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Article by DailyStocks_admin    (12-02-08 06:10 AM)

Measurement Specialties Inc. CEO FRANK D GUIDONE bought 16314 shares on 11-24-2008 at $16.13

BUSINESS OVERVIEW

INTRODUCTION

Measurement Specialties, Inc. is a leader in the design, development and manufacture of sensors and sensor-based systems for original equipment manufacturers and end users, based on a broad portfolio of proprietary technology. The Company is a multi-national corporation with nine primary manufacturing facilities strategically located in the United States, China, France, Ireland, Germany and Switzerland, enabling the Company to produce and market world-wide a broad range of sensors that use advanced technologies to measure precise ranges of physical characteristics. These sensors are used for automotive, medical, consumer, military/aerospace, and industrial applications. The Company’s sensor products include pressure sensors and transducers, linear/rotary position sensors, piezoelectric polymer film sensors, custom microstructures, load cells, accelerometers, optical sensors, humidity and temperature sensors. The Company's advanced technologies include piezo-resistive silicon sensors, application-specific integrated circuits, micro-electromechanical systems (“MEMS”), piezoelectric polymers, foil strain gauges, force balance systems, fluid capacitive devices, linear and rotational variable differential transformers, electromagnetic displacement sensors, hygroscopic capacitive sensors, ultrasonic sensors, optical sensors, negative thermal coefficient (“NTC”) ceramic sensors and mechanical resonators.

With engineering, sourcing and manufacturing facilities located in North America, Europe and Asia, the Company has been able to, among other things, enhance its applications engineering capabilities, increase the Company’s geographic proximity to its customers, drive initiatives for global sourcing of materials and seek the lowest cost of manufacturing.

As more fully described below under “Changes in our Business,” we discontinued the remainder of our Consumer products business during the fiscal year ended March 31, 2006. Except as otherwise noted, the descriptions of our business, and results and operations contained in this report reflect only our continuing operations.

RECENT ACQUISITIONS AND DIVESTITURES

The Company has consummated twelve acquisitions since June 2004 with a total purchase price exceeding $154,000. We believe our acquisitions will help the Company enhance long-term shareholder value by increasing growth in sales and profitability through the addition of new technologies, establishing new lines of business, and/or expanding our geographic footprint.

The Visyx and Intersema acquisitions occurred during fiscal 2008 (“2008 Acquisitions”). Visyx was a business purchased that consisted primarily of intellectual property and technology which augmented our product line with a range of sensors that measure fluid properties, including density, viscosity and dielectric constant, for use in heavy truck/off road engines and transmissions, compressors/turbines, refrigeration and air conditioning. The acquisition of Intersema further expanded our pressure sensors product line and technology modules capable of measuring low pressure, harsh media and ultra-small package configurations for use in barometric and sub-sea depth measurement markets.

Effective December 1, 2005, we completed the sale of the Consumer segment to Fervent Group Limited (FGL), including its Cayman Island subsidiary, ML Cayman. FGL is a company controlled by the owners of River Display Limited (RDL), our long time partner and primary supplier of consumer products in Shenzhen, China. The Consumer Products segment designed and manufactured sensor-based consumer products, primarily as an original equipment manufacturer (“OEM”), that were sold to retailers and distributors in the United States and Europe. Consumer products included bathroom and kitchen scales, tire pressure gauges and distance estimators.

PRODUCTS, MARKETS AND APPLICATIONS

The majority of our sensors are devices, sense elements and transducers that convert physical or mechanical information into a proportionate electronic signal for display, processing, interpretation or control. Sensors are essential to the accurate measurement, resolution and display of pressure, force, linear or rotary position, tilt, vibration, motion, humidity, temperature or fluid properties such as viscosity, density and dielectric constant.

The sensor market is being influenced by the increase in intelligent products across virtually all end markets, including medical, transportation, energy, industrial, aerospace and consumer applications. As OEMs strive to make products “smarter”, they are generally adding more sensors to link the physical world with digital control and/or response.

TECHNOLOGY

The Company has a broad portfolio of technologies available to solve client sensing needs, some of which are proprietary to the Company. Our sensor technologies include:



PIEZORESISTIVE TECHNOLOGY. This technology is widely used for the measurement of pressure, load and acceleration, and we believe its use in these applications is expanding significantly, particularly in the form of micro-electromechanical systems (MEMS). Piezoresistive materials, most often silicon, respond to changes in applied mechanical variables such as stress, strain, or pressure by changing electrical conductivity (resistance). Changes in electrical conductivity can be readily detected in circuits by changes in current with a constant applied voltage, or conversely by changes in voltage with a constant supplied current. Silicon MEMS systems have several advantages over their conventionally manufactured counterparts. By leveraging existing silicon manufacturing technology, micro-electromechanical systems allow for the cost-effective manufacture of small devices with high reliability and superior performance.



APPLICATION SPECIFIC INTEGRATED CIRCUITS (“ASICS”). These circuits convert analog electrical signals into digital signals for measurement, computation or transmission. Application specific integrated circuits are well suited for use in both consumer and new sensor products because they can be designed to operate from a relatively small power source, are inexpensive and can improve system accuracy.



PIEZOELECTRIC POLYMER TECHNOLOGY. Piezoelectric materials (such as polyvinylidene fluoride, “PVDF”) convert mechanical stress or strain into proportionate electrical energy, and conversely, these materials mechanically expand or contract when voltages of opposite polarities are applied. Piezoelectric polymer films are also pyroelectric, converting heat into electrical charge. These polymer films offer unique sensor design and performance opportunities because they are thin, flexible, inert, broadband, and relatively inexpensive. This technology is ideal for applications where the use of rigid sensors would not be possible or cost-effective.



STRAIN GAGE TECHNOLOGY. A strain gauge consists of a base substrate material that will change its electrical properties with induced stress or strain (such as bulk silicon). The foil is etched to produce a grid pattern that is sensitive to changes in geometry, usually length, along the sensitive axis producing a change in resistance. The gauge is bonded to a sensing element surface which it will monitor. The gauge operates through a direct conversion of strain to a change in gauge resistance. This technology is useful for the construction of reliable pressure and force sensors. The Company also manufactures a proprietary strain gauge called Microfused™ in which the diaphragm in contact with the media is fused to a silicon sensing element with glass at high temperatures for a hermetic seal appropriate for harsh environments.

FORCE BALANCE TECHNOLOGY. A force-balanced accelerometer is a mass referenced device that under the application of tilt or linear acceleration, detects the resulting change in position of the internal mass by a position sensor and an error signal is produced. This error signal is passed to a servo amplifier and a current developed is fed back into a moving coil. This current is proportional to the applied tilt angle or applied linear acceleration and will balance the mass back to its original position. These devices are used in military and industrial applications where high accuracy is required.



FLUID CAPACITIVE TECHNOLOGY. This technology is also referred to as fluid filled, variable capacitance. The output from the sensing element is two variable capacitance signals per axis. Rotation of the sensor about its sensitive axis produces a linear change in capacitance. This change in capacitance is electronically converted into angular data, and provides the user with a choice of ratio metric, analog, digital, or serial output signals. These signals can be easily interfaced to a number of readout and/or data collection systems.



LINEAR VARIABLE DIFFERENTIAL TRANSFORMERS (“LVDT”). An LVDT is an electromechanical sensor that produces an electrical signal proportional to the displacement of a separate movable core. LVDT’s are widely used as measurement and control sensors wherever displacements of a few micro inches to several feet can be measured directly, or where mechanical input, such as force or pressure, can be converted into linear displacement. LVDT’s are capable of extremely accurate and repeatable measurements in severe environments.



MAGNETO-RESISTIVE (MR) TECHNOLOGY. MR sensors are used to measure small changes in magnetic fields. A rotation of the magnetization of thin film stripes made of magnetic permalloy (Ni 81 FE 19 ) in x-direction takes place when a magnetic field in y-direction is applied due to the magneto resistive effect. MR sensors are highly sensitive, stable, repeatable and relatively low cost. MR sensing technology can be packaged as low field sensors (i.e., electronic compass), angle sensors such as magnetic encoders, position sensors, or current sensors (i.e., for battery management).



ELECTROLYTIC FLUID TECHNOLOGY. To create an inclination sensor, a small chamber is partially filled with an electrolytic liquid. Platinum electrodes are deposited in pairs on the base of the sensor’s cell parallel to the sensitive axis. When an alternating voltage is passed between two electrodes, the electric current will create a dispersed field. By tilting the sensor and thereby reducing the level of the liquid, it is possible to confine this stray field. Because of the constant, specific conductivity of the electrolytes, a variance of resistance is formed in relation to the liquid level. A basic differential principle will yield an angle of inclination from the polarity signs. This technology is durable, highly repeatable and relatively low cost compared with alternate technologies.



INFRARED SENSING. Measurement Specialties uses thermopiles to measure temperature without contact through infrared (IR) radiation. All objects emit IR radiation, with energy increasing based on increased surface temperatures (Planck’s law). Thermopiles are created by lining up multiple thermocouples in series. If a temperature difference is induced between a hot junction connecting two thermocouples and their open ends (cold junctions), a voltage is created, allowing the thermopile to transduce the IR radiation into a voltage measure (while factoring for ambient temperature). Miniaturization and batch fabrication on micro-machined silicon wafers enable low cost devices, which can also be used for gas detection.



VARIABLE CAPACITIVE. Humidity technology is based upon variable capacitive affecting a sensitive polymer layer under changing ambient humidity conditions. This technology is uniquely designed for high volume OEM applications in consumer markets, automotive, home appliance and environmental control.



PHOTO OPTICS. Photo-Optic sensors use light to measure different parameters such as position, reflectance, color and many others. At present our main application is in non-invasive medical sensing, specifically pulse oximetry, also known as SpO 2 .



ULTRASONIC TECHNOLOGY. Ultrasonic sensors measure distance by calculating the time delay between transmitting and receiving an acoustic signal that is inaudible to the human ear. This technology allows for the quick, easy, and accurate measurement of distances between two points without physical contact.



TEMPERATURE. Negative temperature co-efficient (“NTC”) thermistors offer high-end precision temperature sensors by exhibiting a change in electrical resistance in response to a change in ambient temperature conditions.



MECHANICAL RESONATOR: A mechanical resonator, or tuning fork, changes frequency response while submersed in a fluid as the properties of the fluid (density, viscosity and dielectric constant) change.

BUSINESS SEGMENTS

As a result of the sale of our Consumer Products business segment, the Sensor business segment is our sole reportable segment, under the guidelines established by the Financial Accounting Standards Board (“FASB”) in Statement of Financial Accounting Standard (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information because of among other things, the criteria for aggregation.

To improve the ownership and accountability on top-to-bottom results, effective fiscal 2008 the Company organized its product families into three business “Groups”, with each Group having responsibility for sales, engineering, operations and customer service of their respective products. The three business groups are PFG (Pressure/Force), PVG (Position/Piezo and Vibration), and HTG (Humidity/Chemical Gas/Temperature/Optical). A Group Vice President has been assigned overall strategic and profit/loss responsibility for the particular Group, with finance/accounting, supply chain/information systems and strategic sourcing remaining functional, shared resources.

CUSTOMERS

We sell our sensor products throughout the world. We design, manufacture and market sensors for original equipment manufacturer applications and for end users who use them for instrumentation and test applications. Our extensive customer base consists of manufacturers of electronic, automotive, medical, military, industrial and consumer products. Our largest customer, Sensata, a large automotive sensor supplier, accounted for approximately 18% of our net sales during fiscal 2008, approximately 15% of our net sales during fiscal 2007, and approximately 18% of our net sales during fiscal 2006. At March 31, 2008, the trade receivable with Sensata was approximately $5,446. No other customers accounted for more than 10% of our net sales during the fiscal years ended March 31, 2008, 2007, and 2006.

SALES AND DISTRIBUTION

We sell our sensor products through a combination of experienced regional sales managers, distributors and (generally) exclusive relationships with outside sales representatives throughout the world. Our engineering teams work directly with our global customers to tailor our sensors to meet their specific application requirements.

We sell our products primarily in North America, Asia and Western Europe. The international component of our sales has grown with recent acquisitions. In addition, we believe the growing Asian market represents a significant opportunity for our business. Sales invoiced from foreign countries accounted for approximately 53% of net sales for the fiscal year ended March, 31, 2008, 47% of net sales for the fiscal year ended March, 31, 2007, and 43% of net sales for the fiscal year ended March 31, 2006.

SUPPLIERS

We procure components and finished products from a variety of suppliers as needed through purchase orders. We actively manage this process to ensure component quality, steady supply and best costing, while managing hazardous materials content for compliance with European Restrictions on Hazardous Substances (“ROHS”) regulations. We source our assembly of photo optic products from a single contract manufacturer.

Our manufacturing operations employ a wide variety of raw materials, including steel, copper, cast iron, electronic components, aluminum, and plastics. We purchase raw materials from a large number of independent sources around the world. No single raw material supplier is material, although some of the components we use require particular specifications where a limited number of suppliers exist that can supply such components. Market forces have driven significant increases in the costs of steel and petroleum-based products over the last three years, and the costs of certain precious and non-ferrous metals have also generally increased over the last eighteen months. We have attempted to mitigate the impact of the cost increases through supply-chain initiatives or to pass a portion of these increases on to customers in the form of price increases. For a further discussion of risks related to the materials and components required for our operations, please refer to “Foreign Operations” and “Item 1A. Risk Factors.”

RESEARCH AND DEVELOPMENT

Our research and development efforts are focused on expanding our core technologies, improving our existing products by enhancing functionality, effectiveness, ease of use and reliability, developing new products and designing custom sensors for specific customer applications. To maintain and improve our competitive position, our research, design, and engineering teams work in close association with customers to design custom sensors for specific applications. Research and development costs approximated $9,852 or 4.3% of net sales for fiscal 2008, $9,235 or 4.6% of net sales for fiscal 2007, and $6,450 or 5.3% of net sales for fiscal 2006. We expect to continue to make significant investment in research and development expenditures in order to provide innovative new products to our customers and to maintain and improve our competitive position. Customer funded research and development was $1,018, $786, and $448 for the fiscal years ended March 31, 2008, 2007, and 2006, respectively.

COMPETITION

The global market for sensors includes many diverse products and technologies, is highly fragmented and is subject to moderate to high pricing pressures, depending on the end markets and level of customization. Most of our competitors are small independent companies or divisions of large corporations such as Danaher, General Electric, Schneider-Electric and Honeywell. The principal elements of competition in the sensor market are technology and production capability, price, quality, service, and the ability to design unique applications to meet specific customer needs.

Although we believe that we compete favorably, new product introductions by our competitors could cause a decline in sales or loss of market acceptance for our existing products. If competitors introduce more technologically advanced products, the demand for our products would likely be reduced.

INTELLECTUAL PROPERTY

We rely in part on patents to protect our intellectual property. We own 51 United States utility and design patents and 53 foreign patents to protect our rights in certain applications of our core technology. We have 42 patent applications pending. These patent applications may never result in issued patents. Even if these applications result in patents being issued, taken together with our existing patents, they may not be sufficiently broad to protect our proprietary rights, or they may prove unenforceable. We have not obtained patents for all of our innovations, nor do we plan to do so.

We also rely on a combination of copyrights, trademarks, service marks, trade secret laws, confidentiality procedures, and licensing arrangements to establish and protect our proprietary rights. In addition, we seek to protect our proprietary information by using confidentiality agreements with certain employees, sales representatives, consultants, advisors, customers and others. We cannot be certain that these agreements will adequately protect our proprietary rights in the event of any unauthorized use or disclosure, that our employees, sales representatives, consultants, advisors, customers or others will maintain the confidentiality of such proprietary information, or that our competitors will not otherwise learn about or independently develop such proprietary information. Despite our efforts to protect our intellectual property, unauthorized third parties may copy aspects of our products, violate our patents or use our proprietary information. In addition, the laws of some foreign countries do not protect our intellectual property to the same extent as the laws of the United States. The loss of any material trademark, trade name, trade secret, patent right, or copyright could harm our business, results of operations and financial condition.

We believe that our products do not infringe on the rights of third parties. However, we cannot be certain that third parties will not assert infringement claims against us in the future or that any such assertion will not result in costly litigation or require us to obtain a license to third party intellectual property. In addition, we cannot be certain that such licenses will be available on reasonable terms or at all, which could harm our business, results of operations and financial condition.

FOREIGN OPERATIONS

Our products are manufactured and marketed worldwide. Our geographic diversity enables us to leverage our cost structure and supply-chain, promote economies of scale, and affords a broader and diverse sales base. We manufacture a large portion of our sensor products in Shenzhen, China. Sensors are also manufactured at our U.S. facilities in Hampton, VA, Dayton, OH and Fremont, CA, as well as our European facilities in Galway, Ireland, Toulouse, France, Les Clayes-sous-Bois, France, Dortmund, Germany and Bevaix, Switzerland. A large portion of our NTC thermistors, discrete and probe assemblies are manufactured in China by Betacera Inc., a subcontractor with a long-standing contractual relationship with the Company. Our pulse oximetry sensors are sourced from a single supplier, Opto Circuits India Limited (“Opto”), in Karnatake, India. Many of our products contain key components that are obtained from a limited number of sources. These concentrations in external and foreign sources of supply present risks of interruption for reasons beyond our control, including political and other uncertainties regarding China and India.

A substantial portion of our revenues are priced in United States dollars. Most of our costs and expenses are priced in United States dollars, with the remainder priced in Chinese renminbi, Euros, Swiss francs and Japanese yen. Accordingly, the competitiveness of our products relative to products produced locally (in foreign markets) may be affected by the performance of the United States dollar compared with that of our foreign customers’ currencies. We are exposed to foreign currency transaction and translation losses, which might result from adverse fluctuations in the value of the Euro, Chinese renminbi, Swiss franc, and Japanese yen.

The renminbi has appreciated by 2.7%, 4.0%, and 9% during 2006, 2007 and 2008, respectively. The Chinese government announced that it will no longer peg the renminbi to the U.S. dollar, but established a currency policy letting the renminbi trade in a narrow band against a basket of currencies. The Company has more expenditures in renminbi than sales denominated in renminbi, and as such, when the US dollar weakens relative to the renminbi, our operating profits decrease. Based on our net exposure of renminbi to U.S. dollars for the fiscal year ended March 31, 2008 and forecast information for fiscal 2009, we estimate a negative operating income impact of approximately $186 for every 1% appreciation in renminbi against the U.S. dollar (assuming no price increases passed to customers, and no associated cost increases or currency hedging). We continue to consider various alternatives to hedge this exposure, and have considered, but do not currently use, foreign currency contracts as a hedging strategy. We are attempting to manage this exposure through, among other things, pricing and monitoring balance sheet exposures for payables and receivables.

The Company’s French and Germany subsidiaries have more sales in Euro than expenses in Euro and the Company’s Swiss subsidiary has more expenses in Swiss franc than sales, and as such, if the U.S. dollar weakens relative to the Euro and Swiss franc, our operating profits increase in France and Germany but decline in Switzerland. Based on the net exposures of Euros and Swiss francs to the U.S. dollar for the fiscal year ended March 31, 2008, we estimate a positive operating income impact of $42 in Euros and a negative operating income impact of $30 for every 1% appreciation in Euro and Swiss franc, respectively, relative to the U.S. dollar (assuming no price increases passed to customers, and associated cost increases or currency hedging).

There can be no assurance that these currencies will remain stable or will fluctuate to our benefit. To manage our exposure to potential foreign currency, transaction and translation risks, we may purchase currency exchange forward contracts, currency options, or other derivative instruments, provided such instruments may be obtained at suitable prices. We do have a number of foreign exchange currency contracts in Europe, as disclosed in Note 7 to the Consolidated Financial Statements in this Annual Report on Form 10-K.

EMPLOYEES

As of March 31, 2008, we had 2,428 employees, including 317 in the United States, 437 in the European Union, and 1,674 in Asia. As of March 31, 2008, 1,819 employees were engaged in manufacturing, 255 were engaged in administration, 227 were engaged in engineering and 127 were engaged in sales and marketing.

Our employees in the U.S., Europe and Asia are not covered by collective bargaining agreements. We believe our employee relations are good.

ENVIRONMENTAL MATTERS

We are subject to comprehensive and changing foreign, federal, state, and local environmental requirements, including those governing discharges to the air and water, the handling and disposal of solid and hazardous wastes, and the remediation of contamination associated with releases of hazardous substances. We believe that we are in compliance in all material respects with current environmental requirements. Nevertheless, we use hazardous substances in our operations, and as is the case with manufacturers in general, if a release of hazardous substances occurs on or from our properties, we may be held liable, and may be required to pay the cost of remedying the condition. The amount of any resulting liability could be material.

We believe we are in compliance in all material respects with the European and UK Restrictions on Hazardous Substances (“RoHS”) environmental directive which became effective July 1, 2006 for "the restriction of the use of certain hazardous substances in electrical and electronic equipment.”

Our business and our customers may be subject to requirements under the European Commission’s Proposal for the Registration, Evaluation and Authorization of Chemicals (“REACH”). REACH imposes obligations on European Union manufacturers and importers of chemicals and other products into the European Union to compile and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern are subject to an authorization process per application. Authorization may result in restrictions in the use of products by application or even prohibitions on the manufacture or importation of products. REACH came into effect on June 1, 2007. The regulations impose additional burdens on chemical producers, importers, downstream users of chemical substances and preparations, and the entire supply chain. However, our manufacturing presence and sales activities in the European Union will likely require us to incur additional compliance costs and may result in increases in the costs of raw materials we purchase and the products we sell.


CEO BACKGROUND


The Board of Directors is divided into three classes. One class is elected each year for a term of three years.

Two Directors will be elected at this Annual Meeting to serve for a three-year term expiring at our Annual Meeting in 2011. The Board has nominated Kenneth E. Thompson and Morton L. Topfer to serve for the term expiring at our Annual Meeting in 2011. You can find information about Messrs. Thompson and Topfer below.

The persons named in the proxy card will vote such proxy “for” the election of Messrs. Thompson and Topfer unless you indicate that your vote should be withheld. If elected, each of Messrs. Thompson and Topfer will continue in office until his successor has been duly elected and qualified, or until the earliest of his death, resignation, retirement or removal. Each of Messrs. Thompson and Topfer has indicated to the Company that he will serve if elected. We do not anticipate that either of Messrs. Thompson and Topfer will be unable to stand for election, but, if that happens, your proxy will be voted in favor of another person nominated by the Board.

The Board of Directors recommends a vote FOR the election of Messrs. Thompson and Topfer as Directors.


NOMINEES FOR TERM EXPIRING IN 2011

Kenneth E. Thompson has been a Director since November 2006. Through September 2006, Mr. Thompson was a partner of McCarter & English, LLP, a law firm that provided legal services to the Company. Effective October 1, 2006, Mr. Thompson became Senior Vice President and General Counsel of Insurance Services Office, Inc., a provider of data, analytical tools and decision support services that help measure, manage and reduce risk. Mr. Thompson received a B.A. in Political Science from the State University of New York at Stony Brook and a J.D. from Boston University School of Law. Age 48.

Morton L. Topfer has been a Director since January 2002 and was appointed Chairman of the Board effective January 31, 2003. Mr. Topfer is Managing Director of Castletop Capital, L.P., an investment firm. He previously served at Dell, Inc. (formerly Dell Computer Corporation), a global systems and services company, as Counselor to the Chief Executive Officer, from December 1999 to February 2002, and Vice Chairman, from June 1994 to December 1999. Mr. Topfer was a member of the Board of Directors of Dell from December 1999 to July 2004. Prior to joining Dell, Mr. Topfer served for 23 years at Motorola, Inc., a global provider of communication technologies, products and services, where he held several executive positions, last serving as Corporate Executive Vice President and President of the Land Mobile Products Sector. Mr. Topfer was conferred the Darjah Johan Negeri Penang State Award in July 1996 by the Governor of Penang for contributions to the development of the electronics industry in Malaysia. Mr. Topfer also serves as a director for Staktek Technologies and Advanced Micro Devices. Age 71.

DIRECTORS WITH TERM EXPIRING IN 2010

John D. Arnold has been a Director since June 1995. Mr. Arnold has been in private law practice since 1988, primarily representing technology companies with relationships with Asian investors and/or manufacturers. Prior to 1988, Mr. Arnold was employed with the law firms of Wilson, Sonsini, Goodrich & Rosati in Palo Alto, California and Foley & Lardner in Milwaukee, Wisconsin. Mr. Arnold received a B.B.A. in business administration from the University of Wisconsin and a J.D. from Stanford Law School. Age 53.

Frank D. Guidone has served as Chief Executive Officer since June 2002 and has been a Director since December 2002. Mr. Guidone was a Managing Director/Principal of Corporate Revitalization Partners, a Dallas-based turnaround/crisis management consultancy firm, from 2000 to 2006. Mr. Guidone has been a partner at Four Corners Capital Partners, a boutique private investment firm of which Mr. Guidone is a co-founder, since 1999. Prior to forming Four Corners, Mr. Guidone spent 13 years in management consulting with Andersen Consulting and George Group, Inc. Mr. Guidone has worked with numerous solvent and insolvent companies, focusing on operational and financial restructurings. Mr. Guidone received a B.S. in mechanical engineering from The University of Texas at Austin. Age 43.

DIRECTORS WITH TERM EXPIRING IN 2009

R. Barry Uber has been a Director since October 2003. Mr. Uber is a partner of Coastal Capital Consultants, L.L.C., an investment firm, and a former board member of NES Rental Holdings. Mr. Uber was President and Chief Operating Officer of American Commercial Lines Inc. (formerly American Commercial Barge Line), a provider of marine transportation and manufacturing services and solutions, from July 2001 to July 2003. He also served as President and Chief Executive Officer of North American Van Lines. Prior to joining North American Van Lines, Mr. Uber served for 30 years at Ingersoll-Rand Co. Inc., a diversified commercial products manufacturer, where he held increasingly responsible executive positions, last serving as Corporate Vice President and President of the Construction Machinery Equipment Group. Mr. Uber received a B.B.A. in business administration from Penn State University where he was awarded an Alumni Fellow Award in 1996. He serves as a Director of NES Rentals Holding, Inc. Age 63.

Satish Rishi has been a Director since September 2005. Since April 2006, Mr. Rishi has served as Senior Vice President, Finance and Chief Financial Officer of Rambus, Inc., a designer of high-speed chip interfaces. From 2001 to April 2006, he served at Toppan Photomasks, Inc. (formerly DuPont Photomasks, Inc.), a global provider of photomask technology, where he last held the positions of Executive Vice President and Chief Financial Officer. During his career, Mr. Rishi has held senior financial management positions at semiconductor and electronics manufacturers. He served as Vice President and Assistant Treasurer at Dell Inc. from 1999 until 2001, and prior to his service at Dell, spent 13 years at Intel Corp., a manufacturer and developer of silicon technologies, where he held financial management positions of increasing responsibility, both in the United States and overseas. His last position at Intel was Assistant Treasurer. Mr. Rishi received a B.S. with honors in Mechanical Engineering from Delhi College of Engineering, Delhi University, and an M.B.A. with a concentration in Finance from the Walter J. Hass School of Business, University of California, Berkeley. Age 48.


MANAGEMENT DISCUSSION FROM LATEST 10K


Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide the reader of the Company’s financial statements with a narrative from the perspective of Company’s management. To that end, this discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors. Furthermore, the following discussion of our results of operations and financial condition should be read together with the other financial information and Consolidated Financial Statements and related Notes included in this Annual Report on Form 10-K Our fiscal year begins on April 1 and ends on March 31. References in this report to the year 2007 or fiscal 2007 refer to the 12-month period from April 1, 2006 through March 31, 2007 and references in this report to the year 2008 or fiscal 2008 refer to the 12-month period from April 1, 2007 through March 31, 2008.

OVERVIEW

Measurement Specialties, Inc. is a leader in the design, development and manufacture of sensors and sensor-based systems for original equipment manufacturers and end users, based on a broad portfolio of proprietary technology. The Company is a multi-national corporation with nine primary manufacturing facilities strategically located in the United States, China, France, Ireland, Germany and Switzerland, enabling the Company to produce and market world-wide a broad range of sensors that use advanced technologies to measure precise ranges of physical characteristics. These sensors are used for automotive, medical, consumer, military/aerospace, and industrial applications. The Company’s sensor products include pressure sensors and transducers, linear/rotary position sensors, piezoelectric polymer film sensors, custom microstructures, load cells, accelerometers, optical sensors, humidity and temperature sensors. The Company's advanced technologies include piezo-resistive silicon sensors, application-specific integrated circuits, micro-electromechanical systems (“MEMS”), piezoelectric polymers, foil strain gauges, force balance systems, fluid capacitive devices, linear and rotational variable differential transformers, electromagnetic displacement sensors, hygroscopic capacitive sensors, ultrasonic sensors, optical sensors, negative thermal coefficient (“NTC”) ceramic sensors and mechanical resonators.

The Company continues to expand the business at a relatively high rate through organic growth and through acquisitions. With the sale of our Consumer business effective December 1, 2005, the Company had one reportable segment during 2008 and 2007, formerly the Sensor Division. Accordingly, all comparisons in Management’s Discussion and Analysis for each of the fiscal periods ended March 31, 2008, 2007, and 2006 exclude the results of discontinued operations, except as otherwise noted.

EXECUTIVE SUMMARY

The Company continues to deliver strong growth in sales and profitability. Over the past four years, the Company has grown sales at a compounded rate of 40% per year as a result of consistent organic growth and growth through acquisitions. We have consummated twelve acquisitions since June 2004 with a cumulative purchase price exceeding $154,000, establishing new lines of business and/or expanding our geographic footprint.

With our rapid expansion and growth has come increased complexity, in terms of products, customers and physical facilities. To more effectively manage these complexities, in fiscal 2008 we reorganized our business into three “Groups”, with a Group Vice President (“GVP”) responsible for the operating performance of their respective Group. Along with owning sales and profitability, GVPs are responsible for managing the balance sheet, with emphasis on accounts receivable, inventory and capital expenditures. This increased attention to the balance sheet allowed us to more effectively manage working capital in fiscal 2008, as is evident in our Statement of Cash Flows. The net change in Operating Working Capital (defined as the sum of the net changes in accounts receivable, inventory and accounts payable per the statement of cash flows), improved from a negative $13,925 in fiscal 2007 (“use” of cash) to a positive $6,253 in fiscal 2008 (“source” of cash).

Consistent with our strategy to expand our product portfolio and global footprint, we completed two acquisitions in fiscal 2008. In November 2008, we acquired the assets of Visyx, including novel intellectual property that utilizes a mechanical resonator to measure fluid properties. Under the leadership of our Humidity/Chemical Gas/Temperature/Optical Group (“HTG”) in Toulouse, we have been able to advance the program and introduce production-ready prototypes to the market. While we are very enthusiastic about our progress and the initial customer commitment, we do not anticipate generating material sales until calendar 2009, and accordingly, the investment being made in this technology negatively influenced operating results in fiscal 2008. In December 2008 we acquired Intersema, a manufacturer of pressure sensors and modules. As a result of front-end loaded amortization, higher interest due to increased debt, significant appreciation of the Swiss franc (and associated foreign currency exchange losses), and specific integration and short term operating issues, Intersema’s operating results underperformed to our expectations. Despite the shortfall from expectations, we believe we will see meaningful positive earnings per share (“EPS”) contribution for these acquisitions in fiscal 2010 and beyond.

To support the Intersema acquisition, we expanded our revolving credit facility in December, 2008 by $66,000 to $121,000. As a result, we have approximately $63,000 available under the revolving facility, as well as approximately $21,600 in cash. We believe our strong liquidity positions us well to capitalize on opportunities that will likely arise as a result of the challenging market conditions.

A core tenet of our strategy is providing customized solutions to our customers. To cost effectively deliver this service, we have expanded our infrastructure in China considerably. Today, approximately 60% of our net sales are manufactured in China and nearly 70% of our global employees are from our China operation. Given our commitment to the region in general, and Shenzhen in particular, and in order to mitigate the continued lease cost escalation in the future and add adequate room for expansion, we made the decision two years ago to lease property in Shenzhen and build a new facility. We began construction on a 220,000 square foot facility last March, and expect to complete construction late calendar 2008. The total estimated investment in the new facility is $12,000, at the upper end of our initial estimated range when stated in U.S. dollars, largely due to the appreciation of the Chinese renminbi (“ RMB”). In addition to providing a low cost operation from which we can support other regions of the world, our operation in China provides a gateway to drive increased sales in China and Asia. Our local sales in China, while relatively small today, are expanding at nearly twice the rate as our average growth rate, and remain a key area of opportunity for the Company.

TRENDS

There are a number of trends that are likely to have material effects on the Company in the future, including our expectations for growth in sales, costs, capital spending, changes in foreign currency exchange rates relative to the U.S. dollar, changes in debt levels and interest rates and shifts in effective tax rates. Additionally, sales and results of operations could be impacted by additional acquisitions, though there is no specific timetable for any such transaction.

Over the past 4 years, we have enjoyed annual organic sales growth of 12% to 20%. Including sales from acquired companies, our compounded annual growth rate from fiscal 2004 to fiscal 2008 was approximately 40%. Factors that influence our organic growth rate from year to year include our market growth with existing applications and successful introduction of new applications that allow us to gain market share. In general, we expect the sensor market will continue to expand at a higher rate than overall economic growth as a result of the increase in sensor content in various products across most end markets. While we believe this market will be robust regardless of economic cycles, our customers are clearly impacted by macro-economic trends. Accordingly, we believe our lower organic growth in fiscal 2008 as compared to prior years was in part due to slower growth of our customers in certain markets and regions. Additionally, our historical organic growth has been favorably influenced by the growth of our largest customer, Sensata. However, as a result of an in-sourcing program, we expect sales with Sensata to be relatively flat over the next few years, and therefore reduce our total organic growth as compared to prior years. For fiscal 2009, we expect total sales of approximately $255,000, excluding any additional acquisitions.

Gross margins have trended down over the past several year, largely due to unfavorable product sales mix (both in terms of organic growth and acquired sales) and the impact of the increase in the RMB relative to the U.S. dollar. Growth with Sensata over the past several years, which serves primarily the auto market and carries a lower gross margin than our average, has grown faster than our average growth and therefore contributed to the overall decline in gross margin. Additionally, recent acquisitions have operated with a lower gross margin than our pre-acquisition average, resulting in a decline in the consolidated margin. Finally, given that the Company has more costs than sales denominated in RMB, increases in the RMB relative to the U.S. dollar have resulted in margin erosion. We have also experienced inflationary increases in raw material commodities and wages, and while we have generally been successful in offsetting these increases with productivity gains, inflationary pressures remain a risk. While the sales growth rate in fiscal 2009 will likely be lower than prior years, we anticipate the mix of sales to improve, in part due to lower proportion of anticipated sales from Sensata. For fiscal 2009, we anticipate our overall average gross margins to be in the range of 41% to 43% as compared to gross margins of 41.8% and 43.7% for fiscal years 2008 and 2007, respectively.

While gross margin has declined over the last several years, Selling, General and Administrative expense (“SG&A”) as a percent of sales has declined. We have been successful in leveraging our SG&A expense; growing SG&A expense more slowly than our growth in sales. As a percent of sales, SG&A has declined to 26.5% in fiscal 2008, as compared to 28.1% and 32.1% in fiscal 2007 and 2006, respectively. Given fiscal 2009 sales growth will likely be lower than in past years, as well as a result of higher investment in new programs that are not yet generating sales (such as our new fluid property sensor), we are not expecting improvement in SG&A as a percent of sales in fiscal 2009.

Amortization of acquired intangible assets increased dramatically from fiscal 2004 to fiscal 2007, associated with the acquisitions completed over those periods. Amortization is disproportionately loaded more in the initial year, and therefore amortization expense is higher in the quarters immediately proceeding a transaction, and declines after the first year based on how various intangible assets are valued and amortized. With the acquisition of Intersema and Visyx recently completed, amortization will increase in fiscal 2009 as compared to fiscal 2008 to approximately $5,000.

In addition to the margin exposure as a result of the depreciation of the U.S. dollar due to higher level of costs than sales denominated in RMB, the Company also has foreign currency exchange exposures with balance sheet accounts. When foreign currency exchange rates fluctuate, there is a resulting revaluation of assets and liabilities denominated and accounted for in foreign currencies. Foreign currency exchange expense (“fx”) due to the revaluation of balance sheet accounts with realized fx transactions and unrealized fx translation adjustments has increased sharply in recent years. For example, our Swiss company, Intersema, which uses the Swiss franc as their functional currency, holds cash denominated in foreign currencies (U.S. dollar and Euro). As the Swiss franc appreciates against the US dollar and/or Euro, the cash balances held in those denominations are devalued when stated in terms of Swiss franc. These transaction and translation losses are reflected in our “Foreign Currency Exchange Loss.” Aside from cash, our foreign entities generally hold receivables in foreign currencies, as well as payables. In fiscal 2008, we posted a net expense of $618 in realized and unrealized foreign exchange losses associated with the revaluation of foreign assets held in foreign entities. We would expect to see continued fx expense associated with a weakening U.S. dollar, although we anticipate less change against the Euro in fiscal 2009 as compared to fiscal 2008. We continue to evaluate various global hedging strategies in order to manage this exposure.

Our overall effective tax rate will continue to fluctuate as a result of the allocation of earnings between various taxing jurisdictions with varying tax rates and with changes in tax rates. However, we expect our overall effective tax rate to generally increase due to (a) more of our total income being generated in Europe and the US, which are subject to a higher effective tax rates than our average and (b) an increase in the China effective tax rate due to changes in the China tax law effective January 1, 2008.

The Company expects to continue investing in various capital projects in fiscal 2009 at a rate comparable to fiscal 2008. Excluding the investment in the new China facility, capital spending is expected to remain in the range of 4.5% to 5.0% of sales.

Please refer to Item 1. Business in this Annual Report on Form 10-K for additional details regarding the basis of the trends described above.

ESTABLISHMENT OF OFFSHORE HOLDING COMPANIES

In the quarter ended June 30, 2004, the Company reorganized its Asian operations under an offshore holding company, Kenabell Holding Limited, a British Virgin Island Company (“Kenabell Holding BVI”). As part of the reorganization, a new entity was formed under Kenabell Holding BVI in the Cayman Islands, Measurement Limited (“ML Cayman”). A significant portion of the Consumer business in Asia was transferred into ML Cayman during the quarter ended June 30, 2004. These holding companies were formed as part of a foreign tax planning restructuring, and to facilitate the sale of assets of our Consumer Products business. Accordingly, the gain on sale of the Consumer business was effectively not taxed, since Kenabell Holdings BVI did not conduct business directly in Hong Kong.

Measurement Specialties Sensors (Asia) Limited (formerly named Measurement Limited, organized in Hong Kong) owns all of the shares of Measurement Specialties Sensors (China) Ltd. (formerly named Jingliang Electronics (Shenzhen) Co. Ltd, organized in the Peoples Republic of China). Kenabell Holding BVI owns all of the shares of MSI Sensors (Asia) Limited and ML Cayman was subsequently sold to Fervent Group Limited effective December 1, 2005.

In the quarter ended March 31, 2005, as part of a foreign tax planning restructuring, the Company completed the reorganization of its European subsidiaries, which included Entran SA and Humirel SA. This reorganization involved transferring ownership of these subsidiaries to a Cyprus holding company under Kenabell Holding BVI, named Acalon Holding Limited. In conjunction with this reorganization, the ownership of Kenabell Holding BVI was also transferred to Measurement Specialties Foreign Holdings Corporation, a Delaware corporation. All the companies are included in the consolidated financial statements of the group.

As of September 1, 2006, pursuant to a restructuring of certain of the Company’s European operations, the Company established two new entities: MEAS Europe SAS and its wholly-owned subsidiary, MEAS France SAS. MEAS France SAS is the primary French holding company and is the result of the consolidating and merging of the operations of Entran, Humirel, and ATEX. The reorganization was effected to facilitate improved statutory reporting.

The Company executed a restructuring of BetaTHERM Ireland Limited (“BetaTHERM Ireland”) during the quarter ended March 31, 2007, whereby the ownership of BetaTHERM’s U.S. operation was transferred to Measurement Specialties, Inc. from BetaTHERM Ireland. This reorganization was part of the acquisition, a requirement under our credit facility and provided a more efficient organizational structure for operational and tax purposes

As of April 1, 2007, pursuant to a restructuring of certain of the Company’s European operations, the Company established a new entity: MEAS Germany, which is a subsidiary of MEAS Europe. MEAS Germany is the Company’s German holding company and was the result of the consolidating and merging of the operations of MWS, HLP, and ATEX GmbH. The reorganization was effected to facilitate improved statutory reporting.

CHANGES IN OUR BUSINESS

ACQUISITIONS AND DIVESTURES:

Effective November 20, 2007, the Company acquired certain assets of Visyx Technologies Inc. based in Sunnyvale, California for $1,624. The Seller has the potential to receive up to an additional $2,000 in the form of a contingent payment based on successful commercialization of specified sensors prior to December 31, 2011, and an additional $9,000 earn-out based on a percentage of sales in calendar years 2009, 2010 and 2011. Visyx has sensors based on unique technology that measure fluid properties, including density, viscosity and dielectric constant, for use in heavy truck/off road engines and transmissions, compressors/turbines, refrigeration and air conditioning. Effective December 28, 2007, the Company completed the acquisition of all of the capital stock of Intersema Microsystems S.A., a sensor company headquartered in Bevaix, Switzerland, for $40,160. The selling shareholders have the potential to receive up to an additional $20,000 or 20,000 Swiss francs tied to 2009 earnings growth objectives. Intersema is a designer and manufacturer of pressure sensors and modules with low pressure, harsh media and ultra-small package configurations for use in barometric and sub-sea depth measurement markets. The transaction was financed with borrowings under the Company’s credit facility.

Effective December 1, 2005, we completed the sale of the Consumer segment to Fervent Group Limited (FGL), including its Cayman Island subsidiary, ML Cayman. FGL is a company controlled by the owners of River Display Limited (RDL), our long time partner and primary supplier of consumer products in Shenzhen, China. Accordingly, the related financial statements for the Consumer segment are reported as discontinued operations. All comparisons in Management’s Discussion and Analysis for consolidated statements of operations and consolidated statements of cash flows for each of the fiscal years ended March 31, 2008, 2007 and 2006, and consolidated balance sheets as of March 31, 2008 and 2007, exclude the results of these discontinued operations except as otherwise noted.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Standards:

On July 13, 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes - An Interpretation of SFAS No. 109 . FIN 48 clarifies the accounting for uncertainty in income tax recognized in an enterprise's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new FASB standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted FIN 48 effective April 1, 2007, as disclosed in Note 12 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit and other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires employers to recognize the under funded or over funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur in comprehensive income. This standard also requires measurement of the funded status of a plan as of the date of the statement of financial position. The recognition provisions of SFAS No. 158 were effective for fiscal years ending after December 15, 2006. The measurement provisions of SFAS No. 158 are effective for fiscal years ending after December 15, 2008. There are two approaches to transition to a fiscal year-end measurement date, both of which are applied prospectively. With the purchase of Intersema, the Company acquired a defined benefit pension plan. The Company applied the recognition provisions of SFAS No. 158 as of the purchase date and for the year ended March 31, 2008.

Recently Issued Accounting Pronouncements:

In December 2007, the FASB issued FASB Statement No. 141 (Revised 2007), Business Combinations (“SFAS No. 141R”) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment to ARB No. 51 (SFAS No. 160). SFAS No. 141R and SFAS No. 160 require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. Both Statements are effective for periods beginning on or after December 15, 2008, and earlier adoption is prohibited. SFAS No. 141R will be applied to business combinations occurring after the effective date. SFAS No. 160 will be applied prospectively to all noncontrolling interests, including any that arose before the effective date. The Company is currently evaluating the impact of adopting SFAS No. 141R and SFAS No. 160 on its results of operations and financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements . This new standard provides guidance for using fair value to measure assets and liabilities. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances.

Currently, over 40 accounting standards within GAAP require (or permit) entities to measure assets and liabilities at fair value. Prior to SFAS No. 157, the methods for measuring fair value were diverse and inconsistent, especially for items that are not actively traded. The standard clarifies that for items that are not actively traded, such as certain kinds of derivatives, fair value should reflect the price in a transaction with a market participant, including an adjustment for risk, not just the company's mark-to-market value. SFAS No. 157 also requires expanded disclosure of the effect on earnings for items measured using unobservable data.

Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS No. 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity's own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.

The provisions of SFAS No. 157 are effective for the Company beginning April 1, 2008. The Company is currently quantifying the impact of SFAS No. 157 on its financial statements, but the Company does not expect the adoption of SFAS No. 157 will have a material impact on its results of operations and financial condition.

On February 12, 2007, the FASB issued FASB Staff Positions that delay for one year the applicability of SFAS No. 157’s fair-value measurement requirements to some nonfinancial assets and liabilities, exclude most lease accounting fair-value measurements from SFAS No. 157’s scope, and defer the effective date of the AICPA Statement of Position that defines “investment company” for purposes of applying the industry-specific guidance in an AICPA guide.

In February 2007, the FASB issued SFAS No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB SFAS No. 115 ” (SFAS No. 159). SFAS No. 159 expands the use of fair value accounting but does not affect existing standards that require assets or liabilities to be carried at fair value. Under SFAS No. 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, such as debt issuance costs. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS No. 159, changes in fair value are recognized in earnings. SFAS No. 159 is effective for the Company beginning April 1, 2008. Management is currently evaluating the effect that the adoption of SFAS No. 159 will have on the Company’s financial statements, but the Company does not expect the adoption of SFAS No. 159 will have a material impact on its results of operations and financial condition.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. The following accounting policies involve “critical accounting estimates” because they are particularly dependent on estimates and assumptions made by management about matters that are highly uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period, or changes in the accounting estimates we used are reasonably likely to occur from period to period which may have a material impact on the presentation of our financial condition and results of operations. We review these estimates and assumptions periodically and reflect the effects of revisions in the period that they are determined to be necessary.

REVENUE RECOGNITION:

Revenue is recognized when earned, which occurs when the following four conditions are met: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the price to the buyer is fixed or determinable; and (iv) collectability is reasonably assured. Certain products may be sold with a provision allowing the customer to return a portion of products. The Company provides for allowances for returns based upon historical and estimated return rates. The amount of actual returns could differ from estimates. Changes in estimated returns would be accounted for in the period of change.

The Company utilizes manufacturing representatives as sales agents for certain of its products. Such representatives do not receive orders directly from customers, take title to or physical possession of products, or invoice customers. Accordingly, revenue is recognized upon shipment to the customer.

On January 30, 2004, Conair Corporation purchased certain assets of the Company’s Thinner® branded bathroom and kitchen scale business, including worldwide rights to the Thinner® brand name and exclusive rights to the Thinner® designs in North America. The Company has accounted for the sale of this business under the guidance of Emerging Issues Task Force ( “ EITF ” ) 00-21. As a significant portion of the proceeds from the sale was in fact an up-front payment for future lost margins, the majority of the gain on sale has been deferred and was amortized into revenues in future periods over the estimated remaining lives for those products sold to Conair. (See Note 6 to the Consolidated Financial Statements of the Company included in this Annual Report on Form 10-K for a discussion of the sale of the business to Conair).

ACCOUNTS RECEIVABLE:

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The majority of the Company’s accounts receivable is due from manufacturers of electronic, automotive, military and industrial products. Credit is extended based on an evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are generally due within 30 to 90 days and are stated at amounts due from customers net of allowances for doubtful accounts and other sales allowances. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Amounts collected on trade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company reviews its allowance for doubtful accounts quarterly. Actual uncollectible accounts could exceed the Company’s estimates and changes to its estimates will be accounted for in the period of change. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.



MANAGEMENT DISCUSSION FOR LATEST QUARTER


INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Certain information included or incorporated by reference in this Quarterly Report may be deemed to be “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding: projections of revenue, margins, expenses, tax provisions (or reversals of tax provisions), earnings or losses from operations, cash flows, synergies or other financial items; plans, strategies and objectives of management for future operations, including statements relating to potential acquisitions, executive compensation and purchase commitments; developments, performance or industry or market rankings relating to products or services; future economic conditions or performance; the outcome of outstanding claims or legal proceedings; assumptions underlying any of the foregoing; and any other statements that address activities, events or developments that Measurement Specialties, Inc. (“MEAS”, the “Company,” “we,” “us,” “our”) intends, expects, projects, believes or anticipates will or may occur in the future. Forward-looking statements may be characterized by terminology such as “forecast,” “believe,” “anticipate,” “should,” “would,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy,” and similar expressions. These statements are based on assumptions and assessments made by our management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

Any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, many of which are beyond our control. Actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. These forward-looking statements speak only as of the date of the report, press release, statement, document, webcast or oral discussion in which they are made. Factors that might cause actual results to differ materially from the expected results described in or underlying our forward-looking statements include:



Conditions in the general economy and in the markets served by us;



Competitive factors, such as price pressures and the potential emergence of rival technologies;



Interruptions of suppliers’ operations or the refusal of our suppliers to provide us with component materials;



Timely development, market acceptance and warranty performance of new products;



Changes in product mix, costs and yields and fluctuations in foreign currency exchange rates;



Uncertainties related to doing business in Europe and China;



Legislative initiatives, including tax legislation and other changes in the Company’s tax position;



Legal proceedings, and



The risk factors listed from time to time in the reports we file with the Securities and Exchange Commission (“SEC”), including those described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2008.

This list is not exhaustive. Except as required under federal securities laws and the rules and regulations promulgated by the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the filing of this Quarterly Report on Form 10-Q, whether as a result of new information, future events, changes in assumptions or otherwise.

OVERVIEW

Measurement Specialties, Inc. is a leader in the design, development and manufacture of sensors and sensor-based systems for original equipment manufacturers and end users, based on a broad portfolio of proprietary technology. The Company is a multi-national corporation with nine primary manufacturing facilities strategically located in the United States, China, France, Ireland, Germany and Switzerland, enabling the Company to produce and market world-wide a broad range of sensors that use advanced technologies to measure precise ranges of physical characteristics. These sensors are used for automotive, medical, consumer, military/aerospace, and industrial applications. The Company’s sensor products include pressure sensors and transducers, linear/rotary position sensors, piezoelectric polymer film sensors, custom microstructures, load cells, accelerometers, optical sensors, humidity and temperature sensors. The Company's advanced technologies include piezo-resistive silicon sensors, application-specific integrated circuits, micro-electromechanical systems, piezoelectric polymers, foil strain gauges, force balance systems, fluid capacitive devices, linear and rotational variable differential transformers, electromagnetic displacement sensors, hygroscopic capacitive sensors, ultrasonic sensors, optical sensors, negative thermal coefficient ceramic sensors and mechanical resonators.

Effective December 1, 2005, we completed the sale of our Consumer segment, including our Cayman Island subsidiary, Measurement Limited (“ML”), to Fervent Group Limited (“FGL”). FGL is a company controlled by the owners of River Display Limited, our long time partner and primary supplier of consumer products in Shenzhen, China. Accordingly, the related financial statements for the Consumer segment are reported as discontinued operations. All comparisons in Management’s Discussion and Analysis for each of the periods ended September 30, 2008 and 2007, exclude the results of these discontinued operations except as otherwise noted.

EXECUTIVE SUMMARY

Over the past four fiscal years, the Company has grown sales as a result of consistent organic growth and growth through acquisitions. We have consummated twelve acquisitions since June 2004 with a cumulative purchase price exceeding $154,000, establishing new lines of business and/or expanding our geographic footprint. During our second quarter, sales growth has been influenced by curtailed spending by several of our top customers in large part due to the overall global economic conditions and tight credit markets. Customers tied to passenger and non-passenger vehicle, consumer product, residential/commercial construction, semiconductor, and commercial product markets are all generally reducing forecasts and delaying orders. As such, the Company’s current organic growth rate is lower than historical levels and previous estimates.

Consistent with our strategy to expand our product portfolio and global footprint, we completed two acquisitions in fiscal 2008. In November 2007, we acquired the assets of Visyx, including novel intellectual property that utilizes a mechanical resonator to measure fluid properties. Under the leadership of our Humidity/Chemical Gas/Temperature/Optical Group (“HTG”) in Toulouse, we have been able to advance the program and introduce production-ready prototypes to the market. While we are very enthusiastic about our progress and the initial customer commitment, we do not anticipate generating material sales until calendar year 2009, and accordingly, the investment being made in this technology negatively influenced operating results in fiscal 2008 and the first half of fiscal 2009. In December 2007, we acquired Intersema, a manufacturer of pressure sensors and modules. As a result of front-end loaded amortization, higher interest due to increased debt, significant appreciation of the Swiss franc from acquisition date, and specific integration and short term operating issues, Intersema’s operating results underperformed relative to our expectations. Despite the shortfall from our expectations, we believe we will see meaningful positive earnings per share (“EPS”) contribution for these acquisitions in fiscal 2010 and beyond.

To support the Intersema acquisition and future acquisition opportunities, we expanded our revolving credit facility in December 2007 by $66,000 to $121,000. As a result, we have approximately $67,000 available under the revolving facility which is limited by covenants to $65,000, as well as $22,714 in cash. We expect to continue our acquisition strategy in fiscal 2009 and beyond and we believe our strong liquidity positions us well to capitalize on opportunities that will likely arise as a result of the challenging market conditions.

A core tenet of our strategy is providing customized solutions to our customers. To cost effectively deliver this service, we have expanded our infrastructure in China considerably. Today, products generating approximately 60% of our net sales are manufactured in China and nearly 70% of our global employees are in our China operation. Given our commitment to the region in general, and Shenzhen in particular, and in order to mitigate the continued lease cost escalation in the future and add adequate room for expansion, we made the decision two years ago to lease property in Shenzhen and build a new manufacturing facility and Asian headquarters. We began construction on a 230,000 square foot facility last March, and expect to complete construction in late calendar 2008. The total estimated investment in the new facility is $12,000, at the upper end of our initial estimated range when stated in U.S. dollars, largely due to the appreciation of the Chinese renminbi (“RMB”). In addition to providing a low cost operation from which we can support other regions of the world, we believe our operation in China provides a gateway to drive increased sales in China and Asia. Our local sales in China, while relatively small today, are expanding at nearly twice the rate of our overall growth rate, and remain a key area of opportunity for the Company.

TRENDS

There are a number of trends that we expect will likely have material effects on the Company in the future, including sales growth, costs, capital spending, changes in foreign currency exchange rates relative to the U.S. dollar, changes in debt levels and interest rates, global economic conditions and shifts in effective tax rates. Additionally, sales and results of operations could be impacted by additional acquisitions, though there is no specific timetable for any such transaction.

Over the past 5 years, we have enjoyed annual organic sales growth ranging from 12% in fiscal 2008 to as high as 20% in previous years. Including sales from acquired companies, our compounded annual growth rate from fiscal 2004 to fiscal 2008 was approximately 40%. Factors that influence our organic growth rate from year to year include our market growth with existing applications and successful introduction of new products and applications that allow us to gain market share. In general, we expect the sensor market will continue to expand at a higher rate than overall economic growth as a result of the increase in sensor content in various products across most end markets. However, our customers are clearly impacted by macro-economic trends. Accordingly, we believe our lower organic growth in fiscal 2008 as compared to prior years was in part due to slower growth of our customers in certain markets and regions. Additionally, our historical organic growth has been favorably influenced by the growth of our largest customer, Sensata; however, due to the weak automotive market as well as Sensata's insourcing program, we expect Sensata's sales to decline relative to prior years. Given an overall economic environment that remains unpredictable and challenging, we are expecting reduced organic sales growth for the remainder of fiscal 2009. Accordingly, we expect to fall short of our prior full year sales guidance of $255 million and our prior full year earnings guidance of $1.30 per share, and we are not prepared to provide updated guidance at this time.

Gross margins have trended down over the past several years, largely due to unfavorable product sales mix (both in terms of organic growth and acquired sales) and the impact of the increase in the value of the RMB relative to the U.S. dollar. Growth with Sensata over the past several years, which serves primarily the auto market and carries a lower gross margin than our average, has grown faster than our average growth and therefore contributed to the overall decline in gross margin. Additionally, recent acquisitions have operated with a lower gross margin than our pre-acquisition average, resulting in a decline in the consolidated margin. Finally, given that the Company has more costs than sales denominated in RMB (short RMB position), increases in the RMB relative to the U.S. dollar have resulted in margin erosion. During the second quarter of fiscal 2009, the Company entered into four deliverable forward contracts spanning twelve months with a notional amount totaling $20,000 in an attempt to hedge a large portion of the short RMB position. We have also experienced inflationary increases in raw material commodities and wages (particularly in China), and while we have generally been successful in offsetting these increases with productivity gains, inflationary pressures remain a risk and concern in fiscal 2009. While the sales growth rate in fiscal 2009 will likely be lower than prior years, we anticipate the mix of sales to improve, in part due to lower proportion of anticipated sales from Sensata. For fiscal 2009, we anticipate our overall average gross margins to be in the range of 41% to 44% as compared to gross margins of 41.8% and 43.7% for fiscal years 2008 and 2007, respectively.

While gross margin has declined over the last several years, Selling, General and Administrative expense (“SG&A”) as a percent of sales has also declined. We have been successful in leveraging our SG&A expense, growing SG&A expense more slowly than our growth in sales. As a percent of sales, SG&A has declined to 26.5% in fiscal 2008, as compared to 28.1% and 32.1% in fiscal 2007 and 2006, respectively. Given fiscal 2009 sales growth will likely be lower than in past years, as well as a result of higher investment in new programs that are not yet generating sales (such as our new fluid property sensor), we are expecting SG&A as a percent of sales in fiscal 2009 to increase.

Amortization of acquired intangible assets increased dramatically from fiscal 2004 to fiscal 2007, associated with the acquisitions completed over those periods. Amortization is disproportionately loaded more in the initial year of the acquisition, and therefore amortization expense is higher in the quarters immediately following a transaction, and declines after the first year based on how various intangible assets are valued and amortized. With the acquisition of Intersema and Visyx recently completed, amortization will increase in fiscal 2009 as compared to fiscal 2008 to approximately $5,000.

In addition to the margin exposure as a result of the depreciation of the U.S. dollar due to higher level of costs than sales denominated in RMB, the Company also has foreign currency exchange exposures with balance sheet accounts. When foreign currency exchange rates fluctuate, there is a resulting revaluation of assets and liabilities denominated and accounted for in foreign currencies. Foreign currency exchange (“fx”) expense due to the revaluation of local subsidiary balance sheet accounts with realized fx transactions and unrealized fx translation adjustments has increased sharply in recent years. For example, our Swiss company, Intersema, which uses the Swiss franc as their functional currency, holds cash denominated in foreign currencies (U.S. dollar and Euro). As the Swiss franc appreciates against the U.S. dollar and/or Euro, the cash balances held in those denominations are devalued when stated in terms of Swiss franc. These transaction and translation losses are reflected in our “Foreign Currency Exchange Loss.” Aside from cash, our foreign entities generally hold receivables in foreign currencies, as well as payables. In fiscal 2008, we posted a net expense of $618 in realized and unrealized foreign exchange losses associated with the revaluation of foreign assets held in foreign entities. We would expect to see continued fx expense associated with a weakening U.S. dollar. We continue to evaluate various global hedging strategies in order to manage this exposure.

Our overall effective tax rate will continue to fluctuate as a result of the allocation of earnings between various taxing jurisdictions with varying tax rates and with changes in tax rates. However, we expect our overall effective tax rate to generally increase due to more of our total income being generated in Europe and the United States, which are subject to higher effective tax rates than our average and an increase in the China effective tax rate due to changes in the China tax law effective January 1, 2008.

The Company expects to continue investing in various capital projects in fiscal 2009 at a rate comparable to fiscal 2008. Excluding the investment in the new China facility, capital spending is expected to remain in the range of 4.5% to 5.0% of sales.

RESULTS OF CONTINUING OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2007

Net Sales: Net sales for the quarter increased 4.3% or $2,426 from $56,462 to $58,888. The overall increase in sales is due to sales from the Intersema acquisition. Organic sales, which is defined as net sales excluding sales attributed to Visyx and Intersema, which we acquired in fiscal 2008 (the “2008 Acquisitions”), declined $1,770 or 3%. Overall organic sales for fiscal 2009 were expected to be lower than the past few years; however, we have revised our expectation for lower organic sales downward further due primarily to the challenging global economic situation and uncertainty.

The Company is seeing softening of demand for sensors due to macro-economic conditions, but we believe our diverse product offering and customer base will help the Company during difficult economic periods. All four business groups registered declines in organic sales in the quarter ended September 30, 2008 as compared to the quarter ended September 30, 2007, due in large part to the current economic environment. Humidity/Chemical Gas/Temperature/Optical Group (HTG) sales decreased mostly due to the $845 decrease in Temperature and Optical sales. Optical sales were impacted by the loss of a medical customer, and Humidity sales also decreased slightly during the quarter due to the effects of the economy. Position/Vibration Group sales decreased $414, primarily reflecting the loss of a Position customer. Pressure/Force Group (PFG) organic sales decreased $562 during the quarter due mainly to the decline in sales with Sensata, our largest customer, resulting from, among other things, Sensata’s efforts to reduce inventory.

Gross Margin: Gross margin (gross profit as a percent of net sales) improved to approximately 42.5% for the quarter ended September 30, 2008 from 41.4% during the quarter ended September 30, 2007. The increase in margin is due to several factors, including product sales mix and certain cost control measures, and is partially offset by the strengthening of the Chinese renminbi (“RMB”) and higher costs resulting from increased prices for oil and other commodities. The more favorable product sales mix is largely associated with lower proportion of sales of lower gross margin products. This would include sales to our largest customer, Sensata, which primarily serves the automotive market and carries a lower gross margin than our average. The average RMB exchange rate relative to the U.S. dollar for the three months ended September 30, 2008 appreciated approximately 9.5% as compared to the same period last year. This translates to approximately $1,767 in annualized margin erosion.

On a continuing basis, our gross margin may vary due to product mix, sales volume, availability of raw materials, foreign currency exchange rates, and other factors.

Operating Expense and Selling, General and Administrative: Overall, total operating expenses increased $2,424 or 15.1% to $18,510 largely due to costs associated with 2008 Acquisitions. As a percent of net sales, operating expenses increased to 31.4% from 28.5%. The increase in operating expenses as a percent of net sales is due to costs increasing at a higher rate as compared to net sales, which is the resulting impact of lower organic sales, and higher salaries, amortization and professional fees and other costs directly related to 2008 Acquisitions.

SG&A expenses increased $1,899 or 13.1% to $16,425 for the three months ended September 30, 2008 from $14,526 for the same period last year. As a percentage of net sales, SG&A expenses increased to 27.9% from approximately 25.8%. The largest increases were with selling and marketing expenses, wages and professional fees. Higher wages reflect, among other things, additional salaries with 2008 Acquisitions, as well as professional fees and related integration costs. Approximately $996 of the $1,899 increase in SG&A was associated with fiscal 2008 Acquisitions.

Stock Option Expense: Stock option expense decreased $94 to $726 from $820 for the three months ended September 30, 2008 compared to the three months ended September 30, 2007. The decrease in option expense is due to the ratable (i.e., higher expense recognition during the front-end) recognition of non-cash equity based compensation under SFAS No. 123R, Share-Based Payment from the prior year issuance of options under the long-term contract with our Chief Financial Officer. Total compensation cost related to share based payments not yet recognized totaled $3,217 at September 30, 2008, which is expected to be recognized over a weighted average period of approximately 1.6 years.

Amortization of acquired intangibles : Amortization of acquired intangible assets increased $619 to $1,359 for the three months ended September 30, 2008 as compared to $740 for the three months ended September 30, 2007, which is mainly due to higher amortization expense associated with the 2008 Acquisitions. Amortization expense for intangible assets is higher during the first year after an acquisition because, among other things, the order back-log is fully amortized during the initial year.

Interest expense, net: Interest expense decreased $401 to $806 for the three months ended September 30, 2008 from $1,207 during the three months ended September 30, 2007. The decrease in interest expense is primarily attributable to the decrease in interest rates from 7.7% last year to 4.8% this year, partially offset by an increase in the average total outstanding debt from an average amount outstanding of $56,793 during the three months ended September 30, 2007 to $73,268 during the three months ended September 30, 2008.

Foreign Currency Exchange Loss: The increase in foreign currency exchange loss mainly reflects the continued impact to the appreciation of the RMB relative to the U.S. dollar, as well as impact of the appreciation of the U.S. dollar relative to the Euro and Swiss franc.

During the second quarter of fiscal 2009, the Company entered into a number of forward contracts with a notional amount totaling $20,000 in an attempt to hedge a large portion of the short RMB position.

Other expense and income: Other expense and income consist of various non-operating items, including sales of tooling and other miscellaneous income and expense items. Other expense and income fluctuated from income of $134 to an expense of $68 for the quarter ended September 30, 2008, mainly due to lower levels of tooling sales and higher level of miscellaneous expenses.


Income Taxes: Total income tax expense during the second quarter of fiscal 2009 decreased $924 to $1,446, as compared to $2,370 for the second quarter of fiscal 2008. The decrease in income tax expense is mainly due to a discrete tax adjustment during the prior year, partially offset by a higher overall estimated annual effective tax rate for fiscal 2009.

Our overall effective tax rate (income tax from continuing operations divided by income from continuing operations before income taxes) was approximately 28% for the three months ended September 30, 2008. Income tax expense for interim reporting is based on an estimated overall effective tax rate for the entire fiscal year. The Company’s overall effective tax rate without discrete adjustments for fiscal 2009 is estimated to be approximately 28%, as compared to 24% during the same period last year. Excluding the impact of the discrete non-cash tax adjustment in the prior year, the estimated overall effective income tax rate has been impacted by a higher portion of taxable income expected to be earned in tax jurisdictions with higher tax rates as compared to the prior year. The shift of taxable earnings is mainly a result of our forecast of higher earnings in the United States and Europe, as a result of continued cost controls, operating leverage and lower interest expense in those jurisdictions, in addition to the recent increase in the tax rates in China. The overall estimated effective tax rate is based on expectations and other estimates and involves complex domestic and foreign tax issues, which the Company monitors closely, but which are subject to change.


CONF CALL

Frank Guidone

Let me start this morning by reading our Safe Harbor Provisions. Management wishes to caution investors that certain statements made on today's call are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995; Section 27A of the Securities Act of 1933, as amended; and Section 21E of the Securities and Exchange Act of 1934, as amended.

Forward-looking statements may be identified by such words or phrases as "believe," "expect," "intend," "estimate," "anticipate," "project," "will," "may," and similar expressions. All statements that address operating performance, events, or developments that we expect or anticipate will occur in the future are forwardlooking statements. Forward-looking statements used herein are not guarantees of future performance and involve a number of risks and uncertainties. Please refer to the "Risk Factors" outlined in the company's SEC reports for more detail.

The company, from time to time, considers acquiring or disposing of business or product lines; the forward-looking statements do not include the impact of acquisitions or disposition of assets, which could affect results in the near term. Actual results may differ materially, and the company assumes no obligation to update the information provided in today's call. Unless otherwise noted, all discussions and references in today's call reflect continuing operations only.

With that, let's get started. I am going to make a few highlevel comments and observations this morning and then turn the call over to Mark.

From a sales perspective, total sales for the first quarter of fiscal 2009 were $59 million which is up 11% over the same period last year. Excluding the sales from Intersema which was $4.1 million in the first quarter, sales increased $1.7 million or 3.2%, which would be defined as our organic growth. Given our strongerthanexpected fiscal 2008 fourth quarter, last quarter, we were anticipating a relatively weak first quarter, so this is consistent with our expectations.

Our top 50 customers, which represent close to 50% of our total sales, declined slightly quartertoquarter. Virtually all of this decline can be attributed to two lost customers suggesting that there are a lot of puts and takes with respect to the individual customers, but the overall top 50 are basically flat periodtoperiod.

We would generally expect to see some net growth in our top 50 customer base, so we believe the flat performance of this group of customers is in part a reflection of our somewhat seasonal business and in part a reflection of the generally weak U.S. economy.

As of July 31, our total backlog was $73.9 million, an increase of $3.8 million or 5.4% over March 31. Growing backlog is, of course, a positive indicator supporting our forecasted increase in sales in the second quarter.

Continued weakness of the dollar remains a challenge. The Chinese renminbi appreciated 10.4% from the first quarter 2008 to the first quarter 2009, while the Euro appreciated 15.9% over the same period. As compared to the last quarter, as compared to the fourth quarter, the renminbi appreciated 3% and the Euro 4.4%. This creates not only margin pressure, particularly with respect to the renminbi, but also higher SG&A when stated in U.S. dollars.

For example, a European site with 1 million Euro of SG&A expense last year, they still have 1 million Euro with SG&A expense this year. However, stated in U.S. dollars, you would have seen an increase of $160,000. SG&A expense did increase over last year as well as over last quarter, largely as a result of the weak dollar and higher translation of Euro and renminbi denominated SG&A expense.

As compared to Q1 of 2008, SG&A increased $2.5 million. Of that increase, approximately $1.6 million was associated with the Intersema and Visyx acquisitions and roughly $800,000 was associated with the FX translation expense as we just explained. Excluding those two items, the actual increase in SG&A was really negligible.

We're seeing an increase in cost pressure as a result of higher fuel utility costs and commodity pricing; however, despite these pressures, favorable mix and continued emphasis on material cost reductions allowed us to improve gross margin nearly 200 basis points over Q4. We think this is a very positive trend.

Adjusted EBITDA at $10.1 million was solid for the quarter, particularly given the soft sales. Based on the forecasted increase in sales in Q2 and beyond, we reiterate our guidance of $45 million to $50 million in adjusted EBITDA for the full fiscal year. Free cash flow, at $6 million, was quite good as a result of the strong sales in Q4 and associated collections this quarter, partially offset by an increase in capital spending and inventory build in preparation for our China facility move. We think this gets us off on the right foot and positions us well to exceed our 2008 free cash flow of $20.4 million.

As previously disclosed, Sensata, who is our largest customer, has been concerned about the solesource situation with MEAS for quite some time. We've been cooperatively working on an insource program where Sensata has established internal capacity to reduce a portion of the volume currently supplied by MEAS. The insourcing by Sensata is transitioning a little slower than expected and, accordingly, Sensata sales were up in the first fiscal quarter of 2009 as compared to last year. We still expect the full fiscal year sales with Sensata to be flat or slightly down.

The new China building project is nearing completion. We're having some delays finishing the drive work due to record rains hitting south China, but have most of the major mechanical and electrical approvals at this time. Based on current estimates, we believe we will be operational in the new facility by calendar yearend.

Although growth with existing business has slowed somewhat, evidenced by our top 50 customers being flat quarter-to-quarter and customers are generally cautious to assign resources to new opportunities until the economic environment improves, we maintain a full pipeline of new opportunities and reiterate or FY09 guidance of $255 million in net sales and $1.30 EPS. This represents a 12% increase over fiscal 2008. However, adjusting in sales a 12% increase in sales over fiscal 2008 adjusting for the full year effect of Intersema, organic growth is expected to be around 6%.

As previously stated, we expect Sensata sales to be flat to down year-on-year, while nonSensata business is expected to post high single or low doubledigit growth.

We're making good progress on our fluid property sensor technology acquired from Visyx last year. We received prototype funding and two verbal commitments from major diesel engine manufacturers. The product has undergone field test trials, and we expect to begin volume production in 2009 calendar.

Applications include monitoring oil quality for heavy truck, to optimize pan changes, as well as fuel system monitoring in support of NOS emission reduction. With respect to Intersema, performance improved modestly over the fourth quarter. We're now in full production with the new electronics, as discussed in our last call; and we expect that, along with seasonally stronger sales, to drive meaningful improvement in performance in the second quarter and for the remainder of the fiscal year. With that, I will turn the call over to Mark.

Mark Thomson

Net sales for the quarter increased $5.8 million to $59.0 million, an 11% increase over the same period last year. Excluding sales from the Intersema acquisition completed in fiscal 2008 of $4.1 million, organic sales increased $1.7 million or 3%. Relative to the prior quarter, sales were down $3.8 million or 6%. However, as noted by Frank earlier, this sales pattern was expected, given the company's strongest quarter is generally Q4 and Q1 tends to be flat to down on the relative basis.

As noted during our last investor call, there are several factors that will influence fiscal 2009 sales, including (a) the insourcing program with Sensata and their associated decline versus historical growth in sales; {b) the general cautiousness with customers regarding existing and new programs due to the current economic environment; and (c) the loss of a low margin SP02 program to a competitor.

Although we're seeing some softening in the demand in market verticals including auto, heavy truck, semiconductor and construction, we remain very positive about our ability to perform in the current economic condition. Our backlog is strong, and our new product opportunities will continue to bolster growth.

Gross margin for the quarter was 42.8% and slightly down compared to the corresponding period last year. Relative to the prior quarter, our gross margin increased 190 basis points despite the continued weakening dollar, heavy RMB, and continued growth in Sensata sales which carry lower margin than other product line averages.

The major drivers of gross margin continued to be product sales mix; foreign exchange, driven by the appreciation of the RMB relative to the U.S. dollar; and the impact of various costs results from higher prices for oil and other commodities.

As noted by Frank, the dollar continues to weaken against the RMB. The RMB appreciated approximately 3% during Q1, which translates into approximately $660,000 of annual margin erosion. We continue to evaluate both natural and formal hedges to improve the foreign exchange exposure against the RMB. Historically, pricing of formal hedges have precluded the company from entering into derivative arrangements. However, recent pricing of four deliverable contracts on shore in China have come down; and we're strongly considering entering into formal hedges to reduce our RMB exposure.

We expect fiscal 2009 gross margins to fluctuate between 42% and 44%, mainly driven by improved sales mix, which is strongly influenced by the lower Sensata sales as a percentage of total sales; and gross margins generally by Intersema will favorably influence the business as they're expected to exceed historical company averages in the second half of fiscal 2009.

Overall, total operating expenses increased $3 million, or 18%, to $19.6 million; and adjusted SG&A increased $2.5 million, or 16.4%, to $17.4 million for the quarter, as compared to the same period last year. These increases are largely due to costs associated with acquisitions and foreign exchange translation. Relative to the prior quarter, adjusted SG&A increased $0.8 million or 4.8% and, as Frank noted, this is mainly driven by foreign exchange.

As a percentage of sales, adjusted SG&A increased to 29.5% of sales. Although adjusted SG&A as a percentage of sales is higher than our past quarters' historical averages, this is driven largely by lower sales in Q1; and we expect future SG&A leverage to be more in line with prior quarters' historical averages.

The company's cash balance at June 30, 2008, was approximately $26.8 million, which reflects an increase of $5.2 million since the beginning of the year. The increase in cash balance is largely attributable to the increase in cash balances in China, roughly $4.5 million, due to funding requirements in support of the China facility.

Although we didn't reduce our revolver balance during the quarter, our cash position remains strong. Our revolver balance is approximately $58.2 million at June 30, 2008, and open availability under the revolver is approximately $63 million.

Our incremental borrowing rate is approximately 4.8%. Cash generated from operations during the quarter was $9.3 million and relatively flat as compared to the same period last year.

While the cash provided by operations didn't fluctuate significantly relative to the prior year, there were fluctuations in the number of categories which offset one another.

Positive operating cash flows during the quarter resulted from improvement in collections of accounts receivable, which in part were offset by higher inventory balances based on a planned buildup in support of the China facility move.

The company continues to focus on working capital management and believes it will generate strong cash flows in fiscal 2009. Free cash flow, defined as cash flow from operations less capital expenditures, decreased by $1.0 million to $6 million during the quarter as compared to the same period last year. The driver of this decrease was an increase in capital spending. The company invested $3.3 million or 5.6% of sales in the first quarter, largely attributable to the China facility and machinery and equipment in support of sales growth.

We expected to spend between $5 million and $6 million in fiscal 2009 on the China building. Excluding the China facility project, we expect capital expenditures to run between 4% to 5% of sales.

Total income tax expense during the first quarter increased $0.3 million to $1.5 million as compared to the same period last year. The increase in income tax expense is primarily attributable to the overall increase in the estimated consolidated effective tax rate. Excluding discrete tax adjustments, including, among other things, changes in tax laws, return to accrual adjustment, and tax liability corrections, the overall annual effective tax rate in fiscal 2008, prior year, was approximately 24% as compared to our estimate for fiscal 2009 of 28%. The company's overall effective tax rate increase has been impacted by a higher portion of taxable income earned in tax jurisdictions with higher tax rates as compared to fiscal 2008, as well as the impact of the China tax law changes.

The China tax authorities continue to publish tax circulars which provide further guidance on tax law changes and qualification criteria for high technology or hightech status; however, nothing is definitive at this point. The company continues to pursue continued qualification as a hightech enterprise with the Chinese authorities. If the company obtains hightech status, the effective income tax rate will be 15%.

Lastly, as noted in previous calls, it's important to note that the company has a sizable net operating loss carried forward balances. These NOLs are both in Germany and the U.S. At the end of our fiscal 2008, Germany and the U.S. had NOLs of approximately $13 million and $16 million, respectively. These NOLs have a favorable impact on actual taxes paid and remain a large benefit to the company.

With that, I will turn it back over to you, Frank.

Frank Guidone

We will now open the call up for some questions.

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