Edgar Filing: TECHNITROL INC

form10-q.htm

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

x The Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 25, 2009, or

oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______________ to ______________.

Commission File No. 1-5375

TECHNITROL, INC.

(Exact name of registrant as specified in its Charter)

PENNSYLVANIA	23-1292472
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification Number)

1210 Northbrook Drive, Suite 470
Trevose, Pennsylvania	19053
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:		215-355-2900

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No 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 (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of November 4, 2009: 41,168,543

Table of Contents

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements

	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Operations (Unaudited)	4
	Consolidated Statements of Cash Flows (Unaudited)	5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6
	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	32

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1a.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3.	Defaults Upon Senior Securities	34

Item 4.	Submission of Matters to a Vote of Security Holders	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

	Exhibit Index	44

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PART I. FINANCIAL INFORMATION

Item 1: Financial Statements

Technitrol, Inc. and Subsidiaries

Consolidated Balance Sheets

In thousands

	September 25,			December 26,
Assets	2009			2008
	(Unaudited)
Current assets:
Cash and cash equivalents	$	39,516		$	41,401
Accounts receivable, net		66,823			128,010
Inventories		43,124			127,074
Prepaid expenses and other current assets		19,336			58,568
Assets of discontinued operations held for sale		85,047			--
Total current assets		253,846			355,053

Long-term assets:
Property, plant and equipment		135,090			323,847
Less accumulated depreciation		92,502			171,116
Net property, plant and equipment		42,588			152,731
Deferred income taxes		33,213			34,933
Goodwill, net		16,083			164,778
Other intangibles, net		24,604			51,351
Other assets		9,788			11,065
	$	380,122		$	769,911

Liabilities and Shareholders’ Equity
Current liabilities:
Current installments of long-term debt	$	--		$	17,189
Accounts payable		53,512			75,511
Accrued expenses and other current liabilities		60,169			86,477
Liabilities of discontinued operations held for sale		30,092			--
Total current liabilities		143,773			179,177

Long-term liabilities:
Long-term debt, excluding current installments		127,000			326,000
Deferred income taxes		12,157			16,255
Other long-term liabilities		38,892			40,347

Shareholders’ equity:
Technitrol, Inc. shareholders’ equity:
Common stock and additional paid-in capital		222,892			225,117
Retained loss		(195,133	)		(1,045	)
Accumulated other comprehensive income (loss)		19,404			(26,626	)
Total Technitrol, Inc. shareholders’ equity		47,163			197,446
Non-controlling interest		11,137			10,686
Total equity		58,300			208,132
	$	380,122		$	769,911

See accompanying Notes to Unaudited Consolidated Financial Statements.

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Technitrol, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

In thousands, except per share data


	Three Months Ended						Nine Months Ended
	September 25,			September 26,			September 25,			September 26,
	2009			2008			2009			2008
Net sales	$	101,381		$	168,974		$	293,425		$	501,978
Cost of sales		74,154			126,339			220,305			381,827
Gross profit		27,227			42,635			73,120			120,151

Selling, general and administrative expenses		23,399			29,144			66,503			93,136
Severance, impairment and other associated costs		2,619			4,860			82,867			9,272
Operating profit (loss)		1,209			8,631			(76,250	)		17,743

Other income (expense):
Interest expense, net		(757	)		(1,022	)		(2,091	)		(2,147	)
Other income (expense), net		3,190			(833	)		5,083			6,051
Total other income (expense)		2,433			(1,855	)		2,992			3,904

Earnings (loss) from continuing operations before income taxes		3,642			6,776			(73,258	)		21,647

Income tax expense (benefit)		1,368			(2,902	)		2,856			589

Net earnings (loss) from continuing operations		2,274			9,678			(76,114	)		21,058

Net loss from discontinued operations		(13,358	)		(4,123	)		(117,523	)		(896	)

Net (loss) earnings		(11,084	)		5,555			(193,637	)		20,162

Less: Net earnings attributable to non-controlling interest		352			204			451			598

Net (loss) earnings attributable to Technitrol, Inc.	$	(11,436	)	$	5,351		$	(194,088	)	$	19,564

Amounts attributable to Technitrol, Inc. common shareholders:
Net earnings (loss) from continuing operations	$	1,922		$	9,474		$	(76,565	)	$	20,460
Net loss from discontinued operations		(13,358	)		(4,123	)		(117,523	)		(896	)
Net (loss) earnings	$	(11,436	)	$	5,351		$	(194,088	)	$	19,564

Per share data:
Basic earnings per share:
Net earnings (loss) from continuing operations	$	0.05		$	0.23		$	(1.88	)	$	0.50
Net loss from discontinued operations		(0.33	)		(0.10	)		(2.88	)		(0.02	)
Net (loss) earnings	$	(0.28	)	$	0.13		$	(4.76	)	$	0.48

Diluted earnings per share:
Net earnings (loss) from continuing operations	$	0.05		$	0.23		$	(1.88	)	$	0.50
Net loss from discontinued operations		(0.33	)		(0.10	)		(2.88	)		(0.02	)
Net (loss) earnings	$	(0.28	)	$	0.13		$	(4.76	)	$	0.48

See accompanying Notes to Unaudited Consolidated Financial Statements.

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Technitrol, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

In thousands

	Nine Months Ended
	September 25,			September 26,
	2009			2008

Cash flows from operating activities:
Net (loss) earnings	$	(193,637	)	$	20,162
Net loss (earnings) from discontinued operations		117,523			(896	)
Adjustments to reconcile net (loss) earnings attributable to Technitrol, Inc. to net cash provided by operating activities:
Depreciation and amortization		13,791			22,041
Goodwill impairment		70,982			--
Changes in assets and liabilities, net of divestitures and acquisitions affect:
Accounts receivable		2,659			12,754
Inventories		10,288			(679	)
Prepaid expenses and other current assets		539			(3,905	)
Accounts payable and accrued expenses		(1,665	)		(16,745	)
Severance, impairment and other associated costs		3,956			(696	)
Other, net		(499	)		84

Net cash provided by operating activities		23,937			32,120

Cash flows from investing activities:
Acquisitions, net of cash acquired of $6,556		--			(425,999	)
Cash received from dispositions		207,809			--
Capital expenditures		(786	)		(9,551	)
Purchases of grantor trust investments available for sale		(5,899	)		(368	)
Proceeds from sale of property, plant and equipment		2,110			6,598
Foreign currency impact on intercompany lending		(2,980	)		(1,082	)

Net cash provided by (used in) investing activities		200,254			(430,402	)

Cash flows from financing activities:
Long-term borrowings		--			414,000
Principal payments of long-term debt		(209,000	)		(67,943	)
Dividends paid		(5,639	)		(10,741	)
Exercise of stock options		--			52

Net cash (used in) provided by financing activities		(214,639	)		335,368

Net effect of exchange rate changes on cash		5,605			3,529

Cash flows of discontinued operations:
Net cash provided by operating activities		1,053			9,487
Net cash used in investing activities		(11,474	)		(29,694	)
Net cash used in financing activities		(7,413	)		--
Net effect of exchange rate changes on cash		792			4,636
Net decrease in cash and cash equivalents from discontinued operations		(17,042	)		(15,571	)

Net decrease in cash and cash equivalents		(1,885	)		(74,956	)
Cash and cash equivalents at beginning of period		41,401			116,289
Cash and cash equivalents at end of period	$	39,516		$	41,333

See accompanying Notes to Unaudited Consolidated Financial Statements.

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Technitrol, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders' Equity

Nine Months Ended September 25, 2009

(Unaudited)

In thousands, except per share data

	Common stock and paid-in capital					Retained loss			Accumulated other compre- hensive (loss) income			Non- control- ling interest		Total equity			Compre- hensive loss
	Shares		Amount			Retained loss			Accumulated other compre- hensive (loss) income			Non- control- ling interest		Total equity			Compre- hensive loss
Balance at December 26, 2008		40,998	$	225,117		$	(1,045	)	$	(26,626	)	$	10,686	$	208,132
Stock options, awards and related compensation		171		855			--			--			--		855
Dividends declared ($0.075 per share)		--		(3,080	)		--			--			--		(3,080	)
Adjustment to defined benefit plans		--		--			--			1,772			--		1,772
Net (loss) earnings		--		--			(194,088	)		--			451		(193,637	)	$	(193,637	)
Currency translation adjustments		--		--			--			42,633			--		42,633			42,633
Unrealized holding gains on securities		--		--			--			1,625			--		1,625			1,625
Comprehensive loss																	$	(149,379	)
Balance at September 25, 2009		41,169	$	222,892		$	(195,133	)	$	19,404		$	11,137	$	58,300

See accompanying Notes to Unaudited Consolidated Financial Statements.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(1) Accounting policies

For a complete description of the accounting policies of Technitrol, Inc. and its consolidated subsidiaries, refer to Note 1 of Notes to Consolidated Financial Statements included in Technitrol, Inc.’s Form 10-K filed for the year ended December 26, 2008. We sometimes refer to Technitrol, Inc. as “Technitrol,” “we” or “our”. We operate our continuing business in a single segment, our Electronic Components Group, which we refer to as Electronics and is known as Pulse in its markets. A second segment, the Electrical Contact Products Group or Electrical, as we refer to it, or AMI Doduco, as it is known in its markets, is held for sale and classified as discontinued operations in our Consolidated Financial Statements.

The results for the nine months ended September 25, 2009 and September 26, 2008 have been prepared by our management without audit by our independent registered public accountants. In the opinion of management, the consolidated financial statements fairly present in all material respects, the financial position, results of operations and cash flows for the periods presented. To the best of our knowledge and belief, all adjustments have been made to properly reflect income and expenses attributable to the periods presented. Except for severance, impairment and other associated costs, all such adjustments are of a normal recurring nature. Operating results for the nine months ended September 25, 2009 are not necessarily indicative of annual results.

Recently Adopted Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162 (“SFAS 168”). This is FASB’s last SFAS as this statement established the FASB Accounting Standards Codification (“ASC”) as the authoritative source of U.S. Generally Accepted Accounting Principles (“GAAP”). This pronouncement is now codified as ASC Topic 105, Generally Accepted Accounting Principles (“ASC 105”). ASC 105 does not change current GAAP, but is intended to simplify user research by providing all FASB literature in a topical manner and in a single set of rules. All existing accounting standard documents are superseded and all other accounting literature not included in the ASC is considered non-authoritative. These provisions of ASC 105 are effective for fiscal years and interim periods ending after September 15, 2009. We adopted this statement as of September 15, 2009, and we have revised our disclosures by eliminating all references to pre-codification standards as required by ASC 105.

In May 2009, FASB issued guidance codified as ASC Topic 855, Subsequent Events (“ASC 855”), which establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 is effective for interim or fiscal periods ending after June 15, 2009. We adopted ASC 855 on June 26, 2009 and the adoption of these provisions did not have a material impact on our consolidated financial position, results of operations or cash flows. We have evaluated and recognized no material subsequent events for the period from September 25, 2009, the date of these financial statements, through November 4, 2009, which is the date these financial statements were issued.

In April 2009, FASB issued ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which provides additional guidance on estimating fair value when the volume and level of activity for an asset or liability has significantly decreased in relation to the normal market activity for the asset or liability. Also, ASC 820 provides guidance on circumstances that may indicate that a transaction is not orderly. These additions to ASC 820 were effective for interim and annual periods ending after June 15, 2009. We adopted the provisions of ASC 820 as of June 15, 2009 and the adoption had no impact on our financial statements.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(1) Accounting policies, continued

In November 2008, FASB issued guidance codified in ASC Topic 323, Investments – Equity Method and Joint Ventures (“ASC 323”), which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. We adopted these provisions of ASC 323 as of December 27, 2008 and this adoption had no impact on our financial statements.

In June 2008, FASB issued guidance codified in ASC Topic 260, Earnings Per Share (“ASC 260”). Under ASC 260, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are required to be treated as participating securities and should be included in the two-class method of computing earnings per share. Adoption of these additions to ASC 260 is retrospective, therefore, all previously reported earnings per share data is restated to conform with the requirements of this pronouncement. We adopted these provisions of ASC 260 as of December 27, 2008 and calculated basic and diluted earnings per share under both the treasury stock method and the two-class method. For both the three and nine months ended September 25, 2009 and September 26, 2008, there were not significant differences in the per share amounts calculated under the two methods, therefore, we have not presented the reconciliation of earnings per share under the two class method. See Note 10 regarding adoption of this guidance.

In April 2008, FASB issued guidance codified in ASC Topic 350, Intangibles – Goodwill and Other (“ASC 350”), which amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets. These additions to ASC 350 apply prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. We adopted these provisions of ASC 350 as of December 27, 2008 and the adoption had no impact on our financial statements.

In March 2008, FASB issued guidance codified in ASC Topic 815, Derivatives and Hedging (“ASC 815”), which applies to the disclosure requirements for all derivative instruments and hedged items. These additions to ASC 815 amend and expand previous disclosure requirements, requiring qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivative instruments, and disclosures about the credit risk related contingent features in derivative agreements. We adopted these provisions of ASC 815 as of December 27, 2008 and have expanded our disclosures as required. See Note 12 regarding adoption of this guidance.

In December 2007, FASB issued guidance codified in ASC Topic 810, Consolidation (“ASC 810”). These provisions of ASC 810 changed the accounting and reporting for minority interests, which were recharacterized as non-controlling interests and classified as a component of equity. In addition, companies are required to report a net income (loss) measure that includes the amounts attributable to such non-controlling interests. We adopted these additions to ASC 810 as of December 27, 2008 and they were applied prospectively to all non-controlling interests. However, the presentation and disclosure requirements of these additions to ASC 810 were applied retrospectively for all periods presented.

In December 2007, FASB issued guidance codified in ASC Topic 805, Business Combinations (“ASC 805”), which changed the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development costs and restructuring costs. In addition, these provisions of ASC 805 change the method of measurement for deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination. We adopted these additions to ASC 805 as of December 27, 2008 and the adoption had no impact on our financial statements.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(1) Accounting policies, continued

New Accounting Pronouncements

In June 2009, FASB issued additional guidance codified in ASC 810, which requires reporting entities to evaluate former Qualified Special Purpose Entities (“QSPE”) for consolidation, changing the approach to determine a Variable Interest Entity’s (“VIE”) primary beneficiary from a quantitative to a qualitative assessment and increasing the frequency of reassessments for determining whether a company is the primary beneficiary of a VIE. This guidance also clarifies the characteristics that identify a VIE. These provisions of ASC 810 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009. We are currently evaluating the effect that this pronouncement may have on our financial statements.

In December 2008, FASB issued guidance codified in ASC Topic 715, Compensation – Retirement Benefits (“ASC 715”), which provides guidance on an employer’s disclosures about plan assets of a defined benefit pension plan or other postretirement plans. Specifically, these provisions of ASC 715 provide guidance on concentrations of risk in pension and postretirement plans, and are effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2009. We are currently evaluating the effect that this pronouncement may have on our financial statements.

Reclassifications

Certain amounts in the prior-year financial statements have been reclassified to conform with the current-year presentation.

(2) Divestitures

Electrical: In 2009, our board of directors approved a plan to divest our Electrical Contact Products Group (“Electrical”). Electrical’s manufacturing facilities in Germany, Spain, China, Mexico and the United States produce a full array of precious metal electrical contact products that range from materials used in the fabrication of electrical contacts to completed contact subassemblies. The divestiture is expected to be completed by the end of June 2010. We have reflected the results of Electrical as a discontinued operation on the Consolidated Statements of Operations for all periods presented.

Electrical’s net sales and (loss) earnings before income taxes were as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 25,			September 26,		September 25,			September 26,
	2009			2008		2009			2008
Net sales	$	63,474		$	97,374	$	177,898		$	311,426
(Loss) earnings before income taxes		(5,897	)		2,137		(66,520	)		14,198

Electrical’s loss before income taxes includes interest expense allocated pro-rata based upon the debt expected to be retired from the Electrical disposition, an estimate of the write down of Electrical’s net assets to the expected net proceeds we anticipate receiving on the completion of the sale, an estimate of the settlement of certain retirement plan benefits under the Technitrol, Inc. Supplemental Retirement Plan that will result from the sale of substantially all of Electrical and other charges. These charges were approximately $4.7 million and $0.7 million for the three months ended September 25, 2009 and September 26, 2008, respectively, and approximately $59.3 million and $1.7 million for the nine months ended September 25, 2009 and September 26, 2008, respectively.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(2) Divestitures, continued

We also expect to record a curtailment and settlement related to the Technitrol, Inc. Retirement Plan, however, these amounts were not estimable as of September 25, 2009. These adjustments will be recorded upon the earlier of the Electrical divestiture or when such amounts are estimable.

Electrical has approximately $83.9 million of assets and $29.1 million of liabilities that are considered held for sale and are included in current assets and current liabilities, respectively, on the September 25, 2009 Consolidated Balance Sheet. The assets are available for immediate sale in their present condition subject only to terms that are usual and customary. Although we continue to manufacture Electrical products, we expect that open customer orders will be transferred to the buyer in the divestiture.

Medtech: On June 25, 2009, we completed the disposition of our Medtech components business (“Medtech”) to Altor Fund III (“Altor”). Medtech is headquartered in Roskilde, Denmark with manufacturing facilities in Denmark, Poland and Vietnam producing the former Sonion A/S (“Sonion”) components for the hearing aid, high-end audio headset and medical device markets. We received approximately $201.4 million in cash. However, these proceeds are subject to final working capital and financial indebtedness adjustments. The net proceeds were used primarily to repay outstanding debt under our credit facility. We have reflected the results of Medtech as a discontinued operation on the Consolidated Statement of Operations for all periods presented.

Medtech’s net sales and loss before income taxes were as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 25,			September 26,			September 25,			September 26,
	2009			2008			2009			2008
Net sales	$	--		$	26,851		$	49,704		$	70,960
Loss before income taxes		(9,751	)		(2,504	)		(44,975	)		(12,668	)

Medtech’s loss before income taxes includes interest expense allocated pro-rata based upon the debt retired from the proceeds of the Medtech disposition, a charge recorded to write down our net investment in Medtech to the net proceeds received, including an adjustment of $9.4 million in the three months ended September 25, 2009, a charge for the curtailment and settlement of certain retirement plan benefits under the Technitrol, Inc. Supplemental Retirement Plan that was triggered by the Medtech sale and other charges. These charges were approximately $9.8 million and $1.9 million for the three months ended September 25, 2009 and September 26, 2008, respectively, and approximately $49.6 million and $4.9 million for the nine months ended September 25, 2009 and September 26, 2008, respectively.

All open customer orders were transferred to Altor upon disposition. We have no material continuing involvement with the Medtech business after its June 25, 2009 disposition.

MEMS: During the year ended December 26, 2008, our board of directors approved a plan to divest our non-core microelectromechanical systems (“MEMS”) microphone business located in Denmark and Vietnam. In the second quarter of 2009, we received an amount immaterial to our Consolidated Financial Statements for the assets of MEMS. To reflect MEMS’ net assets at their net sales proceeds, we recorded a $2.7 million charge during 2009. We have reflected the results of MEMS as a discontinued operation on the Consolidated Statements of Operations for all periods presented.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(2) Divestitures, continued

Net sales and earnings (loss) before income taxes were as follows (in thousands):

	Three Months Ended					Nine Months Ended
	September 25,		September 26,			September 25,			September 26,
	2009		2008			2009			2008
Net sales	$	626	$	2,857		$	1,438		$	6,039
Earnings (loss) before income taxes		413		(425	)		(6,216	)		(1,462	)

MEMS was purchased as part of the Sonion acquisition. There is approximately $1.1 million of assets and $1.0 million of liabilities remaining at MEMS that are considered held for sale and are included in current assets and current liabilities, respectively, on the September 25, 2009 Consolidated Balance Sheet. We are contractually obligated to fulfill an immaterial amount of customer orders before we can fully exit MEMS. The assets and liabilities that remain on our Consolidated Balance Sheet as of September 25, 2009 primarily relate to these customer orders.

(3) Acquisitions

Sonion A/S: On February 28, 2008, we acquired all of the capital stock of Sonion, headquartered in Roskilde, Denmark with manufacturing facilities in Denmark, Poland, China and Vietnam. The results of Sonion’s operations have been included in the consolidated financial statements since February 29, 2008. Sonion produced components used in hearing instruments, medical devices and mobile communications devices. Our total investment was $426.4 million, which included $243.3 million, net of cash acquired of $6.6 million, for the outstanding capital stock, $177.8 million of acquired debt which was repaid concurrent with the acquisition and $5.3 million of costs directly associated with the acquisition. We financed the acquisition with proceeds from our multi-currency credit facility and with cash on hand. The fair value of the net tangible assets acquired, excluding the assumed debt, approximated $99.7 million. In addition to the fair value of assets acquired, purchase price allocations included $73.5 million for customer relationship intangibles, $27.7 million for technology intangibles and $232.1 million allocated to goodwill. For goodwill impairment testing purposes, Sonion’s mobile communications group is included in Electronics’ wireless group. Prior to its disposition in June 2009, Sonion’s Medtech components business was treated as a separate reporting unit.

(4) Inventories

Inventories consisted of the following (in thousands):

	September 25,		December 26,
	2009		2008
Finished goods	$	19,047	$	46,747
Work in process		5,023		29,451
Raw materials and supplies		19,054		50,876
	$	43,124	$	127,074

(5) Goodwill and other intangibles, net

We perform an annual review of goodwill in our fourth fiscal quarter of each year, or more frequently if indicators of a potential impairment exist, to determine if the carrying amount of our goodwill is impaired. The test is a two-step process. The first step of the impairment review is to compare the fair

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(5) Goodwill and other intangibles, net, continued

value of each reporting unit where goodwill resides with the carrying value of the reporting unit. If the carrying value of the reporting unit exceeds its fair value, we would perform the second step of the impairment test that requires an allocation of the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value being allocated to goodwill. An impairment charge will be recognized only when the implied fair value of a reporting unit’s goodwill is less than its carrying amount. We have three reporting units within Electronics, which are our legacy group, including our power and network divisions but excluding the connector business, our wireless group and our connector group.

Our reviews incorporate both an income and a comparable-companies market approach to estimate the impairment. The income approach is based on estimating future cash flows using various growth assumptions and discounting based on a present value factor. The growth rates we use are estimated based on the future growth of the industries in which we participate. Our discount rate assumption is based on our estimated cost of capital, which we determine based on our estimated costs of debt and equity relative to our capital structure.

The comparable-companies market approach considers the trading multiples of our peer companies to compute our estimated fair value. We, as well as substantially all of the comparable companies utilized in our evaluation, are included in the Dow Jones U.S. Electrical Components and Equipment Industry Group Index. We believe the use of multiple valuation techniques results in a more accurate indicator of the fair value of each reporting unit, rather than only using the income approach.

We performed step one of the goodwill impairment test during the first quarter of 2009 as a result of the decline in our stock price and a decrease in our forecasted operating profit. Our wireless group did not pass the first step of the impairment test. The second step of the impairment test yielded a $71.0 million goodwill impairment at the wireless group as of March 27, 2009, $68.9 million of which was recorded as an estimate in the first quarter of 2009. This analysis was finalized during the second quarter of 2009 resulting in an additional charge of $2.1 million.

We also assess the impairment of long-lived assets, including identifiable intangible assets subject to amortization and property, plant and equipment, whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include significant changes in the use of any asset, changes in historical trends in operating performance, changes in projected operating performance, stock price and significant negative economic trends. The impairment review was also triggered by our declined stock price and our lower operating profit forecast in the first quarter of 2009. Prior to completing the review of goodwill in the first quarter of 2009, we performed a recoverability test on certain definite and indefinite-lived intangible assets. The recoverability test performed as of March 27, 2009 yielded no impairment of identifiable intangible assets.

Changes in the carrying amount of goodwill for the nine months ended September 25, 2009 were as follows (in thousands):

Balance at December 26, 2008	$	164,778

Goodwill impairment		(70,982	)
Goodwill of divested reporting unit		(77,816	)
Currency translation adjustment		103

Balance at September 25, 2009	$	16,083

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Notes to Unaudited Consolidated Financial Statements, continued

(5) Goodwill and other intangibles, net, continued

Other intangible assets were as follows (in thousands):

	September 25,			December 26,
	2009			2008
Intangible assets subject to amortization (definite lives):
Technology	$	6,738		$	27,210
Customer relationships		26,332			30,999
Tradename / trademark		425			408
Other		2,379			2,567
Total	$	35,874		$	61,184

Accumulated amortization:
Technology	$	(1,737	)	$	(2,370	)
Customer relationships		(10,641	)		(8,746	)
Tradename / trademark		(425	)		(408	)
Other		(1,377	)		(1,219	)
Total	$	(14,180	)	$	(12,743	)

Net intangible assets subject to amortization	$	21,694		$	48,441

Intangible assets not subject to amortization (indefinite lives):
Tradename		2,910			2,910

Other intangibles, net	$	24,604		$	51,351

Amortization expense was approximately $2.5 million and $4.2 million for the nine months ended September 25, 2009 and September 26, 2008, respectively. The decrease in amortization expense is the result of lower amortizing intangibles in the nine months ended September 25, 2009 as compared to the same period of 2008, due to the intangible impairment recorded in the fourth quarter of 2008. Estimated annual amortization expense for each of the next five years is as follows (in thousands):

Year Ending
2010	$	3,817
2011	$	3,540
2012	$	3,434
2013	$	3,434
2014	$	2,963

(6) Income taxes

At September 25, 2009, we had approximately $20.3 million of unrecognized tax benefits, $18.2 million of which are classified as other long-term liabilities and are not expected to be realized within the next twelve months. All of these tax benefits would affect our effective tax rate, if recognized.

Our continuing practice is to recognize interest and penalties, if any, related to income tax matters as income tax expense. As of September 25, 2009, we have $0.9 million accrued for interest and penalties related to uncertain income tax positions.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(6) Income taxes, continued

We are subject to U.S. federal income tax as well as income tax in multiple state and non-U.S. jurisdictions. Federal and state income tax returns for all years after 2005 are subject to future examination by the respective tax authorities. With respect to material non-U.S. jurisdictions where we operate, we have open tax years ranging from 2 to 10 years.

The effective tax rate of (3.9)% for the nine months ended September 25, 2009 was impacted primarily by the $71.0 million goodwill impairment charge recorded in 2009. The goodwill impairment was non-deductible for income tax purposes. Also, certain losses incurred related to our divestitures are not expected to be deductible for income tax purposes. Excluding the $71.0 million impairment charge, the effective tax rate would have been 13.7% for the nine months ended September 25, 2009.

(7) Defined benefit plans

The Medtech disposition triggered a curtailment and settlement of certain retirement plan benefits related to the Technitrol, Inc. Supplemental Retirement Plan that totaled $4.9 million. The disposition of substantially all of the business of Electrical will also result in the acceleration of certain retirement plan benefits under the Technitrol, Inc. Supplemental Retirement Plan. We recorded a charge of $5.1 million as an estimate of this benefit. Our net periodic expense, excluding these charges, was approximately $0.1 million and $0.3 million for the three months ended September 25, 2009 and September 26, 2008, respectively, and $0.4 and $0.8 million for the nine months ended September 25, 2009 and September 26, 2008, respectively. Our net periodic expense, also excluding the settlement charges, is expected to be approximately $0.5 million for 2009. In the nine months ended September 25, 2009, we contributed approximately $6.1 million to our principal defined benefit plans and we expect to contribute approximately $11.0 million in the 2009 fiscal year. Of the $11.0 million we expect to contribute, approximately $4.9 million is contingent upon the sale of substantially all of the Electrical business.

(8) Debt

We were in compliance with the covenants of our credit agreement as of September 25, 2009. On June 8, 2009, we finalized an amendment to our credit agreement that allowed for the divestiture of Medtech and Electrical and adjusted certain debt covenants and other provisions in connection with such divestitures (“the amendment”).

On February 20, 2009, we amended and restated our February 28, 2008 credit agreement (“restated credit agreement”). The restated credit agreement, as further amended on June 8, 2009, provided for a $200.0 million senior term loan facility and a senior revolving credit facility consisting of an aggregate U.S. dollar-equivalent revolving line of credit in the principal amount of up to $175.0 million, and provides for borrowings in U.S. dollars, euros and yen, including individual sub limits of:

- a multicurrency facility providing for the issuance of letters of credit in an aggregate amount not to exceed the U.S. dollar equivalent of $10.0 million; and

- a Singapore sub-facility not to exceed the U.S. dollar equivalent of $29.2 million.

The $200 million senior term loan facility was retired in connection with the Medtech divestiture during the second quarter of 2009, but the $175.0 million senior revolving credit facility and all related terms remain in effect. However, upon the completion of the Electrical disposition, the $29.2 million Singapore sub-facility will be eliminated, thereby decreasing our total line of credit to $145.8 million.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(8) Debt, continued

Neither the restated credit agreement nor the amendment permit us to increase the total commitment without the consent of our lenders. Therefore, the total amount outstanding under the revolving credit facility may not exceed $175.0 million, or $145.8 million after the completion of the Electrical divestiture. Of the $175.0 million currently available to borrow, the amount outstanding as of September 25, 2009 was $127.0 million.

Outstanding borrowings are subject to leverage and fixed charges covenants, which are computed on a rolling twelve-month basis as of the most recent quarter-end. Each covenant requires the calculation of EBITDA according to a definition prescribed by the restated credit agreement and the amendment. The restated credit agreement’s leverage covenant requires our total debt outstanding to not exceed the following multiples of our prior four quarters’ EBITDA:

Applicable date		EBITDA
(Period or quarter ended)		Multiple
March 2009 to December 2009		4.50x
March 2010		4.00x
June 2010		3.75x
September 2010		3.50x
Thereafter		3.00x

Upon the disposition of Electrical, the amendment reduces our leverage covenant and requires that our total debt outstanding cannot exceed the following multiples of our prior four quarters’ EBITDA:

Applicable date		EBITDA
(Period or quarter ended)		Multiple
September 2009		4.00x
December 2009		3.50x
March 2010		3.00x
Thereafter		2.75x

The restated credit agreement’s fixed charges covenant requires that our EBITDA exceed total fixed charges, as defined by the restated credit agreement, by the following multiples:

Applicable date		EBITDA
(Period or quarter ended)		Multiple
September 2009 to March 2010		1.75x
June 2010 to December 2010		1.50x
Thereafter		1.25x

Upon the disposition of Electrical, the amendment’s fixed charges covenant requires our EBITDA to exceed total fixed charges, as defined by the amendment, by the following multiples:

Applicable date		EBITDA
(Period or quarter ended)		Multiple
September 2009 to December 2009		1.25x
Thereafter		1.50x

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(8) Debt, continued

The fee on the unborrowed portion of the commitment ranges from 0.225% to 0.450% of the total commitment, depending on the following debt-to-EBITDA ratios:

Total debt-to-EBITDA ratio	Commitment fee percentage
Less than 0.75	0.225 %
Less than 1.50	0.250 %
Less than 2.25	0.300 %
Less than 2.75	0.350 %
Less than 3.25	0.375 %
Less than 3.75	0.400 %
Greater than 3.75	0.450 %

The interest rate for each currency’s borrowing is a combination of the base rate for that currency plus a credit margin spread. The base rate is different for each currency.

The credit margin spread is maintained from the restated credit agreement to the amendment. The percentage is the same for each currency and ranges from 1.25% to 3.25%, depending on the following debt-to-EBITDA ratios:

Total debt-to-EBITDA ratio	Credit margin spread
Less than 0.75	1.25 %
Less than 1.50	1.50 %
Less than 2.25	2.00 %
Less than 2.75	2.50 %
Less than 3.25	2.75 %
Less than 3.75	3.00 %
Greater than 3.75	3.25 %

The weighted-average interest rate, including the credit margin spread, was approximately 3.3% as of September 25, 2009.

Also, effective for dividends after February 2009, both the restated credit agreement and the amendment limit our annual cash dividends to $5.0 million while our debt outstanding exceeds two and one-half times our EBITDA. Also, there are covenants specifying capital expenditure limitations and other customary and normal provisions.

Multiple subsidiaries, both domestic and international, have guaranteed the obligations incurred under the restated credit agreement and the amendment. In addition, certain domestic and international subsidiaries have pledged the shares of certain subsidiaries, as well as selected accounts receivable, inventory, machinery and equipment and other assets as collateral. If we default on our obligations, our lenders may take possession of the collateral and may license, sell or otherwise dispose of those related assets in order to satisfy our obligations.

During 2009, we incurred approximately $4.9 million in conjunction with the negotiation and finalization of both the amendment and the restated credit agreement. In addition, we recorded a charge of approximately $5.5 million to impair the capitalized fees and costs for our February 28, 2008 credit agreement and its related amendments. Of the $5.5 million of charges, $4.3 million was allocated to discontinued operations on a pro-rata basis for the nine months ended September 25, 2009, based upon the debt expected to be retired from the dispositions compared to our total debt outstanding. Each of these fees is classified as interest expense on our Consolidated Statement of Operations.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(8) Debt, continued

We had four standby letters of credit outstanding at September 25, 2009 in the aggregate amount of $1.9 million securing transactions entered into in the ordinary course of business.

(9) Accounting for stock-based compensation

We have an incentive compensation plan for our employees. One component of this plan is restricted stock, which grants the recipient the right of ownership of our common stock, generally conditional on continued employment for a specified period. Another component is stock options. The following table presents the amount of stock-based compensation expense included in the Consolidated Statements of Operations during the three and nine months ended September 25, 2009 and September 26, 2008 (in thousands):

	Three Months Ended						Nine Months Ended
	September 25, 2009			September 26, 2008			September 25, 2009			September 26, 2008
Restricted stock	$	570		$	835		$	1,084		$	2,160
Stock options		--			50			--			150
Total stock-based compensation included in selling, general and administrative expenses		570			885			1,084			2,310
Income tax benefit		(200	)		(275	)		(379	)		(704	)
Total after-tax stock-based compensation expense	$	370		$	610		$	705		$	1,606

Restricted Stock: The value of restricted stock issued is based on the market price of the stock at the award date. We retain the shares until the continued employment requirement has been met. The market value of the shares at the date of grant is charged to expense on a straight-line basis over the vesting period. Cash awards, which are intended to assist recipients with their resulting personal tax liability, are based on the market value of the shares and are accrued over the vesting period. The expense related to the cash award is fixed and is based on the value of the awarded stock on the grant date if the recipient makes an election under Section 83(b) of the Internal Revenue Code. If the recipient does not make an election under Section 83(b), our accrual relating to the cash award will fluctuate based on the current market value of the shares subject to limitation as set forth in our restricted stock plan.

A summary of the restricted stock activity is as follows (in thousands, except per share data):

	Shares			Weighted Average Stock Grant Price (Per Share)
Nonvested at December 26, 2008		208		$	24.59
Granted		131		$	5.48
Vested		(75	)	$	24.13
Forfeited/cancelled		(10	)	$	22.89
Nonvested at September 25, 2009		254		$	13.37

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(9) Accounting for stock-based compensation, continued

As of September 25, 2009, there was approximately $1.6 million of total unrecognized compensation cost related to restricted stock grants. This unrecognized compensation is expected to be recognized over a weighted-average period of approximately 1.5 years.

Stock Options: Stock options were granted at no cost to the employee and were not granted at a price lower than the fair market value at date of grant. These options expire seven years from the date of grant and vest equally over four years. There have been no options granted since 2004. We value our stock options according to the fair value method using the Black-Scholes option-pricing model.

A summary of the stock options activity is as follows (in thousands, except per share data):

	Shares			Weighted Average Option Grant Price (Per Share)		Aggregate Intrinsic Value
Outstanding as of December 26, 2008		125		$	17.99
Granted		--			--
Exercised		--			--
Forfeited/cancelled		(43	)	$	18.90
Outstanding as of September 25, 2009		82		$	17.53		--
Exercisable at September 25, 2009		82		$	17.53		--

As of September 25, 2009, all compensation cost related to option grants had been recognized. During the nine months ended September 25, 2009, no stock options were exercised. For the nine months ended September 26, 2008, both the cash received on stock options exercised and the intrinsic value of stock options exercised were less than $0.1 million. Tax benefits from the deductions in excess of the compensation cost of stock options exercised are required to be classified as a cash inflow from financing. There was no effect on the current year net cash provided by operating activities or net cash used in financing activities as there were no stock options exercised during the nine months ended September 25, 2009. We have not capitalized any stock-based compensation costs into inventory or other assets during the nine months ended September 25, 2009.

(10) Earnings per share

Basic earnings per share are calculated by dividing net earnings by the weighted average number of common shares outstanding, excluding restricted shares which are considered to be contingently issuable. For calculating diluted earnings per share, common share equivalents are added to the weighted average number of common shares outstanding. Common share equivalents are computed based on the number of outstanding options to purchase common stock and restricted shares as calculated using the treasury stock method. However, in periods when we have a net loss or the exercise price of stock options, by grant, are greater than the actual stock price as of the end of the period, those common share equivalents will be excluded from the calculation of diluted earnings per share. As a result of positive net earnings from continuing operations, we included approximately 64,000 common share equivalents for the three months ended September 25, 2009. For the nine months ended September 25, 2009, there were no common share equivalents included in the calculation of diluted earnings per share due to our net loss. There were approximately 52,000 and 92,000 common share equivalents for the three and nine months ended September 26, 2008, respectively. We had approximately 82,000 and 130,000 stock options outstanding as of September 25, 2009 and September 26, 2008, respectively. There were unvested restricted shares

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(10) Earnings per share, continued

outstanding of approximately 254,000 and 222,000 as of September 25, 2009 and September 26, 2008, respectively.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are required to be treated as participating securities. Under our restricted stock plan, non-forfeitable dividends are paid on unvested shares of restricted stock, which meets the qualifications of participating securities and requires the two-class method of calculating earnings per share to be applied. We have calculated basic and diluted earnings per share under both the treasury stock method and the two-class method. For the three and nine months ended September 25, 2009 and September 26, 2008, there were no significant differences in the per share amounts calculated under the two methods, therefore, we have not presented the reconciliation of earnings per share under the two class method. Earnings per share calculations are as follows (in thousands, except per share amounts):

	Three Months Ended						Nine Months Ended
	September 25, 2009			September 26, 2008			September 25, 2009			September 26, 2008
Net earnings (loss) from continuing operations	$	2,274		$	9,678		$	(76,114	)	$	21,058
Net loss from discontinued operations		(13,358	)		(4,123	)		(117,523	)		(896	)
Less: Net earnings attributable to non-controlling interest		352			204			451			598
Net (loss) earnings attributable to Technitrol, Inc.	$	(11,436	)	$	5,351		$	(194,088	)	$	19,564

Basic (loss) earnings per share:
Shares		40,886			40,774			40,831			40,734
Continuing operations	$	0.05		$	0.23		$	(1.88	)	$	0.50
Discontinued operations		(0.33	)		(0.10	)		(2.88	)		(0.02	)
Per share amount	$	(0.28	)	$	0.13		$	(4.76	)	$	0.48

Diluted (loss) earnings per share:
Shares		40,950			40,826			40,831			40,826
Continuing operations	$	0.05		$	0.23		$	(1.88	)	$	0.50
Discontinued operations		(0.33	)		(0.10	)		(2.88	)		(0.02	)
Per share amount	$	(0.28	)	$	0.13		$	(4.76	)	$	0.48

(11) Severance, impairment and other associated costs

As a result of our continuing focus on both economic and operating profit, we continue to aggressively size our operations so that costs are optimally matched to current and anticipated future revenue and unit demand. The amounts and timing of charges will depend on specific actions taken. The actions taken include closures, plant relocations, asset impairments and reductions in personnel worldwide, and have resulted in the elimination of a variety of costs. The majority of the non-impairment related costs represent the annual salaries and benefits of terminated employees, both those directly related to manufacturing and those providing selling, general and administrative services. The eliminated costs also include depreciation from disposed equipment and rental payments from the termination of lease agreements. We continued restructuring initiatives during the nine months ended September 25, 2009 that were implemented in the years ended December 26, 2008 and December 28, 2007 in order to reduce our cost structure and capacity.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(11) Severance, impairment and other associated costs, continued

During the nine months ended September 25, 2009, we determined that approximately $71.0 million of goodwill was impaired. Refer to Note 5 for further details. Additionally, we incurred a charge of $11.9 million for a number of cost reduction actions. These accruals include severance and related payments of $3.0 million and fixed asset impairments of $8.9 million. The impaired assets include production lines associated with products that have no expected future demand and two properties which were disposed.

Of the $3.0 million severance charges incurred during the nine months ended September 25, 2009, approximately $1.1 million related to the transfer of production operations from our facilities in Europe and North Africa to China. This program began in 2007 and is now substantially completed. The $1.1 million consists of a $1.6 million charge to adjust the liability to reflect the final negotiated benefits for approximately 45 employees which was reduced by a $0.5 million adjustment in the accrual to reflect final benefit projections for approximately 90 employees.

During the year ended December 26, 2008, we initiated a restructuring program at our European, Asian and North American operations to reduce company-wide costs, which included direct and indirect labor reductions. During the nine months ended September 25, 2009, we incurred a charge for severance of $1.6 million and other associated costs of $0.3 million in conjunction with this program. There were approximately 320 employees severed under these programs. We expect these plans to be completed by the end of 2009.

The change in our accrual related to severance, impairment and other associated costs is summarized as follows (in millions):

	Electronics

Balance accrued at December 26, 2008	$	7.5

Expensed during the nine months ended September 25, 2009		11.9
Severance payments		(7.1	)
Other associated costs		(0.9	)
Fixed asset impairments and currency translation adjustments		(9.8	)

Balance accrued at September 25, 2009	$	1.6

(12) Financial instruments

We utilize derivative financial instruments, primarily forward exchange contracts, to manage foreign currency risk. While these instruments are subject to fluctuations in value, such fluctuations are generally offset by the value of the underlying exposure being hedged. During the nine months ended September 25, 2009, we utilized forward contracts to sell forward U.S. dollars to receive Danish krone and to sell forward euro to receive Chinese renminbi. These contracts were used to mitigate the risk of currency fluctuations at our former operations in Denmark and our current operations in the Peoples Republic of China (“PRC”). At September 25, 2009, we had eight foreign exchange forward contracts outstanding to sell forward approximately 8.0 million euro, or approximately $11.7 million, to receive Chinese renminbi. For the nine months ended September 25, 2009 and September 26, 2008, no financial instruments were designated as hedges.

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Technitrol, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(12) Financial instruments, continued

The following presents the classifications and fair values of our derivative instruments not designated as hedges in our Consolidated Balance Sheets and our Consolidated Statements of Operations (in thousands):

Consolidated Balance Sheets

(Asset derivative)

Derivatives	Classification	September 25, 2009			September 26, 2008

Foreign exchange forward contracts	Prepaid expenses and other current assets	$	(0.9	)	$	0.1
Total		$	(0.9	)	$	0.1

Consolidated Statements of Operations (Unrealized/realized gains/(losses))

		Three Months Ended					Nine Months Ended
		September 25,			September 26,		September 25,			September 26,
Derivatives	Classification	2009			2008		2009			2008

Foreign exchange forward contracts	Other income (expense), net	$	(0.6	)	$	0.1	$	(0.6	)	$	0.1
Total		$	(0.6	)	$	0.1	$	(0.6	)	$	0.1

We have categorized our recurring financial assets and liabilities on our Consolidated Balance Sheets into a three-level fair value hierarchy based on inputs used for valuation, which are categorized as follows:

Level 1 – Financial assets and liabilities whose values are based on quoted prices for identicalassets or liabilities in an active public market.

Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets thatare not active or a valuation using model inputs that are observable for substantially the full term ofthe asset or liability.

Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniquesthat require inputs that are both unobservable and significant to the overall fair value measurement.These inputs reflect management’s assumptions and judgments when pricing the asset or liability.

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Notes to Unaudited Consolidated Financial Statements, continued

(12) Financial instruments, continued

The following table presents our fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis in our Consolidated Balance Sheets as of September 25, 2009 (in millions):

	September 25, 2009			Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets
Available-for-sale securities (1)	$	7.2		$	7.2	$	--		$	--
Other (2)		(0.9	)		--		(0.9	)		--
Total	$	6.3		$	7.2	$	(0.9	)	$	--

(1) Amounts include grantor trust investments in our Consolidated Balance Sheets.

(2) Amounts include forward contracts outstanding in our Consolidated Balance Sheets.

We currently have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis. Management believes that there is no material risk of loss from changes in inherent market rates or prices in our financial instruments due to the immateriality of our financial instruments in relation to our Consolidated Balance Sheets.

Our financial instruments, including cash and cash equivalents and long-term debt, our financial assets, including accounts receivable and inventories, and our financial liabilities, including accounts payable and accrued expenses, are exposed to both interest rate risk and foreign currency risk. We have policies relating to these financial instruments and their associated risks and continually monitor compliance with these policies. All of our financial instruments and financial assets approximate fair value, as presented on our Consolidated Balance Sheets. Particularly, all the outstanding borrowings under our current credit facilities have variable interest rates that approximate their fair value.

(13) Business segment information

For the three and nine months ended September 25, 2009 and September 26, 2008, there were immaterial amounts of intersegment revenues eliminated in consolidation. During the second quarter of 2009, the basis for determining segment financial information changed due to the classification of our Electrical segment as a held-for-sale discontinued operation. We currently have one reportable segment, Electronics. As a result, segment disclosures required under ASC Topic 280, Segment Reporting (“ASC 280”) are no longer required. We will continue to disclose enterprise-wide information in our Annual Report on Form 10-K to the extent required.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

This discussion and analysis of our financial condition and results of operations as well as other sections of this report contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in the “Risk Factors” section of this report on pages 35 through 43.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the period ended December 26, 2008 describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements including certain judgments, assumptions and estimates.

The following critical accounting policies are impacted significantly by judgments, assumptions and estimates and were used in the preparation of the Consolidated Financial Statements:

· Inventory valuation;

· Purchase accounting;

· Goodwill and identifiable intangibles;

· Income taxes;

· Defined benefit plans;

· Contingency accruals; and

· Severance, impairment and other associated costs.

Actual results could differ from these estimates. Please see information concerning our critical accounting policies in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the period ended December 26, 2008.

Overview

In February 2009, we announced our intention to explore monetization alternatives with respect to our Electrical segment, a producer of a full array of precious metal electrical contact products that range from materials used in the fabrication of electrical contacts to completed contact subassemblies. During the second quarter of 2009, we determined that Electrical met the qualifications to be reported as a discontinued operation in our Consolidated Statement of Operations for all periods presented. Also, the assets and liabilities of Electrical are considered held for sale and reported as current on our Consolidated Balance Sheet. Whether in whole or in part, we expect a disposition to be completed by the end of June 2010. In addition, on June 25, 2009, we divested Electronics’ Medtech components business for approximately $201.4 million. These proceeds are subject to final working capital and financial indebtedness adjustments. All open customer orders were transferred at the date of sale. We have no material continuing involvement with the operations of Medtech after June 25, 2009.

As a result of reporting Electrical as a discontinued operation, we only have one reportable segment, our Electronic Components Group, which we refer to as Electronics and is known as Pulse in its markets. Electronics is a world-wide producer of precision-engineered electronic components. We believe we are a leading global producer of these products and materials in the primary markets we serve based on our estimates of the annual revenues of our primary markets and our share of those markets relative to our competitors.

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General. We define net sales as gross sales less returns and allowances. We sometimes refer to net sales as revenue.

Historically, our gross margin has been significantly affected by acquisitions, product mix and capacity utilization. Our markets are characterized by relatively short product life cycles. As a result, significant product turnover occurs each year and, subsequently, there are frequent variations in the prices of products sold. Due to the constantly changing quantity of part numbers we offer and frequent changes in our average selling prices, we cannot isolate the impact of changes in unit volume and unit prices on our net sales and gross margin in any given period. Changes in foreign exchange rates, especially the U.S. dollar to the euro and the U.S. dollar to the Chinese renminbi also affect U.S. dollar reported sales.

We believe our focus on acquisitions, technology and cost reduction programs provides us opportunities for future growth in net sales and operating profit. However, unfavorable economic and market conditions may result in a reduction in demand for our products, thus, negatively impacting our financial performance.

Acquisitions. Acquisitions have been an important part of our growth strategy. In many cases, our moves into new product lines and extensions of our existing product lines or markets have been facilitated by acquisitions. Our acquisitions continually change our product mix. We have made numerous acquisitions in recent years which have broadened our product offerings in new or existing markets. We may pursue additional acquisition opportunities in the future.

Divestitures. We engage in divestitures to streamline our operations, focus on our core businesses and strengthen our financial position. For example, in June 2009 we divested our Medtech components business for approximately $201.4 million, subject to final working capital and financial indebtedness adjustments. Medtech was purchased as part of the Sonion acquisition. Also, in April 2009 we divested our non-core MEMS business for an amount immaterial to our Consolidated Financial Statements. In February 2009, we announced our intention to explore monetization alternatives with respect to Electrical. As of September 25, 2009, the assets and liabilities of Electrical and the remaining assets and liabilities of MEMS are classified as held for sale in our Consolidated Balance Sheet. Medtech, MEMS and Electrical are classified as discontinued operations on our Consolidated Statements of Operations for all periods presented.

Technology. Our products must evolve along with changes in technology, availability and price of raw materials, design and preferences of the end users of our products. Also, regulatory requirements occasionally impact the design and functionality of our products. We address these conditions, as well as our customers’ demands, by continuing to invest in product development and by maintaining a diverse product portfolio which contains both mature and emerging technologies.

Management Focus. Our executives focus on a number of important metrics to evaluate our financial condition and operating performance. For example, we use revenue growth, gross profit as a percentage of revenue, operating profit as a percentage of revenue and economic profit as performance measures. We define economic profit as after-tax operating profit less our cost of capital. Operating leverage, or incremental operating profit as a percentage of incremental sales, is also reviewed, as this reflects the benefit of absorbing fixed overhead and operating expenses. In evaluating working capital management, liquidity and cash flow, our executives also use performance measures such as free cash flow, days sales outstanding, days payables outstanding, inventory turnover and cash conversion efficiency. Additionally, as the continued success of our business is largely dependent on meeting and exceeding customers’ expectations, non-financial performance measures relating to product development, on-time delivery and quality assist our management in monitoring customer satisfaction on an on-going basis.

Cost Reduction Programs. As a result of our focus on both economic and operating profit, we continue to aggressively size our operations so that capacity is optimally matched to current and anticipated future revenues and unit demand. Future expenses associated with these programs will depend on specific

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actions taken. Actions taken over the past several years such as divestitures, plant closures, plant relocations, asset impairments and reduction in personnel at certain locations have resulted in the elimination of a variety of costs. The majority of the non-impairment related costs that were eliminated represent the annual salaries and benefits of terminated employees, including both those related to manufacturing and those providing selling, general and administrative services. Also, we’ve had depreciation savings from disposed equipment and rental payments from the termination of lease agreements. We have also reduced overhead costs as a result of relocating factories to lower-cost locations. Savings from these actions will impact cost of sales and selling, general and administrative expenses. However, the timing of such savings may not be apparent due to many factors such as unanticipated changes in demand, changes in unit selling prices, operational challenges or changes in operating strategies.

During the nine months ended September 25, 2009, we determined that approximately $71.0 million of our wireless group’s goodwill was impaired. Refer to Note 5 in the Notes to the Unaudited Consolidated Financial Statements for further details. Additionally, we incurred a charge of $11.9 million for a number of cost reduction actions. These accruals include severance and related payments of $3.0 million and fixed asset impairments of $8.9 million. The impaired assets include production lines associated with products that have no expected future demand and two properties which were disposed.

During the year ended December 26, 2008, we determined that $310.4 million of goodwill and other intangibles were impaired, including $170.3 goodwill and identifiable intangibles of a discontinued operation. Additionally, we incurred a charge of $13.2 million to our continuing operations for a number of cost reduction actions. These accruals include severance and related payments and other associated costs of $5.5 million resulting from the termination of manufacturing and support personnel at Electronics’ operations primarily in Asia, Europe and North America and $4.1 million of other costs primarily resulting from the transfer of manufacturing operations from Europe and North Africa to Asia. Additionally, we recorded fixed asset impairments of $3.6 million.

International Operations. At September 25, 2009, we had manufacturing operations in five countries, three of which only manufacture Electrical products, and had significant net sales in U.S. dollars, euros and Chinese renminbi. A majority of our sales in recent years has been outside of the United States. Changing exchange rates often impact our financial results and our period-over-period comparisons. This is particularly true of movements in the exchange rate between the U.S. dollar and the renminbi and the U.S. dollar and the euro and each of these and other foreign currencies relative to each other. Sales and net earnings denominated in currencies other than the U.S. dollar may result in higher or lower dollar sales and net earnings upon translation for our U.S. Consolidated Financial Statements. Certain divisions of our wireless and power groups’ sales are denominated primarily in euros and renminbi. Net earnings may also be affected by the mix of sales and expenses by currency within each group. We may also experience a positive or negative translation adjustment to equity because our investments in non-U.S. dollar-functional subsidiaries may translate to more or less U.S. dollars for our U.S. Consolidated Financial Statements. Foreign currency gains or losses may also be incurred when non-functional currency denominated transactions are remeasured to an operation’s functional currency for financial reporting purposes. If a higher percentage of our transactions are denominated in non-U.S. currencies, increased exposure to currency fluctuations may result.

In order to reduce our exposure to currency fluctuations, we may purchase currency exchange forward contracts and/or currency options. These contracts guarantee a predetermined range of exchange rates at the time the contract is purchased. This allows us to shift the majority of the risk of currency fluctuations from the date of the contract to a third party for a fee. In determining the use of forward exchange contracts and currency options, we consider the amount of sales, purchases and net assets or liabilities denominated in local currencies, the currency to be hedged and the costs associated with the contracts. At September 25, 2009, we had eight foreign exchange forward contracts outstanding to sell forward approximately 8.0 million euro, or approximately $11.7 million, to receive Chinese renminbi. The fair value of these forward contracts was $(0.9) million as determined through use of Level 2 fair value inputs. These contracts are used to mitigate the risk of currency fluctuations at our Chinese operations.

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Income Taxes. Our effective income tax rate is affected by the proportion of our income earned in high-tax jurisdictions, such as those in Europe and the U.S. and income earned in low-tax jurisdictions, such as Hong Kong and the PRC. This mix of income can vary significantly from one period to another. Additionally, our effective income tax rate will be impacted from period to period by significant transactions and the deductibility of severance, impairment, financing and other associated costs. We have benefited over the years from favorable tax incentives and other tax policies, however, there is no guarantee as to how long these benefits will continue to exist. Also, changes in operations, tax legislation, estimates, judgments and forecasts may affect our tax rate from period to period.

Except in limited circumstances, we have not provided for U.S. income and foreign withholding taxes on our non-U.S. subsidiaries’ undistributed earnings. Such earnings may include our pre-acquisition earnings of foreign entities acquired through stock purchases, which, with the exception of approximately $40.0 million, are intended to be reinvested outside of the U.S. indefinitely.

Results of Operations

Three months ended September 25, 2009 compared to the three months ended September 26, 2008

The table below presents our results from continuing operations and the changes in those results from period to period in both U.S dollars and percentage (in thousands):

	Three Months Ended												Results as %
	September 25,			September 26,			Change			Change			of Net Sales
	2009			2008			$			%			2009			2008
Net sales	$	101,381		$	168,974		$	(67,593	)		(40.0	)%		100.0	%		100.0	%
Cost of sales		74,154			126,339			52,185			41.3			(73.1	)		(74.8	)

Gross profit		27,227			42,635			(15,408	)		(36.1	)		26.9			25.2

Selling, general and administrative expenses		23,399			29,144			5,745			19.7			(23.1	)		(17.2	)
Severance, impairment and other associated costs		2,619			4,860			2,241			46.1			(2.6	)		(2.9	)

Operating income		1,209			8,631			(7,422	)		(86.0	)		1.2			5.1

Interest expense, net		(757	)		(1,022	)		265			25.9			(0.7	)		(0.6	)
Other income (expense), net		3,190			(833	)		4,023			483.0			3.1			(0.5	)

Earnings from continuing operations before income taxes		3,642			6,776			(3,134	)		(46.3	)		3.6			4.0

Income tax expense (benefit)		1,368			(2,902	)		(4,270	)		(147.1	)		(1.3	)		1.7

Net earnings from continuing operations	$	2,274		$	9,678		$	(7,404	)		(76.5	)%		2.3	%		5.7	%

Net Sales. Our consolidated net sales decreased by 40.0% as a result of the decline in customer demand resulting from the adverse developments in the global economy. Specifically, decreased demand for certain Electronics’ wireless, network communications and power products negatively affected sales in the third quarter of 2009 as compared to the same period of 2008. Also, a stronger U.S. dollar relative to

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the euro experienced in the third quarter of 2009 versus the comparable period in the prior year resulted in lower U.S. dollar reported sales.

Cost of Sales. As a result of lower sales, our cost of sales decreased. Our consolidated gross margin for the three months ended September 25, 2009 was 26.9% compared to 25.2% for the three months ended September 26, 2008. The primary factors that caused our consolidated gross margin increase were the positive effects of cost-reducing and price-increasing activities initiated in late 2008 as a response to the adverse conditions in the global economy.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses decreased primarily due to our overall emphasis on cost reducing measures initiated in late-2008. Expenses were reduced in virtually all areas. Intangible amortization expense declined compared to the 2008 period as a result of the impairment charges incurred in the fourth quarter of 2008. Partially offsetting these decreases were $1.2 million of unplanned legal expenses and dispute settlements.

Research, development and engineering expenses (“RD&E”) are included in selling, general and administrative expenses. For the three months ended September 25, 2009 and September 26, 2008, respectively, RD&E was as follows (in thousands):

	2009			2008
RD&E	$	7,022		$	9,538
Percentage of sales		6.9	%		5.6	%

The decrease in research, development and engineering expenses is due to cost reducing measures initiated in late 2008. However, as a percentage of sales, 2009 spending was at a higher level than the 2008 period. We believe that future sales in the electronic components markets will be driven by next-generation products. As a result, design and development activities with our OEM customers continue at an aggressive pace.

Severance, Impairment and Other Associated Costs. We recorded approximately $2.6 million of severance and fixed asset impairments during the three months ended September 25, 2009. These charges primarily relate to writing down a property held for sale prior to its disposal.

Interest. Net interest expense decreased primarily as a result of decreased debt levels and lower interest rates incurred during the three months ended September 25, 2009 as compared to the comparable period ended September 26, 2008. Interest expense on our outstanding loans was allocated between continuing and discontinued operations on a pro-rata basis for the third quarters of 2009 and 2008, based upon the debt expected to be retired from the dispositions compared to total debt outstanding. Amortization of our capitalized loan fees was also allocated in a similar manner.

Other. The change from other expense to other income from the third quarter of 2008 to the comparable period in 2009 is primarily attributable to net foreign exchange gains of approximately $3.0 million realized during the three months ended September 25, 2009, as compared to foreign exchange losses of approximately $0.8 million realized during the comparable period of 2008. The increase in foreign exchange gains was due to the effects of the overall strengthening of the U.S. dollar to euro in the third quarter of 2009 as compared to the same period of 2008. Gains were also realized as a result of remeasuring intercompany advances and loans into their respective functional currencies.

Income Taxes. The effective tax rate for the three months ended September 25, 2009 was 37.6% compared to a benefit of (42.8)% for the three months ended September 26, 2008. The increase in the effective tax rate is primarily due to certain losses and restructuring charges incurred by entities in high-tax jurisdictions where the future tax benefit is unlikely to be realized.

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Nine months ended September 25, 2009 compared to the nine months ended September 26, 2008

The table below presents our results from continuing operations and the changes in those results from period to period in both U.S dollars and percentage (in thousands):

	Nine Months Ended											Results as %
	September 25,			September 26,			Change			Change			of Net Sales
	2009			2008			$			%			2009		2008
Net sales	$	293,425		$	501,978		$	(208,553	)	(41.5	)%		100.0	%	100.0	%
Cost of sales		220,305			381,827			161,522		42.3			(75.1	)	(76.1	)

Gross profit		73,120			120,151			(47,031	)	(39.1	)		24.9		23.9

Selling, general and administrative expenses		66,503			93,136			26,633		28.6			(22.7	)	(18.6	)
Severance, impairment and other associated costs		82,867			9,272			(73,595	)	(793.7	)		(28.2	)	(1.8	)

Operating (expense) income		(76,250	)		17,743			(93,993	)	(529.7	)		(26.0	)	3.5

Interest expense, net		(2,091	)		(2,147	)		56		(2.6	)		(0.7	)	(0.4	)
Other income, net		5,083			6,051			968		16.0			1.7		1.2

(Loss) earnings from continuing operations before income taxes		(73,258	)		21,647			(94,905	)	(438.4	)		(25.0	)	4.3

Income tax expense		2,856			589			(2,267	)	(384.9	)		(1.0	)	(0.1	)

Net (loss) earnings from continuing operations	$	(76,114	)	$	21,058		$	(97,172	)	(461.4	)%		(26.0	)%	4.2	%

Net Sales. Our consolidated net sales decreased by 41.5% as a result of the decline in customer demand resulting from the adverse developments in the global economy. Specifically, decreased demand for certain Electronics’ wireless, network communications and power products negatively affected sales in the nine months ended September 25, 2009 as compared to the comparable period of 2008. Also, a stronger U.S. dollar relative to the euro experienced during the nine months ended September 25, 2009 as compared to the same period of 2008 resulted in lower U.S. dollar reported sales.

Cost of Sales. As a result of lower sales, our cost of sales decreased. Our consolidated gross margin for the nine months ended September 25, 2009 was 24.9 % compared to 23.9 % for the nine months ended September 26, 2008. The primary factors that caused our consolidated gross margin increase were the positive effects of cost-reduction and price increasing activities initiated in late 2008 as a response to the adverse conditions in the global economy. Results for the nine months ended September 26, 2008 were also negatively affected by increased training and overtime costs caused by a temporary decline in China’s workforce, which were partially offset by a decline in operating leverage as a result of decreased sales of Electronics’ wireless, network communications and power products during 2009.

Selling, General and Administrative Expenses. Total selling, general and administrative expenses decreased primarily due to our overall emphasis on cost reducing measures initiated in late-2008. Expenses were reduced in virtually all areas. Also, intangible amortization expense declined compared to the 2008 period as a result of the impairment charges incurred in the fourth quarter of 2008.

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Research, development and engineering expenses (“RD&E”) are included in selling, general and administrative expenses. For the nine months ended September 25, 2009 and September 26, 2008, respectively, RD&E was as follows (in thousands):

	2009		2008
RD&E	$	20,087	$	29,944
Percentage of sales