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EX-10.1 - EX-10.1 - Mirion Technologies, Inc.f51382a1exv10w1.htm
EX-23.1 - EX-23.1 - Mirion Technologies, Inc.f51382a1exv23w1.htm
EX-10.8 - EX-10.8 - Mirion Technologies, Inc.f51382a1exv10w8.htm
EX-10.10 - EX-10.10 - Mirion Technologies, Inc.f51382a1exv10w10.htm
EX-10.8.1 - EX-10.8.1 - Mirion Technologies, Inc.f51382a1exv10w8w1.htm
EX-10.8.2 - EX-10.8.2 - Mirion Technologies, Inc.f51382a1exv10w8w2.htm
EX-10.19.2 - EX-10.19.2 - Mirion Technologies, Inc.f51382a1exv10w19w2.htm
EX-10.3.12 - EX-10.3.12 - Mirion Technologies, Inc.f51382a1exv10w3w12.htm
EX-10.4.10 - EX-10.4.10 - Mirion Technologies, Inc.f51382a1exv10w4w10.htm
EX-10.2.10 - EX-10.2.10 - Mirion Technologies, Inc.f51382a1exv10w2w10.htm
EX-10.9 - EX-10.9 - Mirion Technologies, Inc.f51382a1exv10w9.htm
Table of Contents

As filed with the Securities and Exchange Commission on October 16, 2009
Registration No. 333-161329
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
Amendment No. 1
to
 
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
 
 
MIRION TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
         
Delaware
  3829   20-3979555
(State or Other Jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
Incorporation or Organization)
  Classification Code Number)   Identification Number)
 
3000 Executive Parkway, Suite 222
San Ramon, CA 94583
(925) 543-0800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
 
 
 
Jack A. Pacheco
Vice President and Chief Financial Officer
Mirion Technologies, Inc.
3000 Executive Parkway, Suite 222
San Ramon, CA 94583
(925) 543-0800
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
 
 
 
 
Copies to:
     
Alan F. Denenberg, Esq. 
  Tad J. Freese, Esq.
Davis Polk & Wardwell LLP
  Latham & Watkins LLP
1600 El Camino Real
  140 Scott Drive
Menlo Park, CA 94025
  Menlo Park, CA 94025
(650) 752-2000
  (650) 328-4600
     
 
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
CALCULATION OF REGISTRATION FEE
 
                     
      Proposed Maximum
     
Title of Each Class
    Aggregate Offering
    Amount of
of Securities to be Registered     Price(1)(2)     Registration Fee(3)
Common stock, par value $0.001 per share
    $ 100,000,000       $ 5,580  
                     
 
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
 
(2) Includes shares of common stock which may be purchased by the underwriters to cover over-allotments, if any.
 
(3) Previously paid.
 
 
 
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION, DATED OCTOBER 16, 2009
 
(MIRION TECHNOLOGIES, INC. LOGO)
 
           Shares
 
Mirion Technologies, Inc.
 
Common Stock
 
 
 
This is an initial public offering of shares of common stock of Mirion Technologies, Inc.
 
We are selling           shares of common stock.
 
Prior to this offering, there has been no public market for our common stock. We expect the initial public offering price to be between $      and $      per share. We will apply to list our common stock for quotation on the NASDAQ Global Market under the symbol “MION.”
 
We have granted the underwriters an option to purchase a maximum of          additional shares of common stock. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.
 
Investing in our common stock involves risks. See “Risk Factors” on page 8.
 
             
        Underwriting
   
    Price to
  Discounts and
  Proceeds to
    Public   Commissions   Us
 
Per Share
  $               $               $            
Total
  $               $               $            
 
Delivery of the shares of common stock in book-entry form only will be made on or about          , 2009.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
 
         
Credit Suisse
  BofA Merrill Lynch   J.P. Morgan
 
 
Robert W. Baird & Co.
 
 
The date of this prospectus is          , 2009.


 

 
TABLE OF CONTENTS
 
         
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    F-1  
 EX-10.1
 EX-10.2.10
 EX-10.3.12
 EX-10.4.10
 EX-10.8
 EX-10.8.1
 EX-10.8.2
 EX-10.9
 EX-10.10
 EX-10.19.2
 EX-23.1
 
 
You should rely only on the information contained in this prospectus and any free writing prospectus prepared by us. Neither we nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.
 
“Mirion Technologies,” “Mirion,” “GDS,” “Global Dosimetry Solutions,” “HandFoot-Fibre,” “Imaging and Sensing Technology,” “IST,” “MGP Instruments,” “MGPI,” “SPIR Ident,” “Synodys,” “TwoStep-Exit” and any corresponding logos, are our common law and registered trademarks. Solely for convenience, we refer to our trademarks in this prospectus without the tm and ® symbols, but such references are not intended to indicate that we will not assert our rights to our trademarks. Other service marks, trademarks and trade names referred to in this prospectus are the property of their owners.
 
References to “fiscal” before any year refer to our fiscal year ending on June 30th of the year referenced.
 
Dealer Prospectus Delivery Obligation
 
Until and including          , 2009 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriter and with respect to unsold allotments or subscriptions.


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PROSPECTUS SUMMARY
 
This summary highlights the more detailed information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus, including the risk factors, the consolidated financial statements and the related notes, and the other documents to which this prospectus refers, carefully before making an investment decision. In this prospectus, “Mirion,” the “Company,” “we,” “us” or “our” refer to Mirion Technologies, Inc. and its subsidiaries, except where the context makes clear that the reference is only to Mirion Technologies, Inc. and is not inclusive of its subsidiaries.
 
Our Company
 
We are a leading global provider of radiation detection, measurement, analysis and monitoring products and services to the nuclear, defense and medical end markets. Our customers rely on our solutions to protect people, property and the environment from nuclear and radiological hazards. Our products and services include: dosimeters; contamination & clearance monitors; detection & identification instruments; radiation monitoring systems; electrical penetrations; reactor instrumentation & control equipment and systems; dosimetry services; imaging systems; and related accessories, software and services. Many of our end markets are characterized by the need to meet rigorous regulatory standards, design qualifications and operating requirements. We believe these industry dynamics create substantial barriers to entry, thereby reinforcing our leading market position. We have leveraged the strength of our nuclear platform to expand the commercial applications of our technologies to defense and medical end markets. The diversity of our end markets and the global nature of our customer base are illustrated in the charts below:
 
     
Fiscal 2009 Revenue by End Markets
  Fiscal 2009 Revenue by Geography
     
(PIE CHART)   (PIE CHART)
 
Fiscal 2009 Revenue: $207.6 Million
 
For more than 50 years, we and our predecessor companies have delivered products and services that help ensure the safe and efficient operation of nuclear facilities. We believe the breadth and proven performance of our solutions support our longstanding strategic customer relationships across diverse end markets. Our products and services have been sold directly and indirectly to a variety of end-use customers including, but not limited to, all of the U.S. nuclear power producers, 397 of the global installed base of 436 active nuclear power reactors, many of the leading reactor design firms, 17 of the 28 NATO militaries, numerous international government and supranational agencies, as well as medical service providers and industrial companies worldwide.
 
Our broad product and services portfolio of radiation detection, measurement, analysis and monitoring solutions is supported by 159 scientists, engineers and technicians, who represented approximately 19% of our workforce as of June 30, 2009. We possess numerous product qualifications, trade secrets and patents that support our market position and our ability to deliver next generation products and services. In addition, we maintain design, manufacturing and sales capabilities across seven countries, enabling us to capitalize on growth opportunities, including the anticipated increase in demand for nuclear power and ongoing spending for defense and homeland security.


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Our financial performance is driven by the replacement of products and the recurring provision of services into our core end markets, as well as the construction of new nuclear power plants, or NPPs, globally. Many of our products are ordered well in advance of the anticipated shipment date, providing visibility into future revenue through our backlog and deferred revenue, which totaled $184.2 million and $43.4 million as of June 30, 2009. We generated revenue of $207.6 million, Adjusted EBITDA of $41.4 million and a net loss of $3.7 million for fiscal 2009. See page 7 for a definition and reconciliation of Adjusted EBITDA to net loss.
 
Our Market Opportunities
 
We sell our radiation detection, measurement, analysis and monitoring products and services into the global nuclear, defense and medical end markets. We believe that our end markets are characterized by strong fundamentals that support a robust revenue base and provide numerous growth opportunities.
 
Nuclear
 
The nuclear end market spans the entire nuclear fuel cycle, including mining, enrichment, fuel manufacturing, nuclear power generation, waste management and fuel reprocessing. Key nuclear installations include mines, fuel fabrication facilities, commercial nuclear power reactors, reprocessing facilities, research facilities, military facilities and ships, weapons facilities and waste storage facilities. We sell products and services for use in each of these types of installations, with commercial nuclear power reactors representing the majority of our sales into the nuclear end market. As of June 30, 2009, our products were installed at 91% of active nuclear power reactors globally, including all of those in the United States. We believe that the global installed base of nuclear reactors presents opportunities for replacements and upgrades of our products, as well as those of legacy suppliers, and for participation in the “decommissioning” process.
 
We also expect the increase in nuclear reactor construction worldwide to provide opportunities across our offerings.
 
Defense
 
Our global defense end market is driven by a combination of military, civil defense and event-driven security spending which in turn has been fueled by the unprecedented growth in global security threats.
 
Medical
 
The use of radiodiagnostic and radiotherapeutic procedures is expanding globally due to aging population demographics, technological advancements and emerging middle classes in China and India, creating a significant opportunity for us in the medical end market.
 
Our Competitive Strengths
 
Trusted radiation detection, measurement, analysis and monitoring provider.  The nuclear industry is highly regulated and requires compliance with strict product specifications. Our trusted, recognized brands supported by our tradition of technical excellence, product reliability and customer service have enabled us to develop strong market share across our product and service offerings.
 
Broad and complementary product and service portfolio.  We offer radiation detection, measurement, analysis and monitoring products and services to satisfy customer requirements throughout the NPP life cycle.
 
Large installed base drives recurring revenue.  Our large installed base at active nuclear power reactors drives recurring revenue through replacement and service cycles.
 
Technical leadership creates high barriers to entry.  We design products to meet demanding customer specifications, qualifications and regulatory requirements.
 
Global footprint designed to meet local customer needs.  Our global footprint, augmented by our established network of suppliers and distributors, enables us to be responsive to our customers and provide locally customized solutions.


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Seasoned management team complemented by highly skilled engineers.  We are led by an experienced management team with a mix of private sector and government experience across different industries and functions.
 
Our Strategy
 
Our objective is to continue enhancing our position as a leading provider of radiation detection, measurement, analysis and monitoring products and services for the global nuclear, defense and medical end markets. We intend to achieve this through the following strategies:
 
  •  Exploit under-penetrated market opportunities.
 
  •  Expand addressable market.
 
  •  Geographic expansion.  We believe we can increase our presence in the international market. For example, we intend to leverage our relationships with leading reactor design firms to capitalize on the opening of India’s nuclear end market to U.S. firms due to a recent treaty ratification.
 
  •  Customer outsourcing.  Some NPP operators have recently outsourced their dosimetry services in order to reduce costs. We have been able to benefit from economies of scale as well as advantages in materials procurement and processing technology to provide enhanced dosimetry services to many of these NPPs at a lower cost.
 
  •  Service privatization.  In some regions outside the United States, dosimetry services have historically been provided by government agencies. However, privatization of dosimetry services is accelerating in some regions, such as Europe, as providers seek to reduce costs and benefit from enhanced service offerings, providing an opportunity to leverage our expertise and North American service experience.
 
  •  New applications for existing technologies.
 
  •  Develop new products and services.
 
  •  Continuously improve our cost structure and productivity.
 
  •  Pursue strategic acquisitions.
 
Our Principal Investor
 
Upon completion of this offering, American Capital, Ltd. (together with American Capital Equity I, LLC and American Capital Equity II, LP, “ACAS”) will beneficially own approximately     % of our outstanding common stock, or approximately     % if the underwriters exercise in full their over-allotment option to purchase additional shares of common stock. We are party to a number of agreements with ACAS and its affiliates. These agreements are described in the sections of this prospectus captioned, “Risk Factors—Risks Related to this Offering and Our Common Stock,” “Use of Proceeds,” “Certain Relationships and Related Party Transactions” and “Principal and Selling Stockholders.”
 
ACAS is a publicly traded private equity firm and global asset manager, with $11 billion in capital resources under management as of June 30, 2009.
 
Risk Factors
 
Our business is subject to many risks and uncertainties, including those highlighted in the section of this prospectus entitled “Risk Factors.” These risks could materially and adversely affect our business, financial condition and results of operation, which could cause the trading price of our common stock to decline and could result in a partial or total loss of your investment. Some of these risks include:
 
  •  the long and unpredictable nature of our sales cycle;
 
  •  fluctuations in our financial performance;
 
  •  our short operating history as a consolidated entity;


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  •  the highly competitive nature of our markets and the resources of our competitors;
 
  •  the uncertain fulfillment of our backlog;
 
  •  the effect of the current global financial crisis and worldwide economic conditions; and
 
  •  changes in our customers’ budgets for radiation detection products and services and the timing of their purchasing decisions.
 
Company Information
 
We incorporated in Delaware in October 2005 as Global Monitoring Services, Inc., acquired control of our predecessor companies in December 2005 and changed our name in January 2006 to Mirion Technologies, Inc. Our principal executive offices are located at 3000 Executive Parkway, Suite 222, San Ramon, California 94583 and our telephone number is (925) 543-0800. Our website is www.mirion.com. The information that appears on our website is not part of, and is not incorporated into, this prospectus.


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The Offering
 
Common stock offered by us           shares
 
Common stock to be outstanding after this offering           shares
 
Over-allotment option We have granted the underwriters a 30-day option to purchase from us up to an additional           shares of our common stock to cover over-allotments.
 
Dividend policy We do not anticipate paying any dividends on our common stock in the foreseeable future. See “Dividend Policy.”
 
Risk factors Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of factors you should carefully consider before investing in our common stock.
 
Use of proceeds We estimate that the net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $      million, assuming the shares are offered at $      per share, the midpoint of the price range set forth on the cover page of this prospectus. We intend to use $      million of the net proceeds from the shares that we sell in this offering to repay borrowings from ACAS and its affiliates. We also intend to use net proceeds from this offering to make a one-time payment of $8.0 million to American Capital Financial Services, Inc., or ACFS, a subsidiary of ACAS, to terminate an investment banking services agreement between us and ACFS. We will use the balance of the net proceeds for working capital and general corporate purposes. See “Use of Proceeds.”
 
Proposed NASDAQ symbol MION
 
The number of shares of common stock to be outstanding after this offering is based on 1,197,094 shares outstanding as of June 30, 2009 and excludes:
 
  •  113,288 shares subject to outstanding options as of June 30, 2009 at a weighted average exercise price of $122.77 per share;
 
  •  5,402 additional shares reserved for issuance under our existing stock option plan, all of which are expected to be granted to our employees, including our executive officers, immediately following the pricing of this offering at an exercise price equal to the initial public offering price;
 
  •  106,160 shares to be reserved for issuance under our amended and restated stock plan to become effective upon the pricing of this offering; and
 
  •  402,428 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.00152 per share.
 
Except as otherwise indicated, all information in this prospectus assumes that:
 
  •  a          -for-           split of our common stock will occur prior to the consummation of this offering;
 
  •  all of the outstanding shares of our convertible preferred stock will be converted into shares of our common stock;
 
  •  all of the outstanding shares of our Class A Voting Common Stock and Class B Non-Voting Common Stock will be converted into shares of our common stock on a one-to-one basis;
 
  •  we will file our amended and restated Certificate of Incorporation prior to the consummation of this offering;
 
  •  the underwriters will not exercise their over-allotment option; and
 
  •  warrants to purchase           shares of our common stock at a weighted average exercise price of $      per share will remain outstanding after the consummation of this offering.


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Summary Consolidated Financial Data
 
The following table summarizes the consolidated financial data for our business. You should read this summary consolidated financial data in conjunction with the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, all included elsewhere in this prospectus. The summary financial data in this section is not intended to replace the consolidated financial statements and related notes included in this prospectus. The summary consolidated statements of operations data for each of the three fiscal years ending June 30, 2007, 2008 and 2009 are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated balance sheet data as of June 30, 2009 is derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that should be expected in the future. The amounts below are in thousands, except percentages and per share data.
 
                         
    Year Ended June 30,  
    $2007     2008     2009  
 
Consolidated Statements of Operations Data:
                       
Revenue
    175,361     $ 189,933     $ 207,582  
Cost of revenue
    97,222       102,871       110,761  
                         
Gross profit
    78,139       87,062       96,821  
                         
% of revenue
    44.6 %     45.8 %     46.6 %
Operating expenses
                       
Selling, general and administrative expenses
    59,792       63,008       66,057  
Research and development expenses
    11,875       14,865       11,188  
                         
Total operating expenses
    71,667       77,873       77,245  
                         
Income from operations
    6,472       9,189       19,576  
Interest expense, net
    (19,068 )     (20,290 )     (17,787 )
Other income, net
    786       1,650       474  
                         
(Loss) income before provision for income taxes
    (11,810 )     (9,451 )     2,263  
Provision for income taxes
    6,050       4,546       5,915  
                         
Net loss
  $ (17,860 )   $ (13,997 )   $ (3,652 )
                         
Paid-in-kind preferred dividends
    (8,141 )     (8,993 )     (9,892 )
                         
Net loss attributable to common stockholders
  $ (26,001 )   $ (22,990 )   $ (13,544 )
                         
Pro forma loss per common share — basic and diluted(1)
                  $    
                         
 
                 
    As of June 30, 2009  
          Pro Forma
 
    Actual     as Adjusted(1)  
 
Consolidated Balance Sheet Data:
               
Cash and cash equivalents(2)
  $ 5,390          
Total assets
    317,036          
Notes payable to ACAS(3)
    170,012          
Total stockholders’ equity
    10,268          
 
                         
    Year Ended June 30,  
    2007     2008     2009  
 
Other Data:
                       
Adjusted EBITDA(4)
  $ 32,045     $ 32,304     $ 41,431  
Amortization of intangible assets
    12,215       10,076       8,114  
Capital expenditures
    3,897       5,142       6,845  
 
                         
    As of June 30,  
    2007     2008     2009  
 
Backlog(5)
  $ 143,887     $ 177,956     $ 184,218  
Deferred revenue
    30,567       38,988       43,419  


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(1) On a pro forma as adjusted basis to give effect to the conversion of           shares of our outstanding convertible preferred stock into           shares of our common stock, the conversion of           outstanding shares of our Class A Voting Common Stock and Class B Non-Voting Common Stock into           shares of our common stock on a one-to-one basis, the sale of          shares of our common stock in this offering by us at an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus), and the application of the $     estimated net proceeds to be received by us as described in “Use of Proceeds” to effect the repayment and refinancing of $     of our indebtedness and to make a one-time $8 million payment to ACFS, after deducting underwriting discounts and estimated offering expenses of $     .
 
(2) As of June 30, 2009, we also had $6.0 million of restricted cash.
 
(3) In addition, as of June 30, 2009, we had $7.2 million of outstanding debt held by third parties not affiliated with ACAS.
 
(4) We include Adjusted EBITDA in this prospectus because (i) it is a basis upon which our management assesses our operating performance, (ii) it is a factor in the evaluation of the performance of our management in determining compensation and (iii) certain maintenance covenants under our debt agreements are tied to ratios based upon Adjusted EBITDA, as defined. Adjusted EBITDA is calculated as net income (loss) less extraordinary gains (loss) and interest income, plus interest expense, charges against income for taxes, depreciation expense, amortization expense, mark to market (loss) gain, non-recurring charges, management fees paid to ACFS and all non-cash compensation expenses (in accordance with the definitions in our credit facilities with ACAS). Adjusted EBITDA is not a measure of financial performance calculated in accordance with U.S. GAAP, and should be viewed as a supplement to—not a substitute for—our results of operations presented on the basis of U.S. GAAP. Adjusted EBITDA also does not purport to represent cash flow provided by, or used in, operating activities in accordance with U.S. GAAP and should not be used as a measure of liquidity. Our statements of cash flows, included elsewhere in this prospectus, present our cash flow activity in accordance with U.S. GAAP. Furthermore, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
 
(5) Represents purchase orders or contracts received by us that have not been shipped. Amounts representing backlog are not recorded in our financial statements.
 
The following is a reconciliation of net loss to Adjusted EBITDA:
 
                                         
    Year Ended June 30,              
    2007     2008     2009              
 
Net loss
  $ (17,860 )   $ (13,997 )   $ (3,652 )                
Interest expense, net
    19,068       20,290       17,787                  
Income tax expense
    6,050       4,546       5,915                  
Depreciation
    4,072       4,022       4,417                  
Amortization(a)
    12,215       10,076       8,114                  
ACFS fees
    1,625       1,625       1,739                  
Stock option compensation
    244       275       1,161                  
Mark to market (loss) gain
    (14 )     9       83                  
Other non-recurring charges(b)
    6,645       5,458       5,867                  
                                         
Adjusted EBITDA
  $ 32,045     $ 32,304     $ 41,431                  
                                         
 
(a) Represents the non-cash amortization of intangible assets, such as customer relationships, backlog, qualification, enterprise software, technology, territorial rights, trade names and noncompete agreements. We have included portions of this non-cash amortization expense in cost of revenue, research and development expenses and selling, general and administrative expenses.
 
(b) Represents non-recurring expenses, including severance expenses and costs associated with the preparation for our initial public offering, as well as certain professional and legal expenses.


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RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information contained in this prospectus, before deciding whether to purchase our common stock. If any of the following risks occurs, the trading price of our common stock could decline and you could lose all or part of your investment.
 
Risks Related to Our Business
 
Our sales cycle can be long and unpredictable, and we may be unable to recognize revenue until many months or years after an order is placed. As a result, our revenue can be difficult to predict and may vary substantially from quarter to quarter, which may cause our operating results to fluctuate.
 
Our sales efforts for many of our products involve substantial discussion with customers regarding product customization and deployment. This process can be extremely lengthy and time consuming and typically involves a significant product evaluation process. The typical sales cycle for products whose procurement relates to the construction of new, or the refurbishment of existing, NPPs ranges from 12 to 36 months and has, in some cases, extended up to 60 months. In addition, these customers generally make a significant commitment of resources to test and evaluate our products prior to purchase. As a result, our sales process is often subject to delays associated with the lengthy approval processes that typically accompany the design, testing and adoption of new, technologically complex products. This results in our investing significant resources prior to orders being placed for our products, with no assurances that we will secure a sale.
 
In addition, a significant amount of time can pass before we recognize the revenue associated with an order once it has been placed. We may not recognize revenue for sales of certain of our products until the customer certifies the successful installation and operation of the product, which can be many months or, particularly with regard to our Sensing Systems and Radiation Monitoring Systems products, years following the receipt of a customer order. The installation of our systems are also subject to construction or scheduled outage delays unrelated to our products, which can further defer the recognition of revenue.
 
Our long and uncertain sales cycle and the unpredictable period of time between the placement of an order and our ability to recognize the revenue associated with the order makes revenue predictions difficult, particularly on a quarterly basis, and can cause our operating results to fluctuate significantly.
 
Our financial performance is unpredictable.
 
Our business depends on the demand for our radiation detection, measurement, analysis and monitoring products and services in the nuclear, defense and medical end markets. In the past, the demand for our products in these markets has fluctuated due to a variety of factors, many of which are beyond our control. This has caused our financial performance to fluctuate. Among the factors affecting our performance are:
 
  •  general economic conditions, both domestically and internationally;
 
  •  the timing, number and size of orders from, and shipments to, our customers, as well as the relative mix of those orders;
 
  •  the timing of revenue recognition, which often requires customer acceptance of the delivered product;
 
  •  delays, postponements or cancellations of construction or decommissioning of NPPs caused by, for example, financing difficulties or regulatory delays;
 
  •  adverse economic, financial and/or political conditions in one or more of our target end markets;
 
  •  variations in the volume of orders for a particular product or product line in a particular quarter;
 
  •  the size and timing of new contract awards;
 
  •  the timing of the release of government funds for procurement of our products;
 
  •  the degree to which new end markets emerge for our products;


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  •  the budget cycles of U.S. and foreign governments and commercial enterprises that affect timing of order placement for or delivery of our products; and
 
  •  the tendency of commercial enterprises to fully utilize annual capital budgets prior to expiration.
 
We have a short operating history as a consolidated entity and have incurred net losses since our inception.
 
We were formed in 2005 as a merger of several companies acquired by ACAS but operated separately. Accordingly, we rely on the employees, goodwill, brand strength, product history and qualifications of our legacy acquired companies. In addition, some of our senior executive officers have a limited history with us and no prior experience in the industries in which we compete. Furthermore, we have not achieved positive net income and, as of June 30, 2009, had an accumulated deficit of $98.3 million. We cannot assure you as to when we will achieve positive net income or, if we do so, whether we will continue to do so.
 
We operate in highly competitive markets and in some cases compete against larger companies with greater financial resources.
 
The market for radiation detection, measurement, analysis and monitoring products and services is fragmented, with a variety of small and large competitors, where the degree of fragmentation and the identities of our competitors vary among our target end markets. Some of our competitors have greater financial resources than do we, and they may be able to focus those resources on developing products or services that are more attractive to potential customers than those that we offer, or on lobbying efforts to enhance their prospects of obtaining government contracts. Some of our competitors, for example, are substantially larger and better capitalized than we are and have the ability to combine solutions into an integrated offering at attractive prices. Our competitors may offer these solutions at prices below cost in order to improve their competitive positions. Any of these competitive factors could make it more difficult for us to attract and retain customers, cause us to lower our prices to compete, and reduce our market share and revenue, any of which could have a material adverse effect on our business, financial condition and results of operations.
 
Amounts included in our order backlog may not result in actual revenue or translate into profits.
 
Some of our more profitable services are not reflected in our backlog because they are reflected in deferred revenue. Although the amount of our backlog is based on signed purchase orders or other written contractual commitments, we cannot guarantee that our order backlog will result in actual revenue in the originally anticipated period or at all. In addition, the mix of contracts included in our order backlog can greatly affect our margins in future periods, which may not be comparable to our historical product mix and operating results. Our customers may experience project delays or cancel orders due to factors beyond our control. If our order backlog fails to result in revenue in a timely manner or at all, we could experience a reduction in revenue and liquidity.
 
The current global financial crisis and adverse worldwide economic conditions may have significant effects on our business, financial condition and results of operations.
 
The current global financial crisis—which has included, among other things, significant reductions in available capital and liquidity, substantial reductions and fluctuations in equity and currency values, a reduction in global demand for energy and a worldwide recession, the extent of which is likely to be significant and prolonged—may have a material adverse effect on our business. We have begun to experience some weakening in demand for certain of our products and services, particularly for our high-temperature cameras used as monitoring tools in petrochemical facilities and cement kilns. Factors such as lack of business investment, government spending, the volatility and strength of the capital markets and inflation all affect the business and economic environment and, ultimately, our business, financial condition and results of operations. Continued market disruptions and broader economic downturns may affect our and our customers’ access to capital, lead to lower demand for our products and services, increase our exposure to losses from bad debts or result in our customers ceasing operations, any of which could materially adversely affect our business, financial condition and results of operations.


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The credit markets have been experiencing extreme volatility and disruption for more than twelve months, and the volatility and disruption have reached unprecedented levels. In many cases, the markets have limited credit capacity for certain issuers, and lenders have requested shorter terms. The market for new debt financing is extremely limited and in some cases not available at all. In addition, the markets have increased the uncertainty that lenders will be able to comply with their previous commitments. If current levels of market disruption and volatility continue or worsen, we may not be able to refinance our existing debt, or incur additional debt, which may require us to seek alternative funding sources to meet our liquidity needs or to fund planned expansion. Such alternative sources of funding may not be available on acceptable terms or at all.
 
Furthermore, the tightening of credit in financial markets may delay or prevent our customers from securing funding adequate to operate their businesses and purchase our products and services and could lead to an increase in our bad debt levels.
 
Unfavorable currency exchange rate fluctuations could adversely affect our profitability.
 
Our international sales and our operations in foreign countries expose us to risks associated with fluctuating currency values and exchange rates. Most of our sales, costs, assets and liabilities are denominated in foreign currencies. For fiscal 2009, 57.6% and 5.1% of our sales were denominated in euros and pounds sterling. Gains and losses on the conversion of accounts receivable, accounts payable and other monetary assets and liabilities to U.S. dollars may contribute to fluctuations in our results of operations. In addition, increases in the value of the U.S. dollar relative to the euro and the pound sterling could have an adverse effect on our results of operations. We do not currently purchase forward contracts to hedge against the risks associated with fluctuations in exchange rates.
 
We may be less competitive if we fail to develop new or enhanced products and introduce them in a timely manner.
 
The markets in which we compete are subject to technological change, product obsolescence and evolving industry standards. Our ability to successfully compete in these markets and to continue to grow our business depends in significant part upon our ability to develop, introduce and sell new and enhanced products in a timely and cost-effective manner, and to anticipate and respond to changing customer requirements. We have experienced, and may in the future experience, delays in the development and introduction of new products. These delays could provide a competitor a first-to-market advantage and allow a competitor to achieve greater market share. Defects or errors found in our products after commencement of commercial shipment could result in delays in market acceptance of these products. Lack of market acceptance for our new products will jeopardize our ability to recoup research and development expenditures, hurt our reputation and harm our business, financial condition and results of operations. Accordingly, we can not assure you that our future product development efforts will be successful.
 
Our existing and future customers may reduce or halt their spending on radiation detection, measurement, analysis and monitoring products and services.
 
A variety of factors may cause our existing or future customers to reduce or halt their spending on radiation detection, measurement, analysis and monitoring products and services. These factors include:
 
  •  disruptions in the nuclear fuel cycle, such as insufficient uranium supply or conversion;
 
  •  unfavorable financial conditions and strategies of the builders, owners and operators of nuclear reactors;
 
  •  civic opposition to or changes in government policies regarding nuclear operations;
 
  •  a reduction in demand for nuclear generating capacity;
 
  •  accidents, terrorism, natural disasters or other incidents occurring at nuclear facilities; and
 
  •  the decision by one or more of our customers to acquire one of our competitors or otherwise administer the services we provide internally.


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Certain of these events could also adversely affect us to the extent that they result in the suspension or reduction of nuclear reactor construction, refurbishment or operation; the reduction of supplies of nuclear raw materials; increased regulation; increased operational costs for us or our customers; or increased liability for actual or threatened property damage or personal injury.
 
If we are unable to obtain adequate supplies in a timely manner, our results of operations would be adversely affected.
 
We are dependent upon certain sole or limited source suppliers for critical raw materials or components of some of our products. For example, we rely on the U.S. government for the enriched uranium used in certain equipment employed in our sensing systems. We also rely on limited source suppliers of certain precious metals used in some of our reactor instrumentation, scintillator materials used in our detection & identification equipment and for analog sensor tubes used in certain of our imaging products. Most of our suppliers are not required to supply us with any minimum quantities, and we cannot assure you that we will receive adequate quantities of components on a timely basis in the future. Our suppliers could have financial or other problems that could cause a disruption in the supply of components to us. In addition, were we to change suppliers of components in some of our products, we may be required to seek new qualifications for such products, which can be a time-consuming and costly process. As a result of interruption of supply, we may not be able to obtain the raw materials or components that we need to fill customer orders. The inability to fill these orders could cause delays, disruptions or reductions in product shipments, require us to negotiate alternate supply arrangements with replacement suppliers where available or require product redesigns which could, in turn, damage relationships with current or prospective customers, increase costs or prices and have a material adverse effect on our business, financial condition and results of operations.
 
We rely on third-party manufacturers to produce non-core components for certain of our products and services. If our manufacturers are unable to meet our demand or requirements, our business could be harmed.
 
We use third-party manufacturers to produce certain non-core components for some of our products. From time to time demand for our products has grown faster than the supply capabilities of these vendors. In many cases, these manufacturers have no obligation to supply products to us for any specific period, in any specific quantity or at any specific price, except as set forth in a particular purchase order. Our requirements represent a small portion of the total production capacities for many of our manufacturers, and our manufacturers may reallocate capacity to other customers, even during periods of high demand for our products or services. We have in the past experienced, and may in the future experience, quality control issues and delivery delays with our manufacturers due to factors such as high industry demand or the inability of our manufacturers to consistently meet our quality or delivery requirements. In addition, third-party manufacturers may have financial difficulties and face the risk of bankruptcy, especially in light of the current worldwide economic downturn. If one of our suppliers was to cancel or materially change a commitment with us or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, be unable to develop or sell our products or services cost effectively or on a timely basis, if at all, and have significantly decreased revenue, which would harm our business, financial condition and results of operations. We may qualify additional suppliers in the future which would require time and resources. If we do not qualify additional suppliers, we may be exposed to increased risk of capacity shortages due to our dependence on our current suppliers.
 
Some of our suppliers and customers are also our competitors.
 
Some of our competitors are also our suppliers and customers. For example, Canberra, one of our chief competitors in the nuclear and defense end markets, supplies us with some of the detectors employed in the radiation monitoring systems that we supply to the nuclear end market. At the same time, Areva, the controlling shareholder of Canberra, is a customer for our radiation monitoring systems for use in its EPR reactors and in other fuel cycle industry applications. Similarly, Thermo Fisher Scientific both supplies our Dosimetry Services division with TLD crystals used in some of our thermoluminescent dosimeters that we deploy as part of providing dosimetry services to our customers, and sells products competitive with those


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offered by our Health Physics division. As with our other suppliers, our competitor suppliers are not required to supply us with any minimum quantities, and we cannot assure you that we will receive adequate quantities of components on a timely basis in the future. The loss of orders stemming from the actions of our supplier or customer competitors could cause delays, disruptions or reductions in product shipments or require product redesigns which could, in turn, damage relationships with current or prospective customers, increase costs or prices and have a material adverse effect on our business, financial condition and results of operations.
 
We could lose money if we fail to accurately estimate our costs or fail to execute within our cost estimates on fixed-price contracts.
 
Many of our contracts are fixed-price contracts which do not provide for price escalation in the event of unanticipated cost overruns. Under these contracts, we perform our services and provide our products at a fixed price. Fixed-price contracts carry inherent risks, including risks of losses from underestimating costs, operational difficulties and other changes that may occur over the contract period. We have in the past experienced unanticipated cost overruns on some of our fixed-price contracts. If our cost estimates for a contract are inaccurate, or if we do not execute the contract within our cost estimates, we may incur losses or the contract may not be as profitable as we expected. In addition, we are sometimes required to incur costs in connection with modifications to a contract that may not be approved by the customer as to scope or price, or to incur unanticipated costs, including costs for customer-caused delays, errors in specifications or designs or contract termination, that we may not be able to recover. These, in turn, could adversely affect our business, financial condition and results of operations. The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to changes in a variety of factors, such as:
 
  •  failure to properly estimate, or changes in, the costs of material, components or labor;
 
  •  currency exchange rate fluctuations;
 
  •  unanticipated technical problems with the products or services being supplied by us, which may require that we spend our own money to remedy the problem;
 
  •  our suppliers’ or subcontractors’ failure to perform;
 
  •  difficulties of our customers in obtaining required governmental permits or approvals;
 
  •  changes in local laws and regulations;
 
  •  unanticipated delays in construction of new NPPs and decommissioning of existing NPPs; and
 
  •  limited history with new products and new customers.
 
Many of our large contracts have penalties for late completion.
 
In some cases, including many of our fixed-price contracts, we have agreed to complete a project by a scheduled date. If we fail to complete the project as scheduled, we may be held responsible for costs associated with the delay, generally in the form of liquidated damages, in some cases up to the full value of the contract. We have in the past incurred penalties associated with late completion on some of our contracts. In the event that a project is delayed, the total costs of the project could exceed our original estimates, and we could experience reduced profits or a loss for that project.
 
Our products and services involve the detection and monitoring of radiation, and the failure of our products or services to perform to specification could adversely affect our business, financial condition or results of operations.
 
Our products and services involve the detection and monitoring of radiation and are crucial components of the safety measures employed with respect to ionizing radiation. The failure of our products to perform to specification could result in personal injury or death and property damage (including environmental contamination). Legal and regulatory actions taken in response to product failure could result in significant costs to us. Additionally, the failure of our products to perform to specification could adversely affect market perception of the quality and effectiveness of our products and services, which would harm our ability to attract new customers and could cause our existing customers to cease doing business with us.


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While we have attempted to secure appropriate insurance coverage at a reasonable cost, we do not insure against all risks and a claim can exceed the limits of our policies. We cannot assure you that our insurers will pay a particular claim, or that we will be able to maintain coverage at reasonable rates in the future, or at all. We may also be subject to significant deductibles.
 
Our contracts with customers generally seek to limit our liability in connection with product failure, but we cannot assure you that these contractual limitations on liability will be effective or sufficient in scope in all cases or that our insurance will cover the liabilities we have assumed under these contracts. The costs of defending against a claim arising out of such failure, and any damages awarded as a result of such a claim, could adversely affect our business, financial condition and results of operations.
 
Certain of our products and technologies for the defense end market may be eligible for designation or certification as “qualified anti-terrorism technologies” under the “SAFETY Act” provisions of The Homeland Security Act of 2002 and its implementing regulations. Under the SAFETY Act, the federal government provides for certain liability limitations and a presumption that the “government contractor” defense applies if the Department of Homeland Security “designates” or “certifies” technologies or products as “qualified anti-terrorism technologies,” and if certain other conditions apply. We may seek to qualify some or all of our products and technologies under the SAFETY Act’s provisions in order to obtain such liability protections, but there is no guarantee that the Department of Homeland Security will designate or certify our products and technologies as qualified anti-terrorism technology. To date, we have not sought such designation or certification, and our products have been sold without such qualification, and we may continue to sell our products and technologies without such qualification. To the extent we do so, we will not be entitled to the benefit of the SAFETY Act’s limitations on tort liability or to any U.S. government indemnification.
 
We and our customers operate in a politically sensitive environment, and the public perception of nuclear power can affect our customers and us.
 
We and our customers operate in a politically sensitive environment. The risks associated with radioactive materials and the public perception of those risks can affect our business. Opposition by third parties can delay or prevent the construction of new NPPs and can limit the operation of nuclear reactors. Adverse public reaction to developments in the use of nuclear power, including incidents involving the discharge of radioactive materials, could directly affect our customers and indirectly affect our business. In the past, adverse public reaction, increased regulatory scrutiny and litigation have contributed to extended construction periods for new nuclear reactors, sometimes delaying construction schedules by decades or more. For example, no new reactor has been ordered in the United States since the 1970s and anti-nuclear groups in Germany successfully lobbied for the adoption of the Nuclear Exit Law in 2002, which requires the shutdown of all German NPPs by 2021. Adverse public reaction could also lead to increased regulation or limitations on the activities of our customers, more onerous operating requirements or other conditions that could have a material adverse impact on our customers and our business.
 
Our operations in foreign countries are subject to political, economic and other risks, which could have a material adverse effect on us.
 
Sales outside of the United States and Canada accounted for approximately 62.8%, 63.8% and 62.6% of our net sales in fiscal 2007, 2008 and 2009. We anticipate that international sales will continue to constitute a material percentage of our total net sales in future periods. As a result, our operations are subject to risks associated with global operations and sales, including:
 
  •  foreign currency exchange fluctuations;
 
  •  changes in regulatory requirements;
 
  •  tariffs and other barriers;
 
  •  timing and availability of export licenses;
 
  •  difficulties in accounts receivable collections;
 
  •  difficulties in protecting our intellectual property;


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  •  difficulties in staffing and managing foreign operations;
 
  •  difficulties in managing sales agents, distributors and other third parties;
 
  •  coordination regarding, and difficulties in obtaining, governmental approvals for products that may require certification;
 
  •  rescission or termination of contracts by governmental parties without penalty and regardless of the terms of the contract;
 
  •  restrictions on transfers of funds and other assets of our subsidiaries between jurisdictions;
 
  •  the burden of complying with a wide variety of complex foreign laws and treaties;
 
  •  potentially adverse tax consequences; and
 
  •  uncertainties relative to regional political and economic circumstances.
 
We are also subject to risks associated with the imposition of legislation and regulations relating to the import or export of radiation detection and monitoring technology. For example, certain export control approvals of our sales, including sales to NPP operators located in Pakistan and India, were granted because of the supervision of customer sites by the International Atomic Energy Agency, or the IAEA. If the IAEA ceases to supervise such sites, our ability to sell to certain customers would be limited and our sales could be adversely affected. Furthermore, the failure to comply with export control regulations and to obtain required approvals could result in loss of the ability to export products, fines and penalties.
 
We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries. Some of our customers’ purchase orders and agreements are governed by foreign laws, which often differ significantly from the laws of the United States. Therefore, we may be limited in our ability to enforce our rights under such agreements and to collect damages, if awarded. These factors may have a material adverse effect on our business, financial condition and results of operations.
 
Changes in our effective tax rate or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.
 
Our effective tax rate could be adversely affected by several factors, many of which are outside of our control, including:
 
  •  earnings being lower than anticipated in countries where we are taxed at lower rates as compared to the U.S. statutory tax rate;
 
  •  material differences between forecasted and actual tax rates as a result of a shift in the mix of pre-tax profits and losses from one tax jurisdiction to another, our ability to use tax credits or effective tax rates by tax jurisdiction that differ from our estimates;
 
  •  changing tax laws or related interpretations, accounting standards and regulations and interpretations in multiple tax jurisdictions in which we operate, as well as the requirements of certain tax rulings;
 
  •  an increase in expenses not deductible for tax purposes, including certain stock-based compensation expense and impairment of goodwill;
 
  •  the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations between reporting periods;
 
  •  changes related to our ability to ultimately realize future benefits attributed to our deferred tax assets, including those related to other-than-temporary impairments;
 
  •  tax assessments resulting from income tax audits or any related tax interest or penalties that would affect our income tax expense for the period in which the settlements take place; and
 
  •  a change in our decision to indefinitely reinvest foreign earnings.


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In addition, we may be subject to examination of our income tax returns by the Internal Revenue Service or other tax authorities. If tax authorities challenge the relative mix of our U.S. and international income, our future effective income tax rates could be adversely affected. While we regularly assess the likelihood of adverse outcomes from such examinations and the adequacy of our provision for income taxes, we cannot assure you that such provision is sufficient and that a determination by a tax authority will not have an adverse effect on our business, financial condition and results of operations.
 
Localization requirements could adversely affect our business.
 
Many emerging markets, including China and South Korea, impose localization requirements which favor locally based component manufacturers in the construction of NPPs and which require some degree of technology transfer to local manufacturers. Over time, such localization requirements could limit our ability to sell into such markets and could affect our ability to maintain our trade secrets. In the past, international development agencies have, as a condition of funding, imposed localization requirements that require the transfer of technology to local manufacturers, and this requirement has affected our ability to monitor and maintain control over our intellectual property. We may be subject to similar requirements as a condition of funding in the future.
 
We must comply with the U.S. Foreign Corrupt Practices Act, or FCPA. Failure to comply with the FCPA could subject us to, among other things, penalties and legal expenses that could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.
 
We are required to comply with the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business and/or other benefits. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, we have government customers and we utilize a number of third-party sales representatives. Although we have begun to inform our personnel and third-party sales representatives regarding the requirements of the FCPA and have developed and will continue to develop and implement systems for formalizing contracting processes, performing diligence on agents and improving our record-keeping and auditing practices, we cannot assure you that our employees, third-party sales representatives or other agents have not or will not engage in conduct for which we might be held responsible under the FCPA.
 
If our employees, third-party sales representatives or other agents are found to have engaged in such practices, we could suffer severe penalties, including criminal and civil penalties, disgorgement and other remedial measures (including further changes or enhancements to our procedures, policies and controls, as well as potential personnel changes and disciplinary actions), any of which could have an adverse impact on our business, financial condition, results of operations and liquidity. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S. or foreign authorities also could have an adverse impact on our business, financial condition and results of operations.
 
Certain foreign companies, including some of our competitors, are not subject to prohibitions as strict as those under the FCPA or, even if subjected to strict prohibitions, such prohibitions may be laxly enforced in practice. If our competitors engage in corruption, extortion, bribery, pay-offs, theft or other fraudulent practices, they may receive preferential treatment, from personnel of some companies, giving our competitors an advantage in securing business, or from government officials, who might give them priority in obtaining new licenses, which would put us at a disadvantage.
 
We may make acquisitions that involve numerous risks. If we are not successful in integrating the technologies, operations and personnel of acquired businesses or fail to realize the anticipated benefits of an acquisition, our operations may be adversely affected.
 
As part of our business and growth strategy, we may acquire or make significant investments in businesses, products or technologies that allow us to complement our existing product offerings, expand our


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market coverage, increase our engineering workforce or enhance our technological capabilities. Any future acquisitions or investments would expose us to many risks, including:
 
  •  problems integrating the new personnel or the purchased operations, technologies or products;
 
  •  difficulty securing adequate working capital;
 
  •  unanticipated costs associated with the acquisition;
 
  •  negative effects on our ability to generate excess free cash flow;
 
  •  negative effects on profitability;
 
  •  adverse effects on existing business relationships with suppliers and customers;
 
  •  risks associated with entering markets in which we have no or limited prior experience;
 
  •  loss of key employees of the acquired business;
 
  •  litigation arising from the operations before they were acquired by us; and
 
  •  difficulty completing financial statements and audits.
 
Our inability to overcome problems encountered in connection with any acquisition could divert the attention of management, utilize scarce corporate resources and otherwise harm our business. In addition, we are unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisition will be completed. Even if we do find suitable acquisition opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms or realize the anticipated benefits of any acquisitions we do undertake.
 
A failure to expand our manufacturing capacity and scale our capabilities to manufacture new products could constrain our ability to grow our business.
 
We have needed to increase our manufacturing capacity, particularly in our locations in Lamanon, France and Hamburg, Germany to support the fulfillment of certain large contracts and to put us in position to accommodate growth in our business. Accordingly, we have initiated an expansion of our manufacturing facilities in Lamanon and renovated and reorganized our facilities in Hamburg. The future growth of our business depends on our ability to successfully expand our manufacturing capacity. Expansion of our manufacturing capacity may require us to obtain regulatory approvals or additional financing. Delay in the expansion of our manufacturing capacity could constrain our ability to grow our business, which would adversely affect our business, financial condition and results of operations.
 
Similarly, we could have substantial difficulty in dealing with rapid growth in markets for new products that we may introduce. If demand for our new products increases rapidly, we will need to expand internal production capacity or implement additional outsourcing. Success in developing, manufacturing and supporting products manufactured in small volumes does not guarantee comparable success in operations conducted on a larger scale. Manufacturing yields and product quality may decline as production volumes increase. If we are unable to deliver products quickly and cost effectively and in the requisite volumes, our customers may decline to purchase our new products or may purchase substitute products offered by our competitors. The costs associated with implementing new manufacturing technologies, methods, and processes, including the purchase of new equipment, and any resulting delays, inefficiencies and loss of sales, could harm our results of operations.
 
We rely on third-party sales representatives to assist in selling our products and services, and the failure of these representatives to perform as expected could reduce our future sales.
 
We typically derive 25% to 30% of our revenue from sales to our customers through third-party sales representatives. We have established relationships with some of our third-party sales representatives recently, and we are unable to predict the extent to which our third-party sales representatives will be successful in marketing and selling our products and services. Moreover, many of our third-party sales representatives also market and sell competing products and services, which may affect the extent to which our third-party sales


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representatives promote our products and services. Even where our relationships are formalized in contracts, our third-party sales representatives often have the right to terminate their relationships with us at any time. Our future performance will also depend, in part, on our ability to attract additional third-party sales representatives who will be able to market and support our products and services effectively, especially in markets in which we have not previously sold our products and services. If we cannot retain our current third-party sales representatives or recruit additional or replacement third-party sales representatives, our business, financial condition and results of operations could be harmed.
 
The elimination or any modification of the Price-Anderson Act’s indemnification authority could have adverse consequences for our business.
 
In the United States, the Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates the manufacture, use and storage of radioactive materials. Section 170 of the AEA, which is known as the Price-Anderson Act, supports the nuclear services industry by offering broad indemnification to commercial NPP operators and Department of Energy, or DOE, contractors for liabilities arising out of nuclear incidents at power plants licensed by the Nuclear Regulatory Commission, or NRC, and at DOE nuclear facilities. The indemnification authority of the NRC and DOE under the Price-Anderson Act was extended through 2025 by the Energy Policy Act of 2005. Some of our customers are covered by the indemnification provisions of the Price-Anderson Act. In addition, other jurisdictions have similar indemnification authority. If the indemnification authority in the United States or other countries is eliminated or adversely modified in the future, our business could be adversely affected if the owners and operators of NPPs cancel or delay plans to build new plants or curtail the operations of existing plants.
 
Our ability to provide bid bonds, performance bonds or letters of credit is limited and could negatively affect our ability to bid on or enter into significant contracts.
 
We are sometimes required to provide bid or performance bonds or letters of credit to guarantee performance under contracts across our various divisions. Our ability to obtain such bonds and letters of credit depends upon several factors, including our capitalization, working capital, past performance, management expertise and reputation and external factors beyond our control, including the overall capacity of the surety market. Surety companies consider those factors in relation to the amount of our tangible net worth and other underwriting standards that may change from time to time. Events that affect surety markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly higher cost. Our inability to obtain adequate bonding and, as a result, to bid for, or enter into, significant contracts, could adversely affect our future financial condition and results of operations.
 
As a U.S. government contractor, we are subject to a number of procurement rules and regulations.
 
U.S. government contractors and subcontractors must comply with specific procurement regulations and other requirements and are subject to routine audits and investigations by U.S. government agencies. If we fail to comply with these rules and regulations, we could be subject to reductions in the value of our government contracts, contract modification or termination, the assessment of penalties and fines, and/or suspension or debarment from government contracting or subcontracting for a period of time or permanently.
 
Furthermore, we have bid, and may in the future submit bids, for U.S. government contracts that require our employees to maintain various levels of security clearances and require us or our subsidiaries to maintain certain facility security clearances in compliance with Department of Defense and other government requirements. Obtaining and maintaining security clearances for employees involves a lengthy process, and it can be difficult to identify, recruit and retain employees who already hold security clearances. If our employees are unable to obtain or retain security clearances, or if our employees who hold security clearances stop working for us, we may face delays in fulfilling contracts, or be unable to fulfill or secure new contracts, with any customer involved in classified work. Any breach of security for which we are responsible could seriously harm our business, damage our reputation and make us ineligible to work on any classified programs.


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The classified work that we currently perform at one of our facilities subjects us to the industrial security regulations of the Department of Defense and other federal agencies that are designed to safeguard against unauthorized access by foreigners and others to classified and other sensitive information. We may be subject to penalties for violations of these regulations. If we were to come under foreign ownership, control, or influence, the U.S. government could terminate our contracts with it or decide not to renew them and such a situation could also impair our ability to obtain new contracts and subcontracts. The government may also change its procurement practices or adopt new contracting rules and regulations that could be costly to satisfy or that could impair our ability to obtain new contracts.
 
We are subject to a variety of federal, state and foreign laws and regulatory regimes. Failure to comply with laws and regulations could subject us to, among other things, penalties and legal expenses which could have an adverse effect on our business.
 
Our business is subject to regulation by various federal and state governmental agencies. Such regulation includes the radioactive material and exposure regulatory activities of the NRC, the anti-trust regulatory activities of the Federal Trade Commission and Department of Justice, the import/export regulatory activities of the Department of Commerce, the Department of State and the Department of Treasury, the regulatory activities of the Occupational Safety and Health Administration, the environmental regulatory activities of the Environmental Protection Agency, the labor regulatory activities of the Equal Employment Opportunity Commission and tax and other regulations by a variety of regulatory authorities in each of the areas in which we conduct business. We are also subject to regulation in other countries where we conduct business. In certain jurisdictions, such regulatory requirements may be more stringent than in the United States. We are also subject to a variety of U.S. federal and state employment and labor laws and regulations, including the Americans with Disabilities Act, the Federal Fair Labor Standards Act, the Worker Adjustment and Restructuring Notification Act, which requires employers to give affected employees at least 60 days’ notice of a plant closing or mass layoff, and other regulations related to working conditions, wage-hour pay, overtime pay, employee benefits, anti-discrimination and termination of employment. We are also subject to the employment and labor laws and regulations of the foreign jurisdictions, including France and Germany, where the majority of our employees are located.
 
Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. In addition, from time to time we have received, and may in the future receive, correspondence from former employees terminated by us who threaten to bring claims against us alleging that we have violated one or more labor or employment regulations. An adverse outcome in any such litigation could require us to pay damages.
 
Governmental enforcement actions could harm our business, financial condition and results of operations. If any governmental sanctions are imposed, or if we do not prevail in any civil or criminal litigation, our business, financial condition and results of operations could be materially adversely affected. In addition, responding to any action could be costly and result in a significant diversion of management’s attention and resources.
 
We and our customers operate in highly regulated industries that require us and them to obtain, and to comply with, national, state and local government permits and approvals.
 
We and our customers operate in a highly regulated environment. Many of our products and services must comply with various domestic and international standards that are used by regulatory and accreditation bodies for approving such services and products. Many of our products, particularly those offered by our Radiation Monitoring Systems and Sensing Systems divisions, are subject to an array of product testing under extreme temperature, pressure, radiation and seismic conditions, known collectively as a qualification, for any given nuclear reactor design. The qualification is typically owned by the party who pays for the testing and so, in certain cases, we license such qualifications from a third party. In addition, many of our products and services, particularly those offered by our Dosimetry Services division, must be certified by the National Voluntary Laboratory Accreditation Program in the United States and by other governmental agencies in international markets. The termination of any such accreditation or our failure to obtain and maintain required qualification or accreditation for our products and services may adversely affect our revenue and results of operations.


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Changes in these standards and accreditation requirements may also result in our having to incur substantial costs to adapt our products. Such adaptations may introduce quality assurance issues during transition as new features and products may not perform as expected. Additionally, changes affecting radiation protection practices, including new understandings of the hazards of radiation exposure and corresponding changes in regulations, may impact how our services are used by our customers and may, in some circumstances, cause us to alter our products and services.
 
In addition, our customers are required to obtain, and to comply with, national, state and local government licenses, permits and approvals with respect to their facilities. Any of these licenses, permits or approvals may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of licenses, permits or approvals may adversely affect our customers’ operations by suspending their activities and may subject them to penalties and other sanctions. Although existing licenses, permits or approvals are routinely renewed by various regulators, renewal could be denied or jeopardized by various factors, including:
 
  •  failure to provide adequate financial assurance in the event of decommissioning or closure;
 
  •  failure to comply with environmental and safety laws and regulations or permit conditions;
 
  •  local community, political or other opposition;
 
  •  executive action; and
 
  •  legislative action.
 
Furthermore, if new environmental legislation or regulations are enacted or existing laws or regulations are amended or are interpreted or enforced differently, our customers may be required to obtain additional operating licenses, permits or approvals. Regulatory issues experienced by our customers may lead to delay or cancellation of their orders for our products and services or the discontinuance of future orders. We cannot assure you that we or our customers will be able to meet all potential regulatory challenges.
 
We could incur substantial costs as a result of violations of or liabilities under environmental laws.
 
Our operations and properties are subject to a variety of U.S. and foreign environmental laws and regulations governing, among other things, air emissions, wastewater discharges, management and disposal of hazardous and non-hazardous materials and waste and remediation of releases of hazardous materials. Our failure to comply with present and future requirements, or the identification of contamination, could cause us to incur substantial costs, including clean-up costs, fines and penalties, investments to upgrade our facilities or curtailment of operations. The future identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory agencies, enactment of more stringent laws and regulations or other unanticipated events may arise in the future and give rise to material environmental liabilities and related costs which could have a material adverse effect on our business, financial condition and results of operations.
 
A European Union, or EU, directive relating to the restriction of hazardous substances, or RoHS, in electrical and electronic equipment and a directive relating to waste electrical and electronic equipment, or WEEE, have been and are being implemented in EU member states. Among other things, the RoHS directive restricts the use of certain hazardous substances in the manufacture of electrical and electronic equipment and the WEEE directive requires producers of electrical goods to be responsible for the collection, recycling, treatment and disposal of these goods. In addition, laws similar to RoHS and WEEE were passed in China in 2006 and South Korea in 2007. Governments in other countries, including the United States, are considering implementing similar laws or regulations.
 
In addition, a new regulation regarding the registration, authorization and restriction of chemical substances in industrial products, or REACH, became effective in the EU in 2007. Over time this regulation, as well as other regulations, may require us to substitute certain chemicals contained in our products with substances the EU considers less dangerous. We have not yet assessed the impact this legislation may have on our operations.
 
The costs associated with complying with this legislation could include costs associated with modifying our products, recycling and other waste processing costs, legal and regulatory costs and insurance costs. We


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have recorded in the past and may be required to record in the future additional expenses for costs associated with compliance with these regulations. The costs of complying with these new laws, or with current and future environmental and worker health and safety laws, could a material adverse effect on our business, financial condition and results of operations.
 
Our future success is dependent on our ability to retain key personnel, including our executive officers, and attract qualified personnel. If we lose the services of these individuals or are unable to attract new talent, our business will be adversely affected.
 
Our future operating results depend in significant part upon the continued contributions of our key technical and senior management personnel, many of whom would be difficult to replace. We are particularly dependent on the continued service of Thomas D. Logan, our President, Chief Executive Officer and Chairman of the Board, W. Antony Besso, our Regional Vice President, EMEA, and President, Health Physics Division, Iain F. Wilson, our Regional Vice President, Asia, and President, Sensing Systems Division, and Jean-Louis Gouronc, our President, Radiation Monitoring Systems.
 
Our future operating results also depend in significant part upon our ability to attract, train and retain qualified management, manufacturing and quality assurance, engineering, marketing, sales and support personnel. In particular, engineers skilled in the analog technologies used in certain of our products are in high demand and competition to attract such personnel is intense. In addition, the expected increase in construction of new NPPs may exacerbate the shortage of radiation engineers and other qualified personnel. We are continually recruiting such personnel; however, we cannot assure you that we will be successful in attracting, training or retaining such personnel now or in the future. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for us to hire such persons over time. The high demand for such personnel may increase the costs to us to recruit and retain employees.
 
The loss of any key employee, the failure of any key employee to perform in his or her current position, our inability to attract, train and retain skilled employees as needed or the inability of our officers and key employees to expand, train and manage our employee base could materially and adversely affect our business, financial condition and results of operations.
 
Our ability to compete successfully and achieve future growth will depend on our ability to protect our intellectual property and to operate without infringing the intellectual property of others.
 
Our business is largely dependent upon our design, engineering, manufacturing and testing know-how. We attempt to protect our intellectual property rights through trade secret laws, non-disclosure agreements, confidentiality procedures and employee disclosure and invention assignment agreements. To a lesser extent, we may also seek to protect our intellectual property through patents, trademarks and copyrights. We rely upon unpatented proprietary radiation detection expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position, some of which is licensed from third parties. Confidentiality agreements with our employees and third parties are often limited in duration and could be breached, and therefore they may not provide meaningful protection for our trade secrets or proprietary radiation detection expertise. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets. Others may obtain knowledge of our trade secrets through independent development or other access by legal means. It is possible that our efforts to protect our intellectual property rights may not:
 
  •  prevent our competitors from independently developing similar products, duplicating our products or designing around the patents owned by us;
 
  •  prevent third-party patents from having an adverse effect on our ability to do business;
 
  •  provide adequate protection for our intellectual property rights;
 
  •  prevent disputes with third parties regarding ownership of, or exclusive rights to, our intellectual property;
 
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  •  prevent the challenge, invalidation or circumvention of our existing patents;
 
  •  result in patents that lead to commercially viable products or provide competitive advantages for our products; and
 
  •  result in issued patents and registered trademarks from any of our pending applications.
 
The laws of foreign countries also may not adequately protect our intellectual property rights. Many U.S. companies have encountered substantial infringement problems in foreign countries. Because we conduct a substantial portion of our operations and a majority of our sales have been outside of the United States, we have significant exposure to foreign intellectual property risks.
 
Others have in the past attempted, and may in the future attempt, to copy or otherwise obtain and use our intellectual property without our consent. Monitoring the unauthorized use of our intellectual property is difficult. There is a risk that our customers or their end users’ customers may attempt to copy or otherwise obtain and use our intellectual property without our consent. It may be necessary, from time to time, to initiate litigation against one or more third parties, including our customers or companies with whom we have manufacturing relationships, to preserve our intellectual property rights or to challenge the validity and scope of proprietary rights asserted by others, and we could face counterclaims. Legal disputes with our customers or companies with whom we have manufacturing relationships could substantially harm our relationships and sales. Litigation is expensive and time consuming, and an adverse outcome could subject us to significant liability for damages or invalidate our proprietary rights.
 
From time to time, third parties may claim that we have infringed upon, misappropriated or misused other parties’ proprietary rights, and we may already be infringing without knowing it. Any of these events or claims could result in litigation. Such litigation, whether as plaintiff or defendant, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not such litigation is ultimately determined in our favor. In the event of an adverse result in such litigation, we could be required to pay substantial damages, cease the manufacture, use and sale of certain products, expend significant resources to develop or acquire non-infringing technology, discontinue the use of certain processes, obtain licenses to use the infringed technology, or indemnify our customers. Product development or license negotiating would likely result in significant expense to us and divert the efforts of our technical and management personnel. We cannot assure you that we would be successful in such development or acquisition or that such licenses would be available on reasonable terms, or at all.
 
Our obligations to indemnify our customers for the infringement by our products of the intellectual property rights of others could require us to pay substantial damages.
 
We currently have in effect a number of agreements in which we have agreed to defend, indemnify and hold harmless our customers and suppliers from damages and costs that may arise from the infringement by our products of third-party patents, trademarks or other proprietary rights. We may periodically have to respond to claims and initiate or participate in litigation in connection with these indemnification obligations, which may result in our paying substantial damages. Our insurance does not cover intellectual property infringement.
 
Some of our workforce is represented by labor unions in the United States and by works councils and trade unions in the EU, which may lead to work stoppages that could adversely affect our business.
 
As of June 30, 2009, approximately 34, or 12%, of our U.S. employees were unionized, and the majority of our EU employees are members of, or are represented by, works councils or trade unions. Since 1988, we have experienced only two work stoppages, at our facility in Lamanon, France. We may experience work stoppages or other labor problems in the future, which could adversely affect our business. We cannot predict how stable our relationships will be or whether we will be able to satisfy union or works council requirements without impacting our operating results and financial condition. Union and works council rules may limit our flexibility to respond to changing market conditions and the application of these rules could harm our business. The unions and works councils may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our relationships could negatively impact the timely production of our products,


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which could strain relationships with customers and cause a loss of revenue that would adversely affect our results of operations.
 
Our operations could be subject to natural disasters and other business disruptions, which could materially adversely affect our business and increase our expenses.
 
Our operations could be subject to natural disasters and other business disruptions, which could harm our future revenue and financial condition and increase our costs and expenses. For example, our corporate headquarters in San Ramon, California and the center of operations of our Dosimetry Services division in Irvine, California are located near major earthquake fault lines. In the event of a major earthquake or other natural or manmade disaster, we could experience business interruptions, destruction of or damage to facilities and/or loss of life, any of which could have a material adverse effect on our business and increase our expenses.
 
Risks Related to this Offering and Our Common Stock
 
If we cannot generate sufficient operating cash flow and obtain external financing, we may be unable to make all of our planned capital expenditures and other expenses.
 
Our ability to fund anticipated capital expenditures and other expenses depends on generating sufficient cash flow from operations and the availability of external financing. Since our inception in 2005, ACAS and its affiliates have provided us with the capital and debt financing that we have used to fund our growth and operations. Although ACAS will continue to be a controlling stockholder in our company upon completion of this offering, ACAS is under no obligation to continue making capital investments in us or to provide debt financing to us.
 
Our debt service obligations and our capital expenditures, together with on-going operating expenses, will be a substantial drain on our cash flow and may decrease our cash balances. The timing and amount of our capital requirements cannot be precisely determined at this moment and will depend on a number of factors, including demand for our products, product mix, changes in industry conditions and market competition. We intend to regularly assess markets for external financing opportunities, including debt and equity. Such financing may not be available when needed or, if available, may not be available on satisfactory terms, particularly in light of the limited financing available as a result of the current global financial crisis. Any equity financing would cause further dilution to our stockholders. See “Dilution.” Our inability to obtain needed financing or to generate sufficient cash from operations may require us to abandon projects or curtail capital expenditures, and we could be materially adversely affected. If we are not able to independently generate excess free cash flow and obtain third party debt or equity financing, our ability to grow our business may be materially adversely affected.
 
Upon completion of the offering, ACAS will continue to have an effective veto over matters determined by our Board of Directors and will be in a position to determine the outcome of all matters submitted to a stockholder vote as long as it continues to hold a majority of our outstanding common stock, which will limit your ability to influence corporate actions and may adversely affect the market price of our common stock.
 
Upon completion of this offering, ACAS and its affiliates will collectively hold approximately     % of our outstanding common stock, or approximately     % if the underwriters exercise in full their over-allotment option to purchase additional shares of common stock. As a result, ACAS will continue to determine the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, the adoption of amendments to our Certificate of Incorporation and Bylaws and approval of significant corporate transactions, as long as it continues to hold a majority of our outstanding common stock. In addition, a provision of the Bylaws that we will adopt prior to the consummation of this offering will provide that at least one of the directors designated by ACAS must be part of the majority in any action taken by our Board of Directors so long as ACAS and its affiliated funds hold at least 50.1% of our outstanding common stock, other than on matters in which ACAS has a conflict of interest (as it would if it appointed a majority of our directors). Our Bylaws will also provide that ACAS will have the right to designate three of our seven directors so long as ACAS and its affiliated funds hold at least 50.1% of our outstanding common stock, two directors so long as


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they hold at least 25% but less than 50.1% and one director so long as they hold at least 10% but less than 25%. ACAS will also be able to take actions that have the effect of delaying or preventing a change in control of us or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. These actions may be taken even if other stockholders oppose them. In addition, this significant concentration of stock ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. This concentration of control could be disadvantageous to other stockholders with interests different from those of our principal stockholder and the trading price of our common stock could be adversely affected. See “Principal Stockholders” for a more detailed description of the ownership of our common stock.
 
Conflicts of interest may arise because some of our directors are principals of ACAS.
 
Three persons designated by ACAS will serve on our Board of Directors upon completion of this offering. ACAS and its affiliates may invest in entities that directly or indirectly compete with us, or companies in which they currently invest may begin competing with us. As a result of these relationships, when conflicts between the interests of ACAS and the interests of our other stockholders arise, these directors may not be disinterested.
 
Although our directors and officers will have a duty of loyalty to us under Delaware law and the Certificate of Incorporation that we will adopt prior to the consummation of this offering, transactions that we enter into in which a director or officer has a conflict of interest are generally permissible so long as the material facts relating to the director’s or officer’s relationship or interest as to the transaction are disclosed to our Board of Directors and a majority of our disinterested directors, or a committee consisting solely of disinterested directors, approves the transaction.
 
ACAS and its affiliates do not have any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do.
 
Under the Certificate of Incorporation that we will adopt prior to the consummation of this offering, none of ACAS or its affiliates and investment funds, or any other ACAS entity, nor any director, officer, stockholder, member, manager and/or employee of an ACAS entity, has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any ACAS entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for both itself and us, the ACAS entity will not have any duty to communicate or offer the corporate opportunity to us and may pursue or acquire the corporate opportunity for itself or offer the opportunity to another person. In addition, none of ACAS’s designees on our Board of Directors will be required to offer to us any transaction opportunity of which he or she becomes aware and could take any such opportunity for him or herself or offer it to other companies (including ACAS and its other portfolio companies) in which they have an investment, unless such opportunity is expressly offered to him or her solely in his or her capacity as a director of us.
 
As a “controlled company,” as defined in the NASDAQ Marketplace Rules, we qualify for, and rely on, exemptions from certain corporate governance requirements.
 
ACAS owns, and will continue to own immediately after the completion of this offering, common stock representing more than a majority of the voting power in the election of our directors. As a result, we are considered a “controlled company” within the meaning of the corporate governance standards of the NASDAQ Marketplace Rules. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements, including the requirement that a majority of its board of directors consist of independent directors, the requirement that it have a nominating/corporate governance committee that is composed entirely of independent directors and the requirement that it have a compensation committee that is composed entirely of independent directors. We have elected to be treated as a controlled company and will rely on these exemptions. As a result, we do not have a majority of independent directors and our compensation and nominating and corporate governance committees do not consist entirely of independent directors. Furthermore, until one year following the offering, as permitted by applicable rules, we do not anticipate having an audit committee consisting solely of independent directors. Accordingly, you do not have the same protection afforded to stockholders of companies that are subject to all of the NASDAQ Marketplace corporate governance requirements.


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The price of our common stock may be volatile and subject to wide fluctuations.
 
The market price of our common stock may be subject to wide fluctuations due to a number of factors. We may experience significant period-to-period fluctuations in our backlog, revenue and operating results in the future and any such variations may cause our stock price to fluctuate. It is likely that in some future period our operating results will be below the expectations of securities analysts or investors. If this occurs, our stock price could drop significantly. A number of factors, in addition to those cited in other risk factors applicable to our business, may contribute to fluctuations in our backlog, sales and operating results, including:
 
  •  the timing and volume of orders from our customers;
 
  •  the rate of acceptance of our products by our customers;
 
  •  the rate of adoption of our products in the end markets we target;
 
  •  delays or cancellations in the construction of new NPPs by our customers;
 
  •  cancellations or deferrals of customer orders in anticipation of new products or product enhancements from us or our competitors or other providers;
 
  •  changes in product mix; and
 
  •  the rate at which new markets emerge for products we are currently developing.
 
Broad market and industry factors may also adversely affect the market price of our common stock, regardless of our actual operating performance. Market and industry factors that could cause fluctuations in our stock price may include, among other things:
 
  •  incidents affecting the nuclear industry;
 
  •  regulatory changes or legal developments affecting the nuclear industry;
 
  •  changes in financial estimates by us or by any securities analysts who might cover our stock, or our failure to meet the estimates made by securities analysts;
 
  •  changes in the market valuations of other companies operating in our industry;
 
  •  announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;
 
  •  additions or departures of key personnel; and
 
  •  a general downturn in the stock market.
 
The market price of our common stock also might decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. The initial public offering price of our common stock will be determined through negotiations between the representatives of the underwriters, ACAS and us and may not be representative of the price that will prevail in the open market. You might be unable to resell your shares at or above the offering price. In the past, companies that have experienced volatility in the market price of their stock have been the subjects of securities class action litigation. If we were to become the subject of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources.
 
We have and will continue to incur increased costs as a result of becoming a reporting company.
 
We have and will continue to face increased legal, accounting, administrative and other costs as a result of becoming a reporting company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and the Public Company Accounting Oversight Board, have required changes in the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make legal, accounting and administrative activities more time consuming and costly. For example, prior to consummation of this offering we will add independent directors, create additional committees of our Board of Directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect to incur substantially higher costs to obtain directors and officers’ insurance.


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In addition, as we gain experience with the costs associated with being a reporting company, we may identify and incur additional overhead costs.
 
Our independent registered public accounting firm reported to us that, at each of June 30, 2008 and June 30, 2009, we had material weaknesses and significant deficiencies in our internal controls over financial reporting that, if not remediated, could result in material misstatements in our financial statements in future periods and impair our ability to comply with the accounting and reporting requirements applicable to public companies.
 
Our independent registered public accounting firm reported to us that at each of June 30, 2008 and June 30, 2009, we had material weaknesses and a significant deficiency in our internal controls over financial reporting. Under standards established by the Public Company Accounting Oversight Board, or PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis, and a “significant deficiency” is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting. The material weaknesses identified were with respect to our controls in our financial accounting and reporting functions, which are necessary in order to produce PCAOB compliant financial statements. These weaknesses related to a lack of sufficient accounting personnel and depth of knowledge, formal policies and procedures to ensure that subsidiary financial information reflect accounting under U.S. generally accepted accounting principles, account reconciliation procedures and appropriate review and approval procedures are performed in a timely manner. A significant number of audit adjustments were also required to appropriately reflect account balances in accordance with U.S. GAAP. In connection with these weaknesses, we were required to restate our consolidated financial statements for fiscal 2007 and 2008 as a result of the reclassification of paid-in-kind dividends on our Convertible Participating Preferred Stock as additional paid-in capital rather than accrued liabilities. We determined that such dividends should not have been recorded as liabilities as they do not involve an obligation to make future sacrifices of assets. The significant deficiencies identified were with respect to inadequate systems and recordkeeping processes resulting in the need for manual intervention. As we prepare for the completion of this offering, we are in the process of addressing the issues raised by our independent registered public accounting firm by hiring additional finance personnel and documenting and enhancing formalized information technology policies and procedures, and through the implementation of software upgrades throughout our operations. However, these and other remediation efforts may not enable us to remedy the material weaknesses and significant deficiency or avoid other material weaknesses or significant deficiencies in the future. Because of these material weaknesses, there is heightened risk that a material misstatement of our annual or quarterly financial statements will not be prevented or detected. In the event that we have not adequately remedied these material weaknesses, and if we fail to maintain proper and effective internal controls in future periods, it could adversely affect our operating results, financial condition, ability to run our business effectively and our ability to timely meet our reporting requirements and could cause investors to lose confidence in our financial reporting. In addition, these and any other material weaknesses and significant deficiencies will need to be addressed as part of the evaluation of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and may impair our ability to comply with Section 404.
 
Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on us.
 
Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act, standards that we will be required to meet in the course of preparing our fiscal 2011 financial statements. We do not currently have comprehensive documentation of our internal controls, nor do we document or test our compliance with these controls on a periodic basis in accordance with Section 404 of the Sarbanes-Oxley Act. Furthermore, we have not tested our internal controls in


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accordance with Section 404 and, due to our lack of documentation, such a test would not be possible to perform at this time.
 
We are in the early stages of addressing our internal control procedures to satisfy the requirements of Section 404, which requires an annual management assessment of the effectiveness of our internal control over financial reporting. If, as a public company, we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to attest to the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules and may breach the covenants under our credit facilities. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
 
Future sales of shares could depress our stock price.
 
If our existing stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline. Based on shares outstanding as of June 30, 2009, upon completion of this offering we will have outstanding approximately           shares of common stock. Of these shares, only the           shares of common stock sold in this offering will be freely tradable, without restriction, in the public market. After the lock-up agreements pertaining to this offering expire, our existing stockholders will be able to sell their shares in the public market, subject to legal restrictions on transfer. Prior to consummation of this offering, we will enter into a registration rights agreement that provides for registration rights with respect to the          shares of our common stock that will be held by ACAS and its affiliates, Thomas D. Logan, W. Antony Besso and certain other stockholders following this offering. Registration of the sale of the common stock would permit their sale into the market immediately. If for any reason ACAS sells a large number of shares, the market price of our common stock could decline, as these sales may, among other things, be viewed by the public as an indication of an upcoming or recently occurring shortfall in the financial performance of our company. Moreover, the perception in the public market that these investors might sell our common stock could depress the market price of the common stock. See “Shares Eligible for Future Sale” for more detailed information. Additionally, we may sell or issue additional shares of common stock in subsequent public offerings or in connection with acquisitions, which will result in additional dilution and may adversely affect market prices for our common stock.
 
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
 
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. In addition, it is likely that in some future period our operating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.
 
Some provisions of our Certificate of Incorporation and Bylaws may deter third parties from acquiring us and diminish the value of our common stock.
 
The Certificate of Incorporation and Bylaws that we will adopt prior to consummation of this offering will provide for, among other things:
 
  •  restrictions on the ability of our stockholders to fill a vacancy on our Board of Directors;
 
  •  our ability to issue preferred stock with terms that our Board of Directors may determine, without stockholder approval;
 
  •  the absence of cumulative voting in the election of directors;


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  •  advance notice requirements for stockholder proposals and nominations;
 
  •  our Board of Directors to be divided into three classes, with each class serving staggered terms; and
 
  •  the requirement that at least one of the directors designated by ACAS must be part of the majority in any action taken by our Board of Directors so long as ACAS and its affiliated funds hold at least 50.1% of our outstanding common stock, other than on matters in which ACAS has a conflict of interest (as it would if it appointed a majority of our directors).
 
These provisions may discourage, delay or prevent a transaction involving a change in control of our company that is in the best interest of our minority stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.
 
We do not anticipate paying any cash dividends for the foreseeable future.
 
We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock and the agreements governing our debt significantly restrict our ability to pay dividends. As a result, capital appreciation in the price of our common stock, if any, will be your only source of gain on an investment in our common stock. See “Dividend Policy.”
 
New investors in our common stock will experience immediate and substantial book value dilution after this offering.
 
The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of the outstanding common stock immediately after the offering. Based on an assumed initial public offering price of $      per share (the midpoint of the price range set forth on the cover of this prospectus) and our net tangible book value as of June 30, 2009, if you purchase our common stock in this offering, you will suffer immediate dilution in net tangible book value per share of approximately $      per share. See “Dilution.”


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FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
 
The forward-looking statements contained in this prospectus are based on assumptions that we have made in light of our industry experience and on our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. They involve assumptions as well as risks and uncertainties, some of which are beyond our control. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. We believe these factors include, but are not limited to, those described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.
 
Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.


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USE OF PROCEEDS
 
We estimate that the net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses will be approximately $      million, assuming the shares are offered at $      per share (the midpoint of the price range set forth on the cover page of this prospectus). We intend to use $      million of the net proceeds from this offering to repay certain borrowings from ACAS and its affiliates. We also intend to use net proceeds from this offering to make a one-time payment of $8.0 million to ACFS, a subsidiary of ACAS, to terminate an investment banking services agreement between us and ACFS. See “Certain Relationships and Related Party Transactions.” We will use the balance of the net proceeds for working capital and general corporate purposes. We may also use a portion of the net proceeds to make strategic acquisitions of other companies or businesses, although no agreements or understandings exist with respect to any such acquisitions. Pending their application we intend to invest the net proceeds in short-term interest-bearing obligations.
 
We intend to enter into arrangements to refinance, prior to the consummation of this offering, or to repay with a portion of the proceeds of this offering, the debt of our subsidiaries that is held by our principal stockholder, ACAS, or its affiliates. For purposes of this section, EURIBOR means the Euro Interbank Offered Rate and LIBOR means the London Interbank Offered Rate. All amounts are as of June 30, 2009, but reflect amendments to extend maturity that were entered into subsequent to that date.
 
  •  approximately $11.0 million of LIBOR + 4.5%, $20.25 million commitment amount Revolving Loan Facility due July 1, 2011;
 
  •  approximately $14.0 million of LIBOR + 5%, $14.0 million commitment amount Revolving Loan Facility due July 1, 2011;
 
  •  approximately $3.6 million of EURIBOR + 2%, $8.2 million commitment amount Revolving Loan Facility due July 1, 2011;
 
  •  approximately $24.9 million of EURIBOR + 3%, $24.9 million principal amount Senior Term B Notes due July 1, 2011;
 
  •  approximately $5.1 million of LIBOR + 8%, $7.5 million principal amount Senior Term B Notes due July 1, 2011;
 
  •  approximately $1.9 million of LIBOR + 8%, $2.0 million principal amount Senior Term B Notes due July 1, 2011;
 
  •  approximately $4.0 million of LIBOR + 9%, $4.0 million principal amount Senior Term C Notes due October 29, 2011;
 
  •  approximately $4.0 million of LIBOR + 8.25%, $4.0 million principal amount Senior Term C Notes due November 10, 2011;
 
  •  approximately $26.0 million of LIBOR + 6.5%, $27.0 million principal amount Senior Term D Notes due October 14, 2011;
 
  •  approximately $14.4 million of LIBOR + 6.5%, $15.0 million principal amount Senior Term D Notes due October 21, 2011;
 
  •  approximately $8.3 million of 14%, $7.5 million principal amount Senior Subordinated Notes due July 1, 2011;
 
  •  approximately $9.7 million of 15%, $8.6 million principal amount Senior Subordinated Notes due July 1, 2011;
 
  •  approximately $15.6 million of EURIBOR + 11%, $12.2 million principal amount Senior Subordinated Notes due July 1, 2011;
 
  •  approximately $5.1 million of 17%, $4.3 million principal amount Junior Subordinated Notes due July 1, 2011;


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  •  approximately $5.1 million of 17%, $4.3 million principal amount Junior Subordinated Notes due July 1, 2011;
 
  •  approximately $1.4 million of 14%, $1.25 million principal amount Junior Subordinated Notes due May 24, 2012;
 
  •  approximately $6.7 million of EURIBOR + 12%, $4.9 million principal amount Junior Subordinated Notes due July 1, 2011; and
 
  •  approximately $9.2 million of three-month EURIBOR + 2%, €6.5 million commitment amount Shareholder Loan due June 30, 2011.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $      per share would increase (decrease) the net proceeds to us from this offering by $      million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us.
 
DIVIDEND POLICY
 
We have never declared or paid any cash dividends on our common stock. We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay dividends to holders of our common stock and the agreements governing our debt significantly restrict our ability to pay dividends.


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CAPITALIZATION
 
The following table sets forth our consolidated capitalization as of June 30, 2009:
 
  •  on an actual basis; and
 
  •  on a pro forma as adjusted basis to give effect to the conversion of           of our outstanding convertible preferred stock into           shares of our common stock, the conversion of          shares of our Class A Voting Common Stock and Class B Non-Voting Common Stock into           shares of our common stock on a one-to-one basis, the sale of          shares of our common stock in this offering by us at an assumed initial public offering price of $      per share (the midpoint of the range set forth on the cover page of this prospectus), and the application of the $       estimated net proceeds to be received by us as described in “Use of Proceeds” to effect the repayment and refinancing of $      of our indebtedness and to make a one-time, $8 million payment to ACFS, after deducting the underwriting discounts and estimated offering expenses of $      .
 
You should read this table along with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus.
 
                 
    As of June 30, 2009  
          Pro Forma
 
    Actual     as Adjusted(1)  
    (in thousands, except share data)  
 
Total debt, including current portion:
               
Notes payable to ACAS
  $ 170,012          
Notes payable to third parties
    7,204                   
                 
Stockholders’ equity (deficit):
               
Series A-1 Convertible Participating Preferred Stock, $0.001 par value; 1,200,000 shares authorized, actual; 678,804 shares issued and outstanding, actual; none authorized, pro forma as adjusted; none issued and outstanding, pro forma as adjusted
    1          
Series A-2 Convertible Participating Preferred Stock, $0.001 par value; 300,000 shares authorized, actual; 70,000 shares issued and outstanding, actual; none authorized, pro forma as adjusted; none issued and outstanding, pro forma as adjusted
               
Class A Voting Common Stock, $0.001 par value; 2,500,000 shares authorized, actual; 2,091 shares issued and outstanding, actual; none authorized, pro forma as adjusted; none issued and outstanding, pro forma as adjusted
               
Class B Non-Voting Common Stock, $0.001 par value; 700,000 shares authorized, actual; 45,650 shares issued and outstanding, actual; none authorized, pro forma as adjusted; none issued and outstanding, pro forma as adjusted
               
Common stock, $0.001 par value; none authorized, actual; none issued and outstanding, actual;          shares authorized, pro forma as adjusted;          shares issued and outstanding, pro forma as adjusted
             
Additional paid-in capital
    98,206          
Accumulated deficit
    (98,323 )        
Accumulated other comprehensive income
    10,384          
                 
Total stockholders’ equity (deficit)
    10,268          
                 
Total capitalization
  $ 187,484     $  
                 
 
 
(1) Assuming the number of shares sold by us in this offering remains the same as set forth on the cover page, a $1.00 increase or decrease in the assumed initial public offering price would increase or decrease, as applicable, our total cash, total stockholders’ equity and total capitalization by approximately $      million.


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The table above excludes, as of June 30, 2009:
 
  •  113,288 shares subject to outstanding options at a weighted average exercise price of $122.77 per share;
 
  •  5,402 additional shares reserved for issuance under our existing stock option plan, all of which are expected to be granted to our employees, including our executive officers, immediately following the pricing of this offering at an exercise price equal to the initial public offering price;
 
  •  106,160 additional shares to be reserved for issuance under our amended and restated stock option plan to become effective upon the pricing of this offering; and
 
  •  402,428 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.00152 per share.


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DILUTION
 
If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of common stock initially upon completion of this offering.
 
Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. After giving effect to the sale of shares of common stock offered in this offering and after deducting the underwriting discounts and estimated offering expenses, our pro forma net tangible book value as of June 30, 2009 would have equaled $      per share of common stock. This represents an immediate increase in net tangible book value of $      per share to our existing stockholders and an immediate dilution in net tangible book value of $      per share to new stockholders of common stock in this offering. If the initial public offering price is higher or lower, the dilution to new stockholders will be greater or less. The following table summarizes this per share dilution:
 
                 
Assumed initial public offering price per share
              $        
Net tangible book value per share as of June 30, 2009
  $            
Increase per share attributable to this offering
               
                 
Pro forma net tangible book value per share after this offering
               
                 
Dilution in pro forma net tangible book value per share to new stockholders
          $    
                 
 
A $1.00 increase or decrease in the assumed initial public offering price of $      per share would increase or decrease, as applicable, our pro forma net tangible book value by $      million, the pro forma net tangible book value per share by $      per share, and the dilution in pro forma net tangible book value per share to new stockholders by $      per share.
 
If the underwriters exercise their over-allotment in full, pro forma net tangible book value per share after the offering will be $     , and dilution in pro forma net tangible book value per share to new stockholders will be $     .
 
The following table summarizes on a pro forma basis, as of June 30, 2009, the differences between our existing stockholders and new stockholders with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid:
 
                                         
    Shares Purchased   Total Consideration   Average Price
    Number   Percent   Amount   Percent   Per Share
    (in thousands)       (in thousands)        
 
Existing stockholders
                                       
New stockholders
                                       
 
A $1.00 increase or decrease in the assumed initial public offering price of $      per share would increase or decrease, as applicable, total consideration paid by new stockholders and total consideration paid by all stockholders by $      million.
 
If the underwriters exercise their over-allotment option in full, the following will occur: (1) the number of shares of common stock held by existing stockholders will represent approximately     % of the total number of shares of common stock outstanding after this offering; and (2) the number of shares of common stock held by new public stockholders will be increased to          , or approximately     % of the total number of shares of common stock outstanding after this offering.
 
The number of shares of common stock to be outstanding after this offering is based on 1,197,094 shares outstanding as of June 30, 2009 and excludes:
 
  •  113,288 shares subject to outstanding options as of June 30, 2009 at a weighted average exercise price of $122.77 per share;
 
  •  5,402 additional shares reserved for issuance under our existing stock option plan, all of which are expected to be granted to our employees, including our executive officers, immediately following the pricing of this offering at an exercise price equal to the initial public offering price;
 
  •  106,160 additional shares to be reserved for issuance under our amended and restated stock option plan to become effective upon the pricing of this offering; and
 
  •  402,428 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.00152 per share.
 
To the extent that the options or warrants are exercised, there may be further dilution to new stockholders.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
You should read the following selected consolidated historical financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. The selected financial data in this section is not intended to replace the consolidated financial statements and related notes included elsewhere in this prospectus.
 
The selected consolidated statements of operations data for each of the three fiscal years ending June 30, 2007, 2008 and 2009 and the consolidated balance sheet data as of June 30, 2008 and 2009 are derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The consolidated statements of operations data for the fiscal year ended June 30, 2006 and the consolidated balance sheet data as of June 30, 2007 are derived from our audited consolidated financial statements not included in this prospectus. The consolidated statements of operations data for the fiscal year ending June 30, 2005 and the consolidated balance sheet data as of June 30, 2005 and 2006 are derived from our unaudited financial statements not included in this prospectus. Until their merger in December 2005 resulting in the formation of Mirion, we were comprised of GDS, IST and Synodys, entities which were under the common control of ACAS. Our historical results are not necessarily indicative of the results that should be expected in the future. The amounts below are in thousands, except percentages and per share data.
 
                                                 
    Year Ended June 30,        
    2005     2006     2007     2008     2009        
 
Consolidated Statements of Operations Data:
                                               
Revenue
  $ 135,177     $ 147,148     $ 175,361     $ 189,933     $ 207,582          
Cost of revenue
    77,832       79,452       97,222       102,871       110,761          
                                                 
Gross profit
    57,345       67,696       78,139       87,062       96,821          
                                                 
     % of revenue
    42.4 %     46.0 %     44.6 %     45.8 %     46.6 %        
Operating expenses
                                               
Selling, general and administrative expenses
    45,055       68,174       59,792       63,008       66,057          
Research and development expenses
    6,548       9,726       11,875       14,865       11,188          
                                                 
Total operating expenses
    51,603       77,900       71,667       77,873       77,245          
                                                 
Income (loss) from operations
    5,742       (10,204 )     6,472       9,189       19,576          
Interest expense, net
    (21,287 )     (20,613 )     (19,068 )     (20,290 )     (17,787 )        
Other (expense) income, net
    (10,465 )     4,964       786       1,650       474          
                                                 
(Loss) income before provision for income taxes
    (26,010 )     (25,853 )     (11,810 )     (9,451 )     2,263          
Provision for income taxes
    3,375       1,585       6,050       4,546       5,915          
                                                 
Net loss
  $ (29,385 )   $ (27,438 )   $ (17,860 )   $ (13,997 )   $ (3,652 )        
                                                 
Paid-in-kind preferred dividends
    (1,785 )     (4,949 )     (8,141 )     (8,993 )     (9,892 )        
                                                 
Net loss attributable to common stockholders
  $ (35,322 )   $ (32,387 )   $ (26,001 )   $ (22,990 )   $ (13,544 )        
                                                 
Net loss per common share attributable to common stockholders’ per share — basic and diluted
          $ (724.22 )   $ (546.08 )   $ (482.31 )   $ (283.70 )        
                                                 
Shares used in computing net loss attributable to common stockholders — basic and diluted
            44,720       47,614       47,666       47,741          
                                                 
Pro forma net loss per common share — basic and diluted(1)
                                  $ (11.80 )        
                                                 
Shares used in computing pro forma basic and diluted net loss per common share
                                    1,147,638          
                                                 
 
                                         
    As of June 30,  
    2005     2006     2007     2008     2009  
 
Consolidated Balance Sheet Data:
                                       
Cash and cash equivalents(2)
  $ 4,073     $ 4,858     $ 6,561     $ 8,959     $ 5,390  
Total assets
    282,728       302,327       299,982       336,663       317,036  
Notes payable to ACAS(3)
    128,194       148,273       159,461       173,186       170,012  
Total stockholders’ equity (deficit)
    (29,555 )     36,944       24,862       22,743       10,268  
 


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    Year Ended June 30,  
    2007     2008     2009  
 
Other Data:
                       
Adjusted EBITDA(4)
  $ 32,045     $ 32,304     $ 41,431  
Amortization of intangible assets
    12,215       10,076       8,114  
Capital expenditures
    3,897       5,142       6,845  
 
                         
    As of June 30,  
    2007     2008     2009  
 
Backlog(5)
  $ 143,887     $ 177,956     $ 184,218  
Deferred revenue
    30,567       38,988       43,419  
 
 
(1) Pro forma and diluted net loss per common share is adjusted to give effect to the conversion of      shares of our convertible preferred stock into      shares of our common stock pursuant to our Certificate of Incorporation, which provides that our Convertible Participating Preferred Stock is convertible at any time, at the option of the holder, into the number of fully paid and nonassessable shares of Class A Voting Common Stock that results from dividing the applicable original issue price per share by the initial conversion price of $100.
(2) As of June 30, 2009, we also had $6.0 million of restricted cash.
(3) In addition, as of June 30, 2009, we had $7.2 million of outstanding debt held by third parties not affiliated with ACAS.
(4) We include Adjusted EBITDA in this prospectus because (i) it is a basis upon which our management assesses our operating performance, (ii) it is a factor in the evaluation of the performance of our management in determining compensation and (iii) certain maintenance covenants under our debt agreements are tied to ratios based upon Adjusted EBITDA, as defined. Adjusted EBITDA is calculated as net income (loss) less extraordinary gains (loss) and interest income, plus interest expense, charges against income for taxes, depreciation expense, amortization expense, mark to market (loss) gain, non-recurring charges, management fees paid to ACFS and all non-cash compensation expenses (in accordance with the definitions in our credit facilities with ACAS). Adjusted EBITDA is not a measure of financial performance calculated in accordance with U.S. GAAP, and should be viewed as a supplement to—not a substitute for—our results of operations presented on the basis of U.S. GAAP. Adjusted EBITDA also does not purport to represent cash flow provided by, or used in, operating activities in accordance with U.S. GAAP and should not be used as a measure of liquidity. Our statements of cash flows, included elsewhere in this prospectus, present our cash flow activity in accordance with U.S. GAAP. Furthermore, Adjusted EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
(5) Represents purchase orders or contracts received by us that have not been shipped. Amounts representing backlog are not recorded in our financial statements.
 
The following is a reconciliation of net loss to Adjusted EBITDA:
 
                         
    Year Ended June 30,  
    2007     2008     2009  
 
Net loss
  $ (17,860 )   $ (13,997 )   $ (3,652 )
Interest expense, net
    19,068       20,290       17,787  
Income tax expense
    6,050       4,546       5,915  
Depreciation
    4,072       4,022       4,417  
Amortization(a)
    12,215       10,076       8,114  
ACFS fees
    1,625       1,625       1,739  
Stock option compensation
    244       275       1,161  
Mark to market (loss) gain
    (14 )     9       83  
Other non-recurring charges(b)
    6,645       5,458       5,867  
                         
Adjusted EBITDA
  $ 32,045     $ 32,304     $ 41,431  
                         
 
 
(a) Represents the non-cash amortization of intangible assets, such as customer relationships, backlog, qualification, enterprise software, technology, territorial rights, trade names and noncompete agreements. We have included portions of this non-cash amortization expense in cost of revenue, research and development expenses and selling, general and administrative expenses.
 
(b) Represents non-recurring expenses, including severance expenses and costs associated with the preparation for our initial public offering, as well as certain professional and legal expenses.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of the financial condition and results of our operations should be read together with “Selected Consolidated Financial Data” and the consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements, based on current expectations related to future events and our future financial performance, that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
 
Overview
 
We are a leading global provider of radiation detection, measurement, analysis and monitoring products and services to the nuclear, defense and medical end markets. Our customers rely on our solutions to protect people, property and the environment from nuclear and radiological hazards. Our products and services include: dosimeters; contamination & clearance monitors; detection & identification instruments; radiation monitoring systems; electrical penetrations; instrumentation & control equipment and systems; dosimetry services; imaging systems; and related accessories, software and services.
 
We provide our products and services through five segments: Health Physics, Radiation Monitoring Systems, Sensing Systems, Dosimetry Services and Imaging Systems. Our Health Physics segment derives revenue from the nuclear, defense and medical end markets. We provide our Health Physics customers, which include power and utility companies, military organizations, engineering companies as well as governmental agencies, with dosimeters, contamination & clearance monitors as well as equipment that detects and identifies radioactive isotopes. Our Radiation Monitoring Systems segment offers systems that provide process and post-event radiation monitoring to the nuclear end market. Our Radiation Monitoring Systems customers include power and utility companies, engineering companies, research laboratories, universities, as well as governmental agencies. Our Sensing Systems segment supplies electrical penetrations as well as reactor instrumentation & control equipment and systems to the builders and operators of nuclear reactors. Our Sensing Systems customers include power and utility companies, the U.S. Navy, as well as engineering companies. Our Dosimetry Services segment provides analytical services to determine occupational and environmental radiation exposure to employers of radiation workers in the nuclear and medical end markets. Our Dosimetry Services customers include power and utility companies, hospitals, governmental agencies, medical professionals, dentists and veterinarians. Our Imaging Systems segment provides specialized closed circuit camera systems used for inspection and surveillance in difficult and hazardous environments to the nuclear and other end markets. We provide these systems to power and utility companies, operators of waste management facilities, cement kilns and petrochemical facilities.
 
Of the $207.6 million in total revenue we generated in fiscal 2009, $71.4 million, or 34.4%, was attributable to our Health Physics segment, $44.6 million, or 21.5%, was attributable to our Radiation Monitoring Systems segment, $45.0 million, or 21.7%, was attributable to our Sensing Systems segment, $29.5 million, or 14.2%, was attributable to our Dosimetry Services segment and $17.1 million, or 8.2%, was attributable to our Imaging Systems segment. Please see Note 15 of our consolidated financial statements for additional financial information about our segments.
 
Despite achieving positive operating income in fiscal 2007, 2008 and 2009, we have not achieved positive net income, due in large part to our leverage, in any fiscal year since our inception in 2005. As of June 30, 2009, we had an accumulated deficit of $98.3 million. We expect to reduce our leverage through the repayment of certain of our indebtedness with a portion of the net proceeds from the offering. See “Use of Proceeds.”
 
We incorporated in Delaware in October 2005 as Global Monitoring Services, Inc. Our business was formed through a series of transactions in December 2005 resulting in the combination of three companies, all owned by ACAS, our principal stockholder, and its affiliates. The three companies were GDS, a provider of dosimetry services to the nuclear and medical industries, IST, a manufacturer of electrical penetrations, reactor


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instrumentation & control equipment and systems and imaging systems for the nuclear, defense and other industries and Synodys, a designer and manufacturer of radiation detection, measurement, analysis and monitoring equipment for the nuclear, defense and medical industries. Following these transactions, we changed our name in January 2006 to Mirion Technologies, Inc.
 
We are a global company with operations in Canada, China, Finland, France, Germany, the United Kingdom and the United States. Accordingly, currency exchange rates can impact our reported results of operations. Revenue outside of the United States and Canada accounted for 63.8% and 62.6% of total revenue for fiscal 2008 and 2009. Please see Note 15 to our consolidated financial statements for additional financial information about geographic areas.
 
References to “fiscal” before any year refer to our fiscal year ending on June 30th of the year referenced.
 
Key Indicators of Performance
 
In evaluating our business, our management considers Adjusted EBITDA as a key indicator of operating performance. We include Adjusted EBITDA in this prospectus because (i) it is a basis upon which our management assesses our operating performance, (ii) it is a factor in the evaluation of the performance of our management in determining compensation and (iii) certain maintenance covenants under our debt agreements are tied to ratios based upon Adjusted EBITDA, as defined. We define Adjusted EBITDA as net income (loss) less extraordinary gains (loss) and interest income, plus interest expense, charges against income for taxes, depreciation expense, amortization expense, mark to market (loss) gain, non-recurring charges, management fees paid to ACFS and all non-cash compensation expenses.
 
We use Adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the impact of depreciation and amortization expense on definite lived intangible assets. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we also use Adjusted EBITDA for business planning purposes, to incentivize and compensate our management personnel, in measuring our performance relative to that of our competitors and in evaluating acquisition opportunities.
 
In addition, we believe Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties as a measure of financial performance and debt-service capabilities. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
 
  •  it does not reflect our cash expenditures for capital equipment or other contractual commitments;
 
  •  although depreciation, amortization and asset impairment charges and write-offs are non-cash charges, the assets being depreciated, amortized or written off may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements;
 
  •  it does not reflect changes in, or cash requirements for, our working capital needs;
 
  •  it does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;
 
  •  it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness;
 
  •  it does not reflect certain tax payments that may represent a reduction in cash available to us; and
 
  •  other companies, including companies in our industry, may calculate these measures differently, and as the number of differences in the way two different companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.


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Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally. We carefully review our operating income at a segment level, which is discussed in detail in our period-to-period comparison of operating results.
 
Components of Revenue and Expenses
 
Revenue and Cost of Revenue
 
Health Physics
 
We generate revenue in our Health Physics segment primarily from the sale of dosimeters, both active and passive, which measure ionizing radiation dose; contamination & clearance monitors, which detect alpha, beta, gamma and/or neutron contamination of objects of various sizes and types, from tools to trucks; and devices that detect, locate and identify radioactive isotopes. We sell our equipment either pursuant to written agreements or contracts requiring delivery of products or services over a specified time period or one-time purchase orders depending on the nature of the product and the dollar value of the sale. We typically use contracts for large installations of our equipment to power and utility companies as well as military organizations. These contracts are typically fixed price, where we bear the risk for changes in material costs as well as currency movements. The time period from receipt of a contract to the recognition of revenue generally ranges from a few months to a year. We typically use purchase orders for the sale of replacement components as well as small dollar value orders. We typically do not recognize revenue and the related cost of revenue until our customer has installed the equipment and certified that it is operating correctly or until we have otherwise determined that all customer-specific acceptance criteria have been met. Furthermore, customers may delay delivery or acceptance of equipment, causing postponement of revenue recognition even though we may have received payment. We record payments received from customers prior to the time we recognize revenue for associated sales as deferred revenue.
 
Revenue in our Health Physics segment has been primarily driven by product sales for new nuclear power reactor construction in Asia, replacement product sales for NPPs in the Americas and Europe, as well as replacement product sales for the defense end market.
 
Cost of revenue in our Health Physics segment primarily consists of cost of goods purchased for the manufacture of our equipment, facility costs, compensation and benefits to manufacturing employees and outsourcing costs for subcontractor services for the manufacture of various material sub-components.
 
Radiation Monitoring Systems
 
We generate revenue in our Radiation Monitoring Systems segment from the sale of radiation monitoring systems and services to engineering firms that design and construct nuclear reactors, power and utility companies that operate NPPs and, to a lesser extent, research laboratories and universities. We generate most of the revenue in our Radiation Monitoring Systems segment from contracts with a duration greater than one year. These contracts are typically fixed price, where we bear the risk for changes in material cost as well as currency movements.
 
Revenue in our Radiation Monitoring Systems segment can fluctuate significantly from period to period because of customer requirements, which depend upon the operating schedules of nuclear reactors. The operating schedules of nuclear reactors are affected by, among other things, seasonality in the demand for electricity and reactor refueling and maintenance. Power and utility companies typically schedule refueling and maintenance to coincide with periods of reduced power demand, typically in the spring and fall. Therefore, our revenue may be higher during these periods when equipment is typically installed. Revenue may also fluctuate from period to period as our equipment is installed in newly constructed nuclear reactors. We typically do not recognize revenue and the related cost of revenue until our customer has installed the equipment and certified that it is operating correctly, which generally can extend to 12 months from shipment, although in some cases can be longer or until we have otherwise determined that all customer-specific


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acceptance criteria have been met. Furthermore, customers may delay delivery or acceptance of equipment, causing postponement of revenue recognition, even though we may have received payment. In each of the preceding circumstances, we record payments received from customers prior to the time we recognize revenue for associated sales as deferred revenue.
 
Revenue in our Radiation Monitoring Systems segment has been primarily driven by new nuclear power reactor construction in Asia and Europe, as well as the retrofitting of existing reactors. Revenue in the Americas region has been primarily driven by renewed sales for the retrofitting of existing reactors.
 
Cost of revenue in our Radiation Monitoring Systems segment primarily consists of cost of goods purchased for the manufacture of our equipment, facility costs, compensation and benefits to employees and outsourcing costs for subcontractor services for the manufacture of various material sub-components.
 
Sensing Systems
 
We generate revenue in our Sensing Systems segment primarily through sales of our electrical penetrations which are conduits through a nuclear reactor containment structure, as well as sales of our reactor instrumentation & control detectors, which are used in nuclear facilities to monitor radiation and temperature within a nuclear reactor core (“in-core” detectors) and in surrounding areas (“ex-core” detectors). Our Sensing Systems segment sells primarily through contracts with engineering firms that design and construct nuclear reactors as well as power and utility companies that operate NPPs. These contracts are typically fixed price, where we bear the risk for changes in material costs as well as currency movements. We have generated the majority of the revenue in our Sensing Systems segment from contracts with a duration greater than one year.
 
Revenue in our Sensing Systems segment has been primarily driven by new nuclear power reactor construction in Asia and Europe for our electrical penetrations as well as by the replacement of reactor instrumentation & control equipment and systems for existing reactors in Asia, Europe and the Americas.
 
Cost of revenue in our Sensing Systems segment primarily consists of cost of goods purchased for the manufacture of our equipment, facility costs, compensation and benefits to employees and outsourcing costs for subcontractor services for the manufacture of various material sub-components.
 
Dosimetry Services
 
Revenue from our Dosimetry Services segment is of a subscription nature. We provide these services to customers on an agreed-upon recurring monthly, quarterly or annual basis. Badge production, badge analysis and report preparation are all integral to the service that we provide to our customers, and therefore, we define the service period to include the provision of all of those services. We recognize revenue and related costs on a straight-line basis over the service period as the service is continuous.
 
Revenue in our Dosimetry Services segment has been primarily driven by the increased use of our dosimetry services in hospitals and other medical facilities resulting from increases in the incidence of radiological medical procedures, along with the increased use of our services by dental and veterinary offices in the United States.
 
Cost of revenue in our Dosimetry Services segment primarily consists of compensation and benefits to employees, outsourcing costs for subcontractor services and cost of goods purchased for use in our badges.
 
Imaging Systems
 
We generate revenue in our Imaging Systems segment through the sale of highly specialized closed circuit camera systems used for inspection and surveillance in difficult and hazardous environments through contracts with engineering firms that design and construct nuclear reactors, power and utility companies that operate NPPs, waste management facilities, as well as companies that operate pulp and paper recovery boilers, gas or coal-fired power boilers and cement kilns. These contracts are typically fixed price, where we bear the risk of changes in material cost and currency movements.


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Revenue in our Imaging Systems segment has been primarily driven by increased demand in Asia for high radiation-tolerant cameras for use in new NPP construction, and for use in radioactive waste management and nuclear facility decommissioning projects globally.
 
Cost of revenue in our Imaging Systems segment primarily consists of cost of goods purchased for the manufacture of our equipment, facility costs, compensation and benefits to employees, and outsourcing costs for subcontractor services for the manufacture of various material sub-components.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative, or SG&A, expenses consist primarily of personnel costs (including salaries, performance-based bonuses, commissions and employee benefits), facilities and equipment costs, costs related to advertising and marketing and other general corporate and support costs including utilities, insurance and professional fees. SG&A expenses also include $1.6 million per year in management fees we have paid to ACFS under an investment banking services agreement. We intend to use a portion of the net proceeds from this offering to make a one-time payment of $8.0 million to ACFS upon completion of this offering to terminate the agreement related to these payments. This $8.0 million payment will be included in SG&A expenses in the period paid. See “Certain Relationships and Related Party Transactions.”
 
Research and Development Expenses
 
Research and development expenses consist primarily of the costs associated with the design and testing of new products, as well as the upgrading of existing products. These costs relate primarily to compensation of personnel involved with our product development efforts, materials and outside design and testing services. Our customers sometimes compensate us separately for design and engineering work involved in developing our products for them. However, in most cases we expense product development efforts for our customers and we do not receive reimbursement.
 
Interest Expense, Net
 
Interest expense, net includes both cash and accrued interest expense and income and amortization of financing costs as well as paid-in-kind interest on our long-term debt.
 
Other Income, Net
 
Other income, net includes gains and losses on the sale of assets, mark-to-market gains and losses on our interest rate swap agreements and foreign exchange windows.
 
Paid-In-Kind Preferred Dividends
 
Paid-in-kind, or PIK, dividends expense consists of expenses attributable to dividends on our convertible preferred stock payable in additional shares of such convertible preferred stock. Our preferred stock will convert into common stock upon the completion of this offering. As a result, following the completion of this offering, we will no longer pay any additional PIK dividends.
 
Provision for Income Taxes
 
Provision for income taxes represents our estimated income tax expense for the period presented. Despite historical net losses, we have incurred income tax expense for each of the past three fiscal years, as we incur income taxes in various jurisdictions as a result of the global nature of our business and operations.
 
Off-Balance Sheet Arrangements
 
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, nor do we have any undisclosed material transactions or commitments involving related persons or entities.


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Critical Accounting Policies
 
This management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions about matters that are uncertain. These estimates and assumptions are often based on judgments that we believe to be reasonable under the circumstances, but all such estimates and assumptions are inherently uncertain and unpredictable. Actual results may differ from those estimates and assumptions, and it is possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support alternative estimates and assumptions that would result in material changes to our operating results and financial condition.
 
Critical accounting policies are those that are both important to the presentation of our financial condition and results of operations and require management’s most difficult, complex or subjective estimates and assumptions. Our critical accounting policies are discussed below.
 
Revenue Recognition
 
We record revenue and the related costs of revenue when all of the following conditions exist:
 
  •  evidence of an agreement with our customer;
 
  •  work has been performed;
 
  •  the amount of revenue can be reasonably estimated; and
 
  •  collection of revenue from our customer is reasonably assured.
 
Revenue from certain of our fixed-price contracts in our Sensing Systems segment is recognized on the percentage-of-completion method, measured by the cost-to-cost method to determine revenue. A cost-to-cost approach accurately reflects our obligations and performance on these contracts, as this is the best available measure of our progress as well as meeting our customers’ expectations of the production being performed. Therefore, we believe that input measures used to measure progress toward completion on certain fixed-price projects provide a reasonable surrogate for output measures.
 
Revisions to revenue, cost and profit estimates, or measurements of the extent of progress toward completion are changes in accounting estimates accounted for in the period of change (using the cumulative catch-up method). Contracts typically provide for periodic billings on a monthly basis or based on contract milestones. Costs and estimated earnings in excess of billings on uncompleted contracts represent amounts recognized as revenue that has not been billed. Billings in excess of costs represent amounts billed and collected for which revenue has not been recognized and is recorded as deferred revenue.
 
We derive most of our revenue in our Dosimetry Services segment from subscriptions and such revenue is continuous. We recognize revenue on a straight-line basis over a set service period that includes badge production, badge wearing, badge analysis and report preparation as the service is continuous and no other discernable pattern of recognition is evident. We provide these services to customers on an agreed-upon monthly, quarterly or annual basis that our customers choose for their wear period, payable in advance or in arrears. The amounts recorded as deferred contract revenue on our balance sheets represent customer deposits invoiced in advance for services to be rendered over the service period, net of a reserve for estimated cancellations and net of services recognized through the balance sheet date.
 
In our Radiation Monitoring Systems and Health Physics segments, revenue recognition is sometimes delayed until customer acceptance and certification of the product. As a result, revenue recognition can be delayed, sometimes materially, following delivery of the product by us to the customer. Funds received from the customer in advance of revenue recognition are recorded on our balance sheets as deferred revenue.


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Recoverability of Long-Lived Assets, Including Goodwill
 
Goodwill represents the excess of costs over the fair value of net assets of businesses acquired. Goodwill is tested at the reporting unit level at least annually for impairment and is reviewed for impairment more frequently if events and circumstances indicate that the asset might be impaired. FAS No. 142, Goodwill and Other Intangible Assets, requires a two-step impairment test. In the first step, we determine the fair value of the reporting unit using a discounted cash flow valuation model and compare the fair value to the reporting unit’s carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired, and no further testing is required. If the fair value does not exceed the carrying value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. In the second step of the goodwill impairment test, we compare the implied fair value of the reporting unit’s goodwill to the carrying value. We determine the implied fair value of the reporting unit’s goodwill as if the reporting unit had been acquired in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the implied value, we recognize an impairment loss in an amount equal to the excess.
 
We estimate future cash flows at the reporting unit level using a discounted cash flow methodology by assessing each major existing contract and projecting the earnings that will be recognized in future periods. We also make estimates for earnings from new contracts that we anticipate based on our evaluation of future business prospects. The valuation of goodwill could be affected if actual results differ substantially from our estimates. Circumstances that could affect the valuation of goodwill include a significant change in our business climate, decisions by our customers to terminate our existing contracts and decisions by our customers to award to our competitors new contracts that we anticipated to be awarded to us.
 
We measure intangible assets acquired in a business combination at fair value at the date of acquisition. We assess the useful lives of other intangible assets to determine whether events or circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible asset’s remaining useful life is changed, we amortize the remaining carrying amount of the intangible asset prospectively over the revised remaining useful life. We review intangible assets for impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. As of June 30, 2009, we had $139.0 million of goodwill and $23.8 million of intangible assets with estimable useful lives on our consolidated balance sheets. We do not have any intangible assets with indefinite useful lives.
 
Intangible assets subject to amortization consist of customer relationships, backlog, qualifications, software, territorial rights, trade names, technology and non-compete agreements. We evaluate customer relationships and territorial rights, which include the fair value of acquired customer contracts, using a discounted cash flow methodology, and amortize them over a term of 5.2 to 17 years. We derive estimated future cash flows based on detailed budgets and projections prepared by management. We amortize backlog over a term of one to three years based on the estimated delivery of the backlog. We prepare the valuation of order backlog based on a discounted cash flow methodology. We evaluate qualifications using a discounted cash flow methodology and amortize them over six years. We derive estimated future cash flows based on projections prepared by management. We amortize software over a five year life and derive it by estimating the replacement cost of the software. We amortize trade names over a period of four to 13 years and derive it based on the relief from royalty method, which tries to estimate a royalty stream for the trade names derived from a benchmark for similar industrial products. We evaluate technology and non-compete agreements using a discounted cash flow methodology. We amortize intangible technology assets over a term of eight years, and non-compete agreements over a term of five years. We derive estimated future cash flows for each technology and non-compete agreement based on detailed budgets and projections prepared by management.
 
We review long-lived assets such as property, plant and equipment annually for impairment and whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure recoverability of assets to be held and used by comparing the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, we recognize an impairment charge by the amount of excess carrying value over fair value.


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Stock-Based Compensation Expense
 
Pursuant to FASB Statement No. 123(R), Share-Based Payment (“FAS No. 123(R)”), we account for equity-based compensation payments, including grants of employee stock options, based on the fair values of the equity instruments issued. We determine fair value of our equity instruments based on a valuation using an option pricing model which takes into account various assumptions that are subjective. Key assumptions used in the valuation included the expected term of the equity award taking into account both the contractual term of the award, the effects of employees’ expected exercise and post-vesting termination behavior, expected volatility, expected dividends and the risk-free interest rate for the expected term of the award. The exercise prices of our options were set at values for us consistent with those reported in ACAS’s publicly filed financial statements.
 
Prior to July 1, 2005, we measured compensation expense for our employee stock-based compensation plans using the intrinsic value method under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations. As the exercise price of all options granted under this plan was at or above the estimated market price of the underlying common stock on the date of grant, no stock-based compensation cost was recognized in the consolidated statements of operations under APB 25.
 
We adopted FAS No. 123(R) using the prospective transition method. This method requires the recognition of compensation cost for all share-based payments that are unvested as of July 1, 2005. The cost related to stock-based compensation included in the determination of consolidation net loss for the twelve months ended June 30, 2007, 2008 and 2009 includes all awards outstanding that vested during those periods. In connection with the reorganization of our three predecessor companies into Mirion on January 1, 2006, we exchanged stock options of the three predecessor companies for stock options in the newly formed company. Under FAS No. 123(R), the exchange was deemed a modification, resulting in incremental compensation expense of $932,000 recorded at January 1, 2006 for those options that were vested as of January 1, 2006. For the unvested options at January 1, 2006, we are expensing incremental compensation expense of $767,000 over the remaining vesting period of approximately two years.
 
In order to determine the fair value of options granted, the fair value of the underlying stock must first be determined. Following is a discussion of the methodology used in the valuation of the Company’s stock on dates where options were granted.
 
The valuation of our common stock was determined in accordance with the guidance set forth in the AICPA Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation. We considered three methods for the allocation of value among our various classes of equity: the Current Value Method, the Probability Weighted Expected Return Method, or PWERM, and the Option-Pricing Method. The Current Value Method is useful for early stage companies or when a liquidation is imminent. PWERM is useful when there are several potential future scenarios for a company to achieve a return on investment for its investors; it is future looking and incorporates future economic events and outcomes into the determination of value as of the present. The Option-Pricing Method is useful when the range of possible future outcomes is difficult to predict.
 
We did not use the Current Value Method in our valuation since we have not been an early stage company nor have we been near liquidation. Since our inception there have been several potential alternatives for changes in our ownership structure, including an initial public offering, a sale or merger, and retention in our current form as a private company. For most of the time since the Company’s inception, the range of possible future outcomes has been difficult to predict, and PWERM could not be used. Therefore, we used the Option-Pricing Method. However, as of the most recent valuation which was performed for June 2009, we believe that the range of possible future outcomes could be reasonably predicted, and as such used PWERM for this period.
 
Following is a description of the Option Pricing Method, which we used to allocate value among the various classes of equity for the period from January 2006 through December 2008.
 
The first step in determining the valuation of our common stock was to determine the value of our total equity. The second step was to allocate the total equity among the different classes of stock. In determining


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the fair value of our total equity, we considered the three traditional approaches to valuation: the cost approach, the market approach and the income approach. The cost approach was not utilized, while the market approach and income approach were.
 
The market approach is based on the assumption that the value of an asset (including a company) is equal to the value of a substitute asset with the same or similar characteristics. Therefore, the value of an asset can be determined by finding similar assets (or interest in similar assets) that have been sold in recent arms-length transactions.
 
One methodology in the market approach is the Guideline Company Method, which compares the subject company with guideline publicly-traded companies. Valuation multiples are calculated from selected guideline companies to provide an indication of how much a current investor in the marketplace would be willing to pay for a company with similar characteristics to the subject company. The Guideline Company Method is most appropriate when public companies that are reasonably similar to the subject company can be found.
 
Another methodology in the market approach is the Guideline Transaction Method. This method relies on data of actual transactions (such as mergers and acquisitions) that have occurred in the subject company’s industry or in related industries. As in the Guideline Company Method, valuation multiples are developed and applied to the subject company’s operating data to estimate fair value.
 
The income approach seeks to measure the future benefits that can be quantified in monetary terms. The income approach typically involves two general step: the first step is to make a projection of the total cash flows expected to accrue to an investor in the asset; the second step involves discounting these cash flows to present value at a discount rate that considers the degree of risk (or uncertainty) associated with the realization of the projected monetary benefits. The discounted cash flow method is a form of the income approach often used in the valuation of entire businesses, major segments of a business or intangible property.
 
Once we determined our valuation using each of the various methods, we then weighted the results to arrive at a single valuation of our equity. The market approach Guideline Company Method, the market approach Guideline Transaction Method and the income approach were weighted 25%, 25% and 50%.
 
We then allocated this total value to the different classes of our equity using the Option-Pricing Method. As disclosed in Note 12 to our consolidated financial statements, we have issued Series A-1 and A-2 preferred stock, Class A and Class B common stock, stock options and warrants, over which to allocate the total value of equity. Stock options and warrants are assumed to be converted if they are in-the-money.
 
The Option-Pricing method treats the preferred and common stock as call options that give their owner the right but not the obligation to buy the underlying total equity at a predetermined price. This is done by creating a series of call options with exercise prices based on the liquidation preference, participation rights and conversion behavior of the preferred stock. The value of each share of preferred and common stock can then be inferred by analyzing these options. Based on the seniority of the classes of equity in liquidation, three call options were created and valued. The first option uses an exercise price in which Series A-1 and A-2 preferred stock begin to receive values in liquidation. Since these are the most senior classes of equity, the exercise price is $0. The second option uses an exercise price in which Series A-1 and A-2 preferred stock have received their full liquidation preferences. The third option uses an exercise price in which Series A-1 and A-2 preferred stock will convert to common stock to share in the upside gain (the as-converted value is greater than the liquidation preference). Thus, common stock is valued as a call option with a claim on us at an exercise price equal to the remaining value beyond the preferred stock’s liquidation preference.
 
The following is a description of the PWERM Method, which we used to allocate value among the various classes of equity as of June 2009.
 
In PWERM, our total equity valuation was developed for various potential scenarios: an initial public offering, a sale or maintaining current ownership as a private company.
 
In determining the fair value of our equity under each of the scenarios, the three traditional approaches to valuation were considered: the cost approach, the market approach and the income approach. The cost approach was not utilized, while the market approach and income approach were. We used the Guideline


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Company Method of the market approach in the valuation of our equity for the initial public offering scenario. We used the Guideline Transaction Method of the market approach to value our equity for the sale scenario. We used the income approach to value our equity in the continuing operations scenario.
 
After we determined the valuation of our common equity using the three methodologies above, the results were then weighted based on our estimate of expected outcomes. The initial public offering scenario, the sale scenario and the current ownership as a private company scenario were weighted 60%, 35% and 5%.
 
During fiscal 2009, we granted options to employees to purchase a total of 45,886 shares of common stock at exercise prices ranging from $138.58 to $144.95 per share. The deemed market value of our common stock on the dates these options were granted ranged from $46.60 to $96.18 per share.
 
We also previously reserved 5,402 additional options for issuance under our existing stock option plan to our employees, including executive officers. The purpose of this option grant will be to incentivize employees to work to increase shareholder value. The options will be valued using the Black-Scholes option pricing model. Key assumptions used to value these options will be determined as of the grant date of the options and are as follows: expected term is           years, risk-free interest rate is     %, dividend yield is 0.0%, volatility is     %, the exercise price is $      and the fair value of our common stock is $     . The aggregate value of these 5,402 options is $      , which will be recognized evenly over their four-year vesting period.
 
Information on employee stock options, granted since the beginning of fiscal 2009 is summarized as follows:
 
                                 
    Number of
          Deemed
    Intrinsic
 
Date of Issuance
  Options Granted     Exercise Price     Market Value     Value  
 
July 28, 2008(1)
    12,000     $ 138.58     $ 96.18     $ 0.00  
August 5, 2008
    32,886       144.95       96.18       0.00  
December 9, 2008
    1,000       144.24       46.60       0.00  
 
 
(1) The 12,000 options granted at July 28, 2008 were a modification of 15,000 options granted on November 5, 2007. The 12,000 options, which have time-based vesting, replaced the 15,000 options, which had performance-based vesting.
 
We make a number of estimates and assumptions related to FAS No. 123(R). The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results differ from our estimates, we will record such amounts as an adjustment in the period such estimates are revised. Actual results may differ substantially from these estimates. In valuing share-based awards under FAS No. 123(R), significant judgment is required in determining the expected volatility of our common stock and the expected term individuals will hold their share-based awards prior to exercising. We base expected volatility of the stock on our peer group in the industry in which we do business, because we do not have sufficient historical volatility data for our own stock. We determine the expected term of the option based on factors including vesting period, life of option, strike price and fair market value of our common stock on the date of grant. In the future, as we gain historical data for volatility in our own stock and the actual term employees hold our options, expected volatility and expected term may change, which could substantially change the grant date fair value of future awards of stock options and ultimately the expense we record.
 
We recorded non-cash compensation expense of $0.3 million and $1.2 million for fiscal 2008 and 2009.
 
Accounts Receivable
 
We evaluate the collectability of accounts receivable based on a combination of factors. In cases where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a specific allowance against amounts due and, thereby, reduce the net recognized receivable to the amount we reasonably believe will be collected. We record increases to the allowance for bad debt as a component of general and administrative expenses.


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Income Taxes
 
The determination of our tax provision is subject to judgments and estimates due to the complexity of the tax law that we are subject to in several tax jurisdictions. Earnings derived from our international business are generally taxed at rates that are different than U.S. rates, resulting in an effective tax rate different than the U.S. statutory tax rate of 34.0%. The ability to maintain our current effective tax rate is contingent on existing tax laws in both the United States and the respective countries in which our international subsidiaries are located. In addition, a decrease in the percentage of our total earnings from international business or a change in the mix of international business among particular tax jurisdictions could alter our overall effective tax rate.
 
Income taxes are accounted for under the asset and liability method in accordance with Statement of Financial Accounting Standards (“FAS No. 109”), “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the tax bases of assets and liabilities and their financial statement carrying amounts, and consideration is given to operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. We have provided a valuation allowance of $31.4 million as of June 30, 2009, compared to $27.6 million as of June 30, 2008 on primarily our U.S. jurisdiction deferred tax assets. The $3.8 million increase in valuation allowance in fiscal 2009 is the result of fiscal 2009 taxable losses in the United States.
 
On July 1, 2007, we adopted Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS No. 109. This interpretation 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. As a result of the implementation of FIN No. 48, we recognize the tax liability for uncertain income tax positions on the income tax return based on the two-step process prescribed in the interpretation. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors, including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit, and new exposures. If we later determine that our exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and effect a related change in our tax provision during the period in which we make such determination.
 
Inventory Valuation
 
At each balance sheet date, we evaluate our ending inventories for excess quantities and obsolescence. This evaluation includes analysis of sales levels by products. Among other factors, we consider historical demand and forecasted demand in relation to the inventory on hand, product life cycles and the number of facilities using our products when determining obsolescence and net realizable value. We adjust remaining balances to approximate the lower of our manufacturing cost or market value. We determine inventory cost on a first-in, first-out basis and include material, labor and manufacturing overhead costs. We may be required to write-down inventory for reasons such as obsolescence, excess quantities and declines in market value below our costs.


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Outlook
 
We expect the following factors to affect our results of operation in future periods. In addition to these factors, please refer to “Risk Factors” for additional information on what could cause our actual results to differ from our expectations.
 
Industry growth trends.  Our performance depends on the timing and level of spending for our products by each of our customers in each of our five segments. Our success is dependent upon the continued increase in construction activity for new NPPs in Asia and Europe, as well as the operating life extension of plants in Europe, Asia and the United States. We expect defense spending to detect and prevent radiological threats to continue, as well as spending in connection with large-scale public events. The expansion of radiological medical procedures is also providing us with opportunities for continued growth. For discussion of the factors that influence spending on our products, see “Industry.”
 
Research and development expenses.  We expect our research and development expenses as a percentage of revenue to decrease as we grow our business, focus our engineering activities on customer driven initiatives and benefit from the reduced engineering costs associated with optimized product lines.
 
SG&A expenses.  We expect our SG&A expenses as a percentage of revenue to decrease as our business grows and we continue to manage expenses and reduce our amortization expense on an annual basis. The majority of our amortization expenses are in SG&A expenses. We have incurred expenses in the past in connection with the integration of the legacy businesses of which we are comprised, in addition to severance costs associated with our cost reduction efforts. We do not expect these expenses to recur. We also expect to eliminate $1.6 million per year in annual management fees we have paid to ACFS pursuant to an investment banking services agreement that we intend to terminate by making a one-time payment of $8.0 million to ACFS upon completion of this offering. We expect any reduction in our SG&A expenses to be partially offset by expenses we will incur as a result of becoming a reporting company following this offering.
 
Interest expenses.  We expect that our interest expenses will be reduced in periods following the completion of this offering reflecting the reduced level of our outstanding indebtedness.
 
Foreign exchange impact.  We are a global company with operations in Canada, China, Finland, France, Germany, the United Kingdom and the United States. Accordingly, currency exchange rates can impact our reported results of operations.
 
Unamortized debt issuance costs.  We expect to record a non-cash charge associated with the repayment of certain of our indebtedness with a portion of the net proceeds of this offering. This charge will consist of the write-off of unamortized debt issuance costs.
 
Income taxes.  Despite historical net losses, we have incurred income tax expense for each of the past three fiscal years. In any given period, the jurisdictional mix of our income can vary significantly as a result of the global nature of our business and operations. The income tax rates, available deductions and credits vary significantly in the jurisdictions we do business. Accordingly, the income tax expense in any given period is a function of the effective tax rate and related income secured in a particular jurisdiction. Although the Company has reported historic consolidated losses, the company recognized income in foreign jurisdictions and losses in the United States for the past three years. The Company has incurred tax expense in the foreign jurisdictions due to the taxable income position. The Company has provided a valuation allowance on its United States based tax attributes and as a result, no tax benefit is recognized for the United States operating losses.
 
We have subsidiary net operating loss carryforwards (“NOLs”) which we can use to reduce our United States tax expense in future periods. These NOLs are subject to elimination or reduction in the event of a change of control. We do not expect such a change of control to occur in connection with this offering. However, a future sale of our common stock by ACAS could result in such a change of control.


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Amortization costs related to intangible assets.  Our non-cash amortization costs related to intangible assets were $12.2 million, $10.1 million and $8.1 million for fiscal 2007, 2008 and 2009. Our future amortization expense at the current foreign exchange rate is as follows (in thousands):
 
         
    Annual
 
    Amortization
 
Year Ending June 30,
  Expense  
 
2010
  $ 6,484  
2011
    4,760  
2012
    3,709  
2013
    2,749  
2014
    1,622  
2015 and thereafter
    4,458  
         
Total
  $ 23,782  
         
 
Consolidated Results of Operations
 
The following table summarizes certain items for our consolidated results of operations for fiscal 2007, 2008 and 2009 (in thousands, except percentages):
 
                                         
    Year Ended June 30,              
    2007     2008     2009              
 
Revenue
  $ 175,361     $ 189,933     $ 207,582                  
Cost of revenue
    97,222       102,871       110,761                  
                                         
Gross profit
    78,139       87,062       96,821                  
% of revenue
    44.6 %     45.8 %     46.6 %                
Operating expenses:
                                       
Selling, general and administrative expenses
    59,792       63,008       66,057                  
Research and development expenses
    11,875       14,865       11,188                  
                                         
Total operating expenses
    71,667       77,873       77,245                  
                                         
Income from operations
    6,472       9,189       19,576                  
Interest expense, net
    19,068       20,290       17,787                  
Other income, net
    786       1,650       474                  
                                         
(Loss) income before provision for income taxes
    (11,810 )     (9,451 )     2,263                  
Provision for income taxes
    6,050       4,546       5,915                  
                                         
Net loss
  $ (17,860 )   $ (13,997 )   $ (3,652 )                
                                         
 
Period-to-Period Analysis
 
As the results of operations of our business are best understood when examined on a segment-by-segment basis, we have more fully described period-to-period changes in the section of this Management’s Discussion and Analysis of Financial Condition and Results of Operation entitled “Segment Results of Operations” rather than in the section immediately below.
 
Fiscal 2009 as Compared to Fiscal 2008
 
Revenue
 
Consolidated revenue for fiscal 2009 was $207.6 million, an increase of $17.7 million, or 9.3%, from revenue of $189.9 million for fiscal 2008.


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Revenue in our Health Physics segment increased 17.2%, or $10.5 million, principally due to higher sales volumes in the following product lines:
 
  •  $8.8 million increase in sales of dosimeters, principally into existing NPPs in Asia and the Americas; and
 
  •  $1.0 million increase in sales of contamination & clearance monitors, principally into existing NPPs in the Americas.
 
Revenue in our Radiation Monitoring Systems segment increased 13.7%, or $5.4 million, principally due to the timing of revenue recognition on projects with customer-specific acceptance criteria.
 
Revenue in our Sensing Systems segment increased 13.2%, or $5.2 million, principally due to higher sales volumes in the following product lines:
 
  •  $3.4 million increase in revenue recognized from contracts for the production of penetration products used in the construction of NPPs; and
 
  •  $1.8 million increase in revenue recognized from contracts for the production of detectors used in NPPs.
 
Revenue in our Dosimetry Services segment was largely flat between years, while revenues in our Imaging Systems segment fell by 19.3%, or $4.1 million, due to weakening demand for high-temperature cameras in industrial end markets.
 
Revenue in fiscal 2009 was negatively impacted due to foreign currency movements by approximately $10.4 million.
 
Gross Profit
 
Consolidated gross profit for fiscal 2009 was $96.8 million, an increase of $9.8 million, or 11.2%, from gross profit of $87.1 million for fiscal 2008. Gross margin increased 0.8% to 46.6% for fiscal 2009, primarily due to lower material costs in the Sensing Systems segment. Gross profit was negatively impacted due to foreign currency movements by approximately $4.8 million.
 
Operating Expenses
 
SG&A expenses for fiscal 2009 were $66.0 million, an increase of $3.0 million, or 4.8%, from $63.0 million for fiscal 2008. This increase was primarily due to an increase in professional fees associated with preparation for our initial public offering, offset by a reduction in compensation expense, as well as an overall reduction of expense due to favorable currency exchange as our expenses in U.S. dollars were positively impacted by weaker foreign currencies, primarily the euro and the British pound.
 
Research and development expenses for fiscal 2009 were $11.2 million, a decrease of $3.7 million, or 24.7%, from $14.9 million for fiscal 2008. This decrease was primarily due to a decrease in compensation and subcontractor expense due to product rationalization as well as a reduction of expense due to favorable currency exchange as our expenses in U.S. dollars were positively impacted by weaker foreign currencies, principally the euro and the British pound, offset by an increase in supplies and services.
 
Interest Expense, Net
 
Interest expense, net for fiscal 2009 was $17.8 million, a decrease of $2.5 million, or 12.3%, from $20.3 million for fiscal 2008. This reduction was primarily the result of the decline in our interest expense on our variable rate instruments as our interest rates tied to LIBOR and EURIBOR declined from fiscal 2008.


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Other Income, Net
 
Other income, net decreased $1.2 million, or 71.3%, to net other income of $0.5 million for fiscal 2009, from net other income of $1.7 million for fiscal 2008. This decrease of net other income was primarily a result of a decrease in foreign exchange gains of $1.2 million.
 
Income Taxes
 
We recognized income tax expense of $5.9 million for fiscal 2009, an increase of $1.4 million, or 30.1% from fiscal 2008. The increase was primarily due to the geographic composition of our consolidated income and greater tax expense attributable to foreign operations. In addition, the fiscal 2009 effective tax rate was impacted by losses generated in the U.S. where no benefit for tax attributes is recorded due to the assessed valuation allowance.
 
Fiscal 2008 as Compared to Fiscal 2007
 
Revenue
 
Consolidated revenue for fiscal 2008 was $189.9 million, an increase of $14.6 million, or 8.3%, from revenue of $175.4 million in fiscal 2007. Revenue from detectors sold by our Sensing Systems segment into NPPs increased 33.7%, or $5.2 million, while revenue recognized for electrical penetrations sold by our Sensing Systems segment grew 33.1%, or $4.2 million. Revenue from sales of dosimeters by our Health Physics segment increased 12.5%, or $3.2 million, principally due to sales to NPPs and military forces. Revenue in fiscal 2008 was positively impacted due to foreign currency movements by approximately $11.1 million.
 
Gross Profit
 
Consolidated gross profit for fiscal 2008 was $87.1 million, an increase of $8.9 million, or 11.4%, from $78.1 million for fiscal 2007. Gross margin increased 1.3% to 45.8% for fiscal 2008, from 44.6% for fiscal 2007, due to better factory utilization in our Health Physics and Sensing Systems segments. The increase in gross profit was primarily due to the increase in revenue in our Health Physics and Sensing Systems segments. Gross profit in fiscal 2008 was positively impacted due to foreign currency movements by approximately $5.3 million.
 
Operating Expenses
 
SG&A expenses for fiscal 2008 were $63.0 million, an increase of $3.2 million, or 5.4%, from $59.8 million for fiscal 2007. This increase was primarily due to an increase in compensation and benefit cost due to the hiring of the majority of our corporate staff and severance costs due to employee terminations, offset by a reduction in amortization cost and professional fees. SG&A expenses in fiscal 2008 were negatively impacted due to foreign currency movements by approximately $3.3 million.
 
Research and development expenses for fiscal 2008 were $14.9 million, an increase of $3.0 million, or 25.2%, from $11.9 million for fiscal 2007. This increase was primarily due to an increase in compensation and supplies expense for new projects and products, offset by a decrease in professional fees.
 
Interest Expense, Net
 
Interest expense, net for fiscal 2008 was $20.3 million, an increase of $1.2 million, or 6.4%, from fiscal 2007 expense of $19.1 million. The $1.2 million increase was primarily due to increased borrowings to fund our growth.


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Other Income, Net
 
Other income, net increased $0.9 million, or 109.9%, to a net other income of $1.7 million for fiscal 2008, from net other income of $0.8 million for fiscal 2007. This increase in other income was primarily the result of an increase in foreign exchange gains of $0.8 million.
 
Income Taxes
 
We recognized income tax expense of $4.5 million for fiscal 2008, versus $6.1 million for fiscal 2007. The $1.5 million decrease was primarily due to the geographic composition of our consolidated income and less tax expense attributable to foreign operations. In addition, the fiscal 2008 effective tax rate was impacted by losses generated in the U.S. where no benefit for tax attributes is recorded due to the assessed valuation allowance.
 
Segment Results of Operations
 
The following table summarizes certain items for our segments for fiscal 2007, 2008 and 2009. The amounts below are in thousands.
 
                                         
    Year Ended June 30,              
    2007     2008     2009              
 
Revenue:
                                       
Health Physics
  $ 53,837     $ 60,886     $ 71,353                  
Radiation Monitoring Systems
    44,109       39,253       44,620                  
Sensing Systems
    29,049       39,800       45,046                  
Dosimetry Services
    27,709       28,807       29,461                  
Imaging Systems
    20,657       21,187       17,102                  
                                         
Total
  $ 175,361     $ 189,933     $ 207,582                  
                                         
Operating income:
                                       
Health Physics
  $ (2,763 )   $ (691 )   $ 6,824                  
Radiation Monitoring Systems
    6,726       (912 )     4,561                  
Sensing Systems
    4,110       10,197       14,870                  
Dosimetry Services
    5,802       7,729       7,855                  
Imaging Systems
    207       1,344       1,124                  
Unallocated corporate items
    (7,610 )     (8,478 )     (15,658 )                
                                         
Total
  $ 6,472     $ 9,189     $ 19,576                  
                                         
 
Health Physics
 
Fiscal 2009 as Compared to Fiscal 2008
 
Revenue in our Health Physics segment increased $10.5 million, or 17.2%, to $71.4 million for fiscal 2009, from $60.9 million for fiscal 2008. This increase was primarily due to increased dosimeter sales of $8.8 million, principally into existing NPPs in Asia and the Americas and $1.0 million of increased sales of contamination & clearance monitors principally into existing NPPs in the Americas. Revenue for fiscal 2009 was negatively impacted by foreign currency movements by approximately $3.8 million.
 
Operating income in our Health Physics segment increased $7.5 million, or 1087.5%, to $6.8 million for fiscal 2009, from $(0.7) million for fiscal 2008. This increase was due to increased gross profit due to higher revenues and lower research and development expenses arising from our product rationalization efforts. During fiscal 2009, we continued to review our product portfolio and discontinued engineering work on products that were deemed to be duplicative or nearing the end of useful life. As a result we were able to eliminate a portion of our temporary and consulting engineers and correspondingly reduce engineering expense. Expenses


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were positively impacted by foreign currency movements, which partially offset the negative impact of currency movements on revenue.
 
Fiscal 2008 as Compared to Fiscal 2007
 
Revenue in our Health Physics segment increased $7.0 million, or 13.1%, to $60.9 million for fiscal 2008, from $53.8 million for fiscal 2007. This increase was attributable to increased dosimeter sales of $2.6 million principally to European militaries to replace existing dosimeters, $2.0 million of increased sales of contamination & clearance monitors, principally into existing NPPs in Europe, and $1.7 million from the sale of detection & identification devices in connection with the 2008 Olympic Games. Revenue in fiscal 2008 was positively impacted due to foreign currency movements in the euro-dollar exchange rate by approximately $5.2 million.
 
Operating income for our Health Physics segment increased $2.1 million, or 75.0%, to $(0.7) million for fiscal 2008, from $(2.8) million for fiscal 2007. This increase was due to increased gross profit margin due to improved factory utilization and lower material costs, offset by an increase in operating expenses related to professional fees for cost improvement initiatives and severance costs due to employee terminations. We engaged an outside consulting firm to review our current cost structure assist us with the implementation of certain cost improvement initiates. Expenses were negatively impacted due to foreign exchange currency movements in the euro-dollar exchange rate.
 
Radiation Monitoring Systems
 
Fiscal 2009 as Compared to Fiscal 2008
 
Revenue in our Radiation Monitoring Systems segment increased $5.4 million, or 13.7%, to $44.6 million for fiscal 2009, from $39.3 million for fiscal 2008. This increase was principally due to the timing of revenue recognition from projects with customer-specific acceptance criteria. Revenue in fiscal 2009 was also negatively impacted due to foreign currency movements by approximately $3.8 million.
 
Operating income in our Radiation Monitoring Systems segment increased $5.5 million, or 600.1%, to $4.6 million for fiscal 2009, from $(0.9) million for fiscal 2008. This increase was principally due to the increase in revenue while a substantial portion of our operating costs remained constant. Expenses were positively impacted by foreign currency movements, which partially offset the negative impact on revenue related to currency movements.
 
Fiscal 2008 as Compared to Fiscal 2007
 
Revenue in our Radiation Monitoring Systems segment decreased $4.9 million, or 11.0%, to $39.3 million for fiscal 2008, from $44.1 million for fiscal 2007. This decrease was principally due to timing of customer acceptance of radiation monitoring systems shipped in fiscal 2008 and beyond of $10.7 million, offset by customer acceptance of orders of $4.5 million from projects shipped in fiscal 2006 and fiscal 2007. Revenue in fiscal 2008 was positively impacted due to foreign currency movements in the euro-dollar exchange rate by approximately $4.4 million.
 
Operating income for our Radiation Monitoring Systems segment decreased $7.6 million, or 113.6%, to $(0.9) million for fiscal 2008, from $6.7 million for fiscal 2007. This decrease was due to the decrease in revenue along with an increase in material costs. Operating expenses also increased due to professional fees for cost improvement initiatives and severance costs due to employee terminations. We engaged an outside consulting firm to review our current cost structure assist us with the implementation of certain cost improvement initiates. Expenses were negatively impacted by foreign exchange currency movements in the euro-dollar exchange rate.


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Sensing Systems
 
Fiscal 2009 as Compared to Fiscal 2008
 
Revenue in our Sensing Systems segment increased $5.2 million, or 13.2%, to $45.0 million for fiscal 2009, from $39.8 million for fiscal 2008. This increase was due to an increase in revenue recognized for new electrical penetrations of $3.4 million and an increase in revenue recognized for our nuclear reactor core detectors of $2.4 million, partially offset by a reduction in other replaceable detector revenue of $0.6 million.
 
Operating income in our Sensing Systems segment increased $4.7 million, or 45.8%, to $14.9 million for fiscal 2009, from $10.2 million for fiscal 2008. This increase was primarily due to increased revenue as well as a decrease in material costs due to declining prices over fiscal 2009 for precious metals and other raw materials, while operating expenses remained constant.
 
Fiscal 2008 as Compared to Fiscal 2007
 
Revenue in our Sensing Systems segment increased $10.8 million, or 37.0%, to $39.8 million for fiscal 2008, from $29.0 million for fiscal 2007. This increase was due to an increase in other replaceable detector revenue of $5.2 million, an increase in revenue recognized for new electrical penetrations of $4.2 million and an increase in sales of replaceable detectors in Canadian heavy water reactors of $1.4 million.
 
Operating income for our Sensing Systems segment increased $6.1 million, or 148.1%, to $10.2 million for fiscal 2008, from $4.1 million for fiscal 2007. This increase was primarily due to increased revenue and a $1.2 million reduction in amortization expense in fiscal 2008, as customer relationship intangible assets are amortized using an accelerated method to reflect estimated customer attrition patterns and rates. Other operating expenses remained constant between years.
 
Dosimetry Services
 
Fiscal 2009 as Compared to Fiscal 2008
 
Revenue in our Dosimetry Services segment increased $0.7 million, or 2.3%, to $29.5 million for fiscal 2009, from $28.8 million for fiscal 2008. This increase was primarily due to an increase in sales to the small medical practitioner market.
 
Operating income in our Dosimetry Services segment increased $0.1 million, or 1.6%, to $7.9 million for fiscal 2009, from $7.7 million for the nine months ended March 31, 2008. This increase was principally due to increased revenue, offset by increased research and development expenses related to new product development.
 
Fiscal 2008 as Compared to Fiscal 2007
 
Revenue in our Dosimetry Services segment increased $1.1 million, or 4.0%, to $28.8 million for fiscal 2008, from $27.7 million for fiscal 2007. This increase was primarily due to increased business in the nuclear and medical end markets of $0.6 million and growth in sales of dosimeters to the small medical practitioner market of $0.2 million.
 
Operating income for our Dosimetry Services segment increased $1.9 million, or 33.2%, to $7.7 million for fiscal 2008, from $5.8 million for fiscal 2007. This increase was primarily due to increased revenue as well as a decrease in amortization costs.
 
Imaging Systems
 
Fiscal 2009 as Compared to Fiscal 2008
 
Revenue in our Imaging Systems segment decreased $4.1 million, or 19.3%, to $17.1 million for fiscal 2009, from $21.2 million for fiscal 2008. This decrease was primarily attributable to a reduction in sales of our high temperature cameras of $3.0 million. We have begun to experience some weakening of demand for these products into the industrial end market, as a result of the current economic climate. The products represented $7.3 million, or 42.6% of sales in fiscal 2009, compared to $10.3 million, or 48.0% of segment


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sales in fiscal 2008. Revenues for fiscal 2009 were negatively impacted by foreign currency movements by approximately $2.0 million, due to the weaker British pound.
 
Operating income in our Imaging Systems segment decreased $0.2 million, or 16.4%, to $1.1 million for fiscal 2009, from $1.3 million for fiscal 2008. This decrease was primarily attributable to the impact of a weaker British pound, with a $0.7 million positive currency impact on operating expenses partially offsetting the negative impact on revenues. Aside from the currency impact, there was a reduction of operating expenses in fiscal 2009 due to a decrease in facilities costs, primarily due to the consolidation of office facilities.
 
Fiscal 2008 as Compared to Fiscal 2007
 
Revenue in our Imaging Systems segment increased $0.5 million, or 2.6%, to $21.2 million for fiscal 2008, from $20.7 million for fiscal 2007. This increase was due to an increase in sales of high temperature cameras of $1.1 million, partially offset by a decrease in sales of cameras for the nuclear end market of $0.7 million.
 
Operating income for our Imaging Systems segment increased $1.1 million, or 549.3%, to $1.3 million for fiscal 2008, from $0.2 million for fiscal 2007. This increase was due to a decrease in operating expenses, primarily reduced compensation expenses, partially offset by higher costs for our camera products for the nuclear end market.
 
Liquidity and Capital Resources
 
We have financed our operations primarily through cash provided by operations and our lines of credit. As of June 30, 2009, our principal sources of liquidity consisted of $5.4 million of cash and cash equivalents and $13.8 million available under our revolving credit facilities. A substantial majority of our outstanding debt has been provided by ACAS, our principal stockholder, through senior and junior debt facilities as well as lines of credit. ACAS has also provided us with substantially all of our equity financing.
 
The terms of our credit agreements with ACAS require us and our subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a minimum fixed charge coverage ratio (adjusted EBITDA—capital expenditures over cash paid for interest, debt payments, tax payments and management fees), maximum debt to adjusted EBITDA ratio (total debt over adjusted EBITDA), minimum interest coverage ratio (adjusted EBITDA over cash interest expense) and a maximum capital expenditure level. We are in compliance with all our financial covenants as of June 30, 2009.
 
During fiscal 2009 our cash and cash equivalents decreased $3.6 million to $5.4 million. During this time we had cash inflows from operating activities of $10.0 million. This was offset by cash outflows from investing activities of $7.6 million, primarily for the purchase of property, plant and equipment, and financing activities of $5.9 million from borrowings under our revolving credit facilities.
 
During fiscal 2008, we incurred net cash outflows from investing activities of $3.6 million, primarily for the purchase of property, plant and equipment, and net cash outflows from operating activities of $8.5 million. These outflows were offset in part by net cash inflows from borrowings under our revolving credit facilities with ACAS of $10.3 million, as well borrowings under our third-party credit agreements of $4.3 million.
 
Our principal need for liquidity has been, and will continue to be, for working capital, to pay down debt and for capital expenditures. We believe that our cash flow from operations, available cash and cash equivalents and available borrowings under the revolving portion of our credit facilities will be sufficient to meet our liquidity requirements for at least the next twelve months. However, our ability to make scheduled payments of principal and to pay the interest on, or to refinance, our debt and to fund planned capital expenditures will depend on our future performance. Accordingly, we may be required to raise debt or equity financing, and such financing may not be available on acceptable terms.
 
Although we currently have no specific plans to do so, if we decide to pursue one or more significant strategic acquisitions, we may incur additional debt or sell additional equity to finance the purchase of those businesses.


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Historical Cash Flows
 
Cash Flow from Operating Activities
 
We generated $10.2 million and used $8.5 million and $4.0 million in cash flows from operating activities in fiscal 2009, 2008 and 2007.
 
The $18.7 million increase in cash provided from operating activities in fiscal 2009 versus fiscal 2008 was primarily due to (i) a $10.3 million decrease in net loss due mainly to higher revenue with slightly improved gross margins, (ii) a $10.2 million decrease in costs in excess of billings on uncompleted contracts due to timing of billings versus costs incurred and (iii) a $5.2 million decrease in receivables pledged to creditors which was partially offset by a $9.6 million decrease in accounts payable due to timing of material and service receipts versus payments.
 
The $4.5 million increase in cash used in operating activities in fiscal 2008 compared to fiscal 2007 was primarily due to (i) a $14.4 million increase in accounts receivable due to an increase in billings in the last 60 days of fiscal 2008 versus the last 60 days of fiscal 2007 as compared to a decrease in billings in the same period of fiscal 2007 versus fiscal 2006, (ii) a $10.5 million increase in deferred cost of sales associated with an increase in deferred contract revenue for the same period, (iii) an $8.7 million decrease in income taxes payable, (iv) a $2.6 million increase in costs in excess of billings on uncompleted contracts, (v) a $2.0 million decrease in deferred income taxes and (vi) a $1.2 million increase in prepaid expenses and other current assets, which was partially offset by (1) a $16.7 million increase in deferred contract revenue due to an increase in customer payments for future deliverables as of June 30, 2008 versus June 30, 2007 as compared to a decrease in customer payments for future deliverables as of June 30, 2007 versus June 30, 2006, (2) an $8.4 million increase in other liabilities, (3) a $5.7 million increase in accounts payable and (4) a $4.9 million increase in accrued expenses and other current liabilities.
 
Cash Flow from Investing Activities
 
We used $7.6 million, $3.6 million and $4.6 million in cash from investing activities during fiscal 2009, 2008 and 2007.
 
The $4.0 million increased use of cash in fiscal 2009 as compared to 2008 was due to higher purchases of property plant and equipment in fiscal 2009 as well as a one-time return of escrow funds that occurred in fiscal 2008. The $1.0 million decreased use of cash in fiscal 2008 as compared to 2007 was primarily due to the cash inflow of $2.8 million from escrow funds during fiscal 2008, which was partly offset by higher purchases of property, plant and equipment in that same year.
 
Cash Flow from Financing Activities
 
We used $5.9 million and generated $14.6 million and $10.2 million in cash from financing activities during fiscal 2009, 2008 and 2007.
 
The $20.5 million decrease in cash from financing activities in fiscal 2009 as compared to 2008 was due to a $14.3 million reduction in net borrowing on notes from ACAS as well as a $6.2 million reduction in net borrowing from third parties. The $4.4 million increase in cash from financing activities in fiscal 2008 as compared to 2007 was primarily due to increased borrowings from third parties.
 
Capital Expenditures
 
We had capital expenditures of $3.9 million, $5.1 million and $6.8 million in fiscal 2007, 2008 and 2009. The majority of our capital expenditures has been the replacement of existing equipment or the purchase of new equipment to support our continued growth.


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Contractual Obligations and Other Commitments
 
As of June 30, 2009, our contractual obligations and other commitments were as follows (in thousands):
 
                                         
    Total     2010     2011-2012     2013-2014     Thereafter  
 
Debt obligations(1)
  $ 177,216     $ 6,962     $ 170,102     $ 152     $ 0  
Operating lease obligations
    16,306       4,207       6,899       4,254       946  
                                         
Total
  $ 193,522     $ 11,169     $ 177,001     $ 4,406     $ 946  
                                         
 
 
(1) Includes only obligations to pay principal (as described below) and does not reflect the use of net proceeds from this offering. A portion of our debt has a PIK interest feature. As a result, the principal amount of such debt increases on a periodic basis. Also does not include pensions, which are described in Note 11 of our consolidated financial statements.
 
Credit Facilities and Long-term Debt
 
Our credit facilities and long-term debt with ACAS, our principal stockholder, are as follows (in thousands):
 
                     
              Amount
 
              Outstanding
 
    Maturity
    Contractual
  as of
 
Credit Facilities and Long-term Debt   Due     Interest Rate (%)   June 30, 2009  
 
Revolving credit facilities:
                   
$20.25 million
    July 2011     LIBOR + 4.5%   $ 11,000  
$14.0 million
    July 2011     LIBOR + 5%     13,997  
$8.2 million
    July 2011     EURIBOR + 2%     3,631  
                     
                $ 28,628  
                     
Senior term notes:
                   
$24.9 million Senior Term B
    July 2011     EURIBOR + 3%   $ 24,944  
$7.5 million Senior Term B
    July 2011     LIBOR + 8%     5,062  
$2.0 million Senior Term B
    July 2011     LIBOR + 8%     1,938  
$4.0 million Senior Term C
    Oct 2011     LIBOR + 9%     4,000  
$4.0 million Senior Term C
    Nov 2011     LIBOR + 8.25%     4,000  
$27.0 million Senior Term D
    Oct 2011     LIBOR + 6.5%     25,988  
$15.0 million Senior Term D
    Oct 2011     LIBOR + 6.5%     14,437  
                     
                $ 80,369  
                     
Senior subordinated notes:
                   
$7.5 million paid-in-kind
    July 2011     14%   $ 8,317  
$8.6 million paid-in-kind
    July 2011     15%     9,650  
$12.2 million paid-in-kind
    July 2011     EURIBOR + 11%     15,552  
                     
                $ 33,519  
                     
Junior subordinated notes:
                   
$4.3 million paid-in-kind
    July 2011     17%   $ 5,112  
$4.3 million paid-in-kind
    July 2011     17%     5,112  
$1.25 million paid-in-kind
    May 2012     14%     1,386  
$4.9 million paid-in-kind
    July 2011     EURIBOR + 12%     6,666  
                     
                $ 18,276  
                     
Stockholder loan:
                   
$8.0 million
    June 2011     Three-month
EURIBOR + 2%
  $ 9,220  
                     
Total notes payable to ACAS
              $ 170,012  
                     


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We were in compliance with all of our financial covenants as of June 30, 2009. The credit facilities include customary events of default and affirmative, restrictive and financial covenants that, among other things, require us to maintain certain financial ratios and limit our ability to incur additional indebtedness, create liens, pay dividends, redeem capital stock or make certain other restricted payments or investments, sell assets including capital stock, engage in transactions with affiliates and effect a consolidation or merger. We are not in compliance with certain non-financial covenants that were in effect prior to the formation of Mirion. These non-financial covenants were negotiated with the predecessor companies (GDS, IST and Synodys) and were not amended at the time of the formation of Mirion. The non-financial covenants relate to matters such as changing the fiscal years or names of our subsidiaries, amending the charter documents and bylaws of our subsidiaries and the provision of audited financial statements to ACFS. We have obtained a waiver for the violations of non-financial covenants through July 1, 2010.
 
We also have a $1.1 million term loan that matures in November 2012 and bears interest at three-month EURIBOR + 1%, as well as a $2.4 million credit line that matures in June 2015 and bears interest at EURIBOR + 1%.
 
Recent Accounting Pronouncements
 
Business Combinations
 
In December 2007, the FASB issued Statement of Financial Standards No. 141(R), Business Combinations (“FAS No. 141(R)”). This statement changes the accounting for acquisition transaction costs by requiring them to be expensed in the period incurred and also changes the accounting for contingent consideration, acquired contingencies and restructuring costs related to an acquisition. FAS No. 141(R) is effective for fiscal years beginning on or after December 15, 2008, which is effective for our fiscal year beginning July 1, 2009. The adoption of FAS No. 141(R) is expected to change our accounting treatment for business combinations on a prospective basis beginning in the period it is adopted.
 
Fair Value Measurements
 
Effective July 1, 2008, we adopted the provisions of FAS No. 157, Fair Value Measurements (“FAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The fair value criteria are primarily applied prospectively upon adoption of FAS No. 157. FAS No. 157 was effective for fiscal years beginning November 15, 2007. In February 2008, the FASB issued FASB Staff Position No. 157-2, delaying the effective date of FAS No. 157 for non financial assets and non financial liabilities, except for items that are recognized or disclosed at fair value on a recurring basis. We will adopt the delayed portions of FAS No. 157 beginning in the first quarter of our fiscal year ending June 30, 2010 and we do not expect the adoption of those delayed portions to have a material impact on our consolidated financial statements. The adoption of FAS No. 157 for financial assets and liabilities did not have a material impact on our consolidated financial statements.
 
In October 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarified the application of SFAS 157. FSP 157-3 demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The implementation of this standard did not have a material impact on our financial position, results of operations or cash flows.
 
In April 2009, the FASB issued FSP FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value when the market activity for an asset or liability has declined significantly. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009 and will be applied prospectively. The implementation of this standard did not have a material impact on our financial position, results of operations or cash flows.


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Fair Value Option for Financial Assets and Liabilities
 
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115 (“FAS No. 159”). FAS No. 159 provides the option to measure, at fair value, eligible financial instrument items using fair value, which are not otherwise required to be measured at fair value. The irrevocable decision to measure items at fair value is made at specified election dates on an instrument-by-instrument basis. Changes in that instrument’s fair value must be recognized in current earnings in subsequent reporting periods. If elected, the first measurement to fair value is reported as a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. We did not elect to measure eligible assets at fair value. The standard was effective for us beginning in fiscal 2009.
 
Disclosures about Derivative Instruments and Hedging Activities
 
In March 2008, the FASB issued Statement of Financial Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. The statement establishes enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities and its related interpretations and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged. The statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We adopted this statement at the beginning of the third quarter of our fiscal 2009, as required.
 
Instruments Granted in Share-Based Payment Transactions
 
In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This FSP states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions in this FSP. Earlier adoption is prohibited. We will adopt this FSP beginning fiscal 2010, as required. We are currently evaluating the impact FSP EITF 03-6-1 will have on our consolidated financial statements when it becomes effective.
 
Disclosures about Postretirement Benefit Plan Assets
 
In December 2008, the FASB issued Staff Position No. FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets, which is effective for fiscal years ending after December 15, 2009. This FSP requires additional disclosures such as: the investment allocation decision making process; the fair value of each major category of plan assets; inputs and valuation techniques used to measure the fair value of plan assets; and significant concentrations of risk within plan assets. We will adopt this FSP beginning in fiscal 2010, as required. We do not believe the adoption of this FSP will have a material impact on our consolidated financial position, results of operations and cash flows.
 
Recognition and Presentation of Other-Than-Temporary Impairments
 
In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. FSP 115-2 and FSP 124-2 establish a new method for recognizing and reporting other-than-temporary impairment of debt securities and also contain additional disclosure requirements for both debt and equity securities. FSP 115-2 and FSP 124-2 are effective for interim and


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annual periods ended after June 15, 2009. The implementation of this standard did not have a material impact on our financial position, results of operations or cash flows.
 
Interim Disclosures about Fair Value of Financial Instruments
 
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends FAS No. 107, Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about the fair value of financial instruments in interim financial information. This FSP also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We will adopt this FSP beginning in our first quarter of fiscal 2010.
 
Subsequent Events
 
In May 2009, the FASB issued FAS No. 165, Subsequent Events. FAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date—that is, whether that date represents the date the financial statements were issued or were available to be issued. FAS 165 is effective for interim and annual periods ended after June 15, 2009 and should be applied prospectively. We have adopted this statement for fiscal 2009.
 
Codification and the Hierarchy of Generally Accepted Accounting Principles
 
In June 2009, FASB issued FAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162. FAS 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States (U.S. GAAP). This Statement is effective for our first quarter of fiscal 2010. Beginning with the first fiscal quarter of 2010, references made to U.S. GAAP by us will use the new Codification numbering system prescribed by the FASB. As the Codification is not intended to change or alter existing U.S. GAAP, we do not expect FAS 168 to have any impact on our consolidated financial statements.
 
Qualitative and Quantitative Disclosures about Market Risk
 
Foreign Exchange Risks
 
We have foreign currency exposure related to our operations in France, Germany and the United Kingdom, as well as in other foreign locations. This foreign currency exposure arises primarily from the translation or re-measurement of our foreign subsidiaries’ financial statements into U.S. dollars. For example, a substantial portion of our annual revenue and operating costs are denominated in euros, and we have exposure related to revenue and operating costs increasing or decreasing based on changes in currency exchange rates. If the U.S. dollar increases in value against these foreign currencies, the value in U.S. dollars of the assets and liabilities originally recorded in these foreign currencies will decrease. Conversely, if the U.S. dollar decreases in value against these foreign currencies, the value in U.S. dollars of the assets and liabilities originally recorded in these foreign currencies will increase. Thus, increases and decreases in the value of the U.S. dollar relative to these foreign currencies have a direct impact on the value in U.S. dollars of our foreign currency denominated assets and liabilities, even if the value of these items has not changed in their original currency. At present we do not purchase forward contracts as hedging instruments, but may do so as circumstances warrant.


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We also have 17 foreign currency window contracts to mitigate currency exposures from fluctuations in the euro/U.S. dollar exchange rate. These contracts resulted in a net gain of $94,000 during the year ended June 30, 2009.
 
Interest Rate Risks
 
We are subject to interest rate risk in connection with our long-term debt and our revolving lines of credit. As of June 30, 2009, we had total long-term debt of $170.3 million. Our debt consists of both variable interest rate as well as fixed interest rate debt. As of June 30, 2009, we had $146.6 million of debt with variable interest rates. We swapped approximately $1.8 million of variable debt for a fixed rate of 3.865% that expires in November 2012. A 1% increase in our variable interest rates would increase our annual interest expense and decrease our cash flows and income before taxes by approximately $1.5 million per year.
 
Inflation
 
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.


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INDUSTRY
 
We sell our radiation detection, measurement, analysis and monitoring products and services into the global nuclear, defense and medical end markets. We believe that our end markets are characterized by strong fundamentals that support an established revenue base, as well as provide numerous growth opportunities.
 
Nuclear
 
The nuclear end market spans the entire nuclear fuel cycle, including mining, enrichment, fuel manufacturing, nuclear power generation, waste management and fuel reprocessing. Key nuclear installations include mines, fuel fabrication facilities, commercial nuclear power reactors, reprocessing facilities, research facilities, military facilities and ships, weapons facilities and waste storage facilities. We sell products and services for use in each of these types of installations, with commercial nuclear power reactors representing the majority of our sales into the nuclear end market.
 
Increasing Global Demand For Electricity and Nuclear Power
 
Increasing electricity demand.  The International Energy Agency, or IEA, projects a near doubling of world electricity demand from 2006 to 2030, creating the need for approximately 4,500 GWe of new generating capacity. The IEA projects this increase in electricity demand is expected to be driven by a wide range of global trends including (i) population growth, (ii) increasing standards of living in the developing world, including in China and India and (iii) continued proliferation and commercialization of technologies dependent on the delivery of a reliable electricity supply, such as consumer electronics and information technology.
 
Increasing demand for nuclear power.  We believe that nuclear energy is the best-positioned alternative to fossil fuels (e.g., coal, natural gas and oil) with the capability to meet electricity demand for base-load, or continuously delivered, electricity production. In addition, increased public concern regarding the effects of greenhouse gas emissions has accelerated interest in reliable, low-emissions alternatives to fossil fuels, such as nuclear power. The use of other renewable energy sources, such as wind and solar power, for base-load generation suffers from issues of intermittency while also requiring major investments to create a transmission grid capable of moving the power from the remote geographic areas where it is generated to consumers, and to adequately manage variable load-shifting requirements. We believe the existing global installed base of nuclear power reactors to be the most cost-effective and reliable source of base-load energy currently available, with relatively low marginal cost of energy production, as compared to fossil fueled generation with higher input cost volatility.
 
Increased public support for nuclear power also has been augmented by an increasing global desire to reduce dependency on foreign sources of fossil fuels as well as the recognition that nuclear power has maintained a very safe operating track record. Significant regulatory oversight, as well as rigorously enforced safety, quality and inspection protocols, have helped the nuclear industry achieve an excellent safety record. Many governments around the world are adopting policies favorable to nuclear power.
 
Nuclear Power Global Installed Base
 
According to the WNA, as of September 2009, there were 436 nuclear power reactors in operation globally. Additionally, there are 50 reactors currently under construction with an additional 137 reactors planned and 295 proposed worldwide. The average expected life cycle of an NPP (which contains one or more reactors), including planning, construction, operation and decommissioning, is between 55 and 80 years, of which the expected operating life is 40 to 60 years.
 
As of September 2009, nuclear power was responsible for approximately 15% of electricity generation globally and substantially more in certain nuclear-intensive countries. As shown in the table below, in 2009, nuclear


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power provided 76% of the electricity output in France, over 40% in Belgium, Ukraine and Sweden, over 30% in Switzerland, South Korea and the Czech Republic and over 20% in Germany, Japan and the United States.
 
     
    Percentage of National Electricity Output from
Number of Operational Reactors by Country   Nuclear Power by Country
 
(BAR CHART)   (BAR CHART)
 
 
Source: World Nuclear Association, as of September 2009.
 
Nuclear power plant re-licensing.  Regulatory authorities worldwide have established timely license renewal processes and requirements to extend plant life in a manner that assures safe operation. In the United States, for instance, the Atomic Energy Act and NRC regulations limit commercial power reactor licenses to an initial term of 40 years, but also permit such licenses to be renewed for up to an additional 20 years. The NRC views the timely renewal of licenses as an important step to ensure an adequate domestic energy supply. Of the 104 nuclear power reactors in operation in the United States as of May 2009, eight are subject to license expiration within the next five years. In the United States, the NRC has approved license renewal for 54 reactors to date, with an additional 21 reactor re-licensings currently under review and 23 more reactor re-licensing applications anticipated. License renewals are generally approved for those plants where the reactor continues to operate at an efficient level and only after any necessary upgrades to the instrumentation & control equipment and systems have been made.
 
Nuclear power plant up-rating.  NPP up-rating is a licensing, improvement and equipment modification process designed to enhance power output of existing plants by enabling reactors to operate at increased temperature and pressure levels. Utilities have used power up-rates since the 1970s as a way to generate more electricity from existing nuclear plants. In the United States alone, 127 up-rates have been approved by the NRC as of July 2009, resulting in the creation of an additional 5,695 MWe capacity within the existing nuclear footprint. Collectively, these up-rates have added generating capacity at existing plants that is equivalent to more than five new reactors, according to the NRC. In most cases, up-rating activities involve an upgrade of many critical reactor components, including instrumentation & control equipment and systems.
 
Nuclear power capacity factors.  Increasing the capacity factor of existing plants provides a means of generating more nuclear power without building new reactors. The capacity factor of a power plant is defined as its actual power generation divided by its rated capacity. The average capacity factor for U.S. NPPs was 56% in 1980, but improved substantially to greater than 90% in 2002, according to a 2008 report of the United States Energy Information Administration. Based on this data, we estimate that the increase in capacity factor from 1990 to 2008 was equivalent to the construction of approximately 26 new reactors at 1,000 MWe capacity each. Suppliers providing reliable radiation detection, measurement, analysis and monitoring products and services have played a crucial role in the improvement of capacity factors.
 
New Nuclear Power Plant Construction
 
The re-licensing, up-rating and increased capacity factors have helped to improve the output of the existing nuclear power reactor fleet. However, in order to keep pace with increasing demand for nuclear power


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globally, 50 new reactors are currently under construction, with an additional 137 reactors planned and 295 proposed for future development, as of September 2009.
 
We expect strong long-term economic growth in Asia and Eastern Europe to drive the demand for new nuclear power reactor builds, as economic growth and power usage in these regions would require additional power generation capacity. Additionally, the U.S. government has also initiated programs to provide incentives to build new reactors. The Energy Policy Act of 2005, for example, provides a tax credit of 1.8 cents per kilowatt-hour for up to 6 GWe of capacity built before 2021 and also authorizes the Department of Energy to issue loan guarantees worth approximately $18.5 billion for up to 80% of the cost of new nuclear projects.
 
Worldwide Nuclear Power Reactors
 
                                                 
    Nuclear
                               
    Electricity
    % of National
    Number of Reactors  
    Generation 2008
    Electricity
          Under
             
Country
  (Billion KWh)     Output     Operable     Construction     Planned(1)     Proposed(2)  
 
United States
    809       20       104       1       11       19  
France
    418       76       59       1       1       1  
Japan
    241       25       53       2       13       1  
Russia
    152       17       31       9       7       37  
South Korea
    144       36       20       5       7       0  
Germany
    141       28       17       0       0       0  
Canada
    89       15       18       2       4       3  
Ukraine
    84       47       15       0       2       20  
Sweden
    61       42       10       0       0       0  
China
    65       2       11       18       35       90  
United Kingdom
    53       14       19       0       4       4  
Spain
    56       18       8       0       0       0  
Belgium
    43       54       7       0       0       0  
Switzerland
    26       39       5       0       0       3  
Czech Republic
    25       33       6       0       0       2  
Rest of World
    194       N/A       53       12       53       115  
                                                 
Total
    2,601       15       436       50       137       295  
                                                 
 
 
Source: World Nuclear Association, as of September 2009.
 
(1)   Planned reactors have approvals, funding or major commitments in place, mostly expected to be in operation within eight years, or with construction well advanced but suspended indefinitely.
 
(2)   Proposed reactors have specific program or site proposals, with expected operation within 20 years.
 
Nuclear Decommissioning
 
Following the useful life of any nuclear reactor, it must be decommissioned and decontaminated. The decommissioning process can take ten years or more to complete, with the facility requiring ongoing radiation detection, monitoring and measurement services throughout this period. Through 2007, 90 commercial nuclear power reactors and 250 research reactors had been retired from operation globally.


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Other Nuclear Facilities
 
According to the WNA, there are more than 280 operational nuclear research reactors in 56 countries, with more under construction, as of March 2009. Most of these reactors reside on university campuses and are used for research and training, materials testing, medicine and industrial functions. Additionally, the WNA estimates that, as of March 2009, approximately 150 maritime vessels, primarily naval submarines, are powered by more than 220 nuclear reactors. Although not used for commercial power generation, these facilities require similar levels of radiation detection, measurement, analysis and monitoring products and services as commercial reactors.
 
Defense
 
Our global defense end market is driven by a combination of military, civil defense and event-driven security spending. The proliferation of global security threats has reached unprecedented levels, driven by an unstable geopolitical climate, the emergence and expansion of terrorist organizations and the proliferation of radiological and nuclear technologies. Taken together, these threats have the potential to cause significant human casualties and economic loss. As a result, militaries, civil defense and other security organizations have bolstered investment in the prevention and detection of radiological threats as well as in technologies capable of detecting and monitoring radiation levels in the aftermath of radiological attack.
 
Militaries throughout the world utilize radiation detection technologies for troop security. Spending on personnel protection and detection of radiological threats is a high priority for both NATO and non-NATO militaries and, as such, has led many countries to provide dosimeters to military personnel on a standard-issue basis. We believe that spending on these technologies will remain a high priority among armed forces globally.
 
Spending within the global civil defense, or homeland security, market has rapidly expanded in recent years based on increased threats presented by terrorist organizations. As a result, civil defense, first responder and other security organizations have invested in technologies and services designed both to protect civil defense personnel, civilians and domestic infrastructure from radiological threats and to detect and monitor radiation levels following a radiological incident, such as the release of a nuclear or other radiological device. In addition, homeland security organizations are increasingly focused on enhancing radiological detection capabilities at critical points of entry, such as airports, ports and borders. Within the United States, for example, the Domestic Nuclear Detection Office, or DNDO, was created within the Department of Homeland Security to implement a comprehensive inter-agency system to detect, report and respond to nuclear or radiological threats. The enacted 2009 DNDO budget was $514.2 million, representing a 7% and 6% increase from the enacted 2007 and 2008 levels.
 
Additionally, large-scale public meeting events have greatly increased security measures at facilities, including rapid adoption of radiological detection technologies to address the increased threat of radiological attacks, due to their profile as high visibility targets. For example, the Olympic Games increased its security spending ten-fold from $180 million for the 2000 Sydney summer games to $1.9 billion for the 2008 Beijing summer games. We believe security spending at the Olympic Games and other public events and venues will continue to expand and increasingly incorporate radiological detection capabilities as a necessary component of crowd and facility security solutions.
 
Medical
 
Nuclear and radiological medical technologies are used for diagnostic and therapeutic procedures. These technologies provide highly accurate, cost-effective and less invasive alternatives compared to traditional techniques. Procedures where radiation exposure is most prevalent include radiodiagnostic procedures, such as x-rays and computed axial tomography (CAT) scanning, as well as radiotherapeutic procedures, such as external linear accelerator therapy, gamma knife stereotactic radiotherapy and brachytherapy. Medical imaging improves diagnosis and treatment of a variety of illnesses and conditions, including cancer, stroke, heart disease, trauma, sports injury and abdominal and neurological conditions. According to the WNA, as of


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August 2009, there are over 10,000 hospitals worldwide using radioisotopes in medicine, with about 90% of the procedures for diagnostics. There are approximately 37 million nuclear medicine procedures performed per year globally, with the United States and Europe accounting for approximately 18 million and 10 million procedures per year.
 
As a result of the proliferation of radiological medical technologies, hospitals, clinics and other medical facilities rely on dosimetry systems and services to ensure the safety of both medical personnel and patients. The proliferation of nuclear and radiological medical technologies coupled with increased use of radiological medical procedures have increased the market for radiation detection and monitoring products and services. The WNA estimates that the use of radiopharmaceuticals in diagnosis continues to grow at over 10% per year.
 
Other
 
Other end markets include industrial facilities such as cement kilns, pulp and paper mills and coal/gas fired power boilers that utilize high-temperature industrial processes. These high-temperature processes are critical to plant operation and must be accurately monitored to ensure optimal operating conditions. Imaging equipment capable of withstanding the high temperatures and environmental conditions found in these facilities is employed to monitor and optimize process efficiency. Similar to the products employed in NPPs, these imaging systems require routine replacement or upgrades.


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BUSINESS
 
Business Overview
 
We are a leading global provider of radiation detection, measurement, analysis and monitoring products and services to the nuclear, defense and medical end markets. Our customers rely on our solutions to protect people, property and the environment from nuclear and radiological hazards. Our products and services include: dosimeters; contamination & clearance monitors; detection & identification instruments; radiation monitoring systems; electrical penetrations; reactor instrumentation & control equipment and systems; dosimetry services; imaging systems; and related accessories, software and services. Many of our end markets are characterized by the need to meet rigorous regulatory standards, design qualifications and operating requirements. We believe these industry dynamics create substantial barriers to entry, thereby reinforcing our leading market position. We have successfully leveraged the strength of our nuclear platform to expand the commercial applications of our technologies to defense and other end markets. The diversity of our end markets and the global nature of our customer base are illustrated in the charts below:
 
     
Fiscal 2009 Revenue by End Markets
  Fiscal 2009 Revenue by Geography
     
(PIE CHART)   (PIE CHART)
 
Fiscal 2009 Revenue: $207.6 Million
 
For more than 50 years, we and our predecessor companies have delivered products and services that help ensure the safe and efficient operation of nuclear facilities. We believe the breadth and proven performance of our solutions support our longstanding strategic customer relationships across diverse end markets. Our products and services have been sold directly and indirectly to a variety of end-use customers including, but not limited to, all of the U.S. nuclear power producers, 397 of the global installed base of 436 active nuclear power reactors, many of the leading reactor design firms, 17 of the 28 NATO militaries, numerous international government and supranational agencies, as well as medical service providers and industrial companies worldwide.
 
Our broad product and services portfolio of radiation detection, measurement, analysis and monitoring solutions is supported by our research and development organization of 159 scientists, engineers and technicians, who represented approximately 19% of our workforce as of June 30, 2009. We possess numerous product qualifications, trade secrets and patents that support our market position and our ability to deliver next generation products and services. In addition, we maintain design, manufacturing and sales capabilities across seven countries, enabling us to capitalize on growth opportunities, including the anticipated increase in demand for nuclear power and the ongoing spending for defense and homeland security.
 
Our financial performance is driven by the replacement of products and the recurring provision of services into our core end markets, as well as the construction of new NPPs globally. Many of our products are ordered well in advance of the anticipated shipment date, providing visibility into future revenue through our backlog and deferred revenue, which were $184.2 million and $43.4 million as of June 30, 2009. We generated revenue of $207.6 million, Adjusted EBITDA of $41.4 million and a net loss of $3.7 million for fiscal 2009. See page 8 for a definition and reconciliation of Adjusted EBITDA to net income.


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Our Market Opportunity
 
We believe that significant opportunities for growth exist within each of our primary end markets.
 
Nuclear
 
Our legacy in the nuclear industry positions us to capitalize on the growth in demand for radiation detection, measurement, analysis and monitoring products and services in each phase of the nuclear life cycle, as outlined in the chart below.
 
(CHART)
 
We believe the following dynamics support the sustainability of our existing business and will drive new sources of organic growth.
 
Predictable upgrade, replacement and retirement cycles.  Our radiation detection, measurement, analysis and monitoring products and systems have predictable life spans, typically ranging from four to 25 years. Our complex monitoring systems typically require at least one comprehensive upgrade during their useful life to optimize their functionality. In addition, many of our products require replacement parts, components and service due to normal wear during their useful lives.
 
Aging installed base.  The existing global installed base of nuclear reactors has an average age of 25 years. This aging installed base requires frequent product replacements and upgrades over an operating life cycle that generally ranges from 40 to 60 years. Furthermore, as reactors reach the end of their useful lives, the onset of a multi-year “decommissioning” process represents a further revenue opportunity in the reactor life cycle for our products.
 
Large installed base of “orphaned” products and systems.  Most currently operating reactors were commissioned prior to 1990. Operators of many aging NPPs often must consider new suppliers to meet their detection needs as many of the suppliers of legacy radiation detection, measurement, analysis and monitoring systems no longer service the nuclear industry.
 
Reduction in trade barriers.  Historically closed markets, such as India, have recently opened due to enhanced globalization and free trade.
 
Dosimetry outsourcing.  NPPs have historically managed the majority of their dosimetry service requirements internally. However, the cost benefits of outsourcing these services have become increasingly attractive to NPP operators as they focus on improving profitability and enhancing service.


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New build opportunity.  We expect the increase in the installed base of nuclear reactors worldwide to provide opportunities across our offerings. The nuclear industry is experiencing robust growth in activity related to new reactor build. As of September 2009, there were 50 reactors under construction, 137 planned and 295 proposed, according to the WNA. The first phase of this “nuclear renaissance” is occurring internationally and our global footprint positions us to capitalize on these opportunities. Since the early stages of reactor development generally represent more than 20% of our revenue opportunity over the life cycle of a reactor, we are positioned to benefit from increased global reactor construction. In addition, as new plants are added to the global nuclear fleet, we believe our recurring revenue opportunity associated with replacements, spares, software, services and system upgrades should continue to increase. Although no new commercial reactors have been ordered in the United States since the 1970s, there is support to build new nuclear power reactors in the United States, including federal government incentives, the need to meet long-term energy demand with reduced CO2 emissions and an increased focus on energy self-sufficiency.
 
Defense
 
Focus on military personnel.  Global militaries must contend with radiological threats and the difficulties of protecting soldiers and monitoring areas of enemy engagement. The combination of our active dosimeters and telemetry technology provide a differentiated solution that addresses the radiation detection needs of modern militaries.
 
Increased civil defense spending on radiation detection.  Civil defense and homeland security organizations are focused on preventing the illicit transportation of radiological materials across borders. The commercial application of our radiation detection expertise positions us to benefit from government spending on detection technologies.
 
Enhanced event specific security.  The visibility of high profile events and venues has increased their value as targets of terrorist activity. In response, security spending at events, such as the Olympic Games, has increased substantially, as has the utilization of radiation detection technology, providing an expanding market opportunity for our products.
 
Medical
 
Radiological procedure growth.  The use of radiodiagnostic and radiotherapeutic procedures is expanding globally due to aging population demographics, technological advancements and emerging middle classes in China and India. As the use of radiological procedures increases in the medical industry, so does our associated market opportunity.
 
Dosimetry outsourcing.  In some regions outside the United States, dosimetry services for health care practitioners historically have been provided by government agencies. We believe that more government agencies are outsourcing dosimetry services to private providers due to favorable cost dynamics in some regions, such as Europe. This provides a market opportunity where we can leverage our technical expertise and North American service experience to expand into other regions.
 
Our Competitive Strengths
 
We believe that the following competitive strengths will enable us to maintain our leadership position and capitalize on growth opportunities in our end markets:
 
Trusted radiation detection, measurement, analysis and monitoring provider.  The nuclear industry is highly regulated and requires compliance with strict product specifications. Our track record in the nuclear end market enables us to gain market share across our product and service offerings. We and our predecessor companies have served the radiation detection, measurement, analysis and monitoring needs of our customers for over 50 years, having developed trusted, recognized brands supported by our tradition of technical excellence, product reliability and customer service. In addition, we have leveraged our detection expertise to commercialize applications for the defense and medical end markets. In the defense market, our products serve as critical components of personnel protection for military and civil defense applications around the


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world while our medical products and services support important reporting and measurement requirements for medical personnel.
 
Broad and complementary product and service portfolio.  We are one of the only companies that offers radiation detection, measurement, analysis and monitoring products and services to satisfy customer requirements throughout the NPP life cycle. Our comprehensive product line supports virtually all radiation detection and monitoring needs associated with the nuclear, defense and medical end markets. As a result, we believe that we have consistently gained market share as some of our key customers rationalize their supply chain. Furthermore, our portfolio provides us with a natural opportunity to cross-sell our products and services to our customers. For example, our relationships developed through sales of dosimeters led us to win a recently announced contract to supply radiation monitoring systems and electrical penetration adaptors to Ringhals NPP in Sweden.
 
Large installed base driving recurring revenue.  We possess longstanding customer relationships in all of our end markets. As of June 30, 2009, our products were installed at 397 of the 436 active nuclear power reactors globally, which have an average age of 25 years. This installed base drives recurring revenue through replacement and service cycles associated with our offerings and the typical 40 to 60 year operating life cycle of an NPP. The length and quality of supplier relationships are important customer buying criteria due to high switching costs and the importance of proven product reliability. In addition, we maintain relationships with global military and government organizations that value operating longevity and technological expertise. For example, our products have been sold to 17 of the 28 NATO militaries as well as the U.S. Departments of Energy, State, Defense and Homeland Security. Our customers’ focus on personnel protection drives their recurring expenditures on service, recalibration and product upgrades in our defense end market.
 
Technical leadership creates high barriers to entry.  Across our end markets, we design our products to meet demanding customer specifications, qualifications and regulatory requirements. In many circumstances, we design our products to be compatible with highly complex facilities and operate effectively in harsh environments. Reliability is critical for our safety-related products since a product failure may cause an unplanned nuclear power reactor shutdown resulting in costs that may exceed $1.0 million per day.
 
Global footprint designed to meet local customer needs.  Our global footprint, augmented by our established network of suppliers and distributors, enables us to be responsive to our customers and provide locally customized solutions. We operate facilities in seven countries, accommodating the desire of certain of our customers to procure products and services from local providers. Sales outside of the United States and Canada accounted for 62.6% of total revenue for fiscal 2009. We believe that our established global infrastructure provides a scalable platform to meet the growing worldwide demand for our products and services.
 
Seasoned management team complemented by highly skilled engineers.  We are led by an experienced management team with a mix of private sector and government experience across different industries and functions. Our five divisional presidents have an average tenure of over 20 years in the nuclear industry. Our management team has successfully integrated the legacy businesses of which we are comprised, and has positioned us as a global leader in radiation detection, measurement, analysis and monitoring. Our senior management team is complemented by a team of 159 scientists, engineers and technicians. A number of our employees are participants in international and U.S. standards setting organizations related to radiation detection in the nuclear, defense and medical end markets. Through these activities, we help define the setting of standards and preview changes that impact our products, customers and end markets.
 
Our Strategy
 
Our objective is to continue enhancing our position as a leading provider of radiation detection, measurement, analysis and monitoring products and services for the global nuclear, defense and medical end markets. We intend to achieve this through the following strategies:
 
Exploit under-penetrated market opportunities.  We believe that we can exploit historically under-penetrated segments of our end markets by leveraging our leadership positions across our major product categories. For example, we have leveraged our market-leading position in active dosimetry in the North American nuclear market to increase sales of our contamination & clearance monitors, as evidenced by the


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sale of over 100 whole body contamination monitors to Bruce Power L.P., a large Canadian nuclear power generating company.
 
Expand addressable market.  We believe that substantial opportunities exist for us to expand our addressable market by marketing our products and services to customers in new geographic regions; providing products and services to customers moving to an outsource model; entering markets where the government is privatizing services; and introducing new applications for existing technologies.
 
  •  Geographic expansion.  Although we sold products and services to customers in over 90 countries between fiscal 2006 and 2009, there remain international markets where we believe we can increase our presence. One such market is India, where we intend to leverage our relationships with leading reactor design firms to capitalize on the opening of the nuclear end market to U.S. firms due to a recent treaty ratification. Other markets for expansion include the Middle East, Eastern Europe and the former Soviet Union, where we intend to increase our presence by leveraging relationships with local partners.
 
  •  Customer outsourcing.  We believe we will continue to capitalize on customer outsourcing within the nuclear end market. Within the United States, several NPP operators have recently outsourced their dosimetry services in order to reduce costs. We have been able to benefit from economies of scale as well as advantages in materials procurement and processing technology to provide enhanced dosimetry services to many of these NPPs at a lower cost.
 
  •  Service privatization.  In regions outside the United States, dosimetry services have historically been provided by government agencies. However, privatization of dosimetry services is accelerating in some regions, such as Europe, as providers seek to reduce costs and benefit from enhanced service offerings, providing an opportunity to leverage our expertise and North American service experience.
 
  •  New applications for existing technologies.  A portion of our development effort is focused on adapting existing technologies to alternative applications. For example, in response to market demand, we adapted our proprietary fiber-optic detector technology used in our TwoStep-Exit whole body monitor designed for the nuclear end market to create the HandFoot-Fibre hand and foot monitor designed for both the nuclear and medical end markets.
 
Develop new products and services.  We believe that significant near-term opportunities exist for us to develop new products and services by capitalizing on our understanding of our customers’ needs and requirements. For example, we developed our proprietary fiber-optic technology that is used in certain of our contamination & clearance monitors through consultation with existing customers. This technology is attractive to customers because, unlike conventional contamination & clearance monitors, its detection functionality does not require a gas supply, thus reducing maintenance and total life cycle costs for end users. This technology recently helped us secure a sale for installation in two Russian utilities.
 
Continuously improve our cost structure and productivity.  As we continue to grow our business, we have implemented a coordinated program of ongoing operating improvements, such as rationalizing costs, optimizing our product portfolio, minimizing working capital requirements, as well as reducing the use of subcontractors, that we believe will permit us to improve our operating margins. We will continue to actively pursue other continuous improvement initiatives through programs across all of our operating segments.
 
Pursue strategic acquisitions.  We have successfully integrated acquisitions to augment our organic growth. We were formed by the merger of GDS, IST and Synodys, each of which was a leader in its field. Since our formation, we have effectively integrated these businesses, creating a global leader in radiation detection, measurement, analysis and monitoring. We intend to further complement our organic growth with selective acquisitions that enhance our existing products and services, strengthen our position with existing customers and enable us to expand into new markets.


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Our Segments
 
Our segments correspond to our five operating divisions: Health Physics, Radiation Monitoring Systems, Sensing Systems, Dosimetry Services and Imaging Systems.
 
Health Physics
 
The Health Physics division encompasses three major product lines focused on detecting radiation and protecting individuals from hazardous exposure. The dosimeters, contamination & clearance monitors, and detection & identification equipment have applications across the nuclear, defense and medical end markets. The products in our Health Physics division are summarized below:
 
                 
Product Category   End Markets   Applications   NPP Life Cycle Phase   Products
 
Dosimeters  
•   Nuclear

•   Defense

•   Medical
  Pager-sized personnel monitors which monitor radiation dose rate and cumulative dose, along with readers, telemetry, software and other accessories   •   Plant operation

•   Recommissioning

•   Decommissioning

•   Waste management
  •   Active dosimeters

•   Passive dosimeters

•   Readers

•   Calibrators

•   Dosimetry software

•   Telemetry systems

•   Accessories

•   Software

•   Services
                 
Contamination & Clearance Monitors  
•   Nuclear

•   Defense

•   Medical
  Stationary systems designed to detect radioactive contamination of people, waste, tools, laundry, vehicles and cargo   •   Plant operations

•   Recommissioning

•   Decommissioning

•   Waste management
  •   Body monitors

•   Waste chambers

•   Tool monitors

•   Laundry monitors

•   Vehicle monitors

•   Accessories

•   Software

•   Services
                 
Detection & Identification Devices  
•   Nuclear

•   Defense

•   Medical
  Hand-held and fixed devices used for detecting and locating ionizing radiation sources and/or spectroscopically identifying the active radioisotopes   •   Plant operations

•   Recommissioning

•   Waste management
  •   Survey meters

•   Handheld identifiers

•   Spectroscopic portal monitors

•   Accessories

•   Software

•   Services
 
Dosimeters
 
Our dosimeter product line, which measures ionizing radiation dose, consists of both active and passive dosimeters. Active dosimeters detect and measure radiation levels in real time and provide warnings if the dose rate or cumulative dose exceeds specific thresholds. Passive dosimeters are worn by personnel and monitor cumulative radiation dosage.
 
Our active dosimeters are most often utilized in NPP and defense environments. Active dosimeters are typically pager sized, and may be worn or fix-mounted, with some models having wireless capabilities. We


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generally sell our dosimeters as part of larger systems, which often include readers, software, telemetry and other accessories.
 
Our active dosimeters have an average lifespan of approximately seven to ten years, depending on the usage and environment. Replacement cycles can vary by country, depending on the applicable regulatory regime or customer practices. This provides recurring revenue opportunities as customers must replace and upgrade components during this timeframe. In addition, as companies upgrade their dosimeters, they often purchase upgraded readers, software, services and accessories.
 
We believe we are a global leader in providing active dosimetry products and services to the nuclear end market. Over 68% of operating NPPs in the United States use our active dosimetry products and services. In addition, sales to the defense end market constitute a significant portion of our active dosimeter revenue. For example, 17 of the 28 NATO militaries have purchased our active dosimeters. We designed our military dosimeter to be flash-dose capable, enabling the device to effectively measure radiation dose following a nuclear event. Also, civil security forces in various countries, including first responders from France, Italy and the United States, use our active dosimeters to assess radiological risk.
 
We also sell passive dosimeters, which are worn by nuclear, defense and medical and industrial workers with the potential to be exposed to radiation. As with active dosimeters, we typically sell passive dosimetry equipment as a system, consisting of dosimeters, readers, accessories and software.
 
Contamination & Clearance Monitors
 
Our contamination & clearance monitors include products that detect alpha, beta, gamma and/or neutron contamination of objects of various sizes and types, from people to trucks. We have a wide range of products, ranging from small tool monitors to whole body monitors for personnel, to large portal monitors for vehicles and cargo. Our monitors utilize gas, inorganic or plastic scintillators with fiber-optic technology to detect radioactive contamination. Our patented fiber-optic technology is differentiated in the market because its detection functionality does not require a gas supply, thus reducing maintenance and total life cycle costs for end users.
 
In the nuclear end market, our monitors are used to screen personnel, their clothing and tools, as well as vehicles entering and exiting reactor sites. In the defense end market, our products are used for homeland security applications to screen people, luggage, vehicles and cargo transiting a port or border. In the medical end market, our monitors are used to screen the hands and feet of nuclear medicine workers in hospitals and are used in the steel industry to screen scrap metal for radioactive contamination.
 
Detection & Identification Devices
 
We provide a suite of devices that detect, locate and identify radioactive isotopes. These are typically handheld or fixed devices and can also be integrated into more complex mobile systems. For example, our SPIR Ident product has been incorporated into both military vehicles and helicopters. These detection & identification devices distinguish themselves through their high level of sensitivity and their capacity to distinguish between different radioisotopes using spectroscopy identification algorithms.
 
For this reason, these devices are typically used in the defense end market. In homeland security and military environments, these devices are used to rapidly identify potential radiological threats originating from dangerous nuclear material, while distinguishing such threats from naturally occurring radioactive materials and medical isotopes.


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Radiation Monitoring Systems
 
Our Radiation Monitoring Systems division supplies fixed and mobile systems consisting of sensors, display and processing electronics and software, which are used for barrier leak control, effluent release monitoring, radiation protection of workers, operational process monitoring and post event monitoring in nuclear installations. The products in our Radiation Monitoring Systems division are summarized below:
 
                 
Product Category   End Markets   Applications   NPP Life Cycle Phase   Products
 
Radiation Monitoring Systems  
•   Nuclear
  Systems consisting of sensors, displays, control electronics and software which are used for barrier leak control, effluent release monitoring, radiation protection of workers, operational process monitoring and “post event” monitoring in NPPs, nuclear fuel cycle industry, reactors and military installations   •   Construction

•   Plant operation

•   Recommissioning

•   Decommissioning

•   Waste management
 
•  Alpha, beta, gamma and neutron sensors

•  Channels for monitoring: volume contamination (particulates, iodine, gas and liquids); dose rates (gamma and neutron); and neutron flux

•  Fixed and mobile instrumentation skids

•  Display and processing electronics

•  Accessories

•  Software

•  Services
 
We believe we are a leading provider of radiation monitoring systems globally, with particularly strong positions in Europe and Asia. We sell fully integrated systems that can transmit data to a central computer that tracks radiation levels continuously throughout the plant. To accompany these systems, we also supply proprietary software, which allows operators to monitor trends, alarm levels, historical incident files and status reports.
 
Within a typical nuclear reactor, a radiation monitoring system consists of between 40 and 120 sensors and a similar number of processing and display units, all of which are generally networked to a central control system. Safety-related monitors are subject to qualifications which are time consuming and expensive to obtain. Qualification of our products often requires close cooperation by us with customers and substantial technical expertise, sometimes requiring a multi-year process and substantial expenditures of funds in advance of customer orders. Qualification is a lengthy and costly endeavor in which equipment is rigorously tested in simulated real-world environmental conditions to ensure that it meets the criteria defined in the standards applicable to the nuclear environment. Qualifications must be performed according to independent reference standards that define the methodologies, criteria and severity required. Upon achievement, qualifications are not typically subject to requalification, revocation or challenge, although a qualification may be obsoleted or required to be revised if the standards organization or regulatory changes determine that the original qualification is insufficient for its intended purpose or the standards themselves evolve, inducing changes in the methodology, criteria or severity required of the qualification. Some equipment requires lengthier qualification periods than others, but the typical period ranges from one to four years. Once a component’s qualified life has been reached, it must be replaced. The qualification process for our radiation monitoring systems typically requires one to three years.
 
Radiation monitoring systems are typically installed in nuclear facilities during construction, and they are replaced or upgraded upon life extensions or reactor upgrades. The expected life for a radiation monitoring system is 15 to 25 years, depending on the usage and environment, necessitating a significant upgrade of equipment at least once during a nuclear facility’s useful life. Replacement cycles can vary by country, depending on the applicable regulatory regime or customer practices. This provides recurring revenue opportunities as customers must replace and upgrade components and services during this timeframe.


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The decommissioning of an NPP, which can take over ten years, also requires radiation monitoring systems. Typically, a larger deployment of mobile monitors is required during the decommissioning process than in normal NPP operations. The new construction, operation and decommissioning phases of the NPP life cycle each provide opportunities for sales of our radiation monitoring systems.
 
Radiation monitoring systems are also prevalent in the nuclear fuel cycle industry, spanning fuel fabrication, reprocessing and storage. These systems are used in many types of accelerators, including medical positron emission tomography and high-energy particle accelerators and can also be used in the operation and monitoring of nuclear military installations.
 
Sensing Systems
 
Our Sensing Systems division provides products that facilitate reactor control, safety and containment structure integrity. These products meet proprietary reactor design qualifications and are essential to the safe and efficient operation of a reactor. The products in our Sensing Systems division are summarized below:
 
                 
Product Category   End Markets   Applications   NPP Life Cycle Phase   Products
 
Electrical Penetrations  
•   Nuclear
  Conduit systems that are used to pass electrical and fiber-optic lines through the containment structure of an NPP, without compromising the pressure or radiological integrity of the structure  
•   Construction

•   Recommissioning
  •   Electrical penetrations containment assemblies

•   Temperature sensors

•   Instrumentation seals

•   Thermowells

•   Explosive valves
Reactor Instrumentation & Control Equipment and Systems  
•   Nuclear

•   Defense
  Sensors and electronics designed to monitor radiation and temperature within a reactor core and in surrounding areas to facilitate safe and efficient reactor operation  
•   Construction

•   Plant operation

•   Recommissioning
  •   In-core detectors

•   Ex-core detectors

•   Control electronics
 
Electrical Penetrations
 
Electrical penetrations are conduits through a nuclear reactor containment structure. Our penetrations allow wiring for electrical and optical signals to pass safely through the containment structure wall, while maintaining the integrity of the wall and not permitting radiation or pressure to escape. Containment structures consist of concrete walls that can extend up to fourteen feet in thickness with a stainless steel liner designed to contain radioactive emissions in a confined space. The containment wall is the primary safety barrier in the reactor.
 
Our electrical penetrations enable the supply of power for safety systems as well as the reception of signals from neutron flux detectors, radiation monitoring detectors, cameras and other control surveillance devices. Typically, a nuclear reactor has 40 to 70 major electrical penetrations with up to 12,000 individual electrical connections, or feedthroughs.
 
We believe we are a leader in electrical penetrations. As with radiation monitoring systems, electrical penetrations must be qualified. The qualification process for our electrical penetrations typically requires three to four years, and our electrical penetrations have been qualified for installation in most major reactor designs by reactor design firms and the major utilities.
 
As a critical component of reactor design, electrical penetrations provide us with increased visibility into new plant builds. Our leading position in electrical penetrations provides us with cross-selling opportunities for other products, such as detectors, radiation monitoring systems, imaging systems and contamination & clearance monitors.


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Reactor Instrumentation & Control Equipment and Systems
 
We believe we are one of the global leaders in reactor instrumentation & control equipment and systems. Our reactor instrumentation & control detectors are used in nuclear facilities to monitor radiation and temperature within a nuclear reactor core (“in-core” detectors) and in surrounding areas (“ex-core” detectors). Our detectors measure the distribution of neutron/gamma flux and temperature both in, and adjacent to, a reactor core and are critical components to maintaining the efficient and safe operation of a reactor. Our detectors generate a signal, giving a precise measurement of the radiation flux, which contributes to safe and efficient reactor operation.
 
As with radiation monitoring systems and electrical penetrations, these detectors must be qualified and such qualification is established by tests which are designed to demonstrate the intended function of a detector when subjected to conditions that simulate installed life under design service conditions. The qualification process typically requires one to two years for our detectors. Our reactor instrumentation & control detectors are qualified for all major reactor designs. Once a qualification is obtained and a contract is awarded, the supplier is well positioned for replacement revenue due to the high switching costs involved in qualifying new products and services from other suppliers.
 
Reactor instrumentation & control detectors are typically installed in nuclear facilities during construction and are replaced or upgraded regularly. The expected life of a detector can range from four to 25 years, depending on the type of detector and the operating environment. This provides recurring revenue opportunities as customers must replace and upgrade components during these timeframes. In addition, there are opportunities to provide more comprehensive upgrades of reactor instrumentation & control detector systems in certain existing reactors to facilitate up-rating.
 
Dosimetry Services
 
Our Dosimetry Services division provides an official “dose of record” to employers of radiation workers. The services in our Dosimetry Services division are illustrated below:
 
                 
Product Category   End Markets   Applications   NPP Life Cycle Phase   Products
 
Dosimetry Services  
  •   Nuclear

•   Defense

•   Medical
  An information service, which provides environmental radiation monitoring services as well as an official dose of record to employers and occupationally exposed employees   •   Plant operation

•   Decommissioning

•   Waste management
 
• Extremity, whole body, eye, environmental and fetal monitoring reports

• Online applications for dosimetry data management

•   Consulting services
 
At the request of employers, we provide cumulative dose monitoring services to personnel at nuclear installations, research labs, government agencies, hospitals, dental offices, veterinary offices and other medical facilities where there is a potential for radiation exposure. Government regulations and industry guidelines (e.g., OSHA, NCRP, ANSI, IAEA) often require these individuals to wear dosimeters to monitor their radiation dose. We provide our customers with services such as cumulative dose reports and data management. We believe we are a leader in the provision of dosimetry services to the U.S. nuclear power market.
 
Our service uses film, thermoluminescent and track-etch dosimeters. Each of these has distinct characteristics that make them suitable for specific applications and customer types.
 
Dose is calculated algorithmically using filtering mechanisms to customize the dosimeter response for the type of radiation and potential exposure. Each dosimeter is identified to provide a chain of custody throughout the service cycle. We ship the dosimeters to the customer, whose personnel wear them for intervals ranging from one month to one year. As the wear period nears its end, we send the customer a new set of dosimeters, and the customer returns the original dosimeters to us for processing. After processing, we report dose information to the customer in a format that complies with relevant governing standards or regulations.


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Reports generally take seven to ten business days to process and document each wearer’s current wear period dose, quarter-to-date dose, year-to-date dose and lifetime dose.
 
In fiscal 2009 over 90% of our dosimetry services customers, representing 65% of our dosimetry services revenue, pre-paid their annual subscriptions.
 
Imaging Systems
 
Our Imaging Systems division is a leader in the sale of highly specialized closed circuit camera systems used for inspection and surveillance in difficult and hazardous environments. The products in our Imaging Systems division are illustrated below:
 
                 
Product Category   End Markets   Applications   NPP Life Cycle Phases   Products
 
Imaging Systems  
•   Nuclear

•   Other
 
Nuclear: imaging systems for nuclear fuel handling, control, monitoring and inspection; reactor vessel maintenance; underwater surveillance; tank and vessel inspection; and cameras for remotely operated vehicles

High-temperature: kiln viewing and recovery boiler monitoring
  •   Construction

•   Plant operation

•   Recommissioning

•   Decommissioning

•   Waste management
 
•  Radiation hardened surveillance and inspection cameras

•  Video management and control systems

•  Lighting systems

•  Telemetry control units

•  Thru-wall endoscopes

•  High temperature cameras with pyrometry

•  Software
 
We have designed our imaging systems to operate in nuclear installations, with many of our cameras being radiation “hardened,” allowing them to operate in the high levels of radiation frequently found in these installations. We supply cameras for all stages of the nuclear life cycle, from construction through operation, to decommissioning and waste management. Our products are used in NPPs, nuclear reprocessing plants and waste management facilities. For example, our cameras are used during refueling shutdowns for inspecting the integrity of critical structures in nuclear reactors.
 
Our products are also designed for use in high temperature environments, such as pulp and paper recovery boilers, gas or coal-fired power boilers and cement kilns. In these environments, our cameras provide real time video as well as accurate temperature measurement. This enables operators to closely monitor their processes, helping to ensure plant safety and increased operational efficiency. For example, our cameras are used by two of the world’s largest cement producers to monitor flame patterns and temperature in cement kilns, helping operators maximize operational efficiency.
 
The expected life of our cameras typically ranges from one to five years, depending on the operating environment. This provides recurring revenue opportunities as customers must replace and upgrade components during these timeframes.
 
Research and Development
 
Our research and development efforts allow us to introduce new products to the marketplace, fulfill specific customer needs and continue to meet qualification requirements for next generation nuclear reactors and other evolving regulatory standards. Our five operating divisions are committed to both technology research and product development to fulfill their strategic objectives and are supported by our engineering and research and development organization consisting of 159 scientists, technicians and engineers, representing approximately 19% of our total workforce, as of June 30, 2009. A number of them participate in international standards setting organizations and committees. We engage in research and development activities at most of our facilities worldwide.


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We spent approximately $11.2 million, $14.9 million and $11.9 million on research and development for fiscal 2009, 2008 and 2007. Research and development activities range from the development of radiation tolerant electronics to the development of customized software solutions for customer-specific applications, among others. We conduct these efforts through a mix of in-house research, collaboration with academia, customers and regulatory authorities as well as selected outsourcing through external vendors. The scope and extent of the outsourced portion of research and development activities vary by division, but typically, critical hardware design, software development and project management activities are conducted in-house while specialized services such as consulting services, algorithm design, thermal analysis, complex modeling and calculations and testing services are provided by third parties.
 
Sales and Marketing
 
We sell our products and services through our direct sales organization and indirectly through our global network of independent, third-party sales representatives and distributors. Our internal sales team is organized by operating division and end market to provide a higher level of service and understanding of our customers’ unique needs. We recently instituted a key account strategy in which we have designated senior executives taking a lead role with our top customers. This enables us to systematically and actively maintain close relationships with our top customers and provide solutions that meet their specifications. We have 14 sales offices in North America, Europe and Asia, and as of June 30, 2009, our sales and marketing personnel consisted of 135 employees, which represents approximately 16% of our total workforce.
 
We derive a portion of our revenue from sales of our products and services through channel partners, such as independent sales representatives and distributors. In particular, our independent sales representatives are an important source of sales leads for us and augment our internal resources in remote geographies. We sell through distributors in situations in which our customers prefer to purchase from a local business entity or purchase in smaller volume.
 
Our marketing activities include participation in many tradeshows worldwide across our nuclear, defense and medical end markets. We advertise in technical journals, publish articles in leading industry periodicals and utilize direct mail campaigns.
 
We host our annual Users’ Training and Benchmarking Seminar, where customers participate in a variety of programs designed to exchange ideas and discuss occupational challenges. The event also brings together key channel partners and vendors to strengthen our sales and marketing network. Attendees gain insight into our product plans and participate in interactive sessions that give them the opportunity to better understand our current suite of products and services as well as provide feedback on our product roadmap.
 
Our Customers
 
Our principal customers include power and utility companies, reactor design firms, NPPs, government agencies, military organizations, medical service providers and industrial companies. For fiscal 2009, no single customer accounted for more than 8.0% of our consolidated revenue, while our top ten customers together accounted for approximately 25.5% of our consolidated sales.
 
Manufacturing and Supply Chain
 
Given the diversity of our products, we employ numerous manufacturing techniques, including high-volume process manufacturing, discrete manufacturing, cellular manufacturing and hybrid approaches. Our production personnel engage in manufacturing, procurement and logistics activities. Our production activities are located in the United States, Canada, France, Germany, Finland and the United Kingdom. As of June 30, 2009, our production personnel consisted of 416 employees, which represents approximately 49% of our total workforce.
 
Our manufacturing activities are focused mainly on the production of the core value-add devices and components of our products, while non-core components and sub-assemblies are generally outsourced. This strategy enables us to protect important intellectual property while minimizing the time, cost and effort to


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produce commoditized components. Most of the time, the design, assembly and integration of the components are performed in-house, allowing our engineers to customize the products according to customer specifications. For highly engineered nuclear products, production volumes are typically low, with a high degree of custom engineering required. For other product lines, such as passive dosimetry products, production volumes tend to be higher. We apply rigorous quality control processes and calibrate radiation detection devices internally, leading to high quality standards and customization capabilities. Most of our production sites are certified to production quality standards such as ISO 9001, 10 CFR 50 Appendix B and ASME NQA-1.
 
The principal materials used in our manufacturing processes are commodities that are available from a variety of sources. The key metal materials used in our manufacturing processes include precious metals, tungsten, copper, aluminum, magnesium products, steel, stainless steel and various alloys, which are formed into parts such as detectors, sensors and cable assemblies. The key non-metal materials used include amorphous and crystalline scintillator materials, ceramics, epoxies, silicon and fused silica, polyethylene, polyurethane and injection molded plastic parts and components such as lenses, monitors, sensors, dosimeters, electronic boards, detectors and cables.
 
Properties
 
The table below lists our properties at June 30, 2009:
 
                 
        Approximate
     
Location
  Square Feet    
Facility Use / Description
 
Production facilities:
           
Canada
  Cambridge, ON     25,000     Sensing Systems
Finland
  Turku     9,800     Health Physics
France
  Fussy (Bourges)     24,000     Sensing Systems
France
  Lamanon     76,600 (1)   Health Physics & Radiation Monitoring Systems
France
  Lamanon     6,500     Health Physics & Radiation Monitoring Systems
Germany
  Hamburg     29,600     Health Physics
Germany
  Munich     28,100     Radiation Monitoring Systems
United Kingdom
  Alton     27,000     Imaging Systems
United States
  Atlanta (Smyrna), GA     24,100     Health Physics & Radiation Monitoring Systems
United States
  Buffalo (Cheektowaga), NY     26,200     Sensing Systems
United States
  Horseheads, NY     51,500 (2)   Sensing Systems & Imaging Systems
United States
  Irvine, CA     43,500     Dosimetry Services
     
Sales / Research and Development / Administrative locations(3)
   
China
  Beijing     500     Sales center
China
  Beijing     2,200     Sales center
Germany
  Bonn     1,000     Imaging Systems
United Kingdom
  Whitehaven, Cumbria     3,000     Imaging Systems
United States
  Pickerington, OH     2,900     Imaging Systems
United States
  San Ramon, CA     10,300     Corporate headquarters
United States
  Woodinville, WA     1,000     Imaging Systems
 
 
(1) We lease all listed properties except the property located in Lamanon, France, which we own.
 
(2) Our current lease consists of a total of approximately 86,300 square feet, of which we sublet, or otherwise do not use, approximately 34,800 square feet.
 
(3) We currently lease an approximately 5,400 square foot facility in Pointe-Claire, QC, Canada related to discontinued operations. We intend to vacate the facility by December 31, 2009.


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Competition
 
The global markets for our products and services are competitive and continually evolving. Within each of our operating segments, we encounter a variety of competitors, ranging from small independent companies providing niche solutions to larger multi-national corporations providing a broader set of products and services to our targeted end markets. We believe that the principal bases upon which we compete in our target end markets include product quality and reliability, technical capability and product qualification, strength of customer relationships, customer service and price. In particular, customers in the nuclear and defense end markets tend to emphasize product quality and reliability, technical capability and strength of supplier relationships, while customers in the medical end markets, in particular for passive dosimetry products and services, tend to make purchasing decisions on a combination of brand recognition, price, service and reliability.
 
We believe the primary competitors in each of our segments are as follows:
 
  •  Health Physics:  Thermo Fisher Scientific and Areva (Canberra).
 
  •  Radiation Monitoring Systems:  General Atomics (Sorrento Electronics) and Areva (Canberra).
 
  •  Sensing Systems:  Reuter-Stokes (General Electric), Schott and Areva.
 
  •  Dosimetry Services:  Landauer.
 
  •  Imaging Systems:  Diakont.
 
Intellectual Property
 
We rely on a combination of intellectual property rights, including qualifications, trade secrets, patents, copyrights and trademarks, as well as contractual protections, to protect our proprietary products, methods, documentation and other technology.
 
As of June 30, 2009, we held approximately 12 issued U.S. patents, 35 issued foreign counterparts of U.S. patents and three other issued foreign patents with expiration dates ranging from 2010 to 2025. In addition, we have filed two U.S. patent applications, nine foreign counterpart patent applications and one other foreign patent application. We also hold exclusive and non-exclusive licenses related to patents and other intellectual property of third parties. We held approximately 16 U.S. registered and pending trademarks, 18 international counterparts of such registered and pending trademarks and eight additional international registered and pending trademarks, as of June 30, 2009.
 
In many instances, we rely on trade secret protection and confidentiality agreements to safeguard our interests. Due to the long useful life of certain aspects of our technology, we believe that the patent registration process, which requires public disclosure of patented claims and inventions, could harm our competitive position. We differentiate our products and technologies primarily through our proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, equipment designs, testing and other procedures. Our employees are generally required to assign to us all of the inventions, designs and technologies they develop during the course of employment with us, either through written agreements or by operation of law, depending on the jurisdiction. Where appropriate, we require third parties with whom we deal to enter into agreements with us that address issues of confidentiality and intellectual property.
 
Environmental Matters
 
We are subject to a variety of environmental, health and safety and pollution-control laws and regulations in the jurisdictions in which we operate. We do not believe the costs of compliance with these laws and regulations will be material. We use, generate and discharge hazardous substances, chemicals and wastes at some of our facilities in connection with our product development, testing and manufacturing activities. Any failure by us to control the use of, to remediate the presence of, or to restrict adequately the discharge of, such substances, chemicals or wastes could subject us to potentially significant liabilities, clean-up costs, monetary


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damages and fines or suspensions in our business operations. In addition, some of our facilities are located on properties with a history of use involving hazardous substances, chemicals and wastes and may be contaminated. Although we have not incurred, and do not currently anticipate, any material liabilities in connection with such contamination, we may be required to make expenditures for environmental remediation in the future. See “Risk Factors—Risks Relating to Our Business—We could incur substantial costs as a result of violations of or liabilities under environmental laws.”
 
Regulation
 
We are subject to a variety of laws and regulations, including but not limited to those of the United States, Canada, the EU, the EU member states and the People’s Republic of China, that impose regulatory systems that govern many aspects of our operations, including but not limited to our use, storage and disposal of radioactive materials and hazardous waste. In addition, these jurisdictions impose trade controls requirements that restrict trade to comply with applicable export controls and economic sanctions laws and requirements, and legal requirements that are intended to curtail bribery and corruption. These laws and regulations apply by virtue of the nature of our industry, end markets and products, as well as the range of potential uses of our products, the origin of the technology incorporated into our products, and the jurisdictions in which we produce and sell our products.
 
The multi-jurisdictional legal and regulatory environments in which we operate are subject to extensive and changing laws and regulations administered by various national, regional and local governmental agencies both within and outside the United States.
 
We are a federal government contractor and, as such, we are subject to Executive Order 11246 and other relevant laws and regulations. As part of our compliance obligations, we implement on an annual basis an affirmative action plan and program which, in part, include our good faith efforts to achieve in our workforce full utilization of qualified women and minorities. In addition, we have in place an affirmative action plan with respect to disabled individuals, as well as Vietnam era, disabled or other veterans.
 
Some of the U.S. laws affecting our operations include, but are not limited to, the AEA, the Energy Reorganization Act of 1974, or ERA, the Resource Conservation and Recovery Act of 1976 as amended by the Hazardous and Solid Waste Amendments of 1984, or RCRA, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, the Hazardous Materials Transportation Act, the Federal Water Pollution Control Act, or the Clean Water Act, the Toxic Substances Control Act of 1976, or TSCA, the Organized Crime Control Act of 1970, or the OCCA, and the Occupational Safety and Health Act, or OSHA, as well as the state laws governing radiation control, hazardous waste management, water quality and air quality in the states of New York, Georgia and California, each as from time to time amended. We are also subject to a variety of U.S. federal and state employment and labor laws and regulations, including the Americans with Disabilities Act, the Federal Fair Labor Standards Act, the Worker Adjustment and Restructuring Notification Act, or WARN Act, which requires employers to give affected employees at least 60 days’ notice of a plant closing or mass layoff, and other regulations related to working conditions, wage-hour pay, overtime pay, employee benefits, anti-discrimination and termination of employment. The classified work that we currently perform at one of our U.S. facilities subjects us to the industrial security regulations of the Department of Defense and other federal agencies that are designed to safeguard against unauthorized access by foreigners and others to classified and other sensitive information.
 
In the United States, the AEA and ERA authorize the NRC to regulate the receipt, possession, use and transfer of radioactive materials. The NRC sets regulatory standards for worker protection and public exposure to radioactive materials or wastes to which we are required to adhere in our operations that use radioactive materials for research and development, testing and calibration.
 
RCRA provides a comprehensive framework for the regulation of hazardous and solid waste which apply to our operations that use and dispose of hazardous waste. RCRA prohibits improper hazardous waste disposal and imposes criminal and civil liability for failure to comply with its requirements. TSCA provides a comprehensive framework for the management by the EPA of over 60,000 commercially produced chemical substances, some of which are used by our operations. The EPA may impose requirements involving


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manufacturing, record keeping, reporting, importing and exporting. The Clean Water Act regulates the discharge of pollutants into streams and other waters. If wastewater or runoff from our facilities or operations may be discharged into surface waters, the Clean Water Act requires us to apply for and obtain discharge permits, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in those discharges. The OCCA provides for the regulation of explosives, which applies in particular to our facility in Buffalo which manufactures and tests products that incorporate explosives. The OCCA establishes a framework for licensing, use, storage and sale of explosives and products containing explosives and imposes criminal and civil liability for failure to comply with its requirements. OSHA provides for the establishment of standards governing workplace safety and health requirements, including setting permissible exposure levels for hazardous chemicals. We must follow OSHA standards, including the preparation of material safety data sheets, hazardous response training and process safety management, as well as various record-keeping, disclosure and procedural requirements.
 
Our operations outside the United States are subject to similar, and sometimes more stringent, laws and regulations. For example, an EU directive relating to the restriction of hazardous substances, or RoHS, in electrical and electronic equipment and a directive relating to waste electrical and electronic equipment, or WEEE, have been and are being implemented in EU member states. Among other things, the RoHS directive restricts the use of certain hazardous substances in the manufacture of electrical and electronic equipment and the WEEE directive requires producers of electrical goods to be responsible for the collection, recycling, treatment and disposal of these goods. In addition, laws similar to RoHS and WEEE were passed in China in 2006 and South Korea in 2007. Governments in other countries, including the United States, are considering implementing similar laws or regulations. In addition, a new regulation regarding the registration, authorization and restriction of chemical substances in industrial products, or REACH, became effective in the EU in 2007. Over time this regulation, as well as other regulations, may require us to substitute certain chemicals contained in our products with substances the EU considers less dangerous. We have not yet assessed the impact this legislation may have on our operations. We are also subject to the employment and labor laws and regulations of the foreign jurisdictions where the majority of our employees are located.
 
We deal with numerous U.S. and non-U.S. government agencies and entities, including the U.S. military, the armed forces of many NATO countries, the U.S. Department of Defense, the U.S. Department of State, the U.S. Department of Treasury, the U.S. NRC, the U.S. Department of Homeland Security and the corresponding governmental agencies and entities in the European Union and Canada. When working with these and other government agencies and entities, we must comply with, and are affected by, laws and regulations relating to the formation, administration and performance of contracts. These laws and regulations, among other things require certification and disclosure of all cost or pricing data in connection with various contract negotiations; impose acquisition regulations that define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-based U.S. government contracts; and restrict the use and dissemination of information classified for national security purposes and the exportation of certain products and technical data.
 
We believe that certain of our products and technologies are eligible for designation or certification as “qualified anti-terrorism technologies” under the SAFETY Act provisions of The Homeland Security Act of 2002, and its implementing regulations. Under the SAFETY Act, the federal government provides for certain liability limitations and a presumption that the “government contractor” defense applies if the Department of Homeland Security “designates” or “certifies” technologies or products as “qualified anti-terrorism technologies,” and if certain other conditions apply. We may seek to qualify some or all of our products and technologies under the SAFETY Act’s provisions in order to obtain such liability protections, but there is no guarantee that the Department of Homeland Security will designate or certify our products and technologies as qualified anti-terrorism technology. To date, we have not sought such designation or certification as a qualified anti-terrorism technology, and our products have been sold without such qualification and we may continue to sell our products and technologies without such qualification. To the extent we do so, we will not be entitled to the benefit of the SAFETY Act’s limitations on tort liability or to any U.S. government indemnification.
 
Many of our products are subject to export controls of the United States, Canada and the member states of the EU, depending on a number of factors, including the nature of the product and its potential uses, the


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origin of the technology incorporated into the product, and the jurisdictions in which we produce and sell our products. Certain of our products are subject to U.S. export control laws and regulations, which have certain registration, licensing and recordkeeping requirements for the sale or transfer of controlled technology or information to non-U.S. persons. These regulations include the U.S. Department of Commerce’s Export Administration Regulations, or the EAR, the U.S. Department of State’s International Traffic in Arms Regulations, or ITAR and the U.S. Nuclear Regulatory Commission regulations. Certain products that have dual-use commercial and military applications are controlled under the EAR’s Commerce Control List, and we have export compliance systems for determining the proper export licensing requirements for such products. We need to keep such export compliance systems, which include third-party service provider screening of compliance lists, monitoring of Department of Commerce notifications and periodic reviews of applicable regulations, up to date and properly maintained.
 
U.S. laws restrict the ability of U.S. companies, U.S. citizens and U.S. permanent residents, or U.S. persons, from involvement in certain types of transactions with countries, businesses and individuals that have been targeted by U.S. economic sanctions. For example, U.S. persons are precluded from undertaking virtually any activity of any kind on the part of any U.S. person with regard to any potential or actual transactions involving Cuba, Iran and Sudan without the prior approval of the U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC. OFAC also administers U.S. sanctions against a lengthy list of entities and individuals, wherever they may be located, that the United States considers to be closely associated with these sanctioned countries or that are considered terrorists or traffickers in either narcotics or weapons of mass destruction. Furthermore, U.S. economic sanctions forbid U.S. persons from circumventing direct U.S. restrictions or from facilitating transactions by non-U.S. persons if those activities are forbidden to U.S. persons. Penalties for violating provisions such as these can include significant civil and criminal fines, imprisonment and loss of tax credits or export privileges.
 
The Foreign Corrupt Practices Act of 1977, or the FCPA, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the International Anti-Bribery and Fair Competition Act of 1998, makes it a criminal offense for a U.S. corporation or other U.S. domestic concern to make payments, gifts or give anything of value directly or indirectly to foreign officials for the purpose of obtaining or retaining business, or to obtain any other unfair or improper advantage. In addition, the FCPA imposes accounting standards and requirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off books” slush funds from which such improper payments can be made. We are also subject to laws and regulations covering subject matter similar to that of the FCPA that have been enacted by countries outside of the United States. For example, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions was signed by the members of the Organization for Economic Cooperation and Development and certain other countries in December 1997. The Convention requires each signatory to enact legislation that prohibits local persons and firms from making payments to foreign officials for the purpose of obtaining business or securing other unfair advantages from foreign governments. Failure to comply with these laws could subject us to, among other things, penalties and legal expenses, which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.
 
Compliance with the myriad of export control laws of the various jurisdictions in which we do business is a challenge for any company involved in export activities within the nuclear and defense end markets. We have compliance systems in our U.S. and non-U.S. subsidiaries to identify those products and technologies that are subject to export control regulatory restrictions and, where required, we obtain authorization from relevant regulatory authorities for sales to foreign buyers or for technology transfers to foreign consultants, companies, universities or foreign national employees. We also have a compliance system that is intended to proactively address potential compliance issues including those related to export control, trade sanctions and embargoes, as well as anti-bribery situations, and we are implementing this through such mechanisms as training, formalizing contracting processes, performing diligence on agents and continuing to improve our record-keeping and auditing practices with respect to third-party relationships and otherwise. Thus far, as part of our compliance system, for instance, we have developed a Code of Ethics and Conduct that informs all of our employees of their compliance obligations. Furthermore, we have developed an ethics and conduct training


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program that all of our employees are required to undertake, as well as other targeted compliance training relevant to their position, such as specific FCPA training for all of our worldwide controllers. Violations of any of the various U.S. or non-U.S. export control laws can result in significant civil or criminal penalties, or even loss of export privileges, as mentioned above. We recognize that an effective compliance program can help protect the reputation and relationship of a regulated company with the regulatory agencies administering these laws and regulations. In the United States, each of the regulatory agencies administering these laws and regulations has a voluntary disclosure program that offers the possibility of significantly reduced penalties, if any are applicable, and we intend to use these programs as part of our overall compliance program, as necessary.
 
Backlog and Deferred Revenue
 
Total backlog represents committed but undelivered contracts and purchase orders at period end. Backlog excludes maintenance-related activity and agreements that do not represent firm purchase orders. Customer agreements that contain cancellation for convenience terms are generally not reflected in backlog until firm purchase orders are received. Backlog is not a complete measure of our future business due to these customer agreements. Backlog can fluctuate significantly due to the timing of large project awards. In addition, annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts.
 
Deferred revenue represents the prepayment of measuring and monitoring services. The amounts are recorded as deferred contract revenue in our balance sheets and represent customer deposits invoiced in advance for services to be rendered over the service period.
 
Information on backlog and deferred revenue follows (in thousands):
 
                                 
    As of June 30,        
    2007     2008     2009        
 
Backlog
  $ 143,887     $ 177,956     $ 184,218          
Deferred revenue
    30,567       38,988       43,419          
 
Furthermore, we anticipate that approximately 31% of our total backlog will not be filled within the current fiscal year.
 
Legal Proceedings
 
From time to time, we are involved in various routine legal proceedings. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of these proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations.
 
Employees
 
As of June 30, 2009, we had 847 employees worldwide, consisting of 135 employees in sales and marketing, 416 in production, 159 in research and development and 137 in general and administrative functions. Geographically, we had 323 employees in North America, 520 in Europe and four in Asia and other regions as of June 30, 2009. We maintain both union and non-union workforces in the United States, with unionized workforces comprising a small minority of the overall U.S. employee base. As of June 30, 2009, 34 U.S.-based employees, primarily located in Horseheads and Buffalo, New York, were members of a union. Pursuant to applicable industrial relations laws, our employees located in France and Germany were represented by works councils, and our employees located in France and Finland were represented by trade unions.


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MANAGEMENT
 
The following table sets forth certain information with respect to our executive officers and members of our Board of Directors:
 
         
Name
 
Age
 
Position
 
Thomas D. Logan
  48   President, Chief Executive Officer and Chairman of the Board
Jack A. Pacheco
  49   Vice President and Chief Financial Officer
Seth B. Rosen
  41   General Counsel, Vice President, Corporate Development, and Secretary
W. Antony Besso
  39   Regional Vice President, EMEA, and President, Health Physics Division
Iain F. Wilson
  47   Regional Vice President, Asia, and President, Sensing Systems Division
Robert J. Klein(1)(2)(3)(4)
  45   Director
 
 
(1) ACAS-designated representative.
 
(2) Member of the Nominating and Corporate Governance Committee.
 
(3) Member of the Audit Committee.
 
(4) Member of the Compensation Committee.
 
Thomas D. Logan has been our President, Chief Executive Officer and Chairman of the Board since our formation in December 2005. From 2004 to 2007, Mr. Logan served as CEO for Global Dosimetry Solutions, one of our predecessor companies and currently a subsidiary of ours. Mr. Logan has more than 22 years of energy industry experience. In addition, he has nine years of experience within the contract manufacturing and consumer products industries. Mr. Logan holds a Bachelor of Science degree and a Master of Business Administration degree from Cornell University.
 
Jack A. Pacheco has served as our Vice President and Chief Financial Officer since March 2008. From 2004 to 2008, Mr. Pacheco served as Chief Financial Officer of Smart Modular Technologies, a public company listed on the NASDAQ stock exchange. From 2001 to 2004, Mr. Pacheco served as Chief Financial Officer for Ignis Optics, Inc., an optical components startup acquired by Bookham Technology. He holds a Master of Business Administration degree from Golden Gate University and a Bachelor of Science degree in Business Administration from Washington State University.
 
Seth B. Rosen is our General Counsel, Vice President, Corporate Development, and Secretary, a position he has held since January 2008. In 2007, Mr. Rosen served as a business and legal consultant to a variety of existing and startup businesses. From 2006 to 2007, he was CEO of Golden Gate Energy Corporation, a solar energy startup company. From 1998 to 2006, he served as Senior Licensing Associate and then Principal Licensing Associate at the Technology Transfer Department of Lawrence Berkeley National Laboratory. Mr. Rosen received his Juris Doctor degree from Harvard Law School, his Master of Business Administration from the joint program at the Haas School of Business at the University of California at Berkeley and the Graduate School of Business at Columbia University, and his Bachelor of Arts from the University of California at Berkeley.
 
W. Antony Besso has been our Regional Vice President, EMEA, and President, Health Physics Division since February 2006. From 2004 to 2006, Mr. Besso acted as an advisor and interim manager for private equity firms and individual investors in a diverse range of industries. From 1996 to 2004, Mr. Besso held a series of senior management positions in the global engineering group ALSTOM SA. Mr. Besso was also a founding partner in Advention Business Partners, a leading independent consulting firm with operations in France, Germany and China. Mr. Besso holds a Bachelor of Arts degree from Queen’s University and a Master of Business Administration from Dalhousie University.
 
Iain F. Wilson has served as our Regional Vice President, Asia, and President, Sensing Systems Division since our formation in December 2005. From 2000 to 2005, Mr. Wilson was General Manager, Sensing


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Systems Group of IST, one of our predecessor companies. Previously, Mr. Wilson held numerous technical roles with IST, focused principally in the areas of Quality Management, Engineering and Plant Operations. He began his career as the Quality Manager for GE Reuter Stokes, Canada. Mr. Wilson holds a Bachelor of Science degree from Ryerson University, Toronto, Canada. Mr. Wilson is a member of the American Nuclear Society.
 
Robert J. Klein has served as a Director since our formation in December 2005. Mr. Klein has served as a Managing Director of ACAS, our principal stockholder, since 2004, where he leads the New York private equity practice. From 2002 to 2004, he served as a Principal of ACAS. Prior to joining ACAS, he was a Principal at American Securities Capital Partners. Mr. Klein received a Bachelor of Arts degree from Yale University and a Juris Doctor degree from Stanford University Law School. Mr. Klein is an ACAS-designated member of our Board of Directors.
 
Board Structure and Compensation
 
The Bylaws that we will adopt prior to the consummation of this offering will provide that at least one of the directors designated by ACAS must be part of the majority in any action taken by our Board of Directors so long as ACAS and its affiliated funds hold at least 50.1% of our outstanding common stock, other than on matters in which ACAS has a conflict of interest (as it would if it appointed a majority of our directors). Our Bylaws will also provide that ACAS will have the right to designate three of our seven directors so long as ACAS and its affiliated funds hold at least 50.1% of our outstanding common stock, two directors so long as they hold at least 25% but less than 50.1% and one director so long as they hold at least 10% but less than 25%.
 
Our Board of Directors currently consists of two members. Effective upon the closing of this offering, our Board of Directors will consist of seven members and will be divided into three classes, as follows:
 
  •  Class I, which will consist of           and          , and whose term will expire at our annual meeting of stockholders to be held in 2010;
 
  •  Class II, which will consist of           and          , and whose term will expire at our annual meeting of stockholders to be held in 2011; and
 
  •  Class III, which will consist of Messrs. Logan, Klein and          , and whose term will expire at our annual meeting of stockholders to be held in 2012.
 
At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will serve until the third annual meeting following their election and until their successors are duly elected and qualified.
 
Our Board of Directors has the following committees:
 
Audit Committee
 
Upon completion of this offering, the Audit Committee shall consist of Mr. Klein,          and          . We intend to replace Mr. Klein with an independent director prior to the date that is one year following the completion of this offering. The Audit Committee reviews and, as it deems appropriate, recommends to the Board of Directors our internal accounting and financial controls and the accounting principles and auditing practices and procedures to be employed in preparation and review of our financial statements. The Audit Committee also makes recommendations to the Board concerning the engagement of independent public auditors and the scope of the audit to be undertaken by such auditors.          shall serve as chairperson of the Audit Committee.
 
Compensation Committee
 
Upon completion of this offering, the Compensation Committee shall consist of Mr. Klein,          and          . The Compensation Committee reviews and, as it deems appropriate, recommends to the Board of Directors policies, practices and procedures relating to the compensation of our officers and the establishment


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and administration of employee benefit plans. The Committee advises and consults with our officers as may be requested regarding managerial personnel policies.          shall serve as chairperson of the Compensation Committee.
 
Nominating and Corporate Governance Committee
 
Upon completion of this offering, the Nominating and Corporate Governance Committee shall consist of Mr. Klein,          and          . The Nominating and Corporate Governance Committee reviews and, as it deems appropriate, recommends to the Board of Directors policies and procedures relating to director and board committee nominations and corporate governance policies. Mr. Klein shall serve as chairperson of the Nominating and Corporate Governance Committee.
 
Director Compensation
 
During fiscal 2009, there was one non-employee director, Robert J. Klein, who is affiliated with ACAS and received no compensation for services as a member of either our Board of Directors or of the Board’s Compensation Committee. Mr. Logan’s compensation is reported below under the Summary Compensation Table, and he did not receive separate compensation for his service on our Board of Directors.
 
We have not yet determined the compensation for members of our Board of Directors who are not employees of Mirion or who are not affiliated with ACAS.
 
Directors who are employees of Mirion or its subsidiaries or affiliated with ACAS will receive no compensation for services as members of either our Board of Directors or committees.
 
We will reimburse all directors for reasonable expenses incurred to attend meetings of our Board of Directors or committees.
 
Code of Ethics and Conduct
 
On June 12, 2008, our Board of Directors adopted a revised Code of Ethics and Conduct that establishes the standards of ethical conduct applicable to all of our directors, officers and employees. The Code of Ethics and Conduct (the “Code of Conduct”) addresses, among other things, competition and fair dealing, conflicts of interest, financial matters and external reporting, company funds and assets, confidentiality and corporate opportunity requirements and the process for reporting violations of the Code of Conduct, employee misconduct, conflicts of interest or other violations.
 
In connection with this offering, our Board of Directors will adopt a revised code of ethics that revises the process for reporting violations of the Code of Conduct, employee misconduct, conflicts of interest or other violations to conform with applicable legal requirements of the United States and the other jurisdictions in which Mirion operates.
 
Our Code of Conduct will be publicly available on our website at www.mirion.com. Any waiver of our Code of Conduct with respect to the Chief Executive Officer, Chief Financial Officer, controller or persons performing similar functions may only be authorized by our Audit Committee and will be disclosed as required by applicable law.
 
EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
The following discussion specifically relates to the compensation for fiscal 2009 of our “named executive officers” set forth in the Summary Compensation Table below, as well as discussing the overall principles underlying our executive compensation policies and decisions.


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Objectives of Executive Compensation Program
 
The objectives of our executive compensation program are to recruit and retain an executive management team with the skills necessary to achieve our business objectives and thereby create value for our stockholders. Our executive compensation program is designed to support key business goals, such as integrating acquired businesses and retaining key executives, that are particularly important to us as a company with a limited operating history.
 
We implement this program through a combination of fixed cash compensation, variable short-term incentive compensation (determined by our operating performance as well as achievement of individual annual performance objectives), and equity incentives designed to reward long-term performance and align interests of our executive officers with our stockholders.
 
As a company whose equity was not publicly traded before this offering, our compensation philosophy has focused on the achievement of performance objectives that we believe would deliver meaningful return to our investors through a public offering or a sale of our company. In connection with this offering, we have reviewed our compensation philosophy and expect to adopt a compensation philosophy and objectives that are generally more consistent with those of a public, rather than private, company.
 
Executive Compensation Program
 
Our compensation program reflects our stage of development as a company. We have a limited operating history. We were incorporated in October 2005 and consist of a series of earlier acquisitions of geographically and technologically diverse companies. We have recruited several of our executive officers from other employers, and our initial compensation for these officers generally reflects the outcome of negotiated recruitment and hiring process.
 
As a company with a limited operating history, retention of executive officers is a key business objective. Weathering undesirable personnel changes would be more difficult for us than for a more established company. Accordingly, our Board of Directors believes it is critical to pay sufficient base compensation and provide adequate incentives to our executive officers to ensure continuity of our management team.