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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 For the quarterly period ended October 2, 2004 Commission file number 000-06072 EMS TECHNOLOGIES, INC. 
  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)
 (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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes þ No o The number of shares outstanding of each of the issuers classes of common
stock, as of the close of business on November 5, 2004: Class
    
    Number of SharesCommon Stock, $.10 par Value
    
    11,133,494
 AVAILABLE INFORMATION EMS Technologies, Inc. makes available free of charge, on or through its
website at www.ems-t.com, its annual, quarterly and current reports, and any
amendments to those reports, as soon as reasonably practicable after
electronically filing such reports with the Securities and Exchange Commission.
Information contained on the Companys website is not part of this report.




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TABLE OF CONTENTS PART I  FINANCIAL INFORMATION
    
    
    2ITEM 1. Financial Statements
    
    
    2Consolidated Statements of Operations
    
    
    2Consolidated Balance Sheets
    
    
    3Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19ITEM 4. Controls and Procedures
    
    
    20PART II  OTHER INFORMATION
    
    
    21ITEM 1. Legal Proceedings
    
    
    21ITEM 6. Exhibits
    
    
    21SIGNATURES
    
    
    22EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO AND CFO




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PART I FINANCIAL INFORMATION 
 ITEM 1. Financial Statements EMS Technologies, Inc. and Subsidiaries 
 Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 Quarters Ended
    
    Nine Months EndedOct 2
    
    Sep 27
    
    Oct 2
    
    Sep 272004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    62,368
    
    
    
    61,534
    
    
    
    190,971
    
    
    
    183,342Cost of sales
    
    
    40,800
    
    
    
    39,408
    
    
    
    123,714
    
    
    
    116,674Selling, general and administrative expenses
    
    
    15,349
    
    
    
    14,305
    
    
    
    46,604
    
    
    
    41,532Research and development expenses
    
    
    4,557
    
    
    
    4,437
    
    
    
    14,579
    
    
    
    13,896Operating income
    
    
    1,662
    
    
    
    3,384
    
    
    
    6,074
    
    
    
    11,240Non-operating income (expense), net
    
    
    130
    
    
    
    (9
    )
    
    
    1,113
    
    
    
    (287
    )Foreign exchange loss
    
    
    (204
    )
    
    
    (10
    )
    
    
    (299
    )
    
    
    (422
    )Interest expense
    
    
    (601
    )
    
    
    (534
    )
    
    
    (1,824
    )
    
    
    (1,551
    )Earnings from continuing operations before income taxes
    
    
    987
    
    
    
    2,831
    
    
    
    5,064
    
    
    
    8,980Income tax expense
    
    
    (316
    )
    
    
    (899
    )
    
    
    (1,621
    )
    
    
    (2,874
    )Earnings from continuing operations
    
    
    671
    
    
    
    1,932
    
    
    
    3,443
    
    
    
    6,106Discontinued operations (note 2):Loss from discontinued operations before income taxes
    
    
    (2,317
    )
    
    
    (24,999
    )
    
    
    (3,093
    )
    
    
    (43,753
    )Income tax benefit (expense)
    
    
    (70
    )
    
    
    2,476
    
    
    
    (70
    )
    
    
    3,008Loss from discontinued operations
    
    
    (2,387
    )
    
    
    (22,523
    )
    
    
    (3,163
    )
    
    
    (40,745
    )Net earnings (loss)
    
    $
    (1,716
    )
    
    
    (20,591
    )
    
    
    280
    
    
    
    (34,639
    )Net earnings (loss) per share (note 4):Basic:Earnings from continuing operations
    
    $
    0.06
    
    
    
    0.18
    
    
    
    0.31
    
    
    
    0.57Loss from discontinued operations
    
    
    (0.21
    )
    
    
    (2.11
    )
    
    
    (0.28
    )
    
    
    (3.82
    )Net earnings (loss)
    
    $
    (0.15
    )
    
    
    (1.93
    )
    
    
    0.03
    
    
    
    (3.25
    )Diluted:Earnings from continuing operations
    
    $
    0.06
    
    
    
    0.18
    
    
    
    0.31
    
    
    
    0.57Loss from discontinued operations
    
    
    (0.21
    )
    
    
    (2.09
    )
    
    
    (0.29
    )
    
    
    (3.81
    )Net earnings (loss)
    
    $
    (0.15
    )
    
    
    (1.91
    )
    
    
    0.02
    
    
    
    (3.24
    )Weighted average number of shares (note 4):Basic
    
    
    11,114
    
    
    
    10,668
    
    
    
    11,076
    
    
    
    10,662Diluted
    
    
    11,189
    
    
    
    10,778
    
    
    
    11,238
    
    
    
    10,707
 See accompanying notes to interim consolidated financial statements. 2




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EMS Technologies, Inc. and Subsidiaries 
 Consolidated Balance Sheets (Unaudited)
(in thousands)
 Oct 2
    
    Dec 312004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,712
    
    
    
    14,180Trade accounts receivable, net (note 6)
    
    
    70,799
    
    
    
    71,431Inventories, net (note 7)
    
    
    37,790
    
    
    
    33,509Deferred income taxes  current
    
    
    2,208
    
    
    
    2,208Assets held for sale (note 2)
    
    
    45,448
    
    
    
    40,059Total current assets
    
    
    166,957
    
    
    
    161,387Property, plant and equipment:Land
    
    
    1,150
    
    
    
    2,174Building and leasehold improvements
    
    
    15,140
    
    
    
    15,000Machinery and equipment
    
    
    78,565
    
    
    
    73,474Furniture and fixtures
    
    
    7,840
    
    
    
    7,318Total property, plant and equipment
    
    
    102,695
    
    
    
    97,966Less accumulated depreciation and amortization
    
    
    65,543
    
    
    
    59,485Net property, plant and equipment
    
    
    37,152
    
    
    
    38,481Deferred income taxes  non-current
    
    
    2,679
    
    
    
    2,679Intangible assets, net of accumulated amortization
    
    
    3,637
    
    
    
    3,121Goodwill
    
    
    13,526
    
    
    
    13,526Other assets
    
    
    7,356
    
    
    
    9,355$
    231,307
    
    
    
    228,549
 See accompanying notes to interim consolidated financial statements. 3




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EMS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited), continued
(in thousands, except share data) Oct 2
    
    Dec 312004
    
    2003LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    39,669
    
    
    
    38,056Accounts payable
    
    
    18,416
    
    
    
    18,812Accrued compensation costs
    
    
    6,844
    
    
    
    7,823Income tax payable
    
    
    807
    
    
    
    Accrued retirement costs
    
    
    2,079
    
    
    
    2,637Deferred service revenue
    
    
    5,572
    
    
    
    4,730Liabilities related to assets held for sale (note 2)
    
    
    17,184
    
    
    
    17,765Other current liabilities
    
    
    3,148
    
    
    
    3,147Total current liabilities
    
    
    93,719
    
    
    
    92,970Long-term debt, excluding current installments
    
    
    14,996
    
    
    
    15,537Total liabilities
    
    
    108,715
    
    
    
    108,507Stockholders equity:Preferred stock of $1.00 par value per share.Authorized 10,000,000 shares; none issued
    
    
    
    
    
    
    Common stock of $.10 par value per share.Authorized 75,000,000 shares; issued and outstanding 11,115,000 in 2004 and
10,927,000 in 2003
    
    
    1,111
    
    
    
    1,093Additional paid-in capital
    
    
    67,942
    
    
    
    64,988Accumulated other comprehensive income  foreign currency translation adjustment
    
    
    778
    
    
    
    1,480Retained earnings
    
    
    52,761
    
    
    
    52,481Total stockholders equity
    
    
    122,592
    
    
    
    120,042$
    231,307
    
    
    
    228,549
 See accompanying notes to interim consolidated financial statements. 4




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EMS Technologies, Inc. and Subsidiaries 
 Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 Nine Months EndedOct 2
    
    Sep 272004
    
    2003Cash flows from operating activities:Net earnings (loss)
    
    $
    280
    
    
    
    (34,639
    )Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:Depreciation and other intangibles amortization
    
    
    7,396
    
    
    
    6,420Deferred income taxes
    
    
    
    
    
    
    (95
    )Gain on sale of assets
    
    
    (1,082
    )
    
    
    Loss from discontinued operations
    
    
    3,163
    
    
    
    40,745Changes in operating assets and liabilities:Trade accounts receivable, net
    
    
    577
    
    
    
    4,794Inventories, net
    
    
    (3,711
    )
    
    
    (3,161
    )Accounts payable
    
    
    (284
    )
    
    
    (2,847
    )Non-trade foreign government receivable
    
    
    373
    
    
    
    2,337Income taxes payable
    
    
    2,971
    
    
    
    1,193Accrued costs, deferred revenue and other current liabilities
    
    
    (563
    )
    
    
    (2,432
    )Other
    
    
    100
    
    
    
    (2,028
    )Net cash provided by operating activities
    
    
    9,220
    
    
    
    10,287Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (5,954
    )
    
    
    (6,123
    )Payments for asset acquisitions
    
    
    (1,328
    )
    
    
    Proceeds from sales of assets
    
    
    1,176
    
    
    
    Net cash used in investing activities
    
    
    (6,106
    )
    
    
    (6,123
    )Cash flows from financing activities:Net increase in revolving debt
    
    
    2,478
    
    
    
    4,138Repayment of term debt
    
    
    (2,596
    )
    
    
    (1,682
    )Proceeds from exercise of stock options, net of withholding taxes paid
    
    
    2,972
    
    
    
    342Net cash provided by financing activities
    
    
    2,854
    
    
    
    2,798Operating cash used in discontinued operations
    
    
    (8,907
    )
    
    
    (10,321
    )Net change in cash and cash equivalents
    
    
    (2,939
    )
    
    
    (3,359
    )Effect of exchange rates on cash
    
    
    (529
    )
    
    
    119Cash and cash equivalents at beginning of period
    
    
    14,180
    
    
    
    12,430Cash and cash equivalents at end of period
    
    $
    10,712
    
    
    
    9,190
 See accompanying notes to interim consolidated financial statements. 5




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EMS Technologies, Inc. and Subsidiaries 
 Notes to Consolidated Financial Statements (Unaudited)
October 2, 2004 and September 27, 2003
 1. Basis of Presentation The consolidated financial statements include the accounts of EMS Technologies,
Inc. and its wholly-owned subsidiaries LXE Inc., EMS Holdings, Inc. and EMS
Technologies Canada, Ltd. (collectively, the Company). In the opinion of
management, the accompanying consolidated financial statements reflect all
normal and recurring adjustments necessary for a fair presentation of results
for such periods. The results of operations for any interim period are not
necessarily indicative of results for the full year. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes contained in the Companys Annual Report
on Form 10-K for the year ended December 31, 2003. In accordance with the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company has classified the revenues, expenses and
related assets and liabilities of its Space & Technology/Montreal division,
which are currently held for sale, as discontinued operations for all periods
presented in the accompanying consolidated financial statements.  Stock Option Plans Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize
as expense, over the vesting period, the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net earnings and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure required by SFAS No. 123. The Company has adopted SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure, including the interim reporting requirements. The
following table illustrates the effect on net earnings (loss) and earnings
(loss) per share if the Company had applied the fair value method to measure
stock-based compensation (in thousands, except net earnings (loss) per share): Quarters Ended
    
    Nine Months EndedOct 2
    
    Sep 27
    
    Oct 2
    
    Sep 272004
    
    2003
    
    2004
    
    2003Net earnings (loss):As reported
    
    $
    (1,716
    )
    
    
    (20,591
    )
    
    
    280
    
    
    
    (34,639
    )Less: Stock-based employee compensation expense determined
under the fair value method, net of tax
    
    
    (369
    )
    
    
    (475
    )
    
    
    (1,329
    )
    
    
    (1,753
    )Pro forma
    
    $
    (2,085
    )
    
    
    (21,066
    )
    
    
    (1,049
    )
    
    
    (36,392
    )Basic net earnings (loss) per share:As reported
    
    $
    (0.15
    )
    
    
    (1.93
    )
    
    
    0.03
    
    
    
    (3.25
    )Pro forma
    
    
    (0.19
    )
    
    
    (1.97
    )
    
    
    (0.09
    )
    
    
    (3.41
    )Diluted net earnings (loss) per share:As reported
    
    $
    (0.15
    )
    
    
    (1.91
    )
    
    
    0.02
    
    
    
    (3.24
    )Pro forma
    
    
    (0.18
    )
    
    
    (1.95
    )
    
    
    (0.09
    )
    
    
    (3.40
    )
 6




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2. Discontinued Operations In the third quarter of 2003, EMS announced that its Board of Directors had
approved a formal plan to sell the Companys commercial space operations
located in Montreal. During the fourth quarter of 2003, the Company completed
the sale of its healthcare product line. As a result, these business components
have been accounted for as discontinued operations, and the net assets held for
sale were written down to their estimated fair value, less cost to
sell. Based on
recent discussions with potential purchasers concerning the probable market
value of the Space & Technology/Montreal division, EMS recorded an additional
$1.7 million valuation allowance in the third quarter of 2004 to reflect the
revised estimate of the fair value, less cost to sell, of this division. . The results of these discontinued operations for the third quarters and nine
months ended of were as follows (in thousands): Quarters Ended
    
    Nine Months EndedOct 2
    
    Sep 27
    
    Oct 2
    
    Sep 272004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    10,685
    
    
    
    7,307
    
    
    
    38,672
    
    
    
    16,416Costs and expenses
    
    
    11,302
    
    
    
    13,306
    
    
    
    40,065
    
    
    
    41,169Valuation allowance
    
    
    1,700
    
    
    
    19,000
    
    
    
    1,700
    
    
    
    19,000Loss before income taxes
    
    
    (2,317
    )
    
    
    (24,999
    )
    
    
    (3,093
    )
    
    
    (43,753
    )Income tax (expense) benefit
    
    
    (70
    )
    
    
    2,476
    
    
    
    (70
    )
    
    
    3,008Net loss
    
    $
    (2,387
    )
    
    
    (22,523
    )
    
    
    (3,163
    )
    
    
    (40,745
    )
 The table below presents the components of the consolidated balance sheet
accounts classified as current assets and liabilities related to assets held
for sale as of October 2, 2004 and December 31, 2003 (in thousands): Oct 2
    
    Dec 312004
    
    2003Trade accounts receivable, net
    
    $
    11,142
    
    
    
    9,646Inventories, net
    
    
    4,284
    
    
    
    4,722Investments
    
    
    2,709
    
    
    
    4,409Property, plant and equipment, net
    
    
    17,267
    
    
    
    16,743Accrued pension assets
    
    
    3,155
    
    
    
    3,245Other assets
    
    
    6,891
    
    
    
    1,294Total assets held for sale
    
    $
    45,448
    
    
    
    40,059Accounts payable and other
    
    $
    10,650
    
    
    
    11,483Long term debt
    
    
    2,460
    
    
    
    2,573Post-retirement obligations
    
    
    4,074
    
    
    
    3,709Total liabilities related to assets held for sale
    
    $
    17,184
    
    
    
    17,765
 3. Derivative Financial Instruments The Company uses derivative financial instruments (forward exchange contracts)
to hedge currency fluctuations in future cash flows denominated in foreign
currencies, thereby limiting the Companys risk that would otherwise result
from changes in exchange rates. The Company has established policies and
procedures for risk assessment and the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not enter into
derivative financial instruments for trading or speculative purposes. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
requires the Company to recognize all derivatives on the consolidated balance
sheet at fair value. Under SFAS No. 133, certain of the Companys routine
long-term contracts are considered to be derivative instruments, because these
contracts create long-term obligations for non-U.S. customers to pay the
Companys Canadian subsidiary in U.S. dollars. Changes in the fair values of
these embedded derivatives are included in net earnings (loss). 7




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For continuing operations, the derivative activity as reported in the Companys
consolidated financial statements during the third quarters and nine months
ended was (in thousands): Quarters Ended
    
    Nine Months EndedOct 2
    
    Sep 27
    
    Oct 2
    
    Sep 272004
    
    2003
    
    2004
    
    2003Beginning net asset (liability) for derivatives
    
    $
    (29
    )
    
    
    515
    
    
    
    108
    
    
    
    (248
    )Sales:Loss in value of embedded derivatives
    
    
    (1
    )
    
    
    (10
    )
    
    
    (7
    )
    
    
    (3
    )Foreign exchange gain (loss) on derivative instruments:Gain in value of derivative instruments that do not
qualify as hedging instruments
    
    
    122
    
    
    
    20
    
    
    
    149
    
    
    
    689Matured foreign exchange contracts
    
    
    (13
    )
    
    
    (423
    )
    
    
    (171
    )
    
    
    (336
    )Net consolidated statements of operations gain
(loss) from changes
in value of derivative instruments
    
    
    108
    
    
    
    (413
    )
    
    
    (29
    )
    
    
    350Ending net asset for derivatives
    
    $
    79
    
    
    
    102
    
    
    
    79
    
    
    
    102
 For discontinued operations, the net asset for derivatives at October 2, 2004
was $93,000 compared to a net asset of $95,000 at September 27, 2003. All of the foreign currency contracts currently in place will expire by the end
of 2004. 4. Earnings (Loss) Per Share Basic earnings (loss) per share is the per share allocation of income (loss)
available to common stockholders based only on the weighted average number of
common shares actually outstanding during the period. Diluted earnings (loss)
per share represents the per share allocation of income (loss) attributable to
common stockholders based on the weighted average number of common shares
actually outstanding plus all dilutive potential common shares outstanding
during the period. The Company has granted stock options that are potentially dilutive to basic
earnings (loss) per share, summarized as follows (shares in thousands): Oct 2
    
    Sep 272004
    
    2003Dilutive stock options, included in earnings (loss) per share calculations:Shares
    
    
    794
    
    
    
    1,135Average exercise price per share
    
    $
    13.63
    
    
    
    14.08Anti-dilutive stock options and warrants, excluded from per share calculations:Shares
    
    
    900
    
    
    
    864Average exercise price per share
    
    $
    20.26
    
    
    
    20.75
 For each earnings (loss) per share calculation reported for the third quarters
of 2004 and 2003, the numerators were the same as reported in the consolidated
statements of operations. Following is a reconciliation of the denominators for
basic and diluted earnings (loss) per share calculations for the third quarters
and nine months ended October 2, 2004 and September 27, 2003 (in thousands): Quarters Ended
    
    Nine Months EndedOct 2
    
    Sep 27
    
    Oct 2
    
    Sep 272004
    
    2003
    
    2004
    
    2003Basic-weighted average common shares outstanding
    
    
    11,114
    
    
    
    10,668
    
    
    
    11,076
    
    
    
    10,662Common equivalent shares from stock options
    
    
    75
    
    
    
    110
    
    
    
    162
    
    
    
    45Diluted-weighted average common and common
equivalent shares outstanding
    
    
    11,189
    
    
    
    10,778
    
    
    
    11,238
    
    
    
    10,707
 8




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5. Comprehensive Income (Loss) Following is a summary of comprehensive income (loss) (in thousands): Quarters Ended
    
    Nine Months EndedOct 2
    
    Sep 27
    
    Oct 2
    
    Sep 272004
    
    2003
    
    2004
    
    2003Net income (loss)
    
    $
    (1,716
    )
    
    
    (20,591
    )
    
    
    280
    
    
    
    (34,639
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    772
    
    
    
    (310
    )
    
    
    (702
    )
    
    
    5,924Change in the value of investment
securities available for sale
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    65Comprehensive loss
    
    $
    (944
    )
    
    
    (20,836
    )
    
    
    (422
    )
    
    
    (28,650
    )
 6. Trade Accounts Receivable Trade accounts receivable include the following (in thousands): Oct 2
    
    Dec 312004
    
    2003Amounts billed
    
    $
    49,745
    
    
    
    58,146Unbilled revenues under long-term contracts
    
    
    25,307
    
    
    
    18,610Customer advanced payments
    
    
    (2,848
    )
    
    
    (3,788
    )Allowance for doubtful accounts
    
    
    (1,405
    )
    
    
    (1,537
    )Trade accounts receivable, net
    
    $
    70,799
    
    
    
    71,431
 7. Inventories Inventories include the following (in thousands): Oct 2
    
    Dec 312004
    
    2003Parts and materials
    
    $
    25,941
    
    
    
    22,139Work in process
    
    
    5,686
    
    
    
    5,306Finished goods
    
    
    6,163
    
    
    
    6,064Inventories, net
    
    $
    37,790
    
    
    
    33,509
 8. Interim Segment Disclosures The Company has five reportable segments: Space & Technology, LXE, EMS
Wireless, SATCOM and SatNet. Each segment is separately managed and comprises a
range of products and services that share distinct operating characteristics.
The Company evaluates each segment primarily upon operating income. The Space & Technology segment manufactures custom-designed, highly engineered
hardware for use in advanced communication, radar, and electronic
countermeasure systems, primarily for the defense market. Orders in this
segment typically involve development and production schedules that can extend
a year or more, and most revenues are recognized under percentage-of-completion
long-term contract accounting. Hardware is sold to prime contractors or systems
integrators rather than to end-users. As a result of the planned sale of the
Space & Technology/Montreal division, the results of operations and all other
financial information related to the Space & Technology/Montreal division are
reported in discontinued operations. The Space & Technology segment, as
reported in these interim-period financial statements, reflects the results of
operations and all other financial information related to the Space &
Technology/Atlanta business. The LXE segment manufactures rugged mobile computers and wireless local area
network (WLAN) products for use throughout the supply chain. The
manufacturing cycle for each order is generally just a few days, and revenues
are recognized upon shipment of hardware. Hardware is marketed to end-users and
to third parties that combine 9




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their products and services with the Companys hardware for delivery to end-users. The EMS Wireless segment manufactures antennas and repeaters for PCS/cellular
communications systems. The manufacturing cycle for each order is generally
just a few days, and revenues are generally recognized upon shipment of
hardware. Hardware is marketed to wireless service providers and to original
equipment manufacturers (OEMs) for mobile voice/paging services, as well as
for other emerging high-speed wireless systems. The SATCOM segment manufactures antennas and other hardware for satellite
communications systems. The manufacturing cycle for most orders is generally
just a few days, and revenues are recognized upon shipment of hardware. The
SATCOM segment also has orders that involve development and production
schedules that can extend a year or more, and these revenues are recognized
under percentage-of-completion long-term contract accounting. Hardware is
marketed primarily to third parties that combine their products and services
with the Companys hardware for delivery to end-users. The SatNet segment manufactures ground segment equipment for the satellite
broadband communications market. The manufacturing cycle for a hub is generally
several weeks and terminals are manufactured on a shorter cycle. Revenues are
recognized upon shipment of hardware. Hardware is marketed to operators of
high-speed, two-way, multimedia access networks. Following is a summary of the Companys interim segment data (in thousands): Quarters Ended
    
    Nine Months EndedOct 2
    
    Sep 27
    
    Oct 2
    
    Sep 272004
    
    2003
    
    2004
    
    2003Net sales:Space & Technology
    
    $
    11,831
    
    
    
    11,861
    
    
    
    36,892
    
    
    
    34,894LXE
    
    
    27,335
    
    
    
    25,555
    
    
    
    79,960
    
    
    
    71,904EMS Wireless
    
    
    9,489
    
    
    
    12,060
    
    
    
    34,568
    
    
    
    36,172SATCOM
    
    
    8,975
    
    
    
    10,770
    
    
    
    28,546
    
    
    
    32,559SatNet
    
    
    4,735
    
    
    
    2,069
    
    
    
    11,238
    
    
    
    8,592Other
    
    
    3
    
    
    
    (781
    )
    
    
    (233
    )
    
    
    (779
    )Total
    
    $
    62,368
    
    
    
    61,534
    
    
    
    190,971
    
    
    
    183,342Operating income (loss):Space & Technology
    
    $
    148
    
    
    
    1,214
    
    
    
    1,600
    
    
    
    3,075LXE
    
    
    1,806
    
    
    
    1,922
    
    
    
    4,634
    
    
    
    4,985EMS Wireless
    
    
    (1,057
    )
    
    
    242
    
    
    
    (574
    )
    
    
    1,967SATCOM
    
    
    583
    
    
    
    1,440
    
    
    
    1,293
    
    
    
    3,831SatNet
    
    
    (244
    )
    
    
    (922
    )
    
    
    (1,400
    )
    
    
    (1,693
    )Other
    
    
    426
    
    
    
    (512
    )
    
    
    521
    
    
    
    (925
    )Total
    
    $
    1,662
    
    
    
    3,384
    
    
    
    6,074
    
    
    
    11,240Earnings (loss) from continuing operations:Space & Technology
    
    $
    10
    
    
    
    695
    
    
    
    779
    
    
    
    1,696LXE
    
    
    1,054
    
    
    
    1,186
    
    
    
    2,654
    
    
    
    2,969EMS Wireless
    
    
    (738
    )
    
    
    123
    
    
    
    (614
    )
    
    
    1,114SATCOM
    
    
    591
    
    
    
    1,194
    
    
    
    1,253
    
    
    
    3,051SatNet
    
    
    (543
    )
    
    
    (900
    )
    
    
    (2,007
    )
    
    
    (1,771
    )Other
    
    
    56
    
    
    
    (516
    )
    
    
    (102
    )
    
    
    (618
    )Corporate
    
    
    241
    
    
    
    150
    
    
    
    1,480
    
    
    
    (335
    )Total
    
    $
    671
    
    
    
    1,932
    
    
    
    3,443
    
    
    
    6,106
 10




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Oct 2
    
    Dec 312004
    
    2003Assets:Space & Technology
    
    $
    44,126
    
    
    
    40,157LXE
    
    
    66,719
    
    
    
    66,081EMS Wireless
    
    
    23,340
    
    
    
    25,353SATCOM
    
    
    28,378
    
    
    
    26,543SatNet
    
    
    15,910
    
    
    
    14,827Other
    
    
    375
    
    
    
    1,164Assets held for sale
    
    
    45,448
    
    
    
    40,059Corporate
    
    
    7,011
    
    
    
    14,365Total
    
    $
    231,307
    
    
    
    228,549Goodwill:LXE
    
    $
    9,982
    
    
    
    9,982EMS Wireless
    
    
    3,544
    
    
    
    3,544Total
    
    $
    13,526
    
    
    
    13,526
 9. Warranty Liability The Company provides a limited warranty for each of its products. The basic
warranty periods vary from one to five years, depending upon the type of
product. For certain products, customers can purchase warranty coverage for
specified additional periods. The Company records a liability for the estimated costs to be incurred under
warranties. The amount of this liability is based upon historical, as well as
expected, rates of warranty claims. The warranty liability is periodically
reviewed for adequacy and adjusted as necessary. Following is a reconciliation
of the aggregate product warranty liability (in thousands): Quarters EndedOct 2
    
    Sep 272004
    
    2003Balance at beginning of quarter
    
    $
    2,167
    
    
    
    1,491Accruals for warranties issued during the period
    
    
    653
    
    
    
    410Settlements made during the period
    
    
    (678
    )
    
    
    (259
    )Balance at end of quarter
    
    $
    2,142
    
    
    
    1,642
 Nine Months EndedOct 2
    
    Sep 272004
    
    2003Balance at beginning of year
    
    $
    1,977
    
    
    
    1,366Accruals for warranties issued during the period
    
    
    1,095
    
    
    
    844Settlements made during the period
    
    
    (930
    )
    
    
    (568
    )Balance at end of period
    
    $
    2,142
    
    
    
    1,642
 10. Litigation The Company is party to litigation styled Andrew Corporation (Andrew) v. EMS
Technologies, Inc. initiated in the U.S. District Court for the Northern
District of Illinois on May 25, 2004, alleging that EMS Wirelesss new remotely
controlled electronic-downtilt base station antennas infringe on patent rights
held by Andrew, and seeking an injunction against manufacture or sale of the allegedly infringing devices,
and damages in an unspecified amount consisting of treble economic damages and
attorneys fees. The Company has devoted substantial resources to studying the
Andrew patents as they might apply to our products. The Company believes that
its products do not infringe any valid or enforceable Andrew patent claims, and
that in any event those patents are invalid and unenforceable. In response to
Andrews complaint, the Company has filed a motion to dismiss and, in the 11




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alternative, to transfer venue to the U.S. District Court for the Northern
District of Georgia. The parties are currently engaged in the briefing period
related to the motion to transfer venue. If the patents were enforced against
our products, we could be subject to payment of substantial damages and an
injunction against further distribution of what we consider to be an important
product for our future EMS Wireless sales. Although the Company is confident of
its legal position it cannot currently determine the outcome of this proceeding
or the ultimate amount of potential losses, and therefore has not made any
provision for such matters. Other Legal Matters 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 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, 2003. Overview: EMS Technologies, Inc. (the Company or EMS) designs, manufactures and
markets products that are important in many kinds of wireless communications.
The Company focuses on the needs of the mobile information user, with an
increasing emphasis on broadband applications for high-data-rate, high-capacity
wireless communications. The Company is organized into five reportable business segments: Space &
Technology, LXE, EMS Wireless, SATCOM and SatNet. Each segment is separately
managed and comprises a range of products and services that share distinct
operating characteristics. However, we believe that one of our competitive
strengths is the technological and marketing synergy that can occur among the
segments, as well as among our various product lines. We believe that this
synergy creates a path to broader markets for highly advanced technologies that
have been developed for niche markets in space and defense. EMS has its
principal office in Atlanta, Georgia, and has approximately 1,600 employees
worldwide. Over 70% of our employees are directly involved in engineering or
manufacturing activities. Following is a summary of significant factors affecting the Company in the
third quarter and first nine months of 2004: For continuing operations:  
    
    Results for the third quarter and first nine months reflect a
lower-than-expected order rate at our EMS Wireless and SatNet
segments. We believe this variance from expectation is the result of
order timing decisions based on specific customer considerations and
not long-term fundamental problems in these target markets. Further,
we believe that the rates of orders for these segments will increase
during the remainder of the year, subject to the uncertainties and
risk factors discussed elsewhere in this report.
    
    Non-operating income for the first nine months included $938,000
pre-tax gain for the sale of real estate in Montreal.For discontinued operations:
    
    Results for the first nine months included contract losses at Space &
Technology/Montreal totaling approximately $800,000, which related to
additional costs caused mainly by supplier delays on a difficult
legacy program that is expected to be completed during the first
quarter of 2005. 12




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Discontinued Operations In the third quarter of 2003, EMS announced that its Board of Directors had
approved a formal plan to sell the Companys commercial space operations
located in Montreal. During the fourth quarter of 2003, the Company completed
the sale of its healthcare product line. As a result, these business
components have been accounted for as discontinued operations, and the net
assets held for sale were written down to their estimated fair value, less cost
to sell, upon disposal. We continue to accommodate the due diligence efforts of
potential purchasers of the Space & Technology/Montreal division. Based on
recent discussions with potential purchasers concerning the probable market
value of the Space & Technology/Montreal division, EMS recorded an additional
$1.7 million valuation allowance in the third quarter of 2004 to reflect the
revised estimate of the fair value, less cost to sell, of this division. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles, which often require the judgment
of management in the selection and application of certain accounting principles
and methods. We consider the following policies to be the most critical to
understanding the judgments that are involved and the uncertainties that could
affect our results of operations, financial condition and cash flows. Revenue recognition on long-term contracts Revenue recognition for certain fixed-price, long-term contracts in our Space &
Technology/Atlanta and SATCOM segments, as well as the Space &
Technology/Montreal division currently held for sale, is a critical accounting
policy involving significant management estimates. We recognize revenue on
certain long-term contracts based upon the ratio of cost-incurred to
total-estimated-cost as the measure of performance that determines how much
revenue should be recognized (percentage of completion accounting). The
determination of total-estimated-cost relies on engineering estimates of the
cost to complete the contract, with allowances for identifiable risks and
uncertainties. These engineering estimates are frequently reviewed and updated.
However, unforeseen problems can occur to substantially reduce the rate of
future revenue recognition in relation to costs incurred. As of October 2,
2004, under percentage of completion accounting we had recognized a cumulative
total of $25.3 million in revenues that were not yet billable under milestones
specified in the customer contracts. During 2003, two large contracts in discontinued operations that were accounted
for under percentage of completion accounting experienced technical and
supplier difficulties, resulting in increases to the estimated cost at
completion totaling over $38 million. We have established
allowances for
identified risks, however these contracts are technically challenging and
further unforeseen difficulties could cause increases to the cost at completion
that exceed our allowances, resulting in further losses associated with these
contracts. Accounting for government research incentives Our accrual of provincial research incentives is a critical accounting policy
involving management estimates for our Montreal-based operations, including the
Space & Technology/Montreal division currently held for sale. These incentives
are in the form of a cash reimbursement for a portion of certain qualified
research expenditures. Incentives are recorded as a reduction of cost of sales,
because the underlying research efforts primarily apply to development of
technological capabilities for specific business opportunities. For the nine
months ended October 2, 2004, total incentives earned were approximately $2.7
million, compared with $1.1 million for the nine months ended September 27,
2003. We have established procedures to identify qualified costs and to submit
appropriate claims for reimbursement; all such claims, however, are subject to
financial and scientific audits by the Canadian government to determine whether such expenses qualified for incentive programs.
Although there have historically been no significant disallowances of
previously accrued incentives that resulted from these audits, such
disallowances in the future could have an unfavorable effect on our
consolidated statement of operations. Evaluation of long-lived assets for impairment All long-lived assets on the consolidated balance sheet are periodically
reviewed for impairment. To test 13




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recoverability, we estimate the cash flows expected to result from the use of such long-lived assets under several
different scenarios, including the potential sale of assets. No long-lived
assets classified as held and used were determined to be impaired as of October
2, 2004. In the third quarter of 2003, the assets of the Space & Technology/Montreal
division and the healthcare product line were reclassified from assets held
and used to assets held for sale. As a result, these business components
were accounted for as discontinued operations, and the net assets held for sale
were written down to their estimated fair value, less cost to sell. As noted elsewhere in this document in our comments on discontinued
operations, based on recent discussions with potential purchasers concerning
the probable market value of the Space & Technology/Montreal division, EMS
recorded an additional $1.7 million valuation allowance in the third quarter of
2004 to reflect the revised estimate of the fair value, less cost to sell, of
this division. Establishment of allowance for deferred income tax assets Management currently expects that our Canadian operations will earn more than
enough research-related tax benefits each year to offset any Canadian federal
tax liability for any given year. As a result, we have established a valuation
allowance for substantially all the net deferred tax assets associated with
these research-related tax benefits (totaling approximately $33 million at
October 2, 2004), because they are unlikely to be realized. However, this
allowance may be reduced  resulting in an income tax benefit to a future
consolidated statement of operations  if: (1) our profitability in Canada
increases, which would increase both the tax liability incurred in future years
and the rate at which these tax benefits are used, or (2) the level of our
qualified research in Canada decreases, which would lower the tax benefits
earned in future years. Results of Operations Net Sales Consolidated net sales increased to $62.4 million in the third quarter of 2004,
compared with $61.5 million in the third quarter of 2003. For the first nine
months, sales increased to $191.0 million in 2004, compared with $183.3 million
for the comparable period in 2003. Net Sales and Operating Income (Loss) by Segment Our segment net sales and operating income (loss) were as follows (in
thousands): Percentage IncreaseQuarters Ended
    
    Nine Months Ended
    
    (Decrease)Oct 2
    
    Sep 27
    
    Oct 2
    
    Sep 27
    
    Three
    
    Nine2004
    
    2003
    
    2004
    
    2003
    
    Months
    
    MonthsNet sales:Space & Technology
    
    $
    11,831
    
    
    
    11,861
    
    
    
    36,892
    
    
    
    34,894
    
    
    
    
    
    
    
    6
    %LXE
    
    
    27,335
    
    
    
    25,555
    
    
    
    79,960
    
    
    
    71,904
    
    
    
    7
    %
    
    
    11
    %EMS Wireless
    
    
    9,489
    
    
    
    12,060
    
    
    
    34,568
    
    
    
    36,172
    
    
    
    (21
    )%
    
    
    (4
    )%SATCOM
    
    
    8,975
    
    
    
    10,770
    
    
    
    28,546
    
    
    
    32,559
    
    
    
    (17
    )%
    
    
    (12
    )%SatNet
    
    
    4,735
    
    
    
    2,069
    
    
    
    11,238
    
    
    
    8,592
    
    
    
    129
    %
    
    
    31
    %Other
    
    
    3
    
    
    
    (781
    )
    
    
    (233
    )
    
    
    (779
    )
    
    
    *
    *
    
    
    *
    *Total
    
    $
    62,368
    
    
    
    61,534
    
    
    
    190,971
    
    
    
    183,342
    
    
    
    1
    %
    
    
    4
    %Operating income (loss):Space & Technology
    
    $
    148
    
    
    
    1,214
    
    
    
    1,600
    
    
    
    3,075
    
    
    
    (88
    )%
    
    
    (48
    )%LXE
    
    
    1,806
    
    
    
    1,922
    
    
    
    4,634
    
    
    
    4,985
    
    
    
    (6
    )%
    
    
    (7
    )%EMS Wireless
    
    
    (1,057
    )
    
    
    242
    
    
    
    (574
    )
    
    
    1,967
    
    
    
    (537
    )%
    
    
    (129
    )%SATCOM
    
    
    583
    
    
    
    1,440
    
    
    
    1,293
    
    
    
    3,831
    
    
    
    (60
    )%
    
    
    (66
    )%SatNet
    
    
    (244
    )
    
    
    (922
    )
    
    
    (1,400
    )
    
    
    (1,693
    )
    
    
    74
    %
    
    
    17
    %Other
    
    
    426
    
    
    
    (512
    )
    
    
    521
    
    
    
    (925
    )
    
    
    *
    *
    
    
    *
    *Total
    
    $
    1,662
    
    
    
    3,384
    
    
    
    6,074
    
    
    
    11,240
    
    
    
    (51
    )%
    
    
    (46
    )%
 ** = Not Meaningful 14




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Space & Technology:This segment primarily serves defense markets, and revenues
in these markets were flat in the third quarter of 2004 compared with 2003. The net sales growth for
the first nine months of 2004 as compared with 2003 was due to increased
activity and higher resulting revenues on a program to supply antennas for
systems that provide live television on commercial aircraft. LXE:Net sales increased for the third quarter and first nine months of 2004
compared with the same periods in 2003. For the quarter, the increase related
to domestic revenues from increased hardware unit sales, as customers move from
DOS to Windows® platforms. More than 60% of the growth for the first nine
months was due to revenues from increased hardware unit sales and service
revenues in our international markets, which we believe were strongly
influenced by favorable exchange rates for the Euro and other foreign
currencies versus the U.S. dollar. The remainder of the increase for the first
nine months of 2004 was due to increased domestic hardware unit sales. EMS Wireless:Net sales for the third quarter decreased in 2004 compared with
2003 due to lower capital spending by our customers  major U.S. wireless
service providers  during a period of industry consolidation. As a result, ,
sales for the U.S. base station antenna product line dropped $4.3 million for
the third quarter and $6.5 million for the first nine months of 2004 compared
with the same interim periods in 2003. However, the overall decreases in net
sales for all EMS Wireless product lines combined were much lower  only $2.6
million and $1.6 million for the third quarter and first nine months,
respectively  due mainly to continued market acceptance of our repeater
products and the resulting higher sales in this product line. In addition,
sales of Brazilian-manufactured antennas were also higher for the first nine
months of 2004 compared with 2003, reflecting a build-out of wireless networks
in Latin American markets. We believe that our U.S. customers for base station
antennas will begin to resume system rollouts and increase their order rate
before the end of 2004. SATCOM:Net sales were lower for the third quarter and first nine months of
2004 compared with the same periods in 2003. Management believes that 2003 was an exceptionally
strong year, especially for sales of our products to the
U.S. military, and also believes that 2004 sales are consistent with
continued long-term growth trends for this division. SatNet:Our venture to provide DVB-RCS standard hubs and terminals for
broadband communications via satellite reported higher net sales for both the
third quarter and first nine months of 2004, respectively, compared with the
same periods in 2003. As is typical in a start-up situation, SatNets
order stream is growing but uneven, which makes periodic sales volatile. For
the third quarter, higher numbers of hubs and terminals were sold in 2004
versus 2003. For the first nine months, hub sales were relatively flat in 2004
compared with 2003, but there was a significant increase in the number of
terminals sold in 2004 compared with 2003, as current systems customers expand
their business base. We believe that the present rate of orders will continue
to increase during the fourth quarter of 2004 and into 2005. Cost of Sales Cost of sales, as a percentage of consolidated net sales, increased  but not
significantly  in 2004 compared with 2003. The cost of sales percentage was
65% in the third quarter and first nine months of 2004, as compared with 64%
for the same periods in 2003. There was a moderately unfavorable effect on the
consolidated cost-of-sales percentage caused by a combination of the following
factors:  
    
    A less favorable mix of contracts at SatNet, with more net sales
from terminals and funded R&D work, which generally have a higher cost
of sales than net sales from hubs;
    
    At EMS Wireless, lower sales volumes to absorb fixed costs; and
    
    Additional costs at Space and Technology on certain programs as they near completion. However, these factors were largely offset in the consolidated
cost-of-sales percentage by the 2004 growth in LXE sales (which had a
relatively lower
cost-of-sales percentage), and to a lesser extent by the
disposal of a small, previously unprofitable product line. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) increased for the third
quarter and first nine months of 2004 compared with 2003, primarily due to
LXEs expanded sales efforts in Europe and the Middle East, where the headcount
and cost structure for the sales and marketing organizations have increased
with the record levels of 15




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revenues that LXE has received from these markets. A significant, but secondary, factor in SG&A growth related to stronger Canadian
dollar and other foreign currencies versus the U.S. dollar, which increased the
reported cost of our non-U.S. operations. Research and Development Expenses Research and development expenses (R&D) represent the cost of our internally
funded efforts. Significant development efforts also occur under specific
customer orders in the Space & Technology segment and under agreements with
customers to fund specified R&D at SATCOM and SatNet; accordingly, the costs of
these externally-funded efforts are reflected in cost of sales. For the third quarter of 2004 compared with 2003, the small increase related to
our Space & Technology segment, which incurred planned increases in R&D to
advance new technology initiatives. Similarly for the first nine months of
2004 compared with 2003, Space & Technology and LXE incurred significant
planned increases in R&D to advance new technology and product initiatives.
These combined increases, which totaled approximately $1.5 million for the
first nine months, were partially offset by R&D decreases at SATCOM and SatNet,
which moved engineering resources in 2004 from internally funded projects to
externally funded development projects, the cost of which are reported in cost
of sales. Non-Operating Income (Expense) The most significant element of non-operating income for the first nine months
of 2004 was a $938,000 pre-tax gain for the sale of unutilized real estate in
Montreal. Foreign Exchange Gain (Loss) We accrue foreign exchange gains and losses related to a net asset or liability
denominated in a foreign currency, and, if applicable, any embedded derivatives
in contracts denominated in a foreign currency. We use foreign currency forward
contracts to reduce our exposure to fluctuations in foreign currency exchange
rates. Most of our Canadian operations customer contracts are in U.S. dollars, and
foreign exchange gains/losses result from a stronger/weaker U.S. dollar against
the Canadian dollar. Our Canadian operations also do a significant amount of
business in the United Kingdom, and foreign exchange gains/losses result from a
stronger/weaker Canadian dollar against the British pound. We also accrue net gains and losses from translation of the LXE European
subsidiaries short-term intercompany liabilities, payable in U.S. dollars,
from the purchase of hardware for resale in Europe. To the extent we have not
used foreign currency forward contracts to reduce our exposure to fluctuations
in the foreign currency exchange rates used, a weaker U.S. dollar against the
Euro usually results in foreign exchange gains for LXE. In 2004, the net foreign currency losses were $204,000 and $299,000 in the
third quarter and the first nine months of 2004, respectively. The losses for
the third quarter were mainly the result of a weaker U.S. dollar against the
Canadian dollar and Brazilian Real. The losses for the first nine months of
2004 were mainly the result of a weaker U.S. dollar against the Canadian and
Australian dollars. In 2003, there were net foreign currency losses of $10,000
and $422,000 because the U.S. dollar was then weaker against the Canadian
dollar. Interest Expense Interest expense increased for the third quarter and first nine months of 2004
compared with the same periods in 2003 due to higher monthly bank fees for
certain credit agreements in 2004, the effect of which was partially offset by
lower average debt levels that resulted from positive cash flow. Income Tax Expense We recognized a 32% effective income tax rate in 2004 based upon managements
expected taxable income associated with various tax jurisdictions for the full
year, and this rate was comparable to the 32% rate reported for 16




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the preceding fiscal year. Our U.S. and European operations have an effective rate of
approximately 36%, and our Canadian operations have a much lower effective tax
rate due to research-related tax benefits. The effective rate is subject to
change during the remainder of the year, as managements expectations may
change for the taxable income associated with various tax jurisdictions. Discontinued Operations As a result of formal plans of sale that were approved in 2003, our Space &
Technology/Montreal division and healthcare product line have been accounted
for as discontinued operations, and the net assets held for sale were written
down to their estimated fair value, less cost to sell. In the
fourth quarter of 2003, we completed the sale of our discontinued healthcare
product line, and we continue to pursue a plan of sale for the Space &
Technology/Montreal operations. The 2004 pre-tax results from our discontinued operations were losses of
approximately $2.3 million for the third quarter and $3.1 million for the first
nine months, compared with a $25.0 million loss for the third quarter of 2003
and $43.8 million loss for the first nine months of 2003. These losses include
a $1.7 million valuation adjustment taken in the third quarter of 2004 and a
$19 million valuation adjustment taken in the third quarter of 2003. In
addition, the 2003 losses are much larger than the 2004 levels because the 2003
results included a $14 million second quarter adjustment to write down net
sales at the Space & Technology/Montreal division for the estimated financial
effects of key-supplier delays and related technical problems on a difficult
legacy satellite program. If the effect of the $14 million write down in the
second quarter of 2003 is excluded, our pre-tax results from discontinued
operations are still improved in 2004 compared with 2003, due to better
contract performance and significant new contract awards (especially in late
2003) for which we have begun to recognize net sales in 2004 under percentage
of completion accounting. The results for the first nine months of 2004
included contract losses totaling approximately $800,000, which related to
further supplier delays on a legacy satellite program, which is expected to be
completed during the first quarter of 2005. Liquidity and Capital Resources During the first nine months of 2004, net cash provided by continuing operating
activities was approximately $9.2 million, with the most significant factors
being LXEs profitable operations and additional long-term service agreements.
Another significant source of cash was proceeds from the exercise of employee
stock options. In July 2004 we acquired, for approximately $1.3 million, the net assets directly
related to the defense electronics business of Multitech Corporation; these
assets will be utilized by our Space & Technology operations, and include
hardware, software and intellectual property critical to radar, communication,
remote sensing, optical tracking, and electronic countermeasure systems. Our
discontinued operations used approximately $8.9 million. At October 2, 2004, we had standby letters of credit outstanding of
approximately $8.6 million. In addition, we had $6.1 million available for
borrowing under our U.S. revolving credit agreement, and $892,000 available for
borrowing under our Canadian revolving credit agreement. At October 2, 2004, we
were either in compliance or had received a bank waiver of compliance,
effective as of that date, relating to all credit agreement covenants. We have
agreed to apply the proceeds from the potential sale of our Space &
Technology/Montreal division to reduce outstanding indebtedness under our
Canadian credit agreement. During the first quarter of 2004, we also amended
our Canadian credit agreement, including pricing, as a condition of obtaining a
covenant waiver; at current borrowing levels, the annual cost of this facility
increased by approximately $250,000 as a result of such amendments. Our U.S. credit
agreement expires at the end of November 2004, but based on the current
status of negotiations and documentation, we expect  although
there can be no complete assurance  that we will complete the process of
establishing a proposed new credit facility prior to the current expiration
date. The proposed new facility will replace both the current U.S. and Canadian
credit agreements with a single coordinated revolving credit
arrangement. We expect that capital expenditures for continuing operations in 2004 will
range from $9 million to $11 million. These expenditures will be used primarily
to purchase equipment that enhances capacity and productivity. 17




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Our material contractual obligations and material other commercial commitments
have not changed significantly from the levels disclosed in the previous report
on Form 10-K for the year ended December 31, 2003, summarized as follows(in
millions). Less than
    
    
    
    
    
    
    
    
    
    After 5Total
    
    1 year
    
    1-3 years
    
    4-5 years
    
    yearsContinuing Operations:December 31, 2003 (no significant change to date):Long-term debt, excluding capital leases
    
    $
    52.4
    
    
    
    37.6
    
    
    
    1.9
    
    
    
    2.3
    
    
    
    10.6Capital lease obligations
    
    
    1.2
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    12.8
    
    
    
    3.3
    
    
    
    5.8
    
    
    
    3.4
    
    
    
    0.3October 2, 2004:Purchase commitments(1)
    
    
    23.6
    
    
    
    20.9
    
    
    
    0.6
    
    
    
    2.1
    
    
    
    Total approximate contractual cash obligations
    
    $
    90.0
    
    
    
    62.3
    
    
    
    9.0
    
    
    
    7.8
    
    
    
    10.9Discontinued Operations:December 31, 2003 (no significant change to date):Long-term debt, excluding capital leases
    
    $
    2.5
    
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    1.5
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    
    
    
    
    October 2, 2004:Purchase commitments(1)
    
    
    6.3
    
    
    
    5.8
    
    
    
    0.5
    
    
    
    
    
    
    
    Total approximate contractual cash obligations
    
    $
    10.3
    
    
    
    6.5
    
    
    
    3.8
    
    
    
    
    
    
    
    
 (1) Purchase commitments primarily represent existing commitments under
purchase orders or contracts to purchase inventory and raw materials for our
products. Most of these purchase orders and contracts can be terminated for a
fee that is either fixed or based on when termination occurs.
Purchase commitments have been updated to reflect actual commitments
as of October 2, 2004. Management believes that cash on hand, cash flows from operations and
borrowings available under credit agreements will provide sufficient liquidity
to meet our operating and capital expenditure needs for existing operations
during the next twelve months. To fund long-term growth, the Company may
consider such measures as public or private offerings of common stock or
convertible securities. Risk Factors and Forward-Looking Statements The Company has included forward-looking statements in managements discussion
and analysis of financial condition and results of operations concerning the
potential for various businesses and products. Actual results could differ
materially from those suggested in any forward-looking statements as a result
of a variety of factors. Such factors include, but are not limited to:  
    
    uncertainties related to identifying a purchaser of the Space &
Technology/Montreal division, as well as external market conditions and
internal priorities and constraints that could affect a purchasers
willingness and ability to complete the transaction on terms and timing
expected by the Company (in the event a suitable purchaser is not
identified, the Space & Technology/Montreal division would be
reclassified back into continuing operations, and prior-year financial
statements would be restated to reflect that status);
    
    economic conditions in the U.S. and abroad and their effect on
capital spending in the Companys principal markets;
    
    difficulty predicting the timing of receipt of major customer orders,
and the effect of customer timing decisions on our quarterly results;
    
    U.S. defense budget pressures on near-term spending priorities;
    
    uncertainties inherent in the process of converting contract
awards into firm contractual orders in the future; volatility of
foreign exchange rates relative to the U.S. dollar and their effect on
both the purchasing power by international customers and the cost
structure of the Companys non-U.S. operations, as well as the
potential for realizing foreign exchange gains or losses associated with
net non-U.S. assets held by the Company; 18




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
    
    successful resolution of technical problems, proposed scope changes,
or proposed funding changes that may be encountered on contracts;
    
    changes in the Companys consolidated effective income tax rate
caused by the extent to which actual taxable earnings in the U.S.,
Canada and other taxing jurisdictions may vary from expected taxable
earnings;
    
    successful completion of technological development programs by the
Company and the effects of technology that may be developed by, and
patent rights that may be held or obtained by, competitors;
    
    successful transition of products from development stages to an
efficient manufacturing environment;
    
    customer response to new products and services, and general
conditions in our target markets (such as logistics, PCS/cellular
telephony and space-based communications);
    
    the success of certain of our customers in marketing our line of
high-speed commercial airline communications products as a complementary
offering with their own lines of avionics products;
    
    the availability of financing for satellite data communications
systems and for expansion of terrestrial PCS/cellular phone systems;
    
    the extent to which terrestrial systems succeed in providing
extensive broadband Internet access on a dependable and economical
basis;
    
    the growth rate of demand for various mobile and high-speed data
communications services;
    
    the Companys ability to attract and retain qualified personnel,
particularly those with key technical skills; and
    
    the availability of sufficient additional credit or other financing,
on acceptable terms, to support the Companys expected growth. Additional information concerning these and other potential risk factors is
included in Part II, Item 5 of the Companys Quarterly Report on Form 10-Q for
the Quarter ended July 3, 2004. 
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk As of October 2, 2004, the Company had the following market risk sensitive
instruments (in thousands): Revolving credit loan with a bank in Canada, no specific maturity but subject to review annually,
variable-rate interest payable monthly (6% at the end of the quarter)
    
    $
    16,923Revolving credit loan with a U.S. bank, maturing in November 2004, variable-rate interest payable
quarterly (average rate of 4.87% at the end of the quarter)
    
    
    18,588Term installment loan with a bank in Canada, maturing in December 2005, principal and variable-rate
interest payable quarterly (6% at the end of the quarter)
    
    
    922Revolving credit loan with a bank in the United Kingdom, no specific maturity but subject to review in
April 2005, variable-rate interest payable monthly (5.75% at the end of the quarter)
    
    
    1,622Total market-sensitive debt
    
    $
    38,055
 A 1% increase in the interest rates for our market-sensitive debt obligations
would have increased interest expense by $91,000 for the quarter based on the
average outstanding borrowings under these obligations. As of October 2, 2004, the Company also had intercompany accounts that
eliminate in consolidation but that are 19




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considered market risk sensitive instruments. Short-term due to/(from) the parent, payable/(receivable) by
international subsidiaries arising from purchase of the parents products for
sale and from cash advances to the parent, were as follows: Exchange Rate($U.S. per unit of
    
    $U.S. in thousandslocal currency)
    
    (Reporting Currency)Australia
    
    0.7234/Dollar
    
    $
    1,123Canada
    
    0.7918/Dollar
    
    
    979Italy
    
    1.2401/Euro
    
    
    874Belgium
    
    1.2401/Euro
    
    
    505Sweden
    
    0.1375/Krona
    
    
    246Germany
    
    1.2401/Euro
    
    
    122Singapore
    
    0.5949/Dollar
    
    
    87France
    
    1.2401/Euro
    
    
    84Netherlands
    
    1.2401/Euro
    
    
    30United Kingdom
    
    1.7976/Pound
    
    
    28Total short-term due to parent
    
    
    
    
    
    $
    4,078
 The Company has foreign currency risks associated with forward contracts as
follows (in thousands, except average contract rate): Average
    
    ($U.S.)Notional
    
    Contract
    
    FairAmount
    
    Rate
    
    ValueForeign currency forward exchange contracts:Continuing Operations:Euros (sell for U.S. dollars)
    
    
    900
    
    
    Euros
    
    
    1.2213
    
    
    $
    (17
    )Australian dollars (sell for U.S. dollars)
    
    
    1,200
    
    
    Dollars
    
    
    0.6744
    
    
    
    (59
    )U.S. dollars (sell for Canadian dollars)
    
    
    5,500
    
    
    USD
    
    
    1.2982
    
    
    
    152$
    76Discontinued Operations:British pounds (sell for Canadian dollars)
    
    
    1,500
    
    
    Pound
    
    
    2.3857
    
    
    $
    54Canadian dollars (sell for British pounds)
    
    
    750
    
    
    Pound
    
    
    2.2873
    
    
    
    (10
    )$
    44
 The Company enters into foreign currency forward contracts in order to mitigate
the risks associated with currency fluctuations on future cash flows. 
 ITEM 4. Controls and Procedures The Company has established and maintains disclosure controls and procedures
(as defined in Securities Exchange Act Rules 13a-15e). The objective of these
controls and procedures is to ensure that information relating to the Company,
including its consolidated subsidiaries, and required to be filed by it in
reports under the Securities Exchange Act, as amended, is effectively
communicated to the Companys CEO and CFO, and is recorded, processed,
summarized and reported on a timely basis. The CEO and CFO have evaluated the Companys disclosure controls and procedures
as of the end of the period covered in this report. Based upon this evaluation,
the CEO and CFO have concluded that the Companys disclosure controls and
procedures are adequate to accomplish their objective and are functioning
effectively. During the three months ended October 2, 2004, there was no change in our
internal control over financial reporting (as defined in Rule 13a  15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. Subsequent to the most recent evaluations by the CEO and CFO, there have been
no significant changes in the Companys internal controls (including corrective
actions for significant deficiencies or material weaknesses) or 20




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other factors that could significantly affect these internal controls. During the third quarter of 2004, the Company continued the process of
evaluating its compliance with Section 404 of the Public Company Accounting
Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) and related rules.
The Company has not completed this process, but as of the date of this report,
the Company has not identified a significant deficiency or a material weakness
in the Companys systems of internal controls. 
 PART II OTHER INFORMATION 
 ITEM 1. Legal Proceedings We are party to litigation styled Andrew Corporation (Andrew) v. EMS
Technologies, Inc. initiated in the U.S. District Court for the Northern
District of Illinois on May 25, 2004, alleging that EMS Wirelesss new
remotely controlled electronic-downtilt base station antennas infringe on
patent rights held by Andrew, and seeking an injunction against
manufacture or sale of the allegedly infringing devices, and damages in
an unspecified amount consisting of treble economic damages and
attorneys fees. We have devoted substantial resources to studying the
Andrew patents as they might apply to our products. We believe that our
products do not infringe any valid or enforceable Andrew patent claims,
and that in any event those patents are invalid and unenforceable. In
response to Andrews complaint, we have filed a motion to dismiss and, in
the alternative, to transfer venue to the U.S. District Court for the
Northern District of Georgia. The parties are currently engaged in the
briefing process related to the motion to transfer venue. Although we
are confident of our legal position, we cannot assure the outcome of this
litigation. If the patents were enforced against our products, we could
be subject to payment of substantial damages and an injunction against
further distribution of what we consider to be an important product for
our future EMS Wireless sales. 
 ITEM 6. Exhibits (a) Exhibits  The following exhibits are filed as part of this report: 3.1
    
    
    Second Amended and Restated Articles of Incorporation of EMS Technologies, Inc. effective March
22, 1999 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q
for the quarter ended April 3, 2004).3.2
    
    
    Bylaws of EMS Technologies, Inc., as amended through March 15, 1999 (incorporated by reference to
Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 3, 2004).4.1
    
    
    Fifth Amendment dated as of August 31, 2004, to the Second Amended and Restated Loan Agreement
between the Company and Suntrust Bank, Atlanta (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed September 1, 2004).31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    
    Certifications of the Registrants Chief Executive and Chief Financial Officers, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 21




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. EMS TECHNOLOGIES, INC.By:
    
    /s/ Alfred G. Hansen
    
    Date: November 11, 2004Alfred G. HansenPresident, Chief Executive Officer (Principal Executive Officer)By:
    
    /s/ Don T. Scartz
    
    Date: November 11, 2004Don T. ScartzExecutive Vice President, Chief FinancialOfficer and Treasurer (Principal Financial and Accounting Officer)
 22