##### Table of Contents



All items of this Report on form 10-Q
were the subject of a Form 12b-25
and are included herein 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 April 2, 2005 Commission file number 0-6072 EMS TECHNOLOGIES, INC.
  Georgia
    
    58-1035424(State or other jurisdiction of
    
    (IRS Employer ID Number)incorporation or organization)
 660 Engineering DriveNorcross, Georgia
    
    30092(Address of principal executive offices)
    
    (Zip Code)
 (770) 263-9200Registrants Telephone Number, Including Area Code
 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 May 12, 2005: Class
    
    Number of SharesCommon Stock, $.10 par Value
    
    11,164,421
 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
    
    
    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
    
    
    14ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23ITEM 4. Controls and Procedures
    
    
    24PART II
    
    
    24ITEM 6. Exhibits
    
    
    24SIGNATURES
    
    
    27EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32
   SECTION 906 CERTIFICATION OF THE CEO/CFOEX-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 EndedApr 2
    
    
    Apr 32005
    
    
    2004Net sales
    
    $
    63,691
    
    
    
    64,075Cost of sales
    
    
    42,823
    
    
    
    40,477Selling, general and administrative expenses
    
    
    17,385
    
    
    
    15,584Research and development expenses
    
    
    4,432
    
    
    
    5,574Operating income (loss)
    
    
    (949
    )
    
    
    2,440Non-operating income, net
    
    
    51
    
    
    
    866Foreign exchange gain (loss)
    
    
    (120
    )
    
    
    103Interest expense
    
    
    (1,092
    )
    
    
    (638
    )Earnings (loss) from continuing operations before income taxes
    
    
    (2,110
    )
    
    
    2,771Income tax expense (benefit)
    
    
    (717
    )
    
    
    887Earnings (loss) from continuing operations
    
    
    (1,393
    )
    
    
    1,884Discontinued operations (note 2):Earnings from discontinued operations before income taxes
    
    
    1,170
    
    
    
    418Income tax expense
    
    
    81
    
    
    
    84Earnings from discontinued operations
    
    
    1,089
    
    
    
    334Net earnings (loss)
    
    $
    (304
    )
    
    
    2,218Net earnings (loss) per share (note 4):Basic:Earnings (loss) from continuing operations
    
    $
    (0.12
    )
    
    
    0.17Earnings from discontinued operations
    
    
    0.09
    
    
    
    0.03Net earnings (loss)
    
    $
    (0.03
    )
    
    
    0.20Diluted:Earnings (loss) from continuing operations
    
    $
    (0.12
    )
    
    
    0.17Earnings from discontinued operations
    
    
    0.09
    
    
    
    0.03Net earnings (loss)
    
    $
    (0.03
    )
    
    
    0.20Weighted average number of shares (note 4):Common
    
    
    11,164
    
    
    
    11,032Common and dilutive common equivalent
    
    
    11,164
    
    
    
    11,269
 See accompanying notes to interim consolidated financial statements. 2




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EMS Technologies, Inc. and Subsidiaries 
 Consolidated Balance Sheets (Unaudited)
 (in thousands)
 Apr 2
    
    
    Dec 312005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,673
    
    
    
    14,553Restricted cash
    
    
    4,715
    
    
    
    4,715Trade accounts receivable, net (note 6)
    
    
    80,737
    
    
    
    81,343Inventories (note 7)
    
    
    39,766
    
    
    
    37,425Deferred income taxes
    
    
    1,362
    
    
    
    1,362Assets held for sale (note 2)
    
    
    54,422
    
    
    
    48,658Total current assets
    
    
    192,675
    
    
    
    188,056Property, plant and equipment:Land
    
    
    1,150
    
    
    
    1,150Building and leasehold improvements
    
    
    15,171
    
    
    
    15,166Machinery and equipment
    
    
    80,874
    
    
    
    79,310Furniture and fixtures
    
    
    8,139
    
    
    
    8,061Total property, plant and equipment
    
    
    105,334
    
    
    
    103,687Less accumulated depreciation and amortization
    
    
    68,479
    
    
    
    66,519Net property, plant and equipment
    
    
    36,855
    
    
    
    37,168Deferred income taxes  non-current
    
    
    4,604
    
    
    
    4,604Intangible assets, net
    
    
    3,734
    
    
    
    3,990Goodwill
    
    
    13,526
    
    
    
    13,526Other assets
    
    
    8,846
    
    
    
    7,734Total assets
    
    $
    260,240
    
    
    
    255,078
 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) Apr 2
    
    
    Dec 312005
    
    
    2004LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    18,426
    
    
    
    3,462Accounts payable
    
    
    23,575
    
    
    
    25,638Income taxes payable
    
    
    577
    
    
    
    1,726Accrued compensation costs
    
    
    7,364
    
    
    
    6,258Accrued retirement costs
    
    
    3,155
    
    
    
    2,453Deferred service revenue
    
    
    6,120
    
    
    
    5,214Liabilities related to assets held for sale (note 2)
    
    
    22,479
    
    
    
    20,981Other current liabilities
    
    
    4,139
    
    
    
    5,333Total current liabilities
    
    
    85,835
    
    
    
    71,065Long-term debt, excluding current installments
    
    
    49,191
    
    
    
    57,992Total liabilities
    
    
    135,026
    
    
    
    129,057Stockholders equity:Preferred stock of $1.00 par value per shareAuthorized 10,000,000 shares; none issued
    
    
    
    
    
    
    Common stock of $.10 par value per shareAuthorized
75,000,000 shares; issued and outstanding 11,164,000 in 2005 and 2004
    
    
    1,116
    
    
    
    1,116Additional paid-in capital
    
    
    69,060
    
    
    
    69,058Accumulated other comprehensive income  foreign currency translation adjustment
    
    
    2,669
    
    
    
    3,174Retained earnings
    
    
    52,369
    
    
    
    52,673Total stockholders equity
    
    
    125,214
    
    
    
    126,021Total liabilities and stockholders equity
    
    $
    260,240
    
    
    
    255,078
 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)
 Three Months EndedApr 2
    
    
    Apr 32005
    
    
    2004Cash flows from operating activities:Net earnings (loss)
    
    $
    (304
    )
    
    
    2,218Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:Depreciation and intangible assets amortization
    
    
    2,706
    
    
    
    2,298Earnings from discontinued operations
    
    
    (1,089
    )
    
    
    (334
    )Gain on sale of assets
    
    
    
    
    
    
    (938
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (765
    )
    
    
    3,658Inventories
    
    
    (2,501
    )
    
    
    (3,393
    )Accounts payable
    
    
    (965
    )
    
    
    (164
    )Income taxes payable
    
    
    (1,194
    )
    
    
    179Accrued costs, deferred revenue and other current liabilities
    
    
    2,658
    
    
    
    1,970Other
    
    
    (2,332
    )
    
    
    596Net cash (used in) provided by operating activities
    
    
    (3,786
    )
    
    
    6,090Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (2,205
    )
    
    
    (1,447
    )Proceeds from the sale of assets
    
    
    182
    
    
    
    Net cash used in financing activities
    
    
    (2,023
    )
    
    
    (1,447
    )Cash flows from financing activities:Net increase (decrease) in revolving debt
    
    
    6,594
    
    
    
    (4,795
    )Repayment of term debt
    
    
    (327
    )
    
    
    (565
    )Deferred financing costs paid
    
    
    (58
    )
    
    
    Proceeds from exercise of stock options, net of withholding taxes paid
    
    
    2
    
    
    
    2,515Net cash provided by (used in) financing activities
    
    
    6,211
    
    
    
    (2,845
    )Operating cash used in discontinued operations
    
    
    (3,418
    )
    
    
    (3,222
    )Net change in cash and cash equivalents
    
    
    (3,016
    )
    
    
    (1,424
    )Effect of exchange rates on cash
    
    
    136
    
    
    
    (643
    )Cash and cash equivalents at beginning of period
    
    
    14,553
    
    
    
    14,180Cash and cash equivalents at end of period
    
    $
    11,673
    
    
    
    12,113Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    668
    
    
    $
    927Cash paid for income taxes
    
    
    608
    
    
    
    128
 See accompanying notes to interim consolidated financial statements. 5




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EMS Technologies, Inc. and Subsidiaries 
 Notes to Consolidated Financial Statements (Unaudited)
 April 2, 2005 and April 3, 2004
 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., EMS
Technologies Canada, Ltd., and EMS Wireless do Brasil, Ltda.
(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. Certain prior period financial statement balances have
been reclassified to conform to the current periods classification. 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/A Amendment No. 1 for the year ended
December 31, 2004. 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.  Managements Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make 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 during the period. Actual future results could
differ from those estimates.  Stock Option Plans 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. The Company adopted the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 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 net 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 EndedApr 2
    
    
    Apr 32005
    
    
    2004Net earnings (loss):As reported (1)
    
    $
    (304
    )
    
    
    2,218Less: Stock-based employee compensation expense determined
under the fair value method, net of tax
    
    
    (317
    )
    
    
    (520
    )Pro forma
    
    $
    (621
    )
    
    
    1,698Basic net earnings (loss) per share:As reported
    
    $
    (0.03
    )
    
    
    0.20Pro forma
    
    
    (0.06
    )
    
    
    0.15Diluted net earnings (loss) per share:As reported
    
    $
    (0.03
    )
    
    
    0.20Pro forma
    
    
    (0.06
    )
    
    
    0.15
   (1)
    
    Stock compensation expense has not been recognized in net earnings (loss). 6




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Effect of New
Accounting Pronouncements In December 2004, the FASB
issued FASB Staff Position 109-2 (FSP 109-2), providing guidance on
the application of SFAS No. 109, Accounting for Income
Taxes, to a provision within the American Jobs Creation Act of
2004 (the AJCA) related to a deduction for certain
foreign earnings that are repatriated. On October 22, 2004, the
AJCA was signed into law. The AJCA includes a deduction of 85 percent
of certain foreign earnings that are repatriated, defined in the
AJCA. The AJCA could potentially apply to repatriation of cumulative
earnings by the Companys European sales subsidiaries. The
Company presently estimates that the potential amounts of unremitted
earnings being considered for repatriation could be in the range of
$3 million to $5 million. However, the Company has not yet
begun its formal evaluation of the effect of the AJCA, and therefore
the Company has not yet determined (a) whether such earnings
could actually be repatriated under provisions of the AJCA, or
(b) the range of income tax effects of such repatriation. The
Company expects to begin its evaluation of the potential application
of the AJCA during the second half of 2005, with expected completion
late in the same year. 2. Discontinued Operations The Companys Montreal-based commercial space operations are accounted for as discontinued
operations. The net assets held for sale have been written down to their estimated fair value upon
disposal, which was estimated in Canadian dollars using an expected present value technique and a
discount rate of 20%. A 2% change in the discount rate would cause a change in the valuation of
approximately $1.7 million. The results of these discontinued operations for the first quarter of 2005 and 2004 were as follows
(in thousands): Quarters EndedApr 2
    
    
    Apr 32005
    
    
    2004Net sales
    
    $
    16,073
    
    
    
    14,778Costs and expenses
    
    

    14,903
    
    
    
    14,360Earnings before income taxes
    
    
    1,170
    
    
    
    418Income tax expense
    
    
    81
    
    
    
    84Net earnings
    
    $
    1,089
    
    
    
    334
 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 April 2, 2005 and December 31,
2004 (in thousands): Apr 2
    
    
    Dec 312005
    
    
    2004Accounts receivable, net
    
    $
    17,537
    
    
    
    12,906Inventories
    
    
    3,811
    
    
    
    4,005Investments
    
    
    2,709
    
    
    
    2,709Property, plant and equipment, net
    
    
    18,620
    
    
    
    18,599Non-current accounts receivable, net
    
    
    7,767
    
    
    
    6,516Accrued pension assets
    
    
    3,118
    
    
    
    3,255Other assets
    
    
    860
    
    
    
    668Total assets held for sale
    
    $
    54,422
    
    
    
    48,658Accounts payable
    
    $
    14,992
    
    
    
    13,387Long-term debt
    
    
    2,697
    
    
    
    2,783Post-retirement obligations
    
    
    4,537
    
    
    
    4,481Other current liabilities
    
    
    253
    
    
    
    330Total liabilities related to assets held for sale
    
    $
    22,479
    
    
    
    20,981
 3. Derivative Financial Instruments The
Company uses derivative financial instruments (foreign currency
forward 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 for the
approval, reporting and monitoring of derivative financial instrument activities. The Company does
not enter into derivative financial instruments for trading or speculative purposes. Certain
of the Companys routine long-term contracts to deliver space
and technology products 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. These embedded derivatives do not qualify as
hedging instruments and are accounted for at fair value. None of the
Companys derivative instruments were designated as hedges in
2005 or 2004 and as result all unrealized gains or losses are
reflected currently in foreign exchange (loss) gain on the
consolidated statements of operations. 7




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For continuing operations, the derivative activity as reported in the Companys consolidated
financial statements during the first quarters ended 2005 and 2004 was (in thousands): Quarters EndedApr 2
    
    
    Apr 32005
    
    
    2004Beginning net asset (liability) for derivatives
    
    $
    (205
    )
    
    
    108Changes in statement of operations:Sales:Loss in value of embedded derivatives
    
    
    (6
    )
    
    
    (2
    )Foreign exchange gain (loss) on derivative instruments:Gain in value of derivative instruments that do not
qualify as hedging
instruments
    
    
    19
    
    
    
    74Matured foreign exchange contracts
    
    
    127
    
    
    
    (98
    )Net consolidated statements of operations gain
(loss) from changes
in value of derivative instruments
    
    
    140
    
    
    
    (26
    )Ending net asset (liability) for derivatives
    
    $
    (65
    )
    
    
    82
 For discontinued operations, the net liability for derivatives at April 2, 2005 was $73,000
compared to $14,000 at December 31, 2004. All of the foreign currency contracts currently in place will expire by the first quarter of 2006. 4. Earnings (Loss) Per Share Basic earnings (loss) per share is the per share allocation of earnings 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
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, if applicable. The Company has granted employee stock options and stock warrants that are potentially dilutive to
basic earnings per share, although the potentially dilutive effect of
all stock options and warrants were excluded from the calculation of loss per share in the
first quarter of 2005. The
dilutive and anti-dilutive stock
options and warrants are summarized as follows (shares in thousands): Apr 2
    
    
    Apr 32005
    
    
    2004Dilutive stock options, included in earnings
(loss) per share calculations:Shares
    
    
    
    
    
    
    1,320Average exercise price per share
    
    $
    
    
    
    
    15.42Anti-dilutive stock options and warrants, excluded
from per share calculations:Shares
    
    
    1,687
    
    
    
    422Average exercise price per share
    
    $
    17.14
    
    
    
    23.31
 8




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For each earnings (loss) per share calculation reported for the first quarters of 2005 and 2004,
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
first quarters ended April 2, 2005 and April 3, 2004 (in thousands): Quarters EndedApr 2
    
    
    Apr 32005
    
    
    2004Basic-weighted average common shares outstanding
    
    
    11,164
    
    
    
    11,032Common equivalent shares from stock options
    
    
    
    
    
    
    237Diluted-weighted average common and common equivalent
shares outstanding
    
    
    11,164
    
    
    
    11,269
 5. Comprehensive Income (Loss) Following is a summary of comprehensive income (loss) (in thousands): Quarters EndedApr 2
    
    
    Apr 32005
    
    
    2004Net income (loss)
    
    $
    (304
    )
    
    
    2,218Other comprehensive loss:Foreign currency translation adjustment
    
    
    (505
    )
    
    
    (834
    )Comprehensive income (loss)
    
    $
    (809
    )
    
    
    1,384
 6. Trade Accounts Receivable Trade accounts receivable include the following (in thousands): Apr 2
    
    
    Dec 312005
    
    
    2004Amounts billed
    
    $
    60,635
    
    
    
    60,121Unbilled revenues under long-term contracts
    
    
    25,121
    
    
    
    24,302Customer advanced payments
    
    
    (3,943
    )
    
    
    (2,006
    )Allowance for doubtful accounts
    
    
    (1,076
    )
    
    
    (1,074
    )Trade accounts receivable, net
    
    $
    80,737
    
    
    
    81,343
 7. Inventories Inventories include the following (in thousands): Apr 2
    
    
    Dec 312005
    
    
    2004Parts and materials
    
    $
    25,532
    
    
    
    25,111Work-in-process
    
    
    6,671
    
    
    
    5,808Finished goods
    
    
    7,563
    
    
    
    6,506Inventories, net
    
    $
    39,766
    
    
    
    37,425
 9




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8. Interim Segment Disclosures The Company is organized into five reportable segments: LXE, Defense & Space Systems, SATCOM, EMS
Wireless, 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 profit. The LXE segment manufactures wireless local area network (LAN) products for use mainly in
logistics. 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
incorporate their products and services with the Companys hardware for delivery to end-users. The Defense & Space Systems segment manufactures custom-designed, highly engineered hardware for
use in space and satellite communications, radar, surveillance and military countermeasures. Orders
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. The SATCOM segment manufactures antennas and other hardware for satellite communications systems.
The manufacturing cycle for each order is generally just a few days, and revenues are recognized
upon shipment of hardware. Hardware is marketed to third parties that incorporate 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
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 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. Hardware is marketed to operators of high-speed, two-way, multimedia access
networks. Revenues for certain contracts at SatNet are recognized when units are shipped or
services are performed subject to the limitations of FASB Emerging Issues Task Force Issue No.
00-21 relative to multiple deliverables, including some deliverables that management believes are
not significant to the total system being delivered. Revenues for other contracts involving
substantial development efforts are recognized under the percentage of completion method of
accounting. 10




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Following is a summary of the Companys interim segment data (in thousands): Quarters EndedApr 2
    
    
    Apr 32005
    
    
    2004Net sales:LXE
    
    $
    26,819
    
    
    
    24,900Defense & Space Systems
    
    
    11,280
    
    
    
    12,984Less sales to discontinued operations
    
    
    
    
    
    
    (183
    )Defense & Space Systems external sales
    
    
    11,280
    
    
    
    12,801SATCOM
    
    
    9,864
    
    
    
    10,115EMS Wireless
    
    
    12,221
    
    
    
    12,210SatNet
    
    
    3,620
    
    
    
    4,049Less sales to discontinued operations
    
    
    (113
    )
    
    
    SatNet external sales
    
    
    3,507
    
    
    
    4,049Total
    
    $
    63,691
    
    
    
    64,075Operating income (loss):LXE
    
    $
    982
    
    
    
    1,129Defense & Space Systems
    
    
    (499
    )
    
    
    832SATCOM
    
    
    440
    
    
    
    233EMS Wireless
    
    
    (875
    )
    
    
    115SatNet
    
    
    (718
    )
    
    
    (70
    )Other
    
    
    (279
    )
    
    
    201Total
    
    $
    (949
    )
    
    
    2,440Earnings (loss) from continuing operations:LXE
    
    $
    505
    
    
    
    668Defense & Space Systems
    
    
    (373
    )
    
    
    451SATCOM
    
    
    513
    
    
    
    212EMS Wireless
    
    
    (643
    )
    
    
    (29
    )SatNet
    
    
    (1,081
    )
    
    
    (229
    )Other
    
    
    (61
    )
    
    
    (34
    )Corporate
    
    
    (253
    )
    
    
    845Total
    
    $
    (1,393
    )
    
    
    1,884
 11




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##### Table of Contents



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 for the quarters ended (in thousands): Apr 2
    
    
    Apr 32005
    
    
    2004Balance at beginning of quarter
    
    $
    2,322
    
    
    
    1,977Accruals for warranties issued during the period
    
    
    201
    
    
    
    166Settlements made during the period
    
    
    (353
    )
    
    
    (138
    )Balance at end of quarter
    
    $
    2,170
    
    
    
    2,005
 10. Long-Term Debt On February 11, 2005, the Company amended its U.S. and
Canadian revolving credit agreements to increase the
aggregate borrowing capacity from $55.0 million to $65.0 million, and to add another financial institution in the
U.S. and in Canada to the group of creditors in the agreement. Under this amendment, the aggregate borrowing
capacity of the revolving credit agreement is $32.5 million in both the U.S. and Canada. The amendment also
requires the Company to repay S&T/Montreals outstanding debt upon the closing of its sale, and the group of
creditors will simultaneously reduce the borrowing capacity of the Canadian facility and increase the borrowing
capacity of the U.S facility by $15.0 million. Based upon
managements expectations, the Company has classified
$15.0 million as short-term debt in the first quarter of 2005. During the first quarter of 2005, total debt increased by
$6.2 million mainly due to the operating losses at EMS
Wireless, D&SS, and SatNet, as well as the build-up of inventory at EMS Wireless and LXE in anticipation of
higher order rates in future periods. As a result of this increase and
the reclassification of the $15 million noted above, the Companys
long-term debt decreased by a net $8.8 million. At April 2, 2005, the Company had $8.5 million available for borrowing
in the U.S. and $1.0 million available for
borrowing in Canada under the respective revolving credit agreements after current borrowings and outstanding
letters of credit. In addition, the new debt agreements require the Company to maintain an aggregate reserve of
$5.0 million in unused revolving credit and cash related to an S&T/Montreal contract. The new U.S. revolver facilities
are secured by substantially all tangible and intangible assets, with certain exceptions for real estate that secures
existing mortgages and other permitted liens. The new agreement matures in three years, with no principal
payments required until maturity. As of the end of the quarter, the Company had $5.5 million of standby
letters of credit as performance guarantees
outstanding under the revolving credit agreement. The Company had an additional $3.2 million of standby letters of
credit as performance guarantees outstanding through another Canadian bank. The Company deposited
$4.7 million, which was classified as restricted cash on its
consolidated balance sheets, at a Canadian bank as
collateral for a portion of these standby letters of credit and for outstanding foreign currency forward contracts. Most
of this cash will become available to the Company during the first half of 2005 as the underlying letters of credit and
forward contracts expire or are settled. Interest under both the U.S.
and the Canadian revolving loans are, at the Companys option, a function of either the
banks prime rate or LIBOR. A commitment fee equal to .50% per annum of the daily average unused credit in both
the U.S. and Canada is payable quarterly. The revolving credit agreement includes a covenant that establishes
a quarterly minimum required consolidated net
worth. The minimum consolidated net worth required at April 2, 2005 was approximately $113 million, as compared
with the reported consolidated net worth of approximately $125 million. Other covenants under the agreement
include a maximum ratio of total funded debt to historical earnings before interest, taxes, depreciation, and
amortization (EBITDA) and a minimum ratio of historical EBITDA less capital expenditures and taxes paid to
specified fixed charges, mainly interest and scheduled principal repayments under all debt agreements. There are
various other debt covenants that are customary in such borrowings. The agreement also restricts the ability of the
Company to declare or make cash dividends. At April 2, 2005, the Company
was not in compliance with the funded-debt-to-EBITDA covenant under its credit
agreement, and has received a bank waiver of non-compliance. The Company expects that as a result of anticipated
improved earnings performance and positive cash flow, it will be in compliance during future quarters. However, if
the Company does not achieve these expectations, it may fail to comply with the funded-debt-to-EBITDA covenant
under its credit agreements, in which case it would seek a further waiver of that covenant from the bank creditors
under those agreements although no assurances for such waivers will
be provided. 12




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##### Table of Contents



11. 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. Andrew alleges EMS
Wireless has committed willful infringement and thus additionally asks for damages to be enhanced
and for an award of 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. In response to Andrews complaint, we have answered and
asserted defenses of invalidity and noninfringement. Additionally, EMS Wireless has asked the U.S.
Patent Office to reexamine at least one of the patents at issue. The parties have collectively
requested the Court to stay further proceedings while settlement discussions are underway.
Although we are confident of our legal position, we cannot assure the outcome of this litigation.
If the patents were successfully 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. 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. 13




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##### Table of Contents



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 the Companys 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/A
Amendment No. 1 for the year ended December 31, 2004. 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. Following is a summary of significant factors affecting the Company in the first quarter of 2005: For continuing operations:  
    There was a consolidated operating loss in the first quarter of 2005, as compared with
operating profit in 2004, and this is related to several factors: (1) substantial
sales by EMS Wireless of a newly-introduced model of antenna which, in its initial rollout
phase, provided low contributions to profit; (2) comparatively lower revenues from our
SatNet division, which reflected the uncertain orders stream in this emerging market; and
(3) U.S. Department of Defense  funding delays related to budgetary
and technical issues, which resulted in fewer new orders available to
replace significant contracts that were completed in 2004, as well as cost increases resulting from technical difficulties on certain programs at the Defense
& Space Systems division.  
    Non-operating income in 2004 included a one-time $938,000 pre-tax gain for the sale of
unutilized real estate in Montreal. For discontinued operations:  
    Discontinued operations reported a $1.2 million earnings before income tax for the
quarter, mainly as a result of higher revenues, lower selling, marketing and administrative
costs, and lower net R&D expenses. Discontinued Operations Our Space & Technology/Montreal division is classified as discontinued operations, and the net
assets held for sale have been written down to their estimated fair value upon disposal. The fair
value upon disposal was estimated in Canadian dollars using an expected present value technique and
a discount rate of 20%. A 2% change in the discount rate would cause a change in the valuation of
approximately $1.7 million. The Company continues to pursue its plan of sale for the Space & Technology/Montreal division. It
is unlikely that significant changes to the plan will take place or that the plan will be withdrawn
by the Company. The division is available for immediate sale in its present condition, and is
being actively marketed at a price that management believes is reasonable as compared with its
current estimated fair value. Management believes that the sale of the division is probable within
one year. Under the present circumstances, management believes that it is appropriate to continue
accounting for the Space & Technology/Montreal division as discontinued operations. Results of Operations Net Sales Consolidated
net sales were $63.7 million in the first quarter of 2005, compared with $64.1 million
in the first quarter of 2004. An increase in net sales across all of LXEs markets was offset by
lower defense net sales at D&SS and lower shipments of DVB-RCS hubs and terminals at SatNet. First
quarter sales at the other divisions were comparable in 2005 and 2004. 14




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##### Table of Contents



Cost of Sales Cost of sales, as a percentage of consolidated net sales, was 67% for the first quarter of 2005,
compared with 63% for the same period of 2004. The unfavorable effect on cost of sales as a
percentage of net sales was mainly due to (1) substantial sales by EMS Wireless of a new model of
antenna with a relatively low gross margin during the initial rollout phase; (2) lower net sales at
SatNet to cover fixed costs; and (3) cost increases related to technical difficulties on existing
programs at our D&SS division. Net Sales, Cost of Sales, and Operating Income (Loss) by Segment Our segment net sales and operating income (loss) were as follows (in thousands): Quarters EndedApr 2
    
    
    Apr 32005
    
    
    2004Net sales:LXE
    
    $
    26,819
    
    
    
    24,900Defense & Space Systems
    
    
    11,280
    
    
    
    12,984Less sales to discontinued operations
    
    
    
    
    
    
    (183
    )Defense & Space Systems external sales
    
    
    11,280
    
    
    
    12,801SATCOM
    
    
    9,864
    
    
    
    10,115EMS Wireless
    
    
    12,221
    
    
    
    12,210SatNet
    
    
    3,620
    
    
    
    4,049Less sales to discontinued operations
    
    
    (113
    )
    
    
    SatNet external sales
    
    
    3,507
    
    
    
    4,049Total
    
    $
    63,691
    
    
    
    64,075Operating income (loss):LXE
    
    $
    982
    
    
    
    1,129Defense & Space Systems
    
    
    (499
    )
    
    
    832SATCOM
    
    
    440
    
    
    
    233EMS Wireless
    
    
    (875
    )
    
    
    115SatNet
    
    
    (718
    )
    
    
    (70
    )Other
    
    
    (279
    )
    
    
    201Total
    
    $
    (949
    )
    
    
    2,440
 LXE:Net sales in 2005 were higher than in 2004 due mainly to a 16% increase in hardware units
shipped for the Americas and international markets combined in the first quarter of 2005 as
compared to the same period of 2004. Management attributes the growth of LXEs revenues to the
competitive strength of our products performance, service and support, and to our favorable
position as an acknowledged market leader. Cost of sales, as a percentage of net sales, were comparable in the first quarter of 2005 as
compared with 2004. Defense & Space Systems:This segment primarily serves defense markets, and net sales in 2005 were
lower than in the same period in 2004 by 12%. These lower sales were due to U.S. Department of
Defense funding delays related to budgetary and technical issues, which resulted in fewer new
orders available to replace significant contracts that were completed in 2004, as well as technical
difficulties on certain existing programs that reduced the net sales recognized for these programs
under the percentage-of-completion method of accounting in the first quarter of 2005. Cost of sales as a percentage of net sales increased as a result of cost increases on existing
programs that experienced technical difficulties. 15




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##### Table of Contents



SATCOM:Most of SATCOMs sales over the past three years have been for installation of our products
on military command aircraft and on corporate jets. Net sales were comparable in the first quarter
of 2005 and 2004. Cost of sales as a percentage of net sales also was relatively unchanged in the first quarter of
2005 as compared with the first quarter of 2004. EMS Wireless:Net sales were comparable for the first quarter of 2005 as compared with 2004.
Significant new orders in 2005 were received too late to be shipped in the first quarter. Cost of sales were higher for the first quarter of 2005 compared with 2004, mainly due to
significant net sales in 2005 of a newly-introduced model of antenna, which had a relatively low
gross margin percentage in its initial rollout period. SatNet:This is our start-up venture to provide DVB-RCS standard hubs and terminals for broadband
communications via satellite. Net sales were 13% lower in the first quarter of 2005 as compared
with the first quarter of 2004, which reflected the uncertain orders stream in this emerging
market. Cost of sales as a percentage of net sales increased in the first quarter of 2005 compared to the
same period of 2004, due to lower revenues to cover fixed manufacturing and engineering costs. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A), as a percentage of net sales, were 27% and
24% for the first quarters of 2005 and 2004, respectively. The increase in SG&A expenses related mainly to the increased sales and marketing
expenditures in international markets by LXE, and the favorable foreign exchange rates versus the
U.S. dollar in 2005, which had the effect of increasing the reported cost of the international
efforts of LXE and our Canadian operation. Other factors that affected SG&A expenses were higher
audit and other outside services expenses in 2005 required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002, which became effective in 2004. Research and Development Expenses Research and development expenses (R&D) represent the cost of our internally funded efforts. For
the first quarter of 2005 compared with the first quarter of 2004, gross R&D expenses decreased
with a planned transition to more contract-related efforts at D&SS, as certain major development
programs, such as the Warfighter Information Network-Tactical (WIN-T), were completed in 2004. LXE
and SatNet also completed new technology and product initiatives that were underway during the
first quarter of last year. In addition, at our SATCOM and SatNet divisions, customer funded R&D
(which is reported as a reduction of R&D) was higher in 2005 compared with 2004. Non-Operating Income, Net Non-operating income for the first quarter of 2004 included a one-time $938,000 pre-tax gain for
the sale of unutilized real estate in Montreal. Foreign Exchange Gain (Loss) We recognize foreign exchange gains and losses related to assets or liabilities denominated in
foreign currencies, and if applicable, any embedded derivatives in contracts denominated in foreign
currencies. We use foreign currency forward contracts to partially offset the effect of 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 for approval, reporting, and monitoring of
derivative financial instrument activities. The Company does not enter into derivative financial
instruments for trading or speculative purposes. 16




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##### Table of Contents



We also recognize 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. A stronger U.S. dollar against the euro usually results in foreign exchange
losses for LXE by increasing the cost to the subsidiaries of purchases from the U.S. parent
company. In 2005, there were net foreign currency losses of $120,000 arising mainly because the U.S. dollar
was weaker against the Canadian dollar. In 2004, the net foreign currency gains of $103,000 in the
first quarter were mainly the result of a stronger U.S. dollar against the Canadian dollar. Interest Expense Interest expense increased for the first quarter of 2005 compared with the same period in 2004 due
to higher interest rates and increased average debt levels. Income Tax Expense (Benefit) The Company recognized a 34% effective income tax rate in 2005 based upon managements expected
taxable income associated with various tax jurisdictions for the full year, as compared with 32%
for the first quarter of 2004. The income tax rates for the Companys U.S. and European operations
are higher than those applicable to our Canadian operations. The low Canadian rate is due to
research-related tax benefits. The overall 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 The first quarter pre-tax results from the Companys discontinued operations totaled a $1.2 million
gain in 2005 compared with a $418,000 gain in 2004. These improved results reflected an increase in
first quarter revenues along with a decrease in operating expenses. Net sales increased to $16.1
million in 2005 compared with $14.8 million in 2004 as a result of new program initiatives in 2005.
Operating expenses decreased due to lower proposal costs, and a higher level of R&D cost
reimbursements under agreements with certain customers. Liquidity and Capital Resources During the first quarter of 2005, net cash used in continuing operating activities was
approximately $3.8 million, with the most significant factors being the operating losses at EMS
Wireless, D&SS, and SatNet, as well as the build-up of inventory at EMS Wireless and LXE in
anticipation of higher order rates in future periods. Total debt
increased by $6.2 million. On February 11, 2005, the Company amended its U.S. and Canadian revolving credit agreements to
increase the aggregate borrowing capacity from $55.0 million to $65.0 million, and to add another
financial institution in the U.S. and in Canada to the group of creditors in the agreement. Under
this amendment, the aggregate borrowing capacity of the revolving credit agreement is $32.5 million
in each of the U.S. and Canada. At April 2, 2005, the Company had $8.5 million available for borrowing in the U.S. and $1.0 million
available for borrowing in Canada under the respective revolving credit agreements after current
borrowings and outstanding letters of credit. In addition, the new debt agreements require the
Company to maintain an aggregate reserve of $5.0 million in unused revolving credit and cash
related to an S&T/Montreal contract. As
of the end of the first quarter of 2005, the Company had $4.7 million deposited at a Canadian bank as
collateral for outstanding letters of credits and foreign currency forward contracts. Such amounts
were classified as restricted cash on the Companys consolidated balance sheets. Most of this cash
collateral will become available to the Company in the second quarter of 2005 as the underlying
letters of credit and forward contacts expire or are settled. 17




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##### Table of Contents



Interest under both the U.S. and the Canadian revolving loans are, at the Companys option, a
function of either the banks prime rate or LIBOR. A commitment fee equal to .50% per annum of the
daily average unused credit in both the U.S. and Canada is payable quarterly. The revolving credit agreement includes a covenant that establishes a quarterly minimum required
consolidated net worth. The minimum consolidated net worth required at April 2, 2005 was
approximately $113 million, as compared with the reported consolidated net worth of approximately
$125 million. Other covenants under the agreement include a maximum ratio of total funded debt to
historical earnings before interest, taxes, depreciation, and amortization (EBITDA) and a minimum
ratio of historical EBITDA less capital expenditures and taxes paid to specified fixed charges,
mainly interest and scheduled principal repayments under all debt agreements. There are various
other debt covenants that are customary in such borrowings. The agreement also restricts the
ability of the Company to declare or make cash dividends. At April 2, 2005, the Company was not in compliance with the funded-debt-to-EBITDA covenant under
its credit agreement, and has received a bank waiver of noncompliance. The Company expects that as a
result of anticipated improved earnings performance and positive cash flow, it will be in
compliance during future quarters. However, if the Company does not achieve these expectations, it
may fail to comply with the funded-debt-to-EBITDA covenant under its credit
agreements, in which case it would seek a further waiver of that covenant from the bank
creditors under those agreements although no assurances for such
waivers will be provided. During the first quarter of 2005, discontinued operations (the Space & Technology/Montreal
division, which is held for sale) used net cash of $3.4 million. The Company expects that capital expenditures in 2005 will range from $11 million to $13 million.
These expenditures will be used primarily to purchase equipment that increases or enhances capacity
and productivity. Except
as reflected in the table below as of April 2, 2005, the Companys material contractual cash commitments and material other commercial commitments have
not changed significantly from those disclosed in the Annual Report
on Form 10-K/A Amendment No. 2 for the year ended December 31,
2004 (in millions). Less than
    
    
    
    
    
    
    
    
    
    
    After 5Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsContinuing Operations:December 31, 2004 (no significant change to date):Capital lease obligations
    
    $
    0.8
    
    
    
    0.5
    
    
    
    0.3
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    13.2
    
    
    
    4.4
    
    
    
    6.7
    
    
    
    2.1
    
    
    
    Deferred compensation
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency forward contracts, net
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Interest on outstanding long-term debt (2)
    
    
    15.6
    
    
    
    4.1
    
    
    
    7.6
    
    
    
    1.6
    
    
    
    2.3Purchase commitments (1)
    
    
    20.6
    
    
    
    20.5
    
    
    
    0.1
    
    
    
    
    
    
    
    April 2, 2005:Long-term debt, excluding capital leases
    
    
    67.0
    
    
    
    17.6
    
    
    
    37.6
    
    
    
    2.5
    
    
    
    9.3Discontinued Operations:December 31, 2004 (no significant change to date):Capital lease obligations
    
    $
    0.4
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    Operating lease obligations
    
    
    1.0
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    
    
    
    
    Foreign currency forward contracts, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase commitments (1)
    
    
    8.1
    
    
    
    7.8
    
    
    
    0.3
    
    
    
    
    
    
    
    April 2, 2005:Long-term debt, excluding capital leases (3)
    
    
    2.4
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    1.2
   (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.(2)
    
    Assumes that the revolving loan balances and related variable interest rates remain
unchanged from December 31, 2004 until the loan matures in December of 2007.(3)
    
    Long-term debt for discontinued operations is included in liabilities related to assets
held for sale on the consolidated balance sheet. 18




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##### Table of Contents



Following is a summary of the Companys material other commercial commitments as of April 2,
2005 (in thousands): Amount of commitment expiration per periodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Other commercial commitments
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsStandby letters of
credit as performance
guarantees
    
    $
    8,722
    
    
    
    8,523
    
    
    
    107
    
    
    
    92
    
    
    
    
 We have deposited $4.7 million at a Canadian bank as collateral for a portion of the above standby
letters of credit and for outstanding foreign currency forward contracts. Such balances are
classified as restricted cash on the Companys consolidated balance sheet. Management believes that cash provided from operations and borrowings available under its credit
agreements will provide sufficient liquidity to meet the operating and capital expenditure needs
for existing operations during the next 12 months. To fund long-term growth, the Company may
consider such measures as public or private offerings of common stock or convertible securities. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles, which often requires the judgment of management in the selection and
application of certain accounting principles and methods. We consider the following accounting
policies to be critical to understanding our consolidated financial statements, because the
application of these policies requires significant judgment on the part of management, and as a
result, actual future developments may be different from those expected at the time critical
judgments are made. Revenue recognition on long-term contracts Revenue recognition for fixed-price, long-term contracts in the Defense & Space Systems and SATCOM
segments, as well as the Space & Technology/Montreal operations currently held for sale, is a
critical accounting policy involving significant management estimates. These segments long-term
contracts use 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 method of 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 April 2, 2005, the
Company had recognized a cumulative total of $25.1 million in revenues
from continuing operations under percentage of completion method of accounting, but which revenues were unbilled as of that
date due to the billing milestones specified in the respective customer contracts. Two large contracts in discontinued operations that were accounted for under percentage completion
accounting have experienced technical and supplier difficulties, resulting in increases to the
estimated cost at completion totaling approximately $.6 million
in 2005 and $1.7 million in the first quarter of 2004.
The Company provided reserves for identified risks that could cause cost increases in the future.
The larger of the two contracts was very near completion at the end of 2004, but on the remaining
smaller contract, there is a risk that further unforeseen difficulties could cause increases to the
cost at completion that exceed the Companys provisions, resulting in further losses. Revenues under cost-reimbursement contracts in the Defense & Space Systems segment are recorded as
costs are incurred and include an estimate of fees earned. Revenues under all other contracts in
the Defense & Space Systems 19




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##### Table of Contents



and SATCOM segment, as well as in the LXE and EMS Wireless segments, are recognized when units are
shipped or services are performed. Revenues for certain contracts at SatNet are recognized when
units are shipped or services are performed subject to the limitations of FASB Emerging Issues Task
Force Issue (EITF) No. 00-21 relative to multiple deliverables, including some deliverables that
management believes are not significant to the total system being delivered. Revenues for other
contracts involving substantial development efforts are recognized under the percentage of
completion method of accounting. Accounting for government research incentives Our accrual of research incentives from the Canadian government is a critical accounting policy
involving management estimates for the SatNet division in continuing operations and for the
discontinued Space & Technology/Montreal operations. 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 three months
ended April 2, 2005, total incentives earned were approximately $400,000, compared with $1.3
million for the three months ended April 3, 2004. We have established procedures to identify
qualified costs and to submit appropriate claims for reimbursement. All of these claims are
subject to financial and scientific audits by the Canadian government concerning whether certain
expenses qualified for incentive programs. Although historically there have been no significant
disallowances of previously accrued incentives that resulted from these audits, such disallowances
in the future would have an unfavorable effect on our consolidated statement of operations. Inventory valuation Management assesses inventory valuation based upon an analysis of the aging of the inventory and
assumptions that management develops concerning how the value of inventory for specific products,
markets or applications may decrease over time. Inventory write-downs are accounted for as
adjustments to the related inventorys cost basis, and reserves are reduced only upon subsequent
sale or disposal of the inventory, rather than upon any subsequent improvement in the inventory
aging. Evaluation of long-lived assets for impairment All long-lived assets on the consolidated balance sheet are periodically reviewed for impairment.
If an indication of impairment arises, we test recoverability by estimating the cash flows expected
to result from the long-lived assets under several different scenarios, including the potential
sale of assets, as well as continued holding of the assets under several different kinds of
business conditions. No long-lived assets that were classified as held and used were determined
to be impaired as of April 2, 2005. In the third quarter of 2003, the assets related to the Space & Technology/Montreal division were
reclassified from assets held and used to assets held for sale due to a decision to dispose of
these operations. As a result, Space & Technology/Montreal division was accounted for as
discontinued operations, and the net assets held for sale were written down to their estimated fair
values upon disposal. Our less-than-5% equity investment in a limited partnership, SkyBridge LLP is included in the
assets reclassified to assets held for sale. The objective of this investment, which was
initially acquired in connection with the Companys acquisition of the Space & Technology/Montreal
operations in 1999, is to enable the Space & Technology/Montreal division to participate as a
hardware provider in the development and implementation by SkyBridge of a satellite network to
provide high-data-rate wireless services. Establishment of reserves for deferred income tax assets It is managements current expectation 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 reserved substantially all the net deferred tax assets associated with
these research-related tax benefits (totaling approximately $41 million at the end of the preceding
fiscal year), because they are unlikely to be realized. However, this reserve 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 the tax liability incurred in future years,
or (2) the level of our qualified research in Canada decreases, which would lower the tax benefits earned in future
years. 20




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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, including statements concerning financial results
and cash flows expected for future periods. 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 operations would, during 2005, 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;
    the Company expects that as a result of anticipated improved earnings performance and
positive cash flow, it will be in compliance during future quarters. However, if the
Company does not achieve these expectations, it may fail to comply  with the
funded-debt-to-EBITDA covenant under its credit agreements, in which
case it would need to seek a further waiver of that covenant from the bank creditors under those agreements;
    the effects of the guidelines of FASB Emerging Issues Task Force (EITF) Issue No.
00-21, under which it is possible that SatNet may deliver or complete performance relative
to most of the significant deliverables under particular contracts, but not recognize any
revenue on those contracts until performance or delivery has been completed relative to all
deliverables, including some deliverables that management believes are not significant to
the total system being delivered;
    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
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 and
losses associated with non-U.S. assets or liabilities held by the Company;
    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); 21




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
    the success of certain of our customers in marketing our line of high-speed commercial
airline communications products as a complimentary 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 demand growth for various mobile and high-speed data communications services; and
    the Companys ability to attract and retain qualified personnel, particularly those with key technical skills. Additional information concerning these and other potential risk factors is included in Item 1 of
the Companys Annual Report on Form 10-K/A Amendment No. 1 for the year ended December 31, 2004. Effect of New Accounting Pronouncements In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for Conditional
Asset Retirement Obligations. FIN 47 clarifies the conditions under which an entity would have
sufficient information to apply an expected value technique to, and recognize a liability for, a
conditional asset retirement obligation. The Company is still
evaluating the impact of FIN No. 47 on the Companys
consolidated financial statements. In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43
Chapter 4. SFAS No. 151 more clearly defines when excessive idle facility expense, freight,
handling costs, and spoilage are to be current-period charges. In addition, SFAS No. 151 requires
the allocation of fixed production overhead to the cost of conversion to be based on the normal
capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The Company
is still evaluating the impact of SFAS No. 151 on the
Companys consolidated financial statements. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS No.
123(R)). SFAS No. 123(R) eliminates the intrinsic value method under Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued for Employees, and requires the Company to
use a fair-value based method of accounting for share-based payments. Under APB No. 25, no
compensation cost related to stock options is recognized in the consolidated statements of
operations. SFAS No. 123R requires that compensation cost for employee services received in
exchange for an award of equity instruments be recognized in the consolidated statements of
operations based on the grant-date fair value of that award. That cost recognized at the
grant-date will be amortized in the consolidated statements of operations over the period during
which an employee is required to provide service in exchange for that award. SFAS No. 123(R) had
established an implementation date for non-small business issuers as the beginning of the first
interim or annual reporting period that begins after June 15, 2005. However, in April 2005 the
U.S. Securities and Exchange Commission ruled that filers did not need to comply with SFAS No.
123(R) until the beginning of the next fiscal year, which in the case of the Company, is the first
quarter of 2006. The Company does not plan early implementation of the provision of SFAS No.
123(R). The Company is still evaluating the impact of
SFAS No. 123(R) on the Company's consolidated financial
statements. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  an
amendment of APB Opinion No. 29. SFAS No. 153 amends APB No. 29 to require that assets exchanged
in a nonmonetary transaction are to be measured at fair value except for those exchanges of
nonmonetary assets that lack commercial substance. SFAS No. 153 is effective for nonmonetary asset
exchanges occurring in fiscal years beginning after June 15,
2005. The Company is still evaluating the impact of SFAS No. 153
on the Companys consolidated financial statements. 22




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In December 2004, the FASB issued FASB Staff Position 109-2 (FSP 109-2), providing guidance on the
application of SFAS No. 109, Accounting for Income Taxes, to a provision within the American Jobs
Creation Act of 2004 (the AJCA) related to a deduction for certain foreign earnings that are
repatriated. On October 22, 2004, the AJCA was signed into law. The AJCA includes a deduction of
85 percent of certain foreign earnings that are repatriated, defined in the AJCA. The AJCA could
potentially apply to repatriation of cumulative earnings by the Companys European sales
subsidiaries. The Company presently estimates that the potential amounts of unremitted earnings
being considered for repatriation could be in the range of $3 million to $5 million. However, the
Company has not yet begun its formal evaluation of the effect of the AJCA, and therefore the
Company has not yet determined (a) whether such earnings could actually be repatriated under
provisions of the AJCA, or (b) the range of income tax effects of such repatriation. The Company
expects to begin its evaluation of the potential application of the AJCA during the second half of
2005, with expected completion late in the same year. 
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk As of April 2, 2005, the Company had the following market risk sensitive instruments (in
thousands): Revolving credit loan with U.S. and Canadian banks, maturing in
December 2007, interest payable quarterly at a variable
rate (6.84% at the end of the quarter)
    
    $
    49,941Revolving credit loan with a bank in the United Kingdom,
matured in April 2005, and then was renewed until April 2006, interest payable monthly at a variable
rate (5.75% at the end of the quarter)
    
    
    1,601Total market-sensitive debt
    
    $
    51,542
 A 1% increase in the interest rates for our market-sensitive debt obligations would have increased
interest expense by $119,000 for the quarter based on the average outstanding borrowings under
these obligations. As of April 2, 2005, the Company also had intercompany accounts that eliminate in consolidation but
that are 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
    
    $U.S.($U.S. per unit of
    
    in thousandslocal currency)
    
    (reporting currency)Italy
    
    1.2893/Euro
    
    
    $  1,187Belgium
    
    1.2893/Euro
    
    
    1,164Australia
    
    0.7698/Dollar
    
    
    934France
    
    1.2893/Euro
    
    
    885Canada
    
    0.8232/Dollar
    
    
    239Netherlands
    
    1.2893/Euro
    
    
    182Sweden
    
    0.1406/Krona
    
    
    124Singapore
    
    0.6027/Dollar
    
    
    69Germany
    
    1.2893/Euro
    
    
    68United Kingdom
    
    1.8790/Pound
    
    
    55Total short-term due to parent
    
    
    
    
    $  4,907
 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 contracts:Continuing Operations:Euros (sell for U.S. dollars)
    
    2,275 Euros
    
    
    1.3057
    
    
    $
    37Australian dollars (sell for U.S. dollars)
    
    1,200 Dollars
    
    
    0.6918
    
    
    
    (93
    )$
    (56
    )Discontinued Operations:British Pounds (sell for Canadian dollars)
    
    1,075 Pound
    
    
    2.3241
    
    
    $
    (54
    )
 The Company enters into foreign currency forward contracts in order to mitigate the risks
associated with currency fluctuations on future cash flows. 23




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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 control over financial reporting and procedures are adequate to accomplish
their objective and are functioning effectively. During the three months ended April 2, 2005, there were no changes in our internal control over
financial reporting (as defined in Rule 13a  15(f) under the Exchange Act), except that the
Company implemented additional controls and procedures to address the material weaknesses that were
identified in managements annual report on the effectiveness of
internal control over financial reporting in the Companys
Annual Report on Form 10K/A Amendment No. 2 for the year ended December 31, 2004:  
    The Company expanded its procedures to identify, evaluate and
appropriately value all contractual deliverables, as well as to
provide for additional management review of certain contracts with
multiple deliverables;  
    The Company improved its procedures to revise standard prices for
purchased materials, and it implemented new procedures to revalue
inventory more frequently, and to provide for additional management
review of the accounting for purchase price variances for purchased
materials; and  
    The Company expanded its procedures to revalue the estimated future
revenues on long-term contracts denominated in a currency other than
the functional currency. 
 PART II OTHER INFORMATION 
 ITEM 6. 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 U.S. Revolving Credit Agreement, dated as of December 10, 2004, among the Company, the lenders
from time to time party thereto, and SunTrust Bank as Administrative Agent (incorporated by
reference to Exhibit 4.3 to the Companys Annual Report on Form 10-K/A Amendment No. 2 for the year
ended December 31, 2004). 4.2 Security Agreement, dated as of December 10, 2004, by the Company and certain of its
subsidiaries, in favor of SunTrust Bank as Collateral Agent (incorporated by reference to Exhibit
4.4 to the Companys Annual Report on Form 10-K/A Amendment No. 2 for the year ended December 31,
2004). 24




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4.3 Pledge Agreement, dated as of December 10, 2004, by the Company and certain of its
subsidiaries, in favor of SunTrust Bank as Collateral Agent (incorporated by reference to Exhibit
4.5 to the Companys Annual Report on Form 10-K/A Amendment No. 2 for the year ended December 31,
2004). 4.4 Form of Note issued by the Company in favor of the lenders under the U.S. Revolving Credit
Agreement, dated as of December 31, 2004 (incorporated by reference to Exhibit 4.6 to the Companys
Annual Report on Form
10-K/A Amendment No. 2 for the year ended December 31, 2004). 4.5 Amendment No. 1, dated February 11, 2005, to U.S. Revolving Credit Agreement (incorporated by
reference to Exhibit 4.7 to the Companys Annual Report on Form 10-K/A Amendment No. 2 for the year
ended December 31, 2004). 4.6 Canadian Revolving Credit Agreement, dated as of December 10, 2004, among EMS Technologies
Canada, Ltd., the Company, the lenders from time to time party thereto, and Bank of America,
National Association (Canada Branch) as Canadian Administrative Agent and Funding Agent
(incorporated by reference to Exhibit 4.8 to the Companys Annual Report on Form 10-K/A Amendment
No. 2 for the year ended December 31, 2004). 4.7 Canadian Security Agreement, dated as of December 10, 2004, by EMS Technologies Canada, Ltd.,
in favour of Bank of America, National Association (Canada Branch) as Canadian Collateral Agent
(incorporated by reference to Exhibit 4.9 to the Companys Annual Report on Form 10-K/A Amendment
No. 2 for the year ended December 31, 2004). 4.8 Deed of Movable Hypothec, dated as of December 10, 2004, by EMS Technologies Canada, Ltd., in
favour of Bank of America, National Association (Canada Branch) as Canadian Collateral Agent
(incorporated by reference to Exhibit 4.10 to the Companys Annual Report on Form 10-K/A Amendment
No. 2 for the year ended December 31, 2004). 4.9 Canadian Intellectual Property Security Agreement, dated as of December 10, 2004, by EMS
Technologies Canada, Ltd., in favour of Bank of America, National Association (Canada Branch) as
Canadian Collateral Agent (incorporated by reference to Exhibit 4.11 to the Companys Annual Report
on Form 10-K/A Amendment No. 2 for the year ended December 31, 2004). 4.10 Pledge Agreement, dated as of December 10, 2004, by the Company and certain of its domestic
subsidiaries in favour of Bank of America, National Association (Canada Branch) as Canadian
Collateral Agent (incorporated by reference to Exhibit 4.12 to the Companys Annual Report on Form
10-K/A Amendment No. 2 for the year ended December 31, 2004). 4.11 Trademark Security Agreement, dated as of December 10, 2004, by the Company and one of its
domestic subsidiaries in favour of Bank of America, National Association (Canada Branch) as
Canadian Collateral Agent (incorporated by reference to Exhibit 4.13 to the Companys Annual Report
on Form 10-K/A Amendment No. 2 for the year ended December 31, 2004). 4.12 Patent Security Agreement, dated as of December 10, 2004, by the Company and one of its
domestic subsidiaries in favour of Bank of America, National Association (Canada Branch) as
Canadian Collateral Agent (incorporated by reference to Exhibit 4.14 to the Companys Annual Report
on Form 10-K/A Amendment No. 2 for the year ended December 31, 2004). 4.13 Form of Note issued by the Company in favour of the lenders under the Canadian Revolving
Credit Agreement, dated as of December 31, 2004 (incorporated by reference to Exhibit 4.15 to the
Companys Annual Report on Form 10-K/A Amendment No. 2 for the year ended December 31, 2004). 4.14 Amendment No. 1, dated February 11, 2005, to Canadian Revolving Credit Agreement (incorporated
by reference to Exhibit 4.16 to the Companys Annual Report on Form 10-K/A Amendment No. 2 for the
year ended December 31, 2004). 25




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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 Certification of the Companys Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *   *
    
    Filed herewith 26




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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: May 17, 2005Alfred G. HansenPresident, Chief Executive Officer and Director (Principal ExecutiveOfficer)By:
    
    /s/ Don T. Scartz
    
    
    
    Date: May 17, 2005Don T. ScartzExecutive Vice President, Chief FinancialOfficer and Treasurer (Principal Financial and Accounting Officer)
 27