Three Months Ended                     Six Months Ended
                                                July 31,     July 31,       %        July 31,      July 31,        %
(dollars in thousands except per share data)      2009         2008       Change       2009          2008        Change


Net sales                                      $ 56,586     $ 69,278       (18 )%   $ 121,808     $ 144,444       (16 )%
Gross profit                                     13,821       15,786       (12 )%      32,791        37,801       (13 )%
Gross margins                                      24.4 %       22.8 %                   26.9 %        26.2 %
Operating income                                  9,306       10,312       (10 )%      23,419        26,953       (13 )%
Net income                                        6,204        6,815        (9 )%      15,435        17,697       (13 )%
Diluted earnings per share                         0.34         0.38       (11 )%        0.86          0.98       (12 )%

Operating cash flow                                                                    34,321        22,891        50 %
Cash dividends                                                                          4,864         4,692         4 %
Common stock repurchases                                                                    -         5,180

The quarter-over-quarter and year-over-year declines in financial results were driven by softening global agricultural fundamentals and recessionary global economic conditions. The drop in net sales for the second quarter and first half of fiscal 2010 is the result of year-over-year sales declines in Applied Technology and Engineered Films partially offset by sales growth in Electronic Systems and Aerostar. In addition, the company reported lower quarter-over-quarter and year-over-year operating income, net income, and diluted earnings per share. The drop in second quarter and first half operating income is attributable to falling profits in Applied Technology and Engineered Films, partially offset by profit growth in Electronic Systems and Aerostar. Applied Technology net sales of $18.6 million in the second quarter of fiscal 2010 were down $4.1 million (18%) and operating income of $5.1 million fell $1.9 million (28%) compared to the second quarter of fiscal 2009. For the first half ended July 31, 2009, Applied Technology net sales of $48.0 million dropped $9.6 million (17%) and operating income of $14.7 million decreased $5.9 million (29%) as compared to the first half ended July 31, 2008. Applied Technology's results were negatively impacted by a less robust agricultural market as farm incomes have declined from prior year record levels due to falling commodity prices and uncertainty stemming from turbulent financial markets. Furthermore, quarter-over-quarter comparisons were unfavorable as the prior year's second quarter included carryover demand as orders in the first quarter of fiscal 2009 exceeded production capacity.
Engineered Films net sales of $15.0 million in the second quarter of fiscal 2010 fell $11.5 million (43%) and operating income of $2.1 million declined $1.4 million (41%) as compared to the second quarter of fiscal 2009. In the first half of fiscal 2010, Engineered Films net sales of $28.4 million dropped $20.1 million (42%) and operating income of $4.8 million decreased $2.6 million (35%) as compared to the first half of fiscal 2009. Engineered Films second quarter and first half results were negatively impacted by the continuation of a weak construction market, resulting in reduced demand for construction films and depressed selling prices. Additionally, demand for pit liners declined, reflecting less oil and gas drilling activity caused by falling oil prices. Sequentially, gross margins fell from 25.8% in the first quarter of fiscal 2010 to 18.2% in the current quarter, reflecting approximately $1.3 million of first quarter profit from one-time opportune purchases of prime grade plastic resin. Electronic Systems net sales of $17.9 million in the second quarter of fiscal 2010 grew $3.2 million (22%) and operating income of $3.0 million rose $1.7 million (139%) as compared to the second quarter of fiscal 2009. Electronic Systems net sales of $34.1 million in the first half of fiscal 2010 improved $6.0 million (22%) and operating income of $5.5 million in the first half of fiscal 2010 increased $3.6 million (190%) as compared to the first half of fiscal 2009. Electronic Systems second quarter and first half results were positively impacted by stronger shipments of printed circuit boards for the aviation industry and secure communication devices.
Aerostar's fiscal 2010 second quarter sales of $5.8 million grew $291,000 (5%) and operating income of $1.1 million expanded $418,000 (58%) as compared to the second quarter of fiscal 2009. Aerostar's fiscal 2010 first half sales of $12.4 million rose $837,000 (7%) and operating income of $2.3 million improved $770,000 (51%) as compared to the first half of fiscal 2009. Aerostar's second quarter and first half results were positively impacted by shipments under the MC-6 Army parachute contract which was partially offset by a decline in protective wear shipments.

RESULTS OF OPERATIONS - SEGMENT ANALYSIS
Applied Technology
Applied Technology provides electronic and Global Positioning System
(GPS) products designed to reduce operating costs and improve yields for the
agriculture market.

                                       Three Months Ended                                 Six Months Ended
                          July 31,     July 31,        $           %        July 31,     July 31,        $           %
(dollars in thousands)      2009         2008        Change      Change       2009         2008        Change      Change

Net sales                $ 18,572     $ 22,716     $ (4,144 )     (18 )%   $ 48,006     $ 57,562     $ (9,556 )     (17 )%
Gross profit                6,544        8,884       (2,340 )     (26 )%     17,888       24,063       (6,175 )     (26 )%
Gross margins                35.2 %       39.1 %                               37.3 %       41.8 %
Operating income            5,117        7,060       (1,943 )     (28 )%     14,727       20,606       (5,879 )     (29 )%

Several factors contributed to the quarter-over-quarter and year-over-year declines in net sales and operating income:
• Net farm income has declined from 2008 levels due to a decline in crop prices partially offset by a reduction in farm production costs. Farm income remains high by historical standards; however, grower and custom spray applicator purchasing decisions were deferred as a result of uncertainty regarding global economic conditions causing a decline in sales across substantially all of the segment's product categories.

• The decline in sales for the three and six month periods was comprised of a drop in volume offset by a modest increase in selling prices.

• First half international sales of $9.9 million fell $1.7 million (15%) year-over-year. Net sales outside the U.S. comprised approximately 21% of segment sales in fiscal 2010 up slightly from 20% in fiscal 2009. Sharp declines experienced in some geographic markets were partially offset by expansion into regions not previously served.

• New product sales declined year-over-year because last year's first six months included a high level of Cruizer™ shipments. This simple and affordable guidance system, which was introduced at the beginning of last year, targeted new entrants to the precision agricultural market and was well received in the marketplace.

• First half fiscal 2010 gross margins of 37.3% contracted from 41.8% for the first half of fiscal 2009 as result of negative operating leverage stemming from decreased sales volume that was partially offset by spending cuts and modest selling price increases.

• As a percentage of sales, first half selling expense increased to 6.9% versus 5.9% in the prior six-month period due to higher expense on lower sales volume. Selling expense of $3.3 million decreased 3% year-over-year, however, lagged the 17% drop in sales.

Engineered Films
Engineered Films produces rugged reinforced plastic sheeting for industrial,
construction, geomembrane and agricultural applications.

                                        Three Months Ended                                  Six Months Ended
                          July 31,     July 31,         $           %        July 31,     July 31,         $           %
(dollars in thousands)      2009         2008        Change       Change       2009         2008        Change       Change

Net sales                $ 15,017     $ 26,504     $ (11,487 )     (43 )%   $ 28,375     $ 48,509     $ (20,134 )     (42 )%
Gross profit                2,738        4,458        (1,720 )     (39 )%      6,186        9,356        (3,170 )     (34 )%
Gross margins                18.2 %       16.8 %                                21.8 %       19.3 %
Operating income            2,081        3,515        (1,434 )     (41 )%      4,796        7,379        (2,583 )     (35 )%

The following factors contributed to the quarter-over-quarter and year-over-year change:
• This segment has been negatively impacted by weak global economic activity that began in the second half of fiscal 2009 and has continued through the first half of fiscal 2010.

• Approximately 25% of the year-over-year decline in sales is attributable to a reduction in selling prices. Selling prices have been driven downward by the market in response to lower resin costs and competitors slashing prices in order to reduce inventories and fill excess capacity.

• Roughly 75% of the year-over-year decline in sales is due to a decline in sales volume which was down approximately 32%. Construction orders fell as the market participants adapted to a weakening economic outlook and the scarcity of credit. Also, deliveries of pit liners to the energy exploration market declined from prior year levels. Drilling activity slowed due to lower oil prices and reductions in forecasted demand.

• The expansion of gross margins in the current quarter and year-over-year reflect reduced spending levels and a reduction in plastic resin costs that outpaced the decline in selling prices.

• First half selling expense as a percentage of sales increased to 4.9% versus 3.9% in the prior year. Selling expense of $1.4 million decreased 26% year-over-year through reductions in personnel and promotional expenses, however, sales dropped 42%.

Electronic Systems
Electronic Systems is a total-solutions provider of electronics manufacturing
services, primarily to North American original equipment manufacturers.

                                       Three Months Ended                                Six Months Ended
                          July 31,     July 31,        $          %        July 31,     July 31,        $          %
(dollars in thousands)      2009         2008       Change      Change       2009         2008       Change      Change

Net sales                $ 17,913     $ 14,739     $ 3,174         22 %   $ 34,066     $ 28,018     $ 6,048         22 %
Gross profit                3,239        1,475       1,764        120 %      6,037        2,425       3,612        149 %
Gross margins                18.1 %       10.0 %                              17.7 %        8.7 %
Operating income            2,962        1,239       1,723        139 %      5,457        1,879       3,578        190 %

The relative quarter-over-quarter and year-over-year change is primarily the result of the following:
• The increase in net sales is attributable to increased shipment volume of aviation electronics and secure communication equipment in response to increased customer demand.

• Shipments of hand-held bed controls have begun to stabilize from the depressed levels of one year ago.

• Gross margins expanded from 8.7% in the first half of fiscal 2009 to 17.7% for the first half of fiscal 2010. The improvement was attributable to more favorable product mix, cost controls such as staff reduction and facility consolidation, and positive operating leverage generated through increased sales.

• First half selling expense as a percentage of sales decreased to 1.7% versus 1.9% in the prior year. Selling expense of $580,000 increased slightly from one year ago due mainly to higher personnel costs, however, lagged the 22% growth in net sales.

Aerostar
Aerostar manufactures military parachutes, protective wear, custom shaped
inflatable products, and high-altitude aerostats for government and commercial
research.

                                      Three Months Ended                               Six Months Ended
                          July 31,     July 31,       $          %        July 31,     July 31,       $          %
(dollars in thousands)      2009         2008       Change     Change       2009         2008       Change     Change

Net sales                 $ 5,838      $ 5,547      $ 291          5 %   $ 12,403     $ 11,566      $ 837          7 %
Gross profit                1,326          943        383         41 %      2,678        1,960        718         37 %
Gross margins                22.7 %       17.0 %                             21.6 %       16.9 %
Operating income            1,136          718        418         58 %      2,294        1,524        770         51 %

The quarter-over-quarter and year-over-year change is primarily due to the following:
• Increased sales volume of MC-6 Army parachutes was partially offset by reduced protective wear shipments. Protective wear sales have declined from last year at this time due to the completion of a relatively large contract in January 2009.

• Gross margins improved in the second quarter and first half of fiscal 2010 reflecting parachute manufacturing efficiencies.

• For the first six months, selling expense as a percentage of sales decreased to 3.1% from 3.8% due to relatively flat selling expense and increased sales.

Corporate Expenses (administrative expenses, interest income and other, net and

income taxes)

                                              Three Months Ended           Six Months Ended
                                             July 31,      July 31,     July 31,     July 31,
 (dollars in thousands)                        2009          2008         2009         2008

 Administrative expenses                    $  1,964       $ 2,246      $ 3,857      $ 4,432
 Administrative expenses as a % of sales         3.5 %         3.2 %        3.2 %        3.1 %
 Interest income and other, net             $    105       $   176      $   106      $   294
 Effective tax rate                             34.1 %        35.0 %       34.4 %       35.0 %

Administrative expenses decreased 13% for the three and six month periods ended July 31, 2009 due primarily to lower compensation expense.
"Interest income and other, net" consists mainly of interest income, bank fees and foreign currency transaction gain or loss. Interest income declined year-over-year due to lower interest rates.
The decrease in the effective tax rate is attributable to reinstatement of the U.S. research and development tax credit in October 2008.
OUTLOOK
Financial results for the first half of fiscal 2010 have been impacted by the recessionary global economic environment. The weak business activity experienced in the fourth quarter of fiscal 2009 has continued throughout the first half of fiscal 2010. It is likely that current economic conditions will persist for the remainder of fiscal 2010. As with the first half of the year, third quarter results are expected to be down from one year ago and on a sequential quarter basis, be similar or slightly lower when comparing year-over-year on a percentage basis. Management expects full-year sales and earnings to fall short of last year's record levels.
Management reacted promptly and decisively in the fourth quarter of fiscal 2009 to control costs in response to deteriorating economic conditions. In addition, the company's strong product offerings and commitment to quality and service have resulted in preservation of market share and mitigated the impact of the harsh economic conditions.
Applied Technology
Third quarter sales are expected to miss last year's record results. Management continues to see increased acceptance of precision agricultural equipment as an essential tool for maximizing yields in an environment of volatile input costs. However, the short-term

outlook is less clear. Grower and custom spray applicator purchasing decisions are impacted by uncertainty regarding global economic conditions. This is expected to continue to negatively impact sales through the third quarter. Fourth quarter revenues could be greater than the previous year because last year's fourth quarter was impacted by the recession. This segment entered into an agreement to distribute select products through John Deere dealers starting in the third quarter. The benefit from this agreement is expected to be material to fiscal 2011 results but its impact on the current year cannot be determined. Engineered Films
The growth prospects for Engineered Films are expected to be driven by increased penetration of existing markets and the introduction of innovative products. Ultimately, Engineered Films is dependent on the reversal of the severe economic contraction, particularly in the oil and gas drilling and construction markets, to achieve growth.
In the near-term, management expects a difficult third quarter as current economic conditions create unfavorable year-over-year comparisons. Sequentially, gross margins are expected to decline in the third quarter due to higher resin costs. The construction market continues to be hampered by bleak industry conditions and the scarcity of credit. In addition, deliveries of pit liners to the energy exploration market are expected to decline from prior year levels. Drilling activity has slowed due to lower oil prices and reductions in forecasted demand. Recent increases in oil prices are encouraging but it is unlikely that drilling activity will return to prior year levels. Because gross profit rates have improved, management does not expect the previous year's fourth quarter loss to be repeated.
Electronic Systems
Electronic Systems third quarter sales are expected to decline from last year's third quarter, however, profits are forecasted to increase year-over-year as cost cutting and plant consolidation measures are expected to continue to result in efficiency gains and improved margins. Sequentially, margins are expected to be lower due to product mix, although will remain strong as compared year-over-year. With avionics sales accounting for more than 50 percent of this segment's sales, an anticipated inventory reduction by the segment's largest customer could further reduce sales in the fourth quarter. Aerostar
Although Aerostar's long-term potential will be driven by success in the high-altitude research balloon and tethered aerostats markets, third quarter sales and profits are expected to be up as compared with one year earlier due to higher MC-6 Army parachute deliveries. Sales in the previous year's fourth quarter included $3 million of parachute sales that were delayed from the third quarter. As a result, fourth quarter year-over-year comparisons are expected to be unfavorable.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity and capital resources are strong despite the global economic recession. Management focuses on the current cash balance and operating cash flows in considering liquidity as operating cash flows have historically been the company's primary source of liquidity. Management expects that current cash combined with the generation of positive operating cash flows will be sufficient to fund the company's operating, investing, and financing activities. The company's cash needs are seasonal, with working capital demands strongest in the first quarter. Consequently, the discussion of trends in operating cash flows focuses on the primary drivers of year-over-year variability in working capital.
Cash, cash equivalents, and short-term investments totaled $43.0 million at July 31, 2009, a $26.8 million increase compared to cash, cash equivalents, and short-term investments at January 31, 2009 of $16.3 million. The comparable balances one year earlier totaled $32.2 million. In November 2008, the company paid a special cash dividend of $22.5 million. Operating Activities
Cash provided by operating activities was $34.3 million in the first half of fiscal 2010 compared to $22.9 million in the first half of fiscal 2009. The company's operating cash flows result primarily from cash received from customers offset by cash payments for inventories, services, and employee compensation. The increase in first half operating cash flows is the result of variability in working capital. For the six-month period, inventory and accounts receivable have combined to generate $18.0 million in cash as compared with cash consumed of $5.1 million during last year's first six months. Inventory balances have declined significantly due to improved management, lower sales and a drop in plastic resin costs. Additionally, accounts receivable have declined which reflects the decrease in business activity. This was partially offset by year-over-year reductions in accounts payable.

Investing Activities
Cash used in investing activities totaled $4.7 million in the first half of fiscal 2010, compared to $4.2 million in the first half of fiscal 2009. The variance reflects a $1.4 million increase in net purchases of short-term investments which was partially offset by a $1.2 million reduction in capital expenditures. Capital expenditures are expected to be in the $3 million range for the current fiscal year.
Financing Activities
Financing activities consumed cash of $4.9 million for the six months ended July 31, 2009 compared with $9.8 million used in last year's comparable period. Cash used in financing activities is primarily for dividend payments and repurchases of common stock. The quarterly per-share cash dividend was increased by 8 percent, to 14 cents per share in the second quarter. Dividends of $4.9 million or 27 cents per share were paid in the current year compared to $4.7 million in the first half of fiscal 2009. Treasury stock purchases totaled $5.2 million for the first six months of last year, just prior to the suspension of the share repurchase program in July 2008.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS There have been no material changes since the fiscal year ended January 31, 2009.
NEW ACCOUNTING STANDARDS
At the beginning of fiscal 2010 the company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. The adoption of SFAS No. 161 had no impact on the company's consolidated results of operations, financial condition or cash flows. At the beginning of fiscal 2010 the company adopted FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets. The new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets, and (2) intangible assets acquired in both business combinations and asset acquisitions. Under FSP No. FAS 142-3, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. As this guidance applies only to assets acquired in the future, the company is not able to predict the impact, if any, on the company's consolidated results of operations, financial condition or cash flows. As of July 31, 2009 the company adopted SFAS No. 165, Subsequent Events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of SFAS No. 165 did not have a material impact on the company's consolidated results of operations, financial condition or cash flows. In accordance with SFAS No. 165, the company has evaluated subsequent events through the date and time the financial statements were issued on September 2, 2009.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162. SFAS 168 establishes a two-level GAAP hierarchy for nongovernmental entities: authoritative guidance and non-authoritative guidance. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, and EITF Abstracts; instead, the Board will issue new guidance as Accounting Standards Updates, which will include . . .