UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-6072

EMS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Georgia		58-1035424
(State or other jurisdiction of incorporation or organization)		(IRS Employer ID Number)
660 Engineering Drive, Norcross, Georgia		30092
(Address of principal executive offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (770) 263-9200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on August 5, 2011:

Class		Number of Shares
Common Stock, $0.10 par value		15,551,048

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION			2
Item 1. Financial Statements			2
Consolidated Statements of Operations (unaudited)			2
Consolidated Balance Sheets (unaudited)			3
Consolidated Statements of Cash Flows (unaudited)			5
Notes to Consolidated Financial Statements (unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures about Market Risk			33
Item 4. Controls and Procedures			35
PART II — OTHER INFORMATION			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 6. Exhibits			38
SIGNATURES			39
Exhibit 31.1
Exhibit 31.2
Exhibit 32

PART I

FINANCIAL INFORMATION

Item 1.		Financial Statements

EMS Technologies, Inc. and Subsidiaries

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Product net sales		$	75,567				71,879				146,563				138,080
Service net sales			15,472				16,598				29,513				33,299
Net sales			91,039				88,477				176,076				171,379
Product cost of sales			53,419				48,066				100,165				93,311
Service cost of sales			7,828				8,054				14,642				16,091
Cost of sales			61,247				56,120				114,807				109,402
Selling, general and administrative expenses			23,987				22,128				45,501				43,801
Research and development expenses			6,921				4,709				12,595				10,130
Proxy contest and merger-related costs			6,114				—				6,834				—
Impairment loss on goodwill related charges			—				—				—				384
Acquisition-related items			—				346				—				563
Operating (loss) income			(7,230	)			5,174				(3,661	)			7,099
Interest income			110				101				222				281
Interest expense			(557	)			(542	)			(1,070	)			(1,019	)
Foreign exchange (loss) gain, net			(104	)			244				(283	)			(449	)
(Loss) earnings before income taxes			(7,781	)			4,977				(4,792	)			5,912
Income tax (benefit) expense			(1,337	)			1,109				(742	)			1,453
Net (loss) earnings		$	(6,444	)			3,868				(4,050	)			4,459
Net (loss) earnings per share:
Basic		$	(0.42	)			0.25				(0.27	)			0.29
Diluted			(0.42	)			0.25				(0.27	)			0.29
Weighted-average number of common shares outstanding:
Basic			15,304				15,191				15,267				15,185
Diluted			15,304				15,230				15,267				15,218

See accompanying notes to interim unaudited consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries

		July 2				December 31
		2011				2010
ASSETS
Current assets:
Cash and cash equivalents		$	72,847				55,938
Trade accounts receivable, net of allowance for doubtful accounts of $1,184 in 2011 and $1,389 in 2010			63,608				68,691
Costs and estimated earnings in excess of billings on long-term contracts			24,247				21,980
Inventories			48,731				41,649
Deferred income taxes			2,317				3,891
Other current assets			8,228				7,319
Total current assets			219,978				199,468
Property, plant and equipment:
Land			1,150				1,150
Buildings and leasehold improvements			19,463				19,115
Machinery and equipment			123,086				117,855
Furniture and fixtures			11,019				10,850
Total property, plant and equipment			154,718				148,970
Less accumulated depreciation			106,370				100,587
Net property, plant and equipment			48,348				48,383
Deferred income taxes			12,930				11,845
Goodwill			60,554				60,474
Other intangible assets, net of accumulated amortization of $32,510 in 2011 and $28,079 in 2010			37,682				41,319
Costs and estimated earnings in excess of billings on long-term contracts			8,538				8,611
Other assets			2,898				2,844
Total assets		$	390,928				372,944

See accompanying notes to interim unaudited consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited), continued
(in thousands, except share data)

		July 2				December 31
		2011				2010
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt		$	1,559				1,496
Accounts payable			35,135				24,979
Billings in excess of contract costs and estimated earnings on long-term contracts			6,293				8,593
Accrued compensation and related costs			13,697				20,626
Deferred revenue			11,130				10,897
Other current liabilities			8,826				6,946
Total current liabilities			76,640				73,537
Long-term debt, excluding current installments			40,109				27,476
Deferred income taxes			1,164				4,859
Other liabilities			11,711				10,052
Total liabilities			129,624				115,924
Shareholders’ equity:
Preferred stock of $1.00 par value per share; Authorized 10,000 shares; none issued			—				—
Common stock of $0.10 par value per share; Authorized 75,000 shares; issued and outstanding 15,514 in 2011 and 15,311 in 2010			1,551				1,531
Additional paid-in capital			141,727				138,138
Accumulated other comprehensive income — foreign currency translation adjustment			14,623				9,898
Retained earnings			103,403				107,453
Total shareholders’ equity			261,304				257,020
Commitments and contingencies
Total liabilities and shareholders’ equity		$	390,928				372,944

See accompanying notes to interim unaudited consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries

		Six Months Ended
		July 2				July 3
		2011				2010
Cash flows from operating activities:
Net (loss) earnings		$	(4,050	)			4,459
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			9,861				9,819
Deferred income taxes			(3,191	)			(119	)
Stock-based compensation expense			992				885
Change in fair value of contingent consideration liability			—				304
Excess tax benefits from stock-based compensation			(130	)			—
Payment for acquisition of business under contingent consideration arrangement			(325	)			(1,248	)
Changes in operating assets and liabilities:
Trade accounts receivable			6,742				(16,503	)
Costs and estimated earnings in excess of billings on long-term contracts			(1,708	)			(545	)
Billings in excess of costs and estimated earnings on long-term contracts			(2,304	)			3,035
Inventories			(6,407	)			(6,112	)
Accounts payable			9,897				4,105
Income taxes			1,596				316
Accrued compensation and retirement costs			(7,244	)			459
Deferred revenue			1,413				3,287
Other			85				4,041
Net cash provided by operating activities in continuing operations			5,227				6,183
Net cash used in operating activities in discontinued operations			—				(8,810	)
Net cash provided by (used in) operating activities			5,227				(2,627	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(5,726	)			(3,820	)
Proceeds from sales of assets			356				24
Net cash used in investing activities			(5,370	)			(3,796	)
Cash flows from financing activities:
Net borrowings under revolving credit facility			13,500				12,000
Repayment of other debt			(804	)			(687	)
Deferred financing costs paid			—				(28	)
Payment for acquisition of business under contingent consideration arrangement			(626	)			(5,952	)
Payments for repurchase and retirement of common shares			(121	)			(51	)
Excess tax benefits from stock-based compensation			130				—
Proceeds from exercises of stock options			2,738				13
Net cash provided by financing activities			14,817				5,295
Effect of changes in exchange rates on cash and cash equivalents			2,235				(1,241	)
Net change in cash and cash equivalents			16,909				(2,369	)
Cash and cash equivalents at beginning of period			55,938				47,174
Cash and cash equivalents at end of period		$	72,847				44,805

See accompanying notes to interim unaudited consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries

1. Basis of Presentation

EMS Technologies, Inc. (“EMS”) designs, manufactures and markets products of wireless connectivity solutions over satellite and terrestrial networks. EMS keeps people and systems connected, wherever they are — on land, at sea, in the air or in space. EMS’s products and services are focused on the needs of the mobile information user, enabling universal mobility, visibility and intelligence.

The consolidated financial statements include the accounts of EMS Technologies, Inc. and its subsidiaries, each of which is a wholly owned subsidiary of EMS (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. There are no other entities controlled by the Company, either directly or indirectly. Certain reclassifications have been made to the 2010 consolidated financial statements to conform to the 2011 presentation.

The accompanying unaudited consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and are based on the Securities and Exchange Commission’s (“SEC”) Regulation S-X and its instructions to Form 10-Q. They do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring items, necessary to present fairly the financial condition, results of operations and cash flows for the interim periods presented. We have performed an evaluation of subsequent events through the date the financial statements were issued. These interim consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

• Management’s Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reporting of revenue and expenses and gains and losses during the period. Actual future results could differ materially from those estimates.

The nature of the Company’s customer arrangements to design, develop and manufacture technologically advanced products may involve uncertainty related to the costs to complete overall projects and the timing of completion of the critical phases of the projects, particularly when the projects involve novel approaches and solutions and/or require sophisticated subsystems supplied or cooperatively developed by third parties. The accounting for such arrangement requires significant judgment regarding the ultimate amount to be realized from a revenue contract or the amount of costs to be reimbursed by customers under funded development projects, and the overall costs to be incurred. The consolidated financial results include management’s estimates of these aspects of such arrangements. Potential penalties under customer arrangements are reflected in the financial statements based on management’s assessment of the likelihood and amount of any such penalty. That assessment often requires significant judgment by management. Under certain arrangements it is reasonably possible that customers’ claims, including penalty provisions that may be contained within the arrangements, could result in revised estimates of amounts that are materially different than management’s current estimates of amounts to be realized from a revenue contract, costs to be incurred or amounts to be reimbursed under funded development projects in the near term.

• Recently Adopted Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued guidance amending and clarifying requirements for fair value measurements and disclosures in the Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures About Fair Value Measurements. The new guidance requires disclosure of transfers in and out of Level 1 and Level 2 and a reconciliation of all activity in Level 3. The guidance also requires detailed disaggregation disclosure for each class of assets and liabilities in all levels, and disclosures about inputs and valuation techniques for Level 2 and Level 3. The guidance was effective for the Company in the first quarter of 2010 and the disclosure reconciliation of all activity in Level 3 was effective for the Company in the first quarter of 2011. The adoption of ASU 2010-06 did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures under FASB Accounting Standards Codification^TM (“ASC”) Topic 805, Business Combinations, to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after January 1, 2011. The adoption of ASU 2010-29 did not have a material impact on the Company’s consolidated financial statements.

In October 2009 the FASB issued two accounting standards updates that change the requirements for recognizing revenue for revenue arrangements with multiple elements. Both updates were adopted by the Company on January 1, 2011, on a prospective basis. The effect of adoption was not material to the Company’s consolidated financial statements for the three and six months ended July 2, 2011. The Company does not currently anticipate that the adoption will have a material effect on the consolidated financial statements for the year ending December 31, 2011, since historically the Company has not had significant aggregate deferrals of revenue related to multiple-element arrangements for which revenue would be recognized earlier under the new ASUs. However, the actual effect on the consolidated financial statements will depend on the specific types of multiple-element arrangements into which the Company enters in the future and the terms and conditions contained therein.

ASU 2009-13, Revenue Recognition — Multiple-Deliverable Revenue Arrangements, amends the accounting for revenue arrangements with multiple deliverables. Among other things, ASU 2009-13:

•

Eliminates the requirement for objective evidence of fair value of an undelivered item for treatment of the delivered item as a separate unit of accounting;

•

Requires use of the relative selling price method for allocating total consideration to elements of the arrangement instead of the relative-fair-value method or the residual method;

•

Allows the use of an estimated selling price for any element within the arrangement to allocate consideration to individual elements when vendor-specific objective evidence or other third party evidence of selling price do not exist; and

•

Expands the required disclosures.

ASU 2009-14, Software — Certain Revenue Arrangements That Include Software Elements, amends the guidance for revenue arrangements that contain tangible products and software elements. ASU 2009-14 redefines the scope of arrangements that fall within software revenue recognition guidance by specifically excluding tangible products that contain software components that function together to deliver the essential functionality of the tangible product. Such tangible products excluded from the requirements of software revenue recognition requirements under ASU 2009-14 would follow the revenue recognition requirements for other revenue arrangements, including the new requirements for multiple-deliverable arrangements contained in ASU 2009-13.

In multiple-element revenue arrangements into which the Company enters or that are materially modified after adoption of the new standards updates on January 1, 2011, the Company recognizes revenue separately for each separate unit of accounting per the guidance contained in the new standards updates. To recognize revenue for an element that has been delivered when other elements within the arrangement have not been delivered, the delivered element must be determined to be a separate unit of accounting. For a delivered item to qualify as a separate unit of accounting, it must have standalone value apart from the undelivered item. For arrangements with tangible products that contain software components that function together to deliver the essential functionality of the tangible product, these same separation criteria apply. For arrangements that include software that is more than incidental and that does not function together with a tangible product, the Company must also have vendor-specific objective evidence of fair value of the undelivered item for the delivered item to be considered a separate unit of accounting. When a delivered item is considered to be a separate unit of accounting, the amount of revenue recognized upon delivery (assuming all other revenue recognition criteria are met) is generally an allocation of the arrangement consideration based on the relative selling price of the delivered item to the aggregate standalone selling prices of all deliverables. The amount of revenue to be recognized for a delivered item is limited to the amount of consideration that is not contingent upon delivery of the other elements within the revenue arrangement. When a delivered item is not considered a separate unit of accounting, revenue is deferred and generally recognized as the undelivered item qualifies for revenue recognition.

In multiple-element revenue arrangements into which the Company entered prior to January 1, 2011, the Company recognizes revenue separately for each separate unit of accounting per the guidance that existed prior to the new standards updates. To recognize revenue for an element that has been delivered when other elements within the arrangement have not been delivered, the delivered element must be determined to be a separate unit of accounting. For a delivered item to qualify as a separate unit of accounting, it must have standalone value apart from the undelivered item, and there must be objective evidence of the fair value of the undelivered item. For arrangements that include software that is more than incidental, the undelivered item must have vendor-specific objective evidence of fair value. When a delivered item is considered to be a separate unit of accounting, the amount of revenue recognized upon delivery (assuming all other revenue recognition criteria were met) is generally an allocation of the arrangement consideration based on the relative fair value of the delivered item to the aggregate fair value of all deliverables. If the Company cannot determine the fair value of the delivered item, the residual method is used to determine the amount of the arrangement consideration to allocate to the delivered item. When a delivered item is not considered a separate unit of accounting, revenue is deferred and generally recognized as the undelivered item qualifies for revenue recognition.

The following describes the primary multiple-element revenue arrangements into which the Company generally enters and certain provisions relevant to the accounting under the new accounting standards updates:

•

Certain arrangements require that the Company design and develop technology products to specifications provided by the customer and manufacture and deliver the technology products. Such arrangements may also include services. These arrangements generally do not fall under the guidelines of the new accounting standards updates, but are accounted for in accordance with specific accounting guidance for construction-type and production-type contracts for which specifications are provided by the customer, generally following the percentage-of-completion method of accounting. If an arrangement includes post-contract support, revenue for the support services is generally recognized on the straight-line basis over the period of support.

•

Other customer arrangements include the delivery of a standard product and a related service contract that provides warranty and product maintenance over periods ranging from one to three years. Generally, the products are considered a separate unit of accounting, and revenue is recognized upon delivery. The service contracts are accounted for as separately priced extended warranty and product maintenance contracts and the revenue is deferred based on the stated contract price and recognized in income on a straight-line basis over the contract period.

•

The Company also enters arrangements under which the Company delivers a standard product and one or more services, such as, installation, training certification, airtime and support. Under certain of these arrangements, the product and certain services are considered a single unit of accounting since the product does not have standalone value without the related services. Under such arrangements the revenue is recognized for that combined unit of accounting when the revenue recognition criteria are met for the services. In other arrangements, the product does have standalone value without the service, in which case the revenue is recognized when the recognition criteria are met for that unit of accounting. The arrangement consideration is allocated to the units of accounting based on the relative selling prices of each element on a standalone basis. The standalone selling prices for each element are determined based on the best available information for each element of the arrangement. Many of the Company’s products and services are sold in standalone transactions, in which case the Company uses the selling prices in those standalone sales transactions to comparable customers for the standalone selling prices. Such standalone sales are considered vendor specific objective evidence of selling price. For products and services for which the Company has no, or limited, standalone sales transactions, the Company estimates standalone selling price using a combination of the limited standalone sales, price lists, cost plus margins, standalone sales of similar products and stated contract prices.

• Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2011, FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income: Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 amends existing guidance by allowing only two options for presenting the components of net earnings and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net earnings must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years beginning after December 15, 2011. The Company will adopt the provisions of ASU 2011-05 in the first quarter of 2012, and is currently evaluating which presentation option for the components of net earnings and other comprehensive income will be used.

2. Plan of Merger

On June 13, 2011, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Honeywell International Inc. (“Honeywell”), a Delaware corporation, and Egret Acquisition Corp., a Georgia corporation and a wholly-owned subsidiary of Honeywell (“Purchaser”). Under the terms of the Merger Agreement, Purchaser agreed to commence a tender offer (the “Offer”) to purchase all of the issued and outstanding shares of common stock, $0.10 par value, of the Company (the “Shares”) at a price of $33.00 per share (the “Offer Price”) in cash. Upon successful completion of the Offer, the Purchaser will merge with and into the Company (the “Merger”) and the Company will become a wholly owned subsidiary of Honeywell. At the effective time of the Merger, each remaining outstanding Share not tendered in the Offer and for which dissenter’s rights have not been perfected will be converted into the right to receive cash in an amount equal to the Offer Price. All unvested stock options representing the right to purchase Shares will vest and become exercisable prior to the acceptance for purchase of Shares in the Offer. At the effective time of the Merger, each then outstanding option will be cancelled and will represent the right to receive an amount in cash equal to the excess, if any, of the Offer Price over the exercise price of such option. In addition, immediately prior to the time of the acceptance for purchase of Shares in the Offer, each share of restricted stock under the Company’s equity incentive plans that is outstanding shall become fully vested. The Company’s Board of Directors has unanimously approved the Merger Agreement and has recommended that shareholders tender their Shares into the Offer. EMS and Honeywell will continue to operate separately until the transaction closes. The Merger Agreement is subject to customary closing conditions and is expected to close in the third quarter of 2011.

The Offer commenced on June 27, 2011 and is scheduled to expire at 5:30 p.m., New York City time, on August 19, 2011, unless further extended or earlier terminated. Purchaser will accept and promptly pay for each Share validly tendered, and not withdrawn, in accordance with the terms of the Offer. The Purchaser’s obligation to accept for payment and pay for all Shares validly tendered pursuant to the Offer is subject to (i) the condition that the number of Shares validly tendered and not withdrawn represents at least a majority of the total number of Shares outstanding at the expiration of the Offer on a fully diluted basis, and (ii) the satisfaction or waiver of other customary closing conditions as set forth in the Merger Agreement, including the receipt of necessary regulatory approval.

The Company has granted to Purchaser an irrevocable option, which Purchaser, subject to certain conditions, may exercise after the consummation of the Offer (including any subsequent offering period), to purchase such number of newly additional Shares at the Offer Price from the Company such that, when added to the Shares already owned by Honeywell, Purchaser and their subsidiaries at the time of such exercise, constitutes one more Share than 90% of the total number of Shares outstanding on a fully diluted basis (the “Top-up Option”). The Top-Up Option is intended to expedite the timing of the completion of the Merger. If the Purchaser acquires more than 90% of the outstanding Shares in the Offer or through exercise of the Top-Up Option, it will complete the Merger through the “short form” procedures available under Georgia law, which would not require the Company to hold a meeting of its shareholders to vote on the adoption of the Merger Agreement. In the event that Purchaser does not hold at least 90% of the outstanding Shares following the consummation of the Offer and the exercise of the Top-Up Option, the Company must obtain the approval of its shareholders to consummate the Merger. In this event, the Merger agreement would require the Company to call and convene a shareholder meeting to obtain this approval, and Honeywell and Purchaser would vote all of the Shares owned by them (including Shares acquired pursuant of the Offer) in favor of the adoption of the Merger Agreement and the consummation of the Merger.

Effective upon the consummation of the Offer, the Purchaser will be entitled to designate a number of directors, rounded up to the next whole number, on the Company’s Board of Directors equal to the product of (i) the total number of directors on the Company’s Board of Directors and (ii) the percentage that the number of Shares beneficially owned by Honeywell or Purchaser bears to the number of Shares then outstanding, but in no event less than a majority of the number of directors. However, Honeywell, Purchaser and the Company shall use their reasonable best efforts to ensure that after the consummation of the Offer, at least three independent directors currently serving on the Company’s Board of Directors shall continue to be on the Company’s Board of Directors until the effective time of the Merger. The Merger Agreement contains customary representations and warranties by the Company, Purchaser and Honeywell. The Merger Agreement also contains customary covenants and agreements, including with respect to the operation of the business of the Company and its subsidiaries between the signing of the Merger Agreement and the closing of the Merger, restrictions on the solicitation of alternative acquisition proposals by the Company, changing the Board’s recommendation to the transaction, entering into another acquisition transaction, governmental filings and approvals, and other matters.

The Merger Agreement contains certain termination rights for the Company, Purchaser and Honeywell, including in the event that the Company terminates the agreement in order to accept a superior proposal. In connection with the termination of the Merger Agreement under specified circumstances, including with respect to the Company’s entry into an agreement with respect to a superior proposal, the Company may be required to pay Honeywell a termination fee equal to $19.6 million. In addition, in the event of termination of the Merger Agreement relating to Honeywell’s failure to agree to certain required or requested actions in connection with obtaining antitrust clearance and subject to other specified conditions, Honeywell may be required to pay the Company a termination fee equal to $19.6 million. However, Honeywell has satisfied the competition law condition of the Merger Agreement so this is unlikely to occur.

The foregoing description of the Offer, Merger and Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to (i) the Merger Agreement, a copy of which is filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 13, 2011 and incorporated herein by reference, and is included to provide investors with information regarding its terms, and (ii) the information contained in the Tender Offer Statement on Schedule TO filed by Purchaser on June 27, 2011, as amended from time to time, and the Solicitation/Recommendation Statement on Schedule 14D-9 filed by us with the SEC on June 27, 2011, as amended from time to time.

3. Goodwill and Other Intangible Assets

The consolidated financial statements include the identifiable intangible assets and goodwill resulting from acquisitions of businesses completed prior to 2010. The following table presents the changes in the carrying amount of goodwill by reportable operating segment during the six months ended July 2, 2011 (in thousands):

						Global
		LXE				Tracking				Aviation				Total
Balance as of December 31, 2010		$	1,937				23,429				35,108				60,474
Foreign currency translation adjustment			80				—				—				80
Balance as of July 2, 2011		$	2,017				23,429				35,108				60,554

The Company had $21.0 million of accumulated impairment losses recorded on LXE’s goodwill as of July 2, 2011.

The following table presents the gross carrying amounts and accumulated amortization, in total and by major intangible asset class, for the Company’s intangible assets subject to amortization as of July 2, 2011 and December 31, 2010 (in thousands):

		As of July 2, 2011
		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Developed technology		$	42,115				21,905				20,210
Customer relationships			19,305				5,941				13,364
Trade names and trademarks			6,332				2,318				4,014
Other			2,440				2,346				94
		$	70,192				32,510				37,682

		As of December 31, 2010
		Gross								Net
		Carrying				Accumulated				Carrying
		Amount				Amortization				Amount
Developed technology		$	41,525				19,039				22,486
Customer relationships			19,164				4,787				14,377
Trade names and trademarks			6,281				1,961				4,320
Other			2,428				2,292				136
		$	69,398				28,079				41,319

Amortization expense related to these intangible assets for the three months and six months ended July 2, 2011 was $1.9 million and $3.9 million, respectively, and for the three months and six months ended July 3, 2010 was $2.1 million and $4.1 million, respectively. Expected amortization expense for the remainder of 2011 and for each of the five succeeding years is as follows: 2011 — $3.9 million, 2012 — $8.0 million, 2013 — $7.4 million, 2014 — $3.9 million, 2015 - $3.7 million and 2016 — $3.5 million.

Amortization expense for intangible assets and other items included in cost of sales, selling, general and administrative expense, and in research and development expenses for the three and six months ended July 2, 2011 and July 3, 2010 are summarized in the following table (in millions of dollars):

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Cost of sales		$	1.0				0.9				2.1				1.9
Selling, general and administrative			1.0				1.4				1.9				2.3
Research and development			0.1				0.1				0.1				0.1
Total amortization expense		$	2.1				2.4				4.1				4.3

4. Fair Value Measurements

The Company is required to disclose information about the estimated fair value of certain financial and non-financial assets and liabilities in accordance ASC Topic 820, Fair Value Measurements and Disclosures. This guidance indicates that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, this guidance establishes a three-tier fair-value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

•

Level 1 — Observable inputs consisting of quoted prices in active markets;

•

Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•

Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable and accrued expenses approximate their fair values because of the short-term maturity of these instruments. Of the $71.5 million of cash and cash equivalents at July 2, 2011, $34.4 million was held in Canada, $17.4 million was held in the U.K. and $13.5 million was held in the Netherlands.

The Company uses derivative financial instruments, in the form of foreign currency forward contracts (a single class of equity securities), in order to mitigate the risks associated with currency fluctuations on future fair values of foreign denominated assets and liabilities. The fair values of foreign currency contracts of $24,000 net liability and $467,000 net asset as of July 2, 2011 and December 31, 2010, respectively, are based on quoted market prices for similar instruments using the income approach (a level 2 input) and are reflected at fair value in the consolidated balance sheets.

The Company has two fixed-rate mortgages and has borrowings under its revolving credit facility. One mortgage has an 8.0% rate and a carrying amount as of July 2, 2011 and December 31, 2010 of $5.2 million and $5.7 million, respectively. The other mortgage has a 7.1% rate and a carrying amount as of July 2, 2011 and December 31, 2010 of $2.0 million and $2.3 million, respectively. The Company’s outstanding borrowings under its revolving credit facility were $34.5 million as of July 2, 2011. The estimated fair value of the Company’s total debt was $40.9 million as of July 2, 2011 and is based on quoted market prices for similar instruments (a level 2 input). Mortgage debt and borrowings under the Company’s credit facility are recorded in current and long-term debt on the Company’s consolidated balance sheets, at the amount of unpaid principal.

Management believes that these assets and liabilities can be liquidated without restriction.

The Company had a contingent consideration liability for earn-out provisions resulting from an acquisition completed in 2009. The contingency has since been settled and the remaining liability of $0.9 million was paid in cash in the first quarter of 2011. The estimated fair value of this contingent consideration liability was determined by applying a form of the income approach (a level 3 input) based on the probability-weighted projected payment amounts discounted to present value at a rate appropriate for the risk of achieving the milestones. There was no change in the estimated fair value of this contingent consideration liability in the three months and six months ended July 2, 2011, nor in the three months ended July 3, 2010. The estimated fair value of this contingent consideration liability increased by $0.2 million in the three months ended July 3, 2010 and was included in acquisition-related items in the Company’s consolidated statement of operations.

5. Interim Segment Disclosures

The Company is organized into four reportable segments: LXE, Global Tracking, Aviation, and Defense & Space (“D&S”). The Company determines operating segments in accordance with the Company’s internal management structure, which is organized based on products and services that share distinct operating characteristics. Each segment is separately managed and is evaluated primarily upon operating income and earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”).

The LXE segment manufactures mobile terminals and wireless data collection equipment for logistics management systems. LXE operates mainly in three target markets; the Americas market, which is comprised of North, South and Central America; the International market, which is comprised of all other geographic areas with the highest concentration in Europe; and direct sales to original equipment manufacturers (“OEM”). LXE’s service revenue is mainly generated from product-related repair contracts and extended warranty arrangements.

The Global Tracking segment provides satellite-based machine-to-machine mobile communications equipment and services to track, monitor and control remote, mobile and fixed assets. Additionally, Global Tracking provides equipment for the Cospas-Sarsat search-and-rescue system and incident-management software for rescue coordination worldwide. Global Tracking service revenue is mainly generated from airtime service contracts.

The Aviation segment designs and develops communications solutions through a broad array of terminals and antennas for the aeronautical market that enable end-users in aircraft to communicate over satellite and air-to-ground links. This segment also designs equipment to process data on board aircraft, including rugged data storage, cabin-wireless connectivity, and air-to-ground connectivity equipment. Aviation service revenue is generated mainly from product-related service contracts, extended warranty arrangements, and airtime services.

The Defense & Space segment manufactures custom-designed, highly engineered subsystems and provides design and development services on research projects for defense electronics and satellite applications. These applications include products from military communications, RADAR, surveillance and countermeasures to high-definition television, satellite radio, and live TV for commercial airlines. D&S’ service revenue is mainly generated from projects that are limited to design and development-related services, and from product-related service contracts.

Following is a summary of the Company’s interim segment data (in thousands):

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Net sales:
LXE		$	37,801				36,365				74,020				66,938
Global Tracking			11,736				10,526				21,644				20,386
Less intercompany sales			(186	)			(510	)			(358	)			(761	)
Global Tracking external sales			11,550				10,016				21,286				19,625
Aviation			25,947				25,338				50,957				51,524
Defense & Space			15,741				16,758				29,813				33,292
Total		$	91,039				88,477				176,076				171,379
Operating income (loss):
LXE		$	113				2,077				1,798				2,969
Global Tracking			1,190				684				1,395				838
Aviation			(2,867	)			1,816				(2,042	)			2,125
Defense & Space			292				1,694				724				2,612
Corporate & Other			(5,958	)			(1,097	)			(5,536	)			(1,445	)
Total		$	(7,230	)			5,174				(3,661	)			7,099

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Earnings (loss) before income taxes:
LXE		$	169				2,050				1,826				2,833
Global Tracking			1,184				888				1,343				934
Aviation			(2,943	)			1,877				(2,141	)			1,805
Defense & Space			292				1,694				724				2,616
Corporate & Other			(6,483	)			(1,532	)			(6,544	)			(2,276	)
Total		$	(7,781	)			4,977				(4,792	)			5,912

The expenses for Corporate & Other in the three and six months ended July 2, 2011 included professional fees, mainly related to the proxy contest initiated by one of our shareholders, the review of strategic alternatives, and the proposed merger with Honeywell, and $0.8 million of compensation expense related to an increase in the fair value of phantom stock awards granted the Company’s Directors, which together, was approximately $6.1 million and $6.8 million, respectively. These expenses were partially offset by costs allocated from Corporate and Other to our operating segments in those periods. We anticipate additional professional fees and transaction costs related to the merger in the third quarter of 2011.

		July 2				December 31
		2011				2010
Assets:
LXE		$	96,020				78,588
Global Tracking			81,638				80,103
Aviation			153,041				149,834
Defense & Space			41,477				45,968
Corporate & Other			18,752				18,451
Total		$	390,928				372,944
Concentration of net assets by geographic region:
United States		$	54,468				77,006
Canada			75,031				68,677
Europe			122,713				101,880
Other			9,092				9,457
Total		$	261,304				257,020

Sales to no individual customer exceeded 10% of our net sales during the three months and six months ended July 2, 2011, or July 3, 2010.

6. Earnings Per Share

Following is a reconciliation of the denominators for basic and diluted earnings per share calculations (in thousands):

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Basic weighted-average number of common shares outstanding			15,304				15,191				15,267				15,185
Dilutive potential shares using the treasury share method			—				39				—				33
Diluted weighted-average number of common shares outstanding			15,304				15,230				15,267				15,218
Shares that were not included in computation of diluted earnings per share that could potentially dilute future basic earnings per share because their effect on the periods were antidilutive			1,281				1,008				971				1,045

Basic earnings per share is the per-share allocation of income available to common shareholders based only on the weighted-average number of common shares actually outstanding during the period. Diluted earnings per share represents the per-share allocation of income attributable to common shareholders based on the weighted-average number of common shares actually outstanding plus all potential common share equivalents outstanding during the period, if dilutive. The Company uses the treasury stock method to determine diluted earnings per share. Potential dilutive shares were excluded from the computation of diluted net loss per share for the three and six months ended July 2, 2011 because the effect of their inclusion would have been anti-dilutive.

7. Comprehensive (Loss) Income

Following is a summary of comprehensive (loss) income (in thousands):

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Net (loss) earnings		$	(6,444	)			3,868				(4,050	)			4,459
Other comprehensive income (loss):
Foreign currency translation adjustment			1,116				(5,056	)			4,725				(3,245	)
		$	(5,328	)			(1,188	)			675				1,214

8. Inventories

Inventories as of July 2, 2011 and December 31, 2010 include the following (in thousands):

		July 2				December 31
		2011				2010
Parts and materials		$	30,942				24,996
Work-in-process			8,791				6,127
Finished goods			8,998				10,526
		$	48,731				41,649

Costs included in inventories related to long-term programs or contracts are primarily for materials and work performed on programs awaiting funding, or on contracts not yet finalized. Such costs were $4.1 million as of July 2, 2011, and $1.0 million as of December 31, 2010.

9. Revolving Credit Facility

As of July 2, 2011, the Company had $34.5 million of borrowings outstanding under its revolving credit facility.

The Company has $2.9 million of standby letters of credit to satisfy performance guarantee requirements under certain customer contracts. While these obligations are not normally called, they could be called by the beneficiaries at any time before the expiration date should the Company fail to meet certain contractual requirements. After deducting outstanding letters of credit, as of July 2, 2011 the Company had $24.7 million available for borrowing in the U.S. and $12.9 million available for borrowing in Canada under the revolving credit agreement.

10. Warranty Liability

The Company provides a limited warranty for a variety of its products. The specific terms and conditions of the warranties vary depending upon the specific products and markets. The Company records a liability at the time of sale for the estimated costs to be incurred under warranties, which is included in other current liabilities on the consolidated balance sheets. The amount of this liability is based upon historical, as well as expected, experience. The warranty liability is periodically reviewed for adequacy and adjusted as necessary. Following is a summary of the activity for the periods presented related to the Company’s liability for limited warranties (in thousands):

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Balance at beginning of the period		$	4,424				4,510				4,205				4,085
Accruals for warranties issued during the period			966				849				1,921				2,056
Settlements made during the period			(848	)			(835	)			(1,584	)			(1,617	)
Balance at end of period		$	4,542				4,524				4,542				4,524

11. Stock-Based and Other Compensation

The Company has granted nonvested restricted stock and nonqualified stock options to key employees and directors under several stock award plans. The Company granted stock awards with an aggregate fair value of approximately $2.9 million and $2.4 million during the first six months ended July 2, 2011 and July 3, 2010, respectively. Stock based compensation is recognized on a straight-line basis over the requisite service period for each separately vesting portion of an award as if the award was, in substance, multiple awards. The Company recognized expense of $0.5 million and $1.0 million in the three month and six month periods ended July 2, 2011, and $0.5 million and $0.9 million in three month and six month periods ended July 3, 2010, respectively, before income tax benefits, for all the Company’s stock plans.

On June 13, 2011, the Board of Directors approved an amendment to each of the Company’s stock incentive plans whereby upon a reorganization transaction, including a merger, consolidation, or acquisition in which the outstanding shares of the Company are converted into cash, all outstanding unvested stock options become fully vested and immediately exercisable at the commencement of a tender offer. All outstanding stock options not exercised as of the occurrence of a reorganization transaction shall be cancelled in exchange for payments of $33.00 in cash per option. If a reorganization transaction does not close, the options that were unvested prior to the commencement of a tender offer would again become unvested and vest over their stated vesting schedules. In addition, all unvested restricted stock awards granted under the Company’s stock incentive plans that are outstanding immediately prior to the time of acceptance of the tender offer by Honeywell will become fully vested and transferable upon the close of that tender offer as prescribed by the Merger Agreement.

12. Income Taxes

The Company’s effective income tax rate is generally less than the amounts computed by applying the U.S. federal income tax rate of 34% due to a portion of earnings being earned in Canada, where the Company’s effective rate is much lower than the rate in the U.S. due to research-related tax benefits. The three- and six-month periods ended July 2, 2011 each reflect a net tax benefit from the loss before income taxes. The rate of the benefit is less than U.S. statutory rate since tax benefits for certain loss jurisdictions have not been recognized and certain merger-related costs may not be deductible for income tax purposes. The rate in both periods in 2010 is higher than it otherwise would have been since tax benefits for certain loss jurisdictions had not been recognized and the estimated rate used for U.S. taxable income was higher in 2010 since certain key provisions of the U.S. tax law, including the research and development credit, had not been extended to be in effect for tax year 2010 until the fourth quarter of 2010.

The Company is currently undergoing audits at the federal level in the U.S. for tax year 2009, in Canada for the years 2006 and 2007 and in Germany for the years 2006 through 2008. The Company expects the audits to be completed in the next twelve months. Any related unrecognized tax benefits could be adjusted based on the results of the audits. The Company cannot estimate the range of the change that is reasonably possible at this time.

13. Litigation

On July 8, 2011, Victoria Shaev, filed a complaint (the “Shaev Complaint”) on behalf of herself and as a putative class action on behalf of the Company’s public shareholders against EMS, certain members of the Board of Directors (the “Individual Defendants”), certain members of management, Honeywell and Purchaser in the Superior Court of Fulton County of the State of Georgia. In the Shaev Complaint, plaintiff alleges, among other things, that the Individual Defendants breached their fiduciary duties in connection with the Offer and Merger by failing to engage in a fair sale process and by providing materially misleading and incomplete information regarding the transaction. The plaintiff also alleges that the Company, Parent and Purchaser have aided and abetted the alleged breach of fiduciary duties. The Shaev Complaint seeks judicial action, among other things, (i) declaring that the action is properly maintainable as a class action and certifying plaintiff as class representative and plaintiff’s counsel as class counsel, (ii) preliminary and permanently enjoining defendants from effectuating the transaction, (iii) declaring the transaction void and ordering rescission if the transaction is consummated, (iv) requiring disgorgement and imposing a constructive trust on all property and profits that the defendants receive as a result of their wrongful conduct, and (v) awarding damages, including rescissory damages, and reasonable fees and expenses. The Company and the other defendants believe the plaintiff’s allegations lack merit, and are contesting them vigorously.

The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

We are a leading provider of wireless connectivity solutions over satellite and terrestrial networks. We keep people and systems connected, wherever they are — on land, at sea, in the air or in space. Serving the aeronautical, asset-tracking, defense, and mobile computing industries, our products and services enable universal mobility, visibility and intelligence. Our operations include the following four reportable operating segments:

•

LXE — Provides rugged mobile terminals and wireless data networks used for logistics applications such as distribution centers, warehouses and container ports. LXE operates mainly in three markets: the Americas market, which is comprised of North, South and Central America; the International market, which is comprised of all other geographic areas, with the highest concentration in Europe; along with direct sales to original equipment manufacturers (“OEM”);

•

Global Tracking — Provides satellite-based machine-to-machine mobile communications equipment and services to track, monitor and control remote assets, regardless of whether they are fixed, semi-fixed or mobile. Additionally, Global Tracking provides equipment for the Cospas-Sarsat search-and-rescue system and incident-management software for rescue coordination worldwide;

•

Aviation — Designs and develops communications solutions through a broad array of terminals and antennas for the aeronautical market that enable end-users in aircraft and other mobile platforms to communicate over satellite and air-to-ground links. This segment also designs and builds aircraft cabin equipment to process data on board aircraft, including rugged data storage, cabin-wireless connectivity, and air-to-ground connectivity; and

•

Defense & Space (“D&S”) — Supplies 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.

Plan of Merger

On June 13, 2011, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Honeywell International Inc. (“Honeywell”), a Delaware corporation, and Egret Acquisition Corp., a Georgia corporation and a wholly-owned subsidiary of Honeywell (“Purchaser”). Under the terms of the Merger Agreement, Purchaser agreed to commence a tender offer (the “Offer”) to purchase all of the issued and outstanding shares of common stock, $0.10 par value, of the Company (the “Shares”) at a price of $33.00 per share (the “Offer Price”) in cash. Upon successful completion of the Offer, the Purchaser will merge with and into the Company (the “Merger”) and the Company will become a wholly owned subsidiary of Honeywell. At the effective time of the Merger, each remaining outstanding Share not tendered in the Offer will be converted into a cash amount equal to the Offer Price. All unvested stock options representing the right to purchase our common stock will vest and become exercisable prior to the acceptance for purchase of Shares in the Offer. At the effective time of the Merger, each then outstanding option will be cancelled and will represent the right to receive an amount in cash equal to the excess, if any, of the Offer Price over the exercise price of such option. In addition, at the time of the acceptance for purchase of Shares in the Offer, each share of restricted stock under the Company’s equity incentive plans that is outstanding shall become fully vested. The Company’s Board of Directors has unanimously approved the Merger Agreement and has recommended that shareholders tender their Shares into the Offer. EMS and Honeywell will continue to operate separately until the transaction closes. The Merger Agreement is subject to customary closing conditions and is expected to close in the third quarter of 2011. For further information on the Offer and Merger, refer to Note 2 of our consolidated financial statements in this Quarterly Report.

The foregoing description of the Offer, Merger and Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to (i) the Merger Agreement, a copy of which is filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 13, 2011 and incorporated herein by reference, and is included to provide investors with information regarding its terms, and (ii) the information contained in the Tender Offer Statement on Schedule TO filed by Purchaser on June 27, 2011, as amended from time to time, and the Solicitation/Recommendation Statement on Schedule 14D-9 filed by us with the SEC on June 27, 2011, as amended from time to time.

Following is a summary of significant factors affecting or related to our results of operations for the three and six months ended July 2, 2011:

•

Consolidated net sales were $91.0 million and $176.1 million in the three and six months ended July 2, 2011, up approximately 3% from the same periods in 2010, reflecting the second highest second quarter and first six months sales in our history. The increase in net sales was mainly driven by record sales achieved by our LXE segment for both periods in 2011, reflecting the continued improvement in the overall logistics market and the positive effects of changes in its marketing strategy. Net sales also increased at Global Tracking primarily from an increase in shipments of tracking product to the security market in both periods of 2011. Net sales at our D&S segment were lower in the three and six months ended July 2, 2011 as compared to the same period in 2010 mainly due to a decrease in activity on certain development programs that were completed at the end of 2010. However, net sales were higher in the second quarter of 2011 by $1.7 million as compared with the first quarter of 2011 due to an acceleration in scheduled production activity for certain programs. Net sales at Aviation were comparable in both periods.

•

Operating results for the second quarter and first six months of 2011 included charges of $6.1 million and $6.8 million, respectively, for proxy contest and merger related costs. These costs were primarily for professional fees related to the proxy contest initiated by one of our shareholders, professional fees related to the review of various strategic alternatives and costs related to the proposed merger with Honeywell. We anticipate additional professional fees related to the merger in the third quarter of 2011.

•

On a consolidated basis, we incurred losses of $6.4 million and $4.1 million for the three and six months ended July 2, 2011, respectively, despite positive net earnings reported by three of our four segments. The net losses were mainly due to approximately $6 million for proxy contest and merger related costs, a $2.2 million net loss recorded by our Aviation segment, and research and development costs and marketing expenses related to new product introductions that were included in the second quarter of 2011. New products were introduced by our LXE (the ThorTM vehicle-mount computer and the MarathonTM field computer), Aviation (the Aspire line of satellite communication equipment and the portable Airmail solutions) and Global Tracking (the OCC-600 operations control console for emergency management applications) segments.

•

Certain of our markets continue to see the unfavorable impact of the economy, and they are not immune to increasing pressures and risks. We expect that we will continue to be faced with these economic pressures at least through 2011. The economy and other factors could cause a decline in expected future cash flows for one or more of our business units, and it is reasonably possible that we may be required to recognize impairment losses related to goodwill or other long-lived assets.

Results of Operations

The following table sets forth items from the consolidated statements of operations as reported and as a percentage of net sales (or product net sales and service net sales for product cost of sales and service cost of sales, respectively) for each period (in thousands, except percentages):

		Three Months Ended																Six Months Ended
		July 2								July 3								July 2								July 3
		2011								2010								2011								2010
Product net sales		$	75,567				83.0	%		$	71,879				81.2	%		$	146,563				83.2	%		$	138,080				80.6	%
Service net sales			15,472				17.0				16,598				18.8				29,513				16.8				33,299				19.4
Net sales			91,039				100.0				88,477				100.0				176,076				100.0				171,379				100.0
Product cost of sales			53,419				70.7				48,066				66.9				100,165				68.3				93,311				67.6
Service cost of sales			7,828				50.6				8,054				48.5				14,642				49.6				16,091				48.3
Cost of sales			61,247				67.3				56,120				63.4				114,807				65.2				109,402				63.9
Selling, general and administrative expenses			23,987				26.3				22,128				25.1				45,501				25.9				43,801				25.6
Research and development expenses			6,921				7.6				4,709				5.3				12,595				7.1				10,130				5.9
Proxy contest and merger-related costs			6,114				6.7				—				—				6,834				3.9				—				—
Impairment loss on goodwill related charges			—				—				—				—				—				—				384				0.2
Acquisition-related items			—				—				346				0.4				—				—				563				0.3
Operating (loss) income			(7,230	)			(7.9	)			5,174				5.8				(3,661	)			(2.1	)			7,099				4.1
Interest income			110				0.1				101				0.1				222				0.1				281				0.2
Interest expense			(557	)			(0.6	)			(542	)			(0.6	)			(1,070	)			(0.6	)			(1,019	)			(0.6	)
Foreign exchange(loss) gain, net			(104	)			(0.1	)			244				0.3				(283	)			(0.1	)			(449	)			(0.3	)
(Loss) earnings before income taxes			(7,781	)			(8.5	)			4,977				5.6				(4,792	)			(2.7	)			5,912				3.4
Income tax (benefit) expense			(1,337	)			(1.4	)			1,109				1.2				(742	)			(0.4	)			1,453				0.8
Net (loss) earnings		$	(6,444	)			(7.1	)%		$	3,868				4.4	%		$	(4,050	)			(2.3	)%		$	4,459				2.6	%

Three Months ended July 2, 2011 and July 3, 2010:

Net sales increased by 2.9% to $91.0 million from $88.5 million in the three months ended July 2, 2011 compared with the same period in 2010. Higher net sales from our LXE, Global Tracking and Aviation segments were partially offset by lower net sales from our D&S segment. LXE reported record second quarter net sales in the three months ended July 2, 2011 which were $1.4 million higher than in the same period in 2010, due to a higher volume of terminal shipments and continued growth in demand for rugged handheld computer products to OEM partners. Net sales were higher at Global Tracking primarily as a result of higher shipments of tracking products to the security market and an increase in service revenue from support contracts generated by emergency management projects. Net sales were higher at Aviation mainly due to higher net sales from high-speed-data aeronautical products mainly to OEM partners which offset lower net sales of in-cabin connectivity products into the general aviation market. Net sales were lower at D&S mainly due to a decrease in activity on design and development projects and a slow-down in the volume of orders received in late 2010 and in 2011.

Product net sales increased by 5.1% to $75.6 million in the three months ended July 2, 2011 as compared with the same period in 2010. Each of our four segments contributed to the $3.7 million increase in product net sales in the three months ended July 2, 2011 with the most significant increases contributed by our LXE and D&S segments. LXE’s product shipments reached an all-time high for second quarter sales in 2011, and D&S had an increase in activity mainly on a significant commercial program to provide antenna products for airborne internet and cell phone service and on a space program to provide component parts for the Iridium NEXT constellation in the second quarter of 2011. Service net sales decreased by 6.8% to $15.5 million in the three months ending July 2, 2011 compared with the same period in 2010 mainly due to certain significant design and development projects at D&S that were included in net sales in the three months ended July 3, 2010 but have since concluded and were not included in its net sales in the three months ended July 2, 2011.

Overall cost of sales as a percentage of consolidated net sales was higher in the three months ended July 2, 2011 compared with the same period in 2010 due to higher cost-of-sales percentages reported by three of our four reportable operating segments. Product cost of sales and service cost of sales, as a percentage of their respective net sales, were higher in the three months ended July 2, 2011 compared with the same periods of 2010. Our product cost-of-sales percentage was higher mainly due to a less favorable product mix and lower labor utilization rates at D&S, and a less favorable product mix, an increase in contract costs on certain development programs, and an unfavorable effect of changes in foreign currency exchange rates that affected our reported international costs at Aviation in 2011. Our service cost-of-sales percentage was higher primarily as a result of higher discounts on service contracts, and higher labor costs at LXE in 2011, partially offset by a lower proportion of service revenues generated from our D&S segment, which has a higher service cost-of-sales percentage than our other three reportable operating segments.

Selling, general and administrative expenses as a percentage of consolidated net sales increased for the three months ended July 2, 2011 compared with same period in 2010. Actual expenses increased by $1.9 million in 2011 mainly from higher commissions and other selling expenses resulting from the growth in net sales at LXE, an increase in marketing expenses related to new products introductions in the second quarter of 2011 at LXE and Aviation, an unfavorable effect of foreign currency exchange rates on LXE and Aviation’s international expenses, and higher depreciation expense related to the upgrade of LXE’s enterprise reporting system in 2011.

Research and development expenses were $2.2 million higher in the three months ended July 2, 2011 than in the comparable period in 2010 mainly due to additional expenses related to the development of new products as well as the unfavorable effect of changes in foreign currency exchange rates on our Canadian expenses.

Proxy contest and merger related costs included charges of $6.1 million in the second quarter of 2011. These costs were primarily for professional fees related to the proxy contest initiated by one of our shareholders, professional fees related to the review of various acquisition alternatives and transaction costs related to the proposed merger with Honeywell. These costs also included $0.8 million of compensation expense related to an increase in the fair value of phantom stock awards granted the Company’s Directors. We anticipate additional professional fees and transaction costs related to the merger in the third quarter of 2011.

We recognized income tax benefit of $1.4 million in the three months ended July 2, 2011, equal to 17% of the loss before income taxes, and income tax expense of $1.1 million in the three months ended July 3, 2010, equal to 23% of earnings before income taxes. The Company’s effective income tax rate is generally less than the amounts computed by applying the U.S. federal income tax rate of 34% due to a portion of earnings being earned in Canada, where the Company’s effective rate is much lower than the rate in the U.S. due to research-related tax benefits. The rate of the benefit in 2011 is less than U.S. statutory rate since tax benefits for certain loss jurisdictions have not been recognized and certain merger-related costs may not be deductible for income tax purposes. The rate in 2010 is higher than it otherwise would have been since tax benefits for certain loss jurisdictions had not been recognized and the estimated rate used for U.S. taxable income was higher in 2010 since certain key provisions of the U.S. tax law, including the research and development credit, had not been extended to be in effect for tax year 2010 until the fourth quarter of 2010.

Six Months ended July 2, 2011 and July 3, 2010:

Net sales increased by 2.7% to $176.1 million from $171.4 million in the six months ended July 2, 2011 compared with the same period in 2010. Higher net sales from our LXE and Global Tracking segments were partially offset by lower net sales from our D&S and Aviation segments. LXE reported record net sales for the first six month period in the six months ended July 2, 2011 which were $7.1 million higher than in the same period in 2010 mainly due to a higher volume of terminal shipments and continued growth in demand for rugged handheld computer products to OEM in 2011. Net sales were higher at Global Tracking primarily a result of higher shipments of tracking products to the security market, an increase in service revenue from support contracts generated by emergency management projects, and higher airtime revenues in the first six months of 2011 as compared with the same period of 2010, mainly due an increase in the average revenue generated per terminal in 2011. Net sales were lower at D&S mainly due to a decrease in activity on design and development projects and a slow-down in the volume of orders received in late 2010 and in 2011. Net sales were lower at Aviation mainly due to a decrease in net sales of in-cabin connectivity products into the general aviation market as orders continue to fluctuate due to changes in the airline’s rollout schedule of connectivity, and from fewer funded engineering projects in the first six months of 2011 as compared with the same period in 2010, partially offset by higher net sales of high-speed-data aeronautical products as compared with the same period in 2010.

Product net sales increased by 6.1% to $146.6 million in the six months ended July 2, 2011 as compared with the same period in 2010. Each of our four segments contributed to the $8.5 million increase in product net sales in the six months ended July 2, 2011 with the most significant increases contributed by our LXE segment. LXE’s product shipments reached an all-time high for the first six-month period in 2011 reflecting growth in net sales in the Americas, International and OEM markets. Service net sales decreased by 11.4% to $29.5 million in the six months ending July 2, 2011 compared with the same period in 2010 mainly due to certain significant design and development projects at D&S that were included in net sales in the six months ended July 3, 2010 but have since concluded and were not included in its net sales in the six months ended July 2, 2011, higher discounts on service contracts as a result of competitive pricing pressures mainly in the international market, and a lower volume of funded engineering projects at Aviation in 2011.

Overall cost of sales as a percentage of consolidated net sales was higher in the six months ended July 2, 2011 compared with the same period in 2010 due to higher cost-of-sales percentages reported by each of our four reportable operating segments. Product cost of sales and service cost of sales, as a percentage of their respective net sales, were higher in the six months ended July 2, 2011 compared with the same period in 2010. Our product cost-of-sales percentage was higher mainly due to a less favorable product mix and lower labor utilization rates at D&S, and a less favorable product mix, an increase in contract costs on certain development programs, and an unfavorable effect of changes in foreign currency exchange rates that affected our reported international costs at Aviation in 2011. Our service cost-of-sales percentage was higher primarily as a result of higher discounts on service contracts, and higher labor costs at LXE in 2011, partially offset by a lower proportion of service revenues generated from our D&S segment, which has a higher service cost-of-sales percentage than our other three reportable operating segments.

Selling, general and administrative expenses as a percentage of consolidated net sales increased for the six months ended July 2, 2011 compared with same period in 2010. Actual expenses increased by $1.7 million in 2011 mainly from higher commissions and other selling expenses resulting from the growth in net sales at LXE, an increase in marketing expenses related to new product introductions in the second quarter of 2011 at LXE and Aviation, unfavorable effect of foreign currency exchange rates on LXE and Aviation’s international expenses, and higher depreciation expense related to the upgrade of LXE’s enterprise reporting system in 2011.

Research and development expenses were $2.5 million higher in the six months ended July 2, 2011 than in the comparable period of 2010 mainly due to additional expenses related to the development of new products as well as the unfavorable effect of changes in foreign currency exchange rates on our Canadian expenses.

Proxy contest and merger related costs included charges of $6.8 million in the first six months of 2011. These costs were primarily for professional fees related to the proxy contest initiated by one of our shareholders, professional fees related to the review of various acquisition alternatives and transaction costs related to the proposed merger with Honeywell. These costs also included $0.8 million of compensation expense related to an increase in the fair value of phantom stock awards granted the Company’s Directors. We anticipate additional professional fees and transaction costs related to the merger in the third quarter of 2011.

We recognized income tax benefit of 0.8 million in the six months ended July 2, 2011, equal to 16% of the loss before income taxes, and income tax expense of $1.5 million in the six months ended July 3, 2010, equal to 25% of earnings before income taxes. The Company’s effective income tax rate is generally less than the amounts computed by applying the U.S. federal income tax rate of 34% due to a portion of earnings being earned in Canada, where the Company’s effective rate is much lower than the rate in the U.S. due to research-related tax benefits. The rate of the benefit in 2011 is less than U.S. statutory rate since tax benefits for certain loss jurisdictions have not been recognized and certain merger-related costs may not be deductible for income tax purposes. The rate in 2010 is higher than it otherwise would have been since tax benefits for certain loss jurisdictions had not been recognized and the estimated rate used for U.S. taxable income was higher in 2010 since certain key provisions of the U.S. tax law, including the research and development credit, had not been extended to be in effect for tax year 2010 until the fourth quarter of 2010.

Segment Analysis

Our segment net sales, cost of sales as a percentage of respective segment net sales, and segment operating income (loss) and Adjusted EBITDA were as follows (in thousands, except percentages):

																		Percentage
		Three Months Ended								Six Months Ended								Increase (Decrease)
		July 2				July 3				July 2				July 3				Three				Six
		2011				2010				2011				2010				Months				Months
Net sales:
LXE		$	37,801				36,365				74,020				66,938				3.9	%			10.6
Global Tracking			11,736				10,526				21,644				20,386				11.5				6.2
Less intercompany sales			(186	)			(510	)			(358	)			(761	)
Global Tracking external sales			11,550				10,016				21,286				19,625
Aviation			25,947				25,338				50,957				51,524				2.4				(1.1	)
Defense & Space			15,741				16,758				29,813				33,292				(6.1	)			(10.4	)
Total		$	91,039				88,477				176,076				171,379				2.9				2.7
Cost of sales percentage:
LXE			62.4	%			59.7				61.6				59.1				2.7				2.5
Global Tracking			49.1				51.1				52.0				51.8				(2.0	)			0.2
Aviation			73.1				62.7				69.0				65.0				10.4				4.0
Defense & Space			79.5				74.5				77.9				76.0				5.0				1.9
Total			67.3				63.4				65.2				63.9				3.9				1.3
Operating (loss) income:
LXE		$	113				2,077				1,798				2,969				(94.6	)			(39.4	)
Global Tracking			1,190				684				1,395				838				74.0				66.5
Aviation			(2,867	)			1,816				(2,042	)			2,125					(2)				(2)
Defense & Space			292				1,694				724				2,612				(82.8	)			(72.3	)
Corporate & Other			(5,958	)			(1,097	)			(5,536	)			(1,445	)				(2)			283.1
Total		$	(7,230	)			5,174				(3,661	)			7,099				(239.7	)			(151.6	)
Adjusted EBITDA (1)
LXE		$	1,398				3,076				4,112				4,783				(54.6	)			(14.0	)
Global Tracking			2,165				1,808				3,275				2,762				19.7				18.6
Aviation			(810	)			3,713				1,959				5,872				(121.8	)			(66.6	)
Defense & Space			1,186				2,616				2,474				4,447				(54.7	)			(44.4	)
Corporate & Other			490				(84	)			2,145				718					(2)			198.7
Total		$	4,429				11,129				13,965				18,582				(60.2	)			(24.8	)

(1)		Adjusted EBITDA is a financial measure that is not defined within generally accepted accounting principles (“GAAP”). See section entitled “Adjusted EBITDA” for an explanation of this measure and a reconciliation of the measure to net earnings (loss).
(2)		The percentage change is not calculable or not meaningful.

LXE: Net sales for LXE reached an all-time high for second quarter and first six months sales in the three and six months ended July 2, 2011. Net sales improved by $1.4 million and $7.1 million in the second quarter and first six months of 2011, respectively, as compared with the same periods in 2010. Net sales increased in the International market and to OEMs in both the second quarter and first six months of 2011, as compared with the same periods in 2010. Net sales to the Americas market were lower in the second quarter of 2011, and increased in the first six months of 2011 as compared with the same periods in 2010 mainly due to the timing of shipments in those periods. The improvement in net sales in both the second quarter and first six months of 2011 was mainly due to a higher volume of terminal shipments reflecting the continued improvement in the overall market in 2011, the continued success of LXE’s marketing strategy to extend its market reach through channel partners and distributors, and the strong demand for rugged handheld computer products which has continued to gain acceptance in the OEM market. The improvement in net sales was also due to the favorable effects of foreign currency translation on net sales due to the weaker U.S. dollar relative to foreign currencies in the second quarter and first six months of 2011 as compared with the same periods in 2010.

Cost of sales as a percentage of net sales was higher in the second quarter and first six months of 2011 as compared with the same periods of 2010 mainly due to a higher cost-of-sales percentage related to LXE’s service revenue in 2011. The increase in LXE’s service cost-of-sales percentage was mainly due to higher discounts on service contracts as a result of competitive pricing pressures mainly in the international market, and higher labor costs for additional resources needed in the second quarter of 2011 to address the repair order backlog that resulted during the upgrade of LXE’s enterprise reporting system in the first quarter of 2011.

LXE generated operating income of $0.1 million in the second quarter of 2011 as compared with $2.1 million in the second quarter of 2010. This decrease in operating income of $2.0 million was mainly a result of a lower margin contribution generated from a less favorable cost-of-sales percentage, higher commissions and other selling expenses as a result of the higher net sales, an increase in marketing expenses related to LXE’s new products introductions, the Thor^TM vehicle-mount computer and the Marathon^TM field computer, in the second quarter of 2011, and higher depreciation expense related to the upgrade of LXE’s enterprise reporting system in 2011. Operating income as a percentage of net sales was 0.3% and 5.7% in the second quarter of 2011 and 2010, respectively, and was 2.4% and 4.4% in the first six months of 2011 and 2010, respectively.

Adjusted EBITDA decreased by $1.7 million and $0.7 million in the second quarter and first six months of 2011, respectively, as compared with the second quarter and first six months of 2010, respectively, mainly due to a decrease in operating income in 2011. The decrease in Adjusted EBITDA was partially offset by a favorable change in foreign currency gains and losses for the second quarter and first six months of 2011 as compared with the same periods in 2010.

Global Tracking: Net sales increased by $1.2 million and $1.3 million in the second quarter and first six months of 2011, respectively, as compared with the same periods in 2010. The increase in net sales was primarily a result of higher shipments of our tracking products mainly to the security market in the second quarter and first six months of 2011 as compared with the same periods in 2010, reflecting the continued strong demand for tracking and monitoring products in that market and an increase in service revenue from support contracts generated by emergency management projects in both periods. These increases in net sales were partially offset by lower product revenues generated from emergency management projects. Airtime revenues were comparable in the second quarter of 2011 and the second quarter of 2010. Airtime revenues increased in the first six months of 2011 as compared with the same period in 2010, mainly due an increase in the average revenue generated per terminal in 2011.

Cost of sales as a percentage of net sales was lower for the second quarter of 2011 as compared with the second quarter of 2010 primarily due to a more favorable product mix. Cost of sales as a percentage of net sales was relatively unchanged for the first six months of 2011 as compared with the first six months of 2010.

Operating income increased by $0.5 million and $0.6 million in the second quarter and first six months of 2011, respectively, as compared with the same periods in 2010, primarily as a result of higher net sales, and lower selling, general and administrative expense in 2011, partially offset by an increase in development expenses. Operating income also increased in the first six months of 2011 due to a higher contribution margin from the lower cost-of-sales percentage in 2011. The lower selling, general and administrative expense was mainly due to lower administrative costs allocated to the Global Tracking segment related to the Ottawa operation that is shared with the Aviation segment. The increase in development expenses was mainly for design and development efforts to enable existing tracking products to be compatible with other satellite platforms, and for the development of Global Tracking’s latest operations control console, the OCC-600, for emergency management applications. Operating income as a percentage of net sales was 10.1% and 6.5% in the second quarter of 2011 and 2010, respectively, and was 6.4% and 4.1% in the first six months of 2011 and 2010, respectively.

Adjusted EBITDA increased by $0.4 million and $0.5 million in the second quarter and first six months of 2011, respectively, as compared with the second quarter and first six months of 2010, respectively, mainly due to an increase in operating income in 2011. The increase in Adjusted EBITDA in both the second quarter and first six months of 2011 was partially offset by an unfavorable change in foreign currency gains and losses in 2011.

Aviation: Net sales increased by $0.6 million in the second quarter of 2011 as compared with the second quarter of 2010, and decreased by $0.6 million in first six months of 2011 as compared with the first six months of 2010. Net sales were higher in the second quarter and first six months of 2011 from high-speed-data aeronautical products mainly to OEM partners as compared with the same periods in 2010. These higher net sales were partially offset in the second quarter of 2011, and fully offset in the first six months of 2011, due to lower net sales of in-cabin connectivity products into the general aviation market as orders continue to fluctuate due to changes in the airline’s rollout schedule of connectivity, and from fewer funded engineering projects in both the second quarter and first six months of 2011 as compared with the same periods in 2010.

Cost of sales as a percentage of net sales was higher in the second quarter and first six months of 2011 as compared with the second quarter and first six months of 2010 mainly due to a less favorable product mix, an increase in contract costs on certain development programs, and an unfavorable effect of changes in foreign currency exchange rates that affected our reported international costs in 2011.

Operating income decreased by $4.7 million and $4.2 million in the second quarter and first six months of 2011 as compared with the same periods in 2010, respectively. The decrease in operating income was primarily as a result of a lower margin contribution from the unfavorable changes in the cost-of-sales percentage, and an increase in selling, general and administrative costs and higher research development expenses. The decrease in operating income in the first six months of 2011 was also due to lower net sales generated in the first six months of 2011. The increase in selling, general and administrative costs and higher research and development expenses was mainly related to Aviation’s new product introductions in the second quarter of 2011, including the Aspire line of satellite communication equipment and the portable Airmail solutions. In addition, operating costs increased in 2011 as a result of an unfavorable effect of foreign currency exchange rates, lower administrative costs allocated to the Global Tracking segment related to the Ottawa operation that is shared with the Global Tracking segment. Operating results as a percentage of net sales was a negative 11.0% and a positive 7.2% in the second quarter of 2011 and 2010, respectively, and was a negative 4.0% and a positive 4.1% in the first six months of 2011 and 2010, respectively.

Adjusted EBITDA decreased by $4.5 million and $3.9 million in the second quarter and first six months of 2011, respectively, as compared with the second quarter and first six months of 2010, respectively, mainly due to a decrease in operating income in 2011, partially offset by lower amortization in 2011. The decrease in Adjusted EBITDA was also impacted by an unfavorable change in foreign currency gains and losses in the second quarter of 2011 as compared with the second quarter of 2010. But, the decrease in Adjusted EBITDA for the first six months of 2011 was partially offset by a favorable change in foreign currency gains and losses as compared with the same period of 2010.

Defense & Space: Net sales were lower by $1.0 million and $3.5 million in the second quarter and first six months of 2011 as compared with the same periods of 2010 mainly due to a decrease in activity on certain development programs that were completed at the end of 2010, and lower labor utilization rates resulting from a decrease in the number of programs available for near-term efforts. These decreases were partially offset by an increase in activity on a significant commercial program to provide antenna products for airborne internet and cell phone service and on a space program to provide component parts for the Iridium NEXT constellation in the second quarter of 2011. Net sales were also lower in the first six months of 2011 as compared with the same period in 2010 due to an unfavorable impact of severe weather that resulted in fewer working days in D&S’s Atlanta facility in the first quarter of 2011. However, net sales were higher in the second quarter of 2011 by $1.7 million as compared with the first quarter of 2011 due to an acceleration in scheduled production activity for certain programs to utilize excess short-term capacity. Order backlog of long-term development and production contracts increased by $3.0 million from December 31, 2010 to $76.1 million as of July 2, 2011. Other than a significant order for component parts for the Iridium NEXT constellation, orders have been lower than expected during 2011. The low order volume and a less favorable contract mix is expected to cause operating profits to be lower for D&S at least through the remainder of 2011 as compared with 2010.

Cost of sales as a percentage of net sales for second quarter and first six months of 2011 was higher as compared with the same periods in 2010 mainly due to lower labor utilization rates and a less favorable contract mix in 2011.

Operating income was lower by $1.4 million and $1.9 million in the second quarter and first six months of 2011, respectively, as compared with the same periods in 2010. The lower operating income was primarily due to the decrease in net sales generated in the second quarter and first six months of 2011, and the less favorable cost-of-sales percentage in those periods. Operating income was also lower due to increased sales commissions mainly due to higher commission fees related to the order for component parts for the Iridium NEXT constellation, and higher research and development costs to expand its technology base. Operating income as a percentage of net sales was 1.9% and 10.1% in the second quarter of 2011 and 2010, respectively, and was 2.4% and 7.8% in the first six months of 2011 and 2010, respectively.

Adjusted EBITDA decreased by $1.4 million and $2.0 million in the second quarter and first six months of 2011, respectively, as compared with the second quarter and first six months of 2010, respectively, mainly due to a decrease in operating income in 2011.

Supplemental Information

In February 2011, we formed EMS Global Resource Management, which is a combination of the LXE and Global Tracking segments. We also have begun the alignment of Aviation and D&S as the AeroConnectivity group. We have included the net sales, cost-of-sales (as a percentage of respective market net sales), operating income (loss) and Adjusted EBITDA for the three and six months ended July 2, 2011 and July 3, 2010 for these groups as follows (in thousands, except percentages):

		Three Months Ended								Six Months Ended
		July 2				July 3				July 2				July 3
		2011				2010				2011				2010
Net sales:
LXE		$	37,801				36,365				74,020				66,938
Global Tracking			11,550				10,016				21,286				19,625
Global Resource Management			49,351				46,381				95,306				86,563
Aviation			25,947				25,338				50,957				51,524
Defense & Space			15,741				16,758				29,813				33,292
AeroConnectivity			41,688				42,096				80,770				84,816
Total		$	91,039				88,477				176,076				171,379
Cost of sales percentage:
LXE			62.4	%			59.7				61.6				59.1
Global Tracking			49.1				51.1				52.0				51.8
Global Resource Management			59.2				57.8				59.4				57.4
Aviation			73.1				62.7				69.0				65.0
Defense & Space			79.5				74.5				77.9				76.0
AeroConnectivity			75.5				67.4				72.3				69.3
Total			67.3				63.4				65.2				63.9