2601--9/2/2010--AEROFLEX

related topics

{debt, indebtedness, cash}

{customer, product, revenue}

{regulation, government, change}

{regulation, change, law}

{investment, property, distribution}

{property, intellectual, protect}

{product, market, service}

{system, service, information}

{operation, international, foreign}

{condition, economic, financial}

{cost, regulation, environmental}

{acquisition, growth, future}

{capital, credit, financial}

{stock, price, operating}

{cost, contract, operation}

{operation, natural, condition}

{personnel, key, retain}

{competitive, industry, competition}

Risks Relating to Our Business A worsening of the global recession and continued credit tightening could continue to adversely affect us. Our operating results may fluctuate significantly on a quarterly basis. The cyclicality of our end user markets could harm our financial results. Our future operating results are dependent on the growth in our customers businesses and on our ability to identify and enter new markets. Our industry is highly competitive and if we are not able to successfully compete, we could lose market share and our revenues could decline. 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. 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. 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. 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 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. 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. Our business could be adversely affected by a negative audit or other actions, including suspension or debarment, by the federal government. 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. New products are subject to greater technology, design and operational risks, and a delay in introducing new products could harm our competitive position. Our failure to detect unknown defects in our products could materially harm our relationship with customers, our reputation and our business. Our AMS segment depends on third-party contractors to fabricate semiconductor products and we outsource other portions of our business; a failure to perform by these third parties may adversely affect our ability to bring products to market and damage our reputation. Non-performance by our suppliers may adversely affect our operations. 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. 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 license third-party technologies for the development of certain of our products, and if we fail to maintain these licenses or are unable to secure alternative licenses on reasonable terms, our business could be adversely affected. 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. 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. We may be required to make significant payments to members of our management in the event their employment with us is terminated. 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. Due to the international nature of our business, political or economic changes could harm our future sales, expenses and financial condition. 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 exposed to foreign currency exchange rate risks that could adversely affect our business, results of operations and financial condition. 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. 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. We are subject to unanticipated market conditions that could adversely affect our available working capital and financial position. Changes in tax rates or policies or changes to our tax liabilities could affect operating results. Accounting standards periodically change and the application of our accounting policies and methods may require management to make estimates about matters that are uncertain. Our operations are subject to business interruptions and casualty losses. Risks Related to Our Indebtedness Instability in financial markets could adversely affect our ability to access additional capital. Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations. Increases in interest rates could increase interest costs under our senior secured credit facility. 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. 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. The right to receive payments on the Senior Notes is effectively subordinated to the rights of our and the guarantors existing and future secured creditors. If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes. 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. We may not have the ability to raise the funds necessary to finance any change of control offer required by the indenture governing the Notes. Federal and state statutes allow courts, under certain specific circumstances, to void guarantees and/or require note holders to return payments received from guarantors. The Notes are structurally subordinated to all obligations of our non-guarantor subsidiaries. Our controlling equity holders may take actions that conflict with the interests of the holders of our debt.

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2601--9/2/2010--AEROFLEX_INC