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. Certain assets of Comtrak were sold during the second quarter of fiscal 2009. Comtrak is accounted for as a discontinued operation in accordance with SFAS 144. Accordingly, the Comtrak business is reflected as discontinued operations in the financial statements and related notes for all periods shown. References to the second quarters of 2009 and 2008 represent the fiscal quarters ended March 31, 2009 and 2008, respectively.

NET SALES

Net sales increased $19.8 million, or 14.7%, to $154.2 million for the second quarter of 2009 from $134.4 million for the second quarter of 2008 mainly due to a significant increase in net sales from Aclara RF. Net sales increased $31.8 million, or 11.8%, to $301.5 million for the first six months of 2009 from $269.7 million for the prior year period mainly due to a significant increase in net sales from Aclara RF and the impact of a full six months of Doble's operations versus four months in the prior year period. The Company acquired Doble on November 30, 2007.

-Utility Solutions Group

Net sales increased $20.3 million, or 27.5%, to $94.1 million for the second quarter of 2009 from $73.8 million for the second quarter of 2008. Net sales increased $28.9 million, or 18.8%, to $182.3 million for the first six months of 2009 from $153.4 million in the prior year period. The sales increase in the second quarter of 2009 as compared to the prior year quarter was mainly due to a $21.8 million increase in net 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. The sales increase for the first six months of 2009 as compared to the prior year period was due to: a $42.7 million increase in net sales from Aclara RF; a $13.0 million increase from Doble reflecting the impact of a full six months of operations versus four months in the prior year period; a $2.0 million increase in net sales at Aclara Software; and partially offset by a $28.8 million decrease in sales at Aclara PLS driven mainly by a decrease in power-line AMI 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 software was delivered to PG&E in December 2007.

-Test

For the second quarter of 2009, net sales of $33.7 million were $0.2 million, or 1%, higher than the $33.5 million of net sales recorded in the second quarter of 2008. Net sales increased $3.6 million, or 5.5%, to $69.2 million for the first six months of 2009 from $65.6 million for the first six months of 2008. The sales increase for the first six months of 2009 compared to the prior year period was due to: a $3.3 million increase in net sales from the segment's U.S. operations driven by the timing of domestic chamber deliveries; a $2.2 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 partially offset by a $1.9 million decrease in net sales from the segment's European operations due to unfavorable foreign currency values and a decrease in component shipments.

-Filtration

For the second quarter of 2009, net sales of $26.4 million were $0.7 million, or 2.6% lower than the $27.1 million of net sales recorded in the second quarter of 2008. Net sales decreased $0.7 million, or 1.4%, to $50.0 million for the first six months of 2009 from $50.7 million for the first six months of 2008. The sales decrease during the fiscal quarter ended March 31, 2009 as compared to the prior year quarter was mainly due to: a $2.8 million decrease in net sales at PTI due to lower commercial aerospace shipments; and partially offset by a $2.1 million increase in net sales at VACCO driven by higher military / defense aircraft product shipments. The sales decrease in the first six months of 2009 as compared to the prior year period was mainly due to: a $5.0 million decrease in net sales at PTI; partially offset by a $4.3 million increase in net sales at VACCO due to the reasons mentioned above.

ORDERS AND BACKLOG

Backlog from continuing operations was $260.8 million at March 31, 2009 compared with $266.1 million at September 30, 2008. The Company received new orders totaling $156.7 million in the second quarter of 2009 compared to $162.5 million in the prior year quarter. New orders of $97.3 million were received in the second quarter of 2009 related to USG products, $26.0 million related to Test products, and $33.4 million related to Filtration products. New orders of $98.1 million were received in the second quarter of 2008 related to USG products, $32.5 million related to Test products, and $31.9 million related to Filtration products. The Company received orders totaling $24.3 million and $53.1 million from PG&E during the three and six-month periods ended March 31, 2009, respectively, compared to $32.3 million and $46.5 million for the three and six-month periods ended March 31, 2008.

The Company received new orders totaling $296.2 million in the first six months of 2009 compared to $293.2 million in the prior year period. New orders of $182.2 million were received in the first six months of 2009 related to USG products, $55.9 million related to Test products, and $58.1 million related to Filtration products. New orders of $165.7 million were received in the first six months of 2008 related to USG products, $65.8 million related to Test products, and $61.7 million related to Filtration products.

Orders from PG&E for AMI gas products in the second quarter of 2009 were $24.3 million bringing the total gas project-to-date to over 3 million units, or $175 million. The entire PG&E project-to-date (gas and electric) represents 3.7 million units, worth approximately $225 million.

In March 2009, Aclara Software received an order for approximately $5 million from the City of Tallahassee, Florida for a system-wide implementation of Aclara Software Inc.'s Meter Data Management System (MDMS) and ENERGYprism (EP) AMI software applications with deployment beginning in the third quarter of fiscal 2009.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets was $5.0 million and $9.6 million for the three and six-month periods ended March 31, 2009, respectively, compared to $4.5 million and $7.9 million for the respective prior year periods. Amortization of intangible assets for the three and six-month periods ended March 31, 2009 included $1.2 million and $2.4 million, respectively, of amortization of acquired intangible assets related to recent acquisitions compared to $1.1 million and $1.9 million for the respective prior year periods. 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 and six-month periods ended March 31, 2009, the Company recorded $3.1 million and $6.0 million, respectively, of amortization related to Aclara PLS TWACS NG software compared to $2.9 million and $5.2 million for the respective prior year periods.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the second quarter of 2009 were $38.2 million (24.8% of net sales), compared with $38.5 million (28.7% of net sales) for the prior year quarter. For the first six months of 2009, SG&A expenses were $77.5 million (25.7% of net sales) compared with $71.0 million (26.3% of net sales) for the prior year period. The $6.5 million increase in SG&A spending in the first six months of 2009 as compared to the prior year period was primarily due to a $5.8 million increase in SG&A expenses related to the acquisition of Doble, reflecting a full six months of SG&A expenses versus four months in the prior year period.

EBIT

The Company evaluates the performance of its operating segments based on EBIT, defined below. EBIT was $18.4 million (11.9% of net sales) for the second quarter of 2009 and $13.6 million (10.2% of net sales) for the second quarter of 2008. For the first six months of 2009, EBIT was $29.3 million (9.7% of net sales) compared with $29.0 million (10.8% of net sales) for the prior year period. The increase in EBIT for the second quarter of 2009 and first six months of 2009 as compared to the prior year periods is primarily due to the increase in shipments from Aclara RF within the USG 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.