Overview

We operate our businesses in three segments: Avionics & Controls, Sensors & Systems and Advanced Materials.

The Avionics & Controls segment includes avionics systems, control systems, interface technologies and communication systems capabilities. Avionics systems designs and develops cockpit systems integration and avionics solutions for commercial and military applications. Control systems designs and manufactures technology interface systems for military and commercial aircraft and land- and sea-based military vehicles. Interface technologies manufactures and develops custom control panels, input systems for medical, industrial, military and gaming industries. Communication systems designs and manufactures military audio and data products for severe battlefield environments. In addition, communication systems designs and manufactures communication control systems to enhance security and aural clarity in military applications.

The Sensors & Systems segment includes power systems and advanced sensors capabilities. Power systems develops and manufactures electrical power switching and other related systems, principally for aerospace and defense customers. Advanced sensors develops and manufactures high precision temperature and pressure sensors for aerospace and defense customers.

The Advanced Materials segment includes engineered materials and defense technologies capabilities. Engineered materials develops and manufactures thermally engineered components and high-performance elastomer products used in a wide range of commercial aerospace and military applications. Defense technologies develops and manufactures combustible ordnance components and electronic warfare countermeasure devices for military customers. Sales in all segments include domestic, international, defense and commercial customers.

Our current business and strategic plan focuses on the continued development of our products principally for aerospace and defense markets. We are concentrating our efforts to expand our capabilities in these markets and anticipate the global needs of our customers and respond to such needs with comprehensive solutions. These efforts focus on continuous research and new product development, acquisitions and strategic realignments of operations to expand our capabilities as a more comprehensive supplier to our customers across our entire product offering.

On November 3, 2008, we sold Muirhead Aerospace (Muirhead) and Traxsys Input Products Limited (Traxsys) for $63.4 million, which resulted in an after tax gain of $16.0 million. Muirhead and Traxsys were included in the Sensors & Systems segment. The results of Muirhead and Traxsys are accounted for as discontinued operations in the consolidated income statement.

On January 26, 2009, we acquired Racal Acoustics Global Ltd. (Racal), which develops and manufactures high technology ruggedized personal communication equipment for the defense and avionics segment. Racal is included in our Avionics & Controls segment.

During the first nine months of fiscal 2009, our operating results have been affected by volatility in foreign currency exchange rates, reductions in our after-market spares sales due to reduced air traffic and operating losses at our flare countermeasure units. In addition, the first nine months of fiscal 2009 contained 39 weeks, while the first nine months of fiscal 2008 contained 40 weeks. While our operating results were impacted by these factors, we have benefited from significantly improved results at our avionics systems operations and consistent results at our control systems, power systems, and combustible ordnance operations. These operations benefited from continued demand for defense applications, reduced research and development expenditures and increased funding from customers and governments as well as effective cost control.

Income from continuing operations was $69.3 million, or $2.32 per diluted share, compared with $72.1 million, or $2.41 per diluted share, in the prior-year period. Income from continuing operations for the first nine months of fiscal 2009 was impacted by a foreign currency loss of $7.9 million or $1.7 million after tax, or $0.06 per diluted share, relating to the pound sterling-denominated funding of our acquisition of Racal in January 2009.

The effective income tax rate for the first nine months of fiscal 2009 was 15.7% (before a $2.9 million tax benefit or $0.10 per diluted share) compared with 23.0% (before a $5.9 million tax benefit or $0.20 per diluted share) for the prior-year period.

Income from discontinued operations was $0.54 per diluted share, compared with $0.15 per diluted share in the prior-year period, reflecting the gain on sale of our U.K.-based Muirhead and Traxsys subsidiaries in November 2008. Net income was $85.3 million, or $2.86 per diluted share, compared with net income of $76.7 million, or $2.56 per diluted share, in the prior-year period.

Results of Operations

Three Month Period Ended July 31, 2009 Compared with Three Month Period Ended
August 1, 2008

Sales for the third fiscal quarter decreased 0.5% compared with the prior-year
period. Sales by segment were as follows:

(In thousands)


                                  Incr./(Decr.)       Three Months Ended
                                   from prior       July 31,      August 1,
                                   year period        2009          2008

           Avionics & Controls       15.6%         $   171,027   $   147,926
           Sensors & Systems         (18.3)%            84,460       103,320
           Advanced Materials         (5.5)%           105,999       112,218

           Total Net Sales                         $   361,486   $   363,464

The 15.6% increase in sales of Avionics & Controls was principally due to incremental sales from the Racal acquisition and increased sales volumes of avionics systems for military aviation. These increases were partially offset by lower sales of cockpit controls for commercial aviation OEM and after-market customers. Stronger sales of interface technologies devices to the gaming industry offset weakness in the medical market.

The 18.3% decrease in sales of Sensors & Systems mainly reflected the effect of exchange rates and the strong U.S. dollar. Sales in the third fiscal quarter of 2009 reflected a weaker pound sterling and euro relative to the U.S. dollar. The average exchange rate from the pound sterling to the U.S. dollar decreased from 1.98 in the third fiscal quarter of 2008 to 1.62 in the third fiscal quarter of 2009. The average exchange rate from the euro to the U.S. dollar decreased from 1.56 in the third fiscal quarter of 2008 to 1.40 in the third fiscal quarter of 2009. Additionally, sales were impacted by lower sales of temperature sensors for commercial and general aviation OEM and after-market customers. Sales of power system devices declined in comparison to the prior-year period due to lower demand from business jet customers and a delay in the issuance of an Airworthiness Directive by the FAA.

The 5.5% decrease in sales of Advanced Materials principally reflected the effect of exchange rates on our U.K.-based thermally engineered component operation, lower commercial aircraft build rates, and weakened industrial commercial demand for engineered materials. Additionally, sales at our U.S. flare countermeasure operations decreased over the prior-year period, reflecting a one-month factory shutdown resulting from an incident in a cross blending facility. The factory resumed operations in August 2009. Sales at our U.K. flare countermeasure operations were weaker than expected in the third fiscal quarter of 2009 due to delayed shipments to international customers which may be postponed until early fiscal 2010. Sales at our combustible ordnance operation were even with the prior-year period.

Overall, gross margin as a percentage of sales was 32.4%, compared to 31.2% in the same period a year ago.

Sensors & Systems segment gross margin was 31.3% and 35.1% for the third fiscal quarter of 2009 and 2008, respectively. The decrease in gross margin principally reflects lower sales of temperature sensors to the after-market and OEM customers, the impact of starting up a manufacturing facility in Mexico, and higher warranty costs. In addition, gross margins were impacted by the delay in shipping certain commercial power system devices as referred to above.

Advanced Materials segment gross margin was 28.0% compared to 30.1% for the same period one year ago. The decrease in gross margin mainly reflects decreased sales of U.S. flare countermeasure devices due to the incident referred to above, which resulted in a low recovery of fixed costs. This decrease in gross margin at our U.S. flare countermeasure operations was partially offset by improved gross margin at our U.K. flare countermeasure operations resulting from the shipment of a distributed component to an international customer. Gross margin on engineered materials decreased due to a lower recovery of fixed costs as a result of decreased sales to commercial aviation and industrial commercial customers. Management reduced the workforce at its elastomer operations during the third fiscal quarter of 2009 and took further actions subsequent to quarter end. Gross margin was also impacted by reduced sales of thermally engineered components for naval and industrial gas turbine applications.

Selling, general and administrative expenses (which include corporate expenses) totaled $59.7 million, or 16.5% of sales, and $61.0 million, or 16.8% of sales, for the third fiscal quarter of 2009 and 2008, respectively. The decrease in the amount of selling, general and administrative expenses was due principally to reduced incentive compensation expense, lower professional fees, and the effect of foreign exchange rates at our non-U.S. operations. These decreases were principally offset by a $2.8 million increase in pension expense.

Research, development and engineering spending was $14.9 million, or 4.1% of sales, for the third fiscal quarter of 2009 compared with $21.5 million, or 5.9% of sales, for the third fiscal quarter of 2008. The decrease in research, development and engineering principally reflected lower spending on the development of the integrated cockpit system for the T-6B military trainer and certain cockpit avionics systems and the A400M development, as well as increased customer funding of certain development costs, assistance from the Province of Québec, and the effect of foreign exchange rates.

Avionics & Controls segment earnings were $27.1 million, or 15.8% of sales, in the third fiscal quarter of 2009 and $9.6 million, or 6.5% of sales, in the third fiscal quarter of 2008, principally reflecting a significant improvement in our avionics systems operations, a solid contribution from our Racal acquisition and our control systems operations. Our avionics systems operation results reflected improved gross margin and lower research and development spending and assistance from the Province of Québec in the amount of $2.4 million. The assistance from the Province of Québec was received during the third fiscal quarter of 2009 and is retroactive to October 31, 2007, and, accordingly, approximately $2.2 million represents assistance for research, development and engineering expense incurred prior to May 2, 2009. In addition, control systems operations benefited from cost control and reductions in the workforce. As indicated above, our avionics systems operations were impacted by an unfavorable estimate to complete adjustment on long-term contracts in the prior-year period. Interface technologies operations earnings were down slightly against the prior-year period, primarily reflecting lower earnings from a new product development with introductory pricing for a limited number of shipments and reduced earnings from our medical business. Our interface technologies operations have also benefited from cost control and reductions in the workforce.

Sensors & Systems segment earnings were $7.0 million, or 8.3% of sales, for the third fiscal quarter of 2009 compared with $12.0 million, or 11.6% of sales, for the third fiscal quarter of 2008. The decrease in earnings principally reflected the results of our advanced sensors operations due to lower sales volumes and start-up costs in Mexico. Power systems operations earnings were consistent with the prior-year period. Power systems operations benefited from lower research and development expenses and higher customer funding of research and development.

Advanced Materials segment earnings were $16.1 million, or 15.2% of sales, for the third fiscal quarter of 2009 compared with $18.0 million, or 16.0% of sales, for the third fiscal quarter of 2008, principally reflecting lower earnings from our engineered materials and U.S. flare countermeasure operations. Engineered materials operations were impacted by lower demand from commercial aviation and industrial commercial customers. Flare countermeasure operations were impacted by lower requirements, a delayed shipment, and the one-month factory shutdown due to the incident in the cross blending facility. Our thermally engineered material operations were impacted by lower sales but benefited from the effects of foreign currency rate changes on forward contracts and cost control actions.

Interest expense for the third fiscal quarter of 2009 was $7.0 million compared with $7.3 million for the third fiscal quarter of 2008, reflecting the repayment of our U.K. term loan and lower interest rates.

The effective income tax rate for the third fiscal quarter of 2009 was 17.5% (before a $3.2 million discrete tax benefit) compared with 24.0% (before a $0.3 million discrete tax expense) for the prior-year period. The $3.2 million tax benefit in the third fiscal quarter of 2009

To the extent that sales are transacted in a currency other than the functional currency of the operating unit, we are subject to foreign currency fluctuation risk. We use forward contracts to hedge our foreign currency exchange risk. To the extent that these hedges qualify under Statement No. 133, the amount of gain or loss is deferred in Accumulated Other Comprehensive Income (AOCI) until the related sale occurs. Also, we are subject to foreign currency gains or losses from embedded derivatives on backlog denominated in a currency other than the functional currency of our operating companies or its customer. Gains and losses on forward contracts, embedded derivatives, and revaluation of assets and liabilities denominated in currency other than the functional currency of the Company for the three-month period ended July 31, 2009 and August 1, 2008 are as follows:

(In thousands)                                                      Three Months Ended
                                                                July 31,          August 1,
                                                                  2009               2008

Forward foreign currency contracts - gain                      $     6,777        $      282
Forward foreign currency contract - reclassified from AOCI          (1,338 )             858
Embedded derivatives - gain (loss)                                  (2,165 )             220
Revaluation of monetary assets/liabilities - gain (loss)            (3,377 )             107

Total                                                          $      (103 )      $    1,467

Sales for the first nine months decreased 4.5% compared with the prior-year period. Sales by segment were as follows:

(In thousands)

                                Incr./(Decr.)          Nine Months Ended
                                 from prior        July 31,        August 1,
                                 year period         2009            2008

         Avionics & Controls        7.0%         $     468,606   $     438,008
         Sensors & Systems         (13.1)%             255,770         294,193
         Advanced Materials        (11.6)%             306,329         346,621

         Total Net Sales                         $   1,030,705   $   1,078,822

The 7.0% increase in sales of Avionics & Controls was principally due to the acquisition of Racal. Avionics & Controls sales benefited from strong demand for avionics systems, but were partially offset by weak commercial aviation demand impacting OEM and aftermarket spares sales and the decrease in the number of weeks contained in the first nine month period of fiscal 2009 compared to the prior-year period.

The 13.1% decrease in sales of Sensors & Systems mainly reflected the effect of exchange rates at our non-U.S. operations, lower sales of temperature and pressure sensors, certain power systems devices, and the decrease in the number of weeks contained in the first nine month period of fiscal 2009 compared to the prior-year period. Sales in the first nine months of fiscal 2009 reflected a weaker pound sterling and euro relative to the U.S. dollar. The average exchange rate from the pound sterling to the U.S. dollar decreased from 2.00 in the first nine months of fiscal 2008 to 1.52 in the first nine months of fiscal 2009. The average exchange rate from the euro to the U.S. dollar decreased from 1.52 in the first nine months of fiscal 2008 to 1.34 in the first nine months of fiscal 2009.

The 11.6% decrease in sales of Advanced Materials principally reflected lower sales of flare countermeasure devices, decreased sales of thermally engineered components and elastomer components, and one less week in the first nine months of fiscal 2009 compared to the prior-year period. The decrease in flare countermeasures sales related to lower demand and the timing of receiving orders and scheduling shipments of our international customers. The decrease in sales of thermally engineered components reflected the weakening of the pound sterling as described above. The decrease in sales at our engineered materials operations was principally due to lower demand from commercial aviation and industrial commercial customers. These decreases in sales were partially offset by increased sales of combustible ordnance and incremental sales from the acquisition of NMC in December 2008.

Overall, gross margin as a percentage of sales was 32.2% and 32.4% for the first nine months of fiscal 2009 and 2008, respectively.

Avionics & Controls segment gross margin was 34.8% and 33.5% for the first nine months of fiscal 2009 and 2008, respectively. The increase in gross margin reflected incremental gross margin from our Racal acquisition and improved gross margin at our secure communications systems operation.

Advanced Materials segment gross margin was 27.6% compared with 28.2% for the same period one year ago. The decrease in Advanced Materials gross margin reflected strong gross margins at our combustible ordnance and thermally engineered components operations, offset by lower gross margins at our U.K. flare countermeasure and engineered materials operations, reflecting lower sales volumes and a decreased recovery of fixed overhead expenses.

Selling, general and administrative expenses (which include corporate expenses) totaled $174.0 million, or 16.9% of sales, and $178.1 million, or 16.5% of sales, for the first nine months of fiscal 2009 and 2008, respectively. The decrease in selling, general and administrative expense principally reflects lower incentive compensation expense and the effect of changes in foreign currency exchange rates, partially offset by an increase of $8.7 million in pension cost.

Research, development and engineering spending was $50.6 million, or 4.9% of sales, for the first nine months of fiscal 2009 compared with $68.1 million, or 6.3% of sales, for the first nine months of fiscal 2008. The decrease in research, development and engineering principally reflected increased customer funding and governmental assistance on certain development programs, lower spending on the integrated cockpit system for the T-6B military trainer, the A400M and 787 programs, and the effect of translating our non-U.S. units from their functional currency to the U.S. dollar as the Canadian dollar, euro and pound sterling weakened against the U.S. dollar. Fiscal 2009 research, development and engineering spending is expected to be about 4.9% of sales.

Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the first nine months of fiscal 2009 totaled $130.8 million, or 12.7% of sales, compared with $130.8 million, or 12.1% of sales, for the first nine months in fiscal 2008.

Avionics & Controls segment earnings were $63.2 million, or 13.5% of sales, in the first nine months of fiscal 2009 and $42.4 million, or 9.7% of sales, in the first nine months of fiscal 2008, principally reflecting significantly improved earnings at avionics systems. Our avionics systems operations were profitable in the first nine month period of fiscal 2009 and incurred an operating loss in the first nine month period of fiscal 2008. The improvement in operating earnings principally reflected lower research, development and engineering expenses for the T-6B military trainer and assistance from the Province of Québec in the amount of $2.4 million. The assistance agreement with the Province of Québec was signed in July 2009. The assistance from the Province of Québec is retroactive to October 31, 2007, and, accordingly, approximately $1.6 million

Sensors & Systems segment earnings were $27.1 million, or 10.6% of sales, for the first nine months of fiscal 2009 compared with $34.8 million, or 11.8% of sales, for the first nine months of fiscal 2008. The decrease in segment earnings as a percent of sales principally reflects lower gross margins at our temperature and pressure sensor operations and start-up costs incurred establishing a manufacturing operation in Mexico. Lower gross margins at our power distribution operations were substantially offset by decreased research, engineering and development due to increased governmental assistance and customer development funding and decreased A400M program development expenses.

Advanced Materials segment earnings were $40.4 million, or 13.2% of sales, for the first nine months of fiscal 2009 compared with $53.6 million, or 15.5% of sales, for the first nine months of fiscal 2008, principally reflecting lower earnings from our engineered materials, countermeasure flare, and metal finishing operations. As stated above, one of our U.S. flare countermeasure units was closed for one month due to an incident in the cross blending facility. Additionally, sales at our U.K. flare countermeasure operations were weaker than expected in the third fiscal quarter of 2009 due to delayed shipments to international customers which may be postponed until early fiscal 2010. Our U.K. and U.S. flare countermeasure operations incurred operating losses in the first nine months of fiscal 2009 and 2008. Management expects that demand for U.S. flare countermeasures will be reduced when the Quadrennial Defense Review is issued in February 2010. We considered this reduction of demand to be an indicator of impairment which requires the Company to compare undiscounted cash flows to the carrying amount of its long-lived assets. Estimated undiscounted cash flows were in excess of the book value of the assets, and, accordingly, no impairment was recorded. The decrease in earnings at our engineered materials operations principally reflected lower sales volumes and gross margin due to sales mix and a decreased recovery of fixed costs. The decrease in earnings of our metal finishing operations resulted from decreased sales and gross profit principally due to the effects of the strike at Boeing and the downturn in commercial aviation.

On January 26, 2009, we acquired Racal for £122.3 million or $170.9 million. Racal develops and manufactures high technology ruggedized personal communication equipment for the defense market segment. The acquisition was funded with cash proceeds from the sale of U.K.-based Muirhead and Traxsys and our line of credit. To facilitate the acquisition of Racal, we executed a . . .