UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
   FORM
10-Q xThe Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 
For the three months ended September 29, 2006, or oTransition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
For the transition period from ______________ to ______________. Commission File No. 1-5375 (TECHNITROL LOGO)TECHNITROL, INC.(Exact name of registrant as specified in its Charter)  PENNSYLVANIA

23-1292472(State or other jurisdiction of incorporation or 
  organization)

(IRS Employer Identification Number)1210 Northbrook Drive, Suite 470Trevose, Pennsylvania

19053(Address of principal executive offices)

(Zip Code)Registrants telephone number, including area code:

215-355-2900 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 the filing
requirements for at least the past 90 days.YESxNO
o Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act. (check one):Large
accelerated fileroAccelerated
filerxNon-accelerated
filero Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).YESoNO
x Indicate the number
of shares outstanding of each of the issuers classes of Common Stock, as of
November 3, 2006: 40,704,250. 1    TABLE OF CONTENTS

PAGEPART I
FINANCIAL INFORMATIONItem
  1.
Financial
  Statements (Unaudited)Consolidated
  Balance Sheets

3Consolidated
  Statements of Operations

4Consolidated
  Statements of Cash Flows

5Consolidated
  Statements of Changes in Shareholders Equity

6Notes
  to Unaudited Consolidated Financial Statements

7Item
  2.
Managements
  Discussion and Analysis of Financial Condition and Results of Operations

16Item
  3.
Quantitative
  and Qualitative Disclosures about Market Risk

25Item
  4.
Controls
  and Procedures

26PART II
OTHER INFORMATIONItem
  1.
Legal
  Proceedings

27Item
  1a.
Risk
  Factors

27Item
  2.
Unregistered
  Sales of Equity Securities and Use of Proceeds

27Item
  3.
Defaults
  Upon Senior Securities

27Item
  4.
Submission
  of Matters to a Vote of Security Holders

27Item
  5.
Other
  Information

27Item
  6.
Exhibits

27Exhibit
  Index

352

PART I. FINANCIAL INFORMATION

Item 1: Financial
Statements

Technitrol,
Inc. and Subsidiaries

Consolidated Balance Sheets

In thousands

September
  29,

December
  30,2006

2005(unaudited)AssetsCurrent
  assets:Cash and cash
equivalents

$
68,390

$
173,664Trade
receivables, net


188,430


136,115Inventories


95,553


73,598Prepaid
expenses and other current assets


34,751


20,174Total current
assets


387,124


403,551Property,
  plant and equipment


234,575


212,390Less
accumulated depreciation


136,997


119,492Net property,
plant and equipment


97,578


92,898Deferred
  income taxes


16,523


13,079Goodwill


214,039


142,881Other
  intangibles, net


32,067


31,648Other assets


9,845


2,245$
757,176

$
686,302Liabilities and Shareholders EquityCurrent
  liabilities:Current
installments of long-term debt

$
106

$
50,795Short-term
debt


2,049


3,219Accounts
payable


103,857


67,929Accrued
expenses


91,440


71,767Total current
liabilities


197,452


193,710Long-term
  liabilities:Long-term
debt, excluding current
  installments


55,732


32,697Deferred
income taxes


17,157


13,925Other
long-term liabilities


13,054


14,680Minority
  interest


13,657


12,626Shareholders
  equity:Common stock
and additional paid-in capital


217,634


215,560Retained
earnings


231,875


200,108Deferred
compensation





(1,234
)Other
comprehensive income


10,615


4,230Total
shareholders equity


460,124


418,664$
757,176

$
686,302See
accompanying Notes to Unaudited Consolidated Financial Statements.

3

Technitrol, Inc. and Subsidiaries

Consolidated Statements of
Operations

(Unaudited)In
thousands, except per share data

Three
  Months Ended

Nine
  Months EndedSeptember
  29, 
  2006

September
  30, 
  2005

September
  29, 
  2006

September
  30, 
  2005Net sales

$
257,683

$
147,217

$
718,014

$
431,913Costs and
  expenses:Cost of
sales


196,058


113,211


548,788


331,399Selling,
general and administrative
  expenses


39,167


25,574


108,519


77,688Severance and
asset impairment expense


2,604


1,438


6,415


50,641Total costs
and expenses applicable to sales


237,829


140,223


663,722


459,728Operating
  profit (loss)


19,854


6,994


54,292


(27,815
)Other
  (expense) income:Interest
(expense) income, net


(2,085
)

377


(4,546
)

1,158Other
(expense) income


(775
)

(203
)

2,420


(1,094
)Total other
(expense) income


(2,860
)

174


(2,126
)

64Earnings (loss) from continuing
operations
  before income taxes, minority interest and cumulative effect of accounting
  change


16,994


7,168


52,166


(27,751
)Income taxes


1,953


1,551


8,367


4,025Minority
  interest (income) expense


(233
)

327


1,322


1,045Net earnings (loss) from
continuing
  operations before cumulative effect of accounting change


15,274


5,290


42,477


(32,821
)Cumulative
  effect of accounting change, net of taxes








75


Net loss
  from discontinued operations, net of taxes


(29
)

(701
)

(121
)

(395
)Net earnings
  (loss)

$
15,245

$
4,589

$
42,431

$
(33,216
)Basic and diluted earnings
(loss) per share
  from continuing operations

$
0.38

$
0.13

$
1.05

$
(0.81
)Cumulative effect of accounting
change








0.00


Basic and diluted loss per
share from
  discontinued operations


(0.00
)

(0.02
)

(0.00
)

(0.01
)Basic and diluted earnings
(loss) per share

$
0.38

$
0.11

$
1.05

$
(0.82
)See
accompanying Notes to Unaudited Consolidated Financial Statements.

4

Technitrol, Inc. and Subsidiaries

Consolidated Statements of Cash
Flows

(Unaudited)

In thousands

Nine
  Months EndedSeptember
  29, 
  2006

September
  30,  
  2005Cash flows from operating
activities:Net earnings (loss)

$
42,431

$
(33,216
)Loss from discontinued
operations, net of
  taxes


121


395Adjustments to reconcile net
earnings
  (loss) to net cash provided by operating activities:Cumulative
effect of accounting change, net
  of taxes


(75
)

Depreciation
and amortization


26,932


15,808Tax effect of
employee stock compensation





(151
)Stock
compensation expenses


2,240


2,828Minority
interest in net earnings of
  consolidated subsidiary


1,322


1,045Severance and
asset impairment expense, net
  of cash payments


85


46,065Changes in
assets and liabilities, net of
  effect of acquisitions:Accounts
receivable


(41,009
)

(8,696
)Inventories


(13,916
)

(191
)Prepaid
expenses and other current assets


(2,262
)

1,224Accounts
payable and accrued expenses


23,722


2,527Other,
net


(3,136
)

5,499Net cash
provided by operating activities


36,455


33,137Cash flows from investing
activities:Acquisitions,
net of cash acquired


(73,456
)

(84,599
)Proceeds from
sale of business





6,724Capital
expenditures


(16,474
)

(12,167
)Funding of
grantor trust


(7,151
)

Proceeds from
sale of property, plant and
  equipment


1,211


2,006Foreign
currency impact on intercompany
  lending


(4,676
)

8,032Net cash used
in investing activities


(100,546
)

(80,004
)Cash flows from financing
activities:Principal
payments of short-term debt, net


(1,170
)

Principal
payments of long-term debt, net


(28,095
)

(754
)Dividends
paid


(10,647
)

(7,088
)Exercise of
stock options


1,798


Net cash used
in financing activities


(38,114
)

(7,842
)Net effect of exchange rate
changes on cash


(3,013
)

(2,646
)Cash flows of discontinued
operations:Net cash (used
in) provided by operating
  activities


(56
)

378Net
(decrease) increase in cash and cash
  equivalents from discontinued operations


(56
)

378Net decrease in cash and cash
equivalents


(105,274
)

(56,977
)Cash and cash equivalents at
beginning of
  year


173,664


155,952Cash and cash equivalents at
end of period

$
68,390

$
98,975See accompanying Notes to Unaudited
Consolidated Financial Statements.

5

Technitrol,
Inc. and Subsidiaries

Consolidated Statements of Changes in
Shareholders Equity

Nine Months Ended September 29, 2006

(Unaudited)In
thousands

OtherCommon
  stock and


Retained 
  earnings

Deferred 
  compen-
  sation




Accumu-
  lated other 
  compre- 
  hensive 
  income

Compre-
  hensive 
  incomepaid-in capitalShares

AmountBalance at December 30,
2005


40,529

$
215,560

$
200,108

$
(1,234
)
$
4,230Stock options, awards and
related
  compensation


25


426








Currency translation
adjustments














3,549

$
3,549Unrealized holding gains on
securities














8


8Reclassification due to change
in
  accounting principle





(1,234
)




1,234


Net earnings








11,964








11,964Comprehensive income
















$
15,521Dividends declared ($0.0875 per
share)








(3,549
)




Balance at March 31,
2006


40,554

$
214,752

$
208,523

$


$
7,787Stock options, awards and
related
  compensation


27


1,115








Currency translation
adjustments














5,126

$
5,126Net earnings








15,222








15,222Comprehensive income
















$
20,348Dividends declared ($0.0875 per
share)








(3,552
)




Balance at June 30,
2006


40,581

$
215,867

$
220,193

$


$
12,913Stock options, awards and
related
  compensation


123


1,767








Currency translation
adjustments














(2,298
)
$
(2,298
)Net earnings








15,245








15,245Comprehensive income
















$
12,947Dividends declared ($0.0875 per
share)








(3,563
)




Balance at September 29,
2006


40,704

$
217,634

$
231,875

$


$
10,615See
accompanying Notes to Unaudited Consolidated Financial Statements.

6

Technitrol, Inc. and Subsidiaries

Notes to Unaudited
Consolidated Financial Statements

(1)
Accounting
  policiesFor
a complete description of the accounting policies of Technitrol, Inc. and its
consolidated subsidiaries, refer to Note 1 of Notes to Consolidated Financial
Statements included in Technitrols Form 10-K filed for the year ended December
30, 2005. We sometimes refer to Technitrol as we or our.

The
results for the three and nine months ended September 29, 2006 and September
30, 2005 have been prepared by our management without audit by our independent
auditors. In the opinion of management, the financial statements fairly present
in all material respects, the financial position and results of operations for
the periods presented. To the best of our knowledge and belief, all adjustments
have been made to properly reflect income and expenses attributable to the
periods presented. Except for severance, asset impairment expenses and
accelerated depreciation and amortization, all such adjustments are of a normal
recurring nature. Operating results for the nine months ended September 29,
2006 are not necessarily indicative of annual results.

New
Accounting Pronouncements

In
December 2004, the FASB issued Statement No. 123(R), Share-Based Payment, (SFAS 123(R)), which amends SFAS No.
123, Accounting for Stock-Based Compensation,
and supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees. SFAS 123(R) requires compensation
expense to be recognized for all share-based payments made to employees based
on the fair value of the award at the date of grant, eliminating the intrinsic
value alternative allowed by SFAS 123. Generally, the approach to determining
fair value under the original pronouncement has not changed, however, there are
revisions to the accounting guidelines established, such as accounting for
forfeitures. SFAS 123(R) became effective at the beginning of our fiscal 2006.
Adoption of this standard resulted in $0.1 million of income recognized as a
cumulative effect of accounting change in the nine months ended September 29,
2006.

In
November 2005, the FASB issued FASB Staff Position (FSP) SFAS 123(R)-3, Transition Election Related to Accounting for
the Tax
Effects of Share-based Payment Awards, that provides an elective
alternative transition method of calculating the pool of excess tax benefits
available to absorb tax deficiencies recognized subsequent to the adoption of
SFAS No. 123(R) to the method otherwise required by paragraph 81 of SFAS No.
123(R). We have until the beginning of our fiscal 2007 to evaluate our
available alternatives and make our one-time election. We are currently
evaluating the alternative methods.

In
July 2006, FASB issued its Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109,(FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in an entitys financial statements in
accordance with Statement No. 109, Accounting
for Income Taxes. This interpretation prescribes a minimum
recognition threshold (more likely than not or greater than 50 percent) and
measurement attributes for financial statement disclosure of tax positions
taken or expected to be taken on a tax return. We are required to adopt this
interpretation in the first quarter of fiscal year 2007. We are currently
evaluating the requirements of FIN 48 and have not yet determined the impact,
if any, on our consolidated financial statements.

In
September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and
123(R) (SFAS 158). This standard requires employers to recognize
the underfunded or overfunded status of a defined benefit postretirement plan
as an asset or liability in its statement of financial position and to
recognize changes in the funded status in the year in which the changes occur
through accumulated other comprehensive income. Additionally, SFAS 158 requires
employers to measure the funded status of a plan as of the date of its year-end
statement of financial position. The new reporting requirements and related

7

Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial
Statements, continued

(1)
Accounting
  policies, continuednew footnote
disclosure rules of SFAS 158 are effective for fiscal years ending after
December 15, 2006. We are currently evaluating the impact that the
implementation of SFAS 158 will have on our financial statements.

Reclassifications          Certain amounts
in the prior year financial statements have been reclassified to conform with
the current year presentation.

(2)
AcquisitionsERA
Group: On January 4, 2006, we acquired all of the capital stock of ERA Group
(ERA), headquartered in Herrenberg, Germany with production operations in
Germany, China and Tunisia. The results of ERAs operations have been included
in our consolidated financial statements since the effective date of the
acquisition. ERA produces advanced-technology ignition coils, along with a
variety of other coils and transformers used in automotive,
heating/ventilation/air conditioning and appliance applications. It became the
foundation of Pulses automotive division. The purchase price was approximately
$53.3 million, net of cash acquired of $1.3 million, and including acquisition
costs of approximately $0.8 million. The purchase price was financed primarily
with bank credit under our multi-currency credit facility. The preliminary fair
value of the net tangible assets acquired approximated $9.3 million. In
addition to the fair value of net tangible assets acquired, preliminary
purchase price allocations included $2.2 million for intellectual property,
$3.1 million for customer relationships and $40.0 million allocated to
goodwill. Each of the identifiable intangibles with finite lives is being amortized,
using lives of 5 years for intellectual property and customer relationships.
These fair values are preliminary and subject to adjustment as we are currently
reviewing the independent appraisal report and evaluating the fair values of
certain acquired assets and liabilities. The following table summarizes the
preliminary fair values of the assets acquired and liabilities assumed at the
date of acquisition (in millions):

Current assets

$
13.2Property, plant and
  equipment


20.7Identifiable intangibles


5.3Goodwill


40.0Total assets
acquired

$
79.2Current liabilities

$
24.6Total
liabilities assumed

$
24.6Net assets
acquired

$
54.6For
the twelve months ended December 29, 2006, we expect that ERA will generate
revenues of approximately $90 million.

LK
Products Oy: On
September 8, 2005, we acquired all of the capital stock of LK Products Oy
(LK), headquartered in Kempele, Finland with production operations in
Finland, China and Hungary as well as offices in South Korea and San Diego. The
results of LKs operations have been included in our consolidated financial
statements since that date. LK produces antennas and integrated modules for
mobile communications and information devices and is the foundation of Pulses
antenna division. The purchase price was approximately $111.1 million, net of
cash acquired of $0.4 million, and including acquisition costs of approximately
$2.3 million and consideration resulting from the earn-out provision noted
below. The initial purchase price was funded with cash on hand. The fair value
of the net tangible assets acquired

8

Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial
Statements

(2)
Acquisitions, continuedapproximated $18.6 million.
In addition to the fair value of assets acquired, purchase price allocations
included $19.4 million for customer relationships, $0.4 million for trademarks,
$1.4 million for technology and $71.7 million allocated to goodwill. Each of
the identifiable intangibles with finite lives is being amortized, using lives
of 5 years for technology and 10 years for customer relationships. The purchase
agreement also included an earn-out provision which resulted in us paying
approximately $19.8 million, or 15.5 million euros, net of a receivable from the seller, in the
third quarter of 2006. The earn-out was accrued in the second quarter of 2006.
The antenna division is treated as a separate reporting unit for purposes of
SFAS 142.

Full
Rise Electronic Co., Ltd.: Full Rise
Electronic Co., Ltd. (FRE) is based in Taiwan and manufactures connector
products, including single and multiple-port jacks, and supplies products to us
under a cooperation agreement. We began making investments in FRE in April
2001. Upon reaching 51% ownership in September 2004, we began consolidating
FREs results with our own. Our net earnings therefore reflect FREs net
earnings, after deducting the minority interest due to the minority
shareholders. Through December 31, 2004, our investment in FRE was
approximately $25.2 million. During 2005, we made purchases of FRE stock
amounting to $2.0 million, which increased our ownership percentage to 57%.
During 2006, we have made additional purchases for approximately $0.3 million
which has brought our ownership percentage to 59%. Purchases of common stock in
FRE are allocated, on a pro rata basis, to goodwill, identifiable intangible
assets, and property, plant, and equipment according to amounts recorded as of September
2004. The fair value of the net tangible assets acquired through September 2004
approximated $28.8 million, less a minority interest of $14.0 million. Based on
the fair value of net tangible assets acquired and our current ownership
percentage, the allocation of the investment to intangibles includes $0.5
million for technology, $0.6 million for trademarks, $2.1 million for customer
relationships and $10.7 million of goodwill. All of the separately identifiable
intangibles are being amortized, using lives of 4 years for technology and
customer relationships.

(3)
Severance
  and asset impairment expenseIn
the nine months ended September 29, 2006, we accrued $6.4 million for a number
of actions to further streamline operations at Pulse and AMI Doduco. These
include severance and related payments comprised of $2.4 million related to
Pulses termination of manufacturing and support personnel at facilities in
Italy and Turkey, $0.7 million for transfer costs and severances at Pulses
facilities in Asia, $1.4 million for termination of support personnel at
Pulses facilities in Finland and France, $0.3 million related to Pulses
facility closure costs in the United Kingdom, $1.3 million related to AMI
Doducos closure of facilities in Italy and France, and $0.3 million for
severance and facility closure costs at other locations. The majority of these
accruals will be paid by December 29, 2006, except for remaining lease or
severance payments to be made over a specified term.

9

Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial
Statements, continued

(3)
Severance
  and asset impairment expense, continuedOur
severance and asset impairment charges are summarized on a year-to-date basis
for 2006 as follows (in millions):

AMI Doduco

Pulse

TotalBalance
  accrued at December 30, 2005

$
1.6

$
1.6

$
3.2Accrued
  during the nine months ended September 29, 2006


1.4


5.0


6.4Severance
  and other cash payments


(2.0
)

(4.3
)

(6.3
)Non-cash
  asset disposals


(0.4
)

(0.1
)

(0.5
)Balance
  accrued at September 29, 2006

$
0.6

$
2.2

$
2.8(4)
InventoriesInventories
consisted of the following (in thousands):

September
  29,

December
  30,2006

2005Finished
  goods

$
36,767

$
29,113Work in
  process


20,263


19,130Raw
  materials and supplies


38,523


25,355$
95,553

$
73,598(5)
Derivatives
  and other financial instrumentsWe
utilize derivative financial instruments, primarily forward exchange contracts,
to manage foreign currency risks. While these hedging instruments are subject
to fluctuations in value, such fluctuations are generally offset by the value
of the underlying exposures being hedged.

At
September 29, 2006, we had one foreign exchange forward contract outstanding to
sell forward approximately 49.5 million euros in the aggregate, in order to
hedge intercompany loans. The term of this contract was approximately 30 days
although we routinely settle such obligations and enter into new 30-day
contracts each month. We had no other derivative instruments at September 29,
2006. In addition, management believes that there is no material risk of loss
from changes in inherent market rates or prices in our other financial
instruments.

(6)
Earnings per
  shareBasic earnings
per share are calculated by dividing net earnings by the weighted average
number of common shares outstanding (excluding unvested restricted shares)
during the period. We had unvested restricted shares outstanding of
approximately 233,000 and 197,000 as of September 29, 2006 and September 30,
2005, respectively. For calculating diluted earnings per share, common share
equivalents and unvested restricted stock outstanding are added to the weighted
average number of common shares outstanding. Common share equivalents are
comprised of outstanding options to purchase common stock and the amount of
compensation cost attributed to future services not yet recognized as
calculated using the treasury stock method. There were approximately 161,000
and 144,000 common share equivalents for the three and nine months ended
September 29, 2006, respectively. For the three months ended September 30,
2005, there were no common stock equivalents as the exercise prices of
outstanding share options were greater than the average stock price for the
period. For the nine months ended September 30, 2005, such equivalents would
have been anti-dilutive due to the net loss. There were approximately 327,000
stock options outstanding as of September 29, 2006 and approximately 475,000 as
of September 30, 2005.

10

Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial
Statements, continued

(6)
Earnings per
  share, continuedEarnings
(loss) per share calculations are as follows (in thousands, except per share amounts):

Three
  Months Ended

Nine
  Months EndedSeptember
  29, 
  2006

September
  30, 
  2005

September
  29, 
  2006

September
  30, 
  2005Net earnings (loss) from
continuing
  operations

$
15,274

$
5,290

$
42,477

$
(32,821
)Cumulative effect of accounting
change








75


Net loss from discontinued
operations


(29
)

(701
)

(121
)

(395
)Net earnings (loss)

$
15,245

$
4,589

$
42,431

$
(33,216
)Basic earnings (loss) per
share:Shares


40,417


40,318


40,364


40,286Continuing
operations

$
0.38

$
0.13

$
1.05

$
(0.81
)Cumulative
effect of accounting change








0.00


Discontinued
operations


(0.00
)

(0.02
)

(0.00
)

(0.01
)Per share
amount

$
0.38

$
0.11

$
1.05

$
(0.82
)Diluted earnings (loss) per
share:Shares


40,630


40,445


40,557


40,286Continuing
operations

$
0.38

$
0.13

$
1.05

$
(0.81
)Cumulative
effect of accounting change








0.00


Discontinued
operations


(0.00
)

(0.02
)

(0.00
)

(0.01
)Per share
amount

$
0.38

$
0.11

$
1.05

$
(0.82
)(7)
Business
  segment informationFor
the nine months ended September 29, 2006 and September 30, 2005 there were
immaterial amounts of intersegment revenues eliminated in consolidation. There
has been no material change in segment assets from December 30, 2005 to
September 29, 2006, except for the acquisition of ERA for $53.3 million, net of
$1.3 million of cash acquired and including acquisition costs and the addition
of approximately $23.1 million of goodwill at LK resulting from the earn-out
provision (Note 2). In addition, the basis for determining segment financial
information has not changed from 2005. Specific segment data are as follows (in thousands):

Three
  Months Ended

Nine
  Months EndedSeptember
  29, 
  2006

September
  30, 
  2005

September
  29, 
  2006

September
  30, 
  2005Net sales:Pulse

$
173,977

$
86,626

$
473,544

$
240,554AMI
Doduco


83,706


60,591


244,470


191,359Total

$
257,683

$
147,217

$
718,014

$
431,913Earnings (loss) from continuing
operations
  before income taxes, minority interest and cumulative effect of accounting
  change:Pulse

$
15,269

$
6,196

$
43,134

$
(29,864
)AMI
Doduco


4,585


798


11,158


2,049Operating
profit (loss)

$
19,854

$
6,994

$
54,292

$
(27,815
)Other
(expense) income, net


(2,860
)

174


(2,126
)

64Earnings
(loss) from continuing operations
  before income taxes, minority interest and cumulative effect of accounting
  change

$
16,994

$
7,168

$
52,166

$
(27,751
)11

Technitrol, Inc. and Subsidiaries

Notes
to Unaudited Consolidated Financial Statements,
continued

(8)
Accounting
  for stock-based compensationWe
have an incentive compensation plan for our employees. One component of this
plan is restricted stock, which grants the recipient the right of ownership of
our common stock, conditional on continued employment for a specified period.
Another component is stock options. On December 31, 2005, we adopted SFAS
123(R), which replaces SFAS 123 and supersedes APB Opinion No. 25. Under
SFAS No. 123(R), compensation cost relating to stock-based payment
transactions is recognized in the financial statements, and is based on the
fair value of the equity or liability instruments issued.
SFAS No. 123(R) applies to all of our outstanding unvested
stock-based payment awards as of December 31, 2005 and all prior awards using
the modified prospective transition method without restatement of prior
periods. As we had previously adopted SFAS 123, as amended by SFAS 148, at the
beginning of the 2003 fiscal year, whereby compensation expense was recorded
for all awards subsequent to adoption, our adoption did not significantly
impact our financial position or our results of operations. Upon adoption of
SFAS 123(R), the cumulative effect recorded in the nine months ended September
29, 2006 was a gain of $0.1 million, net of taxes.

The
following table presents the stock-based compensation expense included in the
Consolidated Statements of Operations:

Three
  Months Ended

Nine
  Months EndedSeptember
  29, 
  2006

September
  30, 
  2005

September
  29, 
  2006

September
  30, 
  2005Restricted stock

$
605

$
521

$
1,820

$
1,924Stock options


182


225


420


551Total stock-based compensation
included in
  selling, general and administrative expenses


787


746


2,240


2,475Income tax benefit


(255
)

(236
)

(737
)

(805
)Total after-tax stock-based
compensation
  expense

$
532

$
510

$
1,503

$
1,670Restricted Stock:
The value of restricted stock issued is based on the market price of the stock
at the award date. Shares are held by us until the continued employment
requirement has been attained. The market value of the shares at the date of
grant is charged to expense on a straight-line basis over the vesting period.
Cash awards, which are intended to assist recipients with their resulting
personal tax liability, are based on the market value of the shares and are
accrued over the vesting period. The expense related to the cash award is fixed
based on the value of the awarded stock on the grant date if the recipient
makes an election under Section 83(b) of the Internal Revenue Code. If the
recipient does not make the election under Section 83(b), the expense related
to the cash award is variable based on the current market value of the shares.

A summary of
the restricted stock activity is as follows (in
thousands, except per share data):

Shares

Weighted 
  Average Grant
  Price
  (Per Share)Nonvested at
  December 30, 2005


209

$
18.79Granted


72

$
23.37Vested


(40
)
$
19.29Forfeited/cancelled


(8
)
$
18.03Nonvested at
  September 29, 2006


233

$
20.0512

Technitrol, Inc. and Subsidiaries

Notes
to Unaudited Consolidated Financial Statements,
continued

(8)
Accounting
  for stock-based compensation, continuedAs of
September 29, 2006, there was approximately $2.1 million of total unrecognized
compensation cost related to restricted stock grants. This unrecognized
compensation is expected to be recognized over a weighted-average period of
approximately 2.4 years.

Stock Options:
Stock options are granted at no cost to the employee and cannot be granted at a
price lower than the fair market value at date of grant. These options expire
seven years from the date of grant and vest equally over four years. There were
no options issued during the nine months ended September 29, 2006 or during the
year ended December 30, 2005. We value our stock options according to the fair
value method using the Black-Scholes option-pricing model.

A summary of
the stock options activity is as follows (in
thousands, except per share data):

Shares

Weighted 
  Average 
  Exercise 
  Price 
  (Per Share)

Aggregate 
  Intrinsic 
  ValueOutstanding
  as of December 30, 2005


475

$
19.31Granted





Exercised


(89
)
$
20.13Forfeited/expired


(58
)
$
19.63Outstanding
  as of September 29, 2006


328

$
19.03


$
3,089Exercisable
  at September 29, 2006


267

$
19.43


$
2,411As of September 29, 2006, there was $0.7million of total unrecognized compensation
cost related to option grants. This unrecognized compensation is expected to be
recognized over a weighted-average period of approximately 1.8years.

  During
    the nine months ended September 29, 2006, cash received from stock options
    exercised was $1.8 million. The total intrinsic value of stock options exercised
    during the nine months ended September 29, 2006 was $0.6 million. There were
    no stock options exercised during the nine months ended September 30, 2005.
    The tax deduction realized from stock options exercised was $0.1 million for
    the nine months ended September 29, 2006. SFAS No. 123(R) requires that tax
    benefits from deductions in excess of the compensation cost of stock options
    exercised be classified as a cash inflow from financing. However, there were
    no such benefits recorded during the nine months ended September 29, 2006.
    Prior to adopting SFAS No. 123(R), we presented these benefits in the operating
    section of the consolidated statements of cash flow.

No amounts
of stock-based compensation cost have been capitalized into inventory or other
assets during the nine months ended September 29, 2006.

13

Technitrol, Inc. and Subsidiaries

Notes
to Unaudited Consolidated Financial Statements,
continued

(8)
Accounting
  for stock-based compensation, continuedIf
the compensation cost for issuances under our stock option plan had been
determined based on the fair value as required by SFAS 123(R) for all awards,
our pro forma net earnings (loss) and earnings (loss) per basic and diluted
share would have been as follows (in
thousands, except per share amounts):

Three
  Months 
  Ended

Nine
  Months 
  EndedSeptember
  30, 
  2005

September
  30, 
  2005Net earnings (loss), as
reported

$
4,589

$
(33,216
)Add: Stock-based compensation
expense
  included in reported net earnings, net of taxes


510


1,670Deduct: Total stock-based
compensation
  expense determined under fair value based method for all awards, net of taxes


(495
)

(1,959
)Net earnings (loss),
adjusted

$
4,604

$
(33,505
)Basic and diluted earnings
(loss) - as
  reported

$
0.11

$
(0.82
)Basic and diluted earnings
(loss) -
  adjusted

$
0.11

$
(0.83
)(9)
PensionIn
the nine months ended September 29, 2006, we were not required to, nor did we,
make any contributions to our qualified pension plan. Our net periodic pension
expense for this plan was approximately $0.3 million and $1.0 million and
approximately $0.4 million and $1.1 million in the three and nine months ended
September 29, 2006 and September 30, 2005, respectively, and is expected to be
approximately $1.3 million for the full fiscal year in 2006.

(10)
Discontinued
  operationsIn
the second quarter of 2005, we received approximately $6.7 million for the sale
of AMI Doducos bimetal and metal cladding operations. We realized a gain of
approximately $1.4 million from the sale of approximately $5.1 million of
inventory and $0.2 million of machinery and equipment. During the year ended
December 30, 2005, we accrued $1.3 million for severance and related payments
resulting from the announcement to terminate manufacturing and support
personnel and incurred other expenses related to the shutdown of operations. We
also realized a $1.1 million pension curtailment gain as a result of the
reduced estimated future service period of the severed personnel. We have
reflected the results of the bimetal and metal cladding operations as
discontinued operations on the consolidated statements of operations for all
periods presented. Summary results of operations for the bimetal and metal
cladding operations were as follows (in thousands):

Three
  Months Ended

Nine
  Months EndedSeptember
  29, 
  2006

September
  30,
  2005

September
  29,
  2006

September
  30, 
  2005Net sales


$




$




$




$
9,020(Loss)
  before income taxes



(44
)



(1,078
)



(185
)



(607
)The net book value of the land and building
was approximately $1.4 million at September 29, 2006. These assets are included
in other current assets on the consolidated balance sheets as the assets are
held for sale.

14

Technitrol, Inc. and Subsidiaries

Notes to Unaudited
Consolidated Financial Statements, continued

(11)
Goodwill and
  other intangibles, netThe
changes in the carrying amounts of goodwill for the nine months ended September
29, 2006 was as follows (in thousands):

Balance at
  December 30, 2005

$
142,881Goodwill
  acquired during the period


63,096Purchase
  price allocations and other adjustments


3,010Currency
  translation adjustments


5,052Balance at
  September 29, 2006

$
214,039The majority of our goodwill and other
intangibles relate to our Pulse segment.


Other intangible assets were as
follows (in thousands):

September
  29, 
  2006

December
  30, 
  2005Intangible assets subject to
  amortization (definite lives):Technology

$
11,059

$
8,600Customer
relationships


25,195


17,092Tradename/Trademark


369


Other


2,002


1,590Total

$
38,625

$
27,282Accumulated
amortization:Technology

$
(6,837
)
$
(5,939
)Customer
relationships


(3,562
)

(1,012
)Tradename/Trademark


(369
)

Other


(448
)

(327
)Total

$
(11,216
)
$
(7,278
)Net tangible
assets subject to amortization

$
27,409

$
20,004Intangible assets not subject to
  amortization (indefinite lives):Tradename

$
4,658

$
11,644Other
intangibles, net

$
32,067

$
31,648Amortization
expense was $3.8 million
and $1.2million for the nine months ended September
29, 2006 and September 30, 2005, respectively. Estimated annual amortization
expense for each of the next five years is as follows (in thousands):

Year
  Ending

Amount2007

$
4,2562008

$
4,1852009

$
3,6072010

$
3,2632011

$
2,03715

Item 2: Managements
Discussion and Analysis of Financial Condition and Results of Operations

Introduction

This
discussion and analysis of our financial condition and results of operations as
well as other sections of this report contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 and involve a number of risks and uncertainties. Actual results may
differ materially from those anticipated in these forward-looking statements
for many reasons, including the risks faced by us described in Risk Factors
section of this report on page 28 through 34.

Critical Accounting Policies

The
preparation of financial statements and related disclosures in conformity with
U.S. generally accepted accounting principles requires us to make judgments,
assumptions and estimates that affect the amounts reported in the Consolidated
Financial Statements and accompanying notes. Note 1 to the Consolidated
Financial Statements in our Annual Report on Form 10-K for the period ended
December 30, 2005 describes the significant accounting policies and methods
used in the preparation of the Consolidated Financial Statements. Estimates are
used for, but not limited to, the accounting for inventory valuation,
impairment of goodwill and other intangibles, severance and asset
impairment expense, income taxes, and contingency accruals. Actual results could differ from these
estimates. The following critical accounting policies are impacted
significantly by judgments, assumptions and estimates used in the preparation
of the Consolidated Financial Statements.

Inventory
Valuation. We carry our inventories at lower of cost or
market. We establish inventory provisions to write down excess and obsolete
inventory to market value. We utilize historical trends and customer forecasts
to estimate expected usage of on-hand inventory. In addition, inventory
purchases are based upon future demand forecasts estimated by taking into
account actual sales of our products over recent historical periods and
customer forecasts. If there is a sudden and significant decrease in demand for
our products or there is a higher risk of inventory obsolescence because of
rapidly changing technology or customer requirements, we may be required to
write down our inventory and our gross margin could be negatively affected.
Conversely, if we were to sell or use a significant portion of inventory
already written down, our gross margin could be positively affected.

Impairment of
Goodwill and
Other Intangibles. We assess
the carrying cost of goodwill and intangible assets with indefinite lives on an
annual basis and on an interim basis in certain circumstances. This assessment
is based on comparing fair value to carrying cost. Fair value is based on
estimating future cash flows using various growth assumptions and discounting
based on a present value factor. Assigning a useful life and periodically
reassessing a remaining useful life (for purposes of systematic amortization)
is also predicated on various economic assumptions. Our intangible assets are
also subject to impairment as a result of other factors such as changing
technology, declines in demand that lead to excess capacity and other factors.
In addition to the various assumptions, judgments and estimates mentioned
above, we may strategically realign our resources and consider restructuring,
disposing of, or otherwise exiting businesses in response to changes in
industry or market conditions, which could result in an impairment of goodwill
or other intangibles.

Severance and
Asset Impairment Expense. We record severance, tangible asset and other
restructuring charges such as lease terminations, in response to declines in
demand that lead to excess capacity, changing technology and other factors. These
costs are expensed during the period in which we determine that we will incur
those costs, and all of the requirements for accrual are met in accordance with
the applicable accounting guidance. Restructuring
costs are recorded based upon our best estimates at the time, such as estimated
residual values. Our actual expenditures for the restructuring activities may
differ from the initially recorded costs. If this occurs, we could be required
either to record additional expenses in future periods if our initial estimates
were too low, or reverse part of the charges that we recorded initially if our
initial estimates were too high. In the case of acquisition-related
restructuring costs, depending on whether the assets impacted came from the
acquired entity and the timing of the restructuring charge, such

16

adjustment would generally
require a change in value of the goodwill appearing on our balance sheet, which
may not affect our earnings.

Income Taxes.
We use the asset and liability
method of accounting for income taxes. Under this method, income tax
expense/benefit is recognized for the amount of taxes payable or refundable for
the current year and for deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an entitys financial
statements or tax returns. We must make assumptions, judgments and estimates to
determine our current provision for income taxes and also our deferred tax
assets and liabilities and any valuation allowance to be recorded against a
deferred tax asset. Our judgments, assumptions and estimates relative to the
current provision for income tax take into account current tax laws, our
interpretation of current tax laws and possible outcomes of current and future
audits conducted by foreign and domestic tax authorities. Changes in tax law or
our interpretation of tax laws and the resolution of current and future tax
audits could significantly impact the amounts provided for income taxes in our
consolidated financial statements. Our assumptions, judgments and estimates
relative to the value of a deferred tax asset take in to account predictions of
the amount and category of future taxable income. Actual operating results and
the underlying amount and category of income in future years could render our
current assumptions, judgments and estimates of recoverable net deferred taxes
inaccurate. Any of the assumptions, judgments and estimates mentioned above
could cause our actual income tax obligations to differ from our estimates.

Contingency
Accruals.During the normal course of business, a
variety of issues may arise, which may result in litigation, environmental
compliance and other contingent obligations. In developing our contingency
accruals we consider both the likelihood of a loss or incurrence of a liability
as well as our ability to reasonably estimate the amount of exposure. We record
contingency accruals when a liability is probable and the amount can be
reasonably estimated. We periodically evaluate available information to assess
whether contingency accruals should be adjusted. Our evaluation includes an
assessment of legal interpretations, judicial proceedings, recent case law and
specific changes or developments regarding known claims. We could be required to
record additional expenses in future periods if our initial estimates were too
low, or reverse part of the charges that we recorded initially if our estimates
were too high.

Overview

We are a global
producer of precision-engineered electronic components and electrical contact
products and materials. We believe we are a leading global producer of these
products and materials in the primary markets we serve based on our estimates
of the size of our primary markets in annual revenues and our share of those markets
relative to our competitors.

We
operate our business in two distinct segments:


Pulse,
  which manufactures electronic components, and
AMI
  Doduco, which manufactures electrical contact products.General. We
define net sales as gross sales less returns
and allowances. We sometimes refer to net sales as revenue.

Historically, the
gross
margin at Pulse has been significantly higher than at AMI Doduco. As a result,
the mix of net sales generated by Pulse and AMI Doduco during a period affects
our consolidated gross margin. Additionally, our gross margin is affected by
our acquisitions, such as LK Products Oy (LK) which, together with certain
assets that we acquired with FRE, we refer to as the antenna division, and ERA
Group (ERA), whose automotive coils we include in the automotive division.
Our gross margin is also significantly affected by capacity utilization,
particularly in higher fixed-cost operations in AMI Doduco and Pulses
consumer, antenna and automotive divisions. AMI Doducos, and to a lesser
extent Pulses, gross margin is also affected by the price of precious and
non-precious metals that are passed through to customers at nominal margins.
Pulses markets are characterized by relatively short product life cycles
compared to AMI Doduco. As a result, significant product turnover occurs each
year. Therefore, Pulses changes in average selling prices do not necessarily
provide a meaningful and quantifiable measure

17

of
Pulses operations. AMI Doduco has a relatively long-term and mature product
line, with less turnover, and with less frequent variation in the prices of
product sold, relative to Pulse. Many of AMI Doducos products are sold under
annual (or longer) purchase contracts. Therefore, AMI Doducos revenues
historically have not been subject to significant price fluctuations. In
addition, sales growth and contraction at AMI Doduco and Pulses consumer,
antenna and automotive divisions are generally attributable to changes in unit
volume and changes in unit pricing, as well as foreign exchange rates,
especially the U.S. dollar to the euro.

Acquisitions.
Acquisitions have
been an important part of our growth strategy. In many cases, our move into new
product lines and extensions of our existing product lines or markets has been
facilitated by an acquisition. Our acquisitions continually change the mix of
our net sales. We have made numerous acquisitions in recent years which have
increased our penetration into our primary markets and expanded our presence in
new markets. We acquired a controlling interest in Full Rise Electronic Co., Ltd. (FRE) in late 2004. FRE is based in
Taiwan and
manufactures connector products, including single and multiple-port jacks, and
supplies such products to Pulse under a cooperation agreement. LK was acquired
in September 2005 for approximately $111.1 million, net of cash acquired and
including acquisition costs and the consideration resulting from the earn-out
provision noted below. LK is based in Kempele, Finland, and is a producer of
internal antennas and integrated modules for mobile communications and
information devices. The LK purchase agreement includes an earn-out provision
which resulted in us paying approximately $19.8 million, or 15.5 million euros, net of a
receivable from the seller, in the third quarter of 2006. ERA was acquired in January 2006 for
approximately $53.3 million,
net of cash acquired and including acquisition costs. ERA is based in Herrenberg, Germany and is a
leading producer of electronic coils and transformers primarily for the European automotive, heating/ventilation/air conditioning
and appliance markets. We will also continue to pursue additional growth
opportunities.

Divestiture.
In the second quarter
of 2005, we received approximately $6.7 million for the sale of AMI Doducos
bimetal and metal cladding operations. We have reflected the results of the
bimetal and metal cladding operations as discontinued operations on the
Consolidated Statements of Operations for all periods presented.

Technology.
Our business is continually
affected by changes in technology, design, and preferences of consumers and
other end users of our products, as well as changes in regulatory requirements.
We address these changes by continuing to invest in new product development and
by maintaining a diverse product portfolio which contains both mature and
emerging technologies in order to meet customer demands.

Management Focus. Our executives focus
on a number of important factors in evaluating our financial condition and
operational performance. For example, we use economic profit, which we define
as operating profit after tax less our cost of capital on employed resources,
revenue growth, gross profit as a percentage of revenue, and operating profit
as a percent of revenue. Operating leverage or incremental operating profit as
a percentage of incremental sales is a factor that is discussed frequently, as
this is believed to reflect the benefit of absorbing fixed overhead and
operating expenses. In evaluating working capital management, liquidity and
cash flow, our executives also use performance measures such as days sales
outstanding, days payable outstanding, inventory turnover and cash conversion
efficiency. The continued success of our business is largely dependent on
meeting and exceeding our customers expectations. Therefore, non-financial
performance measures relating to on-time delivery and quality assist our
management in monitoring customer satisfaction on an on-going basis.

Cost
Reduction Programs. Our manufacturing model for certain large divisions of Pulses business
have a very high variable cost component due to the labor-intensity of many
processes, which allows us to quickly change our capacity based on market
demand. The Pulse consumer, antenna and automotive divisions, however, are
capital intensive and therefore more sensitive to volume changes. AMI Doduco
has a higher fixed cost component of manufacturing activity than Pulse, as it
is more capital intensive. Therefore, AMI Doduco is unable to expand or
contract its capacity as quickly as Pulse in response to market demand,
although significant actions have been taken to align AMI Doducos capacity
with current market demand.

18

As
a result of our focus on
both economic and operating profit, we will continue to aggressively size both
Pulse and AMI Doduco so that costs are optimally matched to current and
anticipated future revenues and unit demand. We continue to engage in a succession of cost reduction initiatives and
programs. The amounts of additional charges will depend on specific
actions taken. The actions taken over the past several years such as plant
closures, plant relocations, asset impairments and reduction in personnel at
the affected locations have resulted in the elimination of a variety of costs.
The majority of these costs represent the annual salaries and benefits of
terminated employees, both those directly related to manufacturing and those
providing selling, general and administrative services, as well as lower
overhead costs related to factory relocations to lower-cost locations. The eliminated
costs also include depreciation savings from disposed equipment.

During 2005, we
accrued $7.0 million to
streamline operations at Pulse and AMI Doduco. We also recorded a $46.0 million
impairment charge for Pulses consumer division.

In the nine months
ended September 29, 2006, we accrued $6.4 million for the termination and plant shutdown
costs resulting from the transfer of production operations at Pulses
facilities in Turkey to China, termination and plant shutdown costs resulting
from the transfer of production operations at AMI Doducos facility in Italy to
Spain and termination and plant shutdown costs at various other locations.

In the nine months
ended September 29, 2006, we recorded approximately $4.9 million of accelerated
depreciation as cost of sales as a result of the shutdown of Pulses consumer
division operations in Turkey and Pulses sales office in France.

International
Operations. As of September 29, 2006, we had manufacturing operations in 9 countries
and had no significant net sales in currencies other than the U.S. dollar and
the euro. A large percentage of our sales in recent years have been outside of
the United States. Changing exchange rates often impact our financial results
and our period-over-period comparisons. This is particularly true of movements
in the exchange rate between the U.S. dollar and the euro. AMI Doducos European
and Pulses consumer, antenna and automotive division sales are denominated
primarily in euro, and euro-denominated sales and earnings may result in higher
or lower dollar sales and net earnings upon translation for our U.S.
consolidated financial statements. We may also experience a positive or
negative translation adjustment to equity because our investments in Pulses
consumer, antenna and automotive divisions and AMI Doducos European operations may be worth more or less in U.S.
dollars after translation for our U. S. consolidated financial statements.
Foreign currency gains or losses may also be incurred when non-functional
currency denominated transactions are remeasured to an operations functional
currency for financial reporting purposes. If a higher percentage of our sales
is denominated in non-U.S. currencies, increased exposure to currency
fluctuations may result.

In
order to reduce our exposure resulting from currency fluctuations, we may
purchase currency exchange forward contracts and/or currency options. These
contracts guarantee a predetermined range of exchange rates at the time the
contract is purchased. This allows us to shift the majority of the risk of
currency fluctuations from the date of the contract to a third party for a fee.
As of September 29, 2006, we had one foreign currency forward contract
outstanding to sell forward approximately 49.5 million euros in order
to hedge intercompany loans.

Precious
Metals. AMI Doduco uses silver, as well as other precious metals, in
manufacturing some of its electrical contacts, contact materials and contact
subassemblies. Historically, we have leased or held these materials through consignment-type
arrangements with our suppliers. Leasing and consignment costs have typically
been below the costs to borrow funds to purchase the metals, and more
importantly, these arrangements eliminate the effects of fluctuations in the
market price of owned precious metal and enable us to minimize our inventories.
AMI Doducos terms of sale generally allow us to charge customers for precious
metal content based on market value of precious metal on the day after shipment
to the customer. Thus far we have been successful in managing the costs
associated with our precious metals. While limited amounts are purchased for
use in production, the majority of our precious metal inventory continues to be
leased or held on consignment. If our leasing/consignment fees increase
significantly in a short period of time, and we are unable to recover these
increased costs through higher sale prices, a negative impact on our

19

results
of operations and liquidity may result. Leasing/consignment fee increases are
caused by increases in interest rates or volatility in the price of the
consigned material.

Income Taxes.
Our effective income
tax rate is affected by the proportion of our income earned in high-tax
jurisdictions such as those in Europe and the income earned in low-tax
jurisdictions, particularly Tunisia and the Peoples Republic of China. This
mix of income can vary significantly from one period to another. We have
benefited over recent years from favorable tax incentives, however, there is no
guarantee as to how long these benefits will continue to exist.

Except
in limited circumstances, we have not provided for U.S. federal income and
foreign withholding taxes on our non-U.S. subsidiaries undistributed earnings
as per APB No. 23. Such earnings
may include pre-acquisition earnings of foreign entities acquired through stock
purchases, and are intended to be reinvested outside of the U.S. indefinitely.
Where excess cash has accumulated in our non-U.S. subsidiaries and it is
advantageous for tax reasons, subsidiary earnings may be remitted.

Results of Operations

Three months
ended September 29,
2006 compared to the three months ended September 30, 2005

Net Sales.Net sales for the three months ended September 29, 2006 increased $110.5
million, or 75.1%, to $257.7 million from $147.2 million in the three months ended September 30,
2005. Our sales increase from the comparable period in the prior year was
primarily attributable to the addition of Pulses antenna and
automotive divisions beginning in
September 2005 and January 2006, respectively, strong global demand in Pulses
networking, telecommunications and power conversion divisions and higher
pass-through costs for silver and other metals at AMI Doduco.

Pulses net
sales increased $87.4 million, or 100.9%, to $174.0 million for the three
months ended September 29, 2006 from $86.6 million in the three months ended
September 30, 2005. This increase was primarily attributable to the factors set
forth in the prior paragraph.

AMI Doducos
net sales increased $23.1 million, or
38.1%, to $83.7 million for the three months ended September 29, 2006 from
$60.6 million in the three months ended September 30, 2005. Sales in the 2006
period compared to the 2005 period reflect higher pass-through costs for silver
and other metals and increased global demand in industrial and electric power
distribution markets.

Cost of
Sales. As a result of higher sales
and higher pass-through costs for silver and other metals, our cost of sales
increased $82.9 million, or 73.2%, to $196.1 million for the three months ended
September 29, 2006 from $113.2 million for the three months ended September 30,
2005. Our consolidated gross margin for the three months ended September 29,
2006 was 23.9% compared to 23.1% for the three months ended September 30, 2005.
Our consolidated gross margin in 2006 was favorably impacted by product mix and
higher capacity utilization at Pulse which were partially offset by the impact
of accelerated depreciation and the ongoing integration of Pulses automotive
division. In the third quarter of 2006, we recorded approximately $2.4 million
of accelerated building and equipment depreciation as cost of sales in
conjunction with our plan to close Pulses consumer division operations in
Turkey. Additionally, we recorded $0.2 million of accelerated building
depreciation as cost of sales in conjunction with our plan to close Pulses
sales office in France.

Selling, General
and Administrative Expenses. Total selling, general and administrative
expenses for the three months ended September 29, 2006 increased $13.6 million, or 53.1%, to $39.2 million, or 15.2% of
net sales, from $25.6 million, or 17.4% of net sales for the three months ended
September 30, 2005. Increased
spending was primarily a result of the inclusion of the Pulse antenna and
automotive divisions expenses in
the 2006 period, higher incentive compensation expense and increased intangible
amortization expense due to recent acquisitions. Also, the restructuring
actions that we took over the last year to reduce costs, and generally
favorable spending in the face of significant revenue increases, contributed to
lower operating expenses as a percentage of sales.

20

We refer to
research, development and engineering expenses as RD&E and include these
costs in selling, general and administrative expenses. For the three months
ended September 29, 2006 and September 30, 2005 respectively, RD&E by
segment was as follows (in thousands):

2006

2005Pulse

$
10,372

$
5,475Percentage
  of segment sales


6.0
%

6.3
%AMI Doduco

$
1,115

$
988Percentage
  of segment sales


1.3
%

1.6
%Higher
RD&E spending in 2006 over the comparable period in 2005 is a result of the
inclusion of Pulse antenna and automotive divisions spending since their
acquisition dates. As a percentage of sales, RD&E spending was lower for
both segments in 2006 than in 2005. Sales increased more rapidly than RD&E
spending due to strong end-user demand in both segments and the inclusion of
higher silver and base metal pass-through costs at AMI Doduco in 2006. We
believe that future sales in the electronic components markets will be driven
by next-generation products. Design and development activities with our OEM
customers continue at an aggressive pace.

Severance
and Asset Impairment Expense. Severance and asset
impairment expense was $2.6 million for the three months ended September 29,
2006 as compared to $1.4 million for the three months ended September 30, 2005.

Interest. Net
interest expense was $2.1 million for the
three months ended September 29, 2006 compared to net interest income of $0.4
million for the three months ended September 30, 2005. The increase in net
interest expense in 2006 is a result of interest charges on borrowings from our
multi-currency credit facility, a lower average balance of invested cash in
2006 over the comparable period in 2005 primarily due to acquisitions and
increasing precious metal leasing costs.

Other. Other
expense was $0.8 million for the three
months ended September 29, 2006 versus $0.2 million for the three months ended
September 30, 2005.

Income
Taxes.The effective
income tax rate for the three months ended September 29, 2006 was 11.5%
compared to 21.6% for the three months ended September 30, 2005. The reduction
in the effective income tax rate is primarily a result of an increase in pretax
earnings in low tax jurisdictions in 2006 as compared to the same period in
2005.

Nine
months ended September 29, 2006 compared to the nine months ended September 30,
2005

Net
Sales.Net sales
for the nine months ended September 29, 2006 increased $286.1 million, or 66.2%, to $718.0 million from $431.9 million in the nine
months ended September 30,
2005. Our sales increase from the comparable period in prior year was primarily
attributable to the addition of Pulses antenna and automotive divisions net sales beginning in September 2005 and
January 2006, respectively, strong global demand across all of Pulses
businesses except the consumer division and higher pass-through costs for
silver and other metals at AMI Doduco.

Pulses net
sales increased $232.9 million, or 96.8%, to $473.5 million for the nine months
ended September 29, 2006 from $240.6 million in the nine months ended September
30, 2005. This increase was primarily attributable to factors set forth in the
prior paragraph.

AMI
Doducos net sales increased $53.1 million, or 27.7%, to $244.5 million for the nine months ended
September 29, 2006 from $191.4 million in the nine months ended September 30,
2005. Sales in the 2006 period compared to the 2005 period reflect higher pass-through
costs for silver and other metals and increased global demand in industrial and
electric power distribution markets.

21

Cost
of Sales. As a result of higher sales, our cost of
sales increased $217.4 million, or 65.6%, to $548.8 million for the nine months
ended September 29, 2006 from $331.4 million for the nine months ended
September 30, 2005. Our consolidated gross margin for the nine months ended
September 29, 2006 was 23.6% compared to 23.3% for the nine months ended
September 30, 2005.

Selling,
General and Administrative Expenses. Total selling, general and administrative
expenses for the nine months ended September 29, 2006 increased $30.8 million,
or 39.6%, to $108.5 million, or 15.1% of net sales, from $77.7 million, or
18.0% of net sales for the nine months ended September 30, 2005. Increased spending was a result of the
inclusion of the Pulse antenna and automotive divisions expenses in the 2006 period and higher incentive compensation expense.
Additionally, the restructuring actions that we took over the last year to
reduce costs and generally favorable spending in the face of significant
revenue increases contributed to lower operating expenses as a percentage of
sales.

We refer to
research, development and engineering expenses as RD&E and include these
costs in selling, general and administrative expenses. For the nine months ended
September 29, 2006 and September 30, 2005 respectively, RD&E by segment was
as follows (in thousands):

2006

2005Pulse

$
26,484

$
14,983Percentage
  of segment sales


5.6
%

6.2
%AMI Doduco

$
3,440

$
3,165Percentage
  of segment sales


1.4
%

1.7
%Higher
RD&E spending in 2006 over the comparable period in 2005 is a result of the
inclusion of Pulse antenna and automotive divisions spending since their
acquisition dates. As a percentage of sales, RD&E spending was lower for
both segments in 2006 than in 2005. Sales increased more rapidly than RD&E
spending due to strong end-user demand in both segments and the inclusion of
higher silver and base metal pass-through costs at AMI Doduco in 2006. We
believe that future sales in the electronic components markets will be driven
by next-generation products. Design and development activities with our OEM
customers continue at an aggressive pace.

Severance
and Asset Impairment Expense. Severance and asset
impairment expense was $6.4 million for the nine months ended September 29,
2006 and $50.6 million for the nine months ended September 30, 2005. The
decrease is primarily due to the $46.0 million asset impairment charge in the
Pulse consumer division during the 2005 period.

Interest. Net
interest expense was $4.5 million for the
nine months ended September 29, 2006 compared to net interest income of $1.2
million for the nine months ended September 30, 2005. The increase in net
interest expense in 2006 is a result of interest charges on borrowings from our
multi-currency credit facility, a lower average balance of invested cash in
2006 over the comparable period in 2005 primarily due to acquisitions and
increasing precious metal leasing costs.

Other. Other
income (expense) was $2.4 million for the
nine months ended September 29, 2006 versus $(1.1) million for the nine months
ended September 30, 2005. The increase in income is primarily attributed to
foreign exchange gains in 2006 as compared to foreign exchange losses in 2005.

Income
Taxes.The
effective income tax rate for the nine months ended September 29, 2006 was
16.0%. The tax rate in 2005 was primarily impacted by the non-deductibility of
the Pulse consumer division impairment charge of $46.0 million. The effective
rate for the nine months ended September 30, 2005 without the impairment charge
was 23.2%. The reduction in the effective rate, absent the impairment charge,
is a result of an increase in pre-tax earnings in low tax jurisdictions in 2006
as compared to the same period in 2005.

22

Liquidity and Capital
Resources

Working
capital as of September 29, 2006 was $189.7 million compared to $209.8 million
as of December 30, 2005, a decrease of $20.1 million. Cash and cash
equivalents, which is included in working capital, decreased from $173.7
million as of December 30, 2005 to $68.4 million as of September 29, 2006, a
decrease of $105.3 million. This decrease in cash related primarily to cash
used in the acquisition of Pulses automotive division in January 2006,
increases in the working capital of Pulses automotive division subsequent to
the acquisition date, volume-driven increases in accounts receivable and
inventory which were partially offset by accounts payable and accrued expenses,
the net repayment of approximately $29.3 million of debt and approximately
$10.6 million of dividends. Components of working capital are affected by
various items such as operating activities, foreign exchange rate changes, and
acquisitions.

Net cash
provided by operating activities was $36.5 million for the nine months ended
September 29, 2006 as compared to $33.1 million of net cash provided by
operating activities in the comparable period of 2005, an increase of $3.4
million. The increase in 2006 is primarily attributable to higher net earnings
which were not fully offset in changes in working capital and severance and
asset impairment expenses.

We present
our statement of cash flows using the indirect method as permitted under
Financial Accounting Standards Board Statement No. 95, Statement of Cash Flows. Our management
has found that investors and analysts typically refer to changes in accounts
receivable, inventory, and other components of working capital when analyzing
operating cash flows. Also, changes in working capital are more directly
related to the way we manage our business for cash flow than are items such as
cash receipts from the sale of goods, as would appear using the direct method.

Capital
expenditures were $16.5 million during the nine months ended September 29, 2006
and $12.2 million in the comparable period of 2005. The increase in 2006
reflects capital projects associated with growth in almost every division of
Pulse, particularly the new antenna and automotive divisions. We make capital
expenditures to expand production capacity, improve our operating efficiency,
and enhance workplace safety. We plan to continue making such expenditures in
the future as and when necessary.

We used
$10.6 million for dividend payments during the nine months ended September 29,
2006. During 2006, we have paid a quarterly dividend of $0.0875 per common
share to shareholders of record on each specified date. On July 28, 2006, we
announced another quarterly cash dividend of $0.0875 per common share, payable
on October 20, 2006 to shareholders of record on October 6, 2006. We expect to
continue to pay quarterly dividends for the foreseeable future.

We used
$73.5 million, net of cash acquired, for acquisitions and acquisition-related
costs during the nine months ended September 29, 2006. The 2006 expenditures
related primarily to our acquisition of ERA in January 2006 and we paid approximately $19.8 million, or 15.5
million euros, net of a receivable from the seller, related to our acquisition
of LK. This payment is a result of the previously disclosed earn-out provision
and was accrued for in the second quarter of 2006. We may acquire other
businesses or product lines to expand our breadth and scope of operations.

We entered
into a credit agreement on October 14, 2005 providing for $200.0 million of
credit capacity. The facility consists of an aggregate U.S. dollar-equivalent
revolving line of credit in the principal amount of up to $200.0 million, and
provides for borrowings in multiple currencies including but not limited to,
U.S. dollars, euros, and Japanese yen, including individual sub-limits of:








a U.S. dollar-based swing-line loan not to exceed $20.0 million;
a multicurrency facility providing for the issuance of letters of
  credit in an aggregate amount not to exceed the U.S. dollar equivalent of
  $25.0 million; and
a Singapore sub-facility not to exceed the U.S. dollar equivalent of
  $50.0 million.The credit
agreement permits us to request one or more increases in the total commitment
not to exceed $100.0 million, provided the minimum increase is $25.0 million,
subject to bank approval.

23

The total
amount outstanding under the credit facility may not exceed $200.0 million,
provided we do not request an increase in total commitment as noted above.

Outstanding
borrowings are subject to two financial covenants, which are both computed on a
rolling twelve-month basis as of the most recent quarter-end. The first is
maximum debt outstanding amounting to three and one-half times our earnings
before interest, taxes, depreciation and amortization (EBITDA), as defined by
the credit agreement. The second is maximum debt service expenses amounting to
two and one-half times our cash interest expense, as defined by the credit
agreement. The credit agreement also contains covenants specifying capital
expenditure limitations and other customary and normal provisions. We are in
compliance with these covenants as of September 29, 2006.

We pay a
commitment fee on the unborrowed portion of the commitment, which ranges from
0.15% to 0.25% of the total commitment, depending on our debt-to-EBITDA ratio,
as defined above. The interest rate for each currencys borrowing will be a
combination of the base rate for that currency plus a credit margin spread. The
base rate is different for each currency. The credit margin spread is the same
for each currency and is 0.60% to 1.25%, depending on our debt-to-EBITDA ratio,
as defined in the credit agreement. Each of our domestic subsidiaries with net
worth equal to or greater than $10 million has guaranteed all obligations
incurred under the credit facility.

We also
have an obligation outstanding due in August 2009 under an unsecured term loan
agreement with Sparkasse Pforzheim, for the borrowing of approximately 5.1
million euros.

At
September 29, 2006, our balance sheet includes $2.0 million of outstanding debt
of Full Rise Electronic Co., Ltd. in connection with our consolidation of FREs financial statements. FRE
has a total credit limit of approximately $3.9 million in U.S. dollar
equivalents as of September 29, 2006. Neither Technitrol, nor any of its
subsidiaries, has guaranteed or otherwise participated in the credit facilities
of FRE or assumed any responsibility for the current or future indebtedness of
FRE.

We had
three standby letters of credit outstanding at September 29, 2006 in the
aggregate amount of $1.0 million securing transactions entered into in the
ordinary course of business.

We had
commercial commitments outstanding at September 29, 2006 of approximately
$124.5 million due under precious metal consignment-type leases. This
represents an increase of $36.7 million from the $87.8 million outstanding as
of December 30, 2005 and is primarily attributable to higher average silver
prices at September 29, 2006.

We believe
that the combination of cash on hand, cash generated by operations and, if
necessary, borrowings under our credit agreement will be sufficient to satisfy
our operating cash requirements in the foreseeable future. In addition, we may
use internally generated funds or obtain borrowings or equity offerings for
acquisitions of suitable businesses or assets.

All
retained earnings are free from legal or contractual restrictions as of
September 29, 2006, with the exception of approximately $16.2 million of
retained earnings primarily in the PRC, that are restricted in accordance with
Section 58 of the PRC Foreign Investment Enterprises Law. Included in the $16.2
million is $1.8 million of retained earnings of FRE of which we own 59%. The
amount restricted in accordance with the PRC Foreign Investment Enterprise Law
is applicable to all foreign investment enterprises doing business in the PRC.
The restriction applies to 10% of our net earnings in the PRC, limited to 50%
of the total capital invested in the PRC. We have not experienced any
significant liquidity restrictions in any country in which we operate and none
are foreseen. However, foreign exchange ceilings imposed by local governments
and the sometimes lengthy approval processes which foreign governments require
for international cash transfers may delay our internal cash movements from
time to time. We expect to reinvest these earnings outside of the United States
because we anticipate that a significant portion of our opportunities for
growth in the coming years will be abroad. If these earnings were brought back
to the United States, significant tax liabilities could be incurred in the
United States as several countries in which we operate have tax rates
significantly lower than the U.S. statutory rate. Additionally, we have not
accrued U.S. income and foreign withholding taxes on foreign earnings that have
been indefinitely invested abroad.

24

In
October 2004, the American Jobs Creation Act of 2004 (AJCA) was signed into
law. The AJCA contained a series of provisions, several of which are pertinent
to us. The AJCA created a temporary incentive for U.S. multi-national corporations
to repatriate accumulated income abroad by providing an 85% dividends received
deduction for certain dividends received from controlled foreign corporations.
Based on this legislation and 2005 guidance by the Department of Treasury, we
repatriated $52.0 million of foreign earnings in the fourth quarter of 2005,
net of $7.3 million of income taxes. Prior to the passage of the AJCA, the
undistributed earnings of our foreign subsidiaries, with the exception of
approximately $40.0 million, were considered to be indefinitely reinvested, and
in accordance with APB Opinion No. 23 (APB 23), Accounting for Income Taxes -
Special Areas, no provision for U.S. federal or state income taxes had been
provided on these undistributed earnings. As of September 29, 2006, the
remaining offshore earnings, with the exception of approximately $40.0 million,
are intended to be indefinitely invested abroad and no provision for U.S.
federal or state income taxes has been provided in accordance with APB 23.

Item 3: Quantitative
and Qualitative Disclosures about Market Risk

There were
no material changes in market risk exposures that affect the quantitative and
qualitative disclosures presented in our Form 10-K for the year ended December
30, 2005.

25

Item 4: Controls and Procedures

An
evaluation was performed under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the disclosure controls and procedures pursuant
to Rule 13a-15 under the Exchange Act of 1934 as of September 29, 2006. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded that the disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or
submit is recorded, processed, summarized and reported, as specified in the
Commissions rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in the reports that it files or submits
under the Act is accumulated and communicated to the issuers management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.

There were
no changes in these controls or procedures that occurred during the three
months ended September 29, 2006 that have materially affected, or are
reasonably likely to materially affect, these controls or procedures. However,
in January 2006, we acquired all of the capital stock of ERA Group (ERA),
headquartered in Herrenberg, Germany, and we are still in the process of
evaluating internal control over financial reporting at ERA. Accordingly, we
have not included ERA in our evaluation of internal control over financial
reporting for the quarter ended September 29, 2006.

A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

26

PART II. OTHER INFORMATION

Item 1
Legal
  Proceedings
NoneItem 1a
Risk FactorsRisk Factors are on page
28.Item 2
Unregistered
  Sales of Equity Securities and Use of Proceeds
NoneItem 3
Defaults
  Upon Senior Securities
NoneItem 4
Submission
  of Matters to a Vote of Security Holders
NoneItem 5
Other
  Information
NoneItem 6
Exhibits(a) ExhibitsThe Exhibit Index is on page
35.27

Item 1a: Risk Factors

Factors That May Affect Our Future
Results (Cautionary Statements for Purposes of the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995)

Our
disclosures and analysis in this report contain forward-looking statements.
Forward-looking statements reflect our current expectations of future events or
future financial performance. You can identify these statements by the fact
that they do not relate strictly to historical or current facts. They often use
words such as anticipate, estimate, expect, project, intend,
plan,
believe, and similar terms. These forward-looking statements are based on our
current plans and expectations.

Any
or all of our forward-looking statements in this report may prove to be
incorrect. They may be affected by inaccurate assumptions we might make or by
risks and uncertainties which are either unknown or not fully known or understood.
Accordingly, actual outcomes and results may differ materially from what is
expressed or forecasted in this report.

We
sometimes provide forecasts of future financial performance. The risks and
uncertainties described under Risk Factors as well as other risks identified
from time to time in other Securities and Exchange Commission reports,
registration statements and public announcements, among others, should be
considered in evaluating our prospects for the future. We undertake no obligation
to release updates or revisions to any forward-looking statement, whether as a
result of new information, future events or otherwise.

The
following factors represent what we believe are the major risks and
uncertainties in our business. They are listed in no particular order.

Cyclical changes in the markets we
serve could result in a significant decrease in demand for our products and
reduce our profitability.

Our
components are used in various products for the electronic and electrical
equipment markets. These markets are highly cyclical. The demand for our
components reflects the demand for products in the electronic and electrical
equipment markets generally. A contraction in demand would result in a decrease
in sales of our products, as our customers:


may
  cancel many existing orders;
may
  introduce fewer new products; and
may
  decrease their inventory levels.A
decrease in demand for our products would have a significant adverse effect on
our operating results and profitability. Accordingly, we may experience
volatility in both our revenues and profits.

Reduced prices for our products may
adversely affect our profit margins if we are unable to reduce our costs of
production.

The
average selling prices for our products tend to decrease over their life cycle.
In addition, foreign currency movements and the need to retain market share
increase the pressure on our customers to seek lower prices from their
suppliers. As a result, our customers are likely to continue to demand lower
prices from us. To maintain our margins and remain profitable, we must continue
to meet our customers design needs while reducing costs through efficient raw
material procurement and process and product improvements. Our profit margins
will suffer if we are unable to reduce our costs of production as sales prices
decline.

An inability to adequately respond to
changes in technology or customer needs may decrease our sales.

Pulse
operates in an industry characterized by rapid change caused by the frequent
emergence of new technologies. Generally, we expect life cycles for our
products in the electronic components industry to be

28

relatively
short. This requires us to anticipate and respond rapidly to changes in
industry standards and customer needs and to develop and introduce new and
enhanced products on a timely and cost effective basis. Our engineering and
development teams place a priority on working closely with our customers to
design innovative products and improve our manufacturing processes. Our
inability to react to changes in technology or customer needs quickly and
efficiently may decrease our sales, thus reducing profitability.

If our inventories become obsolete, our
future performance and operating results will be adversely affected.

The
life cycles of our products depend heavily upon the life cycles of the end
products into which our products are designed. Many of Pulses products have
very short life cycles which are measured in quarters. Products with short life
cycles require us to closely manage our production and inventory levels.
Inventory may become obsolete because of adverse changes in end market demand.
During market slowdowns, this may result in significant charges for inventory
write-offs. Our future operating results may be adversely affected by material
levels of obsolete or excess inventories.

An inability to capitalize on our
recent or future acquisitions may adversely affect our business.

We
have completed several acquisitions in recent years. We continually seek
acquisitions to grow our business. We may fail to derive significant benefits
from our acquisitions. In addition, if we fail to achieve sufficient financial
performance from an acquisition, goodwill and other intangibles could become
impaired, resulting in our recognition of a loss. In 2005, we recorded a $46.0
million impairment charge related to Pulses consumer division. The success of
any of our acquisitions depends on our ability to:


successfully
  integrate or consolidate acquired operations into our existing businesses;
develop
  or modify the financial reporting and information systems of the acquired
  entity to ensure overall financial integrity and adequacy of internal control
  procedures;
identify
  and take advantage of cost reduction opportunities; and
further
  penetrate the markets for the product capabilities acquired.Integration
of acquisitions may take longer than we expect and may never be achieved to the
extent originally anticipated. This could result in lower than anticipated
business growth or higher than anticipated costs. In addition, acquisitions
may:


cause
  a disruption in our ongoing business;
distract
  our managers;
unduly
  burden our other resources; and
result
  in an inability to maintain our historical standards, procedures and
  controls, which may result in non-compliance with external laws and
  regulations.Integration of acquisitions into the
acquiring segment may limit the ability of investors to track the performance
of individual acquisitions and to analyze trends in our operating results.

Our
historical practice has been to rapidly integrate acquisitions into the
existing business of the acquiring segment and to report financial performance
on the segment level. As a result of this practice, we do not separately track
the stand-alone performance of acquisitions after the date of the transaction.
Consequently, investors cannot quantify the financial performance and success
of any individual acquisition or the financial performance and success of a
particular segment excluding the impact of acquisitions. In addition, our
practice of rapidly integrating acquisitions into the financial performance of
each segment may limit the ability of investors to analyze any trends in our
operating results over time.

An inability to identify additional
acquisition opportunities may slow our future growth.

We
intend to continue to identify and consummate additional acquisitions to further
diversify our business and to penetrate important markets. We may not be able
to identify suitable acquisition candidates at

29

reasonable
prices. Even if we identify promising acquisition candidates, the timing,
price, structure and success of future acquisitions are uncertain. An inability
to consummate attractive acquisitions may reduce our growth rate and our
ability to penetrate new markets.

If our customers terminate their
existing agreements, or do not enter into new agreements or submit additional
purchase orders for our products, our business will suffer.

Most
of our sales are made on a purchase order basis, as needed by our customers. In
addition, to the extent we have agreements in place with our customers, most of
these agreements are either short term in nature or provide our customers with
the ability to terminate the arrangement with little or no prior notice. Such
agreements typically do not provide us with any material recourse in the event
of non-renewal or early termination. We will lose business and our revenues
will decrease if a significant number of customers:


do
  not submit additional purchase orders;
do
  not enter into new agreements with us; or
elect
  to terminate their relationship with us.If we do not effectively manage our
business in the face of fluctuations in the size of our organization, our
business may be disrupted.

We
have grown over the last ten years, both organically and as a result of
acquisitions. However, we significantly reduce or expand our workforce and
facilities in response to rapid changes in demand for our products due to
prevailing global market conditions. These rapid fluctuations place strains on
our resources and systems. If we do not effectively manage our resources and
systems, our businesses may be adversely affected.

Uncertainty in demand for our products
may result in increased costs of production, an inability to service our
customers, or higher inventory levels which may adversely affect our results of
operations and financial condition.

We
have very little visibility into our customers purchasing patterns and are
highly dependent on our customers forecasts. These forecasts are non-binding
and often highly unreliable. Given the fluctuation in growth rates and cyclical
demand for our products, as well as our reliance on often-imprecise customer
forecasts, it is difficult to accurately manage our production schedule,
equipment and personnel needs and our raw material and working capital
requirements. Our failure to effectively manage these issues may result in:


production
  delays;
increased
  costs of production;
excessive
  inventory levels and reduced financial liquidity;
an
  inability to make timely deliveries; and
a
  decrease in profits.A decrease in availability of our key
raw materials could adversely affect our profit margins.

We
use several types of raw materials in the manufacturing of our products,
including:


precious
  metals such as silver;
other
  base metals such as copper and brass; and
ferrite
  cores.Some of
these materials are produced by a limited number of suppliers. From time to
time, we may be unable to obtain these raw materials in sufficient quantities
or in a timely manner to meet the demand for our products. The lack of
availability or a delay in obtaining any of the raw materials used in our
products could adversely affect our manufacturing costs and profit margins. In
addition, if the price of our raw materials increases significantly over a
short period of time due to increased market demand, customers may be

30

unwilling to bear the increased price for our products and we may be
forced to sell our products containing these materials at prices that reduce
our profit margins.

Costs associated with precious metals
and base metals may not be recoverable.

Some
of our raw materials, such as precious metals and certain base metals, are
considered commodities and are subject to price volatility. We attempt to limit
our exposure to fluctuations in the cost of precious materials, including
silver, by holding the majority of our precious metal inventory through leasing
or consignment arrangements with our suppliers. We then typically purchase the
precious metal from our supplier at the current market price on the day after
delivery to our customer and pass this cost on to our customer. We try to limit
our exposure to base metal price fluctuations by attempting to pass through the
cost of base metals to our customers, typically by indexing the cost of the
base metal, so that our cost of the base metal closely relates to the price we
charge our customers, but we may not always be successful in fully passing
through higher costs to our customers.

Leasing/consignment
fee increases are caused by increases in interest rates or volatility in the
price of the consigned material. Fees charged by the consignor are driven by
interest rates and the market price of the consigned material. The market price
of the consigned material is determined by the supply of, and the demand for,
the material. Consignment fees may increase if interest rates or the price of
the consigned material increase.

Our
results of operations and liquidity will be negatively impacted if:


we
  are unable to enter into new leasing or consignment arrangements with
  similarly favorable terms after our existing agreements terminate, or
our
  leasing or consignment fees increase significantly in a short period of time
  and we are unable to recover these increased costs through higher sale
  prices, or
we
  are unable to pass through higher base metals costs to our customers.Competition may result in lower prices
for our products and reduced sales.

Both
Pulse and AMI Doduco frequently encounter strong competition within individual
product lines from various competitors throughout the world. We compete
principally on the basis of:


product
  quality and reliability;
global
  design and manufacturing capabilities;
breadth
  of product line;
customer
  service;
price;
  and
on-time
  delivery.Our
inability to successfully compete on any or all of the above factors may result
in reduced sales.

Fluctuations in foreign currency
exchange rates may adversely affect our operating results.

We
manufacture and sell our products in various regions of the world and export
and import these products to and from a large number of countries. Fluctuations
in exchange rates could negatively impact our cost of production and sales
that, in turn, could decrease our operating results and cash flow. In addition,
if the functional currency of our manufacturing costs strengthened compared to
the functional currency of our competitors manufacturing costs, our products may
get more costly than our competitors. Although we engage in limited hedging
transactions, including foreign currency contracts, to reduce our transaction
and economic exposure to foreign currency fluctuations, these measures may not
eliminate or substantially reduce our risk in the future.

31

Our international operations subject us
to the risks of unfavorable political, regulatory, labor and tax conditions in
other countries.

We
manufacture and assemble most of our products in locations outside the United
States, including the Peoples Republic of China, or PRC, Hungary and Tunisia
and a majority of our revenues are derived from sales to customers outside the
United States. Our future operations and earnings may be adversely affected by
the risks related to, or any other problems arising from, operating in
international markets.

Risks
inherent in doing business internationally may include:


economic
  and political instability;
expropriation
  and nationalization;
trade
  restrictions;
capital
  and exchange control programs;
transportation
  delays;
foreign
  currency fluctuations; and
unexpected
  changes in the laws and policies of the United States or of the countries in
  which we manufacture and sell our products.Pulse
has substantially all of its manufacturing operations in the PRC, except for LK
and ERA. Our presence in the PRC has enabled Pulse to maintain lower
manufacturing costs and to adjust our work force to demand levels for our
products. Although the PRC has a large and growing economy, the potential
economic, political, legal and labor developments entail uncertainties and
risks. For example, wages have been increasing over the last several years in
the southern coastal provinces. While the PRC has been receptive to foreign
investment, we cannot be certain that its current policies will continue
indefinitely into the future. In the event of any changes that adversely affect
our ability to conduct our operations within the PRC, our businesses may
suffer. We also have manufacturing operations in Turkey and Tunisia, which are
subject to unique risks, including earthquakes and those associated with Middle
East geo-political events.

We
have benefited over recent years from favorable tax treatment as a result of
our international operations. We operate in countries where we realize
favorable income tax treatment relative to the U.S. statutory rate. We have
also been granted special tax incentives commonly known as tax holidays in countries
such as the PRC, Hungary, Tunisia and Turkey. This favorable situation could
change if these countries were to increase rates or revoke the special tax
incentives, or if we discontinue our manufacturing operations in any of these
countries and do not replace the operations with operations in other locations
with favorable tax incentives. Accordingly, in the event of changes in laws and
regulations affecting our international operations, we may not be able to
continue to take advantage of similar benefits in the future.

32

Shifting our operations between regions
may entail considerable expense.

In
the past we have shifted our operations from one region to another in order to
maximize manufacturing and operational efficiency. We may close one or more
additional factories in the future. This could entail significant one-time
earnings charges to account for severance, equipment write-offs or write-downs
and moving expenses, as well as certain adverse tax consequences including the
loss of specialized tax incentives. In addition, as we implement transfers of
our operations we may experience disruptions, including strikes or other types
of labor unrest resulting from layoffs or termination of employees.

Liquidity requirements could
necessitate movements of existing cash balances which may be subject to
restrictions or cause unfavorable tax and earnings consequences.

A
significant portion of our cash is held offshore by our international
subsidiaries and is predominantly denominated in U.S. dollars. While we intend
to use a significant amount of the cash held overseas to fund our international
operations and growth, if we encounter a significant domestic need for
liquidity, such as paying dividends, that we cannot fulfill through borrowings,
equity offerings, or other internal or external sources, we may experience
unfavorable tax and earnings consequences if this cash is transferred to the
United States. These adverse consequences would occur if the transfer of cash
into the United States is taxed and no offsetting foreign tax credit is
available to offset the U.S. tax liability, resulting in lower earnings. In
addition, we may be prohibited from transferring cash from the PRC. With the
exception of approximately $16.2 million of retained earnings as of December
30, 2005 in primarily the PRC that are restricted in accordance with the PRC
Foreign Investment Enterprises Law, substantially all retained earnings are
free from legal or contractual restrictions. The PRC Foreign Investment Enterprise
Law restricts 10% of our net earnings in the PRC, up to a maximum amount equal
to 50% of the total capital we have invested in the PRC. We have not
experienced any significant liquidity restrictions in any country in which we
operate and none are presently foreseen. However, foreign exchange ceilings
imposed by local governments and the sometimes-lengthy approval processes which
some foreign governments require for international cash transfers may delay our
internal cash movements from time to time.

Losing the services of our executive
officers or our other highly qualified and experienced employees could
adversely affect our business.

Our
success depends upon the continued contributions of our executive officers and
management, many of whom have many years of experience and would be extremely
difficult to replace. We must also attract and maintain experienced and highly
skilled engineering, sales and marketing and managerial personnel. Competition
for qualified personnel is intense in our industries, and we may not be
successful in hiring and retaining these people. If we lose the services of our
executive officers or cannot attract and retain other qualified personnel, our
businesses could be adversely affected.

Public health epidemics (such as flu
strains, or severe acute respiratory syndrome) or other natural disasters (such
as earthquakes or fires) may disrupt operations in affected regions and affect
operating results.

Pulse
maintains extensive manufacturing operations in the PRC, Turkey and Tunisia, as
do many of our customers and suppliers. A sustained interruption of our
manufacturing operations, or those of our customers or suppliers, as a result
of complications from severe acute respiratory syndrome or another public
health epidemic or other natural disasters, could have a material adverse
effect on our business and results of operations.

33

The unavailability of
insurance against certain business risks may adversely affect
our future operating results.

As
part of our comprehensive risk management program, we purchase insurance
coverage against certain business risks. If any of our insurance carriers
discontinues an insurance policy or significantly reduces available coverage or
increases in the deductibles and we cannot find another insurance carrier to
write comparable coverage, we may be subject to uninsured losses which may
adversely affect our operating results.

Environmental liability and compliance
obligations may affect our operations and results.

Our
manufacturing operations are subject to a variety of environmental laws and
regulations as well as internal programs and policies governing:


air
  emissions;
wastewater
  discharges;
the
  storage, use, handling, disposal and remediation of hazardous substances,
  wastes and chemicals; and
employee
  health and safety.If
violations of environmental laws should occur, we could be held liable for
damages, penalties, fines and remedial actions. Our operations and results
could be adversely affected by any material obligations arising from existing
laws, as well as any required material modifications arising from new
regulations that may be enacted in the future. We may also be held liable for
past disposal of hazardous substances generated by our business or businesses
we acquire. In addition, it is possible that we may be held liable for
contamination discovered at our present or
former facilities.

We
are aware of contamination at two locations. In Sinsheim, Germany, there is a
shallow groundwater and soil contamination that is naturally decreasing over
time. The German environmental authorities have not required any additional
corrective action to date. In addition, property in Leesburg, Indiana, which
was acquired with our acquisition of GTI in 1998, is the subject of a 1994
Corrective Action Order to GTI by the Indiana Department of Environmental
Management (IDEM). Although we sold the property in early 2005, we retained the
responsibility for existing environmental issues at the site. The order
requires us to investigate and take corrective actions. Substantially all of
the corrective actions relating to impacted soil have been taken and IDEM has
issued us no further action letters for all of the remediated areas. We expect
a final no further action letter on this area upon IDEMs final review of our
closure report. We anticipate making additional environmental expenditures in
the future to continue our environmental studies, analysis and remediation
activities with respect to the remediated groundwater. Based on current
knowledge, we do not believe that any future expenses or liabilities associated
with environmental remediation will have a material impact on our operations or
our consolidated financial position, liquidity or operating results; however,
we may be subject to additional costs and liabilities if the scope of the
contamination or the cost of remediation exceeds our current expectations.

34

Exhibit Index

2.1
Share
  Purchase Agreement, dated as of January 9, 2003, by Pulse Electronics
  (Singapore) Pte. Ltd. and Forfin Holdings B.V. that are signatories thereto
  (incorporated by reference to Exhibit 2 to our Form 8-K dated January 10,
  2003).3.1
Amended and
  Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1
  to our Form 10-K for the year ended December 26, 2003)3.3
By-laws
  (incorporated by reference to Exhibit 3.3 to our Form 10-K for the year ended
  December 27, 2002).4.1
Rights
  Agreement, dated as of August 30, 1996, between Technitrol, Inc. and
  Registrar and Transfer Company, as Rights Agent (incorporated by reference to
  Exhibit 3 to our Registration Statement on Form 8-A dated October 24, 1996).4.2
Amendment
  No. 1 to the Rights Agreement, dated March 25, 1998, between Technitrol, Inc.
  and Registrar and Transfer Company, as Rights Agent (incorporated by
  reference to Exhibit 4 to our Registration Statement on Form 8-A/A dated
  April 10, 1998).4.3
Amendment
  No. 2 to the Rights Agreement, dated June 15, 2000, between Technitrol, Inc.
  and Registrar and Transfer Company, as Rights Agent (incorporated by
  reference to Exhibit 5 to our Registration Statement on Form 8-A/A dated July
  5, 2000).10.1
Technitrol,
  Inc. 2001 Employee Stock Purchase Plan (incorporated by reference to Exhibit
  4.1 to our Registration Statement on Form S-8 dated June 28, 2001, File
  Number 333-64060).10.1(1)
Form of
  Stock Option Agreement (incorporated by reference to Exhibit 10.1(1) to our
  Form 10-Q for the nine months ended October 1, 2004).10.2
Technitrol,
  Inc. Restricted Stock Plan II, as amended and restated as of January 1, 2001
  (incorporated by reference to Exhibit C, to our Definitive Proxy on Schedule
  14A dated March 28, 2001).10.3
Technitrol,
  Inc. 2001 Stock Option Plan (incorporated by reference to Exhibit 4.1 to our
  Registration Statement on Form S-8 dated June 28, 2001, File Number
  333-64068).10.4
Technitrol,
  Inc. Board of Directors Stock Plan, as amended (incorporated by reference to
  Exhibit 10 to our Form 8-K dated May 18, 2005).10.5
Credit
  Agreement, by and among Technitrol, Inc. and certain of its subsidiaries,
  Bank of America N.A. as Administrative Agent and Lender, and certain other
  Lenders that are signatories thereto, dated as of October 14, 2005 (incorporated
  by reference to Exhibit 10.1 to our Form 8-K dated October 20, 2005).10.6
Lease
  Agreement, dated October 15, 1991, between Ridilla-Delmont and AMI Doduco,
  Inc. (formerly known as Advanced Metallurgy Incorporated), as amended
  September 21, 2001 (incorporated by reference to Exhibit 10.6 to the
  Companys Amendment No. 1 to Registration Statement on Form S-3 dated
  February 28, 2002, File Number 333-81286).10.7
Incentive
  Compensation Plan of Technitrol, Inc. (incorporated by reference to Exhibit 10.7
  to Amendment No. 1 to our Registration Statement on Form S-3 filed on
  February 28, 2002, File Number 333-81286).35

Exhibit Index, continued

10.8
Technitrol,
  Inc. Supplemental Retirement Plan, amended and restated January 1, 2002
  (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to our
  Registration Statement on Form S-3 filed on February 28, 2002, File Number
  333-81286).10.8(1)
Technitrol,
  Inc. Grantor Trust Agreement dated July 5, 2006 between Technitrol, Inc. and
  Wachovia Bank, National Association (incorporated by reference to Exhibit
  10.8(1) to our Form 8-K dated July 11, 2006).10.9
Agreement
  between Technitrol, Inc. and James M. Papada, III, dated July 1, 1999, as
  amended April 23, 2001, relating to the Technitrol, Inc. Supplemental
  Retirement Plan (incorporated by reference to Exhibit 10.9 to Amendment No. 1
  to our Registration Statement on Form S-3 filed on February 28, 2002, File
  Number 333-81286).10.10
Letter
  Agreement between Technitrol, Inc. and James M. Papada, III, dated April 16,
  1999, as amended October 18, 2000 (incorporated by reference to Exhibit 10.10
  to Amendment No. 1 to our Registration Statement on Form S-3 filed on
  February 28, 2002, File Number 333-81286).10.10 (1)
Letter
  Agreement between Technitrol, Inc. and James M. Papada, III dated July 25,
  2006 (incorporated by reference to Exhibit 10.10(1) to our Form 10-Q for six
  months ended June 30, 2006).10.11
Form of
  Indemnity Agreement (incorporated by reference to Exhibit 10.11 to our Form
  10-K for the year ended December 28, 2001).10.12
Technitrol
  Inc. Supplemental Savings Plan (incorporated by reference to Exhibit 10.15 to
  our Form 10-Q for the nine months ended September 26, 2003).10.13
Technitrol,
  Inc. 401(K) Retirement Savings Plan, as amended (incorporated by reference to
  post-effective Amendment No. 1, to our Registration Statement on Form S-8
  filed on October 31, 2003, File Number 033-35334) (incorporated by reference
  to Exhibit 10.16 to our Form 10-Q for the nine months ended March 26, 2003).10.14
Pulse
  Engineering, Inc. 401(K) Plan as amended (incorporated by reference to
  post-effective Amendment No. 1, to our Registration Statement on Form S-8
  filed on October 31, 2003, File Number 033-94073) (incorporated by reference to
  Exhibit 10.16 to our Form 10-Q for the nine months ended March 26, 2003).10.15
Amended and
  Restated Short-Term Incentive Plan (incorporated by reference to Exhibit
  10.15 to our Form 10-K for the year ended December 31, 2005).10.16
Consignment
  Agreement dated July 11, 2006 among Technitrol, Inc., AMI Doduco, Inc. and
  Sovereign Precious Metals, LLC (incorporated by reference to Exhibit 10.16 to
  our Form 8-K dated July 17, 2006.)36

Exhibit Index, continued

10.17
Amended and
  Restated Consignment Agreement dated July 29, 2005, among Fleet Precious
  Metals Inc. d/b/a Bank of America Precious Metals, Technitrol, Inc. and AMI
  Doduco, Inc. (incorporated by reference to Exhibit 10.1 to our Form 8-K dated
  August 2, 2005).10.17(1)
First
  Amendment and Agreement dated March 24, 2006 among Bank of America, N.A.,
  Technitrol, Inc. and AMI Doduco, Inc. (incorporated by reference to Exhibit
  10.17(1) to our Form 8-K dated March 28, 2006).10.17(2)
Second
  Amendment and Agreement dated May 4, 2006 among Bank of America, N.A.,
  Technitrol, Inc. and AMI Doduco, Inc. (incorporated by reference to Exhibit
  10.17(2) to our Form 8-K dated May 4, 2006).10.18
Fee
  Consignment and/or Purchase of Silver Agreement dated April 7, 2006 among The
  Bank of Nova Scotia, Technitrol, Inc. and AMI Doduco, Inc. (incorporated by
  reference to Exhibit 10.18 to our Form 8-K dated April 7, 2006).10.18(1)
Letter
  Amendment dated May 17, 2006 among The Bank of Nova Scotia, Technitrol, Inc.
  and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.18(1) to our
  Form 8-K dated May 17, 2006).10.19
Consignment
  Agreement dated September 24, 2005 between Mitsui & Co. Precious Metals
  Inc., and AMI Doduco, Inc. (incorporated by reference to Exhibit 10.19 to our
  Form 8-K dated March 28, 2006).10.20
Unlimited
  Guaranty dated December 16, 1996 by Technitrol, Inc. in favor of Rhode Island
  Hospital Trust National Bank (incorporated by reference to Exhibit 10.20 to
  our Form 10-Q for the nine months ended October 1, 2004).10.21
Corporate
  Guaranty dated November 1, 2004 by Technitrol, Inc. in favor of Mitsui &
  Co. Precious Metals, Inc. (incorporated by reference to Exhibit 10.21 to our
  Form 10-Q for the nine months ended October 1, 2004).10.23
Share
  Purchase Agreement dated August 8, 2005 among Pulse Electronics (Singapore)
  Pte. Ltd., as Purchaser, and Filtronic Plc and Filtronic Comtek Oy, as
  Sellers (incorporated by reference to Exhibit 10.1 to our Form 8-K dated
  August 11, 2005).10.24
Sale and Transfer
  Agreement dated November 28, 2005 among era GmbH & Co. KG, Pulse GmbH,
  CST Electronics Co., Ltd., and certain other parties named therein
  (incorporated by reference to Exhibit 10.1 to our Form 8-K dated December 2,
  2005).10.25
CEO Annual
  and Long-Term Equity Incentive Process (incorporated by reference to Exhibit
  10.25 to our Form 10-Q for the six months ended June 30, 2006).10.30
Schedule of
  Board of Director and Committee Fees (incorporated by reference to Exhibit
  10.30 to our Form 10-K for the year ended December 31, 2004).37

Exhibit Index, continued

31.1
Certification of Principal Executive
  Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.31.2
Certification of Principal Financial
  Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.32.1
Certification of Principal Executive
  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
  906 of the Sarbanes-Oxley Act of 2002.32.2
Certification of Principal Financial
  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
  906 of the Sarbanes-Oxley Act of 2002.38

Signatures

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

Technitrol,
  Inc.(Registrant)November 6,
  2006

/s/ Drew A.
  Moyer(Date)

Drew A.
  MoyerSenior Vice
  President and Chief Financial Officer
  (duly authorized officer, principal financial officer)39