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 business and most of the assets of Comtrak were sold during the second quarter of fiscal 2009. Accordingly, the Comtrak business is reflected as discontinued operations in the financial statements and related notes for all periods shown. In addition, the Filtertek businesses (excluding TekPackaging LLC) were sold during fiscal 2008 and are accounted for as discontinued operations. References to the third quarters of 2009 and 2008 represent the fiscal quarters ended June 30, 2009 and 2008, respectively.

NET SALES

Net sales decreased $3.2 million, or 2.1%, to $148.1 million for the third quarter of 2009 from $151.4 million for the third quarter of 2008 mainly due to decreases of $3.9 million in net sales from the Test segment and $3.1 million from the Filtration segment, partially offset by an increase of $3.8 million in the USG segment. Net sales increased $28.6 million, or 6.8%, to $449.6 million for the first nine months of 2009 from $421.0 million for the prior year period mainly due to a significant increase in net sales from Aclara RF and the impact of a full nine months of Doble's operations versus seven months in the prior year period. The Company acquired Doble on November 30, 2007.

-Utility Solutions Group

Net sales increased $3.8 million, or 4.3%, to $91.1 million for the third quarter of 2009 from $87.3 million for the third quarter of 2008. Net sales increased $32.6 million, or 13.5%, to $273.4 million for the first nine months of 2009 from $240.8 million in the prior year period. The sales increase in the third quarter of 2009 as compared to the prior year quarter was mainly due to a $8.0 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 primarily for the New York City water project partially offset by a $4.1 million decrease in net sales at Aclara PLS mainly due to lower sales to PREPA. The sales increase for the first nine months of 2009 as compared to the prior year period was due to: a $50.6 million increase in net sales from Aclara RF; a $11.6 million increase in net sales from Doble reflecting the impact of a full nine months of operations versus seven months in the prior year period; a $3.3 million increase in net sales at Aclara Software, partially offset by a $32.9 million decrease in sales at Aclara PLS driven mainly by a decrease in power-line AMI sales to PG&E due to the prior year recognition of deferred revenue. 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 third quarter of 2009, net sales of $29.1 million were $3.9 million, or 11.8%, lower than the $33.0 million of net sales recorded in the third quarter of 2008. Net sales decreased $0.3 million to $98.3 million for the first nine months of 2009 from $98.6 million for the first nine months of 2008. The sales decrease for the three month period ended June 30, 2009 as compared to the prior year quarter was mainly due to: a $2.8 million decrease in net sales from the segment's European operations due to the timing of large chamber deliveries to the international wireless and electronics end-markets, a decrease in component shipments, and unfavorable foreign currency values. The sales decrease for the first nine months of 2009 compared to the prior year period was due to: a $4.7 million decrease in net sales from the segment's European operations due to the reasons mentioned above; partially offset by a $3.0 million increase in net sales from the segment's U.S. operations driven by the timing of domestic chamber deliveries; and a $1.4 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.

-Filtration

For the third quarter of 2009, net sales of $27.9 million were $3.1 million, or 10.0%, lower than the $31.0 million of net sales recorded in the third quarter of 2008. Net sales decreased $3.8 million, or 4.6%, to $77.9 million for the first nine months of 2009 from $81.7 million for the first nine months of 2008. The sales decrease during the fiscal quarter ended June 30, 2009 as compared to the prior year quarter was mainly due to: a $2.7 million decrease in net sales at PTI due to lower commercial aerospace shipments; a $1.4 million decrease in net sales at TekPackaging due to timing of deliveries; partially offset by a $1.1 million increase in net sales at VACCO driven by higher military / defense aircraft product shipments. The sales decrease in the first nine months of 2009 as compared to the prior year period was mainly due to: a $7.8 million decrease in net sales at PTI; a $1.3 million decrease in net sales at TekPackaging; partially offset by a $5.4 million increase in net sales at VACCO all due to the reasons mentioned above.

ORDERS AND BACKLOG

Backlog from continuing operations was $270.3 million at June 30, 2009 compared with $266.1 million at September 30, 2008. The Company received new orders totaling $157.6 million in the third quarter of 2009 compared to $152.4 million in the prior year quarter. New orders of $103.6 million were received in the third quarter of 2009 related to USG products, $32.8 million related to Test products, and $21.2 million related to Filtration products. New orders of $89.7 million were received in the third quarter of 2008 related to USG products, $34.1 million related to Test products, and $28.6 million related to Filtration products. The Company received orders totaling $18.1 million and $73.4 million from PG&E during the three and nine-month periods ended June 30, 2009, respectively, compared to $31.0 million and $77.5 million for the three and nine-month periods ended June 30, 2008.

The Company received new orders totaling $453.8 million in the first nine months of 2009 compared to $445.6 million in the prior year period. New orders of $285.8 million were received in the first nine months of 2009 related to USG products, $88.7 million related to Test products, and $79.3 million related to Filtration products. New orders of $255.4 million were received in the first nine months of 2008 related to USG products, $100.0 million related to Test products, and $90.2 million related to Filtration products.

Orders from PG&E for AMI gas products in the third quarter of 2009 were $18.1 million bringing the total gas project-to-date to approximately 3.4 million units, or $193.0 million. Orders of $13.3 million were recorded in the third quarter of 2009 for the New York City water project bringing the total water project-to-date to 427,000 units, or $34.3 million.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the third quarter of 2009 were $36.6 million (24.7% of net sales), compared with $37.9 million (25.0% of net sales) for the prior year quarter. For the first nine months of 2009, SG&A expenses were $114.2 million (25.4% of net sales) compared with $108.9 million (25.9% of net sales) for the prior year period. The $5.3 million increase in SG&A spending in the first nine months of 2009 as compared to the prior year period was primarily due to a $6.2 million increase in SG&A expenses related to Doble, reflecting a full nine months of SG&A expenses versus seven months in the prior year period.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets was $4.8 million and $14.4 million for the three and nine-month periods ended June 30, 2009, respectively, compared to $4.4 million and $12.4 million for the respective prior year periods. Amortization of intangible assets for the three and nine-month periods ended June 30, 2009 included $1.2 million and $3.5 million, respectively, of amortization of acquired intangible assets related to recent acquisitions compared to $1.2 million and $3.0 million for the respective prior year periods. The amortization of these acquired intangible assets are included in Corporate's operating results; see "EBIT - Corporate". During the three and nine-month periods ended June 30, 2009, the Company recorded $3.1 million and $9.1 million, respectively, of amortization related to Aclara PLS TWACS NG software compared to $2.9 million and $8.1 million for the respective prior year periods. The remaining amortization expenses consist of other identifiable intangible assets (primarily software, patents and licenses).

OTHER EXPENSES, NET

Other expenses, net, were $2.6 million and $0.5 million for the three-month periods ended June 30, 2009 and 2008, respectively. Other expenses, net, were $2.9 million and $0.2 million for the first nine months of 2009 and 2008, respectively. The principal component of other expenses, net, for the three and nine-month periods ended June 30, 2009 consisted of $2.3 million of operating facility exit/relocation charges incurred in connection with the move of the Aclara RF facility. These charges consisted of leasehold improvement write-offs, lease contract termination costs and physical move costs. There were no individually significant items in other expenses, net, for the three and nine-month periods ended June 30, 2008.

EBIT

The Company evaluates the performance of its operating segments based on EBIT, defined below. EBIT was $16.0 million (10.8% of net sales) for the third quarter of 2009 and $18.7 million (12.4% of net sales) for the third quarter of 2008. For the first nine months of 2009, EBIT was $45.3 million (10.1% of net sales) compared with $47.7 million (11.3% of net sales) for the prior year period. The results for the third quarter of 2009 included a pretax charge of $2.3 million related to the Aclara RF facility relocation which was completed in June 2009.

This Form 10-Q contains the financial measure "EBIT", which is not calculated in accordance with 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.