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TABLE OF CONTENTS Prospectus
AEROFLEX HOLDING CORP. AND SUBSIDIARIES AND PREDECESSOR

As filed with the Securities and Exchange Commission on April 6, 2010

Registration No. 333-              

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Aeroflex Holding Corp.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  3674
(Primary Standard Industrial
Classification Code Number)
  01-0899019
(I.R.S. Employer
Identification No.)

35 South Service Road
P.O. Box 6022
Plainview, NY 11803
(516) 694-6700

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

Leonard Borow
Chief Executive Officer and President
Aeroflex Holding Corp.
35 South Service Road
P.O. Box 6022
Plainview, NY 11803
(516) 694-6700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Michael R. Littenberg, Esq.
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
(212) 756-2000
Fax: (212) 593-5955

 

Jocelyn M. Arel, Esq.
Christopher J. Austin, Esq.
William J. Schnoor, Esq.

Goodwin Procter LLP
Exchange Place
Boston, MA 02109
(617) 570-1000
Fax: (617) 523-1231



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effectiveness of this Registration Statement.

             If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

             If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

             If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

             If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

             Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed maximum
aggregate offering
price(1)(2)

  Amount of
registration fee(3)

 

Common Stock

  $500,000,000   $35,650

 

(1)
Includes shares of common stock issuable upon exercise of an option to purchase additional shares granted to the underwriters.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 of the Securities Act.

(3)
Calculated pursuant to Rule 457(o) under the Securities Act.

             The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholder may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and neither we nor the selling stockholder is soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 6, 2010

PRELIMINARY PROSPECTUS

Shares

GRAPHIC

Aeroflex Holding Corp.

Common Stock



          This is an initial public offering of shares of common stock of Aeroflex Holding Corp. We are offering                  shares of our common stock and the selling stockholder identified in this prospectus is offering an additional                  shares of our common stock. We will not receive any of the proceeds from the sale of the shares of our common stock offered by the selling stockholder.

          Prior to this offering there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $                   and $                  . We intend to apply to have our common stock listed on the New York Stock Exchange under the symbol "ARX".

          See "Risk Factors" beginning on page 13 to read about factors you should consider before buying shares of the common stock.



          Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.



 
 
Per Share
 
Total
 

Initial public offering price

  $                 $                

Underwriting discount

  $                 $                

Proceeds, before expenses, to Aeroflex Holding Corp. 

             

Proceeds, before expenses, to the selling stockholder

             

          To the extent that the underwriters sell more than                          shares of common stock, the underwriters have the option to purchase up to an additional                          shares from the selling stockholder at the initial public offering price less the underwriting discount.



          The underwriters expect to deliver the shares against payment in New York, New York on             , 2010.

Goldman, Sachs & Co.   Credit Suisse

J.P. Morgan

 

Morgan Stanley



Barclays Capital   Deutsche Bank Securities

Thomas Weisel Partners LLC

 

UBS Investment Bank



Prospectus dated                          , 2010


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[Artwork To Be Filed by Amendment]



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Prospectus



          Through and including                           , 2010 (25 days after the commencement of the offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.



          We have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

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MARKET RANKING AND INDUSTRY DATA

          This prospectus includes estimates of market share and industry data and forecasts that we obtained from industry publications and surveys, including market research firms and government sources, and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. In addition, certain market and industry data included in this prospectus and our position and the positions of our competitors within these markets are based on estimates of our management, which are primarily based on our management's knowledge and experience in the markets in which we operate. These estimates involve risks and uncertainties, and are subject to change based on various factors, including those discussed under the heading "Risk Factors" in this prospectus.


TRADEMARKS AND TRADE NAMES

          This prospectus contains registered and unregistered trademarks and service marks of us and our subsidiaries, as well as trademarks and service marks of third parties. All brand names, trademarks and service marks appearing in this prospectus are the property of their respective holders.


NAMING CONVENTIONS USED IN THIS PROSPECTUS

          In this prospectus, unless the context requires otherwise, (i) "Aeroflex Holding" refers to the issuer, Aeroflex Holding Corp., a holding company that was formerly known as AX Holding Corp., (ii) "Aeroflex" refers to Aeroflex Incorporated, a direct wholly owned subsidiary of Aeroflex Holding, together with its consolidated subsidiaries, (iii) "we", "our", or "us" refer to Aeroflex Holding Corp. and its consolidated subsidiaries, including Aeroflex, (iv) the term "parent LLC" refers to VGG Holding LLC, which prior to the completion of this offering owns 100% of Aeroflex Holding's common stock, (v) the term "Veritas Capital" refers to The Veritas Capital Fund III, L.P. and its affiliates, (vi) the term "Golden Gate Capital" refers to Golden Gate Private Equity, Inc. and its affiliates, (vii) the term "GS Direct" refers to GS Direct, L.L.C., (viii) the term "Sponsors" refers collectively to Veritas Capital, Golden Gate Capital and GS Direct, and to affiliates of and funds managed by these entities, (ix) the term "Going Private Transaction" refers to the acquisition of Aeroflex by the Sponsors on August 15, 2007, and (x) any "fiscal" year refers to the twelve months ended June 30 of the applicable year. For example, "fiscal 2009" refers to the twelve months ended June 30, 2009.

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PROSPECTUS SUMMARY

          This summary highlights important information about our business and about this prospectus. This summary does not contain all of the information that may be important to you. You should carefully read this prospectus in its entirety before making an investment decision. In particular, you should read the section titled "Risk Factors" and the consolidated financial statements and notes related to those statements included elsewhere in this prospectus. Unless the context indicates otherwise, the information in this prospectus relating to us assumes the completion of a forward stock split of our common stock prior to the consummation of this offering.

Aeroflex

Overview

          We are a leading global provider of radio frequency, or 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 space, avionics, defense, commercial wireless communications, 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.

          We provide a broad range of high margin products for specialized, high-growth end markets. The products we manufacture include a range of RF, microwave and millimeter wave microelectronic components, with a focus on high reliability and radiation hardened, or RadHard, integrated circuits, or ICs, and analog and mixed-signal devices. We also manufacture a range of RF and microwave wireless radio and avionics test equipment and solutions particularly for the wireless, avionics and radio testing markets. We believe that we have a top three global position on the basis of sales in product categories representing the majority of our revenue.

          We believe that the combination of our leading market positions, broad product portfolio, engineering capabilities and years of experience enables us to deliver differentiated, high value products to our customers and provides us with a sustainable competitive advantage. We believe most of our market segments have high barriers to entry due to the need for specialized design and development expertise, the differentiation provided by our proprietary technology and the significant switching and requalifying costs that our customers would incur to change vendors. We often design and develop solutions through a collaborative process with our customers whereby our microelectronic products or test solutions are designed, or "spec'd", into our customers' products or test procedures. We believe, based on our long-term relationships and knowledge of our customers' buying patterns, that we were either a primary or the sole source supplier for products representing more than 80% of our total net sales in the twelve months ended December 31, 2009.

          We organize our operations into two segments: Aeroflex Microelectronics Solutions, or AMS, and Aeroflex Test Solutions, or ATS. We engineer, manufacture and market a diverse range of products in each of our segments. For the twelve months ended December 31, 2009, our largest product offering represented approximately 11% of our net sales, evidence of the diversity of our product base.


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          AMS offers a broad range of microelectronics products and is a leading provider of high-performance, high reliability specialty microelectronics components. Its products include high reliability, or HiRel, microelectronics/semiconductors, RF and microwave components, mixed-signal/digital ASICs and motion control products. ATS is a leading provider of a broad line of specialized test and measurement hardware and software products. Its products include wireless test equipment, military and private mobile radio test equipment, avionics test equipment, synthetic test equipment and other general purpose test equipment.

          After 46 years as a public company, we were acquired on August 15, 2007 by affiliates of or funds managed by Veritas Capital, Golden Gate Capital, GS Direct, and certain members of our management, which we refer to as the Going Private Transaction. Since the Going Private Transaction, we have expanded our Adjusted EBITDA margin from 20.3% in fiscal 2007 to 24.2% in fiscal 2009, despite the global economic downturn in 2008 and 2009, and have successfully executed on a number of strategic initiatives that we believe have positioned us for future growth. We have made significant investments in new or improved products and technology, streamlined our cost structure to enhance our return on capital, and we believe we have revitalized our organizational culture.

          Over the last five fiscal years, our business has experienced strong growth in net sales and an increase in backlog, providing improved visibility into future revenue and customer demand. The majority of our backlog is expected to be recognized as revenue within one year. For the period from fiscal 2004 to fiscal 2009, our net sales increased at a compound annual growth rate, or CAGR, of 7.7% and Adjusted EBITDA increased at a CAGR of 20.5%. Our backlog was $334.9 million as of December 31, 2009, an increase of 21.4% from $275.9 million as of December 31, 2008. Adjusted EBITDA is described in note 2 to the Summary Consolidated Financial Data beginning on page 11 of this prospectus.

Industry Overview and Market Opportunity

          The volume of mobile traffic from multiple data streams is rising rapidly and has resulted in significant technological innovation to address the increasing need for higher rates of data transmission and more efficient use of existing spectrum. This has led to the development of a number of advanced data transmission systems and technologies that use RF, microwave and millimeter wave frequencies that are being used in a broad range of end markets, including space, avionics, defense, commercial wireless communications, medical and other markets. The growing number of applications in these markets is driving increased demand for RF, microwave and millimeter wave technologies. Additionally, the creation of next generation wireless communications networks is driving the requirement for new test and measurement equipment.

          The space, avionics and defense market as a whole is expected to show flat to modest growth in the near term as the U.S. Department of Defense, or U.S. DoD, looks for budget savings and redefines priorities in 2010 and 2011. At the same time, we believe that proposed shifts in spending to certain technologies and other areas of the U.S. DoD budget offer significant growth opportunities for us. For example, we expect growth in spending on avionics systems and related testing needs due to increased retrofitting and upgrading of existing military aircraft. Such spending will be driven in part by ongoing operations in Afghanistan and Iraq, which exacerbate the wear and tear on existing equipment, including combat radio systems and aircraft. In the commercial aerospace market, we believe that higher commercial airline traffic is expected to drive spending on avionics as airlines upgrade older aircraft to address capacity needs. In addition, recent U.S. DoD budget proposals call for the expansion of manned and unmanned systems for intelligence, surveillance, and reconnaissance spending and in-theater electronic warfare capabilities, which will result in greater use of unmanned aerial vehicles and the need for additional military satellite bandwidth. In the military communications market, ongoing and increased operations in Afghanistan

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and Iraq continue to generate a large demand for deployable radios. Meanwhile, budget constraints have increased pressure to upgrade certain existing communications systems rather than purchase new equipment. We believe that these replacements and upgrades, such as the upgrade of the U.S. military's aging combat radio systems, will drive increased demand for test equipment.

          We also benefit from growth opportunities in the commercial wireless communications market. The global wireless communications market is expected to continue to grow as data traffic increases substantially with consumers, businesses and other organizations accessing increasing amounts of information and video over mobile networks. The volume of mobile data traffic has increased substantially in recent years as smart phones and other mobile consumer electronics devices have become more popular. This demand has propelled the rollout of next generation networks and a need for associated test equipment. According to Gartner Dataquest, Long Term Evolution, or LTE, network infrastructure spending is forecast to increase from $361.5 million in 2009 to $7.6 billion in 2013, a CAGR of 114.1%. LTE is one of the 4G wireless protocols.

          Outside of our core space, avionics, defense and commercial wireless communications markets, we seek to capitalize on growth opportunities in the medical market and in other markets where we believe there is strong growth potential and where we can leverage our existing expertise. Advances in technology, increasing demand for multi-slice CT systems, increasing use of CT scan for diagnosis and increasing government healthcare expenditures are all expected to drive significant expansion in the medical CT scan market. In the security market, demand for scanning and imaging technology continues to grow as homeland security efforts broaden and full body scanning equipment begins to be deployed in airports around the world. Separately, image testing opportunities are increasing in the consumer electronics market. The growth in these product categories creates an opportunity for equipment capable of testing video output signals.

Our Competitive Strengths

          Leading Positions in Multiple Markets.    A majority of our revenue comes from product categories in which we believe we have a top three position on the basis of sales. Based on our long-term relationships and knowledge of customers' buying patterns, we believe that we were either a primary or the sole source supplier for products representing more than 80% of our total net sales in the twelve months ended December 31, 2009.

          Proprietary Technology Platforms, Significant Barriers to Entry to our Markets.    We have a history of innovation and performance that has made us a leading supplier to our customers. We 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 customers. In the space market, customers focus on supplier reputation because the malfunction of a component can lead to the loss of a valuable satellite or missile. We also believe there are significant barriers to entry to most of our markets because our products are often designed, or "spec'd", into a customer's products or test procedures. Customers could incur significant switching and requalifying costs to change vendors, making it more difficult for new vendors to enter the market.

          Diverse, Blue Chip Customer Base.    We have strong and long standing relationships with blue chip space, avionics, defense, commercial wireless communications, medical and other blue chip customers. We have a geographically diverse base of leading global companies including BAE Systems, Boeing, Cisco Systems, Ericsson, General Dynamics, ITT Industries, Lockheed Martin, Motorola, Nokia, Northrop Grumman, Raytheon and United Technologies. For the twelve months ended December 31, 2009, sales to the U.S. government, our largest customer, represented approximately 7% of our net sales. In aggregate, for the twelve months ended December 31, 2009, our top ten customers accounted for approximately 38% of our net sales.

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          Compelling Business Model.    Our business model emphasizes revenue and earnings growth and robust cash flow conversion. We have a highly visible sales pipeline because of our backlog and long-term customer relationships. We focus on technologically sophisticated products to address our customers' technically demanding requirements where our differentiation drives margins. Our products typically enjoy long product life cycles, enabling us to generate an attractive return on our research and development efforts. We also complement our research and development with strategic acquisitions and licensing. We use third-party foundries to produce space-qualified, high reliability RadHard ICs. This fabless operating model significantly reduces required capital investment and is a key component of our capital efficiency.

          Strong and Experienced Management Team.    We are led by an experienced, stable and well-respected management team with an average of 27 years in the industry and 18 years with us. Since 1991, the management team has successfully completed 26 acquisitions. Over that period, we have also increased net sales from approximately $63 million in fiscal 1991 to approximately $600 million in fiscal 2009.

Our Growth Strategy

          Introducing New Products to Our Existing End Markets.    We continue to allocate research and development dollars toward new products serving attractive, growing markets. Our goal is to anticipate movements in our core markets and to design and build compelling solutions to address new opportunities. In ATS, for example, we have focused on developing first-to-market products serving our core wireless test market, including test solutions for LTE and WiMAX, the leading 4G wireless protocols.

          Leveraging Existing Technology to Reach New Markets.    We have a history of leveraging our technology for use in new markets. For example, our move into CT scanning equipment capitalizes on our expertise in high-performance semiconductors and other electronic components, including mixed-signal ASICs, which are key to producing high quality imaging with reduced doses of radiation per scan.

          Expanding by Acquisition.    Acquiring companies opportunistically is a strategic core competency for us. Since 1991, we have successfully completed 26 acquisitions and plan to continue our disciplined approach to acquisitions. Recent strategic acquisitions in both AMS and ATS have broadened and strengthened our product portfolio and expanded our geographic reach.

          Broadening Product Offerings Through Licensing.    We look to license commercial intellectual property that can be extended to our target markets and customer base in a cost effective and efficient manner. Through third-party technology license agreements we are able to repurpose or expand the commercial intellectual property of companies that lack RadHard performance or otherwise adapt their technology for use in our markets. We believe agreements such as these will enable us to support ongoing growth by allowing us to introduce new highly-differentiated, high-performance products to our existing customers at reduced cost and risk.

The Sponsors

          Veritas Capital.    Veritas Capital is a leading private equity firm that specializes in making investments in companies that provide products and services to government-related end markets and customers around the world. The firm, founded in 1992, makes investments through control-oriented transactions and is currently investing through Veritas Capital Fund III, L.P. Veritas' portfolio of companies includes DynCorp International, Vangent, Inc., KeyPoint Government Solutions, Inc., McNeil Technologies, CRGT, Inc. and Global Tel*Link. Former Veritas portfolio companies include

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Vertex Aerospace, Integrated Defense Technologies, and Athena Innovative Solutions, among others.

          Golden Gate Private Equity, Inc.    Golden Gate Capital is a private equity firm with $8 billion of capital under management dedicated to investing in change-intensive opportunities. The firm's charter is to partner with world-class management teams to make equity investments in situations where there is a demonstrable opportunity to significantly enhance a company's value. The principals of Golden Gate Capital have a long and successful history of investing with management partners across a wide range of industries and transaction types.

          GS Direct, L.L.C.    GS Direct, L.L.C., a wholly-owned subsidiary of The Goldman Sachs Group, Inc., invests capital primarily alongside corporate and sponsor clients in situations in which access to its or its affiliates' capital, relationships or advisory services can enhance the value of the investment. The Goldman Sachs Group, Inc. is a bank holding company that (directly or indirectly through subsidiaries or affiliated companies or both) is a leading global investment banking, securities, and investment management firm. Goldman, Sachs & Co. also serves as the manager of GS Direct. Goldman, Sachs & Co. is a wholly-owned subsidiary of The Goldman Sachs Group, Inc.


Information About Aeroflex Holding Corp.

          Aeroflex Holding Corp. was incorporated under the laws of the State of Delaware in May 2007 and commenced operations in August 2007 upon the acquisition of Aeroflex and the consummation of transactions that resulted in Aeroflex becoming our wholly owned subsidiary. On April 6, 2010, we changed our name from AX Holding Corp. to Aeroflex Holding Corp.

          Our principal executive offices are located at 35 South Service Road, Plainview, NY 11803, our telephone number is (516) 694-6700 and our website is located at www.aeroflex.com. The contents of our website are not part of this prospectus.

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Ownership Structure

          The following chart shows our organizational structure immediately following the consummation of this offering.

LOGO

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THE OFFERING

Issuer

  Aeroflex Holding Corp.

Common stock offered by Aeroflex Holding

               shares.

Common stock offered by the selling stockholder

               shares.

Option to purchase additional shares

  The selling stockholder has granted the underwriters a 30-day option to purchase up to             additional shares of our common stock at the initial public offering price less the underwriting discount.

Common stock to be outstanding immediately after this offering

               shares.

Common stock to be beneficially owned by the Sponsors immediately after this offering

               shares. See "Principal And Selling Stockholders".

Use of proceeds

  We estimate that our net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $              million, assuming the shares are offered at $             per share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus.

  We intend to use the net proceeds as follows:

 

•       $              million of the net proceeds will be used to make a capital contribution to Aeroflex to enable it to redeem $              million in aggregate principal amount of the 11.75% senior notes due 2015, or senior notes, at a redemption price of 111.750% plus accrued and unpaid interest to the redemption date;

 

•       $              million of the net proceeds will be used to make a capital contribution to Aeroflex to enable it to prepay $              million in aggregate principal amount of the senior subordinated unsecured term loans, at a prepayment price of 111.750% plus accrued and unpaid interest to the prepayment date;

 

•       $              million of the net proceeds will be paid to the Sponsors as a fee pursuant to our advisory agreement with the Sponsors; and

 

•       the remaining $             will be used for our general corporate purposes.

  The redemption of the senior notes described above will be made pursuant to a provision in the indenture governing the senior notes which will permit Aeroflex to redeem up to 35% of the aggregate principal amount of the senior notes with the net cash proceeds of this equity offering.

   

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The prepayment of the senior subordinated unsecured term loans described above will be made pursuant to a provision in the credit agreement governing the senior subordinated unsecured term loans which will permit Aeroflex to prepay up to 35% of the aggregate principal amount of the senior subordinated unsecured term loans with the net cash proceeds of this equity offering.

 

We will not receive any of the proceeds from the common stock sold by the selling stockholder in this offering. See "Use of Proceeds".

Dividend policy

 

We do not intend to pay cash dividends on our common stock for the foreseeable future. See "Dividend Policy".

Proposed New York Stock Exchange symbol

 

ARX.

Risk factors

 

For a discussion of risks relating to our company, our business and an investment in our common stock, see "Risk Factors" and all other information set forth in this prospectus before investing in our common stock.

Conflict of interest

 

Affiliates of Goldman, Sachs & Co. beneficially own more than 10% of our outstanding common stock and may receive 5% or more of the net proceeds in this offering. Therefore, Goldman, Sachs & Co. is deemed to have a "conflict of interest" within the meaning of NASD Conduct Rule 2720, or Rule 2720, of the Financial Industry Regulatory Authority, Inc., or FINRA. Accordingly, this offering will be conducted in accordance with Rule 2720. For more information, see "Underwriting—Conflict of Interest".

          The number of shares of our common stock to be outstanding immediately after this offering as set forth above is based on the number of shares outstanding at December 31, 2009 and excludes the following:

    an aggregate of             additional shares of our common stock that will be available for future awards pursuant to our equity incentive plan.

    Unless otherwise indicated, all information in this prospectus:

    assumes no exercise of the underwriters' option to purchase an additional             shares of common stock from the selling stockholder; and

    gives effect to a             -for-1 common stock split that will become effective immediately prior to the closing of this offering.

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Summary Consolidated Financial Data

          The following table sets forth our summary consolidated financial and other operating data. The summary consolidated financial data presented below for the years ended June 30, 2007, 2008 and 2009 has been derived from our audited financial statements included elsewhere in this prospectus. The consolidated financial data for the six-month periods ended December 31, 2009 and 2008 has been derived from our unaudited consolidated financial statements for those periods included elsewhere in this prospectus, and except as described in the notes thereto, have been prepared on a basis consistent with the respective audited consolidated financial statements and, in the opinion of management, include all adjustments, including usual recurring adjustments, necessary for a fair presentation of that information for such periods. The financial data presented for the interim periods are not necessarily indicative of the results for the full year.

          The consolidated financial statements presented for the six-month periods ended December 31, 2009 and 2008, for the fiscal year ended June 30, 2009 and for the period from August 15, 2007 to June 30, 2008 represent the results of Aeroflex Holding, which was formed in connection with the Going Private Transaction, together with its consolidated subsidiaries. Aeroflex Holding is referred to after the Going Private Transaction as the Successor or Successor Entity. The consolidated financial statements for periods prior to August 15, 2007 represent Aeroflex's results prior to the Going Private Transaction, and we refer to Aeroflex prior to the Going Private Transaction as the Predecessor or Predecessor Entity. The purchase method of accounting was applied effective August 15, 2007 in connection with the Going Private Transaction. Therefore, our consolidated financial statements for periods before August 15, 2007 are presented on a different basis than those for the periods after August 14, 2007 and, as such, are not comparable.

          For comparative purposes, we have combined the period from July 1, 2007 to August 14, 2007 with the period from August 15, 2007 to June 30, 2008 to form the fiscal year ended June 30, 2008. This combination is not a GAAP presentation as it combines periods with different bases of accounting. However, we believe this presentation is useful to the reader as a comparison to the periods for the fiscal years ended June 30, 2007 and 2009.

          The summary consolidated financial data below should be read in conjunction with "Use of Proceeds", "Capitalization", "Selected Consolidated Financial Data", and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus.

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  Predecessor
Entity
  Non-GAAP
Combined
Predecessor
and
Successor
Year Ended
June 30,
2008
  Successor Entity  
 
   
  Six Months Ended


 
 
  Year
Ended
June 30,
2007
  Year
Ended
June 30,
2009
 
 
  December 31,
2008
  December 31,
2009
 
 
   
   
   
  (unaudited)
 

(Amounts in thousands)

                               

Statement of Operations Data:

                               

Net sales:

                               
 

AMS

  $ 266,515   $ 302,712   $ 287,517   $ 138,332   $ 146,521  
 

ATS

    326,631     340,500     311,819     159,328     150,334  
                       

Total net sales

    593,146     643,212     599,336     297,660     296,855  

Gross profit:

                               
 

AMS

    133,863     122,808     134,239     65,096     70,201  
 

ATS

    150,314     144,590     150,866     75,422     81,387  
                       

Total gross profit

    284,177     267,398     285,105     140,518     151,588  

Adjusted operating income(1):

                               
 

AMS

    63,908     74,826     63,368     29,984     36,911  
 

ATS

    38,582     46,634     50,141     25,604     28,151  
 

General corporate expense

    (17,727 )   (10,523 )   (11,377 )   (6,567 )   (5,189 )
                       

Total adjusted operating income

    84,763     110,937     102,132     49,021     59,873  

Operating income (loss)

   
34,249
   
(90,748

)
 
(19,209

)
 
8,166
   
16,520
 

Income (loss) from continuing operations

   
8,794
   
(115,012

)
 
(76,688

)
 
(11,004

)
 
(31,157

)

Net income (loss)

   
4,926
   
(122,341

)
 
(76,688

)
 
(11,004

)
 
(31,157

)

Other Financial Data:

                               

Adjusted EBITDA (unaudited)(2)

    120,184     135,077     145,340     77,374     69,198  

Bookings

    582,840     674,129     610,924     322,556     359,781  

Backlog at end of period

    222,729     251,038     271,931     275,935     334,857  

Capital expenditures

    18,427     14,267     18,717     8,353     8,401  

 

 
  As of December 31, 2009  
 
  Actual   As Adjusted  

Balance Sheet Data:

             

Cash and cash equivalents

  $ 68,799        

Marketable securities (including non-current portion)

    16,899        

Working capital(3)

    235,579        

Total assets

    1,328,529        

Long-term debt (including current portion)(4)

    894,193        

Stockholder's equity

    137,849        

(1)
Represents the operating results of our two segments based upon pre-tax operating income, before costs related to amortization of acquired intangibles, share-based compensation, restructuring expenses, lease termination costs, merger related expenses, loss on liquidation of foreign subsidiary, impairment of goodwill and other intangibles, acquired in-process research and development costs, the impact of any acquisition related adjustments and Going Private Transaction expenses. For a reconciliation of adjusted operating income to operating income calculated in accordance with GAAP, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Statements of Operations", beginning on page 55.

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(2)
As used herein, "EBITDA" represents income (loss) from continuing operations plus (i) interest expense, (ii) provision for income taxes and (iii) depreciation and amortization.

We have included information concerning EBITDA in this prospectus because we believe that such information is used by certain investors, securities analysts and others as one measure of an issuer's performance and historical ability to service debt. In addition, we use EBITDA when interpreting operating trends and results of operations of our business. EBITDA is also widely used by us and others in our industry to evaluate and to price potential acquisition candidates. EBITDA is a non-GAAP financial measure and should not be considered as an alternative to, or more meaningful than, earnings from operations, cash flows from operations or other traditional GAAP indications of an issuer's operating performance or liquidity. EBITDA has important limitations as an analytical tool and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, EBITDA:

excludes certain tax payments that may represent a reduction in cash available to us;

does not consider capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

does not reflect changes in, or cash requirements for, our working capital needs; and

does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt.

We also provide information with respect to Adjusted EBITDA in this prospectus. The calculation of Adjusted EBITDA is based on the definition in the credit agreement governing our senior secured credit facility and is not defined under U.S. GAAP. Our use of the term Adjusted EBITDA may vary from others in our industry. Adjusted EBITDA is not a measure of operating income (loss), performance or liquidity under U.S. GAAP and is subject to important limitations. We use Adjusted EBITDA in assessing covenant compliance under our senior secured credit facility and we believe its inclusion is appropriate to provide additional information to investors. In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring or other items that are included in EBITDA and/or net income (loss). For instance, Adjusted EBITDA:

does not include share-based employee compensation expense, goodwill impairment charges and other non-cash charges;

does not include restructuring costs incurred to realize future cost savings that enhance our operations;

does not include the impact of business acquisition purchase accounting adjustments;

does not reflect Going Private Transaction expenses and merger related expenses, including advisory fees that have been paid to the Sponsors following the consummation of the Going Private Transaction. See "Certain Relationships and Related Party Transactions"; and

includes other adjustments required in calculating our debt covenant compliance such as adding pro forma savings from restructuring activities, eliminating loss on liquidation of foreign subsidiary, eliminating one-time non-cash inventory adjustments and adding pro forma EBITDA, for periods prior to the acquisition date, for companies acquired during the applicable year.

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    The following table is a reconciliation of income (loss) from continuing operations to Adjusted EBITDA for the periods indicated:

 
   
  Non-GAAP
Combined
Predecessor
and
Successor
   
   
   
 
 
  Predecessor
Entity
  Successor Entity  
 
   
  Six Months Ended


 
 
  Year
Ended
June 30,
2007
  Year
Ended
June 30,
2008
  Year
Ended
June 30,
2009
 
 
  December 31,
2008
  December 31,
2009
 
 
   
   
   
  (unaudited)
 

(Amounts in thousands)

                               

Income (loss) from continuing operations

  $ 8,794   $ (115,012 ) $ (76,688 ) $ (11,004 ) $ (31,157 )

Interest expense

    672     74,933     83,823     42,465     42,457  

Provision (benefit) for income taxes

    24,935     (45,758 )   (15,332 )   (10,882 )   5,699  

Depreciation and amortization

    30,142     96,694     84,426     43,651     41,774  
                       

EBITDA (unaudited)

    64,543     10,857     76,229     64,230     58,773  

Non-cash purchase accounting adjustments

        66,510     2,749     176     311  

Merger related expenses

    30,584     41,621     4,283     2,806     1,464  

Restructuring costs and related pro forma savings from such activities(a)

    9,240     11,596     10,159     4,292     251  

Share-based compensation(b)

    4,084     3,337     1,955     977     1,045  

Non-cash loss on liquidation of foreign subsidiary

            3,112     900     7,696  

Pro forma savings from management restructuring(c)

    8,300     600              

Impairment of goodwill and other intangibles

            41,225          

Other defined adjustments(d)

    3,433     556     5,628     3,993     (342 )
                       

Adjusted EBITDA (unaudited)

  $ 120,184   $ 135,077   $ 145,340   $ 77,374   $ 69,198  
                       

    (a)
    Primarily reflects costs associated with the reorganization of our U.K. operations and the pro forma savings related thereto. Pro forma savings reflects the amount of costs that we estimate would have been eliminated during the fiscal year in which a restructuring occurred had the restructuring occurred as of the first day of that fiscal year.

    (b)
    Reflects non-cash share-based employee compensation.

    (c)
    Primarily reflects pro forma savings related to the retirement of the former chairman of Aeroflex and modifications to executive compensation arrangements upon the consummation of the Going Private Transaction.

    (d)
    Reflects other adjustments required in calculating our debt covenant compliance. These other defined items include non-cash inventory adjustments for a discontinued product and pro forma EBITDA for periods prior to the acquisition dates for companies acquired during our fiscal year.

(3)
Working capital is defined as current assets less current liabilities.

(4)
We intend to use the net proceeds from this offering to make a capital contribution to Aeroflex to enable it to redeem $              million of the senior notes and prepay $              million of the senior subordinated unsecured term loans. See "Use of Proceeds".

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RISK FACTORS

          An investment in our common stock involves a high degree of risk. You should carefully consider the following information, together with other information in this prospectus, before buying shares of our common stock. If any of the following risks or uncertainties occur, our business, results of operations and financial condition could be materially adversely affected. In that case, the trading price of our common stock could decline and you may lose all or a part of the money you paid to buy our common stock.

Risks Relating to Our Business

A worsening of the global recession and continued credit tightening could continue to adversely affect us.

          The current global recession and continued credit tightening, including failures of financial institutions, have initiated unprecedented government intervention in the U.S., Europe and other regions of the world. If macro-economic concerns continue or worsen, our customers could experience heightened financial difficulties, and as a result, could modify, delay or cancel plans to purchase our products or services, which could cause our sales to decline, or become unable to make payment to us for amounts due and owing. In addition, our suppliers could experience credit or other financial difficulties that could result in delays in their ability to supply us with necessary raw materials, components or finished products. These conditions may make it extremely difficult for our customers, our suppliers and us to accurately forecast and plan future business activities and could result in an asset impairment. The occurrence of any of these factors could have a material adverse effect on our business, results of operations and financial condition. For example, our sales declined by approximately $44 million, or approximately 7%, between fiscal 2008 and fiscal 2009. Also, in the fourth quarter of fiscal 2009 we wrote-off approximately $41.2 million of goodwill and other intangible assets related to our RF and microwave reporting unit due to the decrease in sales and prospects of that unit in the then current economic environment.

Our operating results may fluctuate significantly on a quarterly basis.

          Our sales and other operating results have fluctuated significantly in the past, and we expect this trend will continue. Factors which affect our results include:

    the timing, cancellation or rescheduling of customer orders and shipments;

    the pricing and mix of products sold;

    our ability to obtain components and subassemblies from contract manufacturers and suppliers;

    variations in manufacturing efficiencies; and

    research and development and new product introductions.

          Many of these factors are beyond our control. Our performance in any one fiscal quarter is not necessarily indicative of any financial trends or future performance.

The cyclicality of our end user markets could harm our financial results.

          Many of the end markets we serve, including but not limited to the commercial wireless market, have historically been cyclical and have experienced periodic downturns. The factors leading to and the severity and length of a downturn are very difficult to predict and there can be no assurance that we will appropriately anticipate changes in the underlying end markets we serve or that any increased levels of business activity will continue as a trend into the future. If we fail to

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anticipate changes in the end markets we serve, our business, results of operations and financial condition could be materially adversely affected.

Our future operating results are dependent on the growth in our customers' businesses and on our ability to identify and enter new markets.

          Our growth is dependent on the growth in the sales of our customers' products as well as the development by our customers of new products. If we fail to anticipate changes in our customers' businesses and their changing product needs or successfully identify and enter new markets, our results of operations and financial position could be negatively impacted. We cannot assure you that the markets we serve will grow in the future, that our existing and new products will meet the requirements of these markets or that we can maintain adequate gross margins or profits in these markets. A decline in demand in one or several of our end-user markets could have a material adverse impact on the demand for our products and have a material adverse effect on our business, results of operations and financial condition.

Our industry is highly competitive and if we are not able to successfully compete, we could lose market share and our revenues could decline.

          We operate in a highly competitive industry. Current and prospective customers for our products evaluate our capabilities against the merits of our direct competitors. We compete primarily on the basis of technology and performance. For certain products, we also compete on price. Some of our competitors are well-established and have greater market share and manufacturing, financial, research and development and marketing resources than we do. We also compete with emerging companies that are attempting to sell their products in specialized markets, and with the internal capabilities of many of our significant customers, including Honeywell and BAE. There can be no assurance that we will be able to maintain our current market share with respect to any of our products. A loss of market share to our competitors could have a material adverse effect on our business, results of operations and financial condition. In addition, a significant portion of our contracts, including those with the federal government and commercial customers, are subject to commercial bidding, both upon initial issuance and subsequent renewal. If we are unable to successfully compete in the bidding process or if we fail to obtain renewal, our business, results of operations and financial condition could be materially adversely affected.

Our industry is characterized by rapid technological change, and if we cannot continue to develop, manufacture and market innovative products that meet customer requirements for performance and reliability, we may lose market share and our net sales may suffer.

          The process of developing new products for our markets is complex and uncertain, and failure to keep pace with our competitors' technological development, to develop or obtain appropriate intellectual property and to anticipate customers' changing needs and emerging technological trends accurately could significantly harm our results of operations. We must make long-term investments and commit significant resources before knowing whether our predictions will eventually result in products that the market will accept. We must accurately forecast volumes, mix of products and configurations that meet customer requirements, and we may not succeed. If we do not succeed, we may be left with inventories of obsolete products or we may not have enough of some products available to meet customer demand, which could lead to reduced sales and higher expenses.

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We design custom products to meet specific requirements of our customers. The amount and timing of revenue from such products can affect our quarterly operating results.

          The design and sales cycle for our custom products, from initial contact by our sales force to the commencement of shipments of those products in commercial quantities, may be lengthy. In this process, our sales and application engineers work closely with the customer to analyze the customer's system requirements and establish a technical specification for the custom product. We then select a process, evaluate components, and establish assembly and test procedures before manufacturing in commercial quantities can begin. The length of this cycle is influenced by many factors, including the difficulty of the technical specification, the novelty and complexity of the design and the customer's procurement processes. Our customers typically do not commit to purchase significant quantities of the custom product until they are ready to commence volume shipments of their own system or equipment. Our receipt of substantial revenue from sales of a custom product often depends on that customer's commercial success in manufacturing and selling its system or equipment that incorporates our custom product. As a result, a significant period may elapse between our investment of time and resources in designing and developing a custom product and our receipt of substantial revenue from sales of that custom product.

          The length of this process may increase the risk that a customer will decide to cancel or change its plans related to its system or equipment. Such a cancellation or change in plans by a customer could cause us to lose anticipated sales. In addition, our business, results of operations and financial condition could be materially adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle, chooses not to release its system or equipment that contains our custom products, or is not successful in the sale and marketing of its system or equipment that contains our custom products.

          Additionally, some customers may be unlikely to change their supplier due to the significant costs associated with qualifying a new supplier and potentially redesigning their system or equipment. So, if we fail to achieve initial design wins in the customer's qualification process, we may not regain the opportunity for significant sales to this customer for a lengthy period of time.

Our major customers account for a sizable portion of our revenue, and the loss of, or a reduction in, orders from these customers could result in a decline in revenue.

          Revenue derived from our 10 largest customers as a percentage of our annual revenue was 38% for the twelve months ended December 31, 2009. Our major customers often use our products in multiple systems or programs, sometimes developed by different business units within the customer's organization, each having differing product life cycles, end customers and market dynamics. While the composition of our top 10 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. It is possible that any of our major customers could terminate its purchasing arrangements with us or significantly reduce or delay the amount of our products that it orders, purchase products from our competitors or develop its own products internally. The loss of, or a reduction in, orders from any major customer could cause a decline in our overall revenue and have a material adverse effect on our business, results of operations and financial condition.

In the event that certain of our customers encounter financial difficulties and fail to pay us, it could adversely affect our business, results of operations and financial condition.

          We manufacture products to customer specifications and generally purchase raw materials in response to customer orders. In addition, we may commit significant amounts of capital to maintain inventory in anticipation of customer orders. In the event that our customers for whom we maintain inventory experience financial difficulties, we may be unable to sell such inventory at its current

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profit margin, if at all. In such an event, our gross margins would decline. In addition, if the financial condition of a significant portion of our customer base deteriorates, resulting in an impairment of their ability to pay us amounts owed in respect of a significant amount of outstanding receivables, our business, results of operations and financial condition could be materially adversely affected.

We rely on sales to federal government entities under prime contracts and subcontracts. A loss or reduction of such contracts, a failure to obtain new contracts or a reduction of sales under such contracts could have a material adverse effect on our business.

          We derived approximately 34% of our net sales for the twelve month period ended December 31, 2009 from contracts with agencies of the federal government or subcontracts with prime defense contractors or subcontractors of the federal government. The loss or significant curtailment of any of these government contracts or subcontracts, or failure to exercise renewal options or enter into new contracts or subcontracts, could have a material adverse effect on our business, results of operations and financial condition. Continuation and the exercise of renewal options on existing government contracts and subcontracts and new government contracts and subcontracts are, among other things, contingent upon the availability of adequate funding for the various federal government agencies with which we and prime government contractors do business. Changes in federal government spending could directly affect our financial performance. Among the factors that could impact federal government spending and which would reduce our federal government contracting and subcontracting business are:

    a significant decline in, or reapportioning of, spending by the federal government;

    changes, delays or cancellations of federal government programs or requirements;

    the adoption of new laws or regulations that affect companies that provide services to the federal government;

    federal government shutdowns or other delays in the government appropriations process;

    curtailment of the federal government's use of third-party service firms;

    changes in the political climate, including with regard to the funding or operation of the services we provide; and

    general economic conditions.

          Overall spending by the U.S. DoD is forecast to increase only slightly from $693 billion in fiscal year 2009 to $708 billion in fiscal year 2010, and budget rebalancing may reduce expenditures to $616 billion in 2012. In addition, if the current presidential administration were to reorder its budgetary priorities resulting in a general decline in U.S. defense spending, it could cause federal government agencies to reduce their purchases under contracts, exercise their rights to terminate contracts in whole or in part, to issue temporary stop work orders or decline to exercise options to renew contracts, all of which could harm our operations and significantly reduce our future revenues.

Federal government contracts may be terminated by the federal government at any time prior to their completion and contain other unfavorable provisions, which could lead to unexpected loss of sales and reduction in backlog.

          Under the terms of federal government contracts, the federal government may unilaterally:

    terminate or modify existing contracts;

    reduce the value of existing contracts through partial termination;

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    delay the payment of our invoices by government payment offices;

    audit our contract-related costs; and

    suspend us from receiving new contracts pending resolution of any alleged violations of procurement laws or regulations.

          The federal government can terminate or modify any of its contracts with us or its prime contractors either for its convenience, or if we or its prime contractors default, by failing to perform under the terms of the applicable contract. A termination arising out of our default could expose us to liability and have a material adverse effect on our ability to compete for future contracts and subcontracts. If the federal government or its prime contractors terminate and/or materially modify any of our contracts or if any applicable options are not exercised, our failure to replace sales generated from such contracts would result in lower sales and could adversely affect our earnings, which could have a material adverse effect on our business, results of operations and financial condition.

          Our backlog as of December 31, 2009 was approximately $334.9 million, of which approximately 48% represented firm contracts with agencies of the U.S. government or prime defense contractors or subcontractors of the U.S. government. There can be no assurance that any of the contracts comprising our backlog will result in actual sales in any particular period or that the actual sales from such contracts will equal our backlog estimates. Furthermore, there can be no assurance that any contract included in our estimated backlog that generates sales will be profitable.

Our business could be adversely affected by a negative audit or other actions, including suspension or debarment, by the federal government.

          As a federal government contractor, we must comply with and are affected by laws and regulations relating to the formation, administration and performance of government contracts. These laws and regulations affect how we do business with the federal government and our prime government contractors and subcontractors, and in some instances, impose added costs on our business. Federal government agencies routinely audit and investigate government contractors. These agencies review each contractor's contract performance, cost structure and compliance with applicable laws, regulations and standards. Such agencies also review the adequacy of, and a contractor's compliance with, its internal control systems and policies, including the contractor's purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed.

          In addition, government contract payments received by us for allowable direct and indirect costs are subject to adjustment after audit by government auditors and repayment to the government if the payments exceed allowable costs as defined in the government contracts.

          As a federal government contractor, we are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities to which companies with solely commercial customers are not subject, the results of which could have a material adverse effect on our operations. If we were suspended or prohibited from contracting with the federal government generally, or any significant federal government agency specifically, if our reputation or relationship with federal government agencies were impaired or if the federal government otherwise ceased doing business with us or significantly decreased the amount of business it does with us, our business, results of operations and financial condition could be materially adversely affected.

          Under some of our government contracts, we are required to maintain secure facilities and to obtain security clearances for personnel involved in performance of the contract, in compliance with

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applicable federal standards. If we were unable to comply with these requirements, or if personnel critical to our performance of these contracts were to lose their security clearances, we might be unable to perform these contracts or compete for other projects of this nature, which could adversely affect our revenue.

Our federal government contracts are subject to competitive bidding, both upon initial issuance and subsequent renewal. If we are unable to successfully compete in the bidding process or if we fail to receive renewal, it could have a material adverse effect on our business, results of operations and financial condition.

          A significant portion of our federal government contracts are awarded through a competitive bidding process, including upon renewal, and we expect that this will continue to be the case. There often is significant competition and pricing pressure as a result of this process.

          The competitive bidding process presents a number of risks such as:

    we must expend substantial funds and time to prepare bids and proposals for contracts, which could detract attention from other parts of our business;

    we may be unable to estimate accurately the resources and cost that will be required to complete any contract we win, which could result in substantial cost overruns; and

    we may encounter expense and delay if our competitors protest or challenge awards of contracts to us, and any such protest or challenge could result in a requirement to resubmit bids on modified specifications or in termination, reduction or modification of the awarded contract.

          The government contracts for which we compete typically have multiple option periods, and if we fail to win a contract, we generally will be unable to compete again for that contract for several years. If we fail to win new contracts or to receive renewal contracts, such failure could have a material adverse effect on our business, results of operations and financial condition.

New products are subject to greater technology, design and operational risks, and a delay in introducing new products could harm our competitive position.

          Our future success is highly dependent upon the timely development and introduction of competitive new products at acceptable margins. However, there are greater design and operational risks associated with new products. The inability of our suppliers to produce advanced products, delays in commencing or maintaining volume shipments of new products, the discovery of product, process, software, or programming defects or failures and any related product returns could each have a material adverse effect on our business, financial condition, and results of operation.

          We have experienced from time to time in the past, and expect to experience in the future, difficulties and delays in achieving satisfactory, sustainable yields on new products. Yield problems increase the cost of our new products as well as the time it takes us to bring them to market, which can create inventory shortages and dissatisfied customers. Any prolonged inability to obtain adequate yields or deliveries of new products could have a material adverse effect on our business, results of operations and financial condition.

Our failure to detect unknown defects in our products could materially harm our relationship with customers, our reputation and our business.

          We may not be able to anticipate all of the possible performance or reliability problems that could arise with our existing or new products, which could result in significant product liability or

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warranty claims. In addition, any defects found in our products could result in a loss of sales or market share, failure to achieve market acceptance, injury to our reputation, indemnification claims, litigation, increased insurance costs and increased service costs, any of which could discourage customers from purchasing our products and materially harm our business.

          Our purchase agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in these agreements may not be effective as a result of federal, state or local laws, or ordinances or unfavorable judicial decisions in the United States or other countries. The insurance we maintain to protect against claims associated with the use of our products may not adequately cover all claims asserted against us. In addition, even if ultimately unsuccessful, such claims could result in costly litigation, divert our management's time and resources, and damage our customer relationships.

We depend on third-party contractors to fabricate our semiconductor products and we outsource other portions of our business, and a failure to perform by these third parties may adversely affect our ability to bring products to market and damage our reputation.

          As part of our efforts to minimize the amount of required capital investment in facilities, equipment and labor and increase our ability to quickly respond to changes in technology and customer requirements, we outsource our semiconductor fabrication processes and certain other manufacturing and engineering functions to third parties. Our reliance on third-party manufacturers and engineers involves significant risks, including lack of control over capacity allocation, delivery schedules, the resolution of technical difficulties and the development of new processes. We rely heavliy on our third-party manufacturers to be able to deliver materials, know-how and technology to us without encumbrances. Disputes regarding the ownership of or rights in certain third-party intellectual property may preclude our third-party manufacturers from fulfilling our requirements at a reasonable cost or, in some cases, at all. A shortage of raw materials or production capacity could lead any of our third-party manufacturers to allocate available capacity to other customers, or to internal uses. If these third parties fail to perform their obligations in a timely manner or at satisfactory quality and cost levels, our ability to bring products to market and our reputation could suffer and our costs could increase. For example, during a market upturn, our contract manufacturers may be unable to meet our demand requirements, which may preclude us from fulfilling our customers' orders on a timely basis, which could lead to a loss in sales. The ability of these third parties to perform is largely outside of our control.

Non-performance by our suppliers may adversely affect our operations.

          Because we purchase various types of raw materials and component parts from suppliers, we may be materially and adversely affected by the failure of those suppliers to perform as expected. This non-performance may consist of delivery delays or failures caused by production issues or delivery of non-conforming products. The risk of non-performance may also result from the insolvency or bankruptcy of one or more of our suppliers. Our efforts to protect against and to minimize these risks may not always be effective. We may occasionally seek to engage new suppliers with which we have little or no experience. The use of new suppliers can pose technical, quality and other risks.

We use specialized technologies and know-how to design, develop and manufacture our products. Our inability to protect our intellectual property could hurt our competitive position, harm our reputation and adversely affect our results of operations.

          As a technology company, we rely on our patents, trademarks, trade secrets, and proprietary know-how and concepts. We attempt to protect our intellectual property rights, both in the United

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States and in foreign countries, through a combination of patent, trademark and trade secret laws, as well as confidentiality agreements. Because of the differences in foreign trademark, patent and other laws concerning proprietary rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition. We believe that while the protection afforded by patent, trademark and trade secret laws may provide some advantages, the competitive position of participants in our industry is principally determined by such factors as the technical and creative skills of their personnel, the frequency of their new product developments and their ability to anticipate and rapidly respond to evolving market requirements. To the extent that a competitor effectively uses its intellectual property portfolio, including patents, to prevent us from selling products that allegedly infringe such competitor's products, our results of operations could be materially adversely affected.

          We have from time to time applied for patent protection relating to certain existing and proposed products, processes and services, but we do not have an active patent application strategy. When we do apply for patents, we generally apply in those countries where we intend to make, have made, use or sell patented products; however, we may not accurately predict all of the countries where patent protection will ultimately be desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. Furthermore, we cannot assure you that any of our patent applications will be approved. We also cannot assure you that the patents issued as a result of our foreign patent applications will have the same scope of coverage as our United States patents. The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Further, we cannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents.

          Some of our proprietary technology may have been developed under, or in connection with, U.S. government contracts or other federal funding agreements. With respect to technology developed under such agreements, the U.S. government may retain a nonexclusive, non-transferable, irrevocable, paid-up license to use the technology on behalf of the United States throughout the world. In addition, the U.S. government may obtain additional rights to such technology, or our ability to exploit such technology may be limited.

          We rely on our trademarks, trade names and brand names to distinguish our products and services from the products and services of our competitors, and have registered or applied to register many of these trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products and services, which could result in loss of brand recognition, and could require us to devote resources towards marketing new brands. Further, we cannot assure you that we will have adequate resources to enforce our trademarks.

          We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, our sales could decrease.

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If third parties claim that we infringe upon or misappropriate their intellectual property rights, our net sales, gross margins and expenses could be adversely affected.

          We face the risk of claims that we have infringed or misappropriated third parties' intellectual property rights. For example, we are currently party to an action in the United States District Court for the District of Delaware brought by BAE Systems Information and Electronic Systems, or BAE. BAE has asserted claims against us for patent infringement, trade secret misappropriation, breach of contract, conversion and unjust enrichment and has requested, by way of relief, unspecified damages, injunctive relief and an accounting. We have evaluated BAE's claims and believe that there is no basis for the allegations or claims made by BAE. Nevertheless, there can be no assurance that we will prevail in the matter. See "Business—Legal Proceedings".

          Any claims of patent or other intellectual property infringement, even those without merit, could:

    be expensive and time consuming to defend;

    cause us to cease making or using products that incorporate the challenged intellectual property;

    require us to redesign, reengineer or rebrand our products, if feasible;

    divert management's attention and resources; and

    require us to enter into licensing agreements in order to obtain the right to use a third party's intellectual property.

          Any licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license agreements, or stop the sale of certain products, which could adversely affect our net sales, gross margins and expenses and harm our future prospects.

          Many patent applications in the United States are maintained in secrecy for a period of time after they are filed, and therefore there is a risk that we could adopt a technology without knowledge of a pending patent application, which technology would infringe a third party patent once that patent is issued.

We license third-party technologies for the development of certain of our products.

          We license third-party technologies that are integrated into certain of our products. If we are unable to continue to use or license these technologies on reasonable terms, or if these technologies fail to operate properly, we may not be able to secure alternatives in a timely manner and our ability to make these products could be harmed. In addition, licensed technology may be subject to claims that it infringes others' technology, and we may lose access to or have restrictions placed on our use of the licensed technology. For example, we and IceMos, one of our licensors/suppliers, received a letter from General Electric Global Research on February 18, 2010 alleging that certain intellectual property licensed to us by IceMos may be owned, at least in part, by General Electric and that this intellectual property may also be subject to certain confidentiality or non-disclosure provisions of a prior agreement between General Electric and IceMos. IceMos responded on March 5, 2010 refuting the allegations and requesting additional information from General Electric. We can make no determination as to the actual merits of these allegations or the licensor's response. Any prohibitions or additional limitations on a licensor's ability to license the intellectual property at issue to us resulting from this dispute may have a negative impact on our ability to meet production, sales and profitability targets.

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          Our licenses of third-party technologies have certain requirements that we must meet to maintain the license. For instance, if we fail to meet certain minimum royalty or purchase amounts, or meet delivery deadlines, certain licenses may be converted from an exclusive license to a non-exclusive license, thus allowing the licensors to license the technology to our competitors. We cannot guarantee that third-party technologies that we license will not be licensed to our competitors. In the future, we may need to obtain additional licenses, renew existing license agreements or otherwise replace existing technology. We are unable to predict whether these license agreements can be obtained or renewed or the technology can be replaced on acceptable terms, or at all. In addition, if we are unable to successfully license technology from third parties to develop future products, we may not be able to develop such products in a timely manner or at all.

As part of our business strategy, we may complete acquisitions or divest non-strategic businesses and product lines and undertake restructuring efforts. These actions could adversely affect our business, results of operations and financial condition.

          As part of our business strategy, we engage in discussions with third parties regarding, and enter into agreements relating to, acquisitions, joint ventures and divestitures in order to manage our product and technology portfolios and further our strategic objectives. We also continually look for ways to increase the profitability of our operations through restructuring efforts and to consolidate operations across facilities where synergies exist. In order to pursue this strategy successfully, we must identify suitable acquisition, alliance or divestiture candidates, complete these transactions, some of which may be large and complex, and integrate acquired companies. Integration and other risks of acquisitions can be more pronounced for larger and more complicated transactions, or if multiple acquisitions are pursued simultaneously.

          The integration of acquisitions may make the completion and integration of subsequent acquisitions more difficult. However, if we fail to identify and complete these transactions, we may be required to expend resources to internally develop products and technology or may be at a competitive disadvantage or may be adversely affected by negative market perceptions, which may have a material adverse effect on our business, results of operations and financial condition.

          Acquisitions may require us to integrate different company cultures, management teams and business infrastructures and otherwise manage integration risks. Even if an acquisition is successfully integrated, we may not receive the expected benefits of the transaction.

          A successful sale or divestiture depends on various factors, including our ability to effectively transfer assets and liabilities, contracts, facilities and employees to the purchaser, identify and separate the intellectual property to be divested from the intellectual property that we wish to keep and reduce fixed costs previously associated with the divested assets of the business.

          Managing acquisitions and divestitures requires varying levels of management resources, which may divert management's attention from our other business operations. Acquisitions, including abandoned acquisitions, also may result in significant costs and expenses and charges to earnings.

          Restructuring activities may result in business disruptions and may not produce the full efficiency and cost reduction benefits anticipated. Further, the benefits may be realized later than expected and the cost of implementing these measures may be greater than anticipated. If these measures are not successful, we may need to undertake additional cost reduction efforts, which could result in future charges. Moreover, we could experience business disruptions with customers and elsewhere if our cost reduction and restructuring efforts prove ineffective and our ability to achieve our other strategic goals and business plans as well as our business, results of operations and financial condition could be materially adversely affected.

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We rely on the significant experience and specialized expertise of our senior management and engineering staff and must retain and attract qualified engineers and other highly skilled personnel in order to grow our business successfully.

          Our performance is substantially dependent on the continued services and performance of our senior management and our highly qualified team of engineers, many of whom have numerous years of experience and specialized expertise in our business. In order to be successful, we must retain and motivate executives and other key employees, including those in managerial, technical, marketing and information technology support positions. In particular, our product generation efforts depend on hiring and retaining qualified engineers. Attracting and retaining skilled workers and qualified sales representatives is also critical to us. Experienced management and technical, marketing and support personnel in the microelectronics and test solutions industries are in demand and competition for their talents is intense. Employee retention may be a particularly challenging issue following acquisitions or divestitures since we also must continue to motivate employees and keep them focused on our strategies and goals, which may be particularly difficult due to the potential distractions related to integrating the acquired operations or divesting businesses to be sold. If we lose the services of any key personnel, our business, results of operations and financial condition could be materially adversely affected.

We may be required to make significant payments to members of our management in the event their employment with us is terminated.

          We are a party to employment agreements with each of Leonard Borow, our President and Chief Executive Officer, John Buyko, our Executive Vice President and President of our AMS division, John Adamovich, our Chief Financial Officer and Senior Vice President, Charles Badlato, our Vice President—Treasurer, and Carl Caruso, our Vice President—Manufacturing. In the event we terminate the employment of any of these executives, or in certain cases, if such executives terminate their employment with us, such executives will be entitled to receive certain severance and related payments. The maximum aggregate amount payable by us to Messrs. Borow, Buyko, Adamovich, Badlato and Caruso upon the termination of their respective employment agreements with us is $10.0 million.

We rely on our information technology systems to manage numerous aspects of our business and a disruption of these systems could adversely affect our business.

          Our information technology, or IT, systems are an integral part of our business. We depend on our IT systems for scheduling, sales order entry, purchasing, materials management, accounting and production functions. Our IT systems also allow us to ship products to our customers on a timely basis, maintain cost-effective operations and provide a high level of customer service. Some of our systems are not fully redundant, and our disaster recovery planning does not account for all eventualities. A serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently, which in turn could have a material adverse effect on our business, results of operations and financial condition.

Due to the international nature of our business, political or economic changes could harm our future sales, expenses and financial condition.

          Our future sales, costs and expenses could be adversely affected by a variety of international factors, including:

    changes in a country's or region's political or economic conditions;

    longer accounts receivable cycles;

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    trade protection measures;

    unexpected changes in regulatory requirements;

    differing technology standards and/or customer requirements; and

    import or export licensing requirements, which could affect our ability to obtain favorable terms for components or lead to penalties or restrictions.

          For fiscal 2009, sales of our products to foreign customers accounted for approximately 41% of our net sales. As of December 31, 2009, we employed approximately 680 employees overseas. In addition, a portion of our product and component manufacturing, along with key suppliers, is located outside of the United States, and also could be disrupted by some of the international factors described above.

Certain of our products may be controlled by the International Traffic in Arms Regulations and the Export Administration Regulations, which may adversely affect our business, results of operations and financial condition.

          We are subject to the International Traffic in Arms Regulations, or ITAR. The ITAR requires export licenses from the U.S. Department of State for products shipped outside the U.S. that have military or strategic applications. In this connection, we have filed certain Voluntary Disclosures with the Directorate of Defense Trade Controls, U.S. Department of State describing possible inadvertent violations involving, among other things, the unlicensed export of controlled products to end-users in a number of countries, including China and Russia. See "Business—Legal Proceedings". We have also identified other ITAR noncompliance in our past business activities as well as in the pre-acquisition business activities of a recently acquired company. These matters have been formally disclosed to the U.S. Department of State.

          Compliance with the directives of the U.S. Department of State may result in substantial legal and other expenses and the diversion of management time. In the event that a determination is made that we or any entity we have acquired has violated the ITAR with respect to any matters, we may be subject to substantial monetary penalties that we are unable to quantify at this time, and/or suspension or revocation of our export privileges and criminal sanctions, which may have a material adverse effect on our business, results of operations and financial condition.

          We are also subject to the Export Administration Regulations, or EAR. The EAR regulates the export of certain "dual use" items and technologies and, in some instances, requires a license from the U.S. Department of Commerce.

We are exposed to foreign currency exchange rate risks that could adversely affect our business, results of operations and financial condition.

          We are exposed to foreign currency exchange rate risks that are inherent in our sales commitments, anticipated sales, and assets and liabilities that are denominated in currencies other than the U.S. dollar. Our exposure to foreign currency exchange rates relates primarily to the British pound and the Euro. For fiscal 2009, sales of our products to foreign customers accounted for approximately 41% of our net sales. In addition, a portion of our product and component manufacturing, along with key suppliers, are located outside of the United States. Failure to sufficiently hedge or otherwise manage foreign currency risks properly could have a material adverse effect on our business, results of operations and financial condition.

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Compliance with and changes in environmental, health and safety laws regulating the present and past operations of our business and the business of predecessor companies could increase the costs of producing our products and expose us to environmental claims.

          Our business is subject to numerous federal, state, local and foreign laws and regulations concerning environmental, health and safety matters, including those relating to air emissions, wastewater discharges and the generation, handling, use, storage, transportation, treatment and disposal of, or exposure to, hazardous substances. Violations of such laws and regulations can lead to substantial fines and penalties and other civil or criminal sanctions. We incur costs associated with compliance with these laws and regulations and we face risks of additional costs and liabilities including those related to the investigation and remediation of, or claims for personal injuries or property damages associated with, past or present contamination, at current as well as former properties utilized by us and at third-party disposal sites, regardless of fault or the legality of the original activities that led to such contamination.

          In addition, future developments, such as changes in laws and regulations or the enforcement thereof, more stringent enforcement or interpretation thereof and claims for property damage or personal injury could cause us to incur substantial losses or expenditures. Although we believe we are materially compliant with all applicable current laws and regulations, any new or modified laws or regulations, or the discovery of any currently unknown non-compliance or contamination, could increase the cost of producing our products, which could have a material adverse effect on our business, results of operations and financial condition.

Efforts to comply with the Sarbanes-Oxley Act of 2002 will involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affect us.

          The Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by the Securities and Exchange Commission that are applicable to us have increased the scope, complexity and cost of our corporate governance, reporting and disclosure practices. We could experience greater outside and internal costs as a result of our continuing efforts to comply with the Sarbanes-Oxley Act.

          We were not required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act for fiscal 2009; however, compliance is required for fiscal 2010. We believe that we will be able to timely meet our obligations under Section 404 and that our management will be able to certify as to the effectiveness of our internal control over financial reporting. The effort to prepare for these obligations may divert management's attention from other business concerns, which could adversely affect our operating performance. In addition, we may identify significant deficiencies or material weaknesses that we cannot remedy in a timely manner. In such event, we may be unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal control over financial reporting.

We are subject to unanticipated market conditions that could adversely affect our available working capital and financial position.

          We hold investments in certain auction rate securities, or ARS. Beginning in February 2008, auctions for the resale of ARS have ceased to reliably support the liquidity of these securities. We cannot be certain that liquidity will be restored in the foreseeable future or at all. We may not be able to access cash by selling these securities for which there is insufficient demand without a loss of principal until a future auction for these investments is successful, a secondary market emerges, they are redeemed by their issuer or they mature. These securities are classified as non-current assets. In addition, the value of such investments could potentially be impaired on a temporary or other-than-temporary basis. If it is determined that the value of the investment is impaired on an

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other-than-temporary basis, we would be required to write down the investment to its fair value and record a charge to earnings for the amount of the impairment. As of December 31, 2009, we held ARS with a par value of $18.9 million and a fair value of $16.9 million. In 2010, an additional $7.9 million of the ARS were redeemed by the respective issuers of the ARS at an average 96% of par.

Changes in tax rates or policies or changes to our tax liabilities could affect operating results.

          We are subject to taxation in the United States and various other countries, including the United Kingdom, Sweden and China. Significant judgment is required to determine and estimate our worldwide tax liabilities and our future annual and quarterly tax rates could be affected by numerous factors, including changes in the applicable tax laws, composition of earnings in countries or states with differing tax rates or our valuation and utilization of deferred tax assets and liabilities. In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other taxing authorities. Although we believe our tax estimates are reasonable, we regularly evaluate the adequacy of our provision for income taxes, and there can be no assurance that any final determination by a taxing authority will not result in additional tax liability which could have a material adverse effect on our results of operations.

Accounting standards periodically change and the application of our accounting policies and methods may require management to make estimates about matters that are uncertain.

          The regulatory bodies that establish accounting standards, including, among others, the Financial Accounting Standards Board and the SEC, periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements. The effect of such revised or new standards on our consolidated financial statements can be difficult to predict and can materially impact how we record and report our results of operations and financial condition. In addition, our management must exercise judgment in appropriately applying many of our accounting policies and methods so they comply with generally accepted accounting principles. In some cases, the accounting policy or method chosen might be reasonable under the circumstances and yet might result in our reporting materially different amounts than would have been reported if we had selected a different policy or method. Accounting policies are critical to fairly presenting our results of operations and financial condition and may require management to make difficult, subjective or complex judgments about matters that are uncertain.

Our operations are subject to business interruptions and casualty losses.

          Our business is subject to numerous inherent risks, particularly unplanned events such as inclement weather, explosions, fires, terrorist acts, other accidents, equipment failures and transportation interruptions. While our insurance coverage could offset losses relating to some of these types of events, our business, results of operations and financial condition could be materially adversely affected to the extent any such losses are not covered by our insurance.

Risks Related to Our Indebtedness

Instability in financial markets could adversely affect our ability to access additional capital.

          In recent years, the volatility and disruption in the capital and credit markets have reached unprecedented levels. If these conditions continue or worsen, there can be no assurance that we will not experience a material adverse effect on our ability to borrow money, including under our senior secured credit facility, or have access to capital, if needed. Although our lenders have made commitments to make funds available to us in a timely fashion, our lenders may be unable or

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unwilling to lend money. In addition, if we determine that it is appropriate or necessary to raise capital in the future, the future cost of raising funds through the debt or equity markets may be more expensive or those markets may be unavailable. If we were unable to raise funds through debt or equity markets, it could have a material adverse effect on our business, results of operations and financial condition.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.

          We have a significant amount of indebtedness. As of December 31, 2009, on a consolidated pro forma basis after giving effect to this offering, we had $              million of debt outstanding, including approximately $511.8 million of secured debt under our senior secured credit facility, $              million of aggregate principal amount of senior notes under the indenture governing our senior notes and $              million of subordinated unsecured debt under our senior subordinated unsecured credit facility. Additionally, as of December 31, 2009 we had the ability to borrow an additional $50.0 million under the revolving portion of our senior secured credit facility.

          Our substantial indebtedness could have important consequences. For example, it could:

    make it more difficult for us to satisfy our obligations;

    increase our vulnerability to general adverse economic and industry conditions;

    require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

    limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

    place us at a competitive disadvantage compared to our competitors that have less debt;

    limit our ability to borrow additional funds; and

    adversely impact our ability to comply with the covenants and restrictions in our debt agreements, and, in turn, could result in a default under our debt agreements.

Increases in interest rates could increase interest costs under our senior secured credit facility.

          Our senior secured credit facility bears interest at variable rates. As of December 31, 2009, we had $511.8 million outstanding under the term loan portion of our senior secured credit facility, the un-hedged portion which is subject to variable interest rates. Each change of 1% in interest rates would result in a $806,000 change in our annual interest expense on the un-hedged portion of the term loan borrowings and a $507,000 change in our annual interest expense on the revolving loan borrowings, assuming the entire $50.0 million under the revolving portion of our senior secured credit facility was outstanding. Any debt we incur in the future may also bear interest at variable rates.

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Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.

          We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of our debt allow us to incur substantial amounts of additional debt, subject to certain limitations. For example, we have up to $50.0 million of availability under the revolving portion of our senior secured credit facility and we have the ability to increase the aggregate amount of our senior secured credit facility by up to an aggregate amount equal to the greater of (i) $75.0 million and (ii) such greater amount if as of the last day of the most recently ended fiscal quarter, the senior secured leverage ratio would be 3.75:1.00 or less after giving effect to such greater amount as if such greater amount were drawn in its entirety as of such date, in each case without the consent of any person other than the institutions agreeing to provide all or any portion of such increase. If new indebtedness is added to our and our subsidiaries' current debt levels, the related risks that we and they now face would intensify.

To service our indebtedness and other obligations, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

          Our ability to make payments on and to refinance our indebtedness and to fund working capital needs and planned capital expenditures, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control.

          Our business may not generate sufficient cash flow from operations and future borrowings may not be available to us under our senior secured credit facility or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In addition, to the extent we have consolidated excess cash flow, as defined in the credit agreement governing our senior secured credit facility, we must use specified portions of the excess cash flow to prepay senior secured debt. We may need to refinance all or a portion of our indebtedness on or before the maturity thereof. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.

          In addition, if for any reason we are unable to meet our debt service obligations, we would be in default under the terms of our agreements governing our outstanding debt. If such a default were to occur, the lenders under our senior secured credit facility could elect to declare all amounts outstanding under our senior secured credit facility immediately due and payable, and the lenders would not be obligated to continue to advance funds to us. In addition, if such a default were to occur, any amounts then outstanding under the senior subordinated unsecured credit facility or senior notes could become immediately due and payable. If the amounts outstanding under these debt agreements are accelerated, our assets may not be sufficient to repay in full the money owed to our debt holders.

Our senior secured credit facility, our senior subordinated unsecured credit facility and the indenture governing our senior notes impose significant operating and financial restrictions, which may prevent us from capitalizing on business opportunities and taking some actions.

          Our senior secured credit facility, our senior subordinated unsecured credit facility and the indenture governing the senior notes contain restrictions on our activities, including but not limited to covenants that restrict us and our restricted subsidiaries, as defined in our senior subordinated unsecured credit facility, from:

    incurring additional indebtedness and issuing disqualified stock or preferred stock;

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    making certain investments or other restricted payments;

    paying dividends and making other distributions with respect to capital stock, or repurchasing, redeeming or retiring capital stock or subordinated debt;

    selling or otherwise disposing of our assets;

    under certain circumstances, issuing or selling equity interests;

    creating liens on our assets;

    consolidating or merging with, or acquiring in excess of specified annual limitations, another business, or selling or disposing of all or substantially all of our assets; and

    entering into certain transactions with our affiliates.

          In addition, under our senior secured credit facility, we are required to comply with a maximum total leverage ratio test. If we fail to maintain compliance with the maximum total leverage ratio test under our senior secured credit facility and do not remedy any non-compliance through the issuance of additional equity interests pursuant to the limited cure right set forth therein, we will be in default. The restrictions in our senior secured credit facility, the senior subordinated unsecured credit facility and the indenture governing the senior notes may prevent us from taking actions that we believe would be in the best interest of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We also may incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. We may not be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements, and we may not be able to refinance our debt on terms acceptable to us, or at all. The breach of any of these covenants and restrictions could result in a default under our senior secured credit facility, our senior subordinated unsecured credit facility and the indenture governing our senior notes. An event of default under our debt agreements could permit our lenders to declare all amounts borrowed from them to be due and payable.

Aeroflex Holding is a holding company with no significant business operations of its own and depends on its subsidiaries for cash.

          Aeroflex Holding is a holding company with no significant business operations of its own. Our subsidiaries conduct all of our operations and own substantially all of our assets. Dividends and cash from our subsidiaries will be our principal sources of cash to repay indebtedness and fund operations. Accordingly, our ability to repay our indebtedness and fund operations is dependent on the earnings and the distribution of funds from our subsidiaries. In addition, Aeroflex, our direct subsidiary and primary obligor under our outstanding indebtedness, is also dependent to a significant extent on the cash flow of its subsidiaries in order to meet its debt service obligations.

          The agreements governing our debt instruments significantly restrict our subsidiaries from paying dividends and otherwise transferring cash or other assets to us. In addition, some of our subsidiaries are subject to minimum regulatory capital requirements, which may limit their ability to pay dividends or distributions or make loans to us. Furthermore, our subsidiaries are permitted under the agreements governing our debt instruments to incur additional indebtedness that may severely restrict or prohibit the making of distributions, the payment of dividends or the making of loans by our subsidiaries to us.

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          Our subsidiaries are separate and distinct legal entities. Any right we have to receive any assets of or distributions from any of our subsidiaries upon the bankruptcy, dissolution, liquidation or reorganization of any such subsidiary, or to realize proceeds from the sale of their assets, will be junior to the claims of that subsidiary's creditors, including trade creditors and holders of debt issued by that subsidiary.

Risks Related to the Offering

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity. If the stock price fluctuates after this offering, you could lose a significant part of your investment.

          Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the New York Stock Exchange or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our common stock that you buy. The initial public offering price of $             per share was determined by negotiations between us, the selling stockholder and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. In addition, the underwriters have an option to purchase up to an additional                          shares of common stock from the selling stockholder. The market price of our common stock may be influenced by many factors, some of which are beyond our control, including:

    the failure of securities analysts to cover our common stock after this offering, or changes in financial estimates or recommendations by analysts;

    actual or anticipated variations in our or our competitors' operating results;

    failure by us or our competitors to meet analysts' projections or guidance that we or our competitors may give the market;

    future sales of our common stock;

    investor perceptions of us and the industry;

    the public's reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission;

    general economic conditions; and

    the other factors described elsewhere in these "Risk Factors".

          As a result of these factors, investors in our common stock may experience a decrease, which could be substantial, in the value of their investment, including decreases unrelated to our operating performance or prospects. In addition, the stock market has at certain times, including recently, experienced extreme price and volume fluctuations. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of publicly traded shares of a company, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources, which could materially and adversely harm our results of operations and financial condition.

We are controlled by the Sponsors, whose interests may not be aligned with yours.

          Prior to the completion of this offering, the Sponsors own more than 90% of the outstanding membership interests in our controlling stockholder, the parent LLC. Accordingly, after giving effect

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to this offering, assuming an offering of                           million shares of our common stock by us and          million shares of our common stock by the selling stockholder, the Sponsors will indirectly control approximately         % of our common stock. As a result, our controlling stockholders will continue to be able to control the election of our directors, determine our corporate and management policies and determine without the consent of our other stockholders, the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including potential mergers or acquisitions, asset sales and other significant corporate transactions. In addition, the limited liability company agreement of the parent LLC, as described under "Certain Relationships and Related Party Transactions", provides that the parent LLC may not permit us to take certain actions without the consent of each of the Sponsors. Seven of our                          directors are either employees of or advisors to the Sponsors, as described under "Management". The Sponsors will also have sufficient voting power to amend our organizational documents. The interests of the Sponsors may not coincide with the interests of other holders of our common stock.

          Additionally, each of the Sponsors is in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. Our Sponsors may also consider combining our operations with those of another company. So long as the Sponsors continue to own a significant amount of the outstanding shares of our common stock, they will continue to be able to strongly influence or effectively control our decisions, including potential mergers or acquisitions, asset sales and other significant corporate transactions.

          In addition, our Bylaws will provide that so long as the parent LLC owns a majority of our then outstanding common stock, the advance notice procedures for stockholder proposals will not apply to it. Amendment of certain provisions in our Amended and Restated Certificate of Incorporation generally will require an affirmative vote of our directors, as well as the affirmative vote of at least a majority of our then outstanding voting stock if the parent LLC owns a majority of our then outstanding common stock or the affirmative vote of at least 80% of our then outstanding voting stock if the parent LLC owns less than a majority of our then outstanding common stock. Amendments to certain other provisions of our Amended and Restated Certificate of Incorporation generally will require the affirmative vote of a majority of our then outstanding voting stock.

We are a "controlled company" within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to shareholders of companies that are subject to such requirements.

          After completion of this offering, the parent LLC will control a majority of the voting power of our outstanding common stock. As a result, we are a "controlled company" within the meaning of the New York Stock Exchange corporate governance standards. Under these rules, if more than 50% of the voting power of a listed company is held by an individual, group or another company, the listed company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:

    the requirement that a majority of the Board of Directors consist of independent directors;

    the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;

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    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

    the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.

          Following this offering, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, our nominating/corporate governance committee and compensation committee will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange.

Even if the Sponsors no longer control us in the future, certain provisions of our charter documents and financing agreements, as well as Delaware law, could discourage, delay or prevent a merger or acquisition at a premium price.

          Our Amended and Restated Certificate of Incorporation and Bylaws will contain provisions that:

    permit us to issue, without any further vote or action by our stockholders,                           shares of preferred stock in one or more series and, with respect to each series, to fix the number of shares constituting the series and the designation of the series, the voting powers (if any) of the shares of such series, and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series;

    limit our stockholders' ability to call special meetings; and

    make Section 203 of Delaware General Corporation Law applicable to business combinations with interested stockholders under certain circumstances.

          In addition, upon the occurrence of certain kinds of change of control events, (i) Aeroflex will be required to offer to repurchase outstanding senior notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase and (ii) amounts outstanding under our senior secured credit facility and senior subordinated unsecured credit facility will be accelerated. All of the foregoing provisions may impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders.

If a substantial number of shares become available for sale and are sold in a short period of time, the market price of our common stock could decline.

          Sales of a substantial number of shares of our common stock in the public market could occur at any time. The perception in the public market that our existing common stockholder, the parent LLC, might sell shares of common stock could adversely affect prevailing market prices for our common stock and could impair our future ability to obtain capital through an offering of equity securities. Upon the consummation of this offering, we will have                           million shares of common stock outstanding, of which               million shares will be held by the parent LLC, constituting         % of our then outstanding common stock. We may sell additional shares of common stock in subsequent public or private offerings. We also may issue additional shares of common stock to finance future acquisitions. The parent LLC is a party to a registration rights agreement with us, which grants the parent LLC and the sponsors rights to require us to effect the registration of their shares of common stock. In addition, if we propose to register any of our common stock under the Securities Act, whether for our own account or otherwise, the parent LLC

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is entitled to include its shares of common stock in that registration as described under "Certain Relationships and Related Party Transactions".

          Prior to this offering, we and our existing holder of common stock will have agreed with the underwriters to a "lock-up" period, meaning that we and our current stockholder may not, subject to certain other exceptions, sell any shares of common stock without the prior written consent of Goldman, Sachs & Co. until approximately 180 days after the date of this prospectus. Goldman, Sachs & Co., on behalf of the underwriters, may, in their sole discretion, at any time or from time to time and without notice, waive the terms and conditions of the lock-up agreement. In addition, our current stockholder will be subject to the Rule 144 holding period requirement described in "Shares Eligible for Future Sale". When the lock-up agreements expire or are waived,              million shares of our common stock will become eligible for sale by the parent LLC in one or multiple transactions, in some cases subject to the requirements of Rule 144. The market price for shares of our common stock may drop significantly when the restrictions on resale by our existing stockholder lapses. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

We do not intend to pay dividends on our common stock for the foreseeable future and the instruments governing our current indebtedness contain various covenants that may limit our ability to pay dividends.

          We do not intend to pay cash dividends on our common stock in the foreseeable future. Our board of directors may, in its discretion, modify or repeal our dividend policy. The declaration and payment of dividends depends on various factors, including: our net income, financial conditions, cash requirements, future prospects and other factors deemed relevant by our board of directors. In addition, we are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon cash dividends and distributions and other transfers from our subsidiaries to make dividend payments on our common stock.

          The instruments governing our current indebtedness contain covenants which place limitations on the amount of dividends we may pay. See "Description of Indebtedness". In addition, under Delaware law, our board of directors may declare dividends only to the extent of our "surplus" (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of net profits for the then current and/or immediately preceding fiscal year.

If you purchase shares of common stock sold in this offering, you will experience immediate and substantial dilution because our existing holder of common stock paid substantially less than the initial public offering price for its shares.

          You will experience immediate and substantial dilution of $             in pro forma net tangible book value per share because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire, based on the net tangible book value per share as of December 31, 2009. This dilution is due in large part to the fact that our earlier investor paid substantially less than the initial public offering price when it purchased its shares.

We plan to issue options and/or restricted stock, which have the potential to dilute stockholder value and cause the price of our common stock to decline.

          We expect to offer stock options, restricted stock and/or other forms of stock-based compensation to our directors, officers and employees, none of which will be vested at the time of this offering. If the options that we issue are exercised, or the restricted stock that we issue vests,

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and those shares are sold into the public market, the market price of our common stock may decline. In addition, the availability of shares of common stock for award under our equity incentive plan, or the grant of stock options, restricted stock or other forms of stock-based compensation, may adversely affect the market price of our common stock.

Goldman, Sachs & Co. will receive a portion of the offering proceeds through its indirect ownership of the parent LLC, the existing holder of all of our common stock, and through the prepayment of a portion of the senior subordinated unsecured term loans.

          Goldman, Sachs & Co. will receive a portion of the offering proceeds through its indirect ownership in the parent LLC, the existing holder of all of our common stock, and through the prepayment of the senior subordinated unsecured term loans. Goldman, Sachs & Co. is the manager of GS Direct, which indirectly will own         % of our common stock after giving effect to the consummation of this offering. GS Direct holds senior subordinated unsecured term loans. As a result, an affiliate of Goldman, Sachs & Co. will receive part of the proceeds of the offering by reason of the prepayment of senior subordinated unsecured term loans held by it. Accordingly, Goldman, Sachs & Co. may be deemed to receive financial benefits as a result of the consummation of this offering beyond the benefits customarily received by underwriters in similar offerings. See "Underwriting—Conflict of Interest".

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FORWARD-LOOKING STATEMENTS

          This prospectus 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 prospectus under the headings "Prospectus Summary", "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 prospectus under the headings "Prospectus Summary", "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;

    our dependence on growth in our customers' businesses;

    our ability 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 International Traffic in Arms Regulations 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;

    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 prospectus 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.

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USE OF PROCEEDS

          We estimate that our net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $              million, assuming the shares are offered at $             per share, which is the midpoint of the estimated offering range set forth on the cover page of this prospectus.

          We intend to use the net proceeds as follows:

    $              million of the net proceeds will be used to make a capital contribution to Aeroflex to enable it to redeem $              million in aggregate principal amount of the senior notes, at a redemption price of 111.750% plus accrued and unpaid interest to the redemption date;

    $              million of the net proceeds will be used to make a capital contribution to Aeroflex to enable it to prepay $              million in aggregate principal amount of the senior subordinated unsecured term loans, at a prepayment price of 111.750% plus accrued and unpaid interest to the prepayment date;

    $              million of the net proceeds will be paid to the Sponsors as a fee pursuant to our advisory agreement with the Sponsors; and

    the remaining $         will be used for our general corporate purposes.

          The redemption of the senior notes described above will be made pursuant to a provision in the indenture governing the senior notes which will permit Aeroflex to redeem up to 35% of the aggregate principal amount of the senior notes with the net cash proceeds of this equity offering.

          The prepayment of the senior subordinated unsecured term loans described above will be made pursuant to a provision in the credit agreement governing the senior subordinated unsecured term loans which will permit Aeroflex to prepay up to 35% of the aggregate principal amount of the senior subordinated unsecured term loans with the net cash proceeds of this equity offering.

          We will not receive any of the proceeds from the common stock sold by the selling stockholder in this offering.

          As of December 31, 2009, there is $225.0 million aggregate principal amount of senior notes outstanding, which bear interest at a rate of 11.75% per annum and mature on February 15, 2015, and $156.3 million aggregate principal amount of the senior subordinated unsecured term loans outstanding (including the accrued paid-in-kind interest), which bear interest at a rate of 11.75% per annum and mature on February 15, 2015.

          GS Direct, one of the members of the parent LLC and an affiliate of Goldman, Sachs & Co., holds senior subordinated unsecured term loans, some of which are expected to be prepaid with a portion of the net proceeds from this offering. GS Direct will also receive a portion of the proceeds of the sale of shares by the parent LLC. As a result, Goldman, Sachs & Co. will receive part of the proceeds of the offering by reason of the prepayment of the senior unsecured term loans held by GS Direct and the sale of shares by the parent LLC. See "Underwriting—Conflict of Interest".

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DILUTION

          Dilution represents the difference between the amount per share paid by investors in this offering and the as adjusted net tangible book value per share of our common stock immediately after this offering.

          Our net tangible book value as of December 31, 2009 was a deficit of $664.6 million, or $             per share of common stock on a pro forma basis to reflect the stock split immediately prior to this offering. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding.

          After giving effect to our receipt of the estimated net proceeds from our sale of common stock in this offering, and after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us, our net tangible book value, as adjusted, as of December 31, 2009 would have been $              million, or $             per share of common stock. This represents an immediate increase in net tangible book value of $             per common share to our existing common stockholders and an immediate dilution of $              per common share to new investors purchasing our common stock in this offering. The following table illustrates this per share dilution to the later investors:

Initial public offering price per share

  $      
 

Pro forma net tangible book value per share as of December 31, 2009

         
 

Increase per common share attributable to investors purchasing our common stock in this offering

         
           

As adjusted net tangible book value per share after this offering

         
         

Dilution in net tangible book value per common share to new investors purchasing our common stock in this offering

  $      
         

          The following table summarizes the differences between the number of shares of common stock purchased from us on a pro forma basis, the total consideration and the average price per share paid by our existing stockholder and by new investors before deducting the estimated underwriting discount and estimated offering expenses payable by us:

 
 
Shares Purchased
 
Total Consideration
 
Average Price
 
 
 
Number
 
Percent
 
Amount
 
Percent
 
Per Share
 

Existing stockholder

            % $         % $    

New investors purchasing common stock in this offering

            % $         % $    
                       

Total

            % $         % $    
                       

          The above discussion and tables are based on the number of shares outstanding at December 31, 2009 on a pro forma basis and excludes:

    an aggregate of                          additional shares of our common stock that will be available for future awards pursuant to our equity incentive plan.

          Sales by the selling stockholder in this offering will cause the number of shares held by the existing stockholder to be reduced to                          shares or         % of the total number of shares of our common stock outstanding after this offering. If the underwriters exercise their option to

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purchase                          additional shares of our common stock from the selling stockholder in this offering, the number of shares held by the existing stockholder after this offering would be reduced to         % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will increase to                           million shares of our common stock, or         % of the total number of shares of our common stock outstanding after this offering.

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DIVIDEND POLICY

          We do not intend to pay cash dividends on our common stock in the foreseeable future. We are a holding company that does not conduct any business operations of our own. As a result, we are dependent upon cash dividends and distributions and other transfers from our subsidiaries to make dividend payments on our common stock. The amounts available to us to pay cash dividends are restricted by our subsidiaries' debt agreements. The declaration and payment of dividends also is subject to the discretion of our board of directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.

          In addition, under Delaware law, our board of directors may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal year.

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CAPITALIZATION

          The following table sets forth both our cash and cash equivalents and our capitalization as of December 31, 2009:

    on an actual basis; and

    on a pro forma as adjusted basis to give effect to:

    our             for 1 common stock split;

    the sale of shares of common stock by us in this offering at an assumed initial public offering price of $              per share, the midpoint of the range set forth on the front cover page of this prospectus; and

    the application of the net proceeds of this offering as described under "Use of Proceeds".

          This table should be read in conjunction with our consolidated financial statements and accompanying notes thereto, "Use of Proceeds", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Indebtedness" included elsewhere in this prospectus.

 
  As of
December 31, 2009
 
 
 
Actual
 
Pro Forma,
As Adjusted
 
 
  (In thousands)
 

 

 

 

 

 

 

 

 

Cash and cash equivalents

  $ 68,799   $    
           

Debt:

             

Senior secured credit facility

    511,800        

Senior notes

    225,000        

Senior subordinated unsecured credit facility

    156,308        

Other indebtedness

    1,085        
           
 

Total debt

    894,193        

Stockholder's equity:

             

Common stock, $0.01 par value; 1000 shares authorized, 1 share issued and outstanding, actual, and              shares authorized,              shares issued and outstanding, as adjusted

    137,849        

Preferred stock, $0.01 par value;              shares authorized, no shares issued and outstanding, actual and as adjusted

           
           
 

Total capitalization

  $ 1,032,042   $    
           

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SELECTED CONSOLIDATED FINANCIAL DATA

          The consolidated financial data set forth below as of and for fiscal 2009, the periods from August 15, 2007 through June 30, 2008 and July 1, 2007 through August 14, 2007, and fiscal 2007 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated financial data for the six-month periods ended December 31, 2009 and 2008 have been derived from our unaudited consolidated financial statements for those periods included elsewhere in this prospectus, and except as described in the notes thereto, have been prepared on a basis consistent with the respective audited consolidated financial statements and, in the opinion of management, include all adjustments, including usual recurring adjustments, necessary for a fair presentation of that information for such periods. The financial data presented for the interim periods are not necessarily indicative of the results for the full year. The consolidated financial data set forth below as of and for fiscal 2005 and 2006 have been derived from audited consolidated financial statements that are not included in this prospectus.

          The consolidated financial statements presented for the six-month periods ended December 31, 2009 and 2008, for the fiscal year ended June 30, 2009 and for the period from August 15, 2007 to June 30, 2008 represent the results of Aeroflex Holding, which was formed in connection with the Going Private Transaction, together with its consolidated subsidiaries. Aeroflex Holding is referred to after the Going Private Transaction as the Successor or Successor Entity. The consolidated financial statements for periods prior to August 15, 2007 represent Aeroflex's results prior to the Going Private Transaction, and we refer to Aeroflex prior to the Going Private Transaction as the Predecessor or Predecessor Entity. The purchase method of accounting was applied effective August 15, 2007 in connection with the Going Private Transaction. Therefore, our consolidated financial statements for periods before August 15, 2007 are presented on a different basis than those for the periods after August 14, 2007 and, as such, are not comparable.

          The selected consolidated financial data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus.

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  Predecessor Entity   Successor Entity  
 
  Year Ended




  Period
July 1,
2007
through
August 14,
2007
  Period
August 15,
2007
through
June 30,
2008
   
  Six Months Ended




 
 
  Year
Ended
June 30,
2009
 
 
  June 30,
2005
  June 30,
2006
  June 30,
2007
  December 31,
2008
  December 31,
2009
 
(Amounts in thousands)
   
   
   
   
   
   
  (unaudited)
 

Statement of Operations Data:

                                                 

Net sales:

                                                 
 

AMS

  $ 208,013   $ 241,437   $ 266,515   $ 19,017   $ 283,695   $ 287,517   $ 138,332     $146,521  
 

ATS

    244,971     304,806     326,631     19,204     321,296     311,819     159,328     150,334  
                                   

Total net sales

    452,984     546,243     593,146     38,221     604,991     599,336     297,660     296,855  

Gross profit:

                                                 
 

AMS

    102,818     120,492     133,863     8,164     114,644     134,239     65,096     70,201  
 

ATS

    111,956     141,439     150,314     7,196     137,394     150,866     75,422     81,387  
                                   

Total gross profit

    214,774     261,931     284,177     15,360     252,038     285,105     140,518     151,588  

Adjusted operating income(1):

                                                 
 

AMS

    46,193     58,467     63,908     24     74,802     63,368     29,984     36,911  
 

ATS

    20,074     34,771     38,582     (7,582 )   54,216     50,141     25,604     28,151  
 

General corporate expense

    (20,289 )   (15,279 )   (17,727 )   (2,347 )   (8,176 )   (11,377 )   (6,567 )   (5,189 )
                                   

Total adjusted operating income

    45,978     77,959     84,763     (9,905 )   120,842     102,132     49,021     59,873  

Operating income (loss)

    30,114     53,227     34,249     (21,258 )   (69,490 )   (19,209 )   8,166     16,520  

Income (loss) from continuing operations

   
17,430
   
33,748
   
8,794
   
(14,408

)
 
(100,604

)
 
(76,688

)
 
(11,004

)
 
(31,157

)

Net income (loss)

   
17,041
   
26,959
   
4,926
   
(16,916

)
 
(105,425

)
 
(76,688

)
 
(11,004

)
 
(31,157

)

Net income (loss) per share

                                                 

Basic

                                                 

Diluted

                                                 

Other Financial Data:

                                                 

Bookings

    492,271     579,748     582,840     66,960     607,169     610,924     322,556     359,781  

Backlog at end of period

    197,440     230,944     222,729     251,478     251,038     271,931     275,935     334,857  

Capital expenditures

    15,486     15,365     18,427     1,088     13,179     18,717     8,353     8,401  

Cash flows from operating activities

    36,611     36,697     20,802     11,293     8,910     54,457     41,660     22,113  

Cash flows from (used in) investing activities

    (117,646 )   (42,553 )   (19,113 )   8,406     (1,162,376 )   (36,213 )   (7,499 )   (6,567 )

Cash flows from (used in) financing activities

    (4,039 )   3,748     (793 )   12,619     1,209,045     (5,914 )   (4,469 )   (4,012 )

Adjusted EBITDA (unaudited)(2)

                120,184     (7,156 )   142,233     145,340     77,374     69,198  

 
   
  Predecessor Entity   Successor Entity  
 
   
  As of
June 30,
2005
  As of
June 30,
2006
  As of
June 30,
2007
  As of
June 30,
2008
  As of
June 30,
2009
  As of
December 31,
2008
  As of
December 31,
2009
 

Balance Sheet Data:

                                           

Cash and Cash equivalents

  $ 12,974   $ 10,387   $ 13,000   $ 54,149   $ 57,748   $ 73,664   $ 68,799  

Marketable securities (including non-current portion)

        28,332     9,500     19,960     17,677     17,750     16,899  

Working capital(3)

    161,749     199,780     201,603     220,855     221,406     218,185     235,579  

Total assets

    589,849     633,391     674,396     1,478,999     1,361,597     1,391,564     1,328,529  

Long-term debt (including current portion)(4)

    4,824     4,165     3,583     878,811     889,348     882,571     894,193  

Stockholders' equity

    443,980     487,670     510,697     276,648     159,760     195,684     137,849  

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(1)
Represents the operating results of our two segments based upon pre-tax operating income, before costs related to amortization of acquired intangibles, share-based compensation, restructuring expenses, lease termination costs, merger related expenses, loss on liquidation of foreign subsidiary, impairment of goodwill and other intangibles, acquired in-process research and development costs, the impact of any acquisition-related adjustments and Going Private Transaction expenses. For a reconciliation of adjusted operating income to operating income calculated in accordance with GAAP, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Statements of Operations", beginning on page 55.

(2)
As used herein, "EBITDA" represents income (loss) from continuing operations plus (i) interest expense, (ii) provision for income taxes and (iii) depreciation and amortization.

We have included information concerning EBITDA in this prospectus because we believe that such information is used by certain investors, securities analysts and others as one measure of an issuer's performance and historical ability to service debt. In addition, we use EBITDA when interpreting operating trends and results of operations of our business. EBITDA is also widely used by us and others in our industry to evaluate and to price potential acquisition candidates. EBITDA is a non-GAAP financial measure and should not be considered as an alternative to, or more meaningful than, earnings from operations, cash flows from operations or other traditional GAAP indications of an issuer's operating performance or liquidity. EBITDA has important limitations as an analytical tool and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. For example, EBITDA:

excludes certain tax payments that may represent a reduction in cash available to us;

does not consider capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

does not reflect changes in, or cash requirements for, our working capital needs; and

does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt.

We also provide information with respect to Adjusted EBITDA in this prospectus. The calculation of Adjusted EBITDA is based on the definition in the credit agreement governing our senior secured credit facility and is not defined under U.S. GAAP. Our use of the term Adjusted EBITDA may vary from others in our industry. Adjusted EBITDA is not a measure of operating income (loss), performance or liquidity under U.S. GAAP and is subject to important limitations. We use Adjusted EBITDA in assessing covenant compliance under our senior secured credit facility and we believe its inclusion is appropriate to provide additional information to investors. In calculating Adjusted EBITDA, we add back certain non-cash, non-recurring or other items that are included in EBITDA and/or net income (loss). For instance, Adjusted EBITDA:

does not include share-based employee compensation expense, goodwill impairment charges and other non-cash charges;

does not include restructuring costs incurred to realize future cost savings that enhance our operations;

does not include the impact of business acquisition purchase accounting adjustments;

does not reflect Going Private Transaction expenses and merger related expenses, including advisory fees that have been paid to the Sponsors following the consummation of the Going Private Transaction. See "Certain Relationships and Related Party Transactions"; and

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    includes other adjustments required in calculating our debt covenant compliance such as adding pro forma savings from restructuring activities, eliminating loss on liquidation of foreign subsidiary, eliminating one-time non-cash inventory adjustments and adding pro forma EBITDA, for periods prior to the acquisition date, for companies acquired during the applicable year.

    The following table is a reconciliation of income (loss) from continuing operations to Adjusted EBITDA for the periods indicated:

 
  Predecessor
Entity
  Successor Entity  
 
   
  Period
July 1,
2007
through
August 14,
2007
  Period
August 15,
2007
through
June 30,
2008
   
  Six Months Ended




 
 
  Year
Ended
June 30,
2007
  Year
Ended
June 30,
2009
 
 
  December 31,
2008
  December 31,
2009
 
 
   
   
   
   
  (unaudited)
 
 
 
(In thousands)

 

Income (loss) from continuing operations

  $ 8,794   $ (14,408 ) $ (100,604 ) $ (76,688 ) $ (11,004 ) $ (31,157 )

Interest expense

    672     275     74,658     83,823     42,465     42,457  

Provision (benefit) for income taxes

    24,935     (6,831 )   (38,927 )   (15,332 )   (10,882 )   5,699  

Depreciation and amortization

    30,142     3,662     93,032     84,426     43,651     41,774  
                           

EBITDA (unaudited)

    64,543     (17,302 )   28,159     76,229     64,230     58,773  

Non-cash purchase accounting adjustments

        57     66,453     2,749     176     311  

Merger related expenses

    30,584     5,036     36,585     4,283     2,806     1,464  

Restructuring costs and related pro forma savings from such activities(a)

    9,240     4,189     7,407     10,159     4,292     251  

Share-based compensation(b)

    4,084     214     3,123     1,955     977     1,045  

Non-cash loss on liquidation of foreign subsidiary

                3,112     900     7,696  

Pro forma savings from management restructuring(c)

    8,300     75     525              

Impairment of goodwill and other intangibles

                41,225          

Other defined adjustments(d)

    3,433     575     (19 )   5,628     3,993     (342 )
                           

Adjusted EBITDA (unaudited)

  $ 120,184   $ (7,156 ) $ 142,233   $ 145,340   $ 77,374   $ 69,198  
                           

    (a)
    Primarily reflects costs associated with the reorganization of our U.K. operations and the pro forma savings related thereto. Pro forma savings reflects the amount of costs that we estimate would have been eliminated during the fiscal year in which a restructuring occurred had the restructuring occurred as of the first day of that fiscal year.

    (b)
    Reflects non-cash share-based employee compensation.

    (c)
    Primarily reflects pro forma savings related to the retirement of the former chairman of Aeroflex and modifications to executive compensation arrangements upon the consummation of the Going Private Transaction.

    (d)
    Reflects other adjustments required in calculating our debt covenant compliance. These other defined items include non-cash inventory adjustments for a discontinued product and pro forma EBITDA for periods prior to the acquisition dates for companies acquired during our fiscal year.

(3)
Working capital is defined as current assets less current liabilities.

(4)
We intend to use the net proceeds from this offering to make a capital contribution to Aeroflex to enable it to redeem $              million of the senior notes and prepay $              million of the senior subordinated unsecured term loans. See "Use of Proceeds".

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The statements in the discussion and analysis regarding our expectations regarding the performance of our business and any forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Forward-Looking Statements" and "Risk Factors". Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors", "Selected Consolidated Financial Data" and our consolidated financial statements, including the related notes, appearing elsewhere in this prospectus.

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 space, avionics, defense, commercial wireless communications, 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 Going Private Transaction

          Since our formation in May 2007, we have been a wholly-owned subsidiary of the parent LLC. On August 15, 2007, we acquired Aeroflex. Following the Going Private Transaction, Aeroflex became our wholly-owned subsidiary. The merger agreement also provided that all of Aeroflex's stock options were canceled and converted into the right to receive a cash payment equal to the number of shares of Aeroflex's common stock underlying the options multiplied by the amount, if any, by which $14.50 exceeded the exercise price of the option, without interest and less any applicable withholding taxes. The aggregate merger consideration paid to Aeroflex's shareholders and stock option holders was approximately $1.1 billion.

          The Going Private Transaction was funded by:

    equity investments in Aeroflex Holding of approximately $378.4 million by affiliates of, or funds managed by, the Sponsors and certain members of our management;

    borrowings under a senior secured credit facility, consisting of $525.0 million under our term loan facility;

    borrowings under an exchangeable senior unsecured credit facility, consisting of a $225.0 million term loan facility; and

    borrowings under an exchangeable senior subordinated unsecured credit facility, consisting of a $120.0 million term loan facility.

          Upon the closing of the Going Private Transaction, we paid severance of approximately $6.7 million, $18.6 million of transaction expenses, a $22.0 million advisory fee to the Sponsors or their affiliates and $18.3 million in financing costs.

          In addition, upon the closing of the Going Private Transaction, we entered into an advisory agreement with the designated affiliates of the Sponsors under which the affiliates of the Sponsors provide certain advisory services to us. We pay an annual advisory fee in the aggregate amount of the greater of $2.2 million, or 1.8% of Adjusted EBITDA for the prior fiscal year, and transaction fees

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on all future financings and liquidity events. The advisory agreement has an initial term expiring on December 31, 2013 and will be automatically renewable for additional one year terms thereafter unless we or the Sponsors give notice of non-renewal. The annual advisory fees expensed in fiscal 2009 were $2.3 million. See "Certain Relationships and Related Party Transactions—Advisory Agreement".

          The Going Private Transaction constituted a change in control. We allocated the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Independent third-party appraisers were engaged to assist management in performing valuations of certain of the tangible and intangible assets acquired.

          Our consolidated financial statements presented as of June 30, 2009 and 2008, and for the fiscal year ended June 30, 2009 and for the period from August 15, 2007 to June 30, 2008 represent the results of Aeroflex Holding, which was formed in connection with the Going Private Transaction, together with its consolidated subsidiaries. Aeroflex Holding is referred to after the Going Private Transaction as the Successor or Successor Entity. The consolidated financial statements as of and for periods prior to August 15, 2007 represent Aeroflex's results prior to the Going Private Transaction, and we refer to Aeroflex prior to the Going Private Transaction as the Predecessor or Predecessor Entity. The purchase method of accounting was applied effective August 15, 2007 in connection with the Going Private Transaction. Therefore, our consolidated financial statements for periods before August 15, 2007 are presented on a different basis than those for the periods after August 14, 2007 and, as such, are not comparable.

          On September 21, 2007, Aeroflex entered into a $120.0 million senior subordinated unsecured credit facility to refinance its $120.0 million exchangeable senior subordinated unsecured credit facility. On August 7, 2008, Aeroflex issued the senior notes to refinance the $225.0 million exchangeable senior unsecured credit facility.

          On January 21, 2009, the SEC declared effective Aeroflex's exchange offer registration statement, which resulted in an exchange of securities pursuant to which the unregistered unsecured senior notes were exchanged for publicly registered 11.75% unsecured senior notes due February 15, 2015 with substantially identical terms as the exchanged notes.

Factors and Trends That Affect Our Results of Operations

          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 financial performance.

    Revenue.

          From fiscal 2005 to fiscal 2008, our sales grew from $453.0 million to $643.2 million, representing a compound annual growth rate of 12.4%. In fiscal 2009, our sales decreased 7% to $599.3 million, due to the global economic downturn and related credit crisis that affected the entire microelectronics and test and measurement equipment industries. With a significant portion of our revenues generated from the space, avionics and defense markets, particularly the electronics portion of the U.S. government's defense budget, even with the reduction in sales, we believe we generally outperformed our competitors in these industries over the last fiscal year. Despite continued weak economic conditions, our backlog of $334.9 million at December 31, 2009 increased 21% compared to December 31, 2008.

          We often design and develop platform-specific and customized products for our customers. As a result, and based on our long-term relationships and knowledge of customers' buying patterns, we believe that we were either a primary or the sole source supplier for products representing more than 80% of our total net sales in the twelve months ended December 31, 2009. If we are a primary

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supplier, generally the customer will use two to three suppliers to satisfy its requirements for that product. Our major customers often use our products in multiple systems or programs, sometimes developed by different business units within the customer's organization. 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. 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 41% in fiscal 2009, 38% in fiscal 2008 and 32% in fiscal 2007. No single customer exceeded 10% of our net revenue in fiscal 2009, fiscal 2008 or fiscal 2007.

          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, 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. For instance, in fiscal 2009, as we realized the likely depth of the economic recession, we acted to reduce costs and streamline operations, ultimately down-sizing part of our RF and microwave products, or RFMW, reporting unit in the U.S. Additionally, in fiscal 2009, we continued to rationalize our UK operations by combining our three manufacturing operations into one location. These actions reduced our cost structure and improved profitability.

          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. Two areas of particular focus for us are space-based electronics and commercial wireless, specifically testing of wireless products and systems. In the satellite area, we are continuing to focus on moving up the value chain by moving from chip or component level products to systems level products. For example, in the satellite area, for the period 2007-2009, our average dollar content per satellite was approximately $4.7 million out of total satellite cost of $289 million. That compared with an average dollar content of $1.4 million on satellite costs of $135 million in 2001-2003. In the wireless test markets, we believe that newly developed wireless products position us well to benefit from the roll-out of new 4G technologies, especially the standard known as LTE. 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 products and markets.

    Gross Margin.

          One of our objectives is to maintain and improve our gross margin, which is our gross profit expressed as a percentage of our revenue. Our gross margins calculated in accordance with GAAP were 47.6% in fiscal 2009, 41.6% in fiscal 2008 and 47.9% in fiscal 2007. Excluding the impact of adjustments permitted by the credit agreement governing our senior secured credit facility in calculating compliance with debt covenants, in the last three fiscal years our gross margins were 48.0% in fiscal 2009, 48.1% in fiscal 2008 and 47.9% in fiscal 2007. In general, we seek to introduce products that are valued by our customers for their ability 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 undertaken in the UK.

          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. 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, some of which are not within our control.

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    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 historically focused on controlling our costs. On a GAAP basis, our selling, general and administrative costs as a percentage of sales has decreased from 21.9% to 21.4% in the last three fiscal years. Excluding the impact of adjustments permitted by the credit agreement governing our senior secured notes in calculating compliance with debt covenants, selling, general and administrative costs as a percent of sales has decreased from 21.2% to 20.1% over the last three fiscal years. To help reduce the adverse impact on profitability resulting from the recent economic downturn, we froze salaries at the beginning of fiscal year 2010 at their fiscal 2009 levels and suspended the match to our 401(k) plan. We intend to reinstate the match to our 401(k) plan, albeit at a reduced level, and resume salary increases in fiscal 2010.

    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 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 provides better visibility to 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.

    Acquisitions and Restructurings.

          Since 1991, we have completed 26 acquisitions and divested a number of businesses that were non-core to our operations. During the three year period covered by the audited financial statements included elsewhere in this prospectus, we made the following acquisitions:

Date   Acquisition   Description
April 2007   MicroMetrics   RF/microwave diodes and semiconductor devices
October 2007   Test Evolution   Automated test equipment
June 2008   Gaisler Research   Radiation-tolerant ICs
February 2009   Hi-Rel Components   High reliability engineered components
March 2009   VI Technologies   Multimedia test equipment
June 2009   Airflyte Electronics   Slip rings for motion control products

In addition, in 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 sheet's amortizable and non-amortizable intangible asset accounts and in the statement of operations' cost of sales, Going Private Transaction expense, amortization of intangibles and write-off of acquired in-process research and development accounts.

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          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 UK manufacturing operations.

          For a discussion of the adjustments permitted by the credit agreement governing our senior secured credit facility, see footnote 2 to the table under "Prospectus Summary—Summary Consolidated Financial Data".

          Interest expense.    In connection with the Going Private Transaction, we incurred $870.0 million of debt to finance the acquisition of Aeroflex. This additional debt increased our interest expense from $672,000 in fiscal 2007 to $83.8 million in fiscal 2009. Scheduled principal payments on this debt are $5.3 million per year with the final balance of the debt due in fiscal 2015. A portion of this debt is subject to variable interest rates. See "—Qualitative and Quantitative Information About Market Risk".

          We intend to redeem or prepay a portion of our debt with the proceeds of this offering. See "Use of Proceeds". Until the debt is repaid from the proceeds of equity offerings and cash generated from our operations, interest expense will continue to significantly impact our net income and cash flow.

          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 will be subject to U.S. income taxes on those amounts. Generally, the U.S. taxes are reduced by a credit for foreign income taxes paid on these earnings which avoids double taxation.

          The U.S. foreign tax credit is subject to certain limitations, in particular the existence of an overall foreign profit, which is net of an allocation of our interest expense, among other items. Primarily due to the significant amount of interest expense associated with our debt, we currently believe we will have an overall cumulative foreign loss for U.S. income tax purposes at the end of fiscal 2010. Therefore, our consolidated tax provision includes both foreign and U.S. taxes on our foreign income without the benefit of the foreign tax credit. This situation significantly increases our effective tax rate.

          If and when the factors causing the limitation of the foreign tax credit change, we will recognize some or all of the benefit from the foreign tax credit. In this regard, we intend that the proceeds of equity offerings and the projected cash generated from our operations will be available to substantially reduce our debt and cause a sufficient reduction of the interest expense allocated to our foreign source income and, in turn, allow us to realize a benefit from the foreign tax credit.

Critical Accounting Policies and Estimates

          Our financial statements are prepared in conformity with U.S. GAAP. We consolidate our subsidiaries, all of which, except for Test Evolution Corporation, are wholly owned. All significant intercompany balances and transactions have been eliminated.

          The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires our management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in our consolidated financial statements are revenue and cost recognition under long-term contracts; the valuation of accounts receivable, inventories, investments and deferred tax assets; the depreciable lives of fixed assets and useful lives of amortizable intangible assets; the valuation of assets acquired and liabilities assumed in business combinations; the recoverability of long-lived amortizable intangible assets, tradenames

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and goodwill; share-based compensation; restructuring charges; asset retirement obligations; fair value measurement of financial assets and liabilities and certain accrued expenses and contingencies.

          We are subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the business climate; therefore, actual results may differ from those estimates. When no estimate in a given range is deemed to be better than any other when estimating contingent liabilities, the low end of the range is accrued. Accordingly, the accounting estimates in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are made when circumstances warrant them. Such changes and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements.

    Revenue Recognition

          We recognize revenue, net of trade discounts and allowances, when:

    persuasive evidence of an arrangement exists,

    delivery of the product has occurred or the services have been performed,

    the selling price is fixed or determinable, and

    collectability of the resulting receivable is reasonably assured.

          Our product revenue is generated predominantly from the sales of various types of microelectronic products and test and measurement equipment. For arrangements other than certain long-term contracts, revenue (including shipping and handling fees) is recognized when products are shipped and title has passed to the customer. If title does not pass until the product reaches the customer's delivery site, recognition of the revenue is deferred until that time. Certain of our sales are to distributors, which have a right to return some portion of product within specified periods from delivery. We recognize revenue on these sales at the time of shipment to the distributor, as the returns under these arrangements have historically been insignificant and can be reasonably estimated. A provision for such estimated returns is recorded at the time revenues are recognized. For transactions that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones, revenue is recognized after the acceptance criteria have been met.

          Long-term contracts are accounted for by determining estimated contract profit rates and use of the percentage-of-completion method to recognize revenues and associated costs as work progresses. We measure the extent of progress toward completion generally based upon one of the following methods (based upon an assessment of which method most closely aligns to the underlying earnings process):

    the units-of-delivery method,

    the cost-to-cost method (using the ratio of contract costs incurred as a percentage of total estimated costs at contract completion based upon engineering and production estimates), or

    the achievement of contractual milestones.

Provisions for anticipated losses or revisions in estimated profits on contracts-in-process are recorded in the period in which such anticipated losses or revisions become evident.

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          Where an arrangement includes only a software license, revenue is recognized when the software is delivered and title has been transferred to the customer or, in the case of electronic delivery of software, when the customer is given access to the licensed software programs. We also evaluate whether persuasive evidence of an arrangement exists, collection of the receivable is probable, the fee is fixed or determinable and whether any other undelivered elements of the arrangement exist for which a portion of the total fee would be allocated based on vendor-specific objective evidence of the fair value of the undelivered element. When a customer purchases software together with post contract support, we allocate a portion of the fee to the post contract support for its fair value based on the contractual renewal rate. Post contract support fees are deferred in Advance Payments by Customers and Deferred Revenue in the consolidated balance sheets, and recognized as revenue ratably over the term of the related contract.

          Service revenue is derived from extended warranty, customer support and training. Service revenue is deferred and recognized over the contractual term or as services are rendered and accepted by the customer. For example, customer support contracts are recognized ratably over the contractual term, while training revenue is recognized as the training is provided to the customer. In addition, the four revenue recognition criteria described above must be met before service revenue is recognized.

          We use vendor-specific objective evidence of selling price, verifiable objective evidence of selling price, such as third party selling prices, or estimated selling price, in that order, to allocate revenue to elements in multiple element arrangements. Revenue is recognized on only those elements that meet the four criteria described above.

          At December 31, 2009, we have $32.5 million in Advance Payments by Customers and Deferred Revenue, which is comprised of $15.3 million of customer advance payments primarily for the purchase of materials, $7.4 million of deferred service and software support revenue, $3.6 million of deferred warranty revenue and $6.2 million of revenue deferred due to software arrangements for which there is no vendor specific objective evidence of fair value of the undelivered elements of the arrangements, contingent revenue, billings for which the related product has not been delivered or product delivered to a customer that has not been accepted or is incomplete. We generally sell non-software service and extended warranty contracts on a standalone basis. The amount of deferred revenue at December 31, 2009 and revenue for the six months ended December 31, 2009 derived from non-software multiple element arrangements was insignificant.

          The adoption on July 1, 2009 of the guidance issued by the Financial Accounting Standards Board, or FASB, in Accounting Standard Updates 2009-13 and 2009-14 did not have a material impact on our pattern or timing of revenue recognition and is not expected to have a material impact on revenues in future periods. We have one test equipment product line, which includes software that is more than incidental to the hardware component that, prior to July 1, 2009, was accounted for as a software product for revenue recognition purposes. Effective July 1, 2009, the new revenue recognition guidance provides that products such as these that contain software which is essential to overall product functionality are outside the scope of software revenue recognition guidance and are now accounted for under new rules pertaining to revenue arrangements with multiple deliverables. Although this change had no impact on revenue recognized for the six months ended December 31, 2009, if this product were delivered in a multiple element arrangement in the future, certain revenue recognition could be accelerated. We do not believe that this will result in a material impact on our revenues.

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    Acquisition Accounting

          We use the purchase method to account for business combinations, whereby the total cost of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition. The allocation of the purchase price is dependent upon certain valuations and other studies, which contain estimates and assumptions.

    Long-Lived Assets

          Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets. Indefinite-lived intangible assets consist of tradenames. Goodwill and indefinite-lived intangible assets are not amortized. Definite-lived intangible assets primarily consist of customer related intangibles and developed technology, which are amortized on a straight-line basis over periods ranging up to 11 years.

          We assess goodwill and indefinite-lived intangibles at least annually for impairment as of June 30, or more frequently if certain events or circumstances indicate an impairment may have occurred. We test goodwill for impairment at the reporting unit level, which is one level below our operating segments. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and management of each reporting unit regularly reviews the operating results of those components. Impairment testing is performed in two steps: we first determine if there is an impairment by comparing the fair value of a reporting unit with its carrying value and then if there is an impairment, we measure the amount of impairment loss by comparing the implied fair value of the reporting unit's goodwill (the excess of the fair value of the reporting unit over the fair value of its net identifiable assets) with the carrying amount of that goodwill. The impairment test for indefinite-lived intangible assets encompasses calculating a fair value of an indefinite-lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the fair value, impairment is recorded.

          Testing goodwill for impairment requires us to estimate fair values of reporting units using significant estimates and assumptions. The assumptions made will impact the outcome and ultimate results of the testing. We use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, we engage third-party valuation specialists to assist us in estimating fair values. To determine fair value of the reporting unit, we generally use an income approach. We use a market approach to assess the reasonableness of the results of the income approach. Under the income approach, we determine fair value using a discounted cash flow method, estimating future cash flows of each reporting unit, as well as terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows.

          The key estimates and factors used in the income approach include, but are not limited to, revenue growth rates and profit margins based on internal forecasts, terminal value and the weighted-average cost of capital used to discount future cash flows. The fiscal 2009 compound annual growth rate of sales for the first 6 years of our projections ranged between 4% and 24%. The fiscal 2008 compound annual growth rate of sales for the first 6 years of our projections ranged between 1% and 15%. The terminal growth rates were projected at 5% after between 7 to 10 years in fiscal 2009 as compared with 5% after between 9 to 11 years in fiscal 2008, which reflects our estimate of long term market and gross domestic product growth. The weighted-average cost of capital used to discount future cash flows ranged from 14% to 19% in fiscal 2009 as compared with 13% to 16% in fiscal 2008. Future changes in these estimates and assumptions could materially affect the results of our reviews for impairment of goodwill. Changes in the valuation assumptions

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from those used in the prior year primarily reflect the impact of the current economic environment on the reporting units and their projected future results of operations.

          To determine fair value of indefinite-lived intangible assets, we use an income approach, the relief-from-royalty method. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. Indefinite-lived intangible assets' fair values require significant judgments in determining both the assets' estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

          We review other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value. If the projected undiscounted cash flows are less than the carrying value, an impairment would be recorded for the excess of the carrying value over the fair value, which is determined by discounting future cash flows.

          Property, plant and equipment are stated at cost. Depreciation of plant and equipment is provided over the estimated useful lives of the respective assets, principally on a straight-line basis. Leasehold improvements are amortized over the life of the lease, including anticipated renewals, or the estimated life of the asset, whichever is shorter.

    Income Taxes

          We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

    Foreign Currency Translations

          The financial statements of our foreign subsidiaries are measured in their local currency and then translated into U.S. dollars using the current rate method. Under the current rate method, assets and liabilities are translated using the exchange rate at the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing throughout the year.

          Gains and losses resulting from the translation of financial statements of foreign subsidiaries are accumulated in other comprehensive income (loss) and presented as part of stockholder's equity. Realized and unrealized foreign currency exchange gains (losses) from the settlement of foreign currency transactions are reflected in other income (expense) and amounted to $584,000, $9.0 million, $2.3 million, $193,000 and $(1.3 million) for the six months ended December 31, 2009, the fiscal year ended June 30, 2009, the periods from August 15, 2007 to June 30, 2008 and July 1, 2007 to August 14, 2007 and the fiscal year ended June 30, 2007, respectively.

    Financial Instruments and Derivatives

          Foreign currency contracts are used in certain circumstances to protect us from fluctuations in exchange rates. We enter into foreign currency contracts, which are not designated as hedges. Thus the change in fair value is included in income as it occurs, within other income (expense) in the consolidated statement of operations.

          Our interest rate swap derivatives are designated as cash flow hedges. As such, they are recorded on the balance sheet as assets or liabilities at their fair value, with changes in the fair value of such derivatives, net of taxes, recorded as a component of other comprehensive income.

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Results of Operations

          For comparative purposes, in this Management's Discussion and Analysis of Financial Condition and Results of Operations, we have combined the Predecessor period from July 1, 2007 to August 14, 2007 with the Successor period from August 15, 2007 to June 30, 2008 to form the fiscal year ended June 30, 2008. This combination is not a GAAP presentation as it combines periods with different bases of accounting. However, we believe this presentation is useful to the reader as a comparison to the Successor period for the fiscal year ended June 30, 2009.

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

 
   
   
   
   
   
  Six Months Ended


 

 
 
   
   
  Non-GAAP combined Predecessor and Successor    
   
 
 
  Predecessor Entity   Successor Entity  
 
  Year
Ended
June 30,
2007
  Period
July 1,
2007
through
August 14,
2007
  Year
Ended
June 30,
2008
  Period
August 15,
2007
through
June 30,
2008
  Year
Ended
June 30,
2009
  December 31,
2008
  December 31,
2009
 
 
   
   
   
   
   
  (unaudited)
 

Net sales

    100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %   100.0 %

Costs of sales

    52.1     59.8     58.4     58.3     52.4     52.8     48.9  
                               

Gross profit

    47.9     40.2     41.6     41.7     47.6     47.2     51.1  
                               

Operating expenses:

                                           

Selling, general and administrative costs

    21.8     49.8     21.8     20.0     21.4     22.0     20.8  

Research and development costs

    12.9     31.9     12.8     11.6     11.7     11.5     11.6  

Amortization of acquired intangibles

    2.2     4.4     11.6     12.1     10.5     11.0     10.5  

Loss on liquidation of foreign subsidiary

                            2.6  

Acquired in-process research and development costs

            3.9     4.1     0.3          

Going Private Transaction expenses

    5.2     9.7     5.6     5.4              

Impairment of goodwill and other intangibles

                    6.9          
                               

Total operating expenses

    42.1     95.8     55.7     53.2     50.8     44.5     45.5  
                               

Operating income (loss)

    5.8     (55.6 )   (14.1 )   (11.5 )   (3.2 )   2.7     5.6  

Interest expense

    (0.1 )   (0.7 )   (11.7 )   (12.3 )   (14.0 )   (14.3 )   (14.3 )

Other income (expense), net

        0.7     0.8     0.7     1.8     4.2     0.1  
                               

Income (loss) from continuing operations before income taxes

    5.7     (55.6 )   (25.0 )   (23.1 )   (15.4 )   (7.4 )   (8.6 )

Provision (benefit) for income taxes

    4.2     (17.9 )   (7.2 )   (6.5 )   (2.6 )   (3.7 )   1.9  
                               

Income (loss) from continuing operations

    1.5     (37.7 )   (17.8 )   (16.6 )   (12.8 )   (3.7 )   (10.5 )

Discontinued operations, net of tax

    (0.7 )   (6.6 )   (1.1 )   (0.8 )            
                               

Net income (loss)

    0.8 %   (44.3 )%   (18.9 )%   (17.4 )%   (12.8 )%   (3.7 )%   (10.5 )%
                               

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Statements of Operations

          Management evaluates the operating results of our two segments based upon adjusted operating income, which is pre-tax operating income before costs related to amortization of acquired intangibles, share-based compensation, restructuring expenses, lease termination costs, merger related expenses, loss on liquidation of foreign subsidiary, impairment of goodwill and other intangibles, acquired in-process research and development costs, the impact of any acquisition related adjustments and Going Private Transaction expenses. We have set out below our adjusted operating income (loss) by segment and in the aggregate, and have provided a reconciliation of operating income (loss) to adjusted operating income (loss) for the periods presented.

 
   
   
   
   
   
  Six Months Ended


 

 
 
   
   
  Non-GAAP combined Predecessor and Successor    
   
 
 
  Predecessor Entity   Successor Entity  
 
  Year
Ended
June 30,
2007
  Period
July 1,
2007
through
August 14,
2007
  Year
Ended
June 30,
2008
  Period
August 15,
2007
through
June 30,
2008
  Year
Ended
June 30,
2009
  December 31,
2008
  December 31,
2009
 
 
   
   
   
   
   
  (unaudited)
 

(Amounts in thousands)

                                           

Net sales:

                                           

AMS

  $ 266,515   $ 19,017   $ 302,712   $ 283,695   $ 287,517   $ 138,332   $ 146,521  

ATS

    326,631     19,204     340,500     321,296     311,819     159,328     150,334  
                               

Net sales

  $ 593,146   $ 38,221   $ 643,212   $ 604,991   $ 599,336   $ 297,660   $ 296,855  
                               

Segment adjusted operating income:

                                           

— AMS

  $ 63,908   $ 24   $ 74,826   $ 74,802   $ 63,368   $ 29,984   $ 36,911  

— ATS

    38,582     (7,582 )   46,634     54,216     50,141     25,604     28,151  

— General corporate expense

    (17,727 )   (2,347 )   (10,523 )   (8,176 )   (11,377 )   (6,567 )   (5,189 )
                               

Adjusted operating income (loss)

    84,763     (9,905 )   110,937     120,842     102,132     49,021     59,873  

Amortization of acquired intangibles:

                                           

— AMS

    (1,911 )   (279 )   (44,364 )   (44,085 )   (36,635 )   (19,139 )   (17,579 )

— ATS

    (11,095 )   (1,413 )   (30,404 )   (28,991 )   (26,327 )   (13,451 )   (13,540 )

Share-based compensation:

                                           

— AMS

    (965 )   (83 )   (83 )                

— ATS

    (958 )   95     95                  

— Corporate

    (2,161 )   (226 )   (3,349 )   (3,123 )   (1,955 )   (977 )   (1,045 )

Restructuring charges:

                                           

— AMS

            (414 )   (414 )            

— ATS

    (2,840 )   (3,778 )   (10,359 )   (6,581 )   (4,102 )   (2,210 )   (251 )

Lease termination costs:

                                           

— ATS

        (576 )   (576 )                

Merger related expenses — Corporate

        (1,319 )   (5,411 )   (4,092 )   (4,283 )   (2,806 )   (1,464 )

Loss on liquidation of foreign subsidiary-ATS

                            (7,696 )

Impairment of goodwill and other intangibles:

                                           

— AMS

                    (41,225 )        

Acquired in-process R&D costs:

                                           

— AMS

            (16,335 )   (16,335 )   (1,665 )        

— ATS

            (8,640 )   (8,640 )            

Current period impact of acquisition related adjustments:

                                           

Inventory — AMS

        (57 )   (23,874 )   (23,817 )           (246 )

Inventory — ATS

            (15,151 )   (15,151 )   (668 )        

Depreciation — AMS

            (1,025 )   (1,025 )   (1,143 )   (572 )   (540 )

Depreciation — ATS

            (2,882 )   (2,882 )   (2,702 )   (1,414 )   (817 )

Depreciation — Corporate

            (193 )   (193 )   (220 )   (110 )   (110 )

Deferred revenue — ATS

            (2,510 )   (2,510 )   (416 )   (176 )   (65 )

Going Private Transaction expenses

    (30,584 )   (3,717 )   (36,210 )   (32,493 )            
                               

Operating income (loss)

    34,249     (21,258 )   (90,748 )   (69,490 )   (19,209 )   8,166     16,520  

Interest expense

    (672 )   (275 )   (74,933 )   (74,658 )   (83,823 )   (42,465 )   (42,457 )

Other income (expense), net

    152     294     4,911     4,617     11,012     12,413     479  
                               

Income (loss) from continuing operations before income taxes

  $ 33,729   $ (21,239 ) $ (160,770 ) $ (139,531 ) $ (92,020 ) $ (21,886 ) $ (25,458 )
                               

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Table of Contents

    Six Months Ended December 31, 2009 Compared to Six Months Ended December 31, 2008

          Net Sales.    Net sales were $296.9 million for the six months ended December 31, 2009 and $297.7 million for the six months ended December 31, 2008.

          Net sales in the AMS segment increased 6% to $146.5 million for the six months ended December 31, 2009 from $138.3 million for the six months ended December 31, 2008. Increases of $6.4 million in sales of IC's and $6.0 million in sales of microelectronic modules, combined with sales of $5.3 million from Airflyte Electronics, acquired in June 2009, were partially offset by a reduction of $7.1 million in sales of components, due to decreased sales volumes and price concessions created by industry competition, and a $2.6 million reduction in sales of motion control products.

          Net sales in the ATS segment decreased 6% to $150.3 million for the six months ended December 31, 2009 from $159.3 million for the six months ended December 31, 2008. Increases of $6.9 million in wireless test products and $3.2 million in synthetic test products and additional sales of $7.3 million from VI Technology, acquired in March 2009, were more than offset by a $7.3 million decrease in sales of our PXI-based test equipment, a $13.5 million decrease in sales of other test equipment products and a $5.6 million decrease in sales of various other ATS products.

          Gross Profit.    Gross profit equals net sales less cost of sales. Cost of sales includes materials, direct labor, amortization of capitalized software development costs and overhead expenses such as engineering labor, fringe benefits, depreciation, allocable occupancy costs and manufacturing supplies.

          On a consolidated basis, gross profit was $151.6 million, or 51.1% of net sales, for the six months ended December 31, 2009 and $140.5 million, or 47.2% of net sales, for the six months ended December 31, 2008. The increase in gross margin was mainly due to a shift in the mix of products and a substantial increase in the gross profit of the ATS segment.

 
  Gross Profit  
Six Months
Ended
December 31,
  AMS   % of
Net
Sales
  ATS   % of
Net
Sales
  Total   % of
Net
Sales
 
 
  (In thousands, except percentages)
 

2008

  $ 65,096     47.1 % $ 75,422     47.3 % $ 140,518     47.2 %

2009

  $ 70,201     47.9 % $ 81,387     54.1 % $ 151,588     51.1 %

          Gross margins in the AMS segment were 47.9% for the six months ended December 31, 2009 and 47.1% for the six months ended December 31, 2008. Margins were favorably impacted by increased sales of microelectronic modules and ICs, which have margins higher than the segment average, and were partially offset by decreases due to sales and sale price reductions for certain products in components.

          Gross margins in the ATS segment were 54.1% for the six months ended December 31, 2009 and 47.3% for the six months ended December 31, 2008. The increase in gross margins is principally attributable to increased sales of wireless products, which have margins higher than the segment average. We do not believe that this significant increase in gross profit margin in the ATS segment will be maintained throughout the fiscal year, due to a change in product mix, principally an increase in sales of lower margin products.

          Selling, General and Administrative Costs.    Selling, general and administrative costs, or SG&A, include office and management salaries, fringe benefits, commissions, insurance and professional fees.

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          On a consolidated basis SG&A costs decreased $3.8 million, or 6%, to $61.8 million. As a percentage of sales, SG&A costs decreased from 22.0% to 20.8% from the six months ended December 31, 2008 to the six months ended December 31, 2009.

 
  Selling, General and Administrative Costs  
Six Months
Ended December 31,
  AMS   % of
Net
Sales
  ATS   % of
Net
Sales
  Corporate   Total   % of
Net
Sales
 
 
  (In thousands, except percentages)
 

2008

  $ 21,085     15.2 % $ 34,114     21.4 % $ 10,459   $ 65,658     22.0 %

2009

  $ 20,583     14.0 % $ 33,420     22.2 % $ 7,808   $ 61,811     20.8 %

          In the AMS segment, SG&A costs decreased $502,000, or 2%, to $20.6 million for the six months ended December 31, 2009. As a percentage of sales, SG&A costs in the AMS segment decreased from 15.2% to 14.0% in the six months ended December 31, 2008 to the six months ended December 31, 2009. The components group reduced SG&A costs by $1.6 million, primarily due to cost savings initiatives. These savings in the AMS segment were partially offset by additional costs of $779,000 related to Airflyte Electronics, acquired in June 2009.

          In the ATS segment, SG&A costs decreased $694,000, or 2%, to $33.4 million for the six months ended December 31, 2009. As a percentage of sales, SG&A costs in the ATS segment increased from 21.4% to 22.2% from the six months ended December 31, 2008 to the six months ended December 31, 2009. The decrease in costs was primarily the result of a decrease of $1.7 million due to cost savings initiatives and efforts to consolidate and reorganize our various European locations, partially offset by additional costs of $1.4 million related to VI Technology, acquired in March 2009.

          Corporate general and administrative expenses decreased $2.7 million, primarily due to reductions in merger related expenses and professional fees.

          Research and Development Costs.    Research and development costs include materials, engineering labor and allocated overhead.

          On a consolidated basis, research and development costs increased by $338,000. As a percentage of sales, research and development costs increased from 11.5% to 11.6% from the six months ended December 31, 2008 to the six months ended December 31, 2009.

 
  Research and Development Costs  
Six Months
Ended
December 31,
  AMS   % of
Net
Sales
  ATS   % of
Net
Sales
  Total   % of
Net
Sales
 
 
  (In thousands, except percentages)
 

2008

  $ 14,599     10.6 % $ 19,505     12.2 % $ 34,104     11.5 %

2009

  $ 13,493     9.2 % $ 20,949     13.9 % $ 34,442     11.6 %

          AMS segment self-funded research and development costs decreased $1.1 million, or 8%, to $13.5 million for the six months ended December 31, 2009, primarily due to lower spending on microelectronic modules and components. As a percentage of sales, AMS segment research and development costs decreased from 10.6% to 9.2%.

          ATS segment self-funded research and development costs increased $1.4 million, or 7%, to $20.9 million for the six months ended December 31, 2009, primarily due to the development of

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products within our radio and avionics test division and PXI-related products in wireless. As a percentage of sales, ATS research and development costs increased from 12.2% to 13.9%.

          Amortization of Acquired Intangibles.    Amortization of acquired intangibles decreased $1.5 million in the six months ended December 31, 2009 primarily due to certain intangibles becoming fully amortized during the first quarter of fiscal 2009. The decrease is partially offset by additional amortization related to VI Technology, acquired in March 2009, of $1.2 million and Airflyte Electronics, acquired in June 2009, of $581,000. By segment, the amortization decreased $1.6 million in the AMS segment and increased $89,000 in the ATS segment.

          Loss on Liquidation of Foreign Subsidiary.    During the six months ended December 31, 2009, we recognized a non-cash $7.7 million loss on liquidation of a foreign subsidiary relating to the write-off of the foreign currency translation balance upon substantial dissolution. There was no similar charge recorded in the six months ended December 31, 2008.

          Other Income (Expense).    Interest expense was $42.5 million in both 2009 and 2008. Other income (expense) was $479,000 for the six months ended December 31, 2009, consisting primarily of $1.1 million of interest and miscellaneous income, partially offset by $584,000 of foreign currency transaction losses. Other income (expense) of $12.4 million for the six months ended December 31, 2008 consisted primarily of $11.2 million of foreign currency transaction gains and $1.2 million of interest and miscellaneous income.

          Income taxes.    Primarily due to interest expense associated with our debt, we currently project we will have a pre-tax loss in the U.S. for fiscal 2010, but project that we will generate taxable income from foreign operations. In the fourth quarter of fiscal 2009, we decided to no longer permanently reinvest post-fiscal 2008 foreign earnings in our foreign operations and began to distribute a substantial portion of our foreign earnings to the U.S. to partially fund interest and principal payments on our debt. Accordingly, we have provided for foreign and U.S. income taxes on fiscal 2009 and 2010 foreign taxable income. The benefit available for foreign tax credits against our U.S. income tax on foreign earnings has not been recognized, because it was not considered to be more likely than not that we would generate sufficient foreign source income, after allocation of the significant amount of our interest expense to the foreign source income, to allow us to utilize the credit. This significantly increased the effective tax rate for each of fiscal 2009 and fiscal 2010. If factors change such that we can generate sufficient foreign source income as a result of a reduced amount of allocated interest to the foreign source income, or otherwise, and we can conclude that it is more likely than not that we will be able to utilize our foreign tax credits, then we would recognize this benefit through the elimination of the valuation allowance we have set up against the foreign tax credits.

          Our provision for income taxes was $5.7 million for the six months ended December 31, 2009, on a consolidated pre-tax loss of $25.5 million. We had an income tax benefit for the six months ended December 31, 2008 of $10.9 million on a consolidated pre-tax loss of $21.9 million, an effective income tax rate of 49.7%. The provisions are a combination of U.S. tax benefits on domestic losses and foreign taxes on foreign earnings and, for fiscal 2010, domestic taxes provided on foreign earnings, as we expect that substantially all these earnings will be distributed to the U.S. The effective income tax rate for both periods differed from the amount computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to foreign, state and local income taxes and, for fiscal 2010, is impacted by the valuation allowance recorded for foreign tax credits, as discussed above.

          In the six months ended December 31, 2009, we paid income taxes of $4.5 million and received tax refunds of $631,000 related to federal, state and foreign income taxes. In the six months ended December 31, 2008, we paid income taxes of $2.4 million.

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          Net income (loss).    Net loss was $31.2 million for the six months ended December 31, 2009 and $11.0 million for the six months ended December 31, 2008. The $20.2 million increase in net loss was attributable to various items, including our 2008 $11.2 million currency gains as compared to a $584,000 loss in 2009, the 2009 non-cash $7.7 million loss on liquidation of foreign subsidiary, and the $16.6 million swing in income taxes from a $10.9 million benefit in 2008 to a $5.7 million provision for income taxes in 2009, partially offset by increases in gross profit of $11.1 million and decreases in ongoing expenses of $5.0 million.

    Fiscal Year Ended June 30, 2009 Compared to Fiscal Year Ended June 30, 2008

          Net Sales.    Net sales decreased 7% to $599.3 million for the fiscal year ended June 30, 2009 from $643.2 million for the fiscal year ended June 30, 2008.

          Net sales in the AMS segment decreased 5% to $287.5 million for the fiscal year ended June 30, 2009 from $302.7 million for the fiscal year ended June 30, 2008 primarily due to a reduction in sales of components and microelectronic modules resulting from a general slowdown in the market combined with a demand surge experienced in 2008 that was not repeated in 2009. This reduction was partially offset by an increase in sales volume of integrated circuits and motion control products combined with additional sales resulting from our acquisition of Gaisler in June 2008 of $6.3 million. Net sales in the ATS segment decreased 8% to $311.8 million in 2009 from $340.5 million in 2008. The change in foreign currency exchange rates negatively impacted 2009 sales by our U.K. subsidiaries approximately $27 million. Excluding the impact of foreign currency exchange rates, sales in the ATS segment for the fiscal year ended June 30, 2009 decreased approximately $1.7 million as compared to the fiscal year ended June 30, 2008. The decrease was primarily due to a reduction in sales of PXI-based test equipment, signal generators and other test products, offset by an increase in wireless product sales. Further, the period ended June 30, 2009 was impacted by a purchase accounting adjustment to deferred revenue which reduced sales by $416,000, while the period ended June 30, 2008 was impacted by a purchase accounting adjustment to deferred revenue which reduced sales by $2.5 million.

          Gross Profit.    On a consolidated basis, gross profit was $285.1 million, or 47.6% of net sales, for the fiscal year ended June 30, 2009 and $267.4 million, or 41.6% of net sales, for the fiscal year ended June 30, 2008. In 2009, gross margin was adversely affected by purchase accounting adjustments aggregating $3.1 million which:

    increased depreciation expense by $2.0 million related to acquisition date fair value adjustments,

    increased cost of sales for the increase in the recorded value of VI Technology's inventories by $668,000 to eliminate manufacturing profits inherent in the inventories on March 4, 2009, the date of our acquisition of VI Technology, and

    reduced sales for the year by $416,000 to eliminate selling profits inherent in certain acquisition date deferred revenue.

          In 2008, gross margin was adversely affected by purchase accounting adjustments aggregating $43.4 million which:

    increased cost of sales for the increase in the recorded value of the Going Private Transaction date inventories by $39.0 million to eliminate manufacturing profits inherent in the inventories at that date,

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    increased depreciation expense by $1.9 million due to acquisition date fair value adjustments and

    reduced sales for the year by $2.5 million to eliminate selling profits inherent in certain acquisition date deferred revenues.

Excluding the purchase accounting adjustments, gross margin was 48.0% for the year ended June 30, 2009 and 48.1% for the year ended June 30, 2008.

 
  Gross Profit  
Year
Ended
June 30,
  AMS   % of
Net Sales
  ATS   % of
Net Sales
  Total   % of
Net Sales
 
 
  (In thousands, except percentages)
 

2008

  $ 122,808     40.6 % $ 144,590     42.5 % $ 267,398     41.6 %

2009

  $ 134,239     46.7 % $ 150,866     48.4 % $ 285,105     47.6 %

          Gross margins in the AMS segment were 46.7% in 2009 and 40.6% in 2008. Gross profit in 2009 included the effect of purchase accounting adjustments of $796,000 as compared to $24.6 million in 2008. Excluding the purchase accounting adjustments, gross margins were 47.0% in 2009 and 48.7% in 2008. The decrease in gross margins is principally attributable to decreased margins in components and microelectronic modules partially offset by increased sales of integrated circuits, which have margins higher than the segment average, and decreased sales of components, which have margins lower than the segment average.

          Gross margins in the ATS segment were 48.4% in 2009 and 42.5% in 2008. Gross profit in 2009 was negatively impacted by purchase accounting adjustments of $2.3 million versus $18.9 million in 2008. Excluding the purchase accounting adjustments, gross margins were 49.0% in 2009 and 47.6% in 2008. The increase in gross margins is principally attributable to increased sales of wireless products, which have margins higher than the segment average.

          Selling, General and Administrative Costs.    On a consolidated basis, SG&A costs decreased $11.8 million, or 8.4%, to $128.4 million. SG&A costs decreased from 21.8% to 21.4% as a percentage of sales from the fiscal year ended June 30, 2008 to the fiscal year ended June 30, 2009. On a non-GAAP basis, excluding expenses permitted by the credit agreement governing our senior secured credit facility in calculating debt covenant compliance, such as merger related expenses of $4.3 million in 2009 and $5.4 million in 2008, stock compensation costs of $2.0 million in 2009 and $3.3 million in 2008, acquisition related depreciation expense of $1.2 million in 2009 and $1.3 million in 2008, restructuring costs of $686,000 in 2009 and $3.7 million in 2008 and a lease termination cost of $576,000 in 2008, SG&A was $120.3 million in 2009 and $125.8 million in 2008. For a discussion of the adjustments permitted by the credit agreement governing our senior secured credit facility, see footnote 4 to the table under "Prospectus Summary—Summary Consolidated Financial Data".

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  Selling, General and Administrative Costs  
Year
Ended
June 30,
  AMS   % of
Net Sales
  ATS   % of
Net Sales
  Corporate   Total   % of
Net Sales
 
 
  (In thousands, except percentages)
 

2008

  $ 42,513     14.0 % $ 78,128     22.9 % $ 19,476   $ 140,117     21.8 %

2009

  $ 41,822     14.5 % $ 68,700     22.0 % $ 17,834   $ 128,356     21.4 %

          In the AMS segment, SG&A costs decreased $691,000, or 2%, to $41.8 million for 2009. SG&A costs in the AMS segment increased from 14.0% in 2008 to 14.5% in 2009 as a percentage of sales. Excluding restructuring costs of $272,000 in 2008, stock compensation costs of $57,000 in 2008, acquisition related depreciation expenses of $39,000 in 2009 and $42,000 in 2008, SG&A costs were $41.8 million in 2009 and $42.1 million in 2008.

          In the ATS segment, SG&A costs decreased $9.4 million, or 12%, to $68.7 million for 2009, largely due to reductions in restructuring costs and lease termination fees incurred in 2008 combined with cost savings related to the closing of our Burnham facility. As a percentage of sales, SG&A costs in the ATS segment decreased from 22.9% in 2008 to 22.0% in 2009. Excluding restructuring costs of $686,000 in 2009 and $3.5 million in 2008, lease termination costs of $576,000 in 2008, stock compensation costs that had a favorable impact of $89,000 in 2008, acquisition related depreciation expenses of $913,000 in 2009 and $1.0 million in 2008, SG&A costs were $67.1 million in 2009 and $73.1 million in 2008.

          Corporate general and administrative expenses decreased $1.6 million, or 8%. As a percentage of sales, corporate general and administrative expenses remained relatively unchanged. Excluding merger related expenses of $4.3 million in 2009 and $5.4 million in 2008, stock compensation costs of $2.0 million in 2009 and $3.3 million in 2008 and acquisition related depreciation expenses of $220,000 in 2009 and $193,000 in 2008, SG&A costs were $11.4 million in 2009 and $10.5 million in 2008.

          Research and Development Costs.    On a consolidated basis, research and development costs decreased by $12.0 million. As a percentage of sales, research and development costs decreased from 12.8% to 11.7% from the year ended June 30, 2008 to the year ended June 30, 2009.

 
  Research and Development Costs  
Year
Ended
June 30,
  AMS   % of
Net Sales
  ATS   % of
Net Sales
  Total   % of
Net Sales
 
 
  (In thousands, except percentages)
 

2008

  $ 30,865     10.2 % $ 51,211     15.0 % $ 82,076     12.8 %

2009

  $ 30,192     10.5 % $ 39,914     12.8 % $ 70,106     11.7 %

          AMS segment self-funded research and development costs decreased $673,000, or 2%, to $30.2 million for 2009 primarily due to lower spending on microelectronic modules. As a percentage of sales, research and development costs increased from 10.2% to 10.5%.

          ATS segment self-funded research and development costs decreased $11.3 million, or 22%, to $39.9 million for 2009, primarily due to a reduction of $10.3 million in our wireless business due to cost savings related to the closing of our Burnham facility and a reduction of wireless related projects and a reduction of $5.5 million in restructuring costs primarily in our wireless business, which reductions were partially offset by increased costs of $5.1 million, from our development work to enhance existing next generation products in our radio test division.

          Acquired In-Process Research and Development Costs.    During the fiscal year ended June 30, 2008, we recorded and immediately expensed $24.3 million of acquired in-process research and

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development costs of $15.7 million in the AMS segment and $8.6 million in the ATS segment. Additionally, in 2009 and 2008, we recorded and expensed $1.7 million and $635,000, respectively, of in-process research and development costs in our AMS segment related to our acquisition of Gaisler in June 2008 based on the final allocation of the purchase price.

          Restructuring Costs.    The AMS segment incurred total restructuring costs of $414,000, including $107,000 in cost of sales, $272,000 in SG&A and $35,000 in R&D, in the fiscal year ended June 30, 2008 which relate to severance for personnel reductions at our Whippany, New Jersey components manufacturing facility.

          The ATS segment incurred restructuring costs of $4.1 million in the fiscal year ended June 30, 2009, including $2.9 million in cost of sales, $686,000 in SG&A and $496,000 in R&D. In comparison, in the fiscal year ended June 30, 2008, the ATS segment incurred restructuring costs of $10.4 million, including $880,000 in cost of sales, $3.5 million in SG&A and $6.0 million in R&D. In both periods, the costs related to consolidation and reorganization efforts in our U.K. operations.

          Amortization of Acquired Intangibles.    Amortization of acquired intangibles decreased $11.8 million in 2009 primarily due to backlog recorded in the Going Private Transaction becoming fully amortized during the first quarter of fiscal 2009. The amortization decreased $7.7 million in the AMS segment and decreased $4.1 million in the ATS segment.

          Impairment of Goodwill and Intangibles.    During the fourth quarter of fiscal 2009, we completed our annual impairment test of goodwill and intangible assets. Due to a decline in the RFMW reporting unit's operating results in the fourth quarter of fiscal 2009 and additional revisions to internal forecasts, we recorded impairment charges to both goodwill and tradenames with indefinite lives related to the RFMW reporting unit of $35.2 million and $6.0 million, respectively. There were no similar impairment charges recorded in fiscal 2008.

          Going Private Transaction Expenses.    In the fiscal year ended June 30, 2008, we incurred Going Private Transaction expenses of $36.2 million, consisting primarily of Going Private Transaction related change of control, severance and other compensation payments, a break-up fee and its related lawsuit settlement charge and legal and other professional fees. There were no comparable costs in fiscal 2009.

          Other Income (Expense).    Interest expense was $83.8 million in the fiscal year ended June 30, 2009 and $74.9 million in the fiscal year ended June 30, 2008. The increase is due to interest expense incurred for an additional one and a half months during fiscal year 2009 related to the $870.0 million of debt issued on August 15, 2007. Other income of $11.0 million for the fiscal year ended June 30, 2009 consisted primarily of $9.0 million of foreign currency transaction gains and $1.5 million of interest income. Other income of $4.9 million for the fiscal year ended June 30, 2008 consisted primarily of $2.5 million of foreign currency transaction gains and $2.1 million of interest income.

          Provision for Income Taxes.    The income tax benefit was $15.3 million for the fiscal year ended June 30, 2009, an effective income tax rate of 16.7% on a consolidated pre-tax loss of $92.0 million. We had an income tax benefit for the fiscal year ended June 30, 2008 of $45.8 million, an effective income tax rate of 28.5% on a consolidated pre-tax loss of $160.8 million. The effective income tax rate for both periods differed from the amount computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to foreign, state and local income taxes and, for 2009, the tax benefit was decreased by $11.1 million for a non-deductible goodwill impairment charge, and for 2008, the tax benefit was decreased by $5.9 million for the impact of expenses incurred in the Going Private Transaction that were not deductible for tax purposes, as well as by $8.7 million of nondeductible in-process research and development. In the

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fiscal year ended June 30, 2009, we paid income taxes of $3.6 million and received a tax refund of $2.3 million and in the fiscal year ended June 30, 2008, we paid income taxes of $8.0 million. In May 2008, we received a federal income tax refund of $27.1 million related to the carryback of tax losses for the period July 1, 2007 to August 14, 2007, to fiscal years 2006 and 2007.

          Income (loss) from Continuing Operations.    The loss from continuing operations was $76.7 million for the fiscal year ended June 30, 2009 and $115.0 million for the fiscal year ended June 30, 2008. The $38.3 million decrease in loss from continuing operations was primarily due to expenses of the Going Private Transaction in 2008 of $36.2 million that were not repeated in 2009, reductions in acquisition related adjustments to inventory of $38.4 million, a reduction in acquired in-process research and development of $23.3 million, decreases in ongoing expenses of $35.5 million, and increases in other income of $6.1 million, offset by impairment charges recorded to goodwill and tradenames of $35.2 million and $6.0 million, respectively, a $30.4 million reduction in the tax benefit, a $20.7 million reduction in gross profit, due to reduced sales, and $8.9 million of additional interest expense.

    Fiscal Year Ended June 30, 2008 Compared to Fiscal Year Ended June 30, 2007

          Net Sales.    Net sales increased 8% to $643.2 million in fiscal 2008 from $593.1 million in fiscal 2007.

          Net sales in the AMS segment increased 14% to $302.7 million in fiscal 2008 from $266.5 million in fiscal 2007 primarily due to sales from our acquisition of MicroMetrics in April 2007 of $9.8 million, and increased sales volume of components, due primarily to increased demand for customer voice over IP products and isolators, integrated products and motion control products, partially offset by reductions in sales of cellular communications products. Net sales in the ATS segment increased 4% to $340.5 million in fiscal 2008, which includes a reduction of $2.5 million for the current period impact of purchase accounting adjustments to deferred revenue, from $326.6 million in fiscal 2007 primarily due to an increase in PXI-based test equipment sales, partially offset by reduced sales in wireless due to market saturation of certain products and the anticipation of emerging new technologies.

          Gross Profit.    On a consolidated basis, gross profit was $267.4 million, or 41.6% of net sales, in fiscal 2008 and $284.2 million, or 47.9% of net sales, in fiscal 2007. The reduction in gross margin resulted from the impact of purchase accounting adjustments aggregating $43.4 million in 2008 which:

    increased the value of inventories as of the date of the Going Private Transaction by $39.0 million to eliminate manufacturing profits inherent in the inventories at that date,

    resulted in acquisition related depreciation of $1.9 million, and

    reduced sales by $2.5 million to eliminate selling profits inherent in certain deferred revenues.

          Excluding the purchase accounting adjustments, gross margin in fiscal 2008 was 48.1%. The purchase accounting adjustments related to depreciation and deferred revenues will impact gross margins through 2038 and 2014, respectively.

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  Gross Profit  
Year
Ended
June 30,
  AMS   % of
Net Sales
  ATS   % of
Net Sales
  Total   % of
Net Sales
 
 
  (In thousands, except percentages)
 

2007

  $ 133,863     50.2 % $ 150,314     46.0 % $ 284,177     47.9 %

2008

  $ 122,808     40.6 % $ 144,590     42.5 % $ 267,398     41.6 %

          Gross profit in the AMS segment decreased $11.1 million, or 8%, as the additional gross profit generated by the MicroMetrics acquisition of $3.4 million and increased sales volumes related to components, principally largely voice over IP equipment and isolators, integrated products and motion control products were more than offset by the effect of purchase accounting adjustments to inventory of $23.9 million and depreciation of $708,000. The increase in sales in 2008 had a favorable impact to gross profit; however a change in sales mix combined with the impact of the purchase accounting adjustments to inventory and depreciation reduced gross margins to 40.6% in fiscal 2008 from 50.2% in fiscal 2007. Excluding the purchase accounting adjustments, the gross margin in fiscal 2008 was 48.7%.

          Gross profit in the ATS segment decreased $5.7 million, or 4%, as the additional gross profit generated by higher sales volumes was more than offset by the effect of purchase accounting adjustments that aggregated $18.9 million. The ATS sales increase and a change in sales mix had a favorable impact to gross profit; however, the unfavorable impacts of purchase accounting adjustments to inventory of $15.2 million, depreciation of $1.2 million and deferred revenue of $2.5 million reduced gross margins to 42.5% in fiscal 2008 from 46.0% in fiscal 2007. Excluding the purchase accounting adjustments, the gross margin in fiscal 2008 was 47.6%.

          Selling, General and Administrative Costs.    On a consolidated basis, SG&A costs increased $10.5 million, or 8.1%, to $140.1 million. As a percentage of sales, SG&A costs decreased from 21.9% to 21.8% from the fiscal year ended June 30, 2007 to the fiscal year ended June 30, 2008. Excluding merger related expenses included in selling, general and administrative costs, the decrease was from 21.9% to 20.9% as a percentage of sales.

 
  Selling, General and Administrative Costs  
Year
Ended
June 30,
  AMS   % of
Net Sales
  ATS   % of
Net Sales
  Corporate   Total   % of
Net Sales
 
 
  (In thousands, except percentages)
 

2007

  $ 42,447     15.9 % $ 67,286     20.6 % $ 19,888   $ 129,621     21.9 %

2008

  $ 42,513     14.0 % $ 78,128     22.9 % $ 19,476   $ 140,117     21.8 %

          SG&A costs remained relatively unchanged in the AMS segment, as an increase due to the acquisition of MicroMetrics of $2.1 million, was offset by lower employee related expenses in other parts of the AMS segment. As a percentage of sales, SG&A costs in the AMS segment decreased from 15.9% to 14.0%.

          SG&A costs increased $10.8 million, or 16%, to $78.1 million, in the ATS segment primarily as a result of increases in sales and marketing costs associated with the sales organization structure in the Asia Pacific region combined with an initiative to further develop revenue opportunities for certain radio test set products and a $3.4 million increase in restructuring costs in the U.K. As a percentage of sales, SG&A costs in the ATS segment increased from 20.6% to 22.9% from 2007 to 2008.

          Corporate general and administrative expenses decreased $412,000 due primarily to lower employee related expenses and professional fees of $5.8 million, partially offset by an increase due to expenses of the Going Private Transaction of $5.4 million, of which $2.1 million was for advisory

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fees to the Sponsors. Corporate general and administrative expenses decreased from 3.4% to 3.0% from 2007 to 2008 as a percentage of consolidated sales. Corporate selling and administrative expenses, excluding the merger related expenses, decreased from 3.4% to 2.2%, from 2007 to 2008.

          Research and Development Costs.    On a consolidated basis, research and development expenses increased by $5.4 million.

 
  Research and Development Costs  
Year
Ended
June 30,
  AMS   % of
Net Sales
  ATS   % of
Net Sales
  Total   % of
Net Sales
 
 
  (In thousands, except percentages)
 

2007

  $ 28,473     10.7 % $ 48,244     14.8 % $ 76,717     12.9 %

2008

  $ 30,865     10.2 % $ 51,211     15.0 % $ 82,076     12.8 %

          AMS segment self-funded research and development costs increased $2.4 million, or 8%, to $30.9 million for 2008, primarily due to development of new technologies for integrated circuit products and for standard product development in microelectronics. As a percentage of sales, research and development costs decreased from 10.7% to 10.2% from 2007 to 2008.

          ATS segment self-funded research and development costs increased $3.0 million, or 6%, to $51.2 million for 2008, primarily due to restructuring costs related to further consolidation and reorganization efforts in the U.K., combined with increases in wireless eHSPA new product development costs and radio test product development and design. As a percentage of sales, research and development costs increased from 14.8% to 15.0% from 2007 to 2008.

          Acquired In-Process Research and Development Costs.    In connection with the Going Private Transaction, we recorded and immediately expensed $24.3 million of in-process research and development costs in fiscal 2008, of which $15.7 million was in the AMS segment and $8.6 million was in the ATS segment. Also in fiscal 2008, in connection with the acquisition of Gaisler Research AB, we allocated $635,000, of the purchase price to in-process research and development. There were no comparable costs in fiscal 2007.

          Restructuring costs.    The AMS segment incurred restructuring costs of $414,000 in fiscal 2008, including $107,000 in cost of sales, $272,000 in SG&A and $35,000 in R&D, related to severance for personnel reductions within its Whippany, New Jersey components manufacturing facility. Restructuring costs in ATS of $10.4 million, including $880,000 in cost of sales, $3.5 million in SG&A and $6.0 million in R&D, relate to further consolidation and reorganization efforts in our U.K. operations. In comparison, in fiscal 2007 we incurred total restructuring costs of $2.8 million, all of which was reported in the ATS segment as R&D expense.

          Amortization of Acquired Intangibles.    Amortization of acquired intangibles increased $61.8 million in fiscal 2008 due to the new basis of our intangible assets that was established in connection with the Going Private Transaction. The AMS segment increased $42.5 million and the ATS segment increased $19.3 million.

          Going Private Transaction Expenses.    In fiscal 2008 and 2007, we incurred expenses in connection with the Going Private Transaction of $36.2 million and $30.6 million, respectively, consisting primarily of merger related change of control, severance and other compensation payments, a break-up fee and its related lawsuit settlement charge and legal and other professional fees.

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          Other Income (Expense).    Interest expense was $74.9 million in fiscal 2008 and $672,000 in fiscal 2007. The increase is due to the addition of $870 million of debt to finance the sale of our company. Other income (expense) of $4.9 million in fiscal 2008 consisted primarily of $2.5 million of foreign currency gains and $2.4 million of interest income and other miscellaneous income, net. Other income of $152,000 in fiscal 2007 consisted primarily of $876,000 of interest income and $576,000 of other miscellaneous income, net, partially offset by $1.3 million of foreign currency losses.

          Provision for Income Taxes.    The income tax benefit was $45.8 million, an effective income tax rate of 28.5%, in fiscal 2008. In fiscal 2007 we had income tax expense of $24.9 million, an effective income tax rate of 73.9%. The effective income tax rate for the two periods differed from the amount computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to foreign, state and local income taxes and the impact of certain expenses of the Going Private Transaction that were not deductible for tax purposes in fiscal 2008 and 2007, as well as nondeductible in-process research and development in fiscal 2008. We paid income taxes of $8.0 million in fiscal 2008 and $28.8 million in fiscal 2007. In May 2008, we received a federal income tax refund of $27.1 million related to the carryback of tax losses for the period July 1, 2007 to August 14, 2007, to fiscal years 2006 and 2007.

          Income (loss) from Continuing Operations.    The loss from continuing operations in fiscal 2008 was $115.0 million versus income of $8.8 million in fiscal 2007. Income (loss) from continuing operations in fiscal 2008 was adversely affected by the following pre-tax items: $41.6 million of Going Private Transaction and related expenses, including $5.4 million reported in SG&A; an increase in interest expense of $74.3 million; an increase in restructuring charges of $7.9 million; the current period impact of purchase accounting adjustments to inventory, depreciation and deferred revenue totaling $45.6 million; an in-process research and development charge of $25.0 million; and an increase in intangible asset amortization of $61.8 million. Income (loss) from continuing operations in fiscal 2007 was adversely affected by $30.6 million of expenses of the Going Private Transaction.

Liquidity and Capital Resources

          As of December 31, 2009, we had $68.8 million of cash and cash equivalents, $235.6 million in working capital and our current ratio was 2.8 to 1.

          In early February 2008, when auctions began to fail, our gross investment in marketable securities consisted of $46.5 million of auction rate securities. Auction rate securities represent long-term variable rate bonds that generally carry maturities of ten years to thirty-five years from the date of issuance, and whose rates are tied to short-term interest rates that are reset through an auction process every seven to thirty-five days, and are classified as available for sale securities. From early February 2008 to December 31, 2009, $27.5 million of auction rate securities were redeemed by the issuers of the auction rate securities at par. In fiscal 2010, an additional $7.9 million were redeemed by the issuers of the auction rate securities at an average of 96% of par. The $320,000 loss on the 2010 redemptions will be reflected in our consolidated statement of operations in the quarter ended March 31, 2010. The $11.1 million of auction rate securities that we currently hold are offset by a valuation allowance of $1.2 million.

          All but one (with the one security having a carrying value of $1.7 million) of our remaining auction rate securities retain a triple-A rating by at least one nationally recognized statistical rating organization.

          Should credit market disruptions continue or increase in magnitude, we may be required to record a further impairment on our investments or consider that an ultimate liquidity event may take longer than currently anticipated.

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          Our principal liquidity requirements are to service our debt and interest and meet our working capital and capital expenditure needs. As of December 31, 2009, we had $894.2 million of debt outstanding (of which $890.0 million was long-term), including approximately $511.8 million under our senior secured credit facility, $225.0 million of senior notes and $156.3 million under our senior subordinated unsecured credit facility, including paid-in-kind interest. Additionally, at December 31, 2009 we were able to borrow an additional $50.0 million under the revolving portion of our senior secured credit facility.

          The following is a summary of required principal repayments of our debt for the next five years and thereafter as of December 31, 2009:

Twelve Months Ended
December 31,
 
(In thousands)
 

2010

  $ 4,203  

2011

    5,610  

2012

    5,635  

2013

    5,250  

2014

    492,187  

Thereafter

    381,308  
       

Total

  $ 894,193  
       

          As of December 31, 2009, we and our subsidiaries were in compliance with all of the covenants contained in our loan agreements. Financial covenants in our senior secured credit facility include (i) a maximum leverage ratio of total debt (less up to $15.0 million of unrestricted cash) to Adjusted EBITDA, as defined in our senior secured credit facility, and (ii) maximum consolidated capital expenditures. The maximum leverage ratio permitted for the twelve months ended December 31, 2009 and 2008 was 7.30 and 8.20, respectively, whereas our actual leverage ratio was 6.41 and 5.75, respectively. At the end of fiscal years 2010 and 2011 the maximum leverage ratio permitted decreases to 6.80 and 5.90, respectively. The maximum consolidated capital expenditures permitted for each of the fiscal years 2008 through 2010 is $25.0 million. Our actual capital expenditures were $18.7 million, $14.3 million and $18.4 million in fiscal 2009, 2008 and 2007, respectively. For fiscal year 2011 and thereafter, the maximum annual consolidated capital expenditures permitted increases to $30.0 million. We believe we will continue to be in compliance with the leverage ratio and capital expenditure limitations for the fiscal year ending June 30, 2010.

          We expect that cash generated from operating activities and availability under the revolving portion of our senior secured credit facility will be our principal sources of liquidity. Our ability to make payments on and to refinance our indebtedness and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. In addition, to the extent we have consolidated excess flows, as defined in the credit agreement governing our senior secured credit facility, we must use specified portions of the excess cash flows to prepay senior secured debt. Based on our current level of operations, we believe our cash flow from operations and available borrowings under our senior secured credit facility will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flow from operations, or those future borrowings will be available to us under our senior secured credit facility in an amount sufficient to enable us to repay our indebtedness or to fund other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before the maturity thereof. We cannot assure

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you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

    Cash Flows

          For the six months ended December 31, 2009, our cash flow provided by operations was $22.1 million. Our investing activities used cash of $6.6 million, primarily for capital expenditures of $8.4 million, partially offset by $1.0 million in proceeds from the sale of marketable securities and $845,000 from the sale of property, plant and equipment. Our financing activities used cash of $4.0 million to repay indebtedness.

          For the six months ended December 31, 2008, our cash flow provided by operations was $41.7 million. Our investing activities used cash of $7.5 million, primarily for capital expenditures. Our financing activities used cash of $4.5 million, primarily including $4.1 million to repay indebtedness.

          For fiscal 2009, our cash flow provided by continuing operations was $54.5 million. Our investing activities from continuing operations used cash of $36.2 million, primarily for payments for the purchase of businesses of $18.9 million, net of cash acquired, and for capital expenditures of $18.7 million. Our financing activities used cash of $5.9 million, primarily to repay $5.6 million of indebtedness.

          For fiscal 2008, our cash flow from continuing operations was $26.0 million. Our investing activities from continuing operations used cash of $1.2 billion, primarily for payments of $1.1 billion to predecessor shareholders and option holders, $14.3 million of capital expenditures, purchase of a business of $11.1 million, net of cash acquired, and the purchase of marketable securities of $10.5 million, net of sales. Our financing activities provided cash of $1.2 billion, primarily from borrowings under our credit facilities of $870.0 million on August 15, 2007 and proceeds from the issuance of common stock of $378.4 million, also on August 15, 2007.

          In fiscal 2007, our cash flow from continuing operations provided $22.5 million, primarily from operating profit of $34.2 million, offset by a $19.9 million increase in accounts receivable and a $7.9 million increase in inventory due to increased sales. In fiscal 2007, our investing activities from continuing operations used cash of $19.0 million, including $10.7 million for the purchase of MicroMetrics, a $9.2 million contingent payment in the final determination of the Racal Instruments Wireless Solutions Group acquisition amount and $18.4 million in capital expenditures, partially offset by the $18.8 million in proceeds from the sale of marketable securities, net of purchases. In fiscal 2007, our financing activities from continuing operations used $793,000, including $17.2 million for the purchase of treasury stock, partially offset by $14.2 million in proceeds from the exercise of stock options.

    Capital Expenditures

          Capital expenditures were $8.4 million in the first half of each of fiscal 2010 and fiscal 2009, and $18.7 million, $14.3 million and $18.4 million in fiscal 2009, fiscal 2008 and fiscal 2007, respectively. Our capital expenditures primarily consist of equipment replacements.

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    Contractual Obligations

          The following table summarizes our obligations and commitments to make future payments under debt and other obligations as of December 31, 2009:

Payments Due By Period(1)  
 
  (In millions)
 
 
  Total   1 Year   2-3 Years   4-5 Years   Beyond 5 Years  

Senior secured credit facility

  $ 511.8   $ 3.9   $ 10.5   $ 497.4   $  

Senior notes(2)

    225.0                 225.0  

Subordinated unsecured credit facility(2)

    156.3                 156.3  

Other long-term debt

    1.1     0.3     0.8          

Operating leases(3)

    20.6     6.8     8.5     3.2     2.1  

Employment agreements

    8.1     4.3     3.5     0.3      

Advisory fee(4)

    7.4     2.2     4.4     0.8      
                       

Total

  $ 930.3   $ 17.5   $ 27.7   $ 501.7   $ 383.4  
                       

          (1)     Amounts do not include interest payments.

          (2)     We intend to use the net proceeds from this offering to make a capital contribution to Aeroflex to enable it to redeem $              million of the senior notes and prepay $              million of the senior subordinated unsecured term loans. See "Use of Proceeds".

          (3)     We do not expect any future minimum sub-lease rentals associated with operating lease commitments shown in the above table.

          (4)     The annual advisory fee is payable to our Sponsors throughout the term of an advisory agreement, which has an initial term expiring on December 31, 2013 and is automatically renewable for additional one year terms thereafter unless terminated. For purposes of this table we have assumed that such agreement terminates December 31, 2013. The annual fee will be the greater of $2.2 million or 1.8% of Adjusted EBITDA (as defined in the agreement governing our senior secured credit facility) for the prior fiscal year. See "Certain Relationships and Related Party Transactions—Advisory Agreement".

          We may be required to pay contingent consideration in the following amounts: (i) $5 million on October 31, 2010 and $6 million on October 31, 2011 in connection with our acquisition of Gaisler if certain financial targets are achieved for fiscal 2010 and fiscal 2011, respectively, and (ii) $3 million on October 31, 2010 in connection with our acquisition of Airflyte Electronics if certain financial targets are achieved for fiscal 2010.

          In the normal course of business, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. None of these obligations are individually significant. We do not expect that these commitments, as of December 31, 2009, will have a material adverse affect on our liquidity.

Qualitative and Quantitative Information About Market Risk

          Interest Rate Risk.    We are subject to interest rate risk in connection with borrowings under our senior secured credit facility. Although we currently have interest rate swap agreements hedging portions of this debt, these will expire before the borrowings are fully repaid. As of December 31, 2009, we had $511.8 million outstanding under the term-loan portion of our senior secured credit facility, the un-hedged portion of which is subject to variable interest rates. Each change of 1% in

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interest rates would result in a $806,000 change in our annual interest expense on the un-hedged portion of the term-loan borrowings and a $507,000 change in our annual interest expense on the revolving loan borrowings, assuming the entire $50.0 million was outstanding. Any debt we incur in the future may also bear interest at floating rates.

          Foreign Currency Risk.    Foreign currency contracts are used to protect us from exchange rate fluctuation from the time customers are invoiced in local currency until such currency is exchanged for U.S. dollars. We periodically enter into foreign currency contracts, which are not designated as hedges, and the change in the fair value is included in income currently within other income (expense). As of December 31, 2009, we had $26.7 million of notional value foreign currency forward contracts maturing through January 29, 2010. As of December 31, 2008, we had $8.1 million of notional value foreign currency forward contracts maturing through March 12, 2009. Notional amounts do not quantify risk or represent our assets or liabilities, but are used in the calculation of cash settlements under the contracts. The fair value of these contracts at December 31, 2009 and 2008 was immaterial. If foreign currency exchange rates (primarily the British pound and the Euro) change by 10% from the levels at December 31, 2009, the effect on our comprehensive income would be approximately $19.5 million.

          Inflation Risk.    Inflation has not had a material impact on our results of operations or financial condition during the preceding three years.

Off-Balance Sheet Arrangements

          We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have material current or future effect upon our results of operations or financial condition.

Seasonality

          Historically our net sales and earnings increase sequentially from quarter to quarter within a fiscal year, but the first quarter is typically less than the previous year's fourth quarter.

Recently Adopted Accounting Pronouncements

          On July 1, 2009, we adopted the authoritative implementation guidance issued by the FASB for fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Adoption of the new guidance did not have a material impact on our financial statements.

          In the quarter ended June 30, 2009 we adopted the authoritative guidance issued by the FASB which provides additional guidance for estimating fair value in accordance with certain other pre-existing authoritative accounting guidance when there has been a significant decrease in market activity for a financial asset or liability in relation to normal activity and circumstances that may indicate that a transaction is not orderly. An entity is required to base its conclusion about whether a transaction was distressed on the weight of the evidence presented. This guidance also re-affirms that the objective of fair value, when the market for an asset is not active, is the price that would be received to sell the asset in an orderly market, as opposed to a distressed or forced transaction. Additional enhanced disclosures are also required in accordance with this guidance. The adoption of this guidance applied to our auction rate securities and did not have an impact on our consolidated financial statements.

          In April 2009, the FASB issued authoritative guidance principally to require publicly traded companies to provide disclosures about fair value of financial instruments in interim financial statements. This guidance became effective for us during our quarter ended June 30, 2009. The

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adoption of this disclosure-only guidance did not have an impact on our consolidated financial statements.

          In April 2009, the FASB issued authoritative guidance on the timing of impairment recognition. The guidance provides greater clarity about the credit and noncredit components of impaired debt securities that are not expected to be sold. This guidance also requires additional disclosures about impairments in interim and annual reporting periods. This guidance became effective for us during our quarter ended June 30, 2009. The adoption of this guidance did not have an impact on our consolidated financial statements.

          On July 1, 2009, we adopted the authoritative guidance issued by the FASB on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the fair value of contingent consideration to be recorded on the acquisition date, the capitalization of in-process research and development at fair value and the expensing of acquisition-related costs as incurred. Adoption of the new guidance, which is effective for acquisitions consummated by us after June 30, 2009, did not have an impact on our consolidated financial statements.

          On July 1, 2009, we adopted the authoritative guidance issued by the FASB for the determination of the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidance also adds certain disclosures to those already prescribed. The guidance for determining useful lives must be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements must also be applied prospectively to all intangible assets recognized as of the effective date. The adoption of this guidance did not have a material impact on our consolidated financial statements.

          In September 2009, we adopted the authoritative guidance issued by the FASB which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with U.S. GAAP. This guidance explicitly recognizes the rules and interpretive releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants. We have updated references to U.S. GAAP in our financial statements. The adoption did not have an impact on our consolidated financial statements.

          In October 2009, the FASB issued authoritative guidance on revenue recognition that becomes effective for us commencing July 1, 2010. However, earlier adoption was permitted. Under the new guidance on sales arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third-party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration and the use of the relative selling price method is required. The new guidance eliminated the residual method of allocating arrangement consideration to deliverables and includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We chose to early adopt such authoritative guidance on a prospective basis effective July 1, 2009 and, therefore, it has been applied to multiple deliverable revenue arrangements and arrangements for the sale of tangible

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products with software components entered into or materially modified on or after July 1, 2009. The adoption of this new guidance did not have a material impact on our financial statements.

          In December 2007, the FASB issued guidance which requires that the non-controlling interests in consolidated subsidiaries be presented as a separate component of stockholders' equity in the balance sheet, that the amount of consolidated net earnings attributable to the parent and the non-controlling interest be separately presented in the statement of earnings, and that the amount of consolidated other comprehensive income attributable to the non-controlling interest be separately disclosed. The standard also requires gains or losses from the sale of stock of subsidiaries where control is maintained to be recognized as an equity transaction. The guidance was effective beginning with the first quarter of the fiscal year 2010 financial reporting. In connection with the adoption of this guidance, we did not apply the presentation or disclosure provisions to our one non-controlling interest as the effect on our financial statements was insignificant.

Recently Issued Accounting Pronouncements Not Yet Adopted

          In January 2010, the FASB issued authoritative guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements on a gross basis of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us beginning with the third quarter of the fiscal year 2010 financial reporting, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for us beginning with the third quarter of the fiscal year 2011 financial reporting. The adoption of this new guidance will not have a material impact on our financial statements.

          In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for us beginning July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. We believe adoption of this new guidance will not have a material impact on our financial statements.

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BUSINESS

Our Company

          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 space, avionics, defense, commercial wireless communications, 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.

          We provide a broad range of high margin products for specialized, high-growth end markets. The products we manufacture include a range of RF, microwave and millimeter wave microelectronic components, with a focus on high reliability and RadHard ICs, and analog and mixed-signal devices. We also manufacture a range of RF and microwave wireless radio and avionics test equipment and solutions particularly for the wireless, avionics and radio testing markets. We believe that we have a top three global position on the basis of sales in product categories representing the majority of our revenue.

          We believe that the combination of our leading market positions, broad product portfolio, engineering capabilities, and years of experience enables us to deliver differentiated, high value products to our customers and provides us with a sustainable competitive advantage. We believe most of our market segments have high barriers to entry due to the need for specialized design and development expertise, the differentiation provided by our proprietary technology and the significant switching and requalifying costs that our customers would incur to change vendors. We often design and develop solutions through a collaborative process with our customers whereby our microelectronic products or test solutions are designed, or "spec'd", into our customers' products or test procedures. Our major customers often use our products in multiple systems or programs, sometimes developed by different business units within the customer's organization. We believe, based on our long-term relationships and knowledge of customers' buying patterns, that we were either a primary or the sole source supplier for products representing more than 80% of our total net sales in the twelve months ended December 31, 2009. If we are a primary supplier, generally the customer will use two to three suppliers to satisfy its requirements for that product.

          We have long standing relationships with a geographically diverse base of leading global companies including BAE Systems, Boeing, Cisco Systems, Ericsson, General Dynamics, ITT Industries, Lockheed Martin, Motorola, Nokia, Northrop Grumman, Raytheon and United Technologies. For the twelve months ended December 31, 2009, our largest customer was the U.S. government, which contracted with us through a number of agencies and departments, and represented approximately 7% of our net sales. In aggregate, for the twelve months ended December 31, 2009, our top ten customers accounted for approximately 38% of our net sales.

          We compete predominantly in the space, avionics, defense and the commercial wireless communications markets. For the twelve months ended December 31, 2009, approximately 67% our net sales came from space, avionics and defense, 25% from commercial wireless communications and 8% from medical and other markets. Our products are sold primarily to customers in the United States, Europe and the Middle East, and Asia, with sales to each of these regions accounting for 58.7%, 23.9% and 15.6%, respectively, of our net sales for that period.

          After 46 years as a public company, we were acquired on August 15, 2007 by affiliates of, or funds managed by, Veritas Capital, Golden Gate Capital, GS Direct, and certain members of our management. Since the Going Private Transaction, we have implemented significant changes that have improved our business model and in turn our financial performance. Since being promoted to

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CEO upon the consummation of the Going Private Transaction, Leonard Borow has instilled a results-oriented culture where business managers are being encouraged to make strategic decisions to drive growth and margin enhancement. We have made significant investments in new or improved products and technology, streamlined our cost structure to enhance our return on capital, and we believe we have revitalized our organizational culture.

          Over the last five fiscal years, our business has experienced strong growth in net sales and an increase in backlog, providing improved visibility into future revenue and customer demand. The majority of our backlog is expected to be recognized as revenue within one year. For the period from fiscal 2004 to fiscal 2009, our net sales increased at a CAGR of 7.7% and Adjusted EBITDA increased at a CAGR of 20.5%. Our backlog was $334.9 million as of December 31, 2009, an increase of 21.4% from $275.9 million as of December 31, 2008.

Our Segments

          We operate through two business segments: AMS and ATS. We engineer, manufacture and market a diverse range of products in each of our segments. As evidence of the diversity of our product base, for the twelve months ended December 31, 2009, our largest product offering, the TM500 test product, represented approximately 11% of our net sales.

 
 
Aeroflex Microelectronics Solutions
 
Aeroflex Test Solutions
% of Net Sales for
12 months ended
December 31, 2009
  49%   51%
     
% of Gross Profit for
12 months ended
December 31, 2009
  47%   53%
     
Products  

•       HiRel microelectronics / semiconductors

•       RF and microwave components

•       Mixed-signal / digital ASICs

•       Motion control products

 

•       Wireless test equipment

•       Military and Private Mobile Radio, or PMR, test equipment

•       Avionics test equipment

•       Synthetic test equipment

•       General purpose test equipment and other

     
Competitive
Advantages
 

•       Leadership in microelectronic specialty products within our end markets, with a long history and proven track record

•       High-performance, high reliability products optimized for our target markets

•       Proprietary technologies in RF, microwave and millimeter wave development

•       Established long-term blue chip customer relationships with proven reputation

•       High switching costs

•       Class K certified by Defense Supply Center Columbus, or DSCC

•       Fabless semiconductor manufacturing model

•        State-of-the-art design, test and assembly capabilities

 

•       Leadership positions in specialty communications test equipment market segments within our end markets, with a long history and proven track record

•       High-performance products optimized for our target markets

•       Integrated hardware / software design focus

•       Pioneer in synthetic testing market

•       Established long-term blue chip relationships with proven reputation

•        State-of-the-art manufacturing processes

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Diverse Product Portfolio (% of Calendar 2009 Net Sales by Segment) 
Aeroflex Microelectronics Solutions
 
Aeroflex Test Solutions
GRAPHIC   GRAPHIC

    Aeroflex Microelectronic Solutions

          AMS offers a broad range of microelectronics products and is a leading provider of high-performance, high reliability specialty products for the space, avionics, defense, commercial wireless communications, medical and other markets. Our strength in these markets stems from our success in the design and development of HiRel and RadHard products. RadHard products are specifically designed to tolerate high radiation level environments, which otherwise can degrade electronic components. The process by which electronic components for these harsh environments are designed, developed and manufactured differs materially from established semiconductor manufacturing practices. As a result, we believe we are among a very limited number of vendors globally who have the expertise, proven history and established relationships to compete and win in our target markets.

          We principally operate on a fabless manufacturing model, outsourcing virtually all front-end semiconductor fabrication activities to commercial foundries. We believe our fabless manufacturing model provides us with a competitive advantage by significantly reducing our capital expenditures and labor costs and enhancing our ability to respond quickly, in scope and scale, to changes in technology and customer needs. We utilize a variety of foundries that incorporate our proprietary design specifications and packaging techniques in the manufacturing of our products.

          In order to meet our customers' needs, AMS' Plainview, New York and Colorado Springs, Colorado facilities are space certified and have been manufacturing Class K products for space, avionics and defense programs for approximately 20 years. Class K device manufacturing utilizes the highest quality and reliability for electronic parts through a number of specifications, standards and test methods. The additional requirements that define Class K address the specific needs of space users and are intended to provide more confidence to the customers that the device is of the highest initial quality and that any defective parts have been removed. To enhance access to customers in the European space market, we acquired Gaisler Technologies, in June 2008. Gaisler Technologies is a manufacturer of RadHard ICs located in Gothenburg, Sweden.

          AMS offers a broad range of complementary products that provide connectivity and computing functionality for applications that are characterized by their high-performance, high reliability requirements. Our product portfolio includes RF, microwave and millimeter wave products, including discrete components, ICs, monolithic microwave ICs and multi-chip modules. AMS also designs and manufactures application specific, high-performance analog and mixed-signal devices for use in medical, industrial and intelligent sensors. Our AMS products are used in over 100 space, avionics and defense platforms, including the Wideband Global Satellite Communications satellites, the National Polar Orbiting Operational Environmental Satellite System, the Advanced Extremely High Frequency satellites, the Boeing 777 airliner's databus, the F-16's modular mission computer, the

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B-1 flight controls upgrade and the Terminal High Altitude Area Defense program. Our AMS products are also widely used in wireless communications platforms, including WCDMA and LTE cellular base station systems, as well as point-to-point broadband radio applications. In the medical area, our products are used by two of the top four manufacturers of CT scan equipment.

          For the twelve months ended December 31, 2009, our AMS segment generated $295.7 million of our net sales and $139.3 million of our gross profit.

    Aeroflex Test Solutions

          ATS is a leading provider of a broad line of specialized test and measurement hardware and software products, primarily for the space, avionics, defense, commercial wireless communications and other markets. Our strength in testing and measurement stems from our expertise with RF and microwave signals and innovative product design and development to meet the changing needs of our markets. ATS has hardware and software expertise across a number of wireless markets, including the cellular infrastructure, cellular device, mobile radio and satellite markets. ATS' products consist of flexible application software and multifunction hardware that our customers combine with industry-standard computers, networks and other third-party devices to create measurement, automation and embedded systems. This approach gives customers the ability to quickly and cost-effectively design, prototype and deploy unique custom-defined solutions for their design, control and test application needs.

          Examples of ATS products and their applications include:

    wireless test equipment, which is used to test handsets and base stations;

    military and PMR test equipment, which is used by radio manufacturers and military, police, fire, and emergency response units to test handheld radios;

    avionics test equipment, which is used in the design, manufacture and maintenance of electronics systems for aircraft;

    synthetic test equipment, which is used to test satellites and transmit / receive modules prior to launch and deployment; and

    general purpose test equipment, including spectrum analyzers and signal generators.

          As technology continues to evolve and "next generation" communications protocols are introduced, equipment manufacturers and network providers need both test and measurement products that are compatible with the new technologies and products that work with older generation equipment. We have gained significant expertise in advanced RF and new wireless technology and have focused our research and development toward such next generation technologies. One example is the Aeroflex 3000 Series, a modular test suite for mobile phone and general purpose wireless test using the PXI standard, which is a widely accepted standard for module electronic instrumentation platforms. This product is tailored to the testing of wireless handsets and wireless base stations, which are the transmission facilities for wireless networks, where speed, repeatability, and accuracy are critical. Also, as wireless infrastructure has evolved with the advent of 4G networks, ATS has built capabilities around the two main 4G standards, which are the Worldwide Interoperability for Microwave Access, or WiMAX, and LTE protocols. In particular, we provide the TM500 product family that targets the 4G LTE market as well as PXI-based products and the 7100 product family that target both the WiMAX and LTE markets.

          For the twelve months ended December 31, 2009, ATS generated $302.8 million of our net sales and $156.8 million of our gross profit.

Industry Overview and Market Opportunity

          The volume of mobile traffic from multiple data streams is rising rapidly and has resulted in significant technological innovation to address the increasing need for higher rates of data

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transmission and more efficient use of existing spectrum. This has led to the development of a number of advanced data transmission systems and technologies that use RF, microwave and millimeter wave frequencies that are being used in a broad range of end markets, including space, avionics, defense, commercial wireless communications, medical and other markets. The growing number of applications in these markets, including data transmission, video transmission, control of unmanned aerial vehicles, or UAVs, and a growing number of satellites, generally are driving increased demand for RF, microwave and millimeter wave technologies. Additionally, the creation of a next generation wireless communication network to accommodate the rapidly growing volume of data being transmitted to smart phones and other mobile devices requires new test and measurement equipment for research and development, conformance testing, production testing, installation and commissioning, monitoring and optimization, and service and maintenance.

    Space, Avionics and Defense

          The space, avionics and defense market as a whole is expected to show flat to modest growth in the near term as the U.S. Department of Defense, or U.S. DoD, looks for budget savings and redefines priorities in 2010 and 2011. The most recent U.S. DoD budget focuses on achieving savings through acquisition reform, including terminating unneeded and poorly performing programs and unproven technologies. At the same time, we believe proposed shifts in spending to certain technologies and other areas of the U.S. DoD budget offer significant growth opportunities. According to the most recent U.S. DoD budget, operation and maintenance spending is expected to increase by 8.5% from 2010 to 2011 as existing equipment and technologies are maintained, retrofitted and upgraded, rather than replaced. Such spending will also be driven by ongoing operations in Afghanistan and Iraq, which exacerbate the wear and tear on existing equipment, including combat radio systems and aircraft. In addition, recent U.S. DoD budget proposals call for the expansion of manned and unmanned systems for intelligence, surveillance, and reconnaissance, or ISR, spending and in-theater electronic warfare capabilities, which will result in greater use of UAVs and the need for additional military satellite bandwidth capacity. Outside of government defense spending, improving airline traffic is expected to drive increases in spending on commercial avionics as commercial airlines continue to bring back idle capacity and begin upgrading older aircraft.

          Government and commercial satellites.    Growth in the global space industry is primarily driven by military demand for more bandwidth and next generation technology requiring higher power and more processing needs, the U.S. government's focus on maintaining U.S. space superiority and the need to replace aging weather satellites. According to Frost & Sullivan, U.S. government spending on the commercial satellite market, through which 80% of all U.S. DoD satellite bandwith capacity is currently purchased, is forecasted to double from approximately $1 billion in 2010 to approximately $2 billion by 2015. This growth is expected to be driven by the increased usage of UAV's and other ISR systems and the continued trend toward disseminating more satellite communications services and equipment down to lower level military personnel. In addition, as satellites become more technologically sophisticated, manufacturers are increasingly outsourcing component and subsystem production, which increases the value of our content per satellite on both an absolute and relative basis. For the period 2007-2009, our average dollar content per satellite was approximately $4.7 million out of total satellite cost of $289.3 million. That compared with an average dollar content of $1.4 million on satellite costs of $135.3 million in 2001-2003.

          Military and commercial avionics.    We expect growth in spending on avionics systems, and associated additional testing needs, due to increased retrofitting and upgrading of existing military aircraft and capacity additions by commercial airlines. Increased retrofitting and upgrading of military aircraft is expected to be driven by the projected shift in the U.S. DoD budget to increase operation and maintenance spending as a result of the cancellation and delays associated with the introduction of new programs and the ongoing high usage of equipment in Afghanistan and Iraq.

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The U.S. government's ISR initiative and effort to digitize the military will result in additional needs for UAVs and electronic communications capabilities, further increasing the demand for military, avionics and electronics test solutions. Following a period of capacity rationalization beginning in the second half of 2008, commercial airlines began adding capacity in late 2009. According to the February 2010 OAG Facts, February 2010 showed growth of 272.7 million seats, or a 5% increase over February 2009 capacity, marking the sixth consecutive month that the overall airline industry saw growth. This turnaround in the commercial airline industry also is expected to drive demand for spending on avionics test and measurement equipment.

          Military communications.    Ongoing and increased operations in Afghanistan and Iraq continue to generate a large demand for deployable radios. Meanwhile, budget constraints have increased pressure to upgrade certain existing communications systems rather than purchase new equipment. We believe that this has created an attractive market opportunity in the replacing and upgrading of the U.S. military's aging SINCGARS combat radio systems which will drive increased demand for test equipment. According to Forecast International, rollout of the Joint Tactical Radio System program is another potential driver of growth in the military communications industry, with the U.S. DoD currently expected to spend almost $4 billion over the next ten years to fund research and development of the program. Additionally, other technology development in segments of the market could provide significant growth opportunities. In particular, we expect a move towards the consolidation of military testing platforms, rationalizing the approximately 460 different test systems currently in use by the U.S. military.

    Commercial Wireless Communications

          The global wireless communications market is expected to continue to grow as data traffic increases substantially with consumers, businesses and other organizations accessing increasing amounts of information and video over mobile networks.

          The volume of mobile data traffic has increased substantially in recent years as smart phones and other mobile consumer electronics devices have become more popular. Gartner expects the global smart phone market to expand from 180 million units in 2009 to 647 million units in 2013, a CAGR of 37.7%. Cisco Systems projects that global mobile traffic will grow at a CAGR of 108% between 2009 and 2014, reaching 3,600 petabytes per month by 2014. A petabyte is one million gigabytes. This demand has pushed carriers to strengthen their existing 3G broadband networks to the next generation standard, 4G. According to the Federal Communications Commission's March 2010 National Broadband Plan report, Verizon Wireless plans to roll out LTE to its entire footprint, which covers more than 285 million people, by 2013. The report states that AT&T's LTE 4G network is scheduled to be rolled out for 2011. According to Gartner Dataquest, LTE network infrastructure spending is forecast to increase from $361.5 million in 2009 to $1.4 billion in 2010, which is 3.1% of mobile infrastructure revenue, and to $7.6 billion in 2013, or 16.8% of 2013 projected mobile infrastructure revenue, a CAGR of 114.1%. Through its partnership with Clearwire, Sprint plans to use WiMAX as its 4G technology. Additionally the FCC Broadband Report states that WiMAX has been rolled out in some markets already, and Clearwire plans to cover 120 million people with WiMAX by the end of 2010.

          Growth in the wireless communications market is expected to lead to increased spending on broadband and wireless test equipment. According to IDC, the wireless test and measurement industry is expected to grow from approximately $2.6 billion in 2010 to approximately $3.8 billion in 2014, a CAGR of 8.9%, mainly driven by the rollout of next generation technology.

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    Medical and Other

          We believe there are other markets that exhibit strong growth potential and that companies in our position can leverage existing investments to become competitive without significant incremental investment.

          In the medical CT scan market, advances in technology, increasing demand for multi-slice CT systems, increasing use of CT scan for diagnosis and increasing government healthcare expenditures are all expected to drive significant market expansion. According to Freedonia, sales of CT imaging equipment in the U.S. have grown at a CAGR of 11.2% from 2003 to reach $2.4 billion in 2008 and are expected to reach $4.2 billion by 2013.

          In the security market, demand for scanning and imaging technology continues to grow as homeland security efforts broaden and full body scanning equipment begins to be deployed in airports around the world. According to IDC, worldwide broadband chipset shipments for security applications are projected to increase from 0.2 million in 2009 to 1.7 million in 2014, a CAGR of 53.4%.

          Separately, image testing opportunities are increasing in the consumer electronics market. Consumer electronic devices with video capability, such as Apple's iPod and iPad products, are rapidly gaining in popularity. The growth in these product categories creates an opportunity for equipment capable of testing video output signals.

Our Competitive Strengths

          Leading Positions in Multiple Markets.    We believe we currently hold a top three position on the basis of sales in eight key product categories in which we compete and a majority of our revenue comes from these categories. Our microelectronics products are key components in over 100 space, avionics and defense platforms. We also have market leading base station and handset testing equipment that targets both the 3G and 4G markets. We believe, based upon our long-term relationships and knowledge of customers' buying patterns, that we were either a primary or the sole source supplier for products representing more than 80% of our total net sales in the twelve months ended December 31, 2009. We also believe we have achieved the technological capability to succeed in the 4G testing and measurement markets.

          We have set out below information about our market leading product categories and information about their sales in the twelve months ended December 31, 2009:

Aeroflex Microelectronic Solutions  
Product Category   Approximate
Calendar
2009
Net Sales
  % of AMS
Net Sales
in Calendar
2009
  Primary/Sole
Source?
  Estimated
Market Position
 
 
   
  (In millions)
   
   
   
 

 

HiRel RadHard microelectronics/semiconductors for space

  $ 100     34 % Yes     #1-2  

 

RF and microwave components: attenuation products, including programmables and switch matrices, microwave semiconductors and HiRel diodes

 
$

75
   
25

%

Yes

   
#2-3
 

 

Mixed-signal/digital ASICs for medical and security imaging

 
$

21
   
7

%

Yes

   
#1-2
 

 

Motion control products

 
$

25
   
9

%

Yes

   
#2
 

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Aeroflex Test Solutions
Product Category   Approximate
Calendar
2009
Net Sales
  % of ATS
Net Sales
in Calendar
2009
  Primary/Sole
Source?
  Estimated
Market Position
 
  (In millions)
   
   
   

•       Wireless LTE test equipment

  $ 40     13 % Yes   #1

•       Military and PMR test equipment

  $ 69     23 % Yes   #1

•       Avionics test equipment

  $ 46     15 % Yes   #1

•       Synthetic test equipment

  $ 24     8 % Yes   #1

          Proprietary Technology Platforms; Significant Barriers to Entry to our Markets    We have a history of innovation and performance that has made us a leading supplier to our customers. We 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 customers. We leverage this proprietary technology to design and manufacture a range of RF, microwave and millimeter wave microelectronic components, with a focus on high reliability on RadHard ICs. Our strength in the test and measurement market stems from our expertise in RF and microwave signals and innovative product development to meet the changing needs of wireless communications markets.

          We believe there are significant barriers to entry to most of our markets because our technical expertise enables us to provide innovative solutions and reliable products. In the space market, customers focus on supplier reputation because the malfunction of a component can lead to the loss of a valuable satellite or missile. We also believe there are significant barriers to entry to most our markets because our products are often designed, or "spec'd", into a customer's products or test procedures. For example, when products are customized to a particular customer's system or technology, customers could incur significant switching and requalifying costs to change vendors, making it more difficult for new vendors to enter the market. Our expertise and product performance in the space market are demonstrated, in part, by our receipt of Class K certification from the DSCC, a distinction we have held for approximately 20 years.

          Diverse, Blue Chip Customer Base.    We have strong and long standing relationships with blue chip space, avionics, defense, commercial wireless communications, medical and other blue chip customers. Our close customer relationships have enabled us to engage in collaborative product development, build our intellectual property portfolio and develop critical product and end market expertise.

          We believe our long track record of successfully supplying our customers with solutions and our recent design win momentum further enhances our ability to:

    maintain our position as a primary or the sole source supplier of products to customers across a wide array of programs;

    enjoy long multi-year platform relationships;

    maximize the effectiveness of our research and development spending; and

    minimize our customers' product development time.

          We believe that, in addition to our varied customer base, we are well positioned in growth markets and that our geographic and product diversification helps mitigate against volatility in any particular region or market segment.

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          Compelling Business Model.    Our business model emphasizes revenue and earnings growth and robust cash flow conversion and has the following attributes:

              High Revenue Growth and Visibility.    We have a highly visible sales pipeline because of our backlog and long-term customer relationships. Our contracted backlog has grown at a compound annual growth rate of approximately 11% over the past three fiscal years. As of December 31, 2009, our backlog was $334.9 million, an increase of 21% over our backlog as of December 31, 2008. The majority of our backlog is recognized as revenue within one year. Our business also experienced strong growth in net sales. For the period from fiscal 2004 to fiscal 2009, our net sales increased at a CAGR of 7.7%. Our book-to-bill ratio for the twelve months ended December 31, 2009 was 1.08.

              Focus on High Margin Products.    Our strategy is to design, develop and manufacture products and solutions that address our customers' technically demanding requirements. The sophistication of our products and their differentiation drives our margins. For the twelve months ended December 31, 2009, we attained a gross margin of 49.5%, and our Adjusted EBITDA margin was 23.0%.

              Efficient Research and Development.    Our products typically enjoy a long product life cycle, enabling us to generate an attractive return on our research and development efforts. To complement our research and development, we strategically acquire businesses or license certain proven commercial technology to apply to our target markets. As a result, we spent a modest 11.8% of our revenue on research and development for the twelve months ended December 31, 2009.

              Limited Capital Expenditure Requirements.    In contrast to certain competitors that have invested in captive semiconductor fabrication facilities, we use third-party foundries to produce space qualified, high reliability RadHard ICs. This fabless operating model significantly reduces required capital investment and is a key component of our capital efficiency. Capital expenditures as a percentage of sales were 3.1%, 2.2% and 3.1% for fiscal 2007, 2008 and 2009, respectively.

          Strong and Experienced Management Team.    We are led by an experienced, stable and well-respected management team. Our management team has an average of 27 years in the industry and 18 years with us. Since 1991, the management team has successfully transformed us into a focused, high margin, leading provider of RF and microwave solutions. Over that time period, we have successfully completed 26 acquisitions, divested non-core operations and increased net sales from approximately $63 million in fiscal 1991 to approximately $600 million in fiscal 2009.

Our Growth Strategy

          We believe our future success will depend on product innovation, our continued development of existing technology and our ability to continue to build and maintain strong relationships with customers. We are strategically focused on building our product portfolio and market presence in the following ways.

          Introducing New Products to Our Existing End Markets.    We continue to allocate research and development dollars toward new products serving attractive, growing markets. Our goal is to anticipate movements in our core markets and to design and build compelling solutions to address new opportunities.

          In our AMS business, as a result of our long-term customer relationships and extensive knowledge of their system designs, we have high visibility and early insight into our customers' design challenges and requirements. With this insight from our customers, we have developed next generation RadHard Processors, Memory, Data Communication and Power Management Multi-Chip

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Modules, or MCM's, for the satellite markets. We have also released next generation mixed-signal semiconductor solutions and high-performance photo detectors for the medical-CT and security markets.

          In our ATS business, we have focused on developing first-to-market products serving our core wireless test market, including test solutions for the LTE and WiMAX protocols. For example, our TM500 test mobile emulates a single or multi-handset environment and is used by most global infrastructure development organizations. Additionally, the 7100/7000 products were developed for and are used by handset developers. Both the TM500 and 7100/7000 offerings target the research and development market. We have also introduced a PXI-based product that leverages our TM500 and 7100/7000 products, offering a configurable and scalable solution to handset manufacturers and contract manufacturing organizations that support the major handset makers. We continue to invest aggressively in new products for our various wireless test markets, increasingly using a common platform that allows us to bring them to market quickly and at relatively low cost.

          We also have become a pioneer in the area of synthetic testing, a market with significant growth potential. In 1999, we used our capabilities in high-speed frequency synthesis and radar cross section measurement and developed a new way to make measurements. Synthetic tests were first used to test and measure satellite payloads, which require many electronic measurements in rapid sequence. Synthetic was a faster and, therefore, more cost effective way to test the satellite payload. The U.S. DoD and U.S. Navy, which instituted a next generation automatic test system program, called NxTest, are responsible for the emergence and growth of synthetic testing. The NxTest initiative aims to minimize the size of the test system, thereby reducing hardware and consequently the cost of the system. Synthetic testing also addresses obsolescence issues and provides additional flexibility for easy upgrades.

          Leveraging Existing Technology to Reach New Markets.    We have a history of leveraging our technology for use in new markets. For example, our move into CT scanning equipment capitalizes on our expertise in high-performance semiconductors and other electronic components, including mixed-signal ASICs, which are key to producing high quality imaging with reduced doses of radiation per scan. We believe that these benefits, coupled with decreasing production costs, will help drive growth of the overall CT scan market outside of the traditional medical environments and into markets such as security screening and nondestructive test equipment. According to Freedonia, demand for global medical imaging products is expected to grow from approximately $11.5 billion in 2005 to approximately $21.7 billion in 2015, a CAGR of approximately 6.5%. In turn, demand for global CT equipment is projected to reach $5.3 billion by 2015. In addition, our high-performance mixed-signal semiconductor intellectual property capabilities can also target the rapidly growing security scanner marketplace.

          Expanding by Acquisition.    Acquiring companies opportunistically is a strategic core competency for us. Since 1991, we have successfully completed 26 acquisitions and plan to continue our disciplined approach to acquisitions. Recent strategic acquisitions in both AMS and ATS have broadened and strengthened our product portfolio and expanded our geographic reach. Most recently, in June 2009 we broadened our portfolio of motion control products with the purchase of Airflyte Electronics, which is a leader in custom-engineered slip rings used in pan and tilt cameras, down-hole equipment, and packaging machinery. Since its acquisition by us, Airflyte Electronics secured a $2.4 million mobile radar system order from Lockheed. In addition, we acquired Hi-Rel Components in February 2009, which designs high reliability semiconductors for the aerospace and defense industries. Subsequent to our purchase of Hi-Rel Components, it was awarded U.S. government certification on several key products that are now planned for sale into demanding aerospace applications. Additionally, in June 2008 we bought Gaisler Research. Located in Gothenburg Sweden, Gaisler is a leading European integrated circuit software designer to space-related end markets. Gaisler's radiation tolerant LEON3 processor has now been incorporated into

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several ongoing space missions. Similarly, on the test side of our business we acquired VI Technology in March 2009 which has expanded our test solutions capabilities with a suite of base band test products focusing on audio, video, and multimedia.

          We believe our industry relationships allow us to identify specialized companies that are attractive acquisition candidates. We have a track record for successfully integrating acquired businesses into our company. We seek acquisitions that are earnings accretive, give us access to complementary products and services, enhance our customer base, improve our intellectual property position, provide entry into high-growth adjacent markets and, by virtue of their transaction size, bear limited risk.

          Broadening Product Offerings Through Licensing.    We look to license commercial intellectual property that can be extended to our target markets and customer base in a cost effective and efficient manner. Through third-party technology license agreements, we are able to repurpose or expand the commercial intellectual property of companies that lack RadHard performance or otherwise adapt their technology for use in our markets. This process involves our working with a company to radiation harden its proprietary technology for use in extreme environments. For example, we have recently entered into technology license agreements with a number of semiconductor companies, including Vicor. The Vicor agreement allows us to deploy highly differentiated RadHard power management technology into the satellite market. We believe agreements such as these will enable us to support ongoing growth by allowing us to introduce new highly-differentiated, high-performance products to our existing customers at reduced cost and risk.

Business Evolution Since Going Private

          In August 2007, after 46 years as a public company, we were acquired by affiliates of or funds managed by Veritas Capital, Golden Gate Capital, GS Direct, and certain members of our management. Since the Going Private Transaction, we have successfully executed on a number of strategic initiatives that have positioned us for future growth and have expanded our Adjusted EBITDA margin from 20.3% in fiscal 2007 to 24.2% in fiscal 2009 despite the global economic downturn in 2008 and 2009.

          Investments in Products and Technology.    We have focused on investments, acquisitions, and licensing to enhance our financial performance since the Going Private Transaction.

    We have successfully brought to market wireless instruments and system solutions that support a vertical market strategy specific to the chipset, product research and development and manufacturing test applications.

    We have been the first to market with a family of next generation LTE handset and infrastructure test products, and have provided popular solutions including the TM500 and 7100.

    We are expanding our wireless instrument and system product offerings leveraging our position in 4G technologies with the addition of a new digital signal generator/analyzer product family, 4G test vector generator/analyzer, multi-standard call box and TM500/7100 fading channel simulator option.

We have made five strategic acquisitions since the Going Private Transaction:

    October 2007, Test Evolution;

    June 2008, Gaisler Research;

    February 2009, Hi-Rel Components;

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    March 2009, VI Technologies; and

    June 2009, Airflyte Electronics.

          Finally, our increasing focus on licensing agreements has improved our operational and financial profile, allowing us to expand our product offerings efficiently and in a risk-mitigated way with proven technology. Since the Going Private Transaction, we have entered into technology license agreements, including those listed below:

    March 2008, Vicor;

    July 2009, IceMos; and

    December 2009, Mosys.

          Enhanced Business Model—Managing Costs to Improve Return on Capital.    We have continually pursued margin-enhancing cost efficiencies, improving our fixed cost structure by critically examining operations for synergies and expense reduction. Among our various initiatives, we restructured our UK operations in 2008 and 2009, divested our radar development business in May 2008, and in July 2009 closed our small ATS operation in France. Additionally, in fiscal 2009 we completed personnel reductions at our Whippany, New Jersey factory. As a result we have significantly enhanced profitability since the Going Private Transaction in August 2007. Specifically, the consolidated Adjusted EBITDA margin increased from 20.3% in fiscal 2007 to 24.2% in fiscal 2009.

          Improved Organizational Culture.    We were acquired on August 15, 2007 by affiliates of or funds managed by Veritas Capital, Golden Gate Capital, GS Direct, and certain members of our management. Since the Going Private Transaction, we have implemented significant changes that have improved our business model and in turn our financial performance. Since being promoted to CEO upon the consummation of the Going Private Transaction, Leonard Borow has instilled a results-oriented culture where business managers are being encouraged to make strategic decisions to drive growth and margin enhancement. We have made significant investments in new or improved products and technology, streamlined our cost structure to enhance our return on capital, and we believe we have revitalized our organizational culture. The financial impact of this new approach has been most apparent in our ability to stabilize revenue through the 2008 to 2009 economic downturn and expand Adjusted EBITDA margins.

Our Products Offered

Aeroflex Microelectronic Solutions

          AMS products provide customers with high precision, high reliability, application specific standard products and application specific integrated circuits including databuses, transceivers, microcontrollers, microprocessors and memory products. In addition, AMS also sells sub-assemblies and multichip modules, or MCMs, as well as a diverse portfolio of commercial mixed-signal ICs and RF, microwave and millimeter wave devices. AMS' broad product portfolio has a longstanding, field-tested, history of reliable performance often characterized by long product life cycles and mission-critical functionality. AMS currently provides products in four functional families:

          HiRel Microelectronics/Semiconductors.    AMS provides HiRel standard and custom integrated circuits and circuit card assembly for the aerospace, high reliability altitude avionics, medical, x-ray cargo scanners, critical transportation systems, nuclear power controls, GPS receivers, networking and telecommunication markets. AMS' HiRel products include transceivers, analog multiplexers, clock management generators, MSI logic products, battery electronics units, voltage regulators, high-speed power controllers, MIL-STD 1553 bus controllers, remote terminals, bus monitors,

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microcontrollers and microprocessors, RadHard Pulse Width Modulation Controllers, RadHard Resolver-to-Digital and memory modules. HiRel Microelectronics/Semiconductors have a typical life cycle of 10-20 years.

          RF and Microwave Components.    AMS provides the following broad set of standard and application specific RF/microwave diodes and semiconductor devices. Microwave semiconductor products offered include diodes, amplifiers, resistors, inductors, capacitors, switches, and integrated devices. RF and Microwave active components and subsystems offered include PIN diode-based microwave control components, variable attenuators, phase shifters, limiters, time delay units and Multi-Function Microwave assemblies. AMS offers resistor products, which include a variety of low and high reliability power surface mounted passive devices for the wireless infrastructure and defense markets with applications in isolators, circulators, single and multi-carrier power amplifiers and circuits. Passive components offered include high quality, economically priced and Restriction of Hazardous Substances compliant attenuators, terminations, adapters, DC blocks, and other components for commercial, military and laboratory applications. Other products include power amplifiers, up and down converters, mixers, filters and micro-receivers operating to over 40GHz. RF and Microwave components have a typical life cycle of 5-15 years.

          Mixed-Signal/Digital ASICs.    AMS provides custom ASICs for demanding environments such as space, medical, screening and industrial applications. RadHard ASICs and Mixed-Signal ASICs include a variety of digital and mixed-signal RadHard ASICs for HiRel applications including 130nHBD, 0.6um to 0.25um processes, QML V and QML Q with total ionizing rates from 100 kilorad to 1 megarad. Mixed-Signal/Digital ASICs have a typical life cycle of 5-15 years.

          Motion Control Products.    Our motion control products provide complete and integrated motion control solutions for space (both military and commercial), military, avionics, and strategic industrial customers. AMS' current product line offerings include actuators and mechanisms, electronic controllers, slip rings and twist capsules, DC motors and Gimbal Systems. Motion Control products have a typical life cycle of 10-20 years.

    Aeroflex Test Solutions

          ATS is a leading provider of a broad line of specialized test and measurement equipment. Our solutions encompass a full spectrum of instrumentation from turnkey systems to standalone test sets to customized modular components and software. We continue to invest aggressively in new products for our various wireless test markets, increasingly using a common platform that allows us to bring them to market quickly and at relatively low cost. ATS currently provides test and measurement equipment across the following five product areas:

          Wireless Test Equipment.    Wireless Test Equipment is used by wireless service providers and equipment manufacturers to test wireless handsets and base stations. We offer a wide selection of cellular tests across an array of wireless standards and communication frequencies, including 2G and 3G, with particular capability in EDGE protocols, and the new 4G WiMAX and LTE protocols. Products include a broad range of system, protocol, physical layer and parametric test solutions, such as the TM500 base station test mobile, RF synthesizers, digitizers and combiners, and application software. In addition, ATS provides PXI-based products which are modular scalable solutions for the handset manufacturing environment. Product applications include research and development, conformance, manufacturing/production, installation and commissioning, field service, and network optimization. ATS' market leading product, the TM500, emulates a single or multi-handset environment and is used by all global infrastructure development organizations. Wireless Test Equipment products have a typical life cycle of 3-5 years.

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          Military and PMR Test Equipment.    ATS Radio Test Equipment is used by radio manufacturers and military, police, fire and emergency response units to test handheld radio units. ATS provides TErrestrial Trunked RAdio, or TETRA, and Project 25, or P25, radio test equipment, addressing both mobile and repeater test applications. TETRA is a global standard for PMR systems, used by emergency services, public transport and utilities. P25 is a standard for digital radio communications for use by federal, state, private, and local public safety agencies in North America. Our military communications testing systems are primarily used by the U.S. military to test complex voice and data frequency hopping radios and accessories. Military and PMR test equipment has a typical life cycle of 5-20 years.

          Avionics Test Equipment.    Avionics test equipment is used in the design, manufacture, test and maintenance of commercial, civil and military airborne electronic systems, or avionics. ATS equipment provides the stimulus and signals necessary for certification, verification, fault finding and diagnosis of airborne systems on the ground. For civil and commercial aviation, we have test solutions for various transponder modes, communications frequencies, emergency locator transmitters, weather radars and GPS systems. For military aviation, we have test solutions for microwave landing systems, tactical air navigation, enhanced traffic alert and collision avoidance systems, various identification friend or foe, or IFF, transponder/interrogator modes and IFF monopulse antenna simulation. ATS also provides customized avionics test solutions to support manual and automatic test equipment for manufacturing, repair and ground support operations. Avionics test equipment has a typical life cycle of 8-15 years.

          Synthetic Test Equipment.    Synthetic test systems test several attributes through one "box" and can take multiple complex measurements simultaneously. ATS provides a highly integrated, turn-key, synthetic test environment that allows digital, analog, RF/microwave and power test of circuits, modules, subsystems and complete systems for commercial, military, and aerospace customers. ATS' STI 1000C+ and TRM 1000C products offer synthetic microwave test systems optimized for testing Transmit/Receive modules and satellite payloads in a factory setting. Our SMART^E and SMART^E 5300 products offer a modular approach for implementing multi-function configurable and reconfigurable test systems. Synthetic test solutions products have a typical life cycle of 10-15 years.

          General Purpose Test Equipment and Other.    ATS offers a variety of general purpose test solutions including microwave test solutions, counters and power meters. ATS microwave test solutions cover frequency ranges from 1 MHz to 46GHz, with various tracking, offset, continuous wave, modulated source, fault location, and group delay configuration options provided. ATS power meters are designed for field use, automated test equipment requirements and standard bench applications. General purpose test solutions have a typical life cycle of 4-7 years.

Our Customers

          AMS addresses value-added specialty markets requiring application specific, custom engineered, high-performance microelectronic solutions. The division has strong relationships with the five largest U.S. defense contractors, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon, as well as with several other major defense-related technology companies, such as BAE Systems, Honeywell, ITT Industries and United Technologies. AMS customers also include communications equipment OEMs such as Cisco Systems and Ericsson.

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          ATS addresses value-added specialty markets requiring application specific, custom engineered, high-performance testing solutions. The division has strong relationships with several major defense-related technology companies, including Lockheed Martin, Boeing, Northrop Grumman and Raytheon. ATS customers also include wireless handset and infrastructure OEMs. Certain of our customers, such as BAE Systems and Honeywell, are also our competitors due to their in-house capabilities.

          Approximately 38% of sales for the twelve months ending December 31, 2009 were to agencies of the U.S. government or to prime defense contractors or subcontractors of the U.S. government. These government contracts have been awarded either on a bid basis or after negotiation. These contracts generally provide for fixed prices and have customary provisions for termination at the convenience of the government without cause.

Competition

          We compete primarily on the basis of technology and performance. For certain products, we also compete on the basis of price. Some of our competitors are well-established and have greater market share and manufacturing, financial, research and development and marketing resources than we do. We also compete with emerging companies that are attempting to sell their products in specialized markets, and with the internal capabilities of many of our significant customers, including Honeywell and BAE Systems. In addition, a significant portion of our contracts, including those with the federal government and commercial customers, are subject to commercial bidding, both upon initial issuance and subsequent renewal.

          AMS primarily competes with large defense-related technology providers, including BAE Systems and Honeywell. In addition, AMS competes with a number of specialty semiconductor providers, including Actel, Hittite Microwave Corporation and ILC / Data Devices Corporation and Microsemi. We believe we are one of the largest providers of specialty microelectronics to our targeted markets and that we are the leading global fabless platform of scale in RadHard semiconductors. Additionally, in the RF and Microwave market segment, AMS competes with companies such as Anaren. However, we believe our specialized expertise in RadHard technology, RF and microwave design and development and fabrication expertise provides us with a differentiated technology and pricing position versus our most direct competitors. We characteristically maintain close and longstanding relationships with our customers and maintain sole source / primary supplier positions with many of our customers.

          ATS primarily competes with Agilent and a number of specialty test and measurement providers, including Anite, Anritsu, Rohde & Schwarz and Spirent. We believe our specialized expertise in high-performance RF and wireless testing equipment and our focus on delivery of advanced testing platforms and optimized manufacturing capability sets us apart from our most direct competitors. We believe we continue to maintain the largest installed base of any of our competitors in the specialized test categories in which we compete, including many sole source / primary supplier positions with customers such as Lockheed Martin and Raytheon. In the general purpose test equipment and other markets our competitors include Agilent Technologies and National Instruments.

Research and Development

          As of December 31, 2009, we had ap