
                      
                      
                      33,395
                      
                      
                      
                      149
                      
                      
                      
                      90,297Selling,
      general and administrative costs
                      
                      
                      3,409
                      
                      
                      
                      19,247
                      
                      
                      
                      8,721
                      
                      
                      
                      -
                      
                      
                      
                      31,377Research
      and development costs
                      
                      
                      -
                      
                      
                      
                      14,023
                      
                      
                      
                      6,831
                      
                      
                      
                      -
                      
                      
                      
                      20,854Amortization
      of acquired intangibles
                      
                      
                      -
                      
                      
                      
                      13,250
                      
                      
                      
                      2,158
                      
                      
                      
                      -
                      
                      
                      
                      15,408Operating
      income (loss)
                      
                      
                      (3,409
                      )
                      
                      
                      10,233
                      
                      
                      
                      15,685
                      
                      
                      
                      149
                      
                      
                      
                      22,658Other
      income (expense):Interest
      expense
                      
                      
                      (20,797
                      )
                      
                      
                      (17
                      )
                      
                      
                      (1
                      )
                      
                      
                      -
                      
                      
                      
                      (20,815
                      )Other
      income (expense), net
                      
                      
                      138
                      
                      
                      
                      213
                      
                      
                      
                      (129
                      )
                      
                      
                      -
                      
                      
                      
                      222Intercompany
      charges
                      
                      
                      19,808
                      
                      
                      
                      (19,317
                      )
                      
                      
                      (491
                      )
                      
                      
                      -
                      
                      
                      
                      -Income
      (loss) before income taxes
                      
                      
                      (4,260
                      )
                      
                      
                      (8,888
                      )
                      
                      
                      15,064
                      
                      
                      
                      149
                      
                      
                      
                      2,065Provision
      (benefit) for income taxes
                      
                      
                      (774
                      )
                      
                      
                      928
                      
                      
                      
                      2,697
                      
                      
                      
                      (3,642
                      )
                      
                      
                      (791
                      )Equity
      income (loss) of subsidiaries
                      
                      
                      6,342
                      
                      
                      
                      12,049
                      
                      
                      
                      -
                      
                      
                      
                      (18,391
                      )
                      
                      
                      -Net
      income (loss)
                      
                      $
                      2,856
                      
                      
                      $
                      2,233
                      
                      
                      $
                      12,367
                      
                      
                      $
                      (14,600
                      )
                      
                      $
                      2,856




- 22
-





Condensed
Consolidating Statement of Operations


For
the Three Months Ended March 31, 2009


(In
thousands)





Guarantor
                  
                  
                  Non-GuarantorParent
                  
                  
                  Subsidiaries
                  
                  
                  Subsidiaries
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedNet
      sales
                  
                  $
                  -
                  
                  
                  $
                  100,972
                  
                  
                  $
                  40,784
                  
                  
                  $
                  (2,317
                  )
                  
                  $
                  139,439Cost
      of sales
                  
                  
                  -
                  
                  
                  
                  52,418
                  
                  
                  
                  22,170
                  
                  
                  
                  (1,754
                  )
                  
                  
                  72,834Gross
      profit
                  
                  
                  -
                  
                  
                  
                  48,554
                  
                  
                  
                  18,614
                  
                  
                  
                  (563
                  )
                  
                  
                  66,605Selling,
      general and administrative costs
                  
                  
                  4,214
                  
                  
                  
                  18,790
                  
                  
                  
                  7,950
                  
                  
                  
                  -
                  
                  
                  
                  30,954Research
      and development costs
                  
                  
                  -
                  
                  
                  
                  11,980
                  
                  
                  
                  5,961
                  
                  
                  
                  -
                  
                  
                  
                  17,941Amortization
      of acquired intangibles
                  
                  
                  -
                  
                  
                  
                  12,706
                  
                  
                  
                  2,250
                  
                  
                  
                  -
                  
                  
                  
                  14,956Acquired
      in-process R&D costs
                  
                  
                  -
                  
                  
                  
                  626
                  
                  
                  
                  1,665
                  
                  
                  
                  -
                  
                  
                  
                  2,291Operating
      income (loss)
                  
                  
                  (4,214
                  )
                  
                  
                  4,452
                  
                  
                  
                  788
                  
                  
                  
                  (563
                  )
                  
                  
                  463Other
      income (expense):Interest
      expense
                  
                  
                  (20,542
                  )
                  
                  
                  (23
                  )
                  
                  
                  (1
                  )
                  
                  
                  -
                  
                  
                  
                  (20,566
                  )Other
      income (expense), net
                  
                  
                  711
                  
                  
                  
                  180
                  
                  
                  
                  (938
                  )
                  
                  
                  -
                  
                  
                  
                  (47
                  )Intercompany
      charges
                  
                  
                  18,433
                  
                  
                  
                  (18,115
                  )
                  
                  
                  (318
                  )
                  
                  
                  -
                  
                  
                  
                  -Income
      (loss) before income taxes
                  
                  
                  (5,612
                  )
                  
                  
                  (13,506
                  )
                  
                  
                  (469
                  )
                  
                  
                  (563
                  )
                  
                  
                  (20,150
                  )Provision
      (benefit) for income taxes
                  
                  
                  (2,805
                  )
                  
                  
                  (7,207
                  )
                  
                  
                  3,436
                  
                  
                  
                  160
                  
                  
                  
                  (6,416
                  )Equity
      income (loss) of subsidiaries
                  
                  
                  (10,927
                  )
                  
                  
                  (3,439
                  )
                  
                  
                  -
                  
                  
                  
                  14,366
                  
                  
                  
                  -Net
      income (loss)
                  
                  $
                  (13,734
                  )
                  
                  $
                  (9,738
                  )
                  
                  $
                  (3,905
                  )
                  
                  $
                  13,643
                  
                  
                  $
                  (13,734
                  )




- 23
-




Condensed
Consolidating Statement of Operations


For
the Nine Months Ended March 31, 2010


(In
thousands)





Guarantor
                
                
                Non-GuarantorParent
                
                
                Subsidiaries
                
                
                Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      sales
                
                $
                -
                
                
                $
                333,946
                
                
                $
                135,530
                
                
                $
                (4,186
                )
                
                $
                465,290Cost
      of sales
                
                
                -
                
                
                
                170,892
                
                
                
                56,743
                
                
                
                (4,230
                )
                
                
                223,405Gross
      profit
                
                
                -
                
                
                
                163,054
                
                
                
                78,787
                
                
                
                44
                
                
                
                241,885Selling,
      general and administrative costs
                
                
                11,217
                
                
                
                56,403
                
                
                
                25,568
                
                
                
                -
                
                
                
                93,188Research
      and development costs
                
                
                -
                
                
                
                36,169
                
                
                
                19,127
                
                
                
                -
                
                
                
                55,296Amortization
      of acquired intangibles
                
                
                -
                
                
                
                39,909
                
                
                
                6,618
                
                
                
                -
                
                
                
                46,527Loss
      on liquidation of foreign subsidiary
                
                
                -
                
                
                
                7,696
                
                
                
                -
                
                
                
                -
                
                
                
                7,696Operating
      income (loss)
                
                
                (11,217
                )
                
                
                22,877
                
                
                
                27,474
                
                
                
                44
                
                
                
                39,178Other
      income (expense):Interest
      expense
                
                
                (63,218
                )
                
                
                (51
                )
                
                
                (3
                )
                
                
                -
                
                
                
                (63,272
                )Other
      income (expense), net
                
                
                479
                
                
                
                587
                
                
                
                (365
                )
                
                
                -
                
                
                
                701Intercompany
      charges
                
                
                59,399
                
                
                
                (57,953
                )
                
                
                (1,446
                )
                
                
                -
                
                
                
                -Income
      (loss) before income taxes
                
                
                (14,557
                )
                
                
                (34,540
                )
                
                
                25,660
                
                
                
                44
                
                
                
                (23,393
                )Provision
      (benefit) for income taxes
                
                
                (5,573
                )
                
                
                436
                
                
                
                4,962
                
                
                
                5,083
                
                
                
                4,908Equity
      income (loss) of subsidiaries
                
                
                (19,317
                )
                
                
                19,683
                
                
                
                -
                
                
                
                (366
                )
                
                
                -Net
      income (loss)
                
                $
                (28,301
                )
                
                $
                (15,293
                )
                
                $
                20,698
                
                
                $
                (5,405
                )
                
                $
                (28,301
                )




- 24
-


Condensed
Consolidating Statement of Operations
 For
the Nine Months Ended March 31, 2009
 (In
thousands)
 
 Guarantor
                    
                    
                    Non-GuarantorParent
                    
                    
                    Subsidiaries
                    
                    
                    Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedNet
      sales
                    
                    $
                    -
                    
                    
                    $
                    308,770
                    
                    
                    $
                    133,443
                    
                    
                    $
                    (5,114
                    )
                    
                    $
                    437,099Cost
      of sales
                    
                    
                    -
                    
                    
                    
                    161,170
                    
                    
                    
                    73,410
                    
                    
                    
                    (4,604
                    )
                    
                    
                    229,976Gross
      profit
                    
                    
                    -
                    
                    
                    
                    147,600
                    
                    
                    
                    60,033
                    
                    
                    
                    (510
                    )
                    
                    
                    207,123Selling,
      general and administrative costs
                    
                    
                    14,673
                    
                    
                    
                    55,120
                    
                    
                    
                    26,819
                    
                    
                    
                    -
                    
                    
                    
                    96,612Research
      and development costs
                    
                    
                    -
                    
                    
                    
                    34,422
                    
                    
                    
                    17,623
                    
                    
                    
                    -
                    
                    
                    
                    52,045Amortization
      of acquired intangibles
                    
                    
                    -
                    
                    
                    
                    40,582
                    
                    
                    
                    6,964
                    
                    
                    
                    -
                    
                    
                    
                    47,546Acquired
      in-process R&D costs
                    
                    
                    -
                    
                    
                    
                    626
                    
                    
                    
                    1,665
                    
                    
                    
                    -
                    
                    
                    
                    2,291Operating
      income (loss)
                    
                    
                    (14,673
                    )
                    
                    
                    16,850
                    
                    
                    
                    6,962
                    
                    
                    
                    (510
                    )
                    
                    
                    8,629Other
      income (expense):Interest
      expense
                    
                    
                    (62,952
                    )
                    
                    
                    (68
                    )
                    
                    
                    (11
                    )
                    
                    
                    -
                    
                    
                    
                    (63,031
                    )Other
      income (expense), net
                    
                    
                    49
                    
                    
                    
                    545
                    
                    
                    
                    11,772
                    
                    
                    
                    -
                    
                    
                    
                    12,366Intercompany
      charges
                    
                    
                    55,345
                    
                    
                    
                    (54,341
                    )
                    
                    
                    (1,004
                    )
                    
                    
                    -
                    
                    
                    
                    -Income
      (loss) before income taxes
                    
                    
                    (22,231
                    )
                    
                    
                    (37,014
                    )
                    
                    
                    17,719
                    
                    
                    
                    (510
                    )
                    
                    
                    (42,036
                    )Provision
      (benefit) for income taxes
                    
                    
                    (8,239
                    )
                    
                    
                    (15,268
                    )
                    
                    
                    6,139
                    
                    
                    
                    70
                    
                    
                    
                    (17,298
                    )Equity
      income (loss) of subsidiaries
                    
                    
                    (10,746
                    )
                    
                    
                    12,452
                    
                    
                    
                    -
                    
                    
                    
                    (1,706
                    )
                    
                    
                    -Net
      income (loss)
                    
                    $
                    (24,738
                    )
                    
                    $
                    (9,294
                    )
                    
                    $
                    11,580
                    
                    
                    $
                    (2,286
                    )
                    
                    $
                    (24,738
                    )
  - 25
-
 
 Condensed
Consolidating Balance Sheet
 As
of March 31, 2010
 (In
thousands)
 
 Guarantor
                      
                      
                      Non-GuarantorParent
                      
                      
                      Subsidiaries
                      
                      
                      Subsidiaries
                      
                      
                      Eliminations
                      
                      
                      ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      69,723
                      
                      
                      $
                      (190
                      )
                      
                      $
                      26,815
                      
                      
                      $
                      -
                      
                      
                      $
                      96,348Accounts
      receivable, net
                      
                      
                      -
                      
                      
                      
                      72,673
                      
                      
                      
                      44,035
                      
                      
                      
                      -
                      
                      
                      
                      116,708Inventories
                      
                      
                      -
                      
                      
                      
                      100,744
                      
                      
                      
                      28,550
                      
                      
                      
                      (853
                      )
                      
                      
                      128,441Deferred
      income taxes
                      
                      
                      7,460
                      
                      
                      
                      25,718
                      
                      
                      
                      5,591
                      
                      
                      
                      -
                      
                      
                      
                      38,769Prepaid
      expenses and other current assets
                      
                      
                      2,828
                      
                      
                      
                      3,672
                      
                      
                      
                      3,318
                      
                      
                      
                      -
                      
                      
                      
                      9,818Total
      current assets
                      
                      
                      80,011
                      
                      
                      
                      202,617
                      
                      
                      
                      108,309
                      
                      
                      
                      (853
                      )
                      
                      
                      390,084Property,
      plant and equipment, net
                      
                      
                      12,379
                      
                      
                      
                      65,749
                      
                      
                      
                      18,780
                      
                      
                      
                      -
                      
                      
                      
                      96,908Non-current
      marketable securities, net
                      
                      
                      9,779
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,779Deferred
      financing costs, net
                      
                      
                      22,176
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      22,176Other
      assets
                      
                      
                      13,270
                      
                      
                      
                      4,325
                      
                      
                      
                      285
                      
                      
                      
                      -
                      
                      
                      
                      17,880Intangible
      assets with definite lives, net
                      
                      
                      -
                      
                      
                      
                      213,314
                      
                      
                      
                      31,365
                      
                      
                      
                      -
                      
                      
                      
                      244,679Intangible
      assets with indefinite lives
                      
                      
                      -
                      
                      
                      
                      85,404
                      
                      
                      
                      24,887
                      
                      
                      
                      -
                      
                      
                      
                      110,291Goodwill
                      
                      
                      (10
                      )
                      
                      
                      389,422
                      
                      
                      
                      37,472
                      
                      
                      
                      -
                      
                      
                      
                      426,884Total
      assets
                      
                      $
                      137,605
                      
                      
                      $
                      960,831
                      
                      
                      $
                      221,098
                      
                      
                      $
                      (853
                      )
                      
                      $
                      1,318,681Liabilities and Stockholder's
      EquityCurrent
      liabilities:Current
      portion of long-term debt
                      
                      $
                      5,176
                      
                      
                      $
                      340
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      5,516Accounts
      payable
                      
                      
                      67
                      
                      
                      
                      16,006
                      
                      
                      
                      10,630
                      
                      
                      
                      -
                      
                      
                      
                      26,703Advance
      payments by customers and deferred revenue
                      
                      
                      -
                      
                      
                      
                      16,547
                      
                      
                      
                      12,457
                      
                      
                      
                      -
                      
                      
                      
                      29,004Income
      taxes payable
                      
                      
                      (745
                      )
                      
                      
                      (96
                      )
                      
                      
                      7,451
                      
                      
                      
                      -
                      
                      
                      
                      6,610Accrued
      payroll expenses
                      
                      
                      1,620
                      
                      
                      
                      16,317
                      
                      
                      
                      1,553
                      
                      
                      
                      -
                      
                      
                      
                      19,490Accrued
      expenses and other current liabilities
                      
                      
                      24,868
                      
                      
                      
                      9,937
                      
                      
                      
                      11,163
                      
                      
                      
                      -
                      
                      
                      
                      45,968Total
      current liabilities
                      
                      
                      30,986
                      
                      
                      
                      59,051
                      
                      
                      
                      43,254
                      
                      
                      
                      -
                      
                      
                      
                      133,291Long-term
      debt
                      
                      
                      892,452
                      
                      
                      
                      745
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      893,197Deferred
      income taxes
                      
                      
                      (10,969
                      )
                      
                      
                      139,431
                      
                      
                      
                      13,127
                      
                      
                      
                      5,082
                      
                      
                      
                      146,671Defined
      benefit plan obligations
                      
                      
                      5,942
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,942Other
      long-term liabilities
                      
                      
                      980
                      
                      
                      
                      1,321
                      
                      
                      
                      1,632
                      
                      
                      
                      -
                      
                      
                      
                      3,933Intercompany
      investment
                      
                      
                      (268,850
                      )
                      
                      
                      46,154
                      
                      
                      
                      222,696
                      
                      
                      
                      -
                      
                      
                      
                      -Intercompany
      receivable/payable
                      
                      
                      (834,765
                      )
                      
                      
                      871,089
                      
                      
                      
                      (35,840
                      )
                      
                      
                      (484
                      )
                      
                      
                      -Total
      liabilities
                      
                      
                      (184,224
                      )
                      
                      
                      1,117,791
                      
                      
                      
                      244,869
                      
                      
                      
                      4,598
                      
                      
                      
                      1,183,034Stockholder's
      equity
                      
                      
                      321,829
                      
                      
                      
                      (156,960
                      )
                      
                      
                      (23,771
                      )
                      
                      
                      (5,451
                      )
                      
                      
                      135,647Total
      liabilities and stockholder's equity
                      
                      $
                      137,605
                      
                      
                      $
                      960,831
                      
                      
                      $
                      221,098
                      
                      
                      $
                      (853
                      )
                      
                      $
                      1,318,681
  - 26
-
 
 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
  - 27
-
 
 Condensed
Consolidating Statement of Cash Flows
 For
the Nine Months Ended March 31, 2010
 (In
thousands)
 
 Guarantor
                    
                    
                    Non-GuarantorParent
                    
                    
                    Subsidiaries
                    
                    
                    Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedCash
      flows from operating activities:Net
      income (loss)
                    
                    $
                    (28,301
                    )
                    
                    $
                    (15,293
                    )
                    
                    $
                    20,698
                    
                    
                    $
                    (5,405
                    )
                    
                    $
                    (28,301
                    )Changes
      in operating assets and liabilities and non-cash items included in net
      income (loss)
                    
                    
                    66,418
                    
                    
                    
                    23,792
                    
                    
                    
                    (15,064
                    )
                    
                    
                    5,405
                    
                    
                    
                    80,551Net
      cash provided by (used in) operating activities
                    
                    
                    38,117
                    
                    
                    
                    8,499
                    
                    
                    
                    5,634
                    
                    
                    
                    -
                    
                    
                    
                    52,250Cash
      flows from investing activities:Payment
      for purchase of business
                    
                    
                    (4,000
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (4,000
                    )Capital
      expenditures
                    
                    
                    (171
                    )
                    
                    
                    (9,444
                    )
                    
                    
                    (3,561
                    )
                    
                    
                    -
                    
                    
                    
                    (13,176
                    )Proceeds
      from sale of marketable securities
                    
                    
                    8,580
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,580Proceeds
      from the sale of property, plant and equipment
                    
                    
                    -
                    
                    
                    
                    770
                    
                    
                    
                    251
                    
                    
                    
                    -
                    
                    
                    
                    1,021Other,
      net
                    
                    
                    (12
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (12
                    )Net
      cash provided by (used in) investing activities
                    
                    
                    4,397
                    
                    
                    
                    (8,674
                    )
                    
                    
                    (3,310
                    )
                    
                    
                    -
                    
                    
                    
                    (7,587
                    )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 cash equivalents
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,051
                    )
                    
                    
                    -
                    
                    
                    
                    (2,051
                    )Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    38,502
                    
                    
                    
                    (175
                    )
                    
                    
                    273
                    
                    
                    
                    -
                    
                    
                    
                    38,600Cash
      and cash equivalents at beginning of period
                    
                    
                    31,221
                    
                    
                    
                    (15
                    )
                    
                    
                    26,542
                    
                    
                    
                    -
                    
                    
                    
                    57,748Cash
      and cash equivalents at end of period
                    
                    $
                    69,723
                    
                    
                    $
                    (190
                    )
                    
                    $
                    26,815
                    
                    
                    $
                    -
                    
                    
                    $
                    96,348
  - 28
-
 
 Condensed
Consolidating Statement of Cash Flows
 For
the Nine Months Ended March 31, 2009
 (In
thousands)
 
 Guarantor
                        
                        
                        Non-GuarantorParent
                        
                        
                        Subsidiaries
                        
                        
                        Subsidiaries
                        
                        
                        Eliminations
                        
                        
                        ConsolidatedCash
      flows from operating activities:Net
      income (loss)
                        
                        $
                        (24,738
                        )
                        
                        $
                        (9,294
                        )
                        
                        $
                        11,580
                        
                        
                        $
                        (2,286
                        )
                        
                        $
                        (24,738
                        )Changes
      in operating assets and liabilities and non-cash items included in net
      income (loss)
                        
                        
                        26,373
                        
                        
                        
                        18,186
                        
                        
                        
                        12,886
                        
                        
                        
                        2,286
                        
                        
                        
                        59,731Net
      cash provided by (used in) operating activities
                        
                        
                        1,635
                        
                        
                        
                        8,892
                        
                        
                        
                        24,466
                        
                        
                        
                        -
                        
                        
                        
                        34,993Cash
      flows from investing activities:Payment
      for purchase of businesses, net ofcash
      acquired
                        
                        
                        (7,832
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (7,832
                        )Capital
      expenditures
                        
                        
                        (11
                        )
                        
                        
                        (8,406
                        )
                        
                        
                        (4,541
                        )
                        
                        
                        -
                        
                        
                        
                        (12,958
                        )Proceeds
      from the sale of property, plant and equipment
                        
                        
                        -
                        
                        
                        
                        1,145
                        
                        
                        
                        214
                        
                        
                        
                        -
                        
                        
                        
                        1,359Other,
      net
                        
                        
                        (4
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (4
                        )Net
      cash provided by (used in) investing activities
                        
                        
                        (7,847
                        )
                        
                        
                        (7,261
                        )
                        
                        
                        (4,327
                        )
                        
                        
                        -
                        
                        
                        
                        (19,435
                        )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 and cash equivalents
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (11,307
                        )
                        
                        
                        -
                        
                        
                        
                        (11,307
                        )Net
      increase (decrease) in cash and cash equivalents
                        
                        
                        (10,677
                        )
                        
                        
                        1,627
                        
                        
                        
                        8,832
                        
                        
                        
                        -
                        
                        
                        
                        (218
                        )Cash
      and cash equivalents at beginning of period
                        
                        
                        39,285
                        
                        
                        
                        (2,379
                        )
                        
                        
                        17,243
                        
                        
                        
                        -
                        
                        
                        
                        54,149Cash
      and cash equivalents at end of period
                        
                        $
                        28,608
                        
                        
                        $
                        (752
                        )
                        
                        $
                        26,075
                        
                        
                        $
                        -
                        
                        
                        $
                        53,931
  - 29
-
 
 15.
              Subsequent
      Events
 
 Registration Statement
Filing
 
 On April
6, 2010, our parent company, Aeroflex Holding Corp. (formerly known as AX
Holding Corp.), filed a registration statement with the SEC relating to the
proposed initial public offering of its common stock. The offered shares are
expected to be sold by Aeroflex Holding Corp. and, as selling stockholder, VGG
Holding LLC, the parent company of Aeroflex Holding Corp.
  Acquisition of
Willtek
 
 On May 7,
2010, we acquired certain assets and assumed certain liabilities from Willtek
Communications for $2.8 million, subject to a post closing, downward only,
purchase price adjustment based on net assets.
 
 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 the global economy;
 
 •
              our
      inability to make payments on our significant
  indebtedness;
  •
              our
      dependence on growth in our customers’
  businesses;
  •
              our
      inability to remain competitive in the markets we
  serve;
  •
              our
      inability to continue to develop, manufacture and market innovative,
      customized products and services that meet customer requirements for
      performance and reliability;
  •
              any
      failure of our suppliers to provide us with raw materials and/or properly
      functioning component parts;
  •
              termination
      of our key contracts, including technology license agreements, or loss of
      our key customers;
  •
              our
      inability to protect our intellectual
property;
  - 30
-
  •
              our
      failure to comply with regulations such as ITAR and any changes in
      regulations;
  •
              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;
  •
              our
      exposure to foreign currency exchange rate
  risks;
  •
              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.
 
 Given
these risks and uncertainties, you are cautioned not to place undue reliance on
such forward-looking statements. The forward-looking statements included in this
Form 10-Q are made only as of the date hereof. We undertake no obligation to
update or revise any forward-looking statements, either to reflect new
developments, or for any other reason, except as required by law.
 
 Overview
 
 We are a
leading global provider of RF and microwave integrated circuits, components and
systems used in the design, development and maintenance of technically
demanding, high-performance wireless communication systems. Our solutions
include highly specialized microelectronic components and test and measurement
equipment used by companies in the space, avionics, defense, commercial wireless
communications, medical and other markets. We have targeted customers in these
end markets because we believe our solutions address their technically demanding
requirements. We were founded in 1937 and have proprietary technology that is
based on extensive know-how and a long history of research and development
focused on specialized technologies, often in collaboration with our
customers.
  - 31
-
 
 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
                      
                      
                      Nine Months
                      
                      
                      Nine MonthsEnded
                      
                      
                      Ended
                      
                      
                      Ended
                      
                      
                      EndedMarch 31, 2010
                      
                      
                      March 31, 2009
                      
                      
                      March 31, 2010
                      
                      
                      March 31, 2009Net
      sales
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %Costs
      of sales
                      
                      
                      46.4
                      
                      
                      
                      52.2
                      
                      
                      
                      48.0
                      
                      
                      
                      52.6Gross
      profit
                      
                      
                      53.6
                      
                      
                      
                      47.8
                      
                      
                      
                      52.0
                      
                      
                      
                      47.4Operating
      expenses:Selling,
      general and administrative costs
                      
                      
                      18.6
                      
                      
                      
                      22.2
                      
                      
                      
                      20.0
                      
                      
                      
                      22.1Research
      and development costs
                      
                      
                      12.4
                      
                      
                      
                      12.9
                      
                      
                      
                      11.9
                      
                      
                      
                      11.9Amortization
      of acquired intangibles
                      
                      
                      9.1
                      
                      
                      
                      10.7
                      
                      
                      
                      10.0
                      
                      
                      
                      10.9Acquired
      in-process research and development costs
                      
                      
                      -
                      
                      
                      
                      1.7
                      
                      
                      
                      -
                      
                      
                      
                      0.5Loss
      on liquidation of foreign subsidiary
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1.7
                      
                      
                      
                      -Total
      operating expenses
                      
                      
                      40.1
                      
                      
                      
                      47.5
                      
                      
                      
                      43.6
                      
                      
                      
                      45.4Operating
      income
                      
                      
                      13.5
                      
                      
                      
                      0.3
                      
                      
                      
                      8.4
                      
                      
                      
                      2.0Interest
      expense
                      
                      
                      (12.4
                      )
                      
                      
                      (14.8
                      )
                      
                      
                      (13.6
                      )
                      
                      
                      (14.4
                      )Other
      income (expense), net
                      
                      
                      0.1
                      
                      
                      
                      -
                      
                      
                      
                      0.2
                      
                      
                      
                      2.8Income
      (loss) before income taxes
                      
                      
                      1.2
                      
                      
                      
                      (14.5
                      )
                      
                      
                      (5.0
                      )
                      
                      
                      (9.6
                      )Provision
      (benefit) for income taxes
                      
                      
                      (0.5
                      )
                      
                      
                      (4.6
                      )
                      
                      
                      1.1
                      
                      
                      
                      (3.9
                      )Net
      income (loss)
                      
                      
                      1.7
                      %
                      
                      
                      (9.9
                      )
      %
                      
                      
                      (6.1
                      )
      %
                      
                      
                      (5.7
                      )
      %
  - 32
-
 
 Statements
of Operations
 
 Management
evaluates the operating results of our two segments based upon adjusted
operating income, which is pre-tax operating income, before costs related to
amortization of acquired intangibles, share-based compensation, restructuring
charges, merger related expenses, acquired in-process research and development
costs, loss on liquidation of foreign subsidiary and the impact of any
acquisition related adjustments. We have set out below our adjusted operating
income (loss) by segment and in the aggregate, and have provided a
reconciliation of operating income (loss) to adjusted operating income (loss)
for the periods presented.
 
 Three Months
                    
                    
                    Three Months
                    
                    
                    Nine Months
                    
                    
                    Nine MonthsEnded
                    
                    
                    Ended
                    
                    
                    Ended
                    
                    
                    EndedMarch 31,
                    
                    
                    March 31,
                    
                    
                    March 31,
                    
                    
                    March 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009(In
      thousands)Net
      sales:Microelectronic
      solutions ("AMS")
                    
                    $
                    83,418
                    
                    
                    $
                    70,232
                    
                    
                    $
                    229,939
                    
                    
                    $
                    208,564Test
      solutions ("ATS")
                    
                    
                    85,017
                    
                    
                    
                    69,207
                    
                    
                    
                    235,351
                    
                    
                    
                    228,535Net
      sales
                    
                    $
                    168,435
                    
                    
                    $
                    139,439
                    
                    
                    $
                    465,290
                    
                    
                    $
                    437,099Segment
      adjusted operating income:-
      AMS
                    
                    $
                    23,029
                    
                    
                    $
                    14,783
                    
                    
                    $
                    59,940
                    
                    
                    $
                    44,767-
      ATS
                    
                    
                    19,005
                    
                    
                    
                    8,700
                    
                    
                    
                    47,156
                    
                    
                    
                    34,304-
      General corporate expense
                    
                    
                    (2,189
                    )
                    
                    
                    (2,854
                    )
                    
                    
                    (7,378
                    )
                    
                    
                    (9,421
                    )Adjusted
      operating income
                    
                    
                    39,845
                    
                    
                    
                    20,629
                    
                    
                    
                    99,718
                    
                    
                    
                    69,650Amortization
      of acquired intangibles-
      AMS
                    
                    
                    (8,733
                    )
                    
                    
                    (8,829
                    )
                    
                    
                    (26,312
                    )
                    
                    
                    (27,968
                    )-
      ATS
                    
                    
                    (6,675
                    )
                    
                    
                    (6,127
                    )
                    
                    
                    (20,215
                    )
                    
                    
                    (19,578
                    )Share-based
      compensation-
      Corporate
                    
                    
                    (518
                    )
                    
                    
                    (489
                    )
                    
                    
                    (1,563
                    )
                    
                    
                    (1,466
                    )Restructuring
      charges-
      ATS
                    
                    
                    (105
                    )
                    
                    
                    (582
                    )
                    
                    
                    (356
                    )
                    
                    
                    (2,792
                    )Merger
      related expenses - Corporate
                    
                    
                    (647
                    )
                    
                    
                    (815
                    )
                    
                    
                    (2,111
                    )
                    
                    
                    (3,621
                    )Acquired
      in-process R&D costs-
      AMS
                    
                    
                    -
                    
                    
                    
                    (1,665
                    )
                    
                    
                    -
                    
                    
                    
                    (1,665
                    )-
      ATS
                    
                    
                    -
                    
                    
                    
                    (626
                    )
                    
                    
                    -
                    
                    
                    
                    (626
                    )Loss
      on liquidation of foreign subsidiary - ATS
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (7,696
                    )
                    
                    
                    -Current
      period impact of acquisition related adjustments:Inventory
      - AMS
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (246
                    )
                    
                    
                    -Depreciation
      - AMS
                    
                    
                    (251
                    )
                    
                    
                    (285
                    )
                    
                    
                    (791
                    )
                    
                    
                    (857
                    )Depreciation
      - ATS
                    
                    
                    (172
                    )
                    
                    
                    (629
                    )
                    
                    
                    (989
                    )
                    
                    
                    (2,043
                    )Depreciation
      - Corporate
                    
                    
                    (55
                    )
                    
                    
                    (55
                    )
                    
                    
                    (165
                    )
                    
                    
                    (165
                    )Deferred
      revenue - ATS
                    
                    
                    (31
                    )
                    
                    
                    (64
                    )
                    
                    
                    (96
                    )
                    
                    
                    (240
                    )Operating
      income (GAAP)
                    
                    
                    22,658
                    
                    
                    
                    463
                    
                    
                    
                    39,178
                    
                    
                    
                    8,629Interest
      expense
                    
                    
                    (20,815
                    )
                    
                    
                    (20,566
                    )
                    
                    
                    (63,272
                    )
                    
                    
                    (63,031
                    )Other
      income (expense), net
                    
                    
                    222
                    
                    
                    
                    (47
                    )
                    
                    
                    701
                    
                    
                    
                    12,366Income
      (loss) before income taxes
                    
                    $
                    2,065
                    
                    
                    $
                    (20,150
                    )
                    
                    $
                    (23,393
                    )
                    
                    $
                    (42,036
                    )
  - 33
-
 
 Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
 
 Net Sales.Net sales
increased 21% to $168.4 million for the three months ended March 31, 2010 from
$139.4 million for the three months ended March 31, 2009.
 
 Net sales
in the AMS segment increased 19% to $83.4 million for the three months ended
March 31, 2010 from $70.2 million for the three months ended March 31, 2009. The
increase in sales was primarily volume driven as a result of a general
strengthening in the marketplace. Specific variances include a $4.7 million
increase in sales of motion control products (of which $2.9 million was from
Airflyte Electronics, acquired in June 2009); a $4.4 million increase in sales
of microelectronic modules; a $2.9 million increase in sales of Integrated
Circuits (“ICs”); and a $1.4 million increase in sales of
components.
  Net sales
in the ATS segment increased 23% to $85.0 million for the three months ended
March 31, 2010 from $69.2 million for the three months ended March 31, 2009. The
increase in sales was primarily due to a volume driven $13.1 million
increase in sales of wireless test products; a volume driven $3.0 million
increase in sales of synthetic test products; and a $2.5 million increase in
sales from VI Technology, acquired in March 2009; partially offset by a volume
driven $1.9 million decrease in sales of avionic products.
 
 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 profit was $90.3 million, or 53.6% of net sales, for
the three months ended March 31, 2010 and $66.6 million, or 47.8% of net sales,
for the three months ended March 31, 2009. Both segments contributed to the
increase in gross profits. The increase in gross margin was mainly due to a
shift in the mix of products and a substantial increase in the gross margins of
the ATS segment, principally attributable to increased sales of wireless
products, which have margins higher than the segment average.
  Gross ProfitThree MonthsEnded
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % ofMarch 31,
                    
                    AMS
                    
                    
                    Net Sales
                    
                    
                    ATS
                    
                    
                    Net Sales
                    
                    
                    Total
                    
                    
                    Net Sales(In thousands, except percentages)2009
                    
                    $
                    33,095
                    
                    
                    
                    47.1
                    %
                    
                    $
                    33,510
                    
                    
                    
                    48.4
                    %
                    
                    $
                    66,605
                    
                    
                    
                    47.8
                    %2010
                    
                    $
                    42,286
                    
                    
                    
                    50.7
                    %
                    
                    $
                    48,011
                    
                    
                    
                    56.5
                    %
                    
                    $
                    90,297
                    
                    
                    
                    53.6
                    %
 
 Gross
margins in the AMS segment were 50.7% for the three months ended March 31, 2010
and 47.1% for the three months ended March 31, 2009. Margins were favorably
impacted by increased sales of microelectronic modules and lCs, which have
margins higher than the segment average. In addition, gross margins improved for
certain component products as a result of increased sales volume, a favorable
sales mix, and cost savings measures.
  Gross
margins in the ATS segment were 56.5% for the three months ended March 31, 2010
and 48.4% for the three months ended March 31, 2009. 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.Selling, general and administrative costs, or SG&A, include
office and management salaries, fringe benefits, commissions, insurance and
professional fees.
  - 34
-
 
 On a
consolidated basis SG&A costs increased $423,000, or 1%, to $31.4 million.
As a percentage of sales, SG&A costs decreased from 22.2% for the three
months ended March 31, 2009 to 18.6% for the three months ended March 31,
2010.
 
 Selling, General and Administrative CostsThree MonthsEnded
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    
                    
                    
                    % ofMarch 31,
                    
                    AMS
                    
                    
                    Net Sales
                    
                    
                    ATS
                    
                    
                    Net Sales
                    
                    
                    Corporate
                    
                    
                    Total
                    
                    
                    Net Sales(In thousands, except percentages)2009
                    
                    $
                    11,019
                    
                    
                    
                    15.7
                    %
                    
                    $
                    15,721
                    
                    
                    
                    22.7
                    %
                    
                    $
                    4,214
                    
                    
                    $
                    30,954
                    
                    
                    
                    22.2
                    %2010
                    
                    $
                    10,799
                    
                    
                    
                    12.9
                    %
                    
                    $
                    17,169
                    
                    
                    
                    20.2
                    %
                    
                    $
                    3,409
                    
                    
                    $
                    31,377
                    
                    
                    
                    18.6
                    %
 
 In the
AMS segment, SG&A costs decreased $220,000, or 2%, to $10.8 million for the
three months ended March 31, 2010. As a percentage of sales, SG&A costs in
the AMS segment decreased from 15.7% for the three months ended March 31, 2009
to 12.9% for the three months ended March 31, 2010. The components group reduced
SG&A costs by $679,000, primarily due to cost savings initiatives. These
savings in the AMS segment were partially offset by additional costs of $405,000
related to Airflyte Electronics, acquired in June 2009.
 
 In the
ATS segment, SG&A costs increased $1.4 million, or 9%, to $17.2 million for
the three months ended March 31, 2010. As a percentage of sales, SG&A costs
in the ATS segment decreased from 22.7% for the three months ended March 31,
2009 to 20.2% for the three months ended March 31, 2010. The decrease in
SG&A, as a percentage of sales, was primarily the result of our ability to
control costs while sales increased.
 
 Corporate
general and administrative expenses decreased $805,000, primarily due to
reductions in merger related expenses, employee related expenses and
professional fees.
 
 Research and Development Costs.Research and development costs include materials, engineering labor and
allocated overhead.
 
 On a
consolidated basis, research and development costs increased $2.9 million. As a
percentage of sales, research and development costs decreased from 12.9% for the
three months ended March 31, 2009 to 12.4% for the three months ended March 31,
2010.
 
 Research and Development CostsThree MonthsEnded
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % ofMarch 31,
                    
                    AMS
                    
                    
                    Net Sales
                    
                    
                    ATS
                    
                    
                    Net Sales
                    
                    
                    Total
                    
                    
                    Net Sales(In thousands, except percentages)2009
                    
                    $
                    7,579
                    
                    
                    
                    10.8
                    %
                    
                    $
                    10,362
                    
                    
                    
                    15.0
                    %
                    
                    $
                    17,941
                    
                    
                    
                    12.9
                    %2010
                    
                    $
                    8,709
                    
                    
                    
                    10.4
                    %
                    
                    $
                    12,145
                    
                    
                    
                    14.3
                    %
                    
                    $
                    20,854
                    
                    
                    
                    12.4
                    %
 
 AMS
segment self-funded research and development costs increased $1.1 million, or
15%, to $8.7 million for the three months ended March 31, 2010, primarily due to
increased spending on microelectronic modules. As a percentage of sales, AMS
segment research and development costs decreased from 10.8% to
10.4%.
 
 ATS
segment self-funded research and development costs increased $1.8 million, or
17%, to $12.1 million for the three months ended March 31, 2010, primarily due
to the development of products within our radio test division and wireless
products. As a percentage of sales, ATS research and development costs decreased
from 15.0% to 14.3%.
  - 35
-
 
 Amortization of Acquired
Intangibles.Amortization of acquired intangibles increased $452,000 in
the three months ended March 31, 2010 primarily due to additional amortization
of $424,000 related to VI Technology, acquired in March 2009, and $290,000
related to Airflyte Electronics, acquired in June 2009, offset by various net
reductions totaling $262,000. By segment, the amortization decreased $95,000 in
the AMS segment and increased $547,000 in the ATS segment.
 
 Other income (Expense).Interest expense was $20.8 million for the three months ended March 31,
2010 and $20.6 million for the three months ended March 31, 2009. Other income
(expense) of $222,000 for the three months ended March 31, 2010 consisted of
$329,000 of interest and miscellaneous income, partially offset by $107,000 of
foreign currency transaction losses. Other income (expense) of $(47,000) for the
three months ended March 31, 2009 consisted of $669,000 of foreign currency
transaction losses partially offset by $622,000 of interest and miscellaneous
income.
 
 Income taxes.Primarily due
to interest expense associated with our debt, we currently project we will have
a pre-tax loss in the U.S. for fiscal 2010, but project that we will generate
taxable income from foreign operations. In the fourth quarter of fiscal 2009, we
decided to no longer permanently reinvest post-fiscal 2008 foreign earnings in
our foreign operations and began to distribute a substantial portion of our
foreign earnings to the U.S. to partially fund interest and principal payments
on our debt. Accordingly, we have provided for foreign and U.S. income taxes on
fiscal 2009 and 2010 foreign taxable income. The benefit available for foreign
tax credits against our U.S. income tax on foreign earnings has not been
recognized, because it was not considered to be more likely than not that we
would generate sufficient foreign source income, after allocation of the
significant amount of our interest expense to the foreign source income, to
allow us to utilize the credit. This significantly increased the effective tax
rate for each of fiscal 2009 and fiscal 2010. If factors change that affect our
assessment of the likelihood of whether we can generate sufficient foreign
source income as a result of a reduced amount of allocated interest to the
foreign source income, or otherwise, and we can conclude that it is more likely
than not that we will be able to utilize our foreign tax credits, then we would
recognize this benefit through the elimination of the valuation allowance we
have set up against the foreign tax credits.
 
 Our
income tax benefit was $791,000 for the three months ended March 31, 2010, on
our consolidated pre-tax income of $2.1 million. We had an income tax benefit
for the three months ended March 31, 2009 of $6.4 million on a consolidated
pre-tax loss of $20.1 million, an effective income tax rate of 31.9%. The net
tax benefits are a combination of U.S. tax benefits on domestic losses and
foreign taxes on foreign earnings and, for fiscal 2010, domestic taxes provided
on foreign earnings, as we expect that substantially all these earnings will be
distributed to the U.S. 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 and,
for fiscal 2010, is impacted by the valuation allowance recorded for foreign tax
credits, as discussed above.
  In the
three months ended March 31, 2010, we paid income taxes of $622,000 and received
tax refunds of $0. In the three months ended March 31, 2009, we paid income
taxes of $597,000 and received tax refunds of $1.3 million.
 
 Net income (loss).Our net
income was $2.9 million for the three months ended March 31, 2010 and our net
loss was $13.7 million for the three months ended March 31, 2009. The $16.6
million improvement is comprised of the following: an increase in sales of $29.0
million resulting in an increase of $23.7 million in gross profit, an
elimination of an in-process research and development charge of $2.3 million,
partially offset by an increase of $3.8 million in operating expenses and a
decrease in our tax benefit of $5.6 million.
  - 36
-
 
 Nine
Months Ended March 31, 2010 Compared to Nine Months Ended March 31,
2009
 
 Net Sales.Net sales
increased 6% to $465.3 million for the nine months ended March 31, 2010 from
$437.1 million for the nine months ended March 31, 2009.
 
 Net sales
in the AMS segment increased 10% to $229.9 million for the nine months ended
March 31, 2010 from $208.6 million for the nine months ended March 31, 2009. The
increase in sales was primarily volume driven. Specific variances include a
$10.4 million increase in sales of microelectronic modules; a $9.3 million
increase in sales of ICs; sales of $8.2 million from Airflyte Electronics,
acquired in June 2009; partially offset by a $5.7 million decrease in sales of
components, due to decreased sales volumes in the first half of the year, as
well as certain price reductions created by industry competition.
  Net sales
in the ATS segment increased 3% to $235.4 million for the nine months ended
March 31, 2010 from $228.5 million for the nine months ended March 31, 2009. The
increase in sales was primarily due to a volume driven $12.3 million
increase in sales of wireless test products; a $9.8 million increase in
sales from VI Technology, acquired in March 2009; a volume driven $6.2 million
increase in sales of synthetic test products; partially offset by a $9.2 million
decrease in sales of radio test sets, due to a delay in the timing of shipments
on a number of large orders; a volume driven $7.3 million decrease in sales of
avionic products; and a volume driven $3.5 million decrease in sales of
frequency synthesizers.
 
 Gross Profit. On a
consolidated basis, gross profit was $241.9 million, or 52.0% of net sales, for
the nine months ended March 31, 2010 and $207.1 million, or 47.4% of net sales,
for the nine months ended March 31, 2009. Both segments contributed to the
increase in gross profit. The increase in gross margin was mainly due to a shift
in the mix of products and a substantial increase in the gross margins of the
ATS segment, principally attributable to increased sales of wireless products,
which have margins higher than the segment average.
 
 Gross ProfitNine MonthsEnded
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % ofMarch 31,
                    
                    AMS
                    
                    
                    Net Sales
                    
                    
                    ATS
                    
                    
                    Net Sales
                    
                    
                    Total
                    
                    
                    Net Sales(In thousands, except percentages)2009
                    
                    $
                    98,191
                    
                    
                    
                    47.1
                    %
                    
                    $
                    108,932
                    
                    
                    
                    47.7
                    %
                    
                    $
                    207,123
                    
                    
                    
                    47.4
                    %2010
                    
                    $
                    112,487
                    
                    
                    
                    48.9
                    %
                    
                    $
                    129,398
                    
                    
                    
                    55.0
                    %
                    
                    $
                    241,885
                    
                    
                    
                    52.0
                    %
 
 Gross
margins in the AMS segment were 48.9% for the nine months ended March 31, 2010
and 47.1% for the nine months ended March 31, 2009. Margins were favorably
impacted by increased sales of microelectronic modules and lCs, which have
margins higher than the segment average.
 
 Gross
margins in the ATS segment were 55.0% for the nine months ended March 31, 2010
and 47.7% for the nine months ended March 31, 2009. The increase in gross
margins is principally attributable to increased sales of wireless products,
which have margins higher than the segment average.
  - 37
-
  Selling, General and Administrative
Costs.On a consolidated basis SG&A costs decreased $3.4 million, or
4%, to $93.2 million. As a percentage of sales, SG&A costs decreased from
22.1% for the nine months ended March 31, 2009 to 20.0% for the nine months
ended March 31, 2010.
 
 Selling, General and Administrative CostsNine MonthsEnded
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    
                    
                    
                    % ofMarch 31,
                    
                    AMS
                    
                    
                    Net Sales
                    
                    
                    ATS
                    
                    
                    Net Sales
                    
                    
                    Corporate
                    
                    
                    Total
                    
                    
                    Net Sales(In thousands, except percentages)2009
                    
                    $
                    32,104
                    
                    
                    
                    15.4
                    %
                    
                    $
                    49,835
                    
                    
                    
                    21.8
                    %
                    
                    $
                    14,673
                    
                    
                    $
                    96,612
                    
                    
                    
                    22.1
                    %2010
                    
                    $
                    31,382
                    
                    
                    
                    13.6
                    %
                    
                    $
                    50,589
                    
                    
                    
                    21.5
                    %
                    
                    $
                    11,217
                    
                    
                    $
                    93,188
                    
                    
                    
                    20.0
                    %
 
 In the
AMS segment, SG&A costs decreased $722,000, or 2%, to $31.4 million for the
nine months ended March 31, 2010. As a percentage of sales, SG&A costs in
the AMS segment decreased from 15.4% for the nine months ended March 31, 2009 to
13.6% for the nine months ended March 31, 2010. The components group reduced
SG&A costs by $2.3 million, primarily due to cost savings initiatives. These
savings in the AMS segment were partially offset by additional costs of $1.2
million related to Airflyte Electronics, acquired in June 2009.
 
 In the
ATS segment, SG&A costs increased $754,000, or 2%, to $50.6 million for the
nine months ended March 31, 2010 principally due to the additional cost of $1.9
million related to VI Technology, acquired in March 2009, which was partially
offset by various reductions in the other ATS business units. These reductions
were primarily the result of cost savings initiatives and efforts to consolidate
and reorganize our various European locations. As a percentage of sales,
SG&A costs in the ATS segment decreased from 21.8% for the nine months ended
March 31, 2009 to 21.5% for the nine months ended March 31, 2010, primarily the
result of controlling costs while sales increased.
 
 Corporate
general and administrative expenses decreased $3.5 million, primarily due to
reductions in merger related expenses, employee related expenses and
professional fees.
 
 Research and Development
Costs. On a consolidated basis, research and development costs increased
by $3.3 million. As a percentage of sales, research and development costs was
11.9% for both the nine months ended March 31, 2009 and the nine months ended
March 31, 2010.
 
 Research and Development CostsNine MonthsEnded
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % of
                    
                    
                    
                    
                    
                    % ofMarch 31,
                    
                    AMS
                    
                    
                    Net Sales
                    
                    
                    ATS
                    
                    
                    Net Sales
                    
                    
                    Total
                    
                    
                    Net Sales(In thousands, except percentages)2009
                    
                    $
                    22,178
                    
                    
                    
                    10.6
                    %
                    
                    $
                    29,867
                    
                    
                    
                    13.1
                    %
                    
                    $
                    52,045
                    
                    
                    
                    11.9
                    %2010
                    
                    $
                    22,202
                    
                    
                    
                    9.7
                    %
                    
                    $
                    33,094
                    
                    
                    
                    14.1
                    %
                    
                    $
                    55,296
                    
                    
                    
                    11.9
                    %
 
 AMS
segment self-funded research and development costs increased $24,000, to $22.2
million for the nine months ended March 31, 2010. Increases in spending on
microelectronic modules and ICs, were offset by reductions in spending on
components and motion control products. As a percentage of sales, AMS segment
research and development costs decreased from 10.6% to 9.7%.
  ATS
segment self-funded research and development costs increased $3.2 million, or
11%, to $33.1 million for the nine months ended March 31, 2010, primarily due to
the development of next generation products in our radio and avionics test
division and wireless products. As a percentage of sales, ATS research and
development costs increased from 13.1% to 14.1%.
  - 38
-
 
 Amortization of Acquired
Intangibles.Amortization of acquired intangibles decreased $1.0 million
in the nine months ended March 31, 2010 primarily due to certain intangibles
becoming fully amortized during the first quarter of fiscal 2009. The decrease
is partially offset by additional amortization of $1.6 million related to VI
Technology, acquired in March 2009, and $871,000 related to Airflyte
Electronics, acquired in June 2009. By segment, the amortization decreased $1.7
million in the AMS segment and increased $637,000 in the ATS
segment.
 
 Loss on Liquidation of Foreign
Subsidiary.During the nine months ended March 31, 2010, we recognized a
non-cash $7.7 million loss on liquidation of a foreign subsidiary relating to
the write-off of the foreign currency translation balance upon substantial
dissolution. There was no similar charge recorded in the nine months ended March
31, 2009.
 
 Other income (Expense).Interest expense was $63.3 million for the nine months ended March 31,
2010 and $63.0 million for the nine months ended March 31, 2009. Other income
(expense) of $701,000 for the nine months ended March 31, 2010 consisted of $1.4
million of interest and miscellaneous income, partially offset by $692,000 of
foreign currency transaction losses. Other income (expense) of $12.4 million for
the nine months ended March 31, 2009 consisted of $10.5 million of foreign
currency transaction gains and $1.9 million of interest and miscellaneous
income.
 
 Income taxes.Primarily due
to interest expense associated with our debt, we currently project we will have
a pre-tax loss in the U.S. for fiscal 2010, but project that we will generate
taxable income from foreign operations. In the fourth quarter of fiscal 2009, we
decided to no longer permanently reinvest post-fiscal 2008 foreign earnings in
our foreign operations and began to distribute a substantial portion of our
foreign earnings to the U.S. to partially fund interest and principal payments
on our debt. Accordingly, we have provided for foreign and U.S. income taxes on
fiscal 2009 and 2010 foreign taxable income. The benefit available for foreign
tax credits against our U.S. income tax on foreign earnings has not been
recognized, because it was not considered to be more likely than not that we
would generate sufficient foreign source income, after allocation of the
significant amount of our interest expense to the foreign source income, to
allow us to utilize the credit. This significantly increased the effective tax
rate for each of fiscal 2009 and fiscal 2010. If factors change that affect our
assessment of the likelihood of whether we can generate sufficient foreign
source income as a result of a reduced amount of allocated interest to the
foreign source income, or otherwise, and we can conclude that it is more likely
than not that we will be able to utilize our foreign tax credits, then we would
recognize this benefit through the elimination of the valuation allowance we
have set up against the foreign tax credits.
 
 Our
provision for income taxes was $4.9 million for the nine months ended March 31,
2010, on a consolidated pre-tax loss of $23.4 million. We had an income tax
benefit for the nine months ended March 31, 2009 of $17.3 million on a
consolidated pre-tax loss of $42.0 million, an effective income tax rate of
41.2%. The provisions are a combination of U.S. tax benefits on domestic losses
and foreign taxes on foreign earnings and, for fiscal 2010, domestic taxes
provided on foreign earnings, as we expect that substantially all these earnings
will be distributed to the U.S. 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 and, for fiscal 2010, is impacted by the valuation allowance recorded for
foreign tax credits, as discussed above.
 
 In the
nine months ended March 31, 2010, we paid income taxes of $5.2 million and
received tax refunds of $627,000. In the nine months ended March 31, 2009, we
paid income taxes of $3.0 million and received tax refunds of $2.0
million.
 
 Net Loss.Our net loss was $28.3
million for the nine months ended March 31, 2010 and $24.7 million for the nine
months ended March 31, 2009. The $3.6 million increase in net loss is comprised
of the following: a non-cash loss on liquidation of a foreign subsidiary of $7.7
million in the nine months ended March 31, 2010; an unfavorable variance in
foreign currency gains/losses of $11.2 million; and an increase in income taxes
of $22.2 million; offset by an increase in sales of $28.2 million, resulting in
an increase of $34.8 million in gross profit; a reduction in in-process research
and development of $2.3 million; and a reduction of $1.2 million of operating
expenses.
  - 39
-




Liquidity
and Capital Resources





As of
March 31, 2010, we had $96.3 million of cash and cash equivalents,$256.8 million in working
capital and our current ratio was 2.9 to 1.





In early
February 2008, when auctions began to fail, our gross investment in marketable
securities consisted of $46.5 million of auction rate securities. Auction rate
securities represent long-term variable rate bonds that generally carry
maturities of ten years to thirty-five years from the date of issuance, and
whose rates are 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. From early February 2008 to June 30, 2009, $26.5 million of
auction rate securities were redeemed by the issuers or sold at par. During the
nine months ended March 31, 2010, an additional $8.9 million of our auction rate
securities were redeemed by the issuer at an average of 96.4% of
par.  The resulting $320,000 realized loss was recorded in the
statement of operations for the three and nine months ended March 31,
2010.  The $11.1 million of auction rate securities that we currently
hold are partially offset by a valuation allowance of $1.3 million.





All but
one (with the one security having a carrying value of $1.7 million and a rating
of A-) of our remaining auction rate securities retain a triple-A rating by at
least one nationally recognized statistical rating organization.





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 March 31, 2010, we had
$898.7 million of debt outstanding (of which $893.2 million was long-term),
including approximately $511.8 million under our senior secured credit facility,
$225.0 million of senior notes and $160.8 million under our senior subordinated
unsecured credit facility, including paid-in-kind
interest.  Additionally, at March 31, 2010 we had $50.0 million of
availability under the revolving portion of our senior secured credit
facility.





The
following is a summary of required principal repayments of our debt for the next
five years and thereafter as of March 31, 2010:





TwelveMonthsEnded
                    March31,
                  
                  (Inthousands)2011
                  
                  $
                  5,5162012
                  
                  
                  5,6102013
                  
                  
                  5,6352014
                  
                  
                  5,2502015
                  
                  
                  876,702Thereafter
                  
                  
                  -Total
                  
                  $
                  898,713


- 40
-


As of
March 31, 2010, we and our subsidiaries were 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 March 31,
                
                
                Nine Months Ended March 31,2010
                
                
                2009
                
                
                2010
                
                
                2009(In thousands)Net
      income (loss)
                
                $
                2,856
                
                
                $
                (13,734
                )
                
                $
                (28,301
                )
                
                $
                (24,738
                )Interest
      expense
                
                
                20,815
                
                
                
                20,566
                
                
                
                63,272
                
                
                
                63,031Provision
      (benefit) for income taxes
                
                
                (791
                )
                
                
                (6,416
                )
                
                
                4,908
                
                
                
                (17,298
                )Depreciation
      and amortization
                
                
                20,404
                
                
                
                20,008
                
                
                
                62,178
                
                
                
                63,659EBITDA
                
                
                43,284
                
                
                
                20,424
                
                
                
                102,057
                
                
                
                84,654Non-cash
      purchase accounting adjustments
                
                
                31
                
                
                
                2,355
                
                
                
                342
                
                
                
                2,531Merger
      related expenses
                
                
                647
                
                
                
                815
                
                
                
                2,111
                
                
                
                3,621Restructuring
      costs and related pro forma savings  from such activities(a)
                
                
                105
                
                
                
                4,457
                
                
                
                356
                
                
                
                6,667Share-based
      compensation (b)
                
                
                518
                
                
                
                489
                
                
                
                1,563
                
                
                
                1,466Non-cash
      loss on liquidation of foreign subsidiary
                
                
                -
                
                
                
                2,250
                
                
                
                7,696
                
                
                
                2,250Other
      defined adjustments (c)
                
                
                (4
                )
                
                
                (1,676
                )
                
                
                (346
                )
                
                
                5,299Adjusted
      EBITDA
                
                $
                44,581
                
                
                $
                29,114
                
                
                $
                113,779
                
                
                $
                106,488





(a)
            Primarily
      reflects costs associated with the reorganization of our U.K. operations
      and the pro forma savings related thereto.  Pro forma savings
      reflects the amount of costs that we estimate would have been eliminated
      during the period in which a restructuring occurred had the restructuring
      occurred as of the first day of that
period.





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





(c)
            Reflects
      other adjustments required in calculating our debt covenant compliance.
      These other defined items include non-cash inventory adjustments for a
      discontinued product and pro forma EBITDA for periods prior to the
      acquisition dates for companies acquired during the periods
      presented.





Financial
covenants in our senior secured credit facility include (i) a maximum leverage
ratio of total debt (less up to $15.0 million of unrestricted cash) to Adjusted
EBITDA, as defined in our senior secured credit facility, and (ii) maximum
consolidated capital expenditures. The maximum leverage ratio permitted for the
twelve months ended March 31, 2010 and 2009 was 7.10 and 8.00, respectively,
whereas our actual leverage ratio was 5.79 and 6.08, respectively. At the end of
fiscal years 2010 and 2011 the maximum leverage ratio permitted decreases to
6.80 and 5.90, respectively.





Our
senior secured credit facility contains various additional customary affirmative
and negative covenants (subject to materiality thresholds, baskets, and
customary exceptions and qualifications), including, but not limited to,
restrictions on the ability of the borrowers and its subsidiaries to (i) dispose
of assets or stock; (ii) incur additional indebtedness and guarantee
obligations; (iii) pay certain dividends; (iv) create liens on assets; (v) make
investments, loans or advances; (vi) restrict distributions to the borrowers or
guarantors from their subsidiaries; (vii) engage in mergers or consolidations;
(viii) engage in certain transactions with affiliates; (ix) incur additional
negative pledges; (x) incur capital expenditures; (xi) change our fiscal year or
accounting practices or the lines of business in which we and our subsidiaries
are involved; (xii) enter into sale-leaseback transactions; (xiii) prepay
principal of, premium, or interest on, or redeem, purchase, retire, defease, or
create a sinking fund or make a similar payment with respect to, any
subordinated indebtedness and certain other debt; (xiv) change the conduct of
business; (xv) conduct activities of any parent holding company; or (xvi) amend
our organizational documents.


- 41
-


If for
any reason we fail to comply with the covenants in our senior secured credit
facility, we would be in default under the terms of our senior secured credit
facility.  If such a default were to occur, the lenders under our
senior secured credit facility could elect to declare all amounts outstanding
under our senior secured credit facility immediately due and payable, and the
lenders would not be obligated to continue to advance funds to us.  In
addition, if such a default were to occur, any amounts then outstanding under
the senior subordinated unsecured credit facility or senior notes could become
immediately due and payable.  If the amounts outstanding under these
debt agreements are accelerated, our assets may not be sufficient to repay in
full the money owed to our debt holders.





We expect
that cash generated from operating activities and availability under the
revolving portion of our 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. In addition, to the extent we have consolidated
excess cash flows, as defined in the credit agreement governing our senior
secured credit facility, we must use specified portions of the excess cash flows
to prepay senior secured debt. Based on our current level of operations, we
believe our cash flow from operations and available borrowings under our senior
secured credit facility will be adequate to meet our liquidity needs for at
least the next twelve months. We cannot assure you, however, that our business
will generate sufficient cash flow from operations, or those future borrowings
will be available to us under our senior secured credit facility in an amount
sufficient to enable us to repay our indebtedness or to fund other liquidity
needs. We may need to refinance all or a portion of our indebtedness on or
before the maturity thereof.  We cannot assure you that we will be
able to refinance any of our indebtedness at commercially reasonable terms or at
all.





Cash
Flows





For the
nine months ended March 31, 2010, our cash flow provided by operations was $52.3
million. Our investing activities used cash of $7.6 million, primarily for
capital expenditures of $13.2 million and a $4.0 million contingent
consideration payment for the purchase of a business, partially offset by $8.6
million in proceeds from the sale of marketable securities and $1.0 million from
the sale of property, plant and equipment. Our financing activities used cash of
$4.0 million to repay indebtedness.





For the
nine months ended March 31, 2009, our cash flow provided by operations was $35.0
million. Our investing activities used cash of $19.4 million, primarily $13.0
million for capital expenditures and $7.8 million of payments for the purchase
of businesses. Our financing activities used cash of $4.5 million, primarily to
repay $4.1 million of indebtedness.





Capital
Expenditures





Capital
expenditures were $13.2 million and $13.0 million, for the nine months ended
March 31, 2010 and 2009, respectively.  The maximum consolidated
capital expenditures permitted in our debt covenants for fiscal year 2010 is
$25.0 million. Our capital expenditures primarily consist of equipment
replacements.


- 42
-


Contractual
Obligations





The
following table summarizes our obligations and commitments to make future
payments under debt and other obligations as of March 31, 2010:





PaymentsDueByPeriod(1)(In millions)BeyondTotal
                                
                                
                                Year 1
                                
                                
                                Years 2 - 3
                                
                                
                                Years 4 - 5
                                
                                
                                5 YearsSenior
      secured credit facility
                                
                                $
                                511.8
                                
                                
                                $
                                5.2
                                
                                
                                $
                                10.5
                                
                                
                                $
                                496.1
                                
                                
                                $
                                -Senior
      notes
                                
                                
                                225.0
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                225.0
                                
                                
                                
                                -Subordinated
      unsecured credit facility
                                
                                
                                160.8
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                160.8
                                
                                
                                
                                -Other
      long-term debt
                                
                                
                                1.1
                                
                                
                                
                                0.4
                                
                                
                                
                                0.7
                                
                                
                                
                                -
                                
                                
                                
                                -Operating
      leases(2)
                                
                                
                                19.3
                                
                                
                                
                                6.6
                                
                                
                                
                                8.0
                                
                                
                                
                                3.0
                                
                                
                                
                                1.7Employment
      agreements
                                
                                
                                7.1
                                
                                
                                
                                3.8
                                
                                
                                
                                3.0
                                
                                
                                
                                0.3
                                
                                
                                
                                -Advisory
      fee (3)
                                
                                
                                7.4
                                
                                
                                
                                2.2
                                
                                
                                
                                4.4
                                
                                
                                
                                0.8
                                
                                
                                
                                -Total
                                
                                $
                                932.5
                                
                                
                                $
                                18.2
                                
                                
                                $
                                26.6
                                
                                
                                $
                                886.0
                                
                                
                                $
                                1.7





(1)
            Amounts
      do not include interest payments.





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





(3)
            The
      annual advisory fee is payable to affiliates of our sponsors – The Veritas
      Capital Fund III, L.P., Golden Gate Private Equity, Inc. and GS Direct,
      L.L.C. - 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 is the greater of $2.2 million or 1.8% of Adjusted
      EBITDA (as defined in the agreement governing our senior secured credit
      facility) for the prior fiscal
year.





We may be
required to pay contingent consideration for business acquisitions up to the
following amounts: (i) $5 million on October 31, 2010 and $6 million on October
31, 2011 in connection with our acquisition of Gaisler if certain financial
targets are achieved for fiscal 2010 and fiscal 2011, respectively; (ii) $3
million on October 31, 2010 in connection with our acquisition of Airflyte
Electronics if certain financial targets are achieved for fiscal 2010; and (iii)
an aggregate of $2.0 million over the next five years in connection with our
acquisition of Hi-Rel Components if certain financial targets are achieved
through fiscal 2014.





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 March 31, 2010, 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.


- 43
-


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 U.S. GAAP and applicable SEC regulations for preparation of
interim financial statements.





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





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





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





·
            Revenue
      Recognition


·
            Acquisition
      Accounting


·
            Long-Lived
      Assets


·
            Income
      Taxes


·
            Foreign
      Currency Translations


·
            Financial Instruments and
      Derivatives





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 nine month period ended March 31, 2010, 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.


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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 March 31, 2010,
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 $1.7
million 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 March 31,
2010, we had $43.4 million of notional value foreign currency forward contracts
maturing through April 30, 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. The fair value of these contracts at
March 31, 2010 was an asset of $446,000.  If foreign currency exchange
rates (primarily the British pound and the Euro) change by 10% from the levels
at March 31, 2010, the effect on our comprehensive income would be approximately
$20.7 million.





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 March 31, 2010
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 March 31, 2010 that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.


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PART
II – OTHER INFORMATION





Item
1.    Legal Proceedings





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





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





Item 1A.  Risk
Factors





There
have been no material changes in our risk factors disclosed in our 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.    [Removed and Reserved]





None





Item 5.   Other
Information





None


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-


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. (Chief Executive
    Officer)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. (Chief Financial
    Officer)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. (Principal Accounting
      Officer)32.1
                      
                      Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002. (Chief Executive
  Officer)32.2
                      
                      Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002. (Chief Financial
  Officer)


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-


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)May
      12, 2010
                  
                  /s/
      John Adamovich, Jr.John
      Adamovich, Jr.Senior
      Vice President andChief
      Financial Officer


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-


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. (Chief Executive
      Officer)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.  (Chief
      Financial Officer)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. (Principal Accounting
      Officer)32.1
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Executive
      Officer)32.2
              
              Certification
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Financial
      Officer)


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-