• Defense & Space ("D&S") - Develops highly engineered subsystems for defense electronics and sophisticated satellite applications - from military communications, radar, surveillance and countermeasures to commercial high-definition television, satellite radio, and live TV for innovative airlines; and

• LXE - Provides rugged mobile terminals and wireless data collection equipment for logistics management systems and operates mainly in two markets: the America market which is comprised of North, South and Central America; and the International market, which is comprised of all other geographic areas, with the highest concentration in Europe.

Following is a summary of significant factors affecting or related to our results of operations in the three months ended April 4, 2009:
• We completed the acquisitions of Formation and Satamatics on January 9, 2009 and February 13, 2009, respectively. These newly acquired product lines along with Sky Connect, LLC ("Sky Connect"), which was acquired in August of 2008, contributed $17.3 million of net sales and $0.3 million in net earnings in the first quarter of 2009.

• Our net loss for the first quarter of 2009 was $3.0 million compared to net earnings of $4.2 million for the first quarter of 2008. Our operating results for the first quarter of 2009 include $3.9 million of acquisition-related charges, primarily transaction costs that are now required to be reported as a current expense per Statement of Financial Accounting Standards ("SFAS") No. 141(R), Business Combinations. The first quarter of 2009 also includes a $1.4 million foreign exchange loss related to the funding of the Satamatics acquisition, which was required to be paid in British pounds sterling. The loss resulted from changes in foreign currency exchange rates from the date we funded the transaction to the date the acquisition was completed. The financial results for the first quarter of 2009 also reflect the effect of amortization of intangible assets related to these acquisitions of approximately $1.8 million. These acquisition-related items total $7.1 million.

• Consolidated net sales increased by 22.2% to $92.3 million in the first quarter of 2009 as compared with the first quarter of 2008, mainly due to higher net sales at Communications and Tracking and D&S. LXE's net sales were down $10.3 million reflecting the challenging global economic climate. Net sales for Communications and Tracking included $17.3 million from the newly acquired product lines.

• Our first quarter operating loss was $1.9 million as compared with operating income of $3.4 million in the same period of 2008. The operating loss in the first quarter of 2009 was mainly a result of the $3.9 million acquisition-related charge in the first quarter of 2009, and a $5.1 million operating loss reported by LXE, which includes approximately $1.1 million of severance charges. Operating profits increased for D&S and Communications and Tracking by $2.3 million and $1.2 million, respectively, in the first quarter of 2009 as compared with the first quarter of 2008.

Description of Net Sales, Costs and Expenses Net sales
The amount of net sales is generally the most significant factor affecting our operating income in a period. We recognize product-related net sales under most of our customer agreements when we ship completed units or complete the installation of our products. If multiple deliverables are involved in a revenue arrangement, or if software included in an offering is more than incidental to a product as a whole, we recognize revenue in accordance with FASB Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, or American Institute of Certified Public Accountants Statement of Position No. 97-2, Software Revenue Recognition, as applicable. If the customer agreement is in the form of a long-term contract (mainly at D&S and to a lesser degree at Communications and Tracking), we recognize revenue under the percentage-of-completion method, using the ratio of cost-incurred-to-date to total-estimated-cost-at-completion as the measure of performance. Estimated manufacturing cost-at-completion for each of these contracts is reviewed on a routine periodic basis, and adjustments are made periodically to the estimated cost-at-completion based on actual costs incurred, progress made, and estimates of the costs required to complete the contractual requirements. When the estimated manufacturing cost-at-completion exceeds the contract value, the contract is written down to its net realizable value, and the loss resulting from cost overruns is immediately recognized. If the customer agreement is in the form of a cost-reimbursement contract, we recognize revenue based on the type of fee specified in the contract, which is typically a fixed fee, award fee or a combination of both.
We also generate net sales from product-related service contracts, repair services, and engineering services projects. We recognize revenue from product-related service contracts and extended warranties ratably over the life of the contract. We recognize revenue from repair services as services are rendered. We recognize revenue from contracts for engineering services using the percentage-completion method for fixed price contracts, or as costs are incurred for cost-type contracts.
Cost of sales
For our LXE and D&S products, we conduct most of our manufacturing efforts in our Atlanta-area facilities. We manufacture the majority of our Communications and Tracking products at our facility in Ottawa, Canada.
Product cost of sales includes the cost of materials, payroll and benefits for direct and indirect manufacturing labor, engineering and design costs, outside costs such as subcontracts, consulting or travel related to specific contracts, and manufacturing overhead expenses such as depreciation, utilities and facilities maintenance.
We sell a wide range of advanced wireless communications products into markets with varying competitive conditions, and cost of sales as a percentage of net sales varies with each product. Consequently, the mix of products sold in a given period is a significant factor affecting our operating income. The cost-of-sales percentage is principally a function of competitive conditions and product and customer mix, but Communications and Tracking is also affected by changes in foreign currency exchange rates, mainly because the Canadian-based SATCOM business derives most of its net sales from contracts denominated in U.S. dollars, but incurs most of its costs in Canadian dollars. As the U.S. dollar weakens against the Canadian dollar, our reported manufacturing costs may increase relative to our net sales, which would increase the cost-of-sales percentage. If the U.S. dollar strengthens, the opposite effect would result. Our LXE business derives a significant portion of its net sales from international markets, mainly in Euros, but incurs most of its costs in U.S. dollars. As the U.S. dollar weakens against the Euro and other international currencies, our reported net sales may increase relative to our costs, which would decrease the cost-of-sales percentage. If the U.S. dollar strengthens, the opposite effect would result.

Service cost of sales is based on labor and other costs recognized as incurred to fulfill obligations under most of our service contracts. Cost of sales for long-term engineering services contracts are based on labor and other costs incurred, relative to the estimated cost to complete the contractual deliverables.
Selling, general and administrative expenses Selling, general and administrative ("SG&A") expenses include salaries, commissions, bonuses and related overhead costs for our personnel engaged in sales, administration, finance, information systems and legal functions. Also included in SG&A expenses are the costs of engaging outside professionals for consultation on legal, accounting, tax and management information system matters, auditing and tax compliance, and general corporate expenditures to other outside suppliers and service providers. Research and development expenses
Research and development ("R&D") expenses represent the cost of our development efforts, net of reimbursement under specific customer-funded R&D agreements. R&D expenses include salaries of engineers and technicians and related overhead expenses, the cost of materials utilized in research, and additional engineering or consulting services provided by independent companies. R&D costs are expensed as they are incurred. We also often incur significant development costs to meet the specific requirements of customer contracts in D&S and Communications and Tracking, and we report these costs in the consolidated statements of operations as cost of sales.
Acquisition-related charges
Acquisition-related charges primarily represent the costs of engaging outside professionals for legal, due diligence, business valuation, and integration services related to business combinations. The category also includes the accretion of the discounted liability representing the fair value of contingent consideration associated with one acquisition. Interest income
Interest income and other mainly includes interest income from investments in government-obligations money market funds, other money market instruments, and interest-bearing deposits.
Interest expense
We incur interest expense principally related to mortgages on certain facilities and our revolving credit facilities.
Foreign exchange gains and losses
We recognize foreign exchange gains and losses related to assets and liabilities that are denominated in a currency different than the local functional currency. For our Canada-based SATCOM business, most trade receivables are denominated in U.S. dollars; when the U.S. dollar weakens against the Canadian dollar, the value of SATCOM's trade receivables decreases and foreign exchange losses result. For our LXE segment's international subsidiaries, most trade payables are in U.S. dollars and relate to their purchases of hardware from LXE's U.S. operations for sale in Europe and Asia; when the U.S. dollar weakens against the Euro or other international currency, the value of the LXE subsidiaries' trade payables decreases and foreign exchange gains result. If the U.S. dollar strengthens, the opposite effect on trade payables and foreign exchange gains and losses results.
We regularly assess our exposures to changes in foreign currency exchange rates and as a result, we enter into forward currency contracts to reduce those exposures. The notional amount of each forward currency contract is based on the amount of exposure for net assets or liabilities subject to changes in foreign currency exchange rates. We record changes in the fair value of these contracts in our consolidated statements of operations.

Income taxes
Typically, the main factor affecting our effective income tax rate each year is the relative proportion of taxable income that we expect to earn in Canada, where the effective rate is lower than in the U.S. and other locations. The lower effective rate in Canada results from certain Canadian tax benefits for research-related expenditures.
Results of Operations
The following table sets forth the percentage relationship of each line item to net sales for each period.

                                                                 Three Months Ended
                                                                April 4       March 29
                                                                  2009          2008
 Product net sales                                                 74.5 %        84.4
 Service net sales                                                 25.5          15.6

 Net sales                                                        100.0         100.0
 Product cost of sales as a percentage of product net sales        67.0          62.2
 Service cost of sales as a percentage of service net sales        73.4          61.1
 Cost of sales                                                     68.6          62.0
 Selling, general and administrative expenses                      24.5          26.8
 Research and development expenses                                  4.8           6.7
 Acquisition-related charges                                        4.2             -

 Operating (loss) income                                           (2.1 )         4.5
 Interest income                                                    0.1           1.3
 Interest expense                                                  (0.7 )        (0.5 )
 Foreign exchange (loss) gain, net                                 (0.5 )         0.1

 (Loss) earnings before income taxes                               (3.2 )         5.4
 Income tax benefit                                                   -           0.1

 Net (loss) earnings                                              (3.2) %         5.5

Three Months ended April 4, 2009 and March 29, 2008:
Net sales increased by 22.2% to $92.3 million from $75.5 million for the first quarter of 2009 as compared with the same period of 2008 reflecting growth in net sales from two of the Company's three reportable operating segments, Communications and Tracking and D&S, with increases of 60.4% and 74.0%, respectively. The increase in net sales by Communications and Tracking was generated from our recently acquired product lines. D&S's net sales were higher mainly due to significant work performed on a military communications research project, and the increased activity on both commercial and military programs due to the expansion of its workforce to meet order demands. LXE's net sales for the first quarter of 2009 decreased by $10.3 million compared with the same period of 2008, with lower net sales in both the America and International markets. Product net sales increased by 8.0% to $68.8 million in the first quarter of 2009 as compared with the first quarter of 2008. This was primarily due to the $14.7 million of product net sales generated from our recently acquired product lines, partially offset by lower net sales by LXE. Service net sales nearly doubled to $23.5 million in the first quarter of 2009 as compared with the same period of 2008, mainly due to significant work performed on a military communications research project by D&S. As a result, service net sales comprised a higher percentage of total net sales in the first quarter of 2009 as compared with the first quarter of 2008.
Overall cost of sales as a percentage of consolidated net sales was higher in the first quarter of 2009 as compared with the same period of 2008 due to higher cost-of-sales percentages reported by each of our three reportable operating segments. Product cost of sales, and service cost of sales, as a percentage of their respective net sales were also higher in the first quarter of 2009 as compared with the same period of 2008. The increase in product cost of

sales as a percentage of its respective net sales was mainly due to a lower production volume by our LXE segment over which fixed costs were absorbed, an unfavorable effect of changes in foreign currency exchange rates, and a change in product mix by our Communications and Tracking segment with the addition of our new product lines which had higher cost-of-sales percentages than SATCOM, primarily due to the amortization of intangible assets. The increase in service cost-of-sales percentage was mainly due to a higher proportion of service revenues generated from our D&S segment, which has a higher cost-of-sales percentage than our other two reportable operating segments.
SG&A expenses as a percentage of consolidated net sales decreased for the first quarter of 2009 as compared with the first quarter of 2008. Actual expenses grew by $2.4 million in the first quarter of 2009 as compared with the same period of 2008 mainly due to the additional costs related to the acquired product lines, including additional amortization of intangible assets, as well as approximately $0.6 million of severance costs at LXE. These additional costs were partially offset by the impact of management's cost reduction efforts at LXE initiated in the second quarter of 2008, and the favorable effect of changes in foreign currency exchange rates on our LXE and SATCOM international operations. R&D expenses decreased by $0.6 million mainly due to the additional funding received from the Canadian government under a program to encourage technology development in areas such as satellite communications. R&D expenses also decreased due to the favorable effect of changes in foreign currency exchange rates.
Acquisition-related charges were $3.9 million in the first quarter of 2009. These costs were primarily for professional fees for legal, due-diligence, valuation, and integration services for the acquisition of our Formation and Satamatics businesses (see Note 2 to the consolidated financial statements in the Quarterly Report for additional information on these business acquisitions). Interest income decreased by $0.9 million mainly as a result of the decrease in the average investment balances and, to a lesser extent, lower average interest rates earned on our investment balances.
The first quarter of 2009 included a $1.4 million foreign exchange loss related to the funding of the Satamatics acquisition, which was required to be paid in British pounds sterling. The loss resulted from changes in foreign currency exchange rates from the date we funded the transaction to the date the acquisition was completed. Partially offsetting this loss in the quarter were net gains from the conversion of assets and liabilities not denominated in the functional currency and forward contracts.
The Company recognized no income tax expense or benefit in the first quarter of 2009 and 2008. The absence of an expense for the first quarter of 2009 was based upon management's expectations for taxable income associated with various tax jurisdictions for the full year. The 2008 first-quarter expense of $42,000 was based on management's projection of the effective rate for the full year offset by a benefit of $742,000 primarily related to a change in estimate of prior-year research and development credits available in the U.S. The decrease in expected rates for the full year is due to a higher expected proportion of profits to be earned in Canada, where we have a much lower effective rate than in the U.S. and other locations, and to a higher expected U.S. federal tax credit for current-year qualifying research and development costs. No benefit was recognized in the first quarter 2008 for the U.S. federal credit since the benefit for 2008 was not enacted until the fourth quarter of 2008. The lower effective tax rate in Canada is due to research-related tax benefits. The overall effective rate is subject to change during the remainder of the year, as actual results and revised forecasts may change management's expectations for the taxable income associated with various tax jurisdictions.

Net Sales, Cost of Sales, and Operating Income (Loss) by Segment Our segment net sales, cost of sales as a percentage of respective segment net sales, and segment operating income (loss) were as follows (in thousands, except percentages):

                                           Three Months Ended        Percentage
                                         April 4       March 29       Increase
                                           2009          2008        (Decrease)
          Net sales:
          Communications and Tracking   $   41,426        25,822            60.4 %
          Defense & Space                   26,908        15,462            74.0
          LXE                               23,944        34,210           (30.0 )

          Total                         $   92,278        75,494            22.2


          Cost of sales percentage:
          Communications and Tracking         62.1 %        56.5             5.6
          Defense & Space                     78.4          78.3             0.1
          LXE                                 67.3          58.6             8.7
          Total                               68.6          62.0             6.6

          Operating income (loss):
          Communications and Tracking   $    4,307         3,083            39.7
          Defense & Space                    2,892           564           412.8
          LXE                               (5,061 )         477        (1,161.0 )
          Corporate & Other                 (4,080 )        (687 )        (493.9 )

          Total                         $   (1,942 )       3,437          (156.5 )

Communications and Tracking: Net sales of $41.4 million were reported in the first quarter of 2009, an increase of $15.6 million, as compared with the first quarter of 2008. Our recently acquired product lines generated net sales of $17.3 million in the first quarter 2009 and strong demand for SwiftBroadband based aeronautical products resulted in higher net sales of high-speed-data terminals in the business aviation market in the first quarter of 2009, as compared with the first quarter of 2008. Revenues for the first quarter of 2008 included the development of the Inmarsat global satellite/GSM phone, which had no effect in the first quarter of 2009.
Cost of sales as a percentage of net sales was higher for the first quarter of 2009 as compared with the same period of 2008 primarily due to a change in product mix with the addition of our new aeronautical and asset tracking product lines acquired in the first quarter of 2009, which had higher cost-of-sales percentages due to amortization of intangible assets.
Operating income increased by $1.2 million in the first quarter of 2009 as compared with the same period of 2008 primarily due to a higher gross margin contribution from an increase in net sales generated in the first quarter of 2009, lower R&D expenses, and the favorable effect of changes in foreign currency exchange rates, partially offset by higher SG&A expenses. Operating income for the first quarter of 2009 includes $1.8 million of amortization of intangible assets from the new acquisitions in 2008 and 2009. Operating income as a percentage of net sales was 10.4% in the first quarter of 2009, and was 11.9% in the first quarter of 2008.
Defense & Space: Net sales reached an all-time-high of $26.9 million in the first quarter of 2009, an increase of 74.0% as compared with the same period of 2008. The work performed on a large military satellite communications research project was an individually significant contributor to the net sales increase. Net sales also grew from both commercial and military programs due to the expansion of the workforce to meet order demands. Order backlog of

long-term contracts at April 4, 2009 was $117.8 million, a new record high for D&S.
Cost of sales as a percentage of net sales was relatively unchanged in the first quarter of 2009 as compared with the first quarter of 2008. A more favorable mix of contracts offset an increase in costs from a higher volume of subcontracted projects utilized to meet scheduling demands for certain military programs. Operating income improved by $2.3 million in the first quarter of 2009 as compared with the same period of 2008 mainly due to a higher contribution margin from an increase in net sales generated in 2009. Operating income, as a percentage of net sales, was 10.7% in the first quarter of 2009, and was 3.6% in the first quarter of 2008.
LXE: Net sales in the first quarter of 2009 decreased by $10.3 million as compared with the first quarter of 2008, reflecting the impact of the slowdown in the global economy. Net sales decreased in both the International and America markets in the first quarter of 2009 as compared with the same period of 2008, resulting primarily from a decreased number of terminals shipped in the America market, the foreign currency translation effect on the reported net sales for LXE's International market. We believe the softer America and International markets reflect slower capital spending in a sluggish economy. The global economy may continue to be sluggish through 2009, which could continue to delay capital spending decisions in both of LXE's markets.
Cost of sales as a percentage of net sales was higher in the first quarter of 2009 as compared with the first quarter of 2008 mainly due to lower production volume over which fixed costs were absorbed, and an unfavorable effect of changes in foreign currency exchange rates that affected our reported International net sales.
LXE generated an operating loss of $5.1 million in the first quarter of 2009, a decrease of $5.5 million in operating income as compared with the first quarter of 2008. The decrease in operating income was mainly a result of lower net sales, a less favorable cost-of-sales percentage, and approximately $1.1 million of severance charges in the first quarter of 2009. The higher cost-of-sales percentage was due in part to the foreign currency translation effect on reported net sales for the International operations. Revenues are reported in the local functional currency but product costs are in the U.S. dollar, which was stronger in the first quarter of 2009 compared with the first quarter of 2008. The severance charges were primarily related to staff reductions to further reduce LXE's cost structure. SG&A expenses were lower in the first quarter of 2009 as compared with the same period of 2008 by $0.9 million, despite the severance costs expensed in the first quarter of 2009, reflecting the impact of management's cost reduction efforts initiated in the second quarter of 2008, and the favorable effect of changes in foreign currency exchange rates. If unfavorable economic conditions affect further cash flow of . . .