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

RESULTS OF OPERATIONS

The following discussion refers to the Company's results from continuing operations, except where noted. The Filtertek businesses (excluding TekPackaging) were sold during fiscal 2008 and are accounted for as discontinued operations in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, the Filtertek businesses are reflected as discontinued operations in the financial statements and related notes for all periods shown. References to the first quarters of 2009 and 2008 represent the fiscal quarters ended December 31, 2008 and 2007, respectively.

NET SALES

Net sales increased $14.2 million, or 10.5%, to $149.2 million for the first quarter of 2009 from $135.0 million for the first quarter of 2008 mainly due to the impact of a full quarter of Doble's operations versus one month in the prior year's first quarter. The Company acquired Doble on November 30, 2007.

-Utility Solutions Group

Net sales increased $10.7 million, or 13.5%, to $90.0 million for the first quarter of 2009 from $79.3 million for the first quarter of 2008. The sales increase in the first quarter of 2009 as compared to the prior year quarter was primarily due to: an increase of $13.8 million from Doble reflecting the impact of a full quarter of operations versus one month in the prior year first quarter; a $20.8 million increase in sales from Aclara RF primarily due to higher gas product Advanced Metering Infrastructure (AMI) deliveries at Pacific Gas & Electric (PG&E) and the shipment of additional water AMI products; partially offset by a $27.1 million decrease in sales at Aclara PLS driven mainly by a decrease in sales to PG&E. In the first quarter of 2008, the Company recorded revenue of $20.5 million representing the cumulative effect of the recognition of deferred revenue related to the hardware shipments to PG&E to date, as TWACS NG 3.0 was delivered to PG&E in December 2007.

-Test

For the first quarter of 2009, net sales of $35.5 million were $3.4 million, or 10.6%, higher than the $32.1 million of net sales recorded in the first quarter of 2008. The sales increase in the first quarter of 2009 as compared to the prior year quarter was mainly due to: a $2.1 million increase in net sales from the segment's Asian operations due to an increase in large chamber deliveries to the international wireless and electronics end-markets; and a $1.1 million increase in net sales from the segment's U.S. operations driven by the timing of domestic chamber deliveries.

-Filtration

Net sales increased $0.1 million to $23.7 million for the first quarter of 2009 from $23.6 million of net sales for the first quarter of 2008. The sales increase during the fiscal quarter ended December 31, 2008 as compared to the prior year quarter was mainly due to: a $2.2 million increase in sales at VACCO driven by higher military / defense aircraft product shipments; partially offset by a $2.2 million decrease in net sales at PTI due to lower commercial aerospace shipments resulting from the impact of a Boeing strike during the quarter.

ORDERS AND BACKLOG

Backlog was $258.8 million at December 31, 2008 compared with $266.8 million at September 30, 2008. The Company received new orders totaling $141.1 million in the first quarter of 2009 compared to $130.4 million in the prior year quarter. New orders of $86.5 million were received in the first quarter of 2009 related to USG products, $29.9 million related to Test products, and $24.7 million related to Filtration products. New orders of $67.3 million were received in the first quarter of 2008 related to USG products, $33.3 million related to Test products, and $29.8 million related to Filtration products. The Company received orders totaling $28.8 million and $14.2 million from PG&E during the three-month periods ended December 31, 2008 and 2007, respectively.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets was $4.7 million and $3.6 million for the three-month periods ended December 31, 2008 and 2007, respectively. Amortization of intangible assets for the three-month periods ended December 31, 2008 and 2007 included $1.2 million and $0.7 million, respectively, of amortization of acquired intangible assets related to recent acquisitions. The amortization of these acquired intangible assets are included in Corporate's operating results; see "EBIT - Corporate". The remaining amortization expenses consist of other identifiable intangible assets (primarily software, patents and licenses). During the three-month periods ended December 31, 2008 and 2007, the Company recorded $2.9 million and $2.3 million, respectively, of amortization related to Aclara PLS TWACS NG software.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the first quarter of 2009 were $40.1 million (26.9% of net sales), compared with $33.5 million (24.8% of net sales) for the prior year quarter. The $6.6 million increase in SG&A spending in the fiscal quarter ended December 31, 2008 as compared to the prior year quarter was primarily due to a $5.5 million increase in SG&A expenses related to Doble, reflecting a full quarter of SG&A expenses versus one month in the prior year's first quarter.

EBIT

The Company evaluates the performance of its operating segments based on EBIT, defined below. EBIT was $10.9 million (7.3% of net sales) for the first quarter of 2009 and $14.1 million (10.4% of net sales) for the first quarter of 2008. The decrease in EBIT for the first quarter of 2009 as compared to the prior year quarter is primarily due to the decrease in margins at Aclara PLS within the Utility Solutions Group segment.

This Form 10-Q contains the financial measure "EBIT", which is not calculated in accordance with generally accepted accounting principles in the United States of America (GAAP). EBIT provides investors and Management with an alternative method for assessing the Company's operating results. The Company defines "EBIT" as earnings from continuing operations before interest and taxes. Management evaluates the performance of its operating segments based on EBIT and believes that EBIT is useful to investors to demonstrate the operational profitability of the Company's business segments by excluding interest and taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures Management uses to determine resource allocations within the Company and incentive compensation. The following table presents a reconciliation of EBIT to net earnings from continuing operations.