RESULTS OF OPERATIONS

Forward-Looking Statements

This report contains "forward-looking statements". All statements other than statements of historical fact are "forward-looking" statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward looking terminology such as "anticipate", "believe", "continue", "could", "estimate", "expect", "intend", "may", "might", "plan", "potential", "predict", "should" or "will" or the negative thereof or other variations thereon or comparable terminology. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this report under the headings "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this report under the headings "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business", may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

· adverse developments in the global economy;

· significant reductions in U.S. government spending on defense;

· our dependence on growth in our customers' businesses and the uptake of new technologies;

· our inability to remain competitive in the markets we serve;

· our inability to continue to develop, manufacture and market innovative, customized products and services that meet customer requirements for performance and reliability;

· any failure of our suppliers to provide us with raw materials and/or properly functioning component parts;

· termination of our key contracts, including technology license agreements, or loss of our key customers;

· our inability to protect our intellectual property;

· our failure to comply with regulations such as ITAR and FCPA, and any changes in regulations;

· our failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect us;

· our inability to make payments on our significant indebtedness or to remain in compliance with the covenants of our debt agreement;

· the loss of key employees;

· our exposure to foreign currency exchange rate risks;

· terrorist acts or acts of war; and

· other risks and uncertainties, including those listed under the caption "Risk Factors".

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, either to reflect new developments, or for any other reason, except as required by law.

Overview

We are a leading global provider of RF and microwave integrated circuits, components and systems used in the design, development and maintenance of technically demanding, high-performance wireless communication systems. Our solutions include highly specialized microelectronic components and test and measurement equipment used by companies in the (i) space, avionics and defense;
(ii) commercial wireless communications; and (iii) medical and other markets. We have targeted customers in these end markets because we believe our solutions address their technically demanding requirements. We were founded in 1937 and have proprietary technology that is based on extensive know-how and a long history of research and development focused on specialized technologies, often in collaboration with our customers.

The IPO Transactions

Amendment to Senior Secured Credit Agreement

On November 4, 2010, we amended our then existing senior secured credit facility, for which we paid a $3.3 million fee to the lenders which was recorded as deferred financing costs and $579,000 of other costs that were expensed as incurred, which allowed us to, among other things:

· increase the amount of cash we could spend for acquisitions of businesses;

· pay certain fees to affiliates of our Sponsors upon the completion of our IPO. These fees were paid on November 24, 2010, and consisted of a $2.5 million transaction fee which was paid to affiliates of the Sponsors under the advisory agreement with them for services directly attributable to the IPO ("Transaction Fee"), which was recorded as a reduction of additional paid-in capital, and a $16.9 million termination fee, to terminate the Sponsor Advisory Agreement with them ("Termination Fee"). The Termination Fee, when combined with the related write-off of prepaid advisory fees, amounted to an $18.1 million expense which is reported in the statement of operations as Termination of Sponsor Advisory Agreement; and

· change the basis for calculating our interest rate margin above LIBOR.

IPO

In November 2010, we consummated an IPO of our common stock in which we sold 19,789,180 shares of common stock at a price of $13.50 per share. We received net proceeds of $244.0 million from the IPO, after deducting underwriting discounts and offering expenses, including the aforementioned $2.5 million Transaction Fee. In connection with the IPO, we:

· repurchased an aggregate of $186.6 million of our then existing senior unsecured notes and senior subordinated unsecured term loans and paid $21.1 million of tender premiums and expenses related thereto;

· paid a $16.9 million Termination Fee to affiliates of the Sponsors to terminate the advisory agreement with them, which, including the related write-off of prepaid advisory fees, resulted in an $18.1 million expense; and

· amended our then existing senior secured credit facility, for which a $3.3 million fee was paid to the lenders.

Debt Repurchase

In December 2010, we repurchased $32.2 million of our then existing senior unsecured notes and $154.4 million of our then existing senior subordinated unsecured term loans with the net proceeds of our IPO. This resulted in a $25.2 million loss on extinguishment of debt and write-off of deferred financing costs, which was comprised of the following:

· an 11% premium paid on the debt repurchased, which amounted to $20.5 million;

· the write-off of the related deferred financing costs of $4.0 million; and

· professional fees of $614,000.

Debt Transactions

Debt Refinancing

On May 9, 2011, we entered into a new senior secured credit facility with various lenders, consisting of a senior secured term loan facility of $725.0 million and a senior secured revolving credit facility of $75.0 million, to refinance $695.5 million of our then outstanding debt. The new term loan facility provided for $1.8 million quarterly principal repayments commencing September 30, 2011, with the remaining balance due at maturity on May 9, 2018. Unless terminated earlier, the new revolving credit facility will expire on May 9, 2016. No amounts have been drawn under the revolving credit facility. The outstanding borrowings under this senior secured credit facility bore interest, prior to the amendment, payable quarterly, at a rate per annum equal to either:
(i) the base rate (as defined in the new secured credit facility), plus an applicable margin of 200 basis points, or (ii) the adjusted LIBOR rate, which has a floor of 125 basis points (as defined in the new senior secured credit facility), plus an applicable margin of 300 basis points.

The $725.0 million proceeds were used:

1) to refinance $695.5 million of our then outstanding debt, as follows:

· to repay the entire outstanding balance of $489.1 million under our then existing senior secured credit facility;

· to repurchase all of our unsecured senior notes of $192.8 million; and

· to prepay all of our senior subordinated unsecured term loans of $13.6 million.

2) to pay a portion of the fees and expenses totaling $34.0 million in connection with the refinancing.

Debt Amendment

On May 24, 2012, we amended our senior secured credit facility, for which we paid a $3.5 million fee to the lenders which was recorded as deferred financing costs and $83,000 of other costs that were expensed as incurred, which allowed us to increase the flexibility under the total leverage ratio covenant. As a result of the amendment, the applicable LIBOR interest margin increased from 300 basis points to 450 basis points.

Factors and Trends That Affect Our Business

In reading our consolidated financial statements, you should be aware of the following factors and trends that our management believes are important in understanding our results.

Revenue

There are many factors that impact our sales. Some are outside of our direct control, such as changes in government spending on space, avionics and defense, the buying patterns of our customers, the uptake of new technologies, exchange rate fluctuations or general economic conditions. For those factors outside of our direct control, we attempt to respond quickly to changes to minimize the risk of adverse consequences.

Other factors are within our control, such as our pricing strategies and our product development focus. We constantly reassess our markets and evaluate potential new end markets for our technologies. Due to our many years of experience in our markets, we often are part of our customers' fundamental design strategies, which gives us greater visibility into potential new products and market demand.

We often design and develop platform-specific and customized products for our customers. Our major customers often use our products in multiple systems or programs, sometimes developed by different business units within the customer's organization. Although our product offerings and customer base are broad and diverse, sales derived from our ten largest customers as a percentage of our net sales was 37% in fiscal 2012, 31% in fiscal 2011 and 36% in fiscal 2010. While the composition of our top ten customers varies from year to year, we expect that sales to a limited number of customers will continue to account for a significant percentage of our revenue for the foreseeable future. No single customer exceeded 10% of our net revenue in fiscal 2012, 2011 or 2010. Approximately 33% of our sales in fiscal 2012, 30% of our sales for fiscal 2011 and 34% of our sales for fiscal 2010 were to agencies of the United States government or to prime defense contractors or subcontractors of the United States government.

Gross Margin

Our gross margin in any period is significantly affected by product mix, that is, the percentage of our revenue in that period that is attributable to higher or lower margin products and to a lesser extent, by pricing. The impact of product mix is evident in both the fiscal 2011 and 2010 improvements experienced in our consolidated gross margin as the gross margins for wireless test equipment products and integrated circuits, which had increased sales in both fiscal 2011 and 2010, are higher than the consolidated average gross margins. Likewise, the impact of product mix is evident in fiscal 2012 as decreased sales of wireless test products were the principal cause of the reduction in our consolidated gross margin. Additional factors affecting our gross margins include changes in the costs of materials and labor, changes in cost estimates for contracts for which revenue is recognized on a percentage of completion basis, variations in overhead absorption rates and other manufacturing efficiencies, and numerous other factors.

To continue to improve our gross margins, we seek to introduce products that are valued by our customers for the ability of those products to address technically challenging applications where performance and reliability are the highest priorities. We also seek continuously to reduce our costs and to improve the efficiency of our manufacturing operations, such as with the restructuring activities we have taken during the last several years.

Selling, General & Administrative Costs

Our selling, general and administrative costs consist of all expenditures incurred in connection with the sales and marketing of our products as well as administrative overhead costs.

Changes in selling, general and administrative costs as a percent of sales have historically been modest as we have continually focused on controlling our costs. On a GAAP basis, our selling, general and administrative costs as a percentage of sales have increased from 19.8% to 22.6% over the last three fiscal years, due mainly to a reduction in sales. To help reduce the adverse impact on profitability resulting from the worldwide economic downturn that began to affect our business in 2009, we froze salaries at the beginning of fiscal 2010 at their fiscal 2009 levels and suspended the match to our 401(k) plan. Based upon our performance in fiscal 2010, we reinstated the match to our 401(k) plan, albeit at a reduced level, and resumed salary increases in fiscal 2011. In response to our recent downturn in sales, we again froze salaries and suspended the match to our 401(k) plan in fiscal 2012. Additionally, headcount reductions were carried out in both AMS and ATS to reduce costs in response to market conditions.

Research and Development

Research and development expenses consist of costs related to direct product design, development and process engineering. The level of research and development expense is related to the number of products in development, the state of the development process, the complexity of the underlying technology, the potential scale of the product upon successful commercialization, the level of our exploratory research and the extent to which product development and similar costs are recoverable under contractual arrangements. We generally conduct such activities in collaboration with our customers, which provide better visibility into areas we believe will accelerate our longer term sales growth. Our basic technologies have been developed through a combination of internal development, acquisitions of businesses with technologies in similar or adjacent fields and, more recently, through licenses. Our recent acquisitions have been more of a "tuck-in" nature, demonstrative of a business philosophy that is not hesitant to acquire a business when it is more cost efficient to buy technology than to develop it. Licenses have primarily been used to access technology geared to a commercial application that we can translate to a radiation hardened application for use in space.

On a consolidated basis, our research and development costs were $89.8 million for the fiscal year ended June 30, 2012, $90.1 million for the fiscal year ended June 30, 2011 and $76.2 million for the fiscal year ended June 30, 2010.

Acquisitions and Restructurings



During the three year period covered by the audited financial statements
included elsewhere in this report, we made the following acquisitions:



    Date               Acquisition                        Description

  May 2010     Willtek Communications         Wireless test equipment

 June 2010     Radiation Assured Devices      Radiation tolerant testing,
                                              screening and high reliability
                                              radiation tolerant components/
                                              semiconductors

August 2010    Advanced Control Components    RF and Microwave components and
                                              assemblies

In August 2007, we were ourselves acquired and taken private. The application of purchase accounting is, therefore, pervasive throughout our consolidated financial statements, most notably in the balance sheets' amortizable and non-amortizable intangible asset accounts and in the operating statements' amortization of intangibles.

Acquired businesses often require restructuring activities to better align their on-going operations with those of our company and to improve their profitability. The majority of the restructuring charges contained in our consolidated financial statements relate to activities taken to consolidate our acquired European manufacturing operations and consolidate certain of our acquired U.S. components facilities. For instance:

· In the Aeroflex Microelectronic Solutions ("AMS") segment, we implemented a plan in 2010 to move the resistor product line from our Whippany, New Jersey factory to our operations in Ann Arbor, Michigan. Additionally, in fiscal 2011 we implemented a plan to move the integrated product line in our Whippany factory to our then recently acquired facility in Eatontown, New Jersey. These actions, which were completed in fiscal 2011, better aligned our manufacturing operations and enabled us to close our Whippany factory.

· In the Aeroflex Test Solutions ("ATS") segment, we reorganized and integrated Willtek (a company we acquired in May 2010) into our existing U.K. operations. These activities began with the elimination of redundant personnel in fiscal 2011 and were completed in fiscal 2012 when Willtek's manufacturing was moved from Germany to our U.K. manufacturing facility. Additionally, in response to substantially lower than expected sales in fiscal 2012, we reduced ATS headcount by 156 people (including 106 people in Europe within our wireless test business).

For the fiscal year ended June 30, 2012, restructuring charges consisted of severance costs of $4.1 million, facility closure costs of $1.7 million and other non-cash charges of $1.0 million, primarily related to the continued integration of Willtek into our European operations and the continued consolidation of one of our domestic components facilities located in Whippany, New Jersey into two of our other facilities.

For the fiscal year ended June 30, 2011, restructuring charges consisted of (i) severance costs of $8.2 million and facility closure costs of $1.7 million, primarily related to the integration of Willtek into our European operations and the continued consolidation of one of our domestic components facilities located in Whippany, New Jersey into two of our other facilities, and (ii) a non-cash building impairment charge of $4.9 million, based on the fair value of the Whippany, New Jersey facility we intend to sell.

For the fiscal year ended June 30, 2010, restructuring charges consisted of severance costs of $526,000 offset by a reduction of $141,000 of facility closure costs previously accrued, related to continued consolidation and reorganization efforts in our European operations and the consolidation of one of our domestic components facilities located in Whippany, New Jersey into two of our other facilities.

Interest Expense

In connection with the Going Private Transaction, we incurred $870.0 million of debt to finance the acquisition of Aeroflex. See "-Quantitative and Qualitative Disclosures About Market Risk".

In December 2010, we used the majority of the net proceeds from our IPO to repurchase an aggregate of $186.6 million of our senior unsecured notes and senior subordinated unsecured term loans.

In May 2011, we borrowed $725.0 million, under the senior secured term loan of our new senior secured credit facility at the adjusted LIBOR, which has a floor of 1.25%, plus a margin of 3.0% prior to amendment as described below, and repaid $695.5 million of our then existing debt, including $206.4 million of debt bearing interest at 11.75% per annum.

On May 24, 2012, we amended our senior secured credit facility, which allowed us to increase the flexibility under the total leverage ratio covenant. As a result of the amendment, the applicable LIBOR interest margin increased from 300 basis points to 450 basis points. These transactions, as well as the amount of debt repayments made in the normal course of business over the last few years, including approximately $80 million of prepayments in fiscal 2012, have significantly reduced the amount of debt outstanding to $641 million at June 30, 2012. As discussed above, the rates at which we borrow have also changed as a result of the aforementioned transactions. As a result, interest expense amounted to $83.9 million in fiscal 2010, $66.2 million in fiscal 2011 and $34.2 million in fiscal 2012.

Income Taxes

As a multi-national company, we are subject to income taxes in the U.S. and certain foreign jurisdictions. As earnings from our foreign operations are repatriated to the U.S., we are subject to U.S. income taxes on those amounts. Our tax provision may fluctuate from quarter to quarter and from year to year due to changes in jurisdictions where income is earned. In addition, our tax provision may be impacted by an enacted change in tax rates and/or availability of tax credits and incentives.

Results of Operations

The following table sets forth our historical results of operations as a percentage of net sales for the periods indicated below:

                                                             Year Ended June 30,
                                                     2012            2011            2010
Net sales                                              100.0 %         100.0 %         100.0 %
Cost of sales                                           49.6            46.2            47.6
Gross profit                                            50.4            53.8            52.4

Operating expenses:
Selling, general and administrative costs               22.6            20.6            19.8
Research and development costs                          13.3            12.4            11.6
Amortization of acquired intangibles                     9.3             8.8             9.5
Termination of Sponsor Advisory Agreement                  -             2.5               -
Restructuring charges                                    1.0             2.0               -
Impairment of goodwill and other long-lived
assets                                                   8.4               -               -
Change in fair value of acquisition contingent
 consideration liability                                (1.1 )           0.3               -
Loss on liquidation of foreign subsidiary                  -               -             1.2
Total operating expenses                                53.5            46.6            42.1

Operating income (loss)                                 (3.1 )           7.2            10.3

Other income (expense):
Interest expense                                        (5.1 )          (9.1 )         (12.8 )
Loss on extinguishment of debt and write-off of
deferred financing costs                                (0.2 )          (8.1 )             -
Gain from a bargain purchase of a business                 -               -             0.6
Other income (expense), net                             (0.3 )          (0.1 )           0.1

Income (loss) before income taxes                       (8.7 )         (10.1 )          (1.8 )
Provision (benefit) for income taxes                    (0.7 )          (5.3 )           0.1

Net income (loss)                                       (8.0 )%         (4.8 )%         (1.9 )%

Statements of Operations

Management evaluates the operating results of our two segments based upon adjusted operating income, which is pre-tax operating income before certain non-cash, non-recurring and other items. We have set out below our adjusted operating income by segment and in the aggregate, and have provided a reconciliation of adjusted operating income to operating income (loss) on a GAAP basis and income (loss) before income taxes for the periods presented.

                                                            Year Ended June 30,
                                                     2012           2011           2010
                                                               (In thousands)
Net sales
- Microelectronic solutions ("AMS")               $  366,745     $  370,035     $  322,151
- Test solutions ("ATS")                             306,270        359,379        332,897
Net sales                                         $  673,015     $  729,414     $  655,048

Segment adjusted operating income
- AMS                                             $   97,214     $  103,210     $   89,104
- ATS                                                 16,974         65,652         67,621
- General corporate expense                          (13,059 )      (12,322 )       (9,841 )
Adjusted operating income                            101,129        156,540        146,884

Amortization of acquired intangibles
- AMS                                                (36,062 )      (36,913 )      (35,032 )
- ATS                                                (26,634 )      (26,759 )      (26,883 )
Share-based compensation
- Corporate                                           (3,098 )       (2,254 )       (2,076 )
- AMS                                                   (256 )            -              -
- ATS                                                   (173 )            -              -
Restructuring charges
- AMS                                                 (1,426 )       (8,034 )         (172 )
- ATS                                                 (5,353 )       (6,749 )         (213 )
Business acquisition costs - Corporate                   (14 )         (282 )         (921 )
Change in fair value of acquisition contingent
consideration liability - Corporate                    7,553         (1,834 )            -
Merger related expenses - Corporate                        -         (1,222 )       (2,858 )
Termination of Sponsor Advisory Agreement -
Corporate                                                  -        (18,133 )            -
Impairment of goodwill and other long-lived
assets - AMS                                         (56,700 )            -              -
Loss on liquidation of foreign subsidiary - ATS            -              -         (7,696 )
Current period impact of acquisition related
adjustments
- AMS                                                   (151 )         (768 )       (1,246 )
- ATS                                                     89           (657 )       (1,593 )
- Corporate                                             (220 )         (220 )         (220 )
Operating income (loss) (GAAP)                       (21,316 )       52,715         67,974

Interest expense                                     (34,237 )      (66,204 )      (83,948 )
Loss on extinguishment of debt and write-off of
deferred  financing costs                             (1,232 )      (59,395 )            -
Gain from a bargain purchase of a business                 -            173          3,993
Other income (expense), net                           (1,745 )         (775 )          532
Income (loss) before income taxes                 $  (58,530 )   $  (73,486 )   $  (11,449 )

Fiscal Year Ended June 30, 2012 Compared to Fiscal Year Ended June 30, 2011

Overview

Our consolidated sales of $673.0 million in fiscal 2012 were substantially less . . .