• Network Solutions

• Professional Services

During the fourth quarter of fiscal 2008, management initiated a restructuring of the Network Solutions segment by exiting several outdoor wireless product lines. During the first quarter of fiscal 2009, management made further changes to the Network Solutions segment by moving the Wireline solutions business to the Connectivity segment in order to better manage and utilize resources and drive profitability. As a result of this change, we have changed our reportable segments to conform to our current management reporting presentation. We have reclassified prior year segment disclosures to conform to the new segment presentation.

Our Connectivity products connect wireline, wireless, cable, enterprise and broadcast communications networks over copper (twisted pair), coaxial, fiber-optic and wireless media. These products provide the physical interconnections between network components and access points into networks.
Our Network Solutions products help improve coverage and capacity for wireless networks. These products improve signal quality, expand coverage and capacity into expanded geographic areas, increase the speed and expand the delivery and capacity of networks, and help reduce the capital and operating costs of delivering wireless services. Applications for these products include in-building solutions, outdoor coverage solutions and mobile network solutions.
Our Professional Services business provides integration services for broadband and multiservice communications over wireline, wireless, cable and enterprise networks. Our Professional Services business unit helps customers plan, deploy and maintain communications networks that deliver Internet, data, video and voice services.
Marketplace Conditions
Current Global Macro-Economic Conditions The widely reported global recession has had, and likely will continue to have, a significant impact on our industry and our business. During the first quarter of fiscal 2009 our financial results were impacted adversely by lower than expected spending by our customers. We believe it is likely our customers will continue to spend conservatively throughout our fiscal 2009 because of the uncertainties regarding the profitability and growth of their own businesses. For this reason we continue to expect lower revenues in fiscal 2009 as compared to fiscal 2008, but the extent of the expected revenue decline is extremely difficult to predict and is dependent both on the severity of the recession and its length. These expectations therefore could fluctuate significantly and may impact our profitability. During the first quarter, the recession impacted our business specifically in a number of ways. For instance:
• Net sales decreased by 22.7% from our first quarter of fiscal 2008;

• Our net sales from countries outside the U.S. grew to 43.7% of our total net sales versus 39.8% in the first quarter of fiscal 2008. As a result of this and the fact that the U.S. dollar has strengthened, our net sales were negatively impacted by approximately $16.0 million in the first quarter versus the same period in fiscal 2008;

• Despite reducing actual expenditures for research and development and selling and administrative costs in the first quarter from the same period in fiscal 2008, these costs grew as a percentage of our net sales because of lower sales volumes; and

• Our gross profit percentage in the first quarter was 30.9% versus 36.6% in the same period in fiscal 2008 primarily because of lower sales volumes.

In response to the adverse impacts on our business caused by the recession, we have taken significant steps to lower our operating cost structure. In each of the fourth quarter of fiscal 2008 and the second quarter of fiscal 2009, we announced significant restructuring initiatives. Each of these initiatives included reductions in force designed to adjust our operations appropriately to lower levels of demand from our customers. We also announced our intention to sell APS Germany as well as plans to discontinue certain outdoor wireless coverage products. Depending on the severity and length of the recession and its impact on our business we may determine it appropriate to take additional actions to reduce costs in the future.
Industry Conditions
Longer term, we continue to believe that the ever-increasing consumption of bandwidth will drive a multi-year migration to next-generation networks that can deliver reliable broadband services at low, often flat-rate prices over virtually any medium anytime and anywhere. We believe this evolution particularly will impact the "last mile/kilometer" portion of networks where our products and services primarily are used and where constraints in the high-speed delivery of communications services are most likely to occur. For us to participate as fully as possible in this evolution we must focus on the development and sale of next-generation network infrastructure products.
We believe there are two key elements driving the migration to next-generation networks:
• First, businesses and consumers worldwide are becoming increasingly dependent on broadband, multi-service communications networks to conduct a wide range of daily communications tasks for business and personal purposes (e.g., emails with large amounts of data, online gaming, video streaming and photo sharing). This demand for additional broadband services increases the need for broadband network infrastructure products.

• Second, end-users of communications services increasingly expect to do business over a single network connection at a low price. Both public networks operated by communications service providers and private enterprise networks are evolving to provide combinations of Internet, data, video and voice services that can be offered over the same high-speed network connection.

This evolution to next-generation networks impacts our industry significantly. Many of our communications service provider customers have begun to focus their investments in these next-generation networks to differentiate themselves from their competitors by providing more robust services at increasing speeds. They believe such network advancements will attract business and consumer customers and allow them to grow their businesses.
Next-generation network investment by communications service providers has tended to come in the form of large, multi-year projects, and these significant projects have attracted many equipment vendors, including us. We believe that it is important for us to participate in these projects to grow our business and have therefore focused our strategy around the products that help make these projects successful. These include central office fiber-based equipment, wireless coverage and capacity equipment, and equipment to aid the deployment of fiber-based networks closer to the ultimate customer (i.e., fiber to the node, curb, residence, or business, which we collectively refer to as our "FTTX" products).
Spending on these next-generation initiatives in which we participate have not resulted in significant overall spending increases on all categories of network infrastructure equipment. In fact, spending on network infrastructure equipment in total has increased only modestly in recent years as our customers have reallocated their spending towards new next-generation initiatives and away from their legacy networks. Even prior to the current recession, industry observers anticipated that in the next few years overall global spending on communications infrastructure equipment would be relatively flat. Over the long-term, we therefore believe our ability to compete in the communications equipment marketplace depends in significant part on whether we can continue to develop and market effectively next-generation network infrastructure products. Strategy
Given current economic conditions and our beliefs about the marketplace in our industry, we believe we must focus on the following three priorities for us to compete effectively in our industry over the long-term.
First, we must grow our business in areas of strategic importance. This means increasing our business in high growth segments within fiber-based and wireless communications networks with central office fiber, FTTX and wireless coverage and capacity product solutions. We will also focus on rapidly growing geographies, such as developing markets in China, Latin America, Eastern Europe and Russia, the Middle East and Africa, and India. We believe growth in these areas may come either from our own internal initiatives to expand our product offerings through research and development activities, additional sales, marketing and other operating resources, or from the acquisition of new products, sales channels and operations.
Our internal research and development efforts are focused on those areas where we believe we are most likely to achieve success and on projects that we believe directly advance our strategic aims. Our research and development projects have varying risk and reward profiles and we consistently monitor these efforts to ensure that they appropriately balance the potential opportunities against the investments required.
Several of our largest customers have engaged in consolidation to gain greater scale and broaden their service offerings. These consolidations create companies with greater market power which, in recent years, has placed significant pricing pressure on the products we and other equipment vendors sell. To better serve these larger customers, we believe it is appropriate for companies within our industry to consolidate in order to gain greater scale and position themselves to offer a wider array of products and we may engage in such activities. We also continually evaluate and monitor our existing business and product lines for growth and profitability potential and, when we believe appropriate, deemphasize or divest product lines and businesses that we no longer believe can advance our strategic vision or most effectively serve our customers' needs.
Second, we are focused on developing ways to sell more of our current portfolio and our newly developed products to existing customers and to introduce our products to new customers. We have recently reorganized many of our sales and marketing activities around the types of customers we serve (e.g., carriers, enterprise, original equipment manufacturers, etc.). This differs from a historical alignment of our sales and marketing resources that was focused more narrowly on the product sets we sell. We believe this new market-based alignment will enable us to better understand and serve the needs of our customers.

We also continuously seek to partner with other companies as a means to serve the public and private communication network markets and to offer more complete solutions for our customers' needs. Many of our connectivity products in particular are conducive to incorporation by other equipment vendors into a systems level solution. We also believe there are opportunities to sell more of our products through indirect sales channels, including systems integrators and value added resellers. In addition, we are expanding our relationships with distributors that make our products more readily available to a wider base of customers worldwide.
Third, we remain highly committed to creating a compelling value proposition for our customers. This includes helping our customers maximize their return on investment, evolve their networks and simplify network deployment challenges. We strive to offer customer-specific solutions, price competitive products with high functionality and quality and world-class customer service and support that collectively will position us to grow our business in a cost-effective manner.
We also continue to implement initiatives as part of an overall program we call "competitive transformation" in order to improve the efficiency of our operations. Among other actions, these initiatives include:
• migrating sales volume to customer-preferred, leading technology products and sunsetting end of life products;

• improving our customers' ordering experience through a faster, simpler, more efficient inquiry-to-invoice process;

• redesigning product lines to gain efficiencies from the use of more common components and improve customization capabilities;

• increasing direct material savings from strategic global sourcing;

• improving cash flow from supplier-managed inventory and lead-time reduction programs;

• relocating certain manufacturing, engineering and other operations from higher-cost geographic areas to lower-cost areas;

• reducing the number of locations from which we conduct general and administrative support functions; and

• focusing our resources on core operations and, where appropriate, using third parties to perform non-core processes.

This program has yielded significant cost savings to our operations since fiscal 2006. These savings help generate leverage in our operating model and help to offset pricing pressures and unfavorable mixes in product sales that can have negative impacts on our operating results. Our ability to continue to implement our competitive transformation strategy is subject to numerous risks and uncertainties and no assurance can be given that this strategy will be successful. In addition, our gross profit percentages have and will continue to fluctuate from period to period based on several factors, including, but not limited to, raw material and freight costs, sales volume, product mix and the impact of future potential competitive transformation initiatives.
A more detailed description of the risks to our business can be found in Item 1A of our Annual Report on Form 10-K for the year ended October 31, 2008 and in Part II of this Quarterly Report on Form 10-Q.

Results of Operations
Net Sales
   The following table shows net sales and expense items from continuing
operations for the three months ended January 30, 2009 and February 1, 2008:

                                                         January 30,           February 1,          Percentage Increase
                                                            2009                  2008              (Decrease) Between
                                                                   (In millions)                          Periods
Net sales                                               $       254.3         $       329.1                        (22.7 )%
Cost of sales                                                   175.6                 208.7                        (15.9 )
Gross profit                                                     78.7                 120.4                        (34.6 )
Gross margin                                                     30.9 %                36.6 %
Operating expenses:
Research and development                                         19.0                  19.5                         (2.6 )
Selling and administration                                       71.9                  81.7                        (12.0 )
Impairment charges                                              413.5                     -                        100.0
Restructuring charges                                             0.5                   1.2                        (58.3 )

Total operating expenses                                        504.9                 102.4                        393.1

Operating income                                               (426.2 )                18.0                            -

Operating margin                                               (167.6 )%                5.5 %
Other income (expense), net:
Interest income, net                                             (4.2 )                 4.3                       (197.7 )
Other, net                                                      (16.1 )               (49.2 )                       67.3

Income before income taxes                                     (446.5 )               (26.9 )                          -
Provision (benefit) for income taxes                             (4.0 )                 1.5                        366.7 %

Income from continuing operations                       $      (442.5 )       $       (28.4 )                          -

The following table sets forth our net sales for the three months ended January 30, 2009 and February 1, 2008 for each of our reportable segments:

                                                                        Percentage
                                January 30,       February 1,       Increase (Decrease)
 Reportable Segment                2009              2008             Between Periods
                                        (In millions)
 Connectivity                  $       198.2     $       257.5                     (23.0 )%
 Network Solutions:
 Products                               16.1              23.3                     (30.9 )
 Services                                4.2               5.5                     (23.6 )

 Total Network Solutions                20.3              28.8                     (29.5 )

 Professional Services:
 Products                                9.5              12.1                     (21.5 )
 Services                               26.3              30.7                     (14.3 )

 Total Professional Services            35.8              42.8                     (16.4 )

 Total Net Sales               $       254.3     $       329.1                     (22.7 )%

Our net sales decrease for the three months ended January 30, 2009 compared to the three months ended February 1, 2008 was driven by sales declines in all reporting segments. These decreases were due to the general downturn of the global economy, which grew in severity and extended across a majority of our geographies in the first quarter of fiscal 2009. The current economic environment has driven customers to spend significantly less than they did in the first quarter of fiscal 2008.
International sales comprised 43.7% and 39.8% of our net sales for the three months ended January 30, 2009 and February 1, 2008, respectively. This increase as a percent of sales is due to the fact that our U.S. based sales have been more significantly impacted by the current economic conditions than our international sales. As a result of significant international sales, our net sales have been negatively impacted in recent quarters from the relative strengthening of the U.S. dollar against a majority of other currencies. Changes in foreign currency exchange rates negatively impacted first quarter 2009 sales by approximately $16.0 million versus the same period of fiscal 2008.
The three months ended January 30, 2009 and February 1, 2008 included sales in Connectivity of $15.3 million and $1.5 million, respectively, as a result of the Century Man acquisition that closed during January 2008. This increase was due to the inclusion of Century Man in our results for a full quarter and increased demand due to the government issuance of 3G wireless licenses.

Gross Profit
During the three months ended January 30, 2009 and February 1, 2008, our gross profit percentages were 30.9% and 36.6%, respectively. The decrease in gross margins was primarily driven by the decrease in sales volume, partially offset by our cost reduction initiatives. The mix of products we sell can vary substantially. If sales volumes, product mix, pricing or other significant factors that impact our gross margins continue to be affected by the economic downturn, our gross margins could continue to be adversely affected. As a result, our future gross margin rate is difficult to predict with precision. Operating Expenses
Total operating expenses for the three months ended January 30, 2009 and February 1, 2008 represented 198.5% and 31.1% of net sales, respectively. As discussed below, operating expenses include research and development, selling and administration expenses and restructuring and impairment charges.
Research and development: Research and development expenses for the three months ended January 30, 2009 and February 1, 2008 represented 7.5% and 5.9% of net sales, respectively. This increase as a percent of sales is due to lower sales volumes. Research and development expenses decreased to $19.0 million in the first quarter of fiscal 2009 from $19.5 million in the same period of fiscal 2008. Given the rapidly changing technological and competitive environment in the communications equipment industry, continued commitment to product development efforts will be required for us to remain competitive. Accordingly, we intend to continue to allocate substantial resources, as a percentage of our net sales, to product development. Most of our research will be directed towards projects that we believe directly advance our strategic aims in segments in the marketplace that we believe are most likely to grow.
Selling and administration: Selling and administrative expenses for the three months ended January 30, 2009 and February 1, 2008 represented 28.3% and 24.8% of net sales, respectively. This increase as a percent of sales is due to lower sales volumes. Selling and administrative expenses were $71.9 million in the first quarter of fiscal 2009, a reduction of $9.8 million from $81.7 million in the first quarter of fiscal 2008. The decrease was due to our cost reduction initiatives, which included headcount reductions, significant decreases in discretionary spending, and a decrease in incentives.
Restructuring charges: Restructuring charges for the three months ended January 30, 2009 and February 1, 2008 were $0.5 million and $1.2 million, respectively. Restructuring charges include employee severance and facility consolidation costs resulting from the closure of leased facilities and other workforce reductions attributable to our efforts to reduce costs. During the three months ended January 30, 2009, 15 employees in our Connectivity segment were impacted by reductions in force. During the three months ended February 1, 2008, 11 employees in our Connectivity and Network Solutions segments were impacted by reductions in force. The costs of these reductions have been and will be funded through cash from operations.
Impairments: In accordance with the provisions of SFAS 142, we review goodwill annually for impairment, or more frequently if potential interim indicators exist that could result in impairment. Due to the current global recession and adverse business conditions that have resulted in a sustained decline in our market capitalization, we performed a goodwill impairment analysis of our two reporting units that contain goodwill, Connectivity and Network Solutions. In our analysis, the fair values of each of the reporting units were estimated for the purpose of goodwill impairment testing by applying the present value of forecasted future cash flows, using estimates, judgments and assumptions that management believed were appropriate for the circumstances. We also considered market approaches in estimating fair value. In performing the goodwill impairment analysis, we, among other things, consulted with an independent advisor.
In accordance with SFAS 144, long-lived assets are reviewed for impairment when events or circumstances indicate that their carrying amount may not be recoverable. Based on recent business conditions, an impairment review of long-lived assets was performed in the first quarter of fiscal 2009. The review has resulted in the recognition of an impairment charge related to the intangible assets of the Network Solutions segment. The fair value of the impaired assets was estimated for the purpose of impairment testing by applying the present value of forecasted future cash flows, using estimates, judgments and assumptions that management believed were appropriate for the circumstances. In preparing the estimated fair value of the impaired assets, we, among other things, consulted an independent advisor.
As of our first quarter of fiscal 2009, we recorded an estimated impairment charge of $413.5 million to reduce the carrying value of goodwill and other long-lived intangibles. The estimated impairment includes $280.8 million of goodwill related to Connectivity and $85.4 million of goodwill and $47.3 million of intangibles related to Network Solutions. We presently expect to finalize this analysis in connection with the preparation of our financial statements for the second quarter of fiscal 2009. Any adjustments to our preliminary estimates as a result of completing this evaluation will be recorded in our financial statements for the second quarter of fiscal 2009. These adjustments may be material.

Other Income (Loss), Net
   Other income (loss), net is:

                                                           Three months ended
                                                     January 30,        February 1,
                                                        2009               2008
                                                             (In millions)
 Interest income on investments                     $         3.8      $         9.9
 Interest expense on borrowings                              (8.0 )             (5.6 )

 Interest income (loss), net                                 (4.2 )              4.3
. . .