8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 30, 2010

MICROSEMI CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	0-8866	95-2110371
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2381 Morse Avenue, Irvine, California	92614
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code

(949) 221-7100

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

As previously reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission on May 4, 2010 (the “Initial Form 8-K”), on April 30, 2010, Microsemi Corporation (“Microsemi”) completed its acquisition of White Electronic Designs Corporation (“White Electronic”), pursuant to the merger of White Electronic with a wholly-owned subsidiary of Microsemi.

This Amendment No. 1 to Form 8-K is being filed to amend Item 9.01 of the Initial Form 8-K to include the audited financial statements of White Electronic and the pro forma financial information relating to Microsemi’s acquisition of White Electronic referred to below. Such information should be read in conjunction with the Initial Form 8-K.

Section 9—Financial Statements and Exhibits

Item 9.01 Financial Statement and Exhibits

(a) Financial statements of businesses acquired.

The following financial statements and related independent registered public accountant’s report are filed herewith as Exhibit 99.2:

• Audited consolidated balance sheets of White Electronic as of September 30, 2009 and September 27, 2008; and

• Audited consolidated statements of operations, shareholders’ equity and cash flows of White Electronic for each of the three years in the period ended September 30, 2009.

The following financial statements are filed herewith as Exhibit 99.3:

• Unaudited interim condensed consolidated balance sheet of White Electronic as of December 31, 2009; and

• Unaudited interim condensed consolidated statements of operations and cash flows of White Electronic for the three months ended December 31, 2009 and January 1, 2009.

(b) Pro forma financial information.

The following pro forma financial information and related notes are filed herewith as Exhibit 99.4:

• Unaudited pro forma condensed combined balance sheet as of December 27, 2009;

• Unaudited pro forma condensed statement of income for the fiscal year ended September 27, 2009; and

• Unaudited pro forma condensed statement of income for the quarter ended December 27, 2009.

(d) Exhibits

Exhibit No.	Description
23.1	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm, filed herewith.
99.1	Press release issued by Microsemi Corporation on May 3, 2010.*
99.2	Audited Financial Statements of White Electronic Designs Corporation, filed herewith.
99.3	Unaudited Financial Statements of White Electronic Designs Corporation, filed herewith.
99.4	Unaudited Pro Forma Financial Information, filed herewith.

* Previously filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MICROSEMI CORPORATION (Registrant)
Date: June 25, 2010	/S/    JOHN W. HOHENER
	John W. Hohener
	Executive Vice President Chief Financial Officer, Secretary and Treasurer

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm, filed herewith.
99.1	Press release issued by Microsemi Corporation on May 3, 2010.*
99.2	Audited Financial Statements of White Electronic Designs Corporation, filed herewith.
99.3	Unaudited Financial Statements of White Electronic Designs Corporation, filed herewith.
99.4	Unaudited Pro Forma Financial Information, filed herewith.

* Previously filed.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We have issued our report, dated December 11, 2009, with respect to the consolidated financial statements, schedule, and internal control over financial reporting included in the Annual Report on Form 10-K of White Electronic Designs Corporation for the year ended September 30, 2009, and in this current report on Form 8-K/A. We hereby consent to the incorporation by reference of said report in the Registration Statement on Form S-3 (No. 033-62561) and the Registration Statements on Form S-8 (Nos. 333-82556, 333-35526, 333-24045, 033-62563, 033-63395, 033-16711, 333-129283, 333-135678, 333-140071, 333-150529 and 333-166701) of Microsemi Corporation.

/s/ Grant Thornton LLP

Phoenix, Arizona

June 25, 2010

EX-99.2

Exhibit 99.2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

White Electronic Designs Corporation

We have audited the accompanying consolidated balance sheets of White Electronic Designs Corporation and subsidiaries (collectively, the “Company”) as of September 30, 2009 and September 27, 2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2009. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). We also have audited the Company’s internal control over financial reporting as of September 30, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on these financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of White Electronic Designs Corporation and subsidiaries as of September 30, 2009 and September 27, 2008, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

In our opinion, White Electronic Designs Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2009, based on criteria established in Internal Control — Integrated Framework issued by COSO.

/s/    GRANT THORNTON LLP

Phoenix, Arizona

December 11, 2009

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30, 2009			September 27, 2008
	(In thousands, except share data)
ASSETS
Current Assets
Cash and cash equivalents	$	64,170		$	52,604
Accounts receivable, less allowance for doubtful accounts of $47 and $74		10,136			10,508
Inventories		15,642			15,359
Prepaid expenses and other current assets		3,607			2,027
Deferred income taxes		2,464			2,962
Assets held for sale		174			12,668
Total Current Assets		96,193			96,128
Property, plant and equipment, net		11,677			10,137
Deferred income taxes		1,100			1,900
Goodwill		1,764			1,764
Other assets		67			67
Assets held for sale		796			1,662
Total Assets	$	111,597		$	111,658
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	3,823		$	2,038
Accrued salaries and benefits		1,874			1,490
Other accrued expenses		1,546			1,260
Deferred revenue		923			4,016
Liabilities related to assets held for sale		352			2,327
Total Current Liabilities		8,518			11,131
Accrued pension liability		434			640
Other liabilities		755			948
Liabilities related to assets held for sale		—			101
Total Liabilities		9,707			12,820
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, 1,000,000 shares authorized, no shares issued		—			—
Common stock, $0.10 stated value, 60,000,000 shares authorized, 25,464,726 and 25,048,639 shares issued		2,546			2,504
Treasury stock, 2,464,371 and 2,464,371 shares, at par		(247	)		(247	)
Additional paid-in capital		83,686			82,608
Retained earnings		16,270			14,241
Accumulated other comprehensive loss		(365	)		(268	)
Total Shareholders’ Equity		101,890			98,838
Total Liabilities and Shareholders’ Equity	$	111,597		$	111,658

The accompanying notes are an integral part of these consolidated financial statements.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended
	September 30, 2009			September 27, 2008			September 29, 2007
	(In thousands, except share and per share data)
Net sales	$	62,559		$	56,355		$	52,073
Cost of sales		37,993			33,458			29,708
Gross profit		24,566			22,897			22,365
Operating expenses:
Selling, general and administrative		16,385			17,250			14,034
Research and development		4,408			3,611			3,406
Total operating expenses		20,793			20,861			17,440
Operating income		3,773			2,036			4,925
Interest income		441			1,585			2,540
Income from continuing operations before income taxes		4,214			3,621			7,465
Provision for income taxes		(1,218	)		(1,138	)		(2,292	)
Income from continuing operations		2,996			2,483			5,173
Discontinued operations (Note 13):
Loss from discontinued operations, net of tax		(344	)		(4,955	)		(2,087	)
Loss on sale of discontinued operations, net of tax		(623	)		(3,515	)		—
Loss from discontinued operations		(967	)		(8,470	)		(2,087	)
Net income (loss)	$	2,029		$	(5,987	)	$	3,086
Income from continuing operations per common share:
Basic	$	0.13		$	0.11		$	0.22
Diluted	$	0.13		$	0.11		$	0.21
Loss from discontinued operations per common share:
Basic	$	(0.04	)	$	(0.38	)	$	(0.09	)
Diluted	$	(0.04	)	$	(0.37	)	$	(0.09	)
Net income (loss) per common share:
Basic	$	0.09		$	(0.27	)	$	0.13
Diluted	$	0.09		$	(0.26	)	$	0.13
Weighted average number of common shares and equivalents:
Basic		22,875,371			22,509,796			23,574,852
Diluted		23,121,614			23,042,748			24,107,677

The accompanying notes are an integral part of these consolidated financial statements.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock			Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Shares	Amount
	(In thousands of dollars, except share data)
Balance, September 30, 2006	24,666,390	$	2,467	$	(29	)	$	90,637		$	17,142		$	(37	)	$	110,180
Net income	—		—		—			—			3,086			—			3,086
Comprehensive income																	3,086
Stock options and warrants exercised	162,696		16		—			431			—			—			447
Restricted stock vested	12,500		1		—			(1	)		—			—			—
Stock-based compensation expense	—		—		—			397			—			—			397
Common stock repurchased through common stock purchase plan	—		—		(154	)		(7,887	)		—			—			(8,041	)
Tax benefits related to exercise of stock options and warrants	—		—		—			210			—			—			210
Adjustment to initially adopt SFAS 158, net of tax	—		—		—			—			—			93			93
Balance, September 29, 2007	24,841,586		2,484		(183	)		83,787			20,228			56			106,372
Net loss	—		—		—			—			(5,987	)		—			(5,987	)
Defined benefit pension plan:
Net loss, net of tax	—		—		—			—			—			(102	)		(102	)
Net prior service cost, net of tax	—		—		—			—			—			(222	)		(222	)
Comprehensive loss																	(6,311	)
Stock options exercised	82,053		7		—			285			—			—			292
Restricted stock vested	125,000		13		—			(13	)		—			—			—
Stock-based compensation expense	—		—		—			1,682			—			—			1,682
Common stock repurchased through common stock purchase plan	—		—		(64	)		(3,158	)		—			—			(3,222	)
Tax benefits related to exercise of stock options	—		—		—			25			—			—			25
Balance, September 27, 2008	25,048,639		2,504		(247	)		82,608			14,241			(268	)		98,838
Net income	—		—		—			—			2,029			—			2,029
Defined benefit pension plan:
Net loss, net of tax	—		—		—			—			—			(139	)		(139	)
Net prior service cost, net of tax	—		—		—			—			—			42			42
Comprehensive income																	1,932
Stock options exercised	338,587		34		—			518			—			—			552
Restricted stock vested	77,500		8		—			(8	)		—			—			—
Stock-based compensation expense	—		—		—			388			—			—			388
Tax benefits related to exercise of stock options	—		—		—			180			—			—			180
Balance, September 30, 2009	25,464,726	$	2,546	$	(247	)	$	83,686		$	16,270		$	(365	)	$	101,890

The accompanying notes are an integral part of these consolidated financial statements.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended
	September 30, 2009			September 27, 2008			September 29, 2007
	(In thousands)
OPERATING ACTIVITIES:
Income from continuing operations	$	2,996		$	2,483		$	5,173
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation		2,775			2,498			2,284
Deferred income tax		1,381			(330	)		(229	)
Loss on disposition of property, plant and equipment		7			99			26
Stock-based compensation expense related to employee stock awards		388			1,682			397
Tax benefit related to exercise of stock awards		180			25			210
Excess tax benefits from stock-based compensation		(222	)		(16	)		(56	)
Pension costs		(386	)		45			—
Net changes in balance sheet accounts:
Accounts receivable		372			(376	)		(2,091	)
Inventories		(283	)		(341	)		(3,971	)
Prepaid expenses and other current assets		(1,580	)		(1,380	)		5,710
Accounts payable		1,639			437			(801	)
Accrued expenses and deferred revenue		(2,423	)		(1,146	)		(2,251	)
Other long-term liabilities		(193	)		(142	)		(127	)
Net cash provided by operating activities		4,651			3,538			4,274
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment		(4,151	)		(2,980	)		(2,083	)
Proceeds from disposition of property, plant, and equipment		5			10			—
Net cash used in investing activities		(4,146	)		(2,970	)		(2,083	)
FINANCING ACTIVITIES:
Common stock issued for exercise of options, warrants and restricted stock		552			292			447
Repurchase of common stock		—			(3,222	)		(8,041	)
Excess tax benefits from stock-based compensation		222			16			56
Net cash provided by (used in) financing activities		774			(2,914	)		(7,538	)
Net change in cash and cash equivalents from continuing operations		1,279			(2,346	)		(5,347	)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by (used in) operating activities		7,413			6,558			(3,345	)
Net cash provided by (used in) investing activities		2,874			(260	)		1,515
Net change in cash and cash equivalents from discontinued operations		10,287			6,298			(1,830	)
Net change in cash and cash equivalents		11,566			3,952			(7,177	)
Cash and cash equivalents at beginning of year		52,604			48,652			55,829
Cash and cash equivalents at end of year	$	64,170		$	52,604		$	48,652
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes	$	19		$	3,081		$	1,018
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of property, plant and equipment in accounts payable	$	146		$	59		$	131

The accompanying notes are an integral part of these consolidated financial statements.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

White Electronic Designs Corporation (the “Company”) designs, develops and manufactures innovative defense electronic components and systems for inclusion in high technology products for the defense and aerospace markets. The Company’s defense electronic solutions include advanced semiconductor and state of the art multi-chip packaged components, components which include our proprietary process for incorporating anti-tamper (“AT”) protection, integrated circuit card assemblies with AT components and electromechanical assemblies. The Company’s customers, which include military prime contractors and the contract manufacturers who work for them in the United States, Europe and Asia, outsource many of their components and systems to us as a result of the combination of our design, development and manufacturing expertise. The Company’s operations include one reportable segment — Defense Electronics.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. The Company does not have any investments in less than wholly-owned subsidiaries or any interests in variable interest entities in which the Company is the primary beneficiary.

b. Fiscal Year-End

Prior to fiscal year 2009, the Company’s fiscal year end was the Saturday nearest to September 30th. On March 5, 2009, the Board of Directors adopted and approved an amendment and restatement of the Company’s Bylaws that, among other things, fixed the fiscal year end to September 30th.

c. Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as net sales and expenses reported for the periods presented. The most significant estimates relate to revenue recognition, inventory obsolescence, bad debts, long-lived assets, stock-based compensation, warranty, income taxes and the gain or loss on sale of discontinued operations. The Company regularly assesses these estimates and, while actual results may differ, management believes that the estimates are reasonable.

d. Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and money market funds purchased with an initial maturity of three months or less to be cash equivalents. Throughout the year, the Company maintained cash balances in excess of Federal Deposit Insurance Corporation (FDIC) insured limits. Approximately $64.5 million was not insured as of September 30, 2009.

e. Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts to cover potential credit losses relating to its trade accounts receivable. The allowance is based on the Company’s historical collection experience as well as an analysis of specific past due accounts. Write-offs against the allowance were $85,000 in fiscal 2009, $0 in fiscal 2008 and $1,000 in fiscal 2007.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

f. Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the average or standard cost methods, with standard costs approximating actual costs.

g. Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is determined on a straight-line basis over the estimated useful lives ranging from 5 to 20 years for buildings and improvements and 3 to 5 years for machinery and equipment. Leasehold improvements are amortized over the lives of the leases or estimated useful lives of the assets, whichever is shorter. When assets are sold or otherwise retired, the cost and accumulated depreciation are removed from the books and the resulting gain or loss is included in operating results. The Company periodically evaluates the carrying value of its property, plant, and equipment based upon the estimated cash flows to be generated by the related assets. If impairment is indicated, a loss is recognized.

h. Goodwill

Goodwill is not amortized. It is tested annually for impairment (and in interim periods if events or circumstances indicate that the related carrying amount may be impaired).

Goodwill is tested for impairment using a two-step process. The first step of the goodwill impairment test, which is used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Goodwill recorded was $1.8 million at September 30, 2009 and September 27, 2008. As of September 30, 2009, the Company completed the first step impairment test for its goodwill. The fair value exceeded the related carrying value and, therefore, impairment of the related goodwill was not indicated.

i. Product Warranties

Estimated future warranty obligations related to certain products are provided by charges to operations in the period in which the related revenue is recognized. The Company establishes a reserve for warranty obligations based on its historical warranty experience.

j. Revenue Recognition

The Company sells its defense electronic products primarily to military prime contractors. A portion of the Company’s products are also sold through distributors or resellers. The Company recognizes revenue on product sales when persuasive evidence of an arrangement with the customer exists, title to the product passes to the customer (usually occurs at the time of shipment), the sales price is fixed or determinable, and collectability of the related billing is reasonably assured. Advance payments from customers are deferred and recognized when the related products are shipped. Revenue relating to products sold to distributors or resellers who either have return rights or where the Company has a history of accepting product returns are deferred and recognized when the distributor or reseller sells the product to the end customer. The Company also provides limited design services pursuant to related customer purchase orders and recognizes the associated revenue generally as such services are performed; however, it may be deferred until certain elements are completed.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company may from time to time enter into certain arrangements that contain multiple elements such as performing limited design services accompanied with follow-on manufacturing of related products. The Company allocates revenue to the elements based on relative fair value and recognizes revenue for each element when there is evidence of an arrangement, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Arrangements with multiple elements that are not considered separate units of accounting require deferral of revenue until certain other elements have been delivered or the services have been performed. The Company’s contracts with military prime contractors provide that they may be terminated at the convenience of the U.S. Government. Upon such termination, the Company is normally entitled to receive the purchase price for delivered items, reimbursement for allowable costs incurred and allocable to the contract and an allowance for profit on the allowable costs incurred or adjustment for loss if completion of performance would have resulted in a loss.

k. Shipping Costs

Shipping costs include charges associated with delivery of goods from the Company’s facilities to its customers and are reflected in cost of goods sold. Shipping costs paid to the Company by our customers are classified as revenue.

l. Research and Development

Research and development costs are expensed as incurred.

m. Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized, net of any valuation allowance, for deductible temporary differences and net operating loss and tax credit carry forwards. The Company regularly evaluates the ability to realize its deferred tax assets by assessing its forecasts of future taxable income and reviewing available tax planning strategies that could be implemented to realize the deferred tax assets. Based on this evaluation, it was determined that realization of the deferred tax assets is more likely than not.

n. Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the relatively short maturity of these items.

o. Earnings (Loss) per Share

Basic earnings (loss) per share are computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all rights or options to acquire common shares were exercised and issued.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A reconciliation of the numerator and denominator of basic and diluted earnings (loss) per share is as follows:

	Fiscal Year Ended
	September 30, 2009			September 27, 2008			September 29, 2007
Income from continuing operations	$	2,996,000		$	2,483,000		$	5,173,000
Loss from discontinued operations		(967,000	)		(8,470,000	)		(2,087,000	)
Net income (loss)	$	2,029,000		$	(5,987,000	)	$	3,086,000
Weighted average common shares outstanding — basic shares		22,875,371			22,509,796			23,574,852
Dilutive effect of stock options and restricted stock(1)		246,243			532,952			532,825
Weighted average common and common share equivalents outstanding — diluted shares		23,121,614			23,042,748			24,107,677
Basic EPS
Income per share from continuing operations	$	0.13		$	0.11		$	0.22
Loss per share from discontinued operations	$	(0.04	)	$	(0.38	)	$	(0.09	)
Net income (loss) per share	$	0.09		$	(0.27	)	$	0.13
Diluted EPS
Income per share from continuing operations	$	0.13		$	0.11		$	0.21
Loss per share from discontinued operations	$	(0.04	)	$	(0.37	)	$	(0.09	)
Net income (loss) per share	$	0.09		$	(0.26	)	$	0.13

(1) Shares excluded from the calculation of diluted earnings per share were 840,360, 933,264 and 807,389 for the fiscal years ended September 30, 2009, September 27, 2008 and September 29, 2007, respectively, as the exercise prices were greater than the average share prices for the periods.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

p. Stock-Based Compensation

Stock Options

The Company recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. The Company elected the modified prospective method of application, which requires the Company to recognize compensation expense on a prospective basis. Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining service period of awards that had been granted in prior periods. For the fiscal years ended September 30, 2009, September 27, 2008 and September 29, 2007, the Company recorded compensation expense of $388,000, $1,682,000 and $397,000, respectively. The compensation cost for share-based payment awards is included in selling, general and administrative expenses on our consolidated statements of operations.

Excess tax benefits (i.e. tax benefits resulting from share-based compensation deductions in excess of amounts reported for financial reporting purposes) are required to be reflected as financing cash inflows instead of operating cash inflows on our consolidated statements of cash flows. The Company reported cash flows from financing activities of $222,000, $16,000 and $56,000, respectively, for the fiscal years ended September 30, 2009, September 27, 2008 and September 29, 2007, respectively.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the Company’s stock option activity for fiscal year 2009 follows (in thousands, except per share amounts):

			Options Outstanding
	Options Available for Grant		Options Outstanding		Weighted Average Exercise Price per Share
Balance at September 27, 2008	723		2,051		$	4.84
Granted	(200	)	200		$	4.05
Other Grants(1)	(168	)	—		$	—
Exercised	—		(339	)	$	1.63
Canceled(2)	75		(80	)	$	6.40
Expired(3)	91		(102	)	$	6.97
Forfeited	38		(38	)	$	4.91
Other Forfeitures(1)	123		—		$	—
Balance at September 30, 2009	682		1,692		$	5.19

Weighted average fair value of all options granted during the period — $1.44

(1) Certain restricted stock units and performance shares were granted under the 1994 Employee Stock Option Plan (“1994 Option Plan”) during the period. Of these grants, 130,000 shares were granted as restricted stock and 37,500 shares were granted as performance shares. In addition, 122,500 performance shares granted under the 1994 Option Plan were forfeited. This activity serves to increase/decrease the number of shares available for grant, but is not presented as stock option activity. Refer to the sections “Restricted Stock” and “Performance Shares” for more information.

(2) 5,000 of the 80,000 canceled shares were associated with an expired stock option plan and therefore were not added back to options available for grant.

(3) 11,000 of the 102,000 expired shares were associated with an expired stock option plan and therefore were not added back to options available for grant.

The total pretax intrinsic value of options exercised during fiscal years 2009, 2008 and 2007 was approximately $0.8 million, $0.1 million and $0.2 million, respectively.

The total fair value of all options that vested during fiscal years 2009, 2008 and 2007 was approximately $0.1 million, $0.4 million and $0.3 million, respectively.

As of September 30, 2009, total compensation cost related to nonvested stock options not yet recognized was approximately $0.3 million, which is expected to be recognized over the next four years.

We recognize compensation expense using the straight-line method for stock option awards that vest ratably over the vesting period. The rate of forfeitures is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ significantly from those estimates.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Fiscal Years Ending
	September 30, 2009		September 27, 2008		September 29, 2007
Expected options term (years)	4.8		6.7		5.1
Risk free interest rate	2.7	%	3.4	%	4.3	%
Volatility	36	%	47	%	52	%
Dividend yield	0	%	0	%	0	%

The Company used historical volatility as the expected volatility in the Black-Scholes model. The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding. The risk-free interest rate assumption is based upon observed interest rates appropriate for the weighted average expected option life of the Company’s employee stock options. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Restricted Stock

The following table summarizes restricted stock unit activity for the year ended September 30, 2009 (in thousands, except per share amounts):

	Number of Restricted Stock Units		Weighted- Average Grant-Date Fair Value
Outstanding on September 27, 2008	100		$	5.08
Granted	212		$	3.70
Vested/Issued	(77	)	$	4.87
Forfeited	(15	)	$	4.66
Outstanding on September 30, 2009	220		$	3.85

The total fair value of all restricted stock units that vested during fiscal years 2009, 2008 and 2007 were approximately $0.4 million, $0.4 million and $0.1 million, respectively.

As of September 30, 2009, there was $0.5 million pre-tax of total restricted stock unit compensation expense related to nonvested awards not yet recognized, which is expected to be recognized over the next three years.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Performance Shares

The following table summarizes performance share activity for the year ended September 30, 2009 (in thousands, except per share amounts):

	Number of Performance Shares		Weighted- Average Grant-Date Fair Value
Outstanding on September 27, 2008	85		$	4.64
Granted	38		$	3.80
Vested/Issued	—		$	—
Forfeited	(123	)	$	4.38
Outstanding on September 30, 2009	—		$	—

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of September 30, 2009, no compensation expense related to nonvested performance share awards remained unrecognized.

q. Newly Issued Accounting Standards

The Financial Accounting Standards Board (“FASB”) has established the Accounting Standards Codification TM (“Codification” or “ASC”) as the single source of authoritative GAAP recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates, which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. GAAP is not intended to be changed as a result of the FASB’s Codification project, but it will change the way the guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the Codification in this Annual Report by providing a plain English approach when describing any new or updated authoritative guidance.

In December 2008, the FASB issued additional disclosure requirements for plan assets of defined benefit pension or other postretirement plans. Required disclosures provide information on how investment allocation decisions are made, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets and significant concentrations of risk within plan assets. These additional disclosures become effective for the Company in fiscal year 2010 beginning October 1, 2009. Their adoption does not change the accounting treatment for postretirement benefit plans.

In May 2009, the FASB issued general standards for the accounting and reporting of subsequent events that occur between the balance sheet date and issuance of financial statements. Issuers will be required to recognize the effects, if material, of subsequent events in the financial statements if the subsequent event provides additional evidence about conditions that existed as of the balance sheet date. The issuer must also disclose the date through which subsequent events have been evaluated and the nature of any nonrecognized subsequent events. Nonrecognized subsequent events include events that provide evidence about conditions that did not exist as of the balance sheet date, but which are of such a nature that they must be disclosed to keep the financial statements from being misleading. These new standards became effective for financial reporting periods ending after June 15, 2009. The adoption of them has had no material effect on the Company’s consolidated financial statements. The Company evaluated subsequent events through December 11, 2009, the date the financial statements were available to be issued.

3. INVENTORIES

Inventories consisted of the following (in thousands):

	September 30, 2009		September 27, 2008
Raw materials	$	9,719	$	10,129
Work-in-process		4,444		4,380
Finished goods		1,479		850
Total inventories	$	15,642	$	15,359

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Raw materials included approximately $0.4 million and $3.1 million at year end 2009 and 2008, respectively, for which the Company has received advance payment from the customer. These advance payments are recorded as deferred revenue until the finished goods are delivered.

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consisted of the following (in thousands):

	September 30, 2009			September 27, 2008
Land	$	247		$	247
Buildings and improvements		1,006			828
Machinery and equipment		14,636			12,987
Furniture and fixtures		4,794			3,792
Leasehold improvements		7,337			6,735
Construction in progress		1,168			331
Total, at cost		29,188			24,920
Less accumulated depreciation		(17,511	)		(14,783	)
Property, plant and equipment, net	$	11,677		$	10,137

Construction in progress typically represents either assets received but not yet in service or leasehold improvements not yet completed. Depreciation expense was $2.8 million, $2.5 million and $2.3 million for fiscal years 2009, 2008 and 2007, respectively.

5. OTHER ACCRUED EXPENSES

Other accrued expenses consisted of the following (in thousands):

	September 30, 2009		September 27, 2008
Sales commissions	$	431	$	469
Warranty reserve		296		42
Other accruals		819		749
Total other accrued expenses	$	1,546	$	1,260

The Company estimates potential warranty obligations for its products based on annual product sales and historical customer product return data. Based on this data, the Company records estimated warranty reserves and expense needed to account for the estimated cost of product returns.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes activity in the warranty reserve related to continuing operations for the fiscal years 2009, 2008 and 2007 (in thousands):

Warranty reserve at September 30, 2006	$	48
Provision for warranty claims		18
Warranty claims charged against the reserve		(5	)
Warranty reserve at September 29, 2007		61
Provision for warranty claims		30
Warranty claims charged against the reserve		(49	)
Warranty reserve at September 27, 2008		42
Provision for warranty claims		17
Reclassification from discontinued to continuing operations (see Note 13)		309
Warranty claims charged against the reserve		(72	)
Warranty reserve at September 30, 2009	$	296

6. LINE OF CREDIT

On March 31, 2009, the Company entered into a Third Modification Agreement to its revolving line of credit agreement with JPMorgan Chase Bank, N.A. (“Revolving Line of Credit Agreement”). The amendment reduced the line from $30.0 million to $10.0 million and made certain other adjustments to (i) the interest rates charged in connection with borrowings under the line of credit, (ii) the commitment fee charged on the unused portion of the line and (iii) certain financial covenants and restricted payments. The borrowings, if any, under the revolving line of credit bear interest at the lower of the London Interbank Offered Rate plus 2.5%, or the JPMorgan Chase Bank, N.A. “prime rate.” A commitment fee of 0.5% is charged on the unused portion of the line. The revolving line of credit expires on March 31, 2011. The Company is in compliance with all debt covenant requirements contained in the Revolving Line of Credit Agreement. As of September 30, 2009, there were no borrowings against the revolving line of credit, and the Company has not borrowed against any credit facility since April 2003.

7. INCOME TAXES

The provision for income taxes from continuing operations consists of the following (in thousands):

	2009			2008			2007
Current
Federal	$	(140	)	$	1,296		$	2,322
State		(55	)		72			223
Total current		(195	)		1,368			2,545
Deferred
Federal		1,364			59			(85	)
State		49			(289	)		(168	)
Total deferred		1,413			(230	)		(253	)
Income tax provision from continuing operations	$	1,218		$	1,138		$	2,292

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of total income tax expense (benefit), by classification, included in the accompanying consolidated statements of operations is as follows (in thousands):

	2009			2008			2007
Continuing operations	$	1,218		$	1,138		$	2,292
Discontinued operations		(246	)		(3,030	)		(1,722	)
Total income tax expense (benefit)	$	972		$	(1,892	)	$	570

A reconciliation of the income tax provision from continuing operations calculated at the U.S. federal statutory tax rate of 34% to the actual tax provision is as follows (in thousands):

	2009			2008			2007
Income tax provision at statutory rate	$	1,433		$	1,229		$	2,540
State taxes, net of federal benefit		114			111			343
Federal and state credits		(273	)		(204	)		(340	)
Extraterritorial income exclusion		—			—			(17	)
NOL expiration		61			—			—
Manufacturers’ deduction		—			—			(114	)
Reserve release		(168	)		—			—
Adjustments related to prior year accruals		—			(114	)		(172	)
Other		51			116			52
Income tax provision	$	1,218		$	1,138		$	2,292

The income tax effect of loss carry overs, tax credit carry overs and temporary differences between financial and tax reporting give rise to the deferred income tax assets and liabilities. Such deferred income tax assets and liabilities consisted of the following (in thousands):

	September 30, 2009			September 27, 2008
Deferred tax assets:
Tax credits	$	700		$	452
Allowance for doubtful accounts		17			27
Inventories		1,263			903
Deferred revenue		338			1,486
Accrued expenses and other liabilities		1,084			1,072
Pension		161			132
Net operating loss carry forwards		400			596
Contribution carryforward		9			—
Property, plant, and equipment		—			399
Deferred tax assets		3,972			5,067
Deferred tax liabilities:
Property, plant, and equipment		(243	)		(46	)
Intangible assets		(6	)		(6	)
Other		(159	)		(153	)
Deferred tax liabilities		(408	)		(205	)
Net deferred tax assets	$	3,564		$	4,862

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of September 30, 2009, the Company had federal net operating loss carry forwards of approximately $0.9 million, which expire at various dates through 2018. There were federal and state tax credit carry forwards of approximately $0.1 and $0.8 million, respectively, as of September 30, 2009, which expire at various dates through 2025.

Ownership changes, as defined in Internal Revenue Code Section 382, have limited the amount of net operating loss carry forwards that can be utilized by the Company annually to offset future taxable income and liability.

The Company uses 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. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both.

The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based on the technical merits, it is “more-likely-than-not” that the tax position will be sustained upon examination.

As of September 30, 2009, the Company has unrecognized tax benefits of $331,000, $240,000 of which would favorably impact the Company’s effective tax rate if subsequently recognized. As of September 27, 2008, the Company had unrecognized tax benefits of $424,000, $331,000 of which would favorably impact the Company’s effective tax rate if subsequently recognized. The Company does not anticipate a significant change in the total amount of unrecognized tax benefits during the next twelve months.

The Company’s policy is to recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of September 30, 2009, the Company has accrued $15,000 of interest related to uncertain tax positions. As of September 27, 2008, the Company had accrued $27,000 of interest related to uncertain tax positions.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in thousands):

	September 30, 2009			September 27, 2008
Balance at beginning of year	$	424		$	506
Additions based on tax positions related to the current year		88			58
Additions for tax positions of prior years		—			—
Reductions for tax positions of prior years		(2	)		—
Reductions for tax positions due to lapse of statutes of limitations or close of audit		(179	)		(140	)
Settlements		—			—
Balance at end of year	$	331		$	424

The Company and its subsidiaries are subject to the following significant taxing jurisdictions: U.S. federal, Arizona, Indiana, Ohio and Oregon. The statute of limitations for a particular tax year for examination by the Internal Revenue Service (“IRS”) is three years, and three to four years for the states of Arizona, Indiana, Ohio and Oregon. Accordingly, there are multiple years open to examination. In fiscal 2009, the IRS examined the Company’s tax returns for the years ended September 30, 2006 and September 27, 2007. In the fourth quarter of fiscal 2009, the Company received a no-change letter from the IRS. Accordingly, the reserves related to those tax years were released.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. BENEFIT PLANS

Defined Benefit Plan

The Company has a non-contributory pension plan for eligible union employees at its Fort Wayne, Indiana facility pursuant to a collective bargaining agreement. Benefits are based primarily on a benefits multiplier and years of service. The Company funds an amount equal to the minimum funding required plus additional amounts which may be approved by the Company from time to time. Contributions to the plan in fiscal years 2009 and 2008 were $0.5 million and $0.1 million, respectively. No contributions were made to the plan in fiscal year 2007.

The expected long-term rate of return on plan assets is updated annually taking into consideration the related asset allocation, historical returns on the types of assets held in the plan, and the current economic environment. Based on these factors, the Company expects its plan assets to earn a long-term rate of return of 7.00%. Actual year-by-year returns can deviate substantially from the long-term expected return assumption. However, over time it is expected that the amount of overperformance will equal the amount of underperformance. Changes in the mix of plan assets could impact the amount of recorded pension income or expense, the funded status of the plan and the need for future cash contributions. The discount rate used to calculate the expected present value of future benefit obligations as of September 30, 2009 was 5.67%. The Company periodically reviews the plan asset mix, benchmark discount rate, expected rate of return and other actuarial assumptions and adjusts them as deemed necessary.

The Company recognizes the funded status of its defined benefit postretirement plan as an asset or liability in its statement of financial position and recognizes changes in that funded status in comprehensive income in the year in which the changes occur. The funded status of a defined benefit pension plan is measured as the difference between plan assets at fair value and the plan’s projected benefit obligation.

Based on the projected benefit obligations of the Company’s defined benefit pension plan at September 30, 2009, the aggregate funded status of the Company’s defined benefit pension plan was $0.4 million underfunded.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows a reconciliation of changes in the plan’s benefit obligation and plan assets for the fiscal years ended September 30, 2009 and September 27, 2008, and a reconciliation of the funded status with amounts recognized in the Consolidated Balance Sheets as of September 30, 2009 and September 27, 2008 (in thousands).

	September 30, 2009			September 27, 2008
Change in Benefit Obligation
Benefit obligation at beginning of year	$	3,207		$	3,298
Service cost		54			51
Interest cost		236			206
Amendments		—			114
Actuarial gain (loss)		648			(259	)
Benefits paid		(238	)		(203	)
Benefit obligation at end of year	$	3,907		$	3,207
Change in Plan Assets
Fair value of plan assets at beginning of year	$	2,567		$	3,027
Actual return on plan assets		595			(362	)
Employer contributions prior to measurement date		549			105
Benefits paid		(238	)		(203	)
Fair value of plan assets at end of year	$	3,473		$	2,567
Funded Status	$	(434	)	$	(640	)
Amounts Recognized in the Consolidated Balance Sheets
Noncurrent liabilities	$	(434	)	$	(640	)
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
Net loss	$	355		$	126
Prior service cost		225			274
Total (before tax)	$	580		$	400

The accumulated benefit obligation for the defined benefit pension plan was $3.9 million at September 30, 2009 and $3.2 million at September 27, 2008.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of net periodic benefit cost and other amounts recognized in other accumulated comprehensive loss are as follows (in thousands):

	Fiscal Year Ended
	2009			2008			2007
Net periodic benefit cost
Service cost	$	64		$	61		$	81
Interest cost		236			206			189
Expected return on plan assets		(186	)		(209	)		(194	)
Amortization of prior service cost		49			49			36
Net periodic benefit cost	$	163		$	107		$	112
Additional Information
Increase (decrease) in minimum liability included in accumulated other comprehensive loss	$	—		$	126		$	(58	)

During the 2008/2009 plan year, the plan’s total unrecognized net loss increased by $0.2 million. The variance between the actual and expected return on plan assets during the 2008/2009 plan year decreased the total unrecognized net loss by $0.4 million. Because the total unrecognized net gain or loss is less than the greater of 10% of the projected benefit obligation or 10% of the plan assets, no amortization is necessary. As of November 22, 2008 the average expected future working lifetime of active plan participants was 8 years. Actual results for plan year 2009/2010 will depend on the 2009/2010 actuarial valuation of the plan.

The Company’s weighted-average assumptions used to determine net periodic benefit cost for the fiscal years ended September 30, 2009, September 27, 2008 and September 29, 2007 are as follows:

	September 30, 2009		September 27, 2008		September 29, 2007
Discount Rate	7.31	%	6.11	%	5.89	%
Expected return on plan assets	7.00	%	7.00	%	7.00	%

The change in unrecognized net gain/loss is one measure of the degree to which important assumptions have coincided with actual experience. During the 2008/2009 plan year, the unrecognized net loss increased by 7.1% of the November 22, 2008 projected benefit obligation. The Company changes important assumptions whenever changing conditions warrant. The discount rate is typically changed at least annually and the expected long-term rate of return on plan assets will typically be revised every three to five years. Other material assumptions include the rates of employee termination and rates of participant mortality.

The discount rate was determined by projecting the plan’s expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation. A 1% increase/decrease in the discount rate would have decreased/increased the net periodic benefit cost for 2008/2009 by $11,000 and decreased/increased the year-end projected benefit obligation by $345,000.

The expected return on plan assets was determined based on historical and expected future returns of the various asset classes, using the target allocations described below. Each 1% increase/decrease in the expected rate of return assumption would have decreased/increased the net periodic benefit cost for 2008/2009 by $27,000.

The expected long-term rate of return on pension assets is selected by taking into account the expected duration of the Projected Benefit Obligation (“PBO”) for the plan, and the asset mix of the plan. The rate of return is the rate to be earned over the period until the benefits represented by the current PBO are paid. The expected return on plan assets is based on the Company’s expectation of historical long-term average rates of return on the different asset

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

classes held in the pension fund. This is reflective of the current and projected asset mix of the funds and considers the historical returns earned on our asset allocation and the duration of the plan liabilities. Thus, the Company has taken a historical approach to the development of the expected return on asset assumption. The Company believes that fundamental changes in the markets cannot be predicted over the long-term. Rather, historical returns, realized across numerous economic cycles, should be representative of the market return expectations applicable to the funding of a long-term benefit obligation.

The Company’s pension plan asset allocations at September 30, 2009 and September 27, 2008 are as follows (in thousands):

	2009		2008
Cash and cash equivalents	$	—	$	103
Fixed income mutual funds		1,530		1,092
Equity mutual funds		1,943		1,365
Other		—		7
Total	$	3,473	$	2,567

In determining the asset allocation, our investment manager recognizes the Company’s desire for funding and expense stability, the long-term nature of the pension obligation and current and projected cash needs for retiree benefit payments. Based on the Company’s criteria, it determined the Company’s present target asset allocation to be approximately 50%-70% in equity securities and 30%-50% in debt securities. The pension fund is actively managed within the target asset allocation ranges.

The plan’s investment policy includes a mandate to diversify assets and invest in a variety of asset classes to achieve that goal. The plan’s assets are currently invested in a variety of funds representing most standard equity and debt security classes. While no significant changes in the asset allocation are expected during the upcoming year, the Company may make changes at any time.

As of September 30, 2009 and September 27, 2008, the Company’s pension plan assets did not hold any direct investment in the Company’s common stock.

The following estimated future benefit payments, including future benefit accrual, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

Period	Pension Benefits
2010	$	240
2011	$	245
2012	$	267
2013	$	263
2014	$	289
2015-2019	$	1,577

The Company expects to contribute approximately $0.3 million to the plan during fiscal 2010. Funding requirements for subsequent years are uncertain and will significantly depend on whether the plan’s actuary changes any assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements. While the current market conditions could have an adverse effect on our plan investments, any additional required contribution is not expected to have a material effect on our consolidated financial statements and we expect to fund such contributions from our cash balances and operating cash flows. For tax planning, financial planning, cash flow

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

management or cost reduction purposes, the Company may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

401(k) Plan

The Company has an Incentive Savings 401(k) Plan covering its non-union employees who have completed six months of service. During fiscal 2009, the Company matched employee contributions equal to 50% of the first 6% of the participants’ wage base. During fiscal 2009, 2008 and 2007, the Company made contributions to the plan of approximately $309,000, $464,000 and $474,000, respectively.

9. STOCK OPTIONS, WARRANTS, AND STOCK PURCHASE PLANS

Stock Option Plans

Executives and other key employees have been granted options to purchase common shares under stock option plans adopted during the period 1987 through 2001. The option exercise price equals the fair market value of the Company’s common stock on the date of the grant. Options generally vest ratably over a four-year period and have a maximum term of ten years.

The Company elected to adopt the alternative transition method for calculating the tax effects of stock-based compensation. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in-capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that were outstanding upon adoption.

A summary of the Company’s stock option activity and related information is as follows (in thousands, except for weighted average amounts):

	2009				2008				2007
	Shares Under Option		Weighted Average Exercise Price		Shares Under Option		Weighted Average Exercise Price		Shares Under Option		Weighted Average Exercise Price
Beginning balance outstanding	2,051		$	4.84	2,198		$	4.86	2,235		$	4.80
Granted	200		$	4.05	210		$	6.51	32		$	5.64
Exercised	(339	)	$	1.63	(82	)	$	3.57	(43	)	$	2.17
Canceled	(80	)	$	6.40	—		$	—	—		$	—
Expired	(102	)	$	6.97	(209	)	$	7.13	(9	)	$	5.93
Forfeited	(38	)	$	4.91	(66	)	$	4.94	(17	)	$	5.07
Ending balance outstanding	1,692		$	5.19	2,051		$	4.84	2,198		$	4.86
Options exercisable at year end	1,471		$	5.35	1,952		$	4.85	2,028		$	4.85
Shares available for future grant	682				723				868
Weighted average fair value of all options granted during the year			$	1.44			$	1.06			$	2.96

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2009 (in thousands, except years and per share amounts):

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life (in Years)	Weighted- Average Exercise Price per Share		Aggregate Intrinsic Value		Number Exercisable	Weighted- Average Remaining Contractual Life (in Years)	Weighted- Average Exercise Price per Share		Aggregate Intrinsic Value
$ 1.6001 - $ 3.2000	280	0.12	$	2.75			280		$	2.75
$ 3.2001 - $ 4.8000	665	4.71	$	4.02			444		$	3.96
$ 4.8001 - $ 6.4000	157	3.68	$	5.85			157		$	5.85
$ 6.4001 - $ 8.0000	483	3.49	$	6.97			483		$	6.97
$ 8.0001 - $ 9.6000	40	2.54	$	8.66			40		$	8.66
$ 9.6001 - $11.2000	65	0.85	$	10.59			65		$	10.59
$11.2001 - $12.8000	2	3.91	$	12.19			2		$	12.19
Total	1,692	3.30	$	5.19	$	932	1,471	2.36	$	5.35	$	820

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $4.62 on September 30, 2009, the last day of trading in the fiscal year, which would have been received by the option holders had all option holders exercised their in-the-money options as of that date. The total number of in-the-money options exercisable as of September 30, 2009 was 656,019.

Restricted Stock

Effective March 24, 2006, the White Electronic Designs Corporation 2006 Director Restricted Stock Plan (the “2006 Plan”) was approved by the shareholders. Under the 2006 Plan, new directors are granted an initial grant of 15,000 shares. Under the 2006 Plan, non-employee directors receive an annual grant of 7,500 shares in connection with the Annual Meeting of Shareholders. All grants vest ratably over a three-year period. The Company values these shares at fair value. On February 9, 2009, the Company granted 15,000 shares each to our new directors Brian Kahn and Melvin Keating at $4.01 per share. In connection with the grants issued at the Annual Meeting of Shareholders, the 52,500 shares granted on May 7, 2009 were valued at $4.40 per share and the 37,500 shares granted each on March 6, 2008 and March 7, 2007 were valued at $4.00 and $6.76 per share, respectively, the closing prices of the stock on the respective dates of grant.

In addition, on December 12, 2007, the Company’s compensation committee (the “Compensation Committee”) determined and approved an equity incentive program for certain executive officers, namely Hamid Shokrgozar, former President, Chairman and Chief Executive Officer; Dan Tarantine, Executive Vice President, Sales and Marketing; and Roger Derse, Vice President, Chief Financial Officer, Secretary and Treasurer (the “Executive Officers”), consisting of two types of equity compensation, restricted stock units (“RSUs”) and performance shares (discussed separately under “Performance Shares” below) (the “Equity Incentive Program”).

As part of the Equity Incentive Program, the Board of Directors granted and approved 50,000 RSUs for Mr. Shokrgozar and 25,000 RSUs for Mr. Derse. The RSUs vest over a two-year period, with 50% of each RSU award vesting on the first-year anniversary of the date of grant and the remaining 50% of each RSU award vesting upon the second-year anniversary of the date of grant. The Company values these shares at fair value. The 75,000 shares granted on December 12, 2007 were valued at $4.64, the closing price of the stock on the date of grant. Pursuant to the severance agreement between the Company and Mr. Shokrgozar (discussed separately below under “Severance Agreement”), 100% of Mr. Shokrgozar’s RSUs were vested as of September 27, 2008.

In fiscal 2009, the Compensation Committee granted and approved 50,000 RSUs for each of Messrs. Derse and Tarantine. The RSUs will vest over a two-year period, with 50% of each RSU award vesting on the first-year anniversary of the date of grant and the remaining 50% of each RSU award vesting upon the end of the second-year anniversary of the date of grant. Upon a “Change In Control” of the Company (as such term is defined in each of

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

their respective employment agreements), each RSU award will automatically and fully vest. In addition, given the similar positions of responsibility, on December 12, 2008, Mr. Tarantine was granted an additional 25,000 RSUs to match Mr. Derse’s earlier award, of which 50% immediately vested. The remaining 50% will vest on the first-year anniversary of the date of grant. The Company values these shares at fair value. The 100,000 shares granted on December 10, 2008 were valued at $3.27 per share and the 25,000 shares granted on December 12, 2008 were valued at $3.39 per share, the closing prices of the stock on the respective dates of grant.

On June 16, 2009, the Company accepted the resignation of its founder and former Chairman of the Board, Edward A. White. As part of his severance and release agreement, Mr. White’s 15,000 unvested RSUs previously granted immediately accelerated and became fully vested. These 15,000 shares were valued at $4.74 per share, the closing price of the stock on June 16, 2009, resulting in an incremental expense of approximately $51,000.

Performance Shares

As mentioned above, on December 12, 2007, the Compensation Committee granted and approved certain performance share awards. The performance share awards vest over a two-year period, subject to certain performance criteria of the Company. If the Company achieved an annual EBITDA amount that was 20% greater than the fiscal year 2008 base case set by the Compensation Committee, based on a fiscal year 2008 forecast approved by the Board of Directors (the “Performance Share Target”), then each Executive Officer would vest in an award as follows: (i) Mr. Shokrgozar — 100,000 performance shares, (ii) Mr. Derse — 25,000 performance shares, and (iii) Mr. Tarantine — 10,000 performance shares. If the Company achieved 90% of the Performance Share Target, then 50% of such performance share awards applicable to each Executive Officer would vest.

Under this Equity Incentive Program, in the event that no performance shares vested in fiscal 2008, the Executive Officers have the same opportunity to achieve the performance criteria in fiscal 2009; provided, however, if the Company achieved 90% of the Performance Share Target in fiscal 2008 and 50% of such performance share awards were vested, then the Company must achieve 100% of the Performance Share Target in fiscal 2009 to vest in the remaining 50% of each performance share award to each Executive Officer. Upon a “Change in Control” of the Company (as such term is defined in the 1994 Plan), each performance share award will automatically and fully vest regardless of the achievement of the Performance Share Target. The Company valued these shares at fair value. The 135,000 shares granted on December 12, 2007 were valued at $4.64 per share, the closing price of the stock on the date of grant.

The Company did not achieve 90% of the Performance Share Target in fiscal 2008. Pursuant to the severance agreement between the Company and Mr. Shokrgozar (discussed separately below under “Severance Agreement”) 50% of Mr. Shokrgozar’s performance shares were vested as of September 27, 2008. Additionally, in January 2009, the 35,000 performance shares granted to Mr. Derse and Mr. Tarantine on December 12, 2007 were cancelled due to significant changes in the business and senior management. A new performance share grant was approved on January 21, 2009 for fiscal year 2009 by the Compensation Committee. If the Company achieved the approved annual EBITDA amount in fiscal 2009, then Messrs. Derse and Tarantine would each receive 18,750 performance shares. If the Company achieved 90% of the approved annual EBITDA, then 12,500 shares would be awarded to each of Messrs. Derse and Tarantine. If the Company achieved 110% of the approved annual EBITDA, then 25,000 shares would be awarded to each. Upon a “Change in Control” of the Company (as such term is defined in each of their respective employment agreements) each performance share award would be automatically granted and fully vested regardless of the achievement of the EBITDA target. The 37,500 shares granted on January 21, 2009 were valued at $3.80 per share, the closing price of the stock on the date of grant. The Company did not achieve any of the performance targets set for fiscal years 2008 or 2009. All performance share awards were forfeited and none remained outstanding as of September 30, 2009.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Severance Agreement

On August 28, 2008, the Company accepted the resignation of Mr. Shokrgozar, from his positions as the Company’s Chairman of the Board, President and Chief Executive Officer and as a member of the Company’s Board of Directors. The Company also entered into a Severance Agreement and Release of Claims with Mr. Shokrgozar on August 28, 2008 (the “Severance Agreement”) that governed the terms of his departure and that provided, in exchange for a general release by Mr. Shokrgozar, for the following:

• The Company paid Mr. Shokrgozar a lump-sum $1,600,000 severance payment, plus any accrued and unused vacation pay less required withholdings;

• The Company shall pay for eighteen (18) months of the Company’s portion of Mr. Shokrgozar’s COBRA premium. Following such period, until December 13, 2010, the Company shall pay Mr. Shokrgozar an amount equal to the Company’s portion of Mr. Shokrgozar’s COBRA premium in order for Mr. Shokrgozar to secure health insurance of his choice; provided that such payments shall cease if, during the COBRA period or thereafter, Mr. Shokrgozar is then covered by reasonably equivalent or superior health insurance provided by any subsequent employer. In addition, the Company shall continue to provide Mr. Shokrgozar with up to $4,000 per year for unreimbursed medical expenses and with the auto allowance and the disability and life benefits he was receiving from the Company as of the termination date until December 13, 2010;

• The Company reimbursed Mr. Shokrgozar for reasonable attorneys’ fees incurred in connection with the Severance Agreement, in the maximum amount of $50,000 and the Company will provide outplacement services for Mr. Shokrgozar for a period not to exceed 18 months in the maximum amount of $50,000;

• The Company and Mr. Shokrgozar agreed to the following concerning outstanding grants of stock options, RSUs and performance shares:

• The following vested stock options: (i) 125,000 shares granted on November 10, 1999; (ii) 125,000 shares granted on November 10, 1999; (iii) 150,000 shares granted on May 16, 2001 and (iv) 150,000 shares granted on December 15, 2004 will terminate, if not exercised, on their respective expiration dates (i.e., November 10, 2009, November 10, 2009, May 16, 2011, and December 15, 2014, respectively);

• The vested stock options to acquire 150,000 shares granted on December 3, 1998 terminated, as they were not exercised on the 90th day following the termination date;

• The vested stock options to acquire 150,000 shares granted on November 30, 2000 terminated on August 28, 2008;

• The Company granted to Mr. Shokrgozar an option to acquire 150,000 shares of the Company’s Common Stock at an exercise price of $7.25 per share, an expiration date of November 30, 2010, and with such other terms as are contained in the Company’s standard form of option agreement;

• The 50,000 shares of restricted stock granted to Mr. Shokrgozar pursuant to that certain Restricted Stock Units Award Agreement dated December 12, 2007 vested on September 5, 2008;

• One-half (50,000 shares) of the performance shares granted to Mr. Shokrgozar pursuant to that certain Performance Share Award Agreement dated December 12, 2007 vested on September 5, 2008;

• One-half (50,000 shares) of the performance shares granted to Mr. Shokrgozar pursuant to that certain Performance Share Award Agreement dated December 12, 2007 were forfeited as the Company’s EBITDA for the fiscal year ended in 2009 did not equal or exceed $9,960,000; and

• Any other unvested right to receive Company stock terminated on August 28, 2008.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. COMMITMENTS AND CONTINGENCIES

The Company leases certain property and equipment under non-cancelable lease agreements, some of which include renewal options, of up to ten years. Total rent expense related to continuing operations was approximately $1.2 million for each of fiscal years 2009, 2008 and 2007. Future minimum annual fixed rentals required under non-cancelable operating leases having an original term of more than one year are approximately $0.9 million for each of the fiscal years 2010, 2011, 2012 and 2013; $1.0 million for 2014; and $0.8 million thereafter.

As part of mergers, acquisitions and other transactions entered into during the ordinary course of business (including public offerings of our stock), from time to time, the Company has indemnified certain sellers, buyers or other parties related to the transaction from and against certain liabilities associated with conditions in existence (or claims associated with actions taken) prior to the closing of the transaction. These indemnity provisions generally require the Company to indemnify the party against certain liabilities that may arise in the future from the pre-closing activities of the Company. The indemnity classifications include certain operating liabilities, such as patent infringement, claims existing at closing, or other obligations. Given the nature of these indemnity obligations, it is not possible to estimate the maximum potential exposure. We do not consider any of such obligations as having a probable likelihood of payment that is reasonably estimable, and accordingly, we have not recorded any obligations associated with these indemnities.

In addition, from time to time, the Company is subject to claims and litigation incident to its business. There are currently no such pending proceedings to which the Company is a party that the Company believes will have a material adverse effect on the Company’s consolidated results of operations, liquidity, or financial condition.

11. CONCENTRATIONS OF CREDIT RISK

Our customers consist mainly of military prime contractors and contract manufacturers who work for them, in the United States, Europe and Asia. We perform ongoing credit evaluations of our customers’ financial condition and, generally, require no collateral from our customers. Our write-offs of bad debts were $85,000 in fiscal 2009, $0 in fiscal 2008, and $1,000 in fiscal 2007.

Utexam Logistics (supplying BAE Systems PLC), Raytheon and L-3 Communications accounted for approximately $7.2 million, $6.0 million and $6.0 million, or 12%, 10% and 10%, respectively, of our fiscal 2009 total net sales. In fiscal 2008, L-3 Communications and Arrow Electronics accounted for approximately $7.7 million and $6.6 million, or 14% and 12%, respectively, of total net sales. Arrow Electronics accounted for approximately $5.9 million, or 11%, of total net sales in fiscal 2007. Foreign sales for fiscal 2009, 2008 and 2007 were approximately $19.5 million, $16.6 million and $18.2 million, respectively. Additional information concerning sales by geographic area can be found in Note 14.

12. SHAREHOLDERS’ RIGHTS PLAN

On December 6, 1996, the Board of Directors adopted a shareholders’ rights plan to protect shareholders against unsolicited attempts to acquire control of the Company. It was not intended to prevent a takeover of the Company on terms that are favorable and fair to all shareholders and would not interfere with mergers or other transactions approved by the Board of Directors. On November 30, 2006, the Board of Directors approved Amendment No. 2 to the rights plan. On August 11, 2009, an amendment, approved by the Board of Directors, terminated the rights plan.

13. DISCONTINUED OPERATIONS

On March 28, 2008, the Board of Directors authorized the disposal of the Interface Electronics Division (“IED”) and the commercial microelectronic product lines. On September 26, 2008, the Board of Directors authorized the disposal of the Display Systems Division (“DSD”). These decisions resulted from an effort to streamline the Company’s businesses to focus on product lines where the Company has superior technical

knowledge, specialized manufacturing capabilities and an ongoing commitment to research and development. The Company believes this course of action has and will continue to increase shareholder value and allow it to focus on growing its business. As a result of its decision to dispose of these businesses, the Company has accounted for them as discontinued operations in the accompanying consolidated financial statements. It ceased depreciation of the assets of discontinued operations upon committing to the disposal plans.

On April 3, 2009, the Company completed the sale of DSD to the U.S. subsidiary of VIA optronics GmbH, a German company (“VIA”). The Company sold the operating assets of DSD, primarily consisting of inventory, equipment and intellectual property, for approximately $2.3 million. As of the date of sale, other non-operating net assets of approximately $0.9 million, consisting primarily of accounts receivable and residual liabilities, were retained to be settled in the normal course of business. Other non-operating liabilities of ($0.3) million remained as of September 30, 2009. These non-operating net assets (liabilities) are included as part of continuing operations. During the second quarter of fiscal 2009, the Company also completed the disposition of its commercial microelectronic product lines. The Company recorded a loss on sale of discontinued operations of ($0.7) million, net of tax, on these two disposals during fiscal year 2009.

During the third quarter of fiscal 2009, the Company concluded that there was a change in the plan for the disposal of IED and that, rather than one disposal group, there were to be three disposal groups. The Company sold a group of assets of IED, primarily equipment and a patent, in the third quarter of fiscal 2009. The second group of IED, which consisted of the remaining equipment, was disposed of in the fourth quarter of fiscal 2009. Land and the building comprise the third disposal group of IED, which is expected to be sold in fiscal 2010. All production and shipments by IED were completed in the third quarter of fiscal 2009. The Company recorded a total gain on sale of discontinued operations of $0.1 million, net of tax, on these disposals during fiscal year 2009.

The discontinued operations generated $14.4 million in revenues in fiscal 2009 compared to $40.1 million in fiscal 2008 and $52.2 million in fiscal 2007. Gross profit for discontinued operations for fiscal 2009 was $3.2 million, or 22%, compared to $5.4 million, or 14%, in fiscal 2008 and $8.6 million, or 16%, in fiscal 2007. Loss from discontinued operations, net of tax was ($0.3) million in fiscal 2009 compared to ($5.0) million in fiscal 2008 and ($2.1) million in fiscal 2007. The lower loss in fiscal 2009 was due to the final disposition of DSD and the commercial microelectronics product lines in fiscal 2009, as well as the last time buys for IED. Loss on sale of discontinued operations, net of tax was ($0.6) million, in fiscal 2009 compared to a loss of ($3.5) million in fiscal 2008 and $0 in fiscal 2007.

At September 30, 2009, the Company had entered into a contract to sell the land and building for $636,000. The closing is expected to occur in December 2009.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loss from discontinued operations consists of direct revenues and direct expenses of the commercial microelectronic product lines, the IED and the DSD businesses. General corporate overhead costs have not been allocated to discontinued operations. A summary of the operating results included in discontinued operations in the accompanying consolidated statements of operations is as follows:

	Year Ended
	September 30, 2009			September 27, 2008			September 29, 2007
Net sales	$	14,369		$	40,062		$	52,166
Cost of sales		11,143			34,620			43,612
Gross profit		3,226			5,442			8,554
Total operating expenses		3,461			11,384			12,363
Loss from operations before income taxes		(235	)		(5,942	)		(3,809	)
Benefit from (provision for) income taxes		(109	)		987			1,722
Loss from discontinued operations, net of tax		(344	)		(4,955	)		(2,087	)
Loss on sale of discontinued operations, net of tax		(623	)		(3,515	)		—
Loss from discontinued operations	$	(967	)	$	(8,470	)	$	(2,087	)

A summary of the assets and liabilities related to the discontinued operations of the commercial microelectronic, IED and DSD product lines classified as assets held for sale and liabilities related to assets held for sale in the accompanying consolidated balance sheets is as follows:

	September 30, 2009		September 27, 2008
Assets held for sale (current):
Accounts receivable, net	$	174	$	5,618
Inventories		—		4,607
Deferred income taxes and prepaid expenses		—		2,443
Total	$	174	$	12,668
Assets held for sale (long-term):
Property, plant and equipment, net	$	486	$	1,326
Deferred income taxes		310		286
Other assets		—		50
Total	$	796	$	1,662
Liabilities related to assets held for sale (current):
Accounts payable	$	26	$	1,418
Accrued expenses		317		856
Deferred income taxes		9		—
Deferred revenue		—		53
Total	$	352	$	2,327
Liabilities related to assets held for sale (long-term):
Deferred income taxes	$	—	$	32
Other long-term liabilities		—		69
Total	$	—	$	101

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. GEOGRAPHICAL INFORMATION

A significant portion of the Company’s net sales were shipped to foreign customers. Export sales as a percent of total net sales in fiscal 2009, 2008 and 2007 were 31%, 30% and 35%, respectively. A summary of net sales by geographic region is as follows (in thousands of dollars):

	2009		2008		2007
United States of America	$	43,091	$	39,728	$	33,899
Europe and Middle East		12,240		8,457		9,279
Asia Pacific		6,338		6,544		7,473
Other		890		1,626		1,422
Total Net Sales	$	62,559	$	56,355	$	52,073

15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

	Fiscal 2009
	Year			Sep 30			Jul 4			Apr 4			Jan 3
	(In thousand of dollars, except per share data)
Net sales	$	62,559		$	15,524		$	16,620		$	17,120		$	13,295
Gross profit	$	24,566		$	5,822		$	6,148		$	7,293		$	5,303
Income from continuing operations before income taxes	$	4,214		$	1,079		$	757		$	1,735		$	643
Income from continuing operations	$	2,996		$	1,000		$	350		$	1,153		$	493
Income (loss) from discontinued operations		(967	)		(157	)		(126	)		(1,017	)		333
Net income	$	2,029		$	843		$	224		$	136		$	826
Income from continuing operations per common share:
Basic	$	0.13		$	0.04		$	0.02		$	0.05		$	0.02
Diluted	$	0.13		$	0.04		$	0.02		$	0.05		$	0.02
Income (loss) from discontinued operations per common share:
Basic	$	(0.04	)	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	0.01
Diluted	$	(0.04	)	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	0.01
Net income per common share:
Basic	$	0.09		$	0.04		$	0.01		$	0.01		$	0.04
Diluted	$	0.09		$	0.04		$	0.01		$	0.01		$	0.04

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Fiscal 2008
	Year			Sep 27			Jun 28			Mar 29			Dec 29
	(In thousand of dollars, except per share data)
Net sales	$	56,355		$	14,855		$	14,807		$	14,605		$	12,088
Gross profit	$	22,897		$	6,008		$	6,450		$	5,927		$	4,512
Income (loss) from continuing operations before income taxes	$	3,621		$	(1,189	)	$	2,165		$	1,973		$	672
Income (loss) from continuing operations	$	2,483		$	(1,094	)	$	1,698		$	1,323		$	556
Loss from discontinued operations		(8,470	)		(1,536	)		(3,727	)		(2,890	)		(317	)
Net income (loss)	$	(5,987	)	$	(2,630	)	$	(2,029	)	$	(1,567	)	$	239
Income (loss) from continuing operations per common share:
Basic	$	0.11		$	(0.05	)	$	0.08		$	0.06		$	0.02
Diluted	$	0.11		$	(0.05	)	$	0.07		$	0.06		$	0.02
Loss from discontinued operations per common share:
Basic	$	(0.38	)	$	(0.07	)	$	(0.17	)	$	(0.13	)	$	(0.01	)
Diluted	$	(0.37	)	$	(0.07	)	$	(0.16	)	$	(0.13	)	$	(0.01	)
Net income (loss) per common share:
Basic	$	(0.27	)	$	(0.12	)	$	(0.09	)	$	(0.07	)	$	0.01
Diluted	$	(0.26	)	$	(0.12	)	$	(0.09	)	$	(0.07	)	$	0.01

Schedule II

White Electronic Designs Corporation and Subsidiaries

Valuation and Qualifying Accounts and Reserves

The following reserve related to continuing operations was deducted in the balance sheet from the asset to which applicable (in thousands of dollars):

Fiscal Year Ended	Balance at Beginning of Period		Charged/ (Credited) to Costs and Expenses			Reclassification from Discontinued to Continuing Operations		Deductions			Balance at End of Period
Accounts Receivable
September 30, 2009	$	74	$	(79	)	$	137	$	(85	)	$	47
September 27, 2008	$	46	$	28		$	—	$	—		$	74
September 29, 2007	$	52	$	(5	)	$	—	$	(1	)	$	46

EX-99.3

Exhibit 99.3

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

	December 31, 2009			September 30, 2009
ASSETS
Current Assets
Cash and cash equivalents	$	65,387		$	64,170
Accounts receivable, less allowance for doubtful accounts of $196 and $47		10,747			10,136
Inventories		14,054			15,642
Prepaid expenses and other current assets		3,965			3,607
Deferred income taxes		2,563			2,464
Assets held for sale		—			174
Total Current Assets		96,716			96,193
Property, plant and equipment, net		10,992			11,677
Deferred income taxes		1,145			1,100
Goodwill		1,764			1,764
Other assets		67			67
Assets held for sale		—			796
Total Assets	$	110,684		$	111,597
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	2,350		$	3,823
Accrued salaries and benefits		1,353			1,874
Other accrued expenses		1,439			1,546
Deferred revenue		1,048			923
Liabilities related to assets held for sale		—			352
Total Current Liabilities		6,190			8,518
Accrued pension liability		412			434
Other liabilities		743			755
Total Liabilities		7,345			9,707
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, 1,000,000 shares authorized, no shares issued		—			—
Common stock, $0.10 stated value, 60,000,000 shares authorized, 25,835,426 and 25,464,726 shares issued		2,583			2,546
Treasury stock, 2,530,154 and 2,464,371 shares, at par		(253	)		(247	)
Additional paid-in capital		84,782			83,686
Retained earnings		16,580			16,270
Accumulated other comprehensive loss		(353	)		(365	)
Total Shareholders’ Equity		103,339			101,890
Total Liabilities and Shareholders’ Equity	$	110,684		$	111,597

The accompanying notes are an integral part of these condensed consolidated financial statements.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

	Three Months Ended
	December 31, 2009			January 3, 2009
Net sales	$	15,568		$	13,295
Cost of sales		9,817			7,992
Gross profit		5,751			5,303
Operating expenses:
Selling, general and administrative		4,072			3,791
Research and development		1,228			1,116
Impairment loss		345			—
Total operating expenses		5,645			4,907
Operating income		106			396
Interest income		77			247
Income from continuing operations before income taxes		183			643
Provision for income taxes		(56	)		(150	)
Income from continuing operations		127			493
Discontinued operations (Note 10):
Income from discontinued operations, net of tax		—			332
Gain on sale of discontinued operations, net of tax		183			—
Income from discontinued operations		183			332
Net income	$	310		$	825
Income from continuing operations per common share:
Basic	$	0.01		$	0.02
Diluted	$	0.01		$	0.02
Income from discontinued operations per common share:
Basic	$	0.01		$	0.01
Diluted	$	0.01		$	0.01
Net income per common share:
Basic	$	0.01		$	0.04
Diluted	$	0.01		$	0.04
Weighted average number of common shares and equivalents:
Basic		23,116,201			22,754,984
Diluted		23,353,343			23,015,291

The accompanying notes are an integral part of these condensed consolidated financial statements.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended
	December 31, 2009			January 3, 2009
OPERATING ACTIVITIES:
Income from continuing operations	$	127		$	493
Adjustments to reconcile income from continuing operations to net cash (used in) provided by operating activities:
Depreciation		794			643
Impairment loss		345			—
Deferred income tax		(72	)		(154	)
Loss on disposition of property, plant, and equipment		4			—
Stock-based compensation expense related to employee stock awards		139			170
Tax benefit related to stock awards		157			243
Excess tax benefits from stock-based compensation		(24	)		(188	)
Pension costs		(10	)		28
Net changes in balance sheet accounts:
Accounts receivable		(611	)		2,145
Inventories		1,588			(88	)
Prepaid expenses and other current assets		(358	)		(617	)
Accounts payable		(1,574	)		843
Accrued expenses and deferred revenue		(549	)		(494	)
Other long-term liabilities		(12	)		1
Net cash (used in) provided by operating activities		(56	)		3,025
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment		(357	)		(680	)
Net cash used in investing activities		(357	)		(680	)
FINANCING ACTIVITIES:
Common stock issued for exercise of options and restricted stock		831			280
Excess tax benefits from stock-based compensation		24			188
Net cash provided by financing activities		855			468
Net change in cash and cash equivalents from continuing operations		442			2,813
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash provided by operating activities		217			3,146
Net cash provided by (used in) investing activities		558			(36	)
Net change in cash and cash equivalents from discontinued operations		775			3,110
Net change in cash and cash equivalents		1,217			5,923
Cash and cash equivalents at beginning of period		64,170			52,604
Cash and cash equivalents at end of period	$	65,387		$	58,527
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Transfer of accrued liabilities from liabilities related to assets held for sale to continuing operations	$	46		$	—
Transfer of deferred tax asset from assets held for sale to continuing operations	$	72		$	—
Acquisition of property, plant and equipment in accounts payable	$	101		$	86

The accompanying notes are an integral part of these condensed consolidated financial statements.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. INTERIM FINANCIAL INFORMATION

Unless the context otherwise requires, the term “Company,” “we,” “us,” or “our” refers to White Electronic Designs Corporation. The condensed consolidated balance sheet as of December 31, 2009, the condensed consolidated statements of operations for the three months ended December 31, 2009 and January 3, 2009, and the condensed consolidated statements of cash flows for the three months ended December 31, 2009 and January 3, 2009 have been prepared by the Company and are unaudited. The condensed consolidated balance sheet as of September 30, 2009 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2009.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the interim periods presented. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009. The results of operations for the three months ended December 31, 2009 are not necessarily indicative of the operating results for the full year.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as net sales and expenses reported for the periods presented. The most significant estimates relate to revenue recognition, inventory obsolescence, bad debts, long-lived assets, stock-based compensation, warranty, income taxes and the gain or loss on the sale of discontinued operations. The Company regularly assesses these estimates and, while actual results may differ, management believes that the estimates are reasonable.

During fiscal 2008, the Company made a strategic decision to exit all commercial electronics markets and focus its operation in the defense electronics market where the Company has superior technical knowledge, specialized manufacturing capabilities and an ongoing commitment to research and development. As a result of this decision, during fiscal 2009, the Company disposed of its operations in the Interface Electronics Division (“IED”), commercial microelectronic product lines and Display System Division (“DSD”). All three operations are being reported as discontinued operations and the assets and liabilities of the discontinued operations are classified as assets and liabilities held for sale.

2. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by giving effect to all potential dilutive common shares that were outstanding during the period unless they are antidilutive. Potential dilutive common shares consist of the incremental common shares that would be issued upon exercise of stock awards.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows:

	Three Months Ended
	December 31, 2009		January 3, 2009
Income from continuing operations	$	127,000	$	493,000
Income from discontinued operations		183,000		332,000
Net income	$	310,000	$	825,000
Weighted average common shares outstanding — basic shares		23,116,201		22,754,984
Dilutive effect of stock options and restricted stock (1)		237,142		260,307
Weighted average common and common share equivalents outstanding — diluted shares		23,353,343		23,015,291
Basic EPS
Income per share from continuing operations	$	0.01	$	0.02
Income per share from discontinued operations	$	0.01	$	0.01
Net income per share	$	0.01	$	0.04
Diluted EPS
Income per share from continuing operations	$	0.01	$	0.02
Income per share from discontinued operations	$	0.01	$	0.01
Net income per share	$	0.01	$	0.04

(1) Shares excluded from the calculation of Diluted EPS were 799,632 and 1,450,830 for the three months ended December 31, 2009 and January 3, 2009, respectively, as the exercise prices were greater than the average share prices for the periods.

3. INVENTORIES

Inventories consisted of the following (in thousands):

	December 31, 2009		September 30, 2009
Raw materials	$	8,516	$	9,719
Work-in-process		4,335		4,444
Finished goods		1,203		1,479
Total inventories	$	14,054	$	15,642

Raw materials included approximately $0.4 million at December 31, 2009 and September 30, 2009 for which the Company has received advance payment from customers. These advance payments are recorded as deferred revenue until the finished goods are delivered.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. PROPERTY, PLANT, AND EQUIPMENT, NET

Property, plant, and equipment consisted of the following (in thousands):

	December 31, 2009			September 30, 2009
Land	$	179		$	247
Buildings and improvements		762			1,006
Machinery and equipment		15,376			14,636
Furniture and fixtures		4,837			4,794
Leasehold improvements		7,362			7,337
Construction in progress		724			1,168
Total, at cost		29,240			29,188
Less accumulated depreciation		(18,248	)		(17,511	)
Property, plant, and equipment, net	$	10,992		$	11,677

Construction in progress typically represents either assets received and not yet in service or leasehold improvements not yet completed. Depreciation expense was $0.8 million and $0.6 million for the three months ended December 31, 2009 and January 3, 2009, respectively.

During the three months ended December 31, 2009, the Company experienced a loss from operations on its electromechanical assembly product line, which represents its Ft. Wayne, Indiana operations. Based on current and projected market factors, an impairment analysis was performed. The estimated undiscounted future cash flows generated by this asset group were less than its carrying value. The carrying values of the property, plant and equipment were reduced to estimated fair value. As a result, during the three months ended December 31, 2009, the Company recorded a pre-tax impairment charge of $0.3 million. The Company estimated the fair value based upon our assumptions that market participants would use in pricing the assets.

5. OTHER ACCRUED EXPENSES

Other accrued expenses consisted of the following major categories (in thousands):

	December 31, 2009		September 30, 2009
Sales commissions		463		431
Warranty reserve		297		296
Professional fees		463		617
Other accruals		216		202
Total other accrued expenses	$	1,439	$	1,546

The Company estimates potential warranty obligations for its products based on annual product sales and historical customer product claims data. Based on this data, the Company records estimated warranty reserves and expense needed to account for the estimated cost of product returns.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes activity in the warranty reserve (in thousands):

	Three Months Ended
	December 31, 2009			January 3, 2009
Warranty reserve, beginning of period	$	296		$	42
Net provision for warranty claims		(29	)		10
Reclassification from discontinued to continuing operations (Note 10)		31			—
Warranty claims charged against the reserve		(1	)		(6	)
Warranty reserve, end of period	$	297		$	46

In connection with the sale of DSD, $0.3 million of warranty reserve was retained by the Company and reclassified to continuing operations as of April 3, 2009. During the three months ended December 31, 2009, the Company reduced the DSD warranty provision by $53,000 due to the expiration of the warranty period.

6. CREDIT FACILITY

On March 31, 2009, the Company entered into a Third Modification Agreement to its revolving line of credit agreement with JPMorgan Chase Bank, N.A. (“Revolving Line of Credit”). The amendment reduced the amount available under this line of credit from $30.0 million to $10.0 million and made certain other adjustments to (i) the interest rates charged in connection with borrowings under the line of credit, (ii) the commitment fee charged on the unused portion of the line and (iii) certain financial covenants and restricted payments. The borrowings, if any, under the Revolving Line of Credit bear interest at the lower of the London Interbank Offered Rate (“LIBOR”) plus 2.5%, or the JPMorgan Chase Bank, N.A. “prime rate.” A commitment fee of 0.5% is charged on the unused portion of the line. The Revolving Line of Credit expires on March 31, 2011. The Company is in compliance with all debt covenant requirements related to this Revolving Line of Credit. As of December 31, 2009, there were no borrowings against the Revolving Line of Credit. The Company has not borrowed against any credit facility since April 2003.

7. STOCK-BASED COMPENSATION

At December 31, 2009, the Company had share-based employee compensation plans which are described in Notes 2 and 9 of the consolidated financial statements included in our Annual Report on Form 10-K for the year ended September 30, 2009. Option awards are granted with an exercise price equal to the market price of our stock at the date of grant. We recognize stock compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. For the three months ended December 31, 2009 and January 3, 2009, the Company recorded compensation expense of $139,000 and $170,000, respectively. The compensation cost for share-based payment awards is included in selling, general and administrative expenses on the consolidated statements of operations. There were no stock option grants during the three months ended December 31, 2009 and January 3, 2009. The Company granted 15,000 restricted stock units on November 6, 2009 to its new director Kenneth J. Krieg which will vest over three years.

8. INCOME TAXES

The Company’s effective tax rate differs from the federal statutory tax rate of 34% due to the incremental impact of state income taxes offset by a reduction for the manufacturer’s deduction and research and development tax credit currently available for federal and state income tax purposes. The Company’s effective tax rate was 31% and 23% for the three months ended December 31, 2009 and January 3, 2009, respectively. The increase in the effective rate is primarily due to the benefit recorded in the three months ended January 3, 2009 for the reinstatement of the research and development credit. The research and development credit expired on December 31, 2007 and was retroactively reinstated on October 3, 2008. The credit again expired December 31, 2009. Accordingly, we recorded a benefit of $72,000 in the three months ended January 3, 2009 for this reinstatement back to January 1, 2008. Additionally, our fiscal 2010 provision only includes one quarter of our expected annual credit.

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company uses 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. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based on technical merits, it is “more likely than not” that the tax position will be sustained upon examination.

As of December 31, 2009, the Company had unrecognized tax benefits of $339,000, $246,000 of which would favorably impact the Company’s effective tax rate if subsequently recognized. As of September 30, 2009, the Company had unrecognized tax benefits of $331,000, $240,000 of which would favorably impact the Company’s effective tax rate if subsequently recognized. The Company does not anticipate a significant change in the total amount of unrecognized tax benefits during the next twelve months.

The Company’s policy is to recognize potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2009, the Company had accrued $16,000 of interest related to uncertain tax positions. As of September 30, 2009, the Company had accrued $15,000 of interest related to uncertain tax positions.

The Company and its subsidiaries are subject to the following significant taxing jurisdictions: U.S. federal, Arizona, Indiana, Ohio and Oregon. The statute of limitations for a particular tax year for examination by the Internal Revenue Service is three years, and three to four years for the states of Arizona, Indiana, Ohio and Oregon. Accordingly, there are multiple years open to examination.

9. PENSION PLAN

The Company has a non-contributory pension plan for eligible union employees at its Fort Wayne, Indiana facility. The following table summarizes the components of net periodic benefit cost recognized (in thousands):

	Three Months Ended
	December 31, 2009			January 3, 2009
Service cost	$	20		$	10
Interest cost		54			39
Expected return on plan assets		(63	)		(30	)
Amortization of unrecognized prior service cost		14			9
Total net periodic benefit cost	$	25		$	28

The Company contributed $49,000 to the pension plan during the three months ended December 31, 2009. There were no contributions to the pension plan during the three months ended January 3, 2009.

10. DISCONTINUED OPERATIONS

On March 28, 2008, the Board of Directors authorized the disposal of the IED and the commercial microelectronic product lines. On September 26, 2008, the Board of Directors authorized the disposal of DSD. These decisions resulted from an effort to streamline the Company’s businesses to focus on product lines where the Company has superior technical knowledge, specialized manufacturing capabilities and an ongoing commitment to research and development. The Company believes this course of action has and will continue to increase shareholder value and allow it to focus on growing its business. As a result of its decision to dispose of these businesses, the Company has accounted for them as discontinued operations for all periods presented in the accompanying condensed consolidated financial statements and the assets and liabilities of the discontinued operations are classified as assets and liabilities held for sale. It ceased depreciation of the assets of discontinued operations upon committing to the disposal plans.

On April 3, 2009, the Company completed the sale of DSD to the U.S. subsidiary of VIA optronics GmbH, a German company (“VIA”). The Company sold the operating assets of DSD, primarily consisting of inventory, equipment and intellectual property, for approximately $2.3 million. As of the date of the sale, other non-operating

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

net assets of approximately $0.9 million, consisting primarily of accounts receivable and residual liabilities, were retained to be settled in the normal course of business. Other non-operating liabilities of $(0.2) million and $(0.3) million remained as of December 31, 2009 and September 30, 2009, respectively. These non-operating net assets (liabilities) are included as part of continuing operations. For the three months ended December 31, 2009 and January 3, 2009, respectively, the Company recorded $0 and ($0.2) million of loss from discontinued operations, net of tax, for DSD.

The disposal of IED was consummated through three disposal groups. The Company sold a group of assets, primarily equipment and a patent, in the third quarter of fiscal 2009. The second group of IED assets, which consisted of the remaining equipment, was disposed of in the fourth quarter of fiscal 2009. The land and the building, which comprised the third disposal group of IED assets, were sold during December 2009 for $0.6 million. All production and shipments by IED were completed in the third quarter of fiscal 2009. As of December 31, 2009, other non-operating net assets (liabilities) of approximately $(46,000), consisting of fully reserved accounts receivable and accrued liabilities, were retained to be settled in the normal course of business. These non-operating net assets (liabilities) are included as part of continuing operations. For the three months ended December 31, 2009 and January 3, 2009, respectively, the Company recorded $0 and $0.3 million of income from discontinued operations, net of tax, for IED. For the three months ended December 31, 2009 and January 3, 2009, respectively, the Company recorded $0.2 million and $0 of gain on sale of discontinued operations, net of tax, for IED.

The discontinued operations generated $0 in revenues in the three months ended December 31, 2009 compared to $6.5 million in the three months ended January 3, 2009. Gross profit from discontinued operations for the three months ended December 31, 2009 was $0 compared to $1.8 million, or 29% gross margin, in the three months ended January 3, 2009. Income from discontinued operations, net of tax, was $0 in the three months ended December 31, 2009 compared to $0.3 million in the three months ended January 3, 2009. Gain on sale of discontinued operations, net of tax, increased to $0.2 million for the three months ended December 31, 2009 from $0 for the three months ended January 3, 2009.

Income from discontinued operations consists of direct revenues and direct expenses of the commercial microelectronic product line, the IED and the DSD business. General corporate overhead costs were not allocated to discontinued operations.

A summary of the operating results included in discontinued operations in the accompanying consolidated statements of operations is as follows:

	Three Months Ended
	December 31, 2009		January 3, 2009
Net sales	$	—	$	6,459
Cost of sales		—		4,614
Gross profit		—		1,845
Total operating expenses		—		1,425
Income from operations, before income taxes		—		420
Provision for income taxes		—		(88	)
Income from discontinued operations, net of tax		—		332
Gain on sale of discontinued operations, net of tax		183		—
Net income	$	183	$	332

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the assets and liabilities related to the discontinued operations classified as assets held for sale and liabilities related to assets held for sale in the accompanying consolidated balance sheets is as follows:

	December 31, 2009		September 30, 2009
Assets held for sale (current):
Accounts receivable, net	$	—	$	174
Total	$	—	$	174
Assets held for sale (long-term):
Property, plant and equipment, net	$	—	$	486
Deferred income taxes		—		310
Total	$	—	$	796
Liabilities related to assets held for sale (current):
Accounts payable	$	—	$	26
Accrued expenses		—		317
Deferred income taxes		—		9
Total	$	—	$	352

11. CONCENTRATIONS

A significant portion of the Company’s net sales were shipped to foreign customers. Export sales as a percentage of total net sales for the three months ended December 31, 2009 and January 3, 2009 were 16% and 32%, respectively.

A summary of net sales by geographic region follows (in thousands):

	Three Months Ended
	December 31, 2009		January 3, 2009
United States	$	13,037	$	9,085
Europe and Middle East		1,361		1,624
Asia Pacific		1,041		2,438
Other		129		148
Net sales	$	15,568	$	13,295

A significant portion of our net sales are derived from a small number of customers. The Company’s five largest customers accounted for 69% of net sales during the three months ended December 31, 2009 and 40% of net sales during the three months ended January 3, 2009.

The Company maintains cash balances in excess of Federal Deposit Insurance Corporation (FDIC) insured limits. Approximately $65.1 million was not insured as of September 30, 2009.

12. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2008, the Financial Accounting Standards Board (“FASB”) issued additional disclosure requirements for plan assets of defined benefit pension or other postretirement plans. Required disclosures provide information on how investment allocation decisions are made, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets and significant concentrations of risk within plan assets. The disclosures about plan assets shall be provided for fiscal years ending after December 15, 2009. Upon initial

WHITE ELECTRONIC DESIGNS CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

application, the provisions are not required for earlier periods that are presented for comparative purposes. Earlier application of the provisions is permitted. We will incorporate these additional disclosures in our consolidated financial statements for the year ended September 30, 2010. Their adoption does not change the accounting treatment for postretirement benefit plans.

In October 2009, the FASB issued authoritative guidance on revenue recognition. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. This guidance will become effective for the Company’s fiscal year 2011 beginning October 1, 2010, with earlier adoption permitted. The Company has no application for this guidance at the present time.

13. COMMITMENTS AND CONTINGENCIES

Contingencies

From time to time, the Company is subject to claims and litigation incident to its business. There are currently no such pending proceedings to which the Company is a party that it believes will have a material adverse effect on its consolidated results of operations, liquidity, or financial condition.

14. SUBSEQUENT EVENTS

On January 13, 2010, the management of the Company committed the Company to an exit and disposal of the Ft. Wayne, Indiana operations, which is included in its defense electronics segment. The Company has a continuing effort to streamline the Company’s business to focus on product lines where the Company has superior technical knowledge, specialized manufacturing capabilities and an on-going commitment to research and development. Management has determined that the Company’s operations in Ft. Wayne, Indiana are not consistent with the Company’s long-term strategy. No other significant subsequent events requiring disclosure were noted through February 9, 2010, the filing date of the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2009.

EX-99.4

Exhibit 99.4

MICROSEMI CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Microsemi Corporation (“Microsemi”) acquired all of the outstanding common stock of White Electronic Designs Corporation (“White Electronic”) in a cash transaction announced on April 1, 2010 and fully consummated on April 30, 2010. The transaction was structured as a cash tender offer, that expired on April 27, 2010, by Rabbit Acquisition Corp. (“Rabbit”), a direct wholly-owned subsidiary of Microsemi, for all outstanding shares of White Electronic’s common stock, followed by a merger of Rabbit into White Electronic whereby White Electronic became a direct wholly-owned subsidiary of Microsemi. The following unaudited pro forma condensed combined financial statements are presented to illustrate the estimated effects of the acquisition of White Electronic (the “Transaction”) on our consolidated financial statements. The following unaudited pro forma condensed combined financial statements are based upon the historical consolidated financial statements and notes thereto of Microsemi Corporation and White Electronic.

The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Transaction as if it had been completed on December 27, 2009 and due to different fiscal period ends, combines Microsemi’s December 27, 2009 unaudited consolidated balance sheet with White Electronic’s December 31, 2009 unaudited condensed consolidated balance sheet. The unaudited pro forma condensed combined income statements give pro forma effect to the Transaction as if it had been completed on September 29, 2008 and combines Microsemi’s audited consolidated statement of operations for the fiscal year ended September 27, 2009 with White Electronic’s audited consolidated statement of operations for the fiscal year ended September 30, 2009 and Microsemi’s unaudited consolidated income statement for the quarter ended December 27, 2009 with White Electronic’s unaudited condensed consolidated statement of operations for the quarter ended December 31, 2009.

The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Transaction had been completed on the dates indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that Microsemi believes are reasonable under the circumstances. A final determination of fair values relating to the Transaction may differ materially from preliminary estimates and will include management’s final valuation of the fair value of assets acquired and liabilities assumed. This final valuation will be based on the actual net tangible and intangible assets of White Electronic that existed as of the date of the completion of the Transaction. The final valuation may materially change the allocation of the purchase price, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial statements.

These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and related notes contained in the annual, quarterly and other reports filed by Microsemi and White Electronic with the Securities and Exchange Commission.

MICROSEMI CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 27, 2009

(in thousands)

	Historical Microsemi		Historical White Electronic			Pro Forma Adjustments			Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents	$	234,895	$	65,387		$	(165,648	)(1)	$	134,408
							(226	)(2)
Investment in auction rate securities		36,550		—			—			36,550
Accounts receivable		71,742		10,747			—			82,489
Inventories		91,043		14,054			417	(3)		105,514
Deferred income taxes		10,655		2,563			—			13,218
Other current assets		22,312		3,965			—			26,277
Total current assets		467,197		96,716			(165,457	)		398,456
Property and equipment, net		66,922		10,992			—			77,914
Deferred income taxes		—		1,145			(1,145	)(4)		—
Goodwill		222,731		1,764			31,380	(5)		255,875
Intangible assets, net		51,500		—			51,500	(6)		103,000
Other assets		10,211		67			—			10,278
TOTAL ASSETS	$	818,561	$	110,684		$	(83,722	)	$	845,523
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,934	$	2,350		$	—		$	25,284
Accrued liabilities		32,765		3,840			1,431	(7)		38,036
Auction rate securities credit facility		36,550		—			—			36,550
Current maturity of long-term liabilities		430		—			—			430
Total current liabilities		92,679		6,190			1,431			100,300
Long-term liabilities		33,467		1,155			(1,145	)(4)		54,077
							20,600	(8)
Stockholders’ equity:
Preferred stock		—		—			—			—
Common stock		16,566		2,583			(2,583	)(9)		16,566
Treasury stock		—		(253	)		253	(9)		—
Capital in excess of par value of common stock		520,764		84,782			(84,782	)(9)		520,926
							162	(10)
Retained earnings		154,635		16,580			(16,580	)(9)		153,204
							(1,431	)(7)
Accumulated other comprehensive income		450		(353	)		353	(9)		450
Total stockholders’ equity		692,415		103,339			(104,608	)		691,146
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	818,561	$	110,684		$	(104,322	)	$	845,523

The total estimated consideration as shown in the table below is allocated to White Electronic’s tangible and intangible assets and liabilities based on their estimated fair values as of the date of the completion of the Transaction. The preliminary estimated consideration is allocated as follows (in thousands):

Calculation of consideration:
Cash consideration to White Electronic stockholders (1)	$	165,648
Cash consideration paid on vested and non-assumed stock options (2)		226
Fair value of vested equity awards assumed by Microsemi (9)		162
Total consideration		166,036
Preliminary allocation of consideration:
Book value of White Electronic’s net assets		103,339
Adjustments to historical net book value:
Inventories (3)		417
Intangible assets (6)		51,500
Deferred tax liability (8)		(20,600	)
Adjustment to goodwill (5)	$	31,380

A final determination of fair values relating to the Transaction may differ materially from preliminary estimates and will include management’s final valuation of the fair value of assets acquired and liabilities assumed. This final valuation will be based on the actual net tangible and intangible assets of White Electronic that existed as of the date of the completion of the Transaction. The final valuation may materially change the allocation of the purchase price, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial statements.

(1) Cash consideration to White Electronic stockholders based upon approximately 23.7 million White Electronic shares issued and outstanding less treasury shares as of the Transaction date at $7.00 per share.

(2) Cash consideration paid on vested and non-assumed stock options based upon the difference between $7.00 per option and the exercise price of each option.

(3) Represents the estimated adjustment to mark up inventories to fair value less cost to sell.

(4) Represents a reclassification of White Electronic deferred income taxes for presentation purposes.

(5) Represents the estimated adjustment to reflect goodwill at fair value.

(6) Of the total estimated purchase price, we allocated $22.9 million to completed technologies that are expected to amortize over an average life of seven years; $5.1 million in backlog that is expected to amortize over a life of three years; $22.6 million to customer relationships that are expected to amortize over a life of eight years; and $0.9 million in trade name that is expected to amortize over a life of five years. We expect to utilize the straight line method of amortization for completed technology, customer relationship and trade name and the estimated fulfillment period for backlog. This allocation is preliminary and is based on our estimates. The amount ultimately allocated to intangible assets may differ materially from this preliminary allocation. A $1.0 million increase or decrease in value allocated to backlog would each increase or decrease annual amortization by approximately $0.3 million. A $1.0 million increase or decrease in value allocated to trade name would each increase or decrease annual amortization by approximately $0.2 million. A $1.0 million increase or decrease in value allocated to completed technologies or customer relationships would each increase or decrease annual amortization by approximately $0.1 million.

The fair value of the identified intangible assets was estimated by performing a discounted cash flow analysis using the “income” approach. This method includes a forecast of direct revenues and costs associated with the respective intangible assets and charges for economic returns on tangible and intangible assets utilized in cash flow generation. Net cash flows attributable to the identified intangible assets are discounted to their present value at a rate commensurate with the perceived risk. The projected cash flow assumptions considered contractual relationships, customer attrition, eventual development of new technologies and market competition.

The useful lives of completed technologies rights are based on the number of years in which net cash flows have been projected. The useful life of backlog is estimated based upon the fulfillment period. The useful lives of customer relationships are estimated based upon the length of the relationships currently in place, historical attrition patterns and natural growth and diversification of

other potential customers. The useful life of trade name was estimated based on the period in which a benefit could be ascribed to the White Electronic trade name.

Assumptions used in forecasting cash flows for each of the identified intangible assets included consideration of the following:

• Historical performance including sales and profitability.

• Business prospects and industry expectations.

• Estimated economic life of asset.

• Development of new technologies.

• Acquisition of new customers.

• Attrition of existing customers.

• Obsolescence of technology over time.

The factors that contributed to a purchase price resulting in the recognition of goodwill include:

• The premium paid over the pre-merger announcement market capitalization of White Electronic.

• Our belief that the merger will create a more diverse semiconductor company with expansive offerings which will enable us to expand our product offerings.

• Our belief that we are each committed to improving cost structures and that our combined efforts after the merger should result in a realization of cost savings and an improvement of overall efficiencies.

(7) Represents liabilities incurred by White Electronic due to change in control provisions in effect prior to the Transaction.

(8) Represents the deferred tax liability related to the $51.5 million in amortizable intangible assets.

(9) Represents the elimination of White Electronic’s historical equity accounts at December 27, 2009.

(10) Represents a preliminary estimate of the fair value of 29,640 vested White Electronic stock awards that were assumed and converted into Microsemi stock awards.

MICROSEMI CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 2009

(In thousands, except per share amounts)

	Historical Microsemi			Historical White		Pro Forma Adjustments			Pro Forma Combined
Net sales	$	452,972		$	62,559	$	—		$	515,531
Cost of sales		272,565			37,993		—			310,558
Gross profit		180,407			24,566		—			204,973
Operating expenses:
Selling and general and administrative		113,080			16,385		(388	)(1)		129,077
In-process research & development		1,310			—		—			1,310
Amortization of intangible assets		15,203			—		9,441	(2)		24,644
Research and development costs		41,435			4,408		—			45,843
Restructuring and severance charges		13,264			—		—			13,264
Impairment charges related to facility closures		6,185			—		—			6,185
Total operating expenses		190,477			20,793		9,053			220,323
Operating income (loss)		(10,070	)		3,773		(9,053	)		(15,350	)
Other income:
Interest income, net		869			441		(249	)(3)		1,061
Other, net		327			—		—			327
Total other income		1,196			441		(249	)		1,388
Income (loss) before income taxes		(8,874	)		4,214		(9,302	)		(13,962	)
Provision for income taxes		17,949			1,218		(3,721	)(4)		15,446
Income (loss) from continuing operations	$	(26,823	)	$	2,996	$	(5,581	)	$	(29,408	)
Loss from continuing operations per share:
Basic	$	(0.34	)						$	(0.37	)
Diluted	$	(0.34	)						$	(0.37	)
Weighted-average common shares outstanding:
Basic		79,350								79,350
Diluted		79,350								79,350

(1) Represents the change in expense related to stock compensation expense from White Electronic stock awards.

(2) Reflects amortization of intangibles related to the fair value of intangible assets acquired. We expect to utilize the straight line method of amortization for completed technology, customer relationship and trade name and the estimated fulfillment period for backlog. Calculation of pro forma amortization expense is as follows (in thousands):

	Asset Amount		Weighted Average Useful Life (Years)	Amortization Expense
Completed technology	$	22,900	7	$	3,432
Backlog		5,100	3		3,009
Customer relationships		22,600	8		2,820
Trade name		900	5		180
	$	51,500		$	9,441

(3) Represents the reduction of interest income that would have been recorded based on the cash consideration of the Transaction and an average marginal interest rate earned on the lowest yielding investments of 0.15%.

(4) Reflects the pro forma tax effect on the above adjustments.

MICROSEMI CORPORATION

UNAUDITED PRO FORMA COMBINED INCOME STATEMENT

FOR THE QUARTER ENDED DECEMBER 27, 2009

(In thousands, except per share amounts)

	Historical Microsemi			Historical White		Pro Forma Adjustments			Pro Forma Combined
Net sales	$	112,832		$	15,568	$	—		$	128,400
Cost of sales		60,564			9,817		—			70,381
Gross profit		52,268			5,751		—			58,019
Operating expenses:
Selling and general and administrative		25,813			4,072		(139	)(1)		29,746
In-process research & development		—			—		—			—
Amortization of intangible assets		3,883			—		2,093	(2)		5,976
Research and development costs		11,805			1,228		—			13,033
Restructuring and severance charges		295			—		—			295
Impairment charges		—			345		—			345
Total operating expenses		41,796			5,645		1,954			49,395
Operating income (loss)		10,472			106		(1,954	)		8,624
Other income (expenses):
Interest income (expense), net		(21	)		77		(41	)(3)		15
Other, net		(157	)		—		—			(157	)
Total other income (loss)		(178	)		77		(41	)		(142	)
Income (loss) before income taxes		10,294			183		(1,995	)		8,482
Provision for income taxes		2,334			56		(798	)(4)		1,592
Income from continuing operations	$	7,960		$	127	$	(1,197	)	$	6,890
Income from continuing operations per share:
Basic	$	0.10							$	0.08
Diluted	$	0.10							$	0.08
Weighted-average common shares outstanding:
Basic		81,505								81,505
Diluted		82,117								82,117

(1) Represents the change in expense related to stock compensation expense from White Electronic stock awards.

(2) Reflects amortization of intangibles related to the fair value of intangible assets acquired. We expect to utilize the straight line method of amortization for completed technology, customer relationship and trade name and the estimated fulfillment period for backlog. Calculation of pro forma amortization expense is as follows (in thousands):

	Asset Amount		Weighted Average Useful Life (Years)	Amortization Expense
Completed technology	$	22,900	7	$	858
Backlog		5,100	3		485
Customer relationships		22,600	8		705
Trade name		900	5		45
	$	51,500		$	2,093

(3) Represents the reduction of interest income that would have been recorded based on the cash consideration of the Transaction and an average marginal interest rate earned on the lowest yielding investments of 0.10%.

(4) Reflects the pro forma tax effect on the above adjustments.